<PAGE>
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X]Preliminary Proxy Statement
[_]CONFIDENTIAL, FOR USE OF THE
[_]Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Sprint Corporation
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
PRELIMINARY COPY
[SPRINT LETTERHEAD]
June , 1998
Dear Stockholder:
On behalf of the Board of Directors and Management, I cordially invite you
to attend a Special Meeting of the stockholders of Sprint Corporation. The
Special Meeting will be held at 10:00 a.m. (local time) on , July
, 1998, at Sprint World Headquarters, 2330 Shawnee Mission Parkway,
Westwood, Kansas.
At this meeting, you will be asked to consider and approve a proposal (the
"Tracking Stock Proposal") involving (a) the creation of a new class of common
stock of Sprint (the "PCS Stock") in connection with the restructuring of
Sprint's wireless personal communications services operations (the "PCS
Restructuring") and (b) a tax-free recapitalization of Sprint's common stock
(the "Recapitalization"). In the PCS Restructuring, Sprint will become the
sole owner of certain joint ventures that offer wireless personal
communications services ("PCS") under the brand name Sprint PCS SM, by
acquiring the interests of its cable company partners, Tele-Communications,
Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox Communications, Inc.
("Cox," and together with TCI and Comcast, the "Cable Parents"), in these
joint ventures in exchange for shares of PCS Stock. The PCS Stock is intended
to reflect separately the performance of these operations, together with the
PCS business of SprintCom, Inc., a wholly-owned subsidiary of Sprint, and any
other future domestic wireless mobile telephony operations of Sprint or
operations using PCS licenses (the "PCS Group").
The Recapitalization will be effected by reclassifying each share of
Sprint's existing Common Stock into 1/2 share of PCS Stock and one share of a
newly created class of Sprint Common Stock (the "FON Stock" and together with
the PCS Stock, the "Tracking Stocks"). The FON Stock is intended to reflect
separately the performance of Sprint's other operations, including its long
distance and local telecommunications divisions, its product distribution and
directory publishing businesses, its emerging non-PCS businesses, its interest
in Global One and other telecommunications investments and alliances (the "FON
Group"). At the Special Meeting, stockholders will also be asked to vote on a
related proposal to amend certain existing equity-based employee incentive
plans to provide for incentives consisting of shares of PCS Stock or FON Stock
(the "Incentive Plans Proposal").
Sprint's Board of Directors has recommended that stockholders approve the
Tracking Stock Proposal for a number of reasons, including the following:
. Upon completion of the PCS Restructuring, Sprint will achieve its
strategic objective of obtaining integrated management control of the
only 100% digital PCS wireless network in the United States with
licenses to provide service nationwide utilizing a single frequency and
a single technology.
<PAGE>
. The creation of the PCS Stock will assist in meeting the capital
requirements of the PCS Group by creating an additional publicly-traded
equity security that can be used to raise capital (subject to certain
priorities to sell PCS Stock granted to the Cable Parents for a
specified period in connection with the PCS Restructuring) and can be
issued in connection with acquisitions and investments. Sprint plans to
complete an underwritten initial public offering of PCS Stock (the
"IPO") concurrently with the completion of the PCS Restructuring, with
proceeds to be allocated to the PCS Group.
. Sprint believes that the creation of the PCS Stock and the FON Stock,
reflecting the separate performance of the PCS Group and the FON Group,
respectively, should enhance stockholder value by increasing market
recognition of the value of Sprint and its individual lines of business
represented by the PCS Group and the FON Group.
. The Tracking Stocks will allow investors to invest in securities
intended to reflect the performance of the PCS Group, the FON Group, or
both, depending upon their investment objectives.
In addition, Sprint's Board of Directors has recommended that stockholders
approve the Incentive Plans Proposal which, in connection with the Tracking
Stock Proposal, will permit the use of more effective management incentive
approaches, with the ability to direct business-specific options and
securities to employees of each Group.
In connection with the transaction, France Telecom S.A. ("FT") and Deutsche
Telekom AG ("DT") have agreed to purchase shares of PCS Stock in connection
with the PCS Restructuring and the IPO so that they will maintain their
aggregate 20% voting power, and to modify their agreements with Sprint to
accommodate the Tracking Stock Proposal.
The shares of PCS Stock to be issued to the Cable Parents will, immediately
following the completion of the PCS Restructuring, represent 47% of the equity
value of Sprint attributable to the PCS Group (excluding the effect of the
IPO, the shares to be purchased by FT and DT and certain warrants and shares
of preferred stock that the Cable Parents will receive). In the opinion of
Salomon Smith Barney and SBC Warburg Dillon Read Inc., Sprint's financial
advisors in connection with the Tracking Stock Proposal, the consideration to
be paid by Sprint to the Cable Parents for their joint venture interests in
the PCS Restructuring is fair, from a financial point of view, to Sprint.
These opinions, which are included in an annex to the accompanying proxy
statement, are subject to important limitations and assumptions and should be
read in their entirety.
Upon completion of the PCS Restructuring and the planned concurrent IPO,
Sprint's Common Stock will remain outstanding and continue to trade on the New
York Stock Exchange until the Recapitalization, which Sprint intends to
complete 90-120 days after the PCS Restructuring and IPO. After the PCS
Restructuring and before the Recapitalization, the currently existing common
stock will continue to reflect Sprint's operations (other than the PCS Group)
as well as the equity value of Sprint attributable to the PCS Group that is
not sold to the public, the Cable Parents or FT and DT. Although Sprint
intends to complete the IPO concurrently with the PCS Restructuring, Sprint
may instead elect to complete the Recapitalization concurrently with the PCS
Restructuring, in which case Sprint would intend to complete the IPO within
90-120 days after the PCS Restructuring and the Recapitalization. In this
event, the FON Stock would be created concurrently with the PCS Restructuring.
The Tracking Stock Proposal will not result in a distribution or spin-off of
any assets or liabilities of Sprint or its subsidiaries. Holders of PCS Stock
and FON Stock will continue to be common stockholders of Sprint and, as such,
will be subject to all risks associated with an investment in Sprint and all
of its businesses, assets and liabilities. Sprint can provide no assurance as
to the degree to which the market price of the PCS Stock will reflect the
separate performance of the PCS Group, or as to the impact of the Tracking
Stock Proposal on the market price of Sprint's Common Stock (or, following the
Recapitalization, the market price of the FON Stock). In addition,
implementation of the Tracking Stock Proposal will make the capital structure
of Sprint more complex and may give rise to occasions when the interests of
the holders of FON Stock and the holders of PCS Stock may diverge or appear to
diverge.
2
<PAGE>
Sprint currently intends to pay a quarterly dividend of $0.25 per share on
the FON Stock, which is the current indicated dividend paid on Sprint's
existing Common Stock, but does not intend to pay dividends on the PCS Stock
in the foreseeable future.
Further details of the Tracking Stock Proposal are set forth in the
accompanying proxy statement. I urge you to read the entire proxy statement
carefully.
THE BOARD OF DIRECTORS, MANAGEMENT AND I BELIEVE THAT THESE PROPOSALS
PRESENT AN EXCITING OPPORTUNITY TO ENHANCE STOCKHOLDER VALUE, AND WE URGE YOU
TO VOTE IN FAVOR OF THESE PROPOSALS. I am pleased to inform you that FT and
DT, the holders of Sprint's Class A Common Stock representing approximately
20% of the outstanding voting power of Sprint, have agreed to vote their
shares in favor of the Tracking Stock Proposal and the Incentive Plans
Proposal. On behalf of the Board of Directors and Management, I thank you for
your cooperation and continued support.
Sincerely,
Chairman
3
<PAGE>
SPRINT CORPORATION
P.O. BOX 11315
KANSAS CITY, MISSOURI 64112
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY , 1998
----------------
TO THE STOCKHOLDERS OF SPRINT CORPORATION:
A Special Meeting of the Stockholders of Sprint Corporation ("Sprint") will
be held at Sprint World Headquarters, 2330 Shawnee Mission Parkway, Westwood,
Kansas on , July , 1998, at 10:00 a.m. (local time) to consider and
vote upon the following proposals relating to the restructuring of Sprint's
wireless PCS operations (the "PCS Restructuring") pursuant to the
Restructuring and Merger Agreement, dated as of May 26, 1998, among Sprint,
Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast"), Cox
Communications, Inc. ("Cox," and together with TCI and Comcast, the "Cable
Parents") and various subsidiaries of such parties (the "Restructuring
Agreement"):
1. To approve and adopt the following (the "Tracking Stock Proposal"):
(a) an amendment (the "PCS Stock Amendment") to the Restated Articles of
Incorporation of Sprint (the "Existing Articles") which would, among other
things:
(i) define the "PCS Group," which generally is intended to consist of
all business conducted by Sprint for offering or providing domestic
wireless mobile telephony services or any other domestic PCS services,
as well as all acquisitions of domestic PCS licenses, and will
initially include the operations of Sprint Spectrum Holdings, PhillieCo
and SprintCom (each as defined in the accompanying proxy statement);
(ii) define the "FON Group," which will generally consist of Sprint's
other operations, including its long distance and local
telecommunications divisions, its product distribution and directory
publishing businesses, its emerging non-PCS businesses, its interest in
the Global One international strategic alliance and other
telecommunications investments and alliances;
(iii) establish the terms of a new class of common stock of Sprint
designated "PCS Common Stock," $1.00 par value per share (the "PCS
Stock"), consisting of 2,350,000,000 authorized shares, to be divided
into three series: (A) PCS Common Stock--Series 1 ("Series 1 PCS
Stock"), entitling the holders thereof to a vote per share to be
adjusted prior to each stockholder vote as described in the
accompanying proxy statement, (B) PCS Common Stock--Series 2 ("Series 2
PCS Stock"), to be issued to certain subsidiaries of the Cable Parents
pursuant to the Restructuring Agreement, entitling the holders thereof
to a vote per share equal to 1/10th of the vote per share of the Series
1 PCS Stock, and (C) PCS Common Stock--Series 3 ("Series 3 PCS Stock"),
to be issued to France Telecom S.A. ("FT") and Deutsche Telekom AG
("DT"), entitling the holders thereof to the same vote per share as the
Series 1 PCS Stock;
(iv) establish the terms of a new class of preferred stock of Sprint
designated "Preferred Stock--Seventh Series, Convertible," no par value
(the "PCS Preferred Stock"), consisting of authorized shares,
convertible into shares of Series 1 PCS Stock or Series 2 PCS Stock as
described in the accompanying proxy statement;
(v) reclassify each outstanding share of Class A Common Stock of
Sprint, par value $2.50 per share (the "Existing Class A Common
Stock"), that is held by DT into one share of a new class of Common
Stock designated "Class A Common Stock--Series DT," $2.50 par value per
share ("DT Class A Stock"), consisting of 100,000,000 authorized
shares, entitling the holder thereof to the same vote per share as the
Existing Class A Common Stock; and
<PAGE>
(vi) establish the terms of a new class of Common Stock of Sprint
designated "Series 2 Common Stock," $2.50 par value per share (the
"Series 2 Common Stock"), which will only be issued if Sprint converts
the outstanding shares of PCS Stock into shares of Existing Common
Stock at a time when shares of Series 2 PCS Stock are outstanding, such
Series 2 Common Stock to consist of 500,000,000 authorized shares, each
to be identical to a share of Existing Common Stock except that such
share will entitle the holder thereof to a vote equal to 1/10th of the
vote per share of the Existing Common Stock;
(b) an additional amendment (the "Recapitalization Amendment," and
together with the PCS Stock Amendment, the "Articles Amendment") to the
Existing Articles which would, among other things:
(i) reclassify each outstanding share of Common Stock of Sprint, par
value $2.50 per share (the "Existing Common Stock"), into 1/2 share of
Series 1 PCS Stock and one share of a new class of Common Stock
intended to reflect separately the performance of the FON Group and
designated "FON Common Stock--Series 1," $2.00 par value per share (the
"Series 1 FON Stock"), consisting of 2,500,000,000 authorized shares,
entitling the holders thereof to one vote per share;
(ii) redesignate the authorized shares of Series 2 Common Stock as
"FON Common Stock--Series 2," $2.00 par value per share (the "Series 2
FON Stock," and, with the Series 1 FON Stock and the Series 3 FON
Stock, the "FON Stock") which will only be issued if Sprint converts
the outstanding shares of PCS Stock into shares of FON Stock at a time
when shares of Series 2 PCS Stock are outstanding, with each share
identical to a share of Series 2 Common Stock; and
(iii) reclassify each authorized share of Existing Class A Common
Stock and DT Class A Common Stock so that each such share will, among
other things, represent a right to cause Sprint to issue, to each
holder thereof or certain designated transferees of such holder, a
number of shares of Series 1 FON Stock, Series 3 FON Stock, Series 1
PCS Stock or Series 3 PCS Stock, but only to the extent such shares of
Existing Class A Common Stock or DT Class A Stock, as the case may be,
represent a number of unissued shares of FON Stock or PCS Stock, as
applicable, each share entitling the holder thereof to a vote per share
equivalent to the number of votes that the share(s) of FON Stock and
PCS Stock represented by such share would be entitled to receive (plus,
in certain cases, an increased voting power resulting from certain
anti-dilution protections);
(c) the Restructuring Agreement and the performance by Sprint of all
obligations of Sprint contemplated under the Restructuring Agreement,
including, among other things:
(i) Sprint's acquisition from the Cable Parents of their respective
interests in Sprint Spectrum Holding Company, L.P. and MinorCo, L.P.
(together with their subsidiaries, including Sprint Spectrum L.P.,
"Sprint Spectrum Holdings") by means of tax-free mergers of newly
formed, wholly-owned subsidiaries of Sprint with and into the corporate
subsidiaries of the Cable Parents that directly or indirectly own their
respective interests in Sprint Spectrum Holdings; and
(ii) Sprint's acquisition from TCI and Cox of their respective
interests in PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P.
(together, "PhillieCo") by means of tax-free mergers of newly formed,
wholly-owned subsidiaries of Sprint with and into the corporate
subsidiaries of TCI and Cox that directly or indirectly own their
respective interests in PhillieCo;
(d) the following issuances by Sprint:
(i) the issuance of shares of Series 2 PCS Stock and warrants (the
"Warrants") to acquire shares of PCS Stock to certain subsidiaries of
the Cable Parents as consideration for the acquisition of the interests
in Sprint Spectrum Holdings and PhillieCo acquired from such
subsidiaries of the Cable Parents in the PCS Restructuring;
(ii) the issuance of Series 1 PCS Stock in an underwritten initial
public offering as described in the accompanying proxy statement;
(iii) the issuance of shares of PCS Preferred Stock to the Cable
Parents to purchase up to $240 million of indebtedness advanced by the
Cable Parents to fund the operations of Sprint Spectrum Holdings
between May 26, 1998 and the closing of the PCS Restructuring, which
shares of PCS
2
<PAGE>
Preferred Stock may be issued directly for the purchase of such
indebtedness or as consideration in the PCS Restructuring with respect
to any of such indebtedness as is capitalized by the Cable Parents
before the closing of the PCS Restructuring;
(iv) the issuance of Series 3 PCS Stock to FT and DT upon the
exercise by FT and DT of their rights to purchase shares to maintain
their specified ownership level or voting power (as to any stockholder
generally, "Equity Purchase Rights") in connection with the PCS
Restructuring and the issuance of Series 3 PCS Stock or Series 3 FON
Stock to FT and DT from time to time in the future pursuant to their
exercise of such Equity Purchase Rights; and
(v) the issuance of PCS Stock to FT and DT and the Cable Parents (if
so elected by the Cable Parents) upon the exercise of their respective
Equity Purchase Rights in connection with the IPO and (subject to
certain exceptions) any future issuances of PCS Stock or creation of an
Inter-Group Interest; and
(e) the creation pursuant to the Restructuring Agreement of Inter-Group
Interests of the FON Group in the PCS Group that will have terms equivalent
to the Warrants and the PCS Preferred Stock, respectively (the "Warrant
Inter-Group Interest" and "Preferred Inter-Group Interest," respectively).
2. To approve amendments to certain of Sprint's equity-based incentive plans
(the "Incentive Plans Proposal") that, among other things, (i) authorize
stock-based awards with respect to 10,000,000 shares of Series 1 PCS Stock to
replace the Sprint Spectrum L.P. Long-Term Incentive Compensation Plan and
(ii) permit non-employee Directors to participate with Sprint employees under
the 1997 Long-Term Stock Incentive Program.
The close of business on , 1998 has been designated as the record date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
By order of the Board of Directors
Don A. Jensen
Vice President and Secretary
Westwood, Kansas
, 1998
YOUR VOTE IS IMPORTANT
We consider the vote of each stockholder important, whatever the number of
shares held. Whether or not you plan to attend the meeting in person, please
sign, date and return your proxy in the enclosed envelope at your earliest
convenience. The affirmative vote of a majority of the outstanding shares of
Sprint Voting Stock (defined in the accompanying proxy statement), voting
together as a single class, the affirmative vote of a majority of the
outstanding shares of Existing Common Stock, voting as a separate class, and
the affirmative vote of a majority of the outstanding shares of Existing
Class A Common Stock, voting as a separate class, are necessary for the
approval of the Tracking Stock Proposal. The affirmative vote of a majority
of the outstanding shares of Sprint Voting Stock present in person or voting
by proxy is necessary for approval of the Incentive Plans Proposal. FT and
DT, the holders of Sprint's Existing Class A Common Stock representing
approximately 20% of the outstanding voting power of Sprint, have agreed to
vote their shares in favor of the Tracking Stock Proposal and the Incentive
Plans Proposal. The prompt return of your proxy will save expense to your
company.
THE BOARD OF DIRECTORS REQUESTS THAT YOU PROMPTLY
COMPLETE, EXECUTE AND RETURN THE ACCOMPANYING PROXY.
3
<PAGE>
PRELIMINARY COPY
SPRINT CORPORATION
P.O. BOX 11315
KANSAS CITY, MISSOURI 64112
---------------------------------------------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY , 1998
---------------------------------------------------------------
THIS PROXY STATEMENT IS BEING MAILED TO
STOCKHOLDERS ON , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
QUESTIONS AND ANSWERS RELATING TO THE SPECIAL MEETING................... 1
COMMON STOCK CAPITAL STRUCTURE.......................................... 5
PROXY STATEMENT SUMMARY................................................. 6
RISK FACTORS--THE TRACKING STOCK PROPOSAL............................... 39
RISK FACTORS--THE PCS GROUP............................................. 47
MARKET PRICE OF AND DIVIDENDS ON EXISTING COMMON STOCK.................. 51
THE SPECIAL MEETING..................................................... 52
THE TRACKING STOCK PROPOSAL............................................. 55
DESCRIPTION OF CAPITAL STOCK............................................ 95
FUTURE INTER-GROUP INTEREST............................................. 121
ANTI-TAKEOVER CONSIDERATIONS............................................ 122
FT AND DT ARRANGEMENTS.................................................. 125
INCENTIVE PLANS PROPOSAL................................................ 141
EXECUTIVE OFFICERS AND DIRECTORS OF SPRINT.............................. 148
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 151
EXECUTIVE COMPENSATION.................................................. 152
INDEPENDENT AUDITORS.................................................... 161
STOCKHOLDER PROPOSALS................................................... 162
AVAILABLE INFORMATION................................................... 162
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................... 163
GLOSSARY................................................................ G-1
INDEX OF DEFINED TERMS.................................................. G-19
ANNEX I -- SPRINT CONSOLIDATED FINANCIAL INFORMATION.................... I-1
Selected Financial Data............................................... I-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ I-3
Financial Statements and Notes Thereto................................ I-20
Unaudited Pro Forma Condensed Combined Financial Statements........... I-40
ANNEX II -- PCS GROUP INFORMATION....................................... II-1
Business.............................................................. II-1
Historical PCS Group Selected Financial Data.......................... II-15
Historical Supplemental Financial and Other Data on Sprint Spectrum,
APC, Cox PCS, PhillieCo, and SprintCom on a Combined Basis........... II-16
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ II-17
PCS Group Financial Statements and Notes Thereto...................... II-23
Sprint Spectrum Holding Company Combined With MinorCo and PhillieCo
Selected Financial Data.............................................. II-33
Sprint Spectrum Holding Company Combined With MinorCo and PhillieCo
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ II-34
Sprint Spectrum Holding Company Combined With MinorCo and PhillieCo
Financial Statements and Notes Thereto............................... II-43
PCS Group Unaudited Pro Forma Condensed Combined Financial Statements. II-66
ANNEX III -- FON GROUP INFORMATION...................................... III-1
Business.............................................................. III-1
Selected Financial Data............................................... III-10
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ III-11
Financial Statements and Notes Thereto................................ III-30
ANNEX IV -- PROPOSED AMENDED AND RESTATED ARTICLES OF INCORPORATION..... IV-1
ANNEX V -- THE RESTRUCTURING AGREEMENT.................................. V-1
ANNEX VI -- THE TAX SHARING AGREEMENT................................... VI-1
ANNEX VII -- AMENDED INCENTIVE PLANS.................................... VII-1
ANNEX VIII -- OPINIONS OF FINANCIAL ADVISORS............................ VIII-1
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS
RELATING TO THE SPECIAL MEETING
Q: WHY AM I RECEIVING THIS PROXY STATEMENT?
A: Sprint is sending this Proxy Statement to you in connection with a special
meeting of the stockholders of Sprint at which the stockholders will be
asked to consider and approve a proposal (the "Tracking Stock Proposal")
that would, among other things:
1. Create a class of common stock intended to separately reflect the
performance of Sprint's wireless personal communications services
("PCS") operations and create a separate class of common stock intended
to separately reflect the performance of all of Sprint's other
operations (including long distance and local telephone services). These
stocks are referred to herein as the "Tracking Stocks."
2. Enable Sprint to own and control 100% of the nationwide PCS network
operating under the Sprint brand name (subject to a 40.8% minority
interest in the entity holding the PCS license for and conducting
operations in the Los Angeles/San Diego/Las Vegas MTA) by acquiring the
remaining interests in certain joint ventures from its partners TCI,
Comcast and Cox (the "Cable Parents").
At the special meeting, you are also being asked to vote on a related
proposal to amend certain existing employee stock plans (the "Incentive
Plans Proposal") in connection with the Tracking Stock Proposal. The Sprint
Board is seeking your proxy to vote in favor of the Tracking Stock Proposal
and the Incentive Plans Proposal.
Q: WHAT IS A TRACKING STOCK?
A: A tracking stock is common stock of a corporation, in this case Sprint,
which is intended to "track" the performance of a group of assets or a
subsidiary. Under the Tracking Stock Proposal, Sprint would, among other
things, create two classes of Tracking Stock, the PCS Stock and the FON
Stock.
. The PCS Stock is intended to reflect the separate performance of
Sprint's PCS operations (the "PCS Group"), which generally is intended
to consist of all of Sprint's domestic wireless mobile telephony
operations or other operations using PCS licenses, and will initially
include the operations of (i) Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P., together with their subsidiaries, including Sprint
Spectrum L.P. ("Sprint Spectrum") and American PCS, L.P. and its
subsidiaries ("APC"), as well as a 59.2% interest in Cox Communications
PCS, L.P. and its subsidiaries ("Cox PCS") (collectively, "Sprint
Spectrum Holdings"); (ii) PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P., together with their subsidiaries (collectively,
"PhillieCo"); and (iii) SprintCom, Inc. and SprintCom Equipment Company,
L.P. (collectively, "SprintCom").
. The FON Stock is intended to reflect the separate performance of all of
Sprint's other operations (the "FON Group"), including its long distance
and local telecommunications divisions, its product distribution and
directory publishing businesses, its emerging non-PCS businesses, its
interest in Global One and other telecommunications investments and
alliances.
There can be no assurance that the public markets will treat the Tracking
Stocks as in fact reflecting the performance of these businesses.
Q: WHAT IS THE PURPOSE OF THE TRACKING STOCK PROPOSAL?
A: Implementing the Tracking Stock Proposal will enable Sprint to achieve its
strategic objective of obtaining integrated management control of the
operations and buildout of the only 100% digital PCS wireless network in
the United States with licenses to provide service nationwide utilizing a
single frequency and a single technology. In addition, the creation of the
PCS Stock will assist in meeting the capital requirements of the PCS Group
by creating an additional publicly-traded equity security that can be used
to raise capital (subject to certain priorities to sell PCS Stock granted
to the Cable Parents for a specified period in connection with the PCS
Restructuring) and can be issued in connection with acquisitions and
investments. Further, the Tracking Stocks are intended to reflect the
separate performance of the PCS Group and the FON Group, which Sprint
believes should increase market recognition of the value of Sprint and its
individual lines of business reflected by the Tracking Stocks.
1
<PAGE>
Q: WHAT IS THE PURPOSE OF THE INCENTIVE PLANS PROPOSAL?
A: The Incentive Plans Proposal will, among other things, replace Sprint
Spectrum's current incentive compensation plan with a plan that permits
awards of PCS Stock and options to purchase PCS Stock. Implementing the
Incentive Plans Proposal will enable Sprint to create more effective
management incentive approaches by having the ability to direct business-
specific options, securities and other incentive awards to employees using
a class of stock (either PCS Stock or FON Stock) that reflects the
performance of a particular Group (either the PCS Group or the FON Group).
In addition, non-employee directors will be authorized to participate in
the same manner as Sprint employees in certain incentive programs.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE TRACKING STOCK PROPOSAL AND THE
INCENTIVE PLANS PROPOSAL?
A: The approval of the Tracking Stock Proposal requires the affirmative vote
of the holders of a majority of the outstanding voting power of each of the
following voting groups:
. the outstanding shares of Sprint voting stock, voting together as a
single class;
. the outstanding shares of publicly-traded Common Stock, voting as a
separate class; and
. the outstanding shares of Class A Common Stock, voting as a separate
class.
The approval of the Incentive Plans Proposal requires the affirmative vote
of the holders of a majority of the shares of Sprint voting stock present
in person or voting by proxy.
France Telecom S.A. ("FT") and Deutsche Telekom AG ("DT"), the holders of
Sprint's Class A Common Stock representing approximately 20% of the
outstanding voting power of Sprint, have agreed to vote their shares in
favor of the Tracking Stock Proposal and the Incentive Plans Proposal.
Q: WHAT DOES THE SPRINT BOARD RECOMMEND?
A: The Sprint Board has approved each proposal, and recommends that you vote
"FOR" the Tracking Stock Proposal and the Incentive Plans Proposal.
Q: WHEN AND WHERE WILL THE SPECIAL MEETING BE HELD?
A: The special meeting will be held on July , 1998, at 10:00 a.m. (local
time) at Sprint World Headquarters, 2330 Shawnee Mission Parkway, Westwood,
Kansas.
Q: WHAT DO I NEED TO DO NOW?
A: Please read the Proxy Statement. Whether or not you plan to attend the
special meeting, mail in your signed proxy card in the enclosed return
envelope as soon as possible, so that you can be sure that your shares will
be represented at the special meeting.
Q: WHAT HAPPENS AFTER THE PROPOSALS ARE APPROVED?
A: If the proposals are approved, Sprint intends to complete the following:
. The "PCS Restructuring." Sprint will create the PCS Group and the FON
Group and acquire the Cable Parents' 60% interest in Sprint Spectrum
Holdings and the 53% interest of TCI and Cox in PhillieCo in exchange
for (i) shares of low-vote PCS Stock and warrants to acquire additional
shares of PCS Stock representing a total of approximately 47% of the
pre-IPO equity value of Sprint attributable to the PCS Group and (ii)
under certain circumstances, shares of PCS Preferred Stock.
. The "IPO." Sprint will, subject to prevailing market and other
conditions, offer and sell full vote PCS Stock in a public offering for
cash and allocate the net proceeds to the PCS Group.
. The "Recapitalization." Sprint will convert each share of its publicly-
traded Common Stock into one share of FON Stock and 1/2 share of PCS
Stock. The Class A Common Stock will not be converted but
2
<PAGE>
will thereafter represent a certain number of unissued shares of Series
3 FON Stock and a certain number of unissued shares of Series 3 PCS
Stock, the aggregate number of such unissued shares to be determined on
an equivalent basis to the conversion of the publicly-traded Common
Stock.
. Arrangements with FT and DT. In connection with the PCS Restructuring
and the IPO, FT and DT will purchase additional shares of PCS Stock so
that they maintain their current 20% voting power in Sprint. Sprint, FT
and DT have agreed to make modifications to Sprint's agreements with FT
and DT to accommodate the Tracking Stock Proposal.
. Other Issuances of PCS Stock. The Cable Parents may, but are not
required to, purchase additional shares of low-vote PCS Stock in
connection with the IPO.
. The "Incentive Plans Amendments." Concurrent with the PCS Restructuring,
Sprint will adopt certain amendments to its equity-based incentive
plans, together with other amendments adopted by the Sprint Board, to
take into account the Recapitalization.
Q: WHEN WILL ALL OF THIS TAKE PLACE?
A: As soon as practicable after stockholder approval, Sprint will complete the
PCS Restructuring, together with either the IPO or the Recapitalization.
Sprint expects that the IPO will be completed at the time of the PCS
Restructuring, in which case the Recapitalization would occur 90-120 days
later. However, Sprint may decide, based on prevailing market conditions or
other reasons, to defer the IPO and instead complete the Recapitalization
at the time of the PCS Restructuring. If Sprint defers the IPO, Sprint
intends to complete it within 90-120 days after the PCS Restructuring,
although there can be no assurance that the IPO will be completed.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES?
A: No. If the Tracking Stock Proposal is approved, then in the
Recapitalization, each of your shares of existing common stock will be
automatically converted into one share of FON Stock and 1/2 share of PCS
Stock.
In connection with this conversion, the stock certificate representing your
shares of existing common stock will represent ownership of the same number
of shares of FON Stock. Sprint will send to you your certificates for PCS
Stock.
Q: HOW AND WHEN DO I RECEIVE MY CERTIFICATES FOR THE PCS STOCK?
A: You do not need to do anything to receive your certificates for the PCS
Stock. If all the transactions take place as planned, certificates
representing whole shares of PCS Stock (and cash for any fractional shares)
will be mailed to you at the time of the Recapitalization.
Please note, if Sprint completes the IPO before the Recapitalization (as is
currently expected), there will be a public market for the PCS Stock.
However, as an existing Sprint stockholder, you will not receive shares of
PCS Stock until the Recapitalization, which is expected to occur 90-120
days after the IPO.
Q: WILL THE TRACKING STOCK PROPOSAL RESULT IN A CHANGE IN CONTROL OF SPRINT?
A: No. There will be no change in control of Sprint as a result of the
approval of the Tracking Stock Proposal. The Tracking Stocks will be held
by the public, the Cable Parents and Sprint's current holders of Class A
Common Stock, FT and DT. Currently, FT and DT together own 20% of the
outstanding voting power of Sprint and will have the right to maintain
their ownership not in excess of 20% (or 30% after July 31, 2010) of the
voting power represented by Sprint's combined classes of Common Stock.
The Cable Parents will become significant stockholders of Sprint through
their ownership of PCS Stock. However, because they will receive a special
series of low voting PCS Stock in the PCS Restructuring (with each share
carrying 1/10th of the vote of a share of Series 1 PCS Stock), it is
anticipated that, together, they
3
<PAGE>
will control less than 5% of the combined votes of the outstanding Sprint
voting stock. The Cable Parents will also be limited in their ability to
acquire additional shares of the Tracking Stocks.
Q: WILL THE TRACKING STOCK PROPOSAL RESULT IN A SPIN-OFF?
A: No. The Tracking Stock Proposal will not result in a distribution or spin-
off of any assets or liabilities of Sprint or its subsidiaries. Holders of
PCS Stock and FON Stock will continue to be common stockholders of Sprint
and, as such, will be subject to all risks associated with an investment in
Sprint and all of its businesses, assets and liabilities.
Q: WHAT ARE THE TAX CONSEQUENCES TO ME?
A: Based upon the facts and the law at the time of the signing of the
Restructuring Agreement, Sprint has received an opinion from its outside
legal advisors that, except for any cash received for fractional shares,
the reclassification of the stock of Sprint into various classes of
Tracking Stock will, for federal income tax purposes, be tax-free to you.
For federal tax purposes, cash received for fractional shares will likely
result in recognition of gain or loss. You should consult a tax advisor.
Q: WILL THE TRACKING STOCKS BE LISTED ON THE NEW YORK STOCK EXCHANGE?
A: Yes. Until the Recapitalization, Sprint's existing publicly-traded Common
Stock will continue to be traded on the NYSE under the symbol "FON," which
will be the same symbol under which the FON Stock will trade after the
Recapitalization. Sprint expects that the PCS Stock will be traded on the
NYSE under the symbol "PCS" after the IPO or the Recapitalization,
whichever occurs first.
Q: WHAT VOTING RIGHTS WILL I HAVE AFTER THE RECAPITALIZATION?
A: Each share of FON Stock will entitle you to one vote. The voting power of
each share of PCS Stock will fluctuate depending on the public market value
of the PCS Stock compared to the FON Stock. Each share of PCS Stock that
you receive will be entitled to a number of votes equal to the ratio of (i)
the price of one share of PCS Stock to (ii) the price of one share of FON
Stock. These prices will be calculated using an average over the 20 trading
days ending 10 trading days before the record date for any stockholder
vote.
All classes and series of FON Stock and PCS Stock and any Preferred Stock
then outstanding and entitled to vote will vote together as a single class
except in certain limited circumstances under which the holders of FON
Stock or PCS Stock (and, in each case, Class A Common Stock to the extent
it represents unissued shares of either FON Stock or PCS Stock) will have
rights to vote as a separate class, including (i) to approve certain
changes to the Restated Articles of Incorporation that change the aggregate
number of shares of stock of the class, that alter the par value of the
shares of stock of the class or that adversely affect the rights of the
class, and (ii) in the case of the PCS Stock (and Class A Common Stock to
the extent it represents unissued shares of PCS Stock), to (A) approve a
spin-off of the PCS Group within two years of the closing of the PCS
Restructuring and (B) amend a provision of Sprint's bylaws to the Tracking
Stocks.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: After the Recapitalization, Sprint currently intends to pay a quarterly
dividend of $0.25 per share on the FON Stock, which is the current
indicated dividend paid on Sprint's existing Common Stock. The Sprint Board
does not anticipate paying dividends on the PCS Stock in the foreseeable
future.
Q: WHAT SHOULD I DO IF I HAVE ADDITIONAL QUESTIONS?
A: If you have any questions prior to the special meeting, please call
Sprint's Information Agent, D.F. King & Co., Inc., 1-800 - OR
(212) .
4
<PAGE>
DESCRIPTION OF
COMMON STOCK CAPITAL STRUCTURE
(Chart representing Common Stock capital structure
before giving effect to the Restructuring)
(Chart representing Common Stock capital structure
after giving effect to the Restructuring and IPO -
before the Recapitalization)
(Chart representing Common Stock capital structure
after transactions are completed)
5
<PAGE>
PROXY STATEMENT SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement, including the Glossary and the Annexes hereto (collectively,
the "Proxy Statement"), or incorporated by reference herein. The term "PCS
Group" as used herein, unless otherwise stated, refers to the entities,
businesses, and interests that will comprise the PCS Group (as further defined
in the Glossary) if the Tracking Stock Proposal is implemented. Unless the
context otherwise indicates, references herein to the Series 1 FON Stock also
refer to the Existing Common Stock before the creation of the Series 1 FON
Stock pursuant to the Recapitalization. Reference is made to, and this Summary
is qualified in its entirety by, the more detailed information contained herein
and incorporated by reference herein. Stockholders of Sprint are urged to read
this Proxy Statement and the documents incorporated herein by reference in
their entirety. Capitalized terms not defined herein have the meanings ascribed
to them in the Glossary which appears immediately before the Annexes.
GENERAL
Stockholders are being asked to vote upon and approve the Tracking Stock
Proposal to create two new classes of common stock, each intended to reflect
separately the performance of certain of Sprint's business operations, in
connection with the restructuring of Sprint's domestic wireless mobile
telephony operations (the "PCS Restructuring") pursuant to the Restructuring
and Merger Agreement, dated as of May 26, 1998, among Sprint, Tele-
Communications, Inc. ("TCI"), Comcast Corporation ("Comcast"), Cox
Communications, Inc. ("Cox," and together with TCI and Comcast, the "Cable
Parents") and various subsidiaries of such parties (the "Restructuring
Agreement"). The Cable Parents and Sprint are referred to herein as the
"Parents." In connection with the Tracking Stock Proposal, stockholders are
also being asked to vote upon and approve the Incentive Plans Proposal.
THE PCS GROUP
The PCS Group, which markets its products and services under the Sprint(R)
and Sprint PCSSM brand names, is the only 100% digital provider of PCS in the
United States with licenses to provide service nationwide utilizing a single
frequency and a single technology. The PCS Group owns licenses to provide
service to the entire United States population, including Puerto Rico and the
U.S. Virgin Islands. See "ANNEX II--PCS Group Information."
6
<PAGE>
The PCS Group initially will consist of (i) Sprint Spectrum Holding Company,
L.P. and MinorCo, L.P., together with their subsidiaries, including Sprint
Spectrum L.P. ("Sprint Spectrum") and American PCS, L.P. and its subsidiaries
("APC"), as well as a 59.2% interest in Cox Communications PCS, L.P. and its
subsidiaries ("Cox PCS") (collectively, "Sprint Spectrum Holdings"); (ii)
PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P., together with their
subsidiaries (collectively, "PhillieCo"); and (iii) SprintCom, Inc. and
SprintCom Equipment Company, L.P. (collectively, "SprintCom"). Certain
information, including the number of Pops covered by licenses held by the PCS
Group, is set forth in the chart below:
PCS GROUP LICENSE COVERAGE
<TABLE>
<CAPTION>
SPRINT OWNERSHIP
----------------
BEFORE PCS AFTER PCS
ENTITY POPS (/1/) RESTRUCTURING RESTRUCTURING LICENSES
- ------ ------------- ------------- ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Sprint Spectrum......... 155.9 40.0% 100.0% 30 MTAs
Cox PCS(/2/)............ 21.0 23.7 59.2 Los Angeles-San Diego-Las Vegas MTA
APC..................... 8.3 40.0 100.0 Washington D.C.-Baltimore MTA
PhillieCo............... 9.2 47.1 100.0 Philadelphia MTA
SprintCom............... 74.9 100.0 100.0 139 BTAs
-----
269.3
=====
</TABLE>
- --------
(1) Based upon 1997 population data supplied by Equifax Inc.
(2) Sprint Spectrum Holdings expects to increase its interest in Cox PCS from
49.0% to 59.2% by the end of June 1998. Pops data for Cox PCS includes 100%
of its Pops, not the PCS Group's proportional interest.
The Sprint Board of Directors of Sprint (the "Sprint Board") has adopted
policies (the "Tracking Stock Policies") providing, among other things, that
any business conducted by Sprint for offering or providing Domestic Wireless
Mobile Telephony Services and any other Domestic PCS Services, and all
acquisitions of Domestic PCS licenses will be allocated to the PCS Group. In
the future, the Sprint Board may in its discretion allocate additional
businesses, assets or liabilities to the PCS Group, or dispose of or transfer
businesses, assets or liabilities from the PCS Group, subject to the Tracking
Stock Policies. See "Tracking Stock Proposal--Tracking Stock Policies."
THE FON GROUP
The principal activities of the FON Group will initially include (i) the FON
Group's core businesses, consisting of its long distance service, local
service, product distribution and directory publishing activities, (ii) the FON
Group's emerging non-PCS businesses, which consist of the development of
integrated communications services, consumer Internet access services,
integration management and support services for computer networks ("Sprint
Paranet") and international development activities outside the scope of Global
One ("Sprint International"), (iii) Sprint's interest in the Global One
international strategic alliance and (iv) Sprint's other telecommunications
investments and alliances.
Sprint's long distance division ("LDD") is the nation's third-largest
provider of long distance telephone services. It operates a nationwide, all-
digital, long distance telecommunications network that uses state-of-the-art
fiber-optic and electronic technology. Sprint's local telecommunications
division ("LTD") consists primarily of regulated LECs serving approximately
7.5 million access lines in 19 states. LTD provides local services and access
by telephone customers and other carriers to LTD's local exchange facilities
and sells telecommunications equipment and long distance services within
specified geographical areas. See "Annex III--FON Group Information."
7
<PAGE>
THE SPECIAL MEETING
General; Time and Place of This Proxy Statement is being furnished to the
Meeting..................... stockholders of Sprint in connection with the
solicitation of proxies by the Sprint Board for
use at a Special Meeting of Stockholders of
Sprint to be held at Sprint World Headquarters,
2330 Shawnee Mission Parkway, Westwood, Kansas,
on , July , 1998, at 10:00 a.m. (local
time) and at any and all adjournments or
postponements thereof (the "Special Meeting").
Record Date................. The Sprint Board has fixed the close of business
on , 1998, as the record date (the "Record
Date") for the determination of stockholders
entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements
thereof.
Mailing Date................ This Proxy Statement and a form of proxy are
first being mailed on or about , 1998, to
stockholders of record at the close of business
on the Record Date.
Vote Required............... The affirmative vote of a majority of the
outstanding shares of Sprint's Common Stock, par
value $2.50 per share (the "Existing Common
Stock"), Sprint Class A Common Stock, par value
$2.50 per share (the "Existing Class A Common
Stock"), Sprint Preferred Stock--First Series,
Convertible, Sprint Preferred Stock--Second
Series, Convertible and Sprint Preferred Stock--
Fifth Series (such preferred stock, together with
the Existing Common Stock and the Class A Common
Stock, the "Sprint Voting Stock"), voting
together as a single class, the affirmative vote
of a majority of the outstanding shares of
Existing Common Stock, voting as a separate
class, and the affirmative vote of a majority of
the outstanding shares of Existing Class A Common
Stock, voting as a separate class, are necessary
for the approval of the Tracking Stock Proposal.
The affirmative vote of a majority of the
outstanding shares of Sprint Voting Stock present
in person or voting by proxy is necessary for
approval of the Incentive Plans Proposal. FT and
DT, the holders of Sprint's Existing Class A
Common Stock representing approximately 20% of
the outstanding voting power of Sprint, have
agreed to vote their shares in favor of the
Tracking Stock Proposal and the Incentive Plans
Proposal. See "The Special Meeting--Votes
Required; Quorum; Absence of Dissenters' Rights."
THE TRACKING STOCK PROPOSAL
The Restructuring As part of the Tracking Stock Proposal,
Agreement................... stockholders are being asked to approve the
Restructuring Agreement and the performance by
Sprint of all obligations on the part of Sprint
contemplated under the Restructuring Agreement,
including, among other things:
The Articles Amendments.... An Amendment (the "PCS Stock Amendment") to
Sprint's current Restated Articles of
Incorporation (the "Existing Articles") that will
create the FON Group, the PCS Group and a new
class of Sprint common stock intended to reflect
separately the performance of the
8
<PAGE>
PCS Group (the "PCS Stock"), and another
amendment (the "Recapitalization Amendment" and,
together with the PCS Stock Amendment, the
"Articles Amendment") that will create a new
class of Sprint common stock intended to reflect
separately the performance of the FON Group (the
"FON Stock") and effect the Recapitalization (as
defined below). The PCS Stock will be comprised
of three series: PCS Common Stock-- Series 1, par
value $1.00 per share ("Series 1 PCS Stock"), PCS
Common Stock--Series 2, par value $1.00 per share
("Series 2 PCS Stock"), and PCS Common Stock--
Series 3, par value $1.00 per share ("Series 3
PCS Stock"). The FON Stock will also be comprised
of three series: FON Common Stock--Series 1, par
value $2.00 per share ("Series 1 FON Stock"), FON
Common Stock--Series 2, par value $2.00 per share
("Series 2 FON Stock"), and FON Common Stock--
Series 3, par value $2.00 per share ("Series 3
FON Stock").
The PCS Restructuring...... Sprint's acquisition from TCI, Comcast and Cox of
their respective interests in Sprint Spectrum
Holdings and from TCI and Cox of their respective
interests in PhillieCo in exchange for the
issuance to subsidiaries of TCI, Comcast and Cox
of (i) shares of a special low-voting series of
PCS Stock, (ii) warrants (the "Warrants") to
acquire shares of PCS Stock representing an
aggregate Initial PCS Group Percentage Interest
of 2.83019% and (iii) under certain
circumstances, shares of a new class of preferred
stock of Sprint "designated "Preferred Stock--
Seventh Series, Convertible" (the "PCS Preferred
Stock").
The IPO.................... The issuance of Series 1 PCS Stock in an
underwritten initial public offering (the "IPO")
for net proceeds of between $500 million and $525
million, with additional sales of between $75
million and $80 million to cover over-allotments,
if any (or larger amounts under certain
circumstances). See "The Tracking Stock
Proposal--The IPO." The proceeds of the IPO
(together with additional proceeds generated as a
result of the exercise by FT and DT and, if
exercised, by the Cable Parents, of their rights
to purchase shares to maintain their specified
voting power or ownership level (as to any
stockholder generally, "Equity Purchase Rights")
will be allocated to the PCS Group to fund
operating losses and capital expenditures.
PCS Preferred Stock........ The purchase, upon completion of the PCS
Restructuring, for cash and/or shares of PCS
Preferred Stock, of certain indebtedness of the
PCS Group up to an aggregate maximum amount of
$240 million advanced by the Cable Parents to
finance the operations of Sprint Spectrum
Holdings.
Preferred Inter-Group The purchase, upon completion of the PCS
Interest.................... Restructuring, of certain inter-Group
indebtedness of the PCS Group to the FON Group up
to an aggregate maximum amount of $270.6 million
relating to certain loans advanced by Sprint or
its Affiliates to finance the operations of
Sprint Spectrum Holdings and SprintCom, which
repayment shall be made by an allocation of cash
from the PCS Group to the FON
9
<PAGE>
Group and/or the creation of an Inter-Group
Interest of the FON Group in the PCS Group that
will have terms equivalent to the PCS Preferred
Stock (the "Preferred Inter-Group Interest").
Warrant Inter-Group The creation of an Inter-Group Interest of the
Interest.................... FON Group in the PCS Group that will have terms
equivalent to the Warrants (the "Warrant Inter-
Group Interest"), representing an Initial PCS
Group Percentage Interest of 2.83019%.
The Recapitalization........ As part of the Tracking Stock Proposal,
stockholders are also being asked to approve a
tax-free recapitalization of Sprint's outstanding
common stock (the "Recapitalization"). Sprint
will file the Recapitalization Amendment to (i)
reclassify each share of Sprint's outstanding
Existing Common Stock into 1/2 share of Series 1
PCS Stock and one share of Series 1 FON Stock,
(ii) redesignate the authorized shares of Series
2 Common Stock as Series 2 FON Stock and (iii)
reclassify each authorized share of Class A
Common Stock so that each such share will, among
other things, represent a certain number of
unissued shares of Series 3 FON Stock and a
certain number of unissued shares of Series 3 PCS
Stock, the aggregate number of such unissued
shares to be determined on an equivalent basis.
Arrangements with Holders
of Class A Common Stock....
Sprint has entered into a Master Restructuring
and Investment Agreement with FT and DT dated as
of May 26, 1998 (the "Master Agreement") which,
among other things, provides that FT and DT will
purchase from Sprint sufficient shares of PCS
Stock to maintain an aggregate voting power of
20% of all Sprint Voting Stock, taking into
account issuances in the IPO and the PCS
Restructuring and pursuant to the Cable Parents'
Equity Purchase Rights. The Master Agreement also
provides that the existing investment documents
among Sprint, FT and DT, including the existing
stockholders' agreement and the existing
standstill agreement, will be amended to reflect
and address the changes provided for by the
Tracking Stock Proposal. Pursuant to the PCS
Stock Amendment, all shares of Existing Class A
Common Stock held by DT will be reclassified into
the same number of shares designated Class A
Common Stock--Series DT, par value $2.50 per
share ("DT Class A Stock" and, collectively with
the Existing Class A Common Stock held by FT, the
"Class A Common Stock").
Timing of the IPO and the
Recapitalization........... Sprint currently intends to complete the IPO at
the same time as the PCS Restructuring and to
complete the Recapitalization within 90-120 days
following the PCS Restructuring and the IPO. The
Existing Common Stock will not be converted into
PCS Stock and FON Stock until the
Recapitalization.
IT IS IMPORTANT FOR STOCKHOLDERS TO NOTE THAT, IF
SPRINT COMPLETES THE IPO AT THE SAME TIME AS THE
CLOSING OF THE PCS RESTRUCTURING,
10
<PAGE>
SPRINT EXISTING COMMON STOCK WILL NOT BE
CONVERTED INTO PCS STOCK OR FON STOCK UNTIL THE
RECAPITALIZATION, WHICH IS EXPECTED TO OCCUR 90-
120 DAYS FOLLOWING THE IPO AND THE PCS
RESTRUCTURING. PRIOR TO THE RECAPITALIZATION,
SHARES OF PCS STOCK ISSUED IN THE IPO WILL TRADE
IN THE PUBLIC MARKET.
Until the Recapitalization, the Existing Common
Stock and the Existing Class A Common Stock will
continue to reflect the performance of the entire
FON Group as well as the performance of the PCS
Group to the extent of the FON Group's Inter-
Group Interest in the PCS Group. Therefore, after
the PCS Restructuring is completed and before the
completion of the Recapitalization, income or
loss from the operations of the PCS Group will
continue to be reflected in the Existing Common
Stock and the Existing Class A Common Stock, but
only to the extent of such Inter-Group Interest.
In lieu of the above order of events, Sprint may
instead elect to complete the Recapitalization
concurrently with the PCS Restructuring, in which
case Sprint would intend to complete the IPO
within 90-120 days following the Recapitalization
and the PCS Restructuring. If Sprint completes
the Recapitalization concurrently with the PCS
Restructuring, then both the PCS Stock Amendment
and the Recapitalization Amendment would be filed
at such time, creating the PCS Stock and
reclassifying (i) each share of the Existing
Common Stock into 1/2 share of PCS Stock and one
share of FON Stock and (ii) each share of
Existing Class A Common Stock held by DT into one
share of DT Class A Stock and further
reclassifying each such share, and each share of
Existing Class A Common Stock held by FT, so that
each share will, among other things, represent a
right to cause Sprint to issue, to FT and DT or
to certain designated transferees of FT or DT, a
number of shares of Series 1 FON Stock, Series 3
FON Stock, Series 1 PCS Stock or Series 3 PCS
Stock, but only to the extent such shares of
Existing Class A Common Stock or DT Class A
Stock, as the case may be, represents a number of
unissued shares of FON Stock or PCS Stock, as
applicable.
Reasons for the Tracking
Stock Proposal.............
The Sprint Board adopted the Tracking Stock
Proposal after a review of various alternatives
in order to, among other things:
. achieve Sprint's strategic objective of
obtaining integrated management control of
Sprint Spectrum Holdings and PhillieCo;
. report the results of operations of the PCS
Group and the FON Group separately, which
should provide greater market understanding
and recognition of the value (individually and
collectively) of Sprint and its individual
lines of business represented by the FON Group
and the PCS Group;
. assist in meeting the capital requirements of
the PCS Group by creating an additional
publicly-traded equity security that can be
11
<PAGE>
used to raise capital (subject to certain
priorities granted to the Cable Parents for a
specified period in connection with the PCS
Restructuring) and can be issued in connection
with acquisitions and investments; and
. permit the creation of more effective
management incentive approaches, with the
ability to direct business-specific options
and securities to employees of each Group.
For additional reasons for the Tracking Stock
Proposal, see "The Tracking Stock Proposal--
Background and Reasons for the Tracking Stock
Proposal."
Opinions of Financial Salomon Smith Barney and SBC Warburg Dillon Read
Advisors................... Inc. (each, a "Financial Advisor" and together,
the "Financial Advisors") each has delivered to
the Sprint Board its written opinion (confirming
its oral opinion delivered to the Sprint Board on
May 26, 1998) that, as of May 26, 1998, and based
upon the assumptions made, matters considered and
limits on the review undertaken, all of which are
set forth in their respective opinions, the
consideration to be paid by Sprint in connection
with the mergers related to the PCS Restructuring
is fair to Sprint from a financial point of view.
Copies of the opinions of the Financial Advisors
appear in this Proxy Statement at Annex VIII.
Sprint stockholders are urged to read these
opinions carefully and in their entirety. For
additional information concerning the assumptions
made, matters considered and limits on the review
undertaken by the Financial Advisors in rendering
their opinions and the fees received and to be
received by them, see "The Tracking Stock
Proposal--Opinions of Sprint's Financial
Advisors."
Tracking Stock Policies.... In connection with the Tracking Stock Proposal,
the Sprint Board has adopted the Tracking Stock
Policies with respect to relationships between
the FON Group and the PCS Group, including the
following:
(i) All material matters as to which the holders
of FON Stock and holders of the PCS Stock may
have potentially divergent interests will be
resolved in a manner that the Sprint Board
determines to be in the best interests of
Sprint and all of its common stockholders
after giving fair consideration to the
potentially divergent interests and all other
relevant interests of the holders of the
separate classes of Sprint's common stock.
(ii) A process of fair dealing will govern the
relationship between the FON Group and the
PCS Group and the means by which the terms
of any material transaction between them
will be determined.
(iii) The Sprint Board will not recommend a
transaction that would result in a Change
in Control of Sprint or a Strategic Merger
without a prior determination of the
fairness of the transaction to holders of
FON Stock and holders of PCS Stock, each
taken as a separate class.
12
<PAGE>
(iv) Dividends on the FON Stock will be declared
only out of the capital or earnings of the
FON Group (after taking into account any
Inter-Group Interest the FON Group may hold
in the PCS Group), and dividends on the PCS
Stock will be declared only out of the
capital or earnings of the PCS Group.
(v) All businesses conducted by Sprint for
offering or providing Domestic Wireless
Mobile Telephony Services or any other
Domestic PCS Services, and all acquisitions
of Domestic PCS Licenses, will be allocated
to the PCS Group. This policy does not
preclude the formation of commercially
reasonable contracts or other arrangements
between the PCS Group and the FON Group or
any Other Group for sales agency, resale, or
any other arrangement with respect to
businesses conducted by either the FON Group
or the PCS Group. Except as provided in the
previous sentences, the Sprint Board may
allocate business opportunities and
operations to the FON Group, the PCS Group or
to any Other Group as it considers in the
best interests of Sprint and its stockholders
as a whole.
(vi) Loans from Sprint or any member of the FON
Group or any Other Group to members of the
PCS Group will be at rates and on terms
substantially equivalent to the rates and
terms that the PCS Group could obtain from
third parties as a wholly-owned subsidiary
of Sprint, but without the benefit of a
guaranty by Sprint or any member of the FON
Group.
(vii) Asset transfers between the FON Group and
the PCS Group (other than transfers
pursuant to a contract for the provision of
goods or services and transfers designated
as increasing or decreasing the FON Group's
Inter-Group Interest in the PCS Group) will
be effected at the fair market value of the
transferred assets. No transfer of assets
between the FON Group and the PCS Group
will occur if such transfer would result in
the creation of an Inter-Group Interest of
the PCS Group in the FON Group.
(viii) All material commercial transactions
between the PCS Group and the FON Group
will be on commercially reasonable terms
and will be subject to the review and
approval of the Capital Stock Committee.
Sales of Domestic long distance services
by the FON Group to the PCS Group will be
at the best price offered by the FON Group
to third parties in similar situations
when taking into account all relevant
factors (e.g., volume, peak/off-peak usage
and length of commitment). The PCS Group
will be permitted to acquire private line
capacity from the FON Group to self-
provision long distance services to the
extent such self-provisioning can be
accomplished on terms more favorable to
the PCS Group, and will be at the best
price offered by the FON Group to third
parties in similar situations, when taking
into account all relevant factors.
13
<PAGE>
(ix) Sprint will not engage in certain
transactions without the consent of the
holders of a majority of the shares of the
PCS Stock, voting as a separate class,
including (a) any transaction, including
mergers, consolidations, recapitalizations,
or similar transactions having the effect of
circumventing the rights of holders of the
PCS Stock with respect to the provisions of
the Articles Amendment regarding (i) limits
on optional redemption of the PCS Stock by
Sprint for FON Stock and (ii) the two-year
prohibition against redemption of the PCS
Stock for stock of a subsidiary of Sprint
provided for in the Amended Articles (except
that this provision does not apply to any
transaction involving a third party, the
terms of which have been determined by the
Sprint Board or the Capital Stock Committee
to be fair to holders of PCS Stock, taken as
a separate class, and holders of FON Stock
taken as a separate class) or (b) causing
more than 33% of the assets of the PCS Group
to be acquired by the FON Group.
(x) The Tax Sharing Agreement is part of the
Tracking Stock Policies. See "--Tax Sharing
Agreement" below.
(xi) Sprint will not acquire shares of Series 1
PCS Stock if, immediately after the
acquisition, the number of shares of Series
1 PCS Stock outstanding is less than 80% of
the sum of (a) the number of shares of
Series 1 PCS Stock issued to the public in
the Recapitalization and (b) the number of
shares of Series 1 PCS Stock issued to the
public in any primary initial public
offering of Series 1 PCS Stock that is
completed prior to the Registration Rights
Commencement Date.
Except for the policies relating to tax sharing
and the terms of loans between the Groups, the
Tracking Stock Policies may be modified,
suspended or rescinded, and additional policies
may be adopted or exceptions may be made to
existing policies, at any time without the
approval of Sprint's stockholders, although
Sprint has no present intention to do so and
Sprint has agreed with the Cable Parents, FT and
DT not to do so prior to the Recapitalization. In
making all determinations in connection with the
Tracking Stock Policies, the members of the
Capital Stock Committee and the Sprint Board will
act in a fiduciary capacity. Any determination of
the Sprint Board to modify, suspend or rescind
the policies, to make exceptions thereto or to
adopt additional policies, including any decision
that would have a disparate impact upon holders
of FON Stock and PCS Stock, will be made by the
Sprint Board in a manner consistent with its
fiduciary duties to Sprint and all of its common
stockholders after giving fair consideration to
the potentially divergent interests and all other
relevant interests of the holders of the separate
classes of Sprint's common stock, including the
holders of FON Stock and the holders of PCS
Stock. The provisions of the Tracking Stock
Policy regarding the terms of loans between
Groups will apply only before December 31, 2001,
but Sprint currently does not expect that such
14
<PAGE>
provisions will be amended in any material way
after December 31, 2001. See "The Tracking Stock
Proposal--Tracking Stock Policies."
Capital Stock Committee..... In connection with the PCS Restructuring, the
Sprint Board has amended its bylaws to create a
Capital Stock Committee consisting entirely of
Independent Directors (or directors who, except
for a relationship with a holder of Class A
Common Stock (or a subsidiary of such holder),
would be Independent Directors). Sprint expects
that initially the Capital Stock Committee will
consist of each member of the Sprint Board other
than Mr. Esrey and Mr. LeMay. The Capital Stock
Committee will have the authority to interpret,
make determinations under, and oversee the
implementation of the Tracking Stock Policies,
will review and approve the terms of material
commercial transactions between the FON Group and
the PCS Group, and will review and approve any
transaction causing a change in the size of or
the creation of an Inter-Group Interest in the
PCS Group by the FON Group. The Capital Stock
Committee will have the authority to engage the
services of accountants, appraisers, attorneys
and other service providers to assist it in
discharging its duties. The Articles Amendment
provides that the provisions of the Bylaws
relating to the Capital Stock Committee will not
be amended prior to the fourth anniversary of the
PCS Restructuring without the approval of holders
of a majority of the outstanding shares of Common
Stock, as well as a majority of the outstanding
shares of PCS Stock, voting as a separate class.
Tax Sharing Agreement....... Federal and state income taxes incurred by Sprint
which are determined on a consolidated, combined,
or unitary basis will be allocated between the
Groups in accordance with a Tax Sharing Agreement
to be entered into and undertaken by Sprint.
These allocations will be based principally on
the taxable income and tax credits contributed by
each Group. Such allocations to or from the PCS
Group are intended to reflect its actual
incremental cumulative effect (positive or
negative) on Sprint's federal and state taxable
income and related tax liability and tax credit
position, subject to certain adjustments. Tax
benefits that cannot be used by a Group
generating those benefits but can be used on a
consolidated basis will be credited to the Group
that generated such benefits. Accordingly, the
amounts of taxes payable or refundable, which
will be allocated to each Group, may not
necessarily be the same as that which would have
been payable or refundable had the Group filed a
separate income tax return. Sprint expects that
significant payments pursuant to the Tax Sharing
Agreement will be made from the FON Group to the
PCS Group in the near future, in light of the
substantial operating losses that the PCS Group
is expected to incur during this time. Tax
sharing payments between the Groups will be
accrued as of the end of the tax period to which
they relate.
The Tax Sharing Agreement includes a procedure
pursuant to which tax sharing payments to or from
the PCS Group will be calculated
15
<PAGE>
excluding the effect of any cumulative combined
net loss or credit of (a) all new businesses
directly or indirectly acquired by the FON Group
after May 26, 1998 individually having an
acquisition cost in excess of $500 million,
taking into account the amount of any liabilities
assumed by the acquiror or to which the acquired
business is subject, and (b) all Other Groups
except to the extent that an Other Group reflects
one or more profitable core business(es) of the
FON Group that exist(s) on the date of creation
of the FON Group (the "Stacking Procedure").
The initial Tax Sharing Agreement (including the
Stacking Procedure) shall apply to tax years
ending on or before December 31, 2001, and shall
not be modified, suspended or rescinded, nor will
additions or exceptions be made to the Tax
Sharing Agreement for such periods. For
subsequent periods, the Sprint Board will adopt a
tax sharing arrangement that will be designed to
allocate Sprint's tax benefits and burdens fairly
between the PCS Group and the FON Group. Sprint
expects that tax benefits that cannot be used by
a Group generating those benefits but can be used
on a consolidated basis will continue to result
in payments to the Group that generated such
benefits based on the value of such benefits to
Sprint on a consolidated basis. In addition,
Sprint expects that tax benefits, if any,
pertaining to tax loss or tax credit carry
forwards generated by a Group but not utilized as
of the expiration of the initial Tax Sharing
Agreement will continue to result in payments to
the Group that generated such benefits based on
the value of such benefits to Sprint on a
consolidated basis when such tax benefits are
utilized. Sprint has not determined whether or
not it will continue to utilize the Stacking
Procedure for tax years ending after December 31,
2001.
Standstill Agreements....... In connection with the issuance of Series 2 PCS
Stock to the Cable Parents in the PCS
Restructuring, Sprint and each of the Cable
Parents have entered into a Standstill Agreement
pursuant to which each Cable Parent agrees that
it will not acquire (other than in connection
with the exercise of its share purchase rights)
any Sprint Voting Securities if, as a result of
such acquisition, the votes represented by the
Sprint Voting Securities owned by such Cable
Parent and its Affiliates would represent (in the
aggregate) more than one and one half percent
(1.5%) of the Voting Power represented by all of
the outstanding Sprint Voting Securities
(assuming that all shares of Series 2 PCS Stock
have the same voting rights as the Series 1 PCS
Stock).
Registration Rights......... Pursuant to the Restructuring Agreement, at the
closing of the PCS Restructuring (the "Closing"),
Sprint and the Cable Parents will enter into a
registration rights agreement (the "Registration
Rights Agreement") providing the Cable Parents
and their Affiliates with rights to require that
Sprint register for sale under the Securities Act
of 1933, as amended (the "Securities Act") the
shares of PCS Stock to be issued by Sprint to the
Cable Parents or their subsidiaries. TCI
16
<PAGE>
will have six request rights and Cox and Comcast
will each have three request rights (with Cox
entitled to an additional request right if Cox
acquires shares of PCS Stock pursuant to its
amended arrangements with Sprint Spectrum
Holdings, described below). Each Cable Parent is
entitled to one additional request right under
certain circumstances. Such registration rights
will commence 180 days following the completion
of the PCS Restructuring, unless the IPO is not
completed at the same time as the PCS
Restructuring, in which case such rights
generally would commence on the later of (i) 180
days following the PCS Restructuring or (ii) 90
days following the completion of the IPO. Until
the Cable Parents have sold securities covered by
the Registration Rights Agreement with an
aggregate offering price of $2 billion (or 12
months after the commencement of registration
rights, whichever is sooner), the Cable Parents
will have priority in selling their shares in any
offering for which the underwriters require a
reduction in the number of shares desired to be
offered (whether by Sprint, the Cable Parents or
any other stockholder having registration rights,
including FT and DT, except where FT and DT have
exercised their rights to require registration).
Such priority will apply regardless of which of
these parties initiates the offering, and
therefore could result in the Cable Parents'
having the right to sell shares in place of
shares that Sprint intended to sell in order to
raise capital to fund the operations of the PCS
Group.
Voting Agreement............ At the Closing, each of the Cable Parents will
enter into an Irrevocable Proxy and Voting
Agreement ("Voting Agreement") governing the
voting of any shares of Series 1 PCS Stock
acquired by the Cable Parents or their
subsidiaries as a result of the exercise of their
Equity Purchase Rights. The Voting Agreement
grants William T. Esrey (and any successor as the
Chief Executive Officer of Sprint) an irrevocable
proxy to vote such shares at any meeting of the
shareholders of Sprint, with such shares to be
voted on any matter on the same basis as the
majority of votes that are cast with respect to
such matter by the holders of Sprint's other
voting securities. The Voting Agreement of each
Cable Parent will terminate upon the earlier to
occur of the tenth anniversary of the closing of
the PCS Restructuring or the termination of the
Standstill Agreement of such Cable Parent.
Cox PCS Amendments ......... The current Cox PCS partnership agreement
contains provisions granting Cox the right to
require Sprint Spectrum Holdings to purchase
Cox's remaining interest in Cox PCS and granting
Sprint Spectrum Holdings the right to require Cox
to sell such interest to Sprint Spectrum
Holdings, in each case over a specified period of
time and for cash or additional partnership
interests in Sprint Spectrum Holdings. In the
Restructuring Agreement, Sprint Spectrum Holdings
and Cox agreed to enter into an amendment to the
partnership agreement (the "Cox PCS Amendment")
effective as of the Closing, that will modify
these put and call provisions to
17
<PAGE>
provide that, among other things, Cox may elect
to receive shares of Series 2 PCS Stock in
exchange for its interest in Cox PCS. In
addition, Cox and Sprint Spectrum Holdings have
agreed that Cox PCS's obligation to pay an
affiliation fee to Sprint Spectrum Holdings
terminated as of March 31, 1998 (to be reinstated
if the Restructuring Agreement is terminated).
Termination; Conditions to The Restructuring Agreement provides that if the
Closing..................... Closing has not occurred by December 31, 1998 (or
at such earlier time that any of the conditions
to Closing contained in the Restructuring
Agreement become incapable of being satisfied),
any non-breaching party may terminate the
agreement. The conditions to Closing include
approval of the Tracking Stock Proposal by
Sprint's stockholders and receipt of all
governmental approvals for the completion of the
PCS Restructuring. If such termination occurs,
Sprint will not complete the transactions
contemplated by the Tracking Stock Proposal or
the Incentive Plans Proposal.
Inter-Group Interest........ Upon completion of the PCS Restructuring, the
entities comprising the PCS Group (other than Cox
PCS) will be wholly-owned by Sprint. The PCS
Stock will be common stock of Sprint that is
intended to reflect the performance of the PCS
Group. If the IPO is completed concurrently with
the date of closing of the PCS Restructuring (the
"Closing Date"), the FON Group will continue to
hold a substantial interest in the PCS Group
similar to the interest held by holders of PCS
Stock (an "Inter-Group Interest" in the PCS
Group). It is Sprint's intention that, upon
completion of the Recapitalization, the FON Group
will have no Inter-Group Interest in the PCS
Group except for the Preferred Inter-Group
Interest and the Warrant Inter-Group Interest.
Under the Tracking Stock Policies, however, the
Sprint Board could determine in the future to
contribute, as additional equity, cash or other
property of the FON Group to the PCS Group or
purchase shares of PCS Stock in the open market
with cash or other property of the FON Group. In
that event, the FON Group would hold an Inter-
Group Interest. An Inter-Group Interest in the
PCS Group, because it represents an interest
between two business groups within Sprint, would
not be represented by outstanding shares of PCS
Stock and, accordingly, would not be voted on any
matter, including any matter requiring the vote
of the holders of PCS Stock as a separate class.
However, the Market Value attributable to the
Inter-Group Interest should be reflected in the
Market Value of the FON Stock, which in turn
would affect the aggregate voting power
represented by the FON Stock on any matter in
which holders of FON Stock and PCS Stock vote
together as a single class.
The Sprint Board has determined that the PCS
Group should not have or be able to have an
Inter-Group Interest in the FON Group. See "The
Tracking Stock Proposal" and "Future Inter-Group
Interest."
18
<PAGE>
Certain Income Tax Sprint has received an opinion from its counsel,
Considerations.............. King & Spalding, that for United States federal
income tax purposes (i) the Recapitalization will
constitute a recapitalization within the meaning
of Section 368(a)(1)(E) of the Code, (ii) any
outstanding stock which is designated as common
stock of Sprint in the Articles Amendment will
constitute voting stock of Sprint for federal
income tax purposes, (iii) except with respect to
cash paid in lieu of fractional shares, if any,
the holders of such stock of Sprint will not
recognize income, gain, or loss in and as a
result of the Recapitalization, and (iv) such
stock of Sprint received in the Recapitalization
will not constitute Section 306 stock within the
meaning of Section 306(c) of the Code. As a
result of such treatment, holders of Existing
Common Stock will take a tax basis in the FON
Stock and PCS Stock equal to their tax basis
before the Recapitalization in the Existing
Common Stock (reduced by the amount allocable to
any fractional share interest for which cash is
received), with such tax basis being allocated
among the FON Stock and PCS Stock in proportion
to their relative fair market values at the time
of the Recapitalization. If the shares of
Existing Common Stock are held as capital assets,
a stockholder's holding period for shares of PCS
Stock and FON Stock received in the
Recapitalization will include such stockholder's
holding period for the shares of Existing Common
Stock surrendered therefor.
There are no court decisions or other authorities
that bear directly on transactions similar to the
Recapitalization. It is possible, therefore, that
the IRS could assert that the PCS Stock or the
FON Stock or both represent property other than
stock of Sprint. Any such determination could
have a material adverse effect on Sprint and
result in adverse tax consequences for Sprint
stockholders. Counsel believes that if the status
for federal income tax purposes of the FON Stock
or the PCS Stock were challenged, a court would
agree with counsel's conclusions that such stock
represents stock of Sprint, although there can be
no assurance that a court would reach that
result. See "The Tracking Stock Proposal--Certain
Federal Income Tax Considerations."
EACH STOCKHOLDER OF SPRINT SHOULD CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE
RECAPITALIZATION TO SUCH STOCKHOLDER.
Risk Factors................
When evaluating the Tracking Stock Proposal,
stockholders should be aware of certain risk
factors. Risk factors include but are not limited
to the following:
. the risks associated with an investment in a
single company and all of Sprint's businesses,
assets and liabilities;
. the lack of assurances as to the market price
of the classes of common stock following the
IPO and the Recapitalization;
19
<PAGE>
. limited separate stockholder rights with
respect to the classes of common stock;
. the potentially divergent interests of the
holders of the FON Stock and the PCS Stock;
. the lack of legal precedent with respect to
the fiduciary duties of the board of directors
of a company with a capital structure that
includes tracking stocks;
. the ability of the Sprint Board to transfer
funds between the PCS Group and the FON Group;
. the lack of assurance as to the magnitude of
any payments made pursuant to the Tax Sharing
Agreement;
. the ability of the Sprint Board to make
changes to the Tracking Stock Policies without
stockholder approval (subject to limits
described under "The Tracking Stock Proposal--
Tracking Stock Policies");
. Sprint's ability to issue authorized but
unissued shares of FON Stock, PCS Stock, or
any other class of capital stock without
stockholder approval;
. limitations on a potential separate
acquisition of the PCS Group or the FON Group;
. market "overhang," or the large number of
shares of PCS Stock that may be sold and the
significant registration rights granted to the
Cable Parents with respect thereto;
. possible election by Sprint not to proceed
with an IPO; and
. the potential effects of a possible
disposition of assets attributed to a Group.
Stockholders should also be aware of certain
risks with respect to the PCS Group operations,
which include but are not limited to risks
relating to the following:
. operating losses and negative cash flow from
operations to date;
. substantial continuing capital requirements;
. the significant indebtedness of the PCS Group;
. governmental regulation;
. competition;
. certain network buildout and PCS system
implementation risks;
. significant changes in the wireless industry;
. rapid technological changes;
. radio frequency emission concerns; and
. Year 2000 issues.
See "Risk Factors--The Tracking Stock Proposal"
and "Risk Factors--The PCS Group."
20
<PAGE>
Listing..................... Sprint will file an application to list the
Series 1 FON Stock on the New York Stock
Exchange, Inc. ("NYSE"). Sprint will file an
application to list the Series 1 PCS Stock on the
NYSE. There has not been a public market for the
Series 1 PCS Stock. There has not been, nor will
there be, a public market for the Series 2 PCS
Stock or the Series 3 PCS Stock. There has not
been, nor will there be, a public market for the
Series 2 Common Stock, Series 2 FON Stock or
Series 3 FON Stock.
THE INCENTIVE PLANS PROPOSAL
General.....................
Stockholders are also being asked to vote upon a
related proposal (the "Incentive Plans Proposal")
to adopt amendments to certain of Sprint's
equity-based incentive plans that, among other
things, (i) authorize stock-based awards with
respect to 10,000,000 shares of Series 1 PCS
Stock to replace the Sprint Spectrum Long-Term
Incentive Compensation Plan and (ii) permit non-
employee Directors to participate with Sprint
employees under the 1997 Long-Term Stock
Incentive Program.
RECOMMENDATION OF THE SPRINT BOARD
THE SPRINT BOARD HAS APPROVED THE TRACKING STOCK PROPOSAL AND THE INCENTIVE
PLANS PROPOSAL AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE TRACKING
STOCK PROPOSAL AND THE INCENTIVE PLANS PROPOSAL.
21
<PAGE>
SUMMARY COMPARISON OF TERMS OF EXISTING COMMON
STOCK WITH TERMS OF FON STOCK AND PCS STOCK
The following summary compares certain terms of the Existing Common Stock
under the Existing Articles and the terms of the PCS Stock and the FON Stock
under the Articles Amendment. In the Recapitalization, the FON Stock and the
PCS Stock will be received by current holders of Existing Common Stock,
assuming that the Tracking Stock Proposal is approved, in exchange for their
shares of Existing Common Stock. Sprint currently intends that the
Recapitalization will occur 90 to 120 days following the completion of the PCS
Restructuring and the IPO, but Sprint may elect to complete the
Recapitalization concurrently with the PCS Restructuring. Upon completion of
the PCS Restructuring. The Existing Common Stock will continue to be traded,
and Sprint expects that the Series 1 PCS Stock sold in the IPO will be traded,
the NYSE. For a description of the effect of the Recapitalization upon the
Existing Class A Common Stock held by FT and DT, see "The Tracking Stock
Proposal--The Recapitalization."
This summary is not intended to be complete. More detailed information is
contained elsewhere in this Proxy Statement and the documents it incorporates
by reference or otherwise refers to. See "Risk Factors--The Tracking Stock
Proposal," "Risk Factors--The PCS Group," "The Tracking Stock Proposal" and
"Description of Capital Stock."
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
BUSINESS All businesses of The FON Group will The PCS Group will
Sprint. consist of Sprint's consist of the fol-
businesses and assets lowing businesses and
not included in the assets: (1) Sprint's
PCS Group, which cur- current and acquired
rently include: (1) PCS operations,
Sprint's core busi- including Sprint
nesses, consisting of Spectrum Holdings,
its long distance PhillieCo and
services, local serv- SprintCom, (2) any
ices, product distri- other business offer-
bution and directory ing or providing Do-
publishing activi- mestic Wireless Mo-
ties, (2) Sprint's bile Telephony Serv-
emerging non-PCS ices and (3) any
businesses, which other Domestic PCS
consist of the devel- services. Except for
opment of integrated the foregoing, the
communications serv- Sprint Board may al-
ices, Sprint Paranet locate business op-
and Sprint Interna- portunities and
tional, (3) Sprint's operations to the FON
interest in the Group, the PCS Group,
Global One interna- or to any Other Group
tional strategic al- as it considers to be
liance and (4) in the best interests
Sprint's other tele- of Sprint and its
communications in- stockholders as a
vestments and alli- whole. See "The
ances. The FON Group Tracking Stock Pro-
will also include any posal--Tracking Stock
Inter-Group Interest Policies."
in the PCS Group. The
creation of an Inter-
Group Interest is
limited
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
BUSINESS (CONTINUED) by the Tracking Stock
Policies adopted by
the Sprint Board. Ex-
cept for the forego-
ing, the Sprint Board
may allocate business
opportunities and
operations to the FON
Group, the PCS Group,
or to any Other Group
as it considers to be
in the best interests
of Sprint and its
stockholders as a
whole. See "The
Tracking Stock Pro-
posal--Tracking Stock
Policies."
RECAPITALIZATION One billion In the Recapitaliza- In the Recapitaliza-
authorized shares of tion, each authorized tion, each authorized
Existing Common Stock share of Existing share of Existing
of which 344,324,375 Common Stock will be Common Stock will be
shares are reclassified into one reclassified into
outstanding as of May share of Series 1 FON 1/2 share of Series 1
31, 1998. Stock and 1/2 share PCS Stock and one
of Series 1 PCS share of Series 1 FON
Stock. The FON Stock Stock. The PCS Stock
is intended to re- is intended to re-
flect separately the flect separately the
performance of the performance of the
FON Group. Before the PCS Group.
Recapitalization, no
shares of FON Stock
will be issued and
outstanding.
DIVIDENDS Sprint's current Sprint intends to pay Sprint does not in-
quarterly indicated a current quarterly tend to pay dividends
dividend on Sprint's indicated dividend of on the PCS Stock in
Existing Common Stock $0.25 per share on the foreseeable fu-
and Existing Class A the FON Stock and an ture. Although such
Common Stock is $0.25 equivalent per share dividends, if any,
per share. Dividends dividend on the Class would be subject to
on the Existing Com- A Common Stock (to declaration and pay-
mon Stock and Exist- the extent it repre- ment at the discre-
ing Class A Common sents any unissued tion of the Sprint
Stock are limited to FON Stock). Although Board based primarily
assets of Sprint le- such dividends will upon the financial
gally available for be subject to decla- condition, results of
the payment of divi- ration and payment at operations and busi-
dends under the Kan- the discretion of the ness requirements of
sas General Corpora- Sprint Board based the PCS Group and
tion Code and are primarily upon the Sprint as a whole,
payable at the dis- financial condition, the Tracking Stock
cretion of the Sprint results of operations Policies provide
Board based primarily and business require- that dividends on the
upon the financial ments of the FON PCS Stock and on the
condition, results Group and Class A Common Stock
(to the extent it
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
DIVIDENDS (CONTINUED) of operations and Sprint as a whole, represents any
business requirements the Tracking Stock unissued PCS Stock)
of Sprint. Policies provide that on an equivalent per
dividends will be share basis will be
payable only out of payable only out of
the lesser of (i) the the lesser of (i) the
funds of Sprint le- funds of Sprint le-
gally available gally available
therefor and (ii) the therefor and (ii) the
FON Group Available PCS Group Available
Dividend Amount. The Dividend Amount. The
FON Group Available PCS Group Available
Dividend Amount is Dividend Amount is
similar to the amount similar to the amount
of assets that would of assets that would
be available for pay- be available for pay-
ment of dividends on ment of dividends on
the FON Stock under the PCS Stock under
Kansas General Corpo- Kansas General Corpo-
ration Code if the ration Code if the
FON Group were a sep- PCS Group were a sep-
arate company after arate company.
taking into account
the FON Group's In-
ter-Group Interest in
the PCS Group.
VOTING RIGHTS One vote per share. Each outstanding Each outstanding
share of Series 1 FON share of Series 1 PCS
Stock and Series 3 Stock and Series 3
FON Stock is entitled PCS Stock is entitled
to one vote. Each to a number of votes
outstanding share of (the "PCS Per Share
Series 2 FON Stock is Vote") equal to: (1)
entitled to 1/10 of a if the record date
vote. Except as oth- for determining the
erwise provided under stockholders entitled
the Amended Articles to vote is on or be-
or required by the fore December 31,
Kansas General Corpo- 1998, the PCS Ratio,
ration Code, the and, (2) if the rec-
holders of the FON ord date for deter-
Stock and the PCS mining the stockhold-
Stock will vote to- ers entitled to vote
gether as a single is after December 31,
class. 1998, the ratio of
the Average Trading
Price of one share of
Series 1 PCS Stock to
the Average Trading
Price of one share of
FON Stock computed as
of the tenth trading
day before the record
date for determining
the stockholders en-
titled to vote, ex-
pressed as a decimal
fraction rounded
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
VOTING RIGHTS to the nearest three
(CONTINUED) decimal places. Each
outstanding share of
Series 2 PCS Stock is
entitled to a number
of votes equal to
1/10 of the PCS Per
Share Vote. In mat-
ters on which the
holders of PCS Stock
vote as a separate
class, each share of
PCS Stock, including
each share of Series
2 PCS Stock, will re-
ceive one vote per
share. Except as oth-
erwise provided under
the Amended Articles
or required by the
Kansas General Corpo-
ration Code, the
holders of the FON
Stock and the PCS
Stock will vote to-
gether as a single
class.
Because the PCS Per Because the PCS Per
Share Vote will vary Share Vote will vary
from time to time, from time to time,
the relative voting the relative voting
power per share of power per share of
FON Stock and PCS PCS Stock and FON
Stock will fluctuate. Stock will fluctuate.
It is expected that It is expected that
initially the FON initially the FON
Stock will have a Stock will have a
substantial majority substantial majority
of the voting power of the voting power
of Sprint. See of Sprint. See "De-
"Description of scription of Capital
Capital Stock--Voting Stock--Voting Rights
Rights of Common of Common Stock."
Stock."
RIGHTS ON DISPOSITION OF N/A If Sprint disposes of If Sprint disposes of
ALL OR SUBSTANTIALLY ALL all or substantially all or substantially
ASSETS OF A GROUP all of the assets of all (defined in the
the FON Group, the Articles Amendment to
proceeds of that mean at least 80% on
transaction will be a then-current market
allocated to the FON value basis) of the
Group and used for assets of the PCS
its benefit. No pro- Group, other than in
visions comparable to a transaction, among
the dividend, redemp- others, in which
tion and conversion Sprint receives pri-
rights of the PCS marily equity securi-
Group will apply in ties of an
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
RIGHTS ON DISPOSITION OF the case of the dis- entity engaged or
ALL OR SUBSTANTIALLY ALL position of all or proposing to engage
ASSETS OF A GROUP substantially all of primarily in a busi-
(CONTINUED) the properties and ness similar or com-
assets of the FON plementary to the
Group. business of the PCS
Group, the proceeds
of that transaction
would be attributed
to the PCS Group and
Sprint would either:
(1) distribute to
holders of PCS Stock
an amount of cash
and/or securities
(other than FON
Stock, PCS Stock or
other common equity
securities of Sprint)
or other property
equal to the fair
value of the net pro-
ceeds of the disposi-
tion after deducting
amounts necessary to
pay transaction
costs, taxes on the
sale, liabilities of
the PCS Group, any
amount corresponding
to any Inter-Group
Interest in the PCS
Group held by the FON
Group and any amount
to be paid to holders
of Class A Common
Stock in respect of
any equity interest
in the PCS Group rep-
resented by the Class
A Common Stock either
by special dividend
or by redemption of
all or part of the
outstanding shares of
PCS Stock, or (2)
convert each out-
standing share of PCS
Stock into a number
of shares of FON
Stock at a ratio
equal to 110% of the
average Market Value
of one share of Se-
ries 1 PCS Stock to
the average Market
Value of one share of
FON Stock, calculated
over a 10-trading day
period beginning on
the 16th trading day
after the consumma-
tion of the disposi-
tion
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
RIGHTS ON DISPOSITION OF transaction (and ef-
ALL OR SUBSTANTIALLY ALL fect a conversion of
ASSETS OF A GROUP the number of
(CONTINUED) unissued shares, if
any, of PCS Stock
represented by the
Class A Common Stock
into a number of
unissued shares of
FON Stock on an
equivalent basis).
SALES OF LESS THAN N/A The proceeds from any The proceeds from any
SUBSTAN-TIALLY ALL disposition of assets disposition of assets
ASSETS OF A GROUP that does not com- that does not com-
prise all or substan- prise all or substan-
tially all of the as- tially all of the as-
sets attributed to sets attributed to
the FON Group will be the PCS Group will be
allocated to the FON allocated to the PCS
Group and used for Group and used for
its benefit. its benefit.
CONVERSION AT THE OPTION N/A N/A Sprint may at any
OF SPRINT time after the third
anniversary of the
Closing Date convert
each share of PCS
Stock into shares of
FON Stock, with the
number of shares of
FON Stock determined
prior to the fourth
anniversary of the
Closing Date at a
rate equal to 110% of
the Optional Conver-
sion Ratio computed
as of the fifth trad-
ing day prior to the
date that notice of
conversion is sent to
holders of PCS Stock.
At any time after the
fourth anniversary of
the Closing Date, the
conversion rate will
be determined by the
Sprint Board, subject
to the requirement
that the Sprint Board
must make an indepen-
dent determination as
to the fairness of
the conversion ratio
to the holders of the
PCS Stock, taken as a
separate class, and
to the holders of the
FON Stock, taken as a
separate class. In
each such case, a
conversion of the
number
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
CONVERSION AT THE OPTION of unissued shares,
OF SPRINT (CONTINUED) if any, of PCS Stock
represented by the
Class A Common Stock
into a number of
unissued shares of
FON Stock will occur
on an equivalent ba-
sis.
REDEMPTION IN EXCHANGE N/A N/A Sprint may redeem all
FOR STOCK OF A of the outstanding
SUBSIDIARY shares of PCS Stock
in exchange for the
outstanding shares of
common stock of one
or more wholly-owned
subsidiaries of
Sprint that hold di-
rectly or indirectly
all of the assets and
liabilities attrib-
uted to the PCS
Group, provided that
(i) prior to the sec-
ond anniversary of
the Closing Date,
such redemption must
be approved by the
affirmative vote of
holders of a majority
of the shares of PCS
Stock and Class A
Common Stock (to the
extent it represents
any unissued shares
of PCS Stock), voting
as a separate class
and (ii) regardless
of the date of re-
demption, such re-
demption must be tax-
free to the holders
of PCS Stock or an
arrangement exists
such that holders of
PCS Stock, net of all
taxes related to such
redemption and such
other arrangement it-
self realized by such
holders, are in a po-
sition substantially
equivalent economi-
cally to the position
such stockholders
would be in after a
tax-free distribu-
tion.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXISTING
COMMON STOCK FON STOCK PCS STOCK
------------ --------- ---------
<S> <C> <C> <C>
LIQUIDATION Holders of Existing Upon the liquidation Upon the liquidation
Common Stock are of Sprint, the hold- of Sprint, the hold-
entitled to receive ers of FON Stock, ers of FON Stock,
the net assets of Class A Common Stock Class A Common Stock
Sprint, if any, and PCS Stock will be and PCS Stock will be
remaining for entitled to receive entitled to receive
distribution to the remaining assets the remaining assets
holders of Existing of Sprint, regardless of Sprint, regardless
Common Stock. of the Group to which of the Group to which
those assets are at- those assets are at-
tributed, divided tributed, divided
among those holders among those holders
in accordance with in accordance with
the per share "Liqui- the per share "Liqui-
dation Units" attrib- dation Units" attrib-
utable to each class utable to each class
or series of stock. or series of stock.
Each share of FON Each share of PCS
Stock is attributed Stock is attributed a
one "Liquidation number of "Liquida-
Unit," subject to ad- tion Units" equal to
justment if shares of the PCS Ratio, sub-
FON Stock are subdi- ject to adjustment if
vided, combined or shares of PCS Stock
distributed as a div- are subdivided, com-
idend. Prior to the bined or distributed
Recapitalization, as a dividend. Prior
each outstanding to the Recapitaliza-
share of Class A Com- tion, each outstand-
mon Stock is attrib- ing share of Class A
uted one "Liquidation Common Stock is at-
Unit." Once the Re- tributed one "Liqui-
capitalization oc- dation Unit." Once
curs, each outstand- the Recapitalization
ing share of Existing occurs, each out-
Class A Common Stock standing share of Ex-
and DT Class A Stock isting Class A Common
is entitled to a num- Stock and DT Class A
ber of "Liquidation Stock is entitled to
Units" equal to (i) a number of "Liquida-
the sum of all of the tion Units" equal to
unissued shares of (i) the sum of all of
FON Stock and PCS the unissued shares
Stock that such of FON Stock and PCS
shares represent at Stock that such
the time of the liq- shares represent at
uidation divided by the time of the liq-
(ii) the aggregate uidation divided by
number of outstanding (ii) the aggregate
shares of Existing number of outstanding
Class A Common Stock shares of Existing
and DT Class A Stock, Class A Common Stock
respectively. and DT Class A Stock,
respectively.
STOCK EXCHANGE LISTING NYSE, under the Sprint is filing an Sprint is filing an
symbol "FON." application with the application with the
NYSE for the listing NYSE for the listing
of FON Stock, which of PCS Stock, which
will trade under the will trade under the
symbol "FON." symbol "PCS."
</TABLE>
29
<PAGE>
HOLDERS OF FON STOCK AND PCS STOCK WILL BE SUBJECT TO THE RISKS ASSOCIATED WITH
AN INVESTMENT IN A SINGLE CORPORATION AND ALL OF SPRINT'S BUSINESSES, ASSETS
AND LIABILITIES. EVENTS ATTRIBUTABLE TO THE FON GROUP OR THE PCS GROUP THAT
AFFECT SPRINT'S RESULTS OF OPERATIONS OR FINANCIAL CONDITION COULD AFFECT THE
RESULTS OF OPERATIONS OR FINANCIAL POSITION OF THE OTHER GROUP OR THE MARKET
PRICE OF THE FON STOCK OR PCS STOCK. ANY NET LOSSES OF THE FON GROUP OR THE PCS
GROUP, AND DIVIDENDS OR DISTRIBUTIONS ON, OR REPURCHASES OF, FON STOCK, PCS
STOCK OR PREFERRED STOCK OR OTHER STOCK OR INTERESTS WILL REDUCE THE FUNDS OF
SPRINT THAT ARE LEGALLY AVAILABLE FOR PAYMENT OF FUTURE DIVIDENDS ON THE FON
STOCK AND THE PCS STOCK.
30
<PAGE>
SPRINT CORPORATION
SELECTED FINANCIAL DATA
The following unaudited table sets forth Selected Financial Data of Sprint
Corporation and its subsidiaries ("Sprint") and should be read in conjunction
with Sprint's Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and Notes
thereto in Annex I. The Selected Financial Data at December 31, 1997, 1996,
1995, 1994 and 1993, and for each of the five years in the period ended
December 31, 1997 have been derived from the Consolidated Financial Statements
of Sprint which have been audited by Ernst & Young LLP, independent auditors.
The Selected Financial Data at March 31, 1998, and for the three months ended
March 31, 1998 and 1997, have been derived from the unaudited Consolidated
Financial Statements of Sprint, which have been prepared on the same basis as
Sprint's audited Consolidated Financial Statements and, in the opinion of
management, contain all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net operating revenues.. $ 3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 668.2 604.7 2,451.4 2,267.2 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 216.5 290.0 952.5 1,190.9 946.1 899.2 517.1
Earnings per common
share from continuing
operations(1), (2)
Basic.................. 0.50 0.67 2.21 2.82 2.71 2.59 1.51
Diluted................ 0.49 0.67 2.18 2.79 2.69 2.56 1.49
Dividends per common
share.................. 0.25 0.25 1.00 1.00 1.00 1.00 1.00
CASH FLOW DATA
Cash from operating
activities--continuing
operations(3).......... $ 988.4 $ 700.1 $ 3,379.0 $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8
Capital expenditures.... 787.9 574.4 2,862.6 2,433.6 1,857.3 1,751.6 1,429.8
BALANCE SHEET DATA
Total assets............ $18,891.8 $18,184.8 $16,826.4 $15,074.3 $14,425.2 $13,781.8
Property, plant and
equipment, net......... 11,914.2 11,494.1 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
short-term borrowings). 4,203.5 3,879.6 3,273.9 5,668.9 4,927.7 5,084.1
Redeemable preferred
stock.................. 9.5 11.5 11.8 32.5 37.1 38.6
Common stock and other
stockholders' equity... 9,156.2 9,025.2 8,519.9 4,642.6 4,524.8 3,918.3
</TABLE>
- --------
SPRINT ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS
PER SHARE" ("EPS"), AT YEAR-END 1997 (SEE NOTE 12 OF NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS). EPS AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH THIS NEW
STANDARD. ALL EPS AMOUNTS DISCUSSED HEREIN REPRESENT "BASIC" EPS AS DEFINED IN
THE NEW STANDARD.
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT-
YEAR PRESENTATION. THESE RECLASSIFICATIONS HAD NO EFFECT ON THE RESULTS OF
OPERATIONS OR STOCKHOLDERS' EQUITY AS PREVIOUSLY REPORTED.
(1) During 1997 and 1996, Sprint recorded nonrecurring charges of $20 and $60
million, respectively, related to litigation within the long distance
division. These charges reduced income from continuing operations by $13
million ($0.03 per share) in 1997 and $36 million ($0.09 per share) in
1996.
During 1995, Sprint recorded a nonrecurring charge of $88 million related to
a restructuring within the local telecommunications division, which reduced
income from continuing operations by $55 million ($0.16 per share).
During 1993, Sprint recorded nonrecurring charges of $293 million related to
(a) transaction costs from the merger with Centel Corporation and expenses
of integrating and restructuring the operations of the two companies and (b)
a realignment and restructuring within the long distance division. These
charges reduced income from continuing operations by $193 million ($0.57 per
share).
(2) During 1997, Sprint recognized gains of $45 million on sales of local
exchanges and a $26 million gain on the sale of an equity investment in an
equipment provider. These gains increased income from continuing operations
by $27 million ($0.06 per share) and $17 million ($0.04 per share),
respectively.
During 1994, Sprint recognized a $35 million gain on the sale of equity
securities, which increased income from continuing operations by $22 million
($0.06 per share).
During 1993, due to the enactment of the Revenue Reconciliation Act of 1993,
Sprint adjusted its deferred income tax assets and liabilities to reflect
the increased tax rate. This adjustment reduced income from continuing
operations by $11 million ($0.03 per share).
(3) The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
31
<PAGE>
FON GROUP
SELECTED FINANCIAL DATA
The following unaudited table sets forth Selected Financial Data of the FON
Group and should be read in conjunction with the FON Group Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
the FON Group Combined Financial Statements and Notes thereto in Annex III. The
Selected Financial Data at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, have been derived from the
FON Group Combined Financial Statements, which have been audited by Ernst &
Young LLP, independent auditors. The Selected Financial Data at December 31,
1995, 1994 and 1993 and at March 31, 1998 and for each of the two years in the
period ended December 31, 1994 and for the three months ended March 31, 1998
and 1997, have been derived from the unaudited FON Group Combined Financial
Statements. The unaudited FON Group Combined Financial Statements have been
prepared on the same basis as the audited FON Group Combined Financial
Statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations for these periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net operating revenues.. $ 3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 686.8 605.5 2,469.9 2,267.7 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 359.2 343.0 1,371.6 1,310.6 966.0 899.2 517.1
CASH FLOW DATA
Cash from operating
activities--continuing
operations(3).......... $ 786.0 $ 650.8 $ 2,906.8 $ 2,267.3 $ 2,590.1 $ 2,339.6 $ 2,007.8
Capital expenditures.... 609.3 567.4 2,708.9 2,433.6 1,857.3 1,751.6 1,429.8
BALANCE SHEET DATA
Total assets............ $17,169.2 $16,491.7 $15,566.6 $14,100.6 $14,374.1 $13,781.8
Property, plant and
equipment, net......... 11,466.5 11,316.8 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
short-term borrowings). 4,122.6 3,879.6 3,273.9 5,668.9 4,927.7 5,084.1
Group equity............ 7,972.3 7,639.3 7,332.3 3,676.9 4,473.7 3,918.3
</TABLE>
- --------
(1) During 1997 and 1996, the FON Group recorded nonrecurring charges of $20
and $60 million, respectively, related to litigation within the long
distance division. These charges reduced income from continuing operations
by $13 million in 1997 and $36 million in 1996.
During 1995, the FON Group recorded a nonrecurring charge of $88 million
related to a restructuring within the local telecommunications division,
which reduced income from continuing operations by $55 million.
During 1993, the FON Group recorded nonrecurring charges of $293 million
related to (a) transaction costs from the merger with Centel Corporation and
expenses of integrating and restructuring the operations of the two
companies and (b) a realignment and restructuring within the long distance
division. These charges reduced income from continuing operations by $193
million.
(2) During 1997, the FON Group recognized gains of $45 million on sales of
local exchanges and a $26 million gain on the sale of an equity investment
in an equipment provider. These gains increased income from continuing
operations by $27 million and $17 million, respectively.
During 1994, the FON Group recognized a $35 million gain on the sale of
equity securities, which increased income from continuing operations by $22
million.
During 1993, due to the enactment of the Revenue Reconciliation Act of 1993,
the FON Group adjusted its deferred income tax assets and liabilities to
reflect the increased tax rate. This adjustment reduced income from
continuing operations by $11 million.
(3) The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
32
<PAGE>
HISTORICAL PCS GROUP
SELECTED FINANCIAL DATA
The following unaudited table sets forth historical Selected Financial Data
of SprintCom and Sprint's investments in Sprint Spectrum Holdings and
PhillieCo. The investments in Sprint Spectrum Holdings (which includes Sprint
Spectrum, Cox PCS and APC) and PhillieCo during the periods shown have been
accounted for on the equity basis. The results of SprintCom, a wholly-owned
subsidiary of Sprint, are accounted for on a consolidated basis. Subsequent to
the PCS Restructuring, the results of Sprint Spectrum Holdings and PhillieCo
will be accounted for on the consolidated basis in the PCS Group Combined
Financial Statements. The Selected Financial Data set forth below should be
read in conjunction with the PCS Group Management's Discussion and Analysis of
Financial Condition and Results of Operations and the PCS Group Combined
Financial Statements and Notes thereto (the "PCS Group Historical Financial
Statements") in Annex II. The Selected Financial Data at December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
have been derived from the PCS Group Historical Financial Statements, which
have been audited by Ernst & Young LLP, independent auditors. The Selected
Financial Data at December 31, 1995 and 1994 and at March 31, 1998 and for the
year ended December 31, 1994 and for the three months ended March 31, 1998 and
1997, have been derived from the unaudited PCS Group Historical Financial
Statements. The unaudited PCS Group Historical Financial Statements have been
prepared on the same basis as the audited PCS Group Historical Financial
Statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations for these periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -----------------------------------
1998 1997 1997 1996 1995 1994(1)
-------- ------ -------- -------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Operating loss........... $ (18.6) $ (0.8) $ (18.5) $ (0.5) $ -- $ --
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo............... (209.7) (85.9) (659.6) (191.8) (31.4) --
Net loss................. (142.7) (53.0) (419.1) (119.7) (19.9) --
CASH FLOW DATA
Cash from operating
activities.............. $ (31.0) $ 4.2 $ 37.5 $ (0.5) $ -- $ --
Capital expenditures..... 178.6 7.0 153.7 -- -- --
Purchase of PCS licenses. -- 25.2 460.1 84.0 -- --
Investments in Sprint
Spectrum Holdings and
PhillieCo............... 33.5 16.5 405.9 297.5 910.9 51.1
BALANCE SHEET DATA
Total assets............. $1,802.5 $1,693.1 $1,259.8 $973.7 $51.1
Property, plant and
equipment............... 447.7 177.3 -- -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo............... 792.2 968.4 1,175.8 973.7 51.1
Construction and capital
lease obligations....... 215.9 -- -- -- --
Group equity............. 1,183.9 1,385.9 1,187.6 965.7 51.1
</TABLE>
- --------
(1) The PCS Group had no operations prior to 1994.
33
<PAGE>
HISTORICAL SUPPLEMENTAL FINANCIAL AND OTHER DATA OF SPRINT SPECTRUM, APC, COX
PCS, PHILLIECO AND SPRINTCOM ON A COMBINED BASIS
The following unaudited table sets forth certain historical supplemental
financial and other data of Sprint Spectrum, APC, Cox PCS, PhillieCo and
SprintCom on a combined basis. Sprint Spectrum Holdings expects to increase its
ownership interest in Cox PCS from 49.0% to 59.2% by the end of June, 1998. The
minority interest in Cox PCS has been reflected in the table below. The table
is not intended to replace the Historical PCS Group Selected Financial Data, as
presented on the previous page. This combined financial information is
presented to supplement the Historical PCS Group Selected Financial Data in
order to facilitate an understanding of the underlying historical combined
operations, cash flows and financial position of the various PCS businesses
that will comprise the PCS Group subsequent to the PCS Restructuring.
Subsequent to the PCS Restructuring, the financial statements of the PCS Group
will include the operating results of Sprint Spectrum, APC, Cox PCS and
PhillieCo as well as the operating results of SprintCom. The following
supplemental information, however, does not reflect the effects of the PCS
Restructuring, the Recapitalization or the IPO and is not intended to indicate
the results of future operations.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
-------- -------- --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net operating revenues...... $ 207.6 $ 43.9 $ 401.8 $ 76.7 $ 5.2
Operating expenses
Cost of revenues.......... 254.1 101.5 775.7 178.8 17.4
Selling, general and
administrative........... 280.4 175.6 946.5 456.2 108.4
Depreciation and
amortization............. 140.2 48.3 378.5 36.1 3.1
-------- -------- --------- -------- --------
Total operating expenses.... 674.7 325.4 2,100.7 671.1 128.9
-------- -------- --------- -------- --------
Operating loss.............. (467.1) (281.5) (1,698.9) (594.4) (123.7)
Interest expense............ (105.5) (10.9) (164.3) (26.4) (2.0)
Other income................ 6.0 18.4 27.2 9.6 1.6
Minority interest........... 29.4 22.7 92.5 24.8 2.4
-------- -------- --------- -------- --------
Pretax loss................. $ (537.2) $ (251.3) $(1,743.5) $ (586.4) $ (121.7)
======== ======== ========= ======== ========
CASH FLOW DATA
Capital expenditures........ $ 519.9 $ 437.7 $ 2,617.6 $1,661.8 $ 146.1
Purchase of PCS licenses.... -- 277.1 460.1 84.0 2,086.3
BALANCE SHEET DATA
Property, plant and
equipment, net............. $4,556.9 $ 4,042.4 $1,808.8 $ 157.4
Investment in PCS licenses.. 3,279.9 3,213.9 2,391.6 2,311.9
Long-term debt and
construction obligations... 5,600.6 4,564.7 1,370.5 88.8
OTHER DATA
Subscribers at end of period
(in thousands)............. 1,114 192 887 154 --
Operating cash flow (1)..... $ (326.9) $ (233.2) $(1,320.4) $ (558.3) $ (120.6)
</TABLE>
- --------
(1) Operating cash flow represents operating loss plus depreciation and
amortization. This measurement is not an alternative to operating income as
an indicator of operating performance or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles.
34
<PAGE>
SPRINT CORPORATIONPRO FORMA FINANCIAL DATA
The following unaudited table sets forth pro forma statement of operations
data of Sprint for the year ended December 31, 1997 and the three months ended
March 31, 1998 and pro forma balance sheet data at March 31, 1998. This pro
forma data has been derived from, and is qualified by reference to, the
unaudited pro forma condensed combined financial statements of Sprint included
elsewhere in this Proxy Statement. The pro forma statement of operations data
gives effect to the PCS Restructuring, the Recapitalization and the proposed
IPO of the PCS Stock as though such transactions had occurred on January 1,
1997. The pro forma balance sheet data gives effect to the PCS Restructuring,
the Recapitalization and the proposed IPO of the PCS Stock as though such
transactions had occurred on March 31, 1998. There can be no assurance that the
IPO will occur. The information set forth below should be read in conjunction
with Sprint's Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Pro Forma Condensed Combined Financial Statements
and related notes thereto of Sprint in Annex I.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, 1998 DECEMBER 31, 1997
-------------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net operating revenues................. $4,095.1 $15,131.9
Operating income....................... 228.6 872.6
Earnings (loss) from continuing opera-
tions applicable to Common Stock:
FON Group............................ $ 351.0 $ 1,365.4
PCS Group............................ (353.7) (1,124.5)
-------- ---------
Total Sprint......................... $ (2.7) $ 240.9
======== =========
Basic earnings (loss) per common share
from continuing operations
FON Group............................ $ $
PCS Group............................ $ $
Basic weighted average common shares
FON Group............................
PCS Group............................
Diluted earnings (loss) per common
share from continuing operations
FON Group............................ $ $
PCS Group............................ $ $
Diluted weighted average common shares
FON Group............................
PCS Group............................
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------
(IN MILLIONS)
<S> <C>
BALANCE SHEET DATA (UNAUDITED)
Total assets.................................................. $29,172.0
Property, plant and equipment, net............................ 15,636.7
Total debt (including short-term borrowings).................. 7,895.8
Common stock and other stockholders' equity................... 14,239.2
</TABLE>
35
<PAGE>
PCS GROUP
PRO FORMA FINANCIAL DATA
The following unaudited table sets forth pro forma statement of operations
data of the PCS Group for the year ended December 31, 1997 and the three months
ended March 31, 1998 and pro forma balance sheet data as of March 31, 1998.
This pro forma data has been derived from, and is qualified by reference to,
the unaudited pro forma condensed combined financial statements of the PCS
Group included elsewhere in this Proxy Statement. The pro forma statement of
operations data gives effect to the PCS Restructuring, the Recapitalization and
the proposed IPO of the PCS Stock as though such transactions had occurred on
January 1, 1997. The pro forma balance sheet data gives effect to the PCS
Restructuring, the Recapitalization and the proposed IPO of the PCS Stock as
though such transactions had occurred on March 31, 1998. There can be no
assurance that the IPO will occur. The information set forth below should be
read in conjunction with the PCS Group's Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Pro Forma Condensed
Combined Financial Statements and related notes thereto of the PCS Group in
Annex II.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net operating revenues..................... $ 184.2 $ 258.0
Operating loss............................. (458.2) (1,597.3)
Net loss................................... (353.7) (1,124.5)
Basic and dilutive loss per common share... $ $
Weighted average common shares.............
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------
(IN MILLIONS)
-----------------
<S> <C>
BALANCE SHEET DATA
Total assets.................................................. $12,358.1
Property, plant and equipment, net............................ 4,170.2
Total debt (including short-term borrowings).................. 3,894.7
Group equity.................................................. 6,323.2
</TABLE>
36
<PAGE>
COMPARATIVE PER SHARE FINANCIAL INFORMATION
The following unaudited information reflects certain comparative per share
data related to earnings (loss) from continuing operations, cash dividends and
book value (i) on a historical basis for Sprint, (ii) on a pro forma basis for
the FON Stock and the PCS Stock giving effect to the PCS Restructuring and the
Recapitalization, and (iii) on a pro forma basis as adjusted for the FON Stock
and the PCS Stock giving effect to the PCS Restructuring, the Recapitalization
and the IPO.
This information should be read in conjunction with the pro forma condensed
combined financial statements of Sprint and the PCS Group and the historical
financial statements of Sprint, the FON Group and the PCS Group included
elsewhere in this Proxy Statement. The information presented in the table is
not necessarily indicative of future combined earnings or financial position or
of combined earnings or financial position that would have been reported had
the PCS Restructuring, the Recapitalization and the IPO been completed at
January 1, 1997 or, in the case of book value per share, at March 31, 1998.
<TABLE>
<CAPTION>
PRO FORMA AS
SPRINT PRO FORMA ADJUSTED
---------- ------------- ------------
FON PCS FON PCS
HISTORICAL STOCK STOCK STOCK STOCK
---------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Earnings (loss) per common share
from continuing operations
Basic............................. $ 2.21 $ $ $ $
Diluted........................... 2.18
Cash dividends per common share..... 1.00 1.00 -- 1.00 --
THREE MONTHS ENDED MARCH 31, 1998
Earnings (loss) per common share
from continuing operations
Basic............................. $ 0.50 $ $ $ $
Diluted........................... 0.49
Cash dividends per common share..... 0.25 0.25 -- 0.25 --
AS OF MARCH 31, 1998
Book value per common share......... $21.27 $ $ $ $
</TABLE>
37
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations and business of Sprint, the FON
Group and the PCS Group. Statements in this document that are not historical
facts are hereby identified as "forward-looking statements" for the purpose of
the safe harbor provided by Section 21E of the Exchange Act and Section 27A of
the Securities Act. Such forward-looking statements, including, without
limitation, those relating to the future business prospects, revenues, working
capital, liquidity, capital needs, interest costs and income, in each case
relating to Sprint, Sprint Spectrum Holdings, SprintCom, PhillieCo, the FON
Group and PCS Group, wherever they occur in this Proxy Statement, are
necessarily estimates reflecting the best judgment of the senior management of
Sprint and Sprint Spectrum and involve a number of risks and uncertainties that
could cause actual results to differ materially from those suggested by the
forward-looking statements. Such forward-looking statements should, therefore,
be considered in light of various important factors, including those set forth
in this Proxy Statement. Important factors that could cause actual results to
differ materially from estimates or projections contained in the forward-
looking statements include without limitation (i) the effects of vigorous
competition in the markets in which these entities operate; (ii) the cost of
entering new markets necessary to provide nationwide services; (iii) the
ability of the PCS Group to establish a significant market presence; (iv) the
risks related to Sprint's investments in Global One and other joint ventures;
(v) the impact of any unusual items resulting from ongoing evaluations of the
business strategies of these entities; (vi) requirements imposed on these
entities or latitude allowed to their competitors by the Federal Communications
Commission (the "FCC") or state regulatory commissions under the
Telecommunications Act of 1996 (the "Telecom Act") or other applicable laws and
regulations; (vii) unexpected results of litigation filed against these
entities; and (viii) the possibility of one or more of the markets in which
these entities compete being impacted by changes in political, economic or
other factors such as monetary policy, legal and regulatory changes or other
external factors over which these entities have no control. See "Risk Factors--
The Tracking Stock Proposal" and "Risk Factors--The PCS Group."
The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements. These forward-
looking statements are found at various places throughout this Proxy Statement
and the other documents incorporated herein by reference, including, but not
limited to, Sprint's Annual Report on Form 10-K (including any amendments
thereto) and Sprint Spectrum's Annual Report on Form 10-K (including any
amendments thereto). Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Sprint
undertakes no obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Moreover, in the future,
Sprint, through senior management, may make forward-looking statements about
the matters described herein or other matters concerning Sprint, Sprint
Spectrum Holdings, SprintCom, PhillieCo, the FON Group or the PCS Group.
38
<PAGE>
RISK FACTORS--THE TRACKING STOCK PROPOSAL
You should consider the following factors, in addition to the other
information contained elsewhere in this Proxy Statement, in connection with
the Tracking Stock Proposal. For definitions of certain defined terms, see the
Glossary which appears immediately before the Annexes.
STOCKHOLDERS OF ONE CORPORATION; FINANCIAL EFFECTS OF ONE GROUP COULD
ADVERSELY AFFECT THE OTHER; CURRENT STOCKHOLDERS WILL BECOME STOCKHOLDERS OF A
MORE LEVERAGED ENTITY
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and stockholders' equity between the FON Group and the
PCS Group for the purpose of preparing the respective financial statements of
such Groups, holders of FON Stock and PCS Stock will be subject to risks
associated with an investment in a single corporation. Such allocation of
assets and liabilities and change in the equity structure of Sprint will not
result in a distribution or spin-off to stockholders of any assets or
liabilities of Sprint or any of its subsidiaries or otherwise affect
responsibility for the liabilities of Sprint or such subsidiaries. Thus, the
rights of holders of Sprint's or any of its subsidiaries' debt will not be
affected by the Tracking Stock Proposal. Financial effects arising from either
Group that affect Sprint's results of operations or financial condition could
affect the results of operations or financial position of the other Group or
the market price of the class of Common Stock relating to the other Group. In
addition, the incurrence of significant indebtedness by Sprint or one of its
subsidiaries on behalf of a Group, including indebtedness incurred or assumed
in connection with acquisitions of or investments in businesses, would
continue to affect the credit ratings of Sprint and its subsidiaries and
therefore could increase the borrowing costs of the other Group and Sprint as
a whole. In addition, as a result of Sprint's acquisition of 100% of the
entities comprising the PCS Group in connection with the PCS Restructuring,
the current stockholders of Sprint will become stockholders of a more
leveraged entity. As of March 31, 1998, Sprint's aggregate indebtedness
totaled approximately $4.2 billion. Upon completion of the PCS Restructuring
(including the effects of the exercise of Equity Purchase Rights by FT and DT
in connection with the PCS Restructuring but excluding any effects of the IPO
immediately following the PCS Restructuring and any exercise of Equity
Purchase Rights by FT and DT and/or the Cable Parents in connection with such
IPO), Sprint's aggregate indebtedness, as of March 31, 1998, on a pro forma
basis, would have totalled approximately $8.5 billion, an increase of $4.3
billion. Moreover, any net losses of the FON Group or the PCS Group, and any
dividends or distributions on, or repurchases of, FON Stock, PCS Stock,
Preferred Stock or other stock, will reduce the funds of Sprint legally
available for payment of future dividends on the FON Stock and the PCS Stock.
Accordingly, Sprint's consolidated financial information should be read in
conjunction with the combined financial information for both the FON Group and
the PCS Group.
NO ASSURANCE AS TO MARKET PRICE; NO EXISTING MARKET
There can be no assurance that investors will assign values to the FON Stock
and PCS Stock based on the reported financial results and prospects of the
relevant Group or the dividend policies established by the Sprint Board with
respect to such Group. Events attributable to either Group that affect
Sprint's consolidated results of operations or financial condition could
affect the results of operations or financial condition of the other Group as
well as the market price of shares of both the FON Stock and the PCS Stock. In
addition, Sprint cannot predict the market impact of certain terms of the FON
Stock and the PCS Stock, such as the redemption and conversion rights
applicable upon the disposition of substantially all the assets attributed to
the PCS Group, the ability of Sprint to convert shares of the PCS Stock into
shares of FON Stock or the discretion of the Sprint Board to make various
determinations.
Because there has been no prior market for the FON Stock or the PCS Stock,
there can be no assurance as to their market prices following the
implementation of the Tracking Stock Proposal. Moreover, there can be no
assurance that the combined market values of the FON Stock and the PCS Stock
held by a stockholder after the implementation of the Tracking Stock Proposal
will equal or exceed the market value of the Existing Common Stock held by
such stockholder prior to the implementation of the Tracking Stock Proposal.
Until an orderly
39
<PAGE>
market develops for the FON Stock and the PCS Stock, their respective trading
prices may fluctuate significantly. If an active trading market does develop
in any of such shares, there can be no assurance that it will be maintained.
The market prices of the FON Stock and the PCS Stock will be determined in the
trading markets and could be influenced by many factors, including the
consolidated results of Sprint, as well as the respective performances of the
FON Group and the PCS Group, investors' expectations for Sprint as a whole,
the FON Group and the PCS Group, the regulatory environment, trading volume,
share issuances and repurchases and general economic and market conditions.
LIMITED SEPARATE STOCKHOLDER RIGHTS; NO ADDITIONAL RIGHTS WITH RESPECT TO THE
GROUPS; EFFECTS ON VOTING POWER
Under the Tracking Stock Proposal, holders of FON Stock and PCS Stock will
have only the rights customarily held by common stockholders of any
corporation and will not have any rights related to their corresponding Group,
except for (i) in the case of the PCS Stock, the requirement that a dividend,
redemption or conversion occur upon the disposition of all or substantially
all (as defined in the Articles Amendment to mean at least 80% on a then-
current market value basis) of the assets attributed to the PCS Group, (ii)
fluctuating voting rights and (iii) the right to vote on certain matters as a
separate class, each as described under "Description of Capital Stock," and in
the limited circumstances provided under the Kansas General Corporation Code
or by stock exchange rules. Separate meetings for the holders of FON Stock and
PCS Stock will not be held. In addition, principles of Kansas law and Delaware
law (treated as persuasive authority by Kansas courts when interpreting the
Kansas General Corporation Code, which is based upon the Delaware General
Corporation Law) established in cases involving differing treatment of two
classes of capital stock or two groups of holders of the same class of capital
stock provide that a board of directors owes an equal duty to all stockholders
regardless of class or series and does not have separate or additional duties
to either group of stockholders.
The holders of FON Stock, Class A Common Stock and PCS Stock will vote
together as a single voting group, except as to certain amendments to the
Sprint Bylaws and the Amended Articles. Accordingly, if a separate vote on a
matter by the holders of either the FON Stock or the PCS Stock is not required
under the Kansas General Corporation Code or by stock exchange rules, and if
the Sprint Board does not require a separate vote, any class of Common Stock
that is entitled to more than the number of votes required to approve such
matter will be in a position to control the outcome of such vote even if the
matter involves a divergence or conflict of the interests of the holders of
the FON Stock and the PCS Stock. For example, if the holders of Common Stock
having a majority of the voting power of all shares of Common Stock
outstanding approved a merger or statutory share exchange, the terms of which
did not require separate class voting under the Kansas General Corporation
Code or stock exchange rules, then (i) the merger or statutory share exchange
could be consummated even if the holders of a majority of any particular class
of Common Stock (but less than a majority of all the outstanding voting power)
were to vote against the merger or statutory share exchange and (ii) the
amount to be received by the holders of such class of Common Stock in the
merger or consolidation might be materially less than the amount such holders
would have received had the approval of the holders of a majority of such
class of Common Stock been required. See "--Potential Diverging Interests--
Allocation of Proceeds from Merger or Acquisition of Sprint."
Conversely, if a separate vote on a matter by the holders of either FON
Stock or the PCS Stock is required under the Kansas General Corporation Code,
by stock exchange rules or by the Sprint Board, such holders of either FON
Stock or PCS Stock could prevent approval of such matter, even if the holders
of a majority of the total number of votes cast or entitled to be cast with
respect to both the FON Stock and the PCS Stock voting together as a group
were to vote in favor of the matter. See "The Tracking Stock Proposal,"
"Description of Capital Stock--Voting Rights of Common Stock" and "--Potential
Diverging Interests--Allocation of Proceeds of Merger or Acquisition of
Sprint."
The relative voting power of shares of FON Stock, Class A Common Stock and
PCS Stock will fluctuate from time to time. Each share of Series 1 FON Stock
and Series 3 FON Stock will have one vote, each share of
40
<PAGE>
Series 2 FON Stock will have 1/10th of a vote. Each share of Series 1 PCS
Stock and Series 3 PCS Stock will have the PCS Per Share Vote and each share
of Series 2 PCS Stock will have 1/10th of a PCS Per Share Vote. Each share of
Existing Class A Common Stock will have the Existing Class A FON Vote Per
Share plus the Existing Class A PCS Vote Per Share, and each share of DT Class
A Stock will have the DT Class A FON Vote Per Share plus the DT Class A PCS
Vote Per Share. The formula for calculating the PCS Per Share Vote is intended
to associate the proportionate voting rights of FON Stock and PCS Stock with
their respective market prices at the time of any vote. Accordingly, the
relative voting power per share of FON Stock, Class A Common Stock and PCS
Stock will fluctuate based on the respective market prices of the Series 1 FON
Stock and Series 1 PCS Stock. Sprint anticipates that the FON Stock will
initially represent a majority of the voting power of all Sprint Voting Stock
entitled to vote in the election of directors because the aggregate market
value of the outstanding shares of FON Stock is expected initially to be
substantially greater than the aggregate market value of the outstanding
shares of PCS Stock. Market value could be influenced by many factors,
including the results of operations of Sprint and each of the Groups, the
regulatory environment, trading volume, share issuances and repurchases and
general economic and market conditions. Such changes in the aggregate votes or
relative voting power of the PCS Stock or FON Stock could result from the
market's reaction to a decision by Sprint's management or the Sprint Board
that is perceived to disparately affect one class of Common Stock in
comparison to another.
POTENTIAL DIVERGING INTERESTS
The existence of separate classes of Common Stock could give rise to
occasions when the interests of the holders of FON Stock and the holders of
PCS Stock diverge, conflict or appear to diverge or conflict. Examples include
determinations by the Sprint Board to (i) pay or omit the payment of dividends
on FON Stock or PCS Stock, (ii) allocate among holders of FON Stock and PCS
Stock consideration to be received by holders of Common Stock generally in
connection with a merger or consolidation involving Sprint, (iii) convert one
class of Common Stock into shares of another class of Common Stock, (iv)
approve certain dispositions of assets attributed to any Group, (v) if and to
the extent there is an Inter-Group Interest, allocate the proceeds of
issuances of PCS Stock either to the FON Group (and record a corresponding
reduction in such Inter-Group Interest) or to the equity of the PCS Group,
(vi) formulate uniform public policy positions for Sprint, (vii) establish
material commercial relationships between Groups, and (viii) make operational
and financial decisions with respect to one Group that could be considered to
be detrimental to the other Group.
Subject to the provisions of the Tracking Stock Policies, which generally
can be changed by the Sprint Board at any time (although there is no present
intention to do so, and Sprint has agreed with the Cable Parents, FT and DT
not to do so prior to the Recapitalization), in resolving any given conflict
the Sprint Board may benefit, or appear to benefit, the interests of one Group
at the expense of the other Group. Each of the foregoing potential diverging
or conflicting interests is discussed below:
No Assurance of Payment of Dividends. The Sprint Board currently intends
that the dividend policy applicable to the FON Stock would be the same as the
dividend policy applicable to the Existing Common Stock and believes that
implementation of the Tracking Stock Proposal would not adversely affect
Sprint's ability to pay dividends on the FON Stock. The Sprint Board currently
does not expect to declare any dividends on the PCS Stock in the foreseeable
future. Determinations as to the future dividends, if any, on the FON Stock,
the PCS Stock and the Class A Common Stock (to the extent it represents any
unissued shares of FON Stock or PCS Stock), would be based primarily upon the
financial condition, results of operations and business requirements of the
relevant Group and Sprint as a whole. The Articles Amendment provides that
dividends to holders of Common Stock generally can be declared and paid out of
funds of Sprint legally available therefor. However, the Tracking Stock
Policies adopted by the Sprint Board provide that dividends, if any, on the
FON Stock, the PCS Stock and the Class A Common Stock (to the extent it
represents any unissued shares of FON Stock or PCS Stock) would be payable out
of the lesser of (i) all funds of Sprint legally available for the payment of
dividends and (ii) the Available Dividend Amount with respect to the relevant
Group. Future dividends will not necessarily bear a direct relationship to
earnings and retained earnings as expressed on each Group's financial
41
<PAGE>
statements as determined in accordance with generally accepted accounting
principles. Net losses of any Group and dividends and distributions on, and
repurchases of, any class of Common Stock or Preferred Stock would reduce the
assets of Sprint legally available for future dividends on the FON Stock,
Class A Common Stock and the PCS Stock. Subject to limitations under the
Kansas General Corporation Code and the Tracking Stock Policies, the Sprint
Board could declare and pay dividends exclusively on the FON Stock and the
Class A Common Stock (to the extent it represents unissued shares of such
stock), exclusively on the PCS Stock and the Class A Common Stock (to the
extent it represents unissued shares of such stock) or on both, in equal or
unequal amounts. The Tracking Stock Policies generally may be modified,
suspended, or rescinded and additions adopted or exceptions made by the Sprint
Board at any time (although there is no present intention to do so, and Sprint
has agreed with the Cable Parents, FT and DT not to do so prior to the
Recapitalization). If the dividend policy set forth in the Tracking Stock
Policies were so altered, the Sprint Board could, under the Articles
Amendment, declare dividends on the PCS Stock and the Class A Common Stock (to
the extent it represents unissued shares of such stock) in excess of the PCS
Group Available Dividend Amount, or could declare dividends on the FON Stock
and the Class A Common Stock (to the extent it represents unissued shares of
such stock) in excess of the FON Group Available Dividend Amount (although not
in any case in excess of the funds of Sprint legally available for the payment
of dividends). See "The Tracking Stock Proposal--Tracking Stock Policies--
Dividend Policy" and "--Description of Capital Stock--Dividends on Common
Stock."
Allocation of Proceeds from Merger or Acquisition of Sprint. The Tracking
Stock Policies provide that the Sprint Board will not recommend any
transaction that would result in a Change in Control of Sprint or a Strategic
Merger without a prior determination that the terms of such transaction are
fair to holders of PCS Stock, taken as a separate class, and holders of FON
Stock, taken as a separate class. Other than this and other provisions in the
Tracking Stock Policies that relate to treatment of holders of the separate
classes of Common Stock, there are no specific provisions of the Tracking
Stock Proposal governing how consideration to be received by holders of Common
Stock generally in connection with a merger or consolidation involving Sprint
as a whole is to be allocated among holders of different classes of Common
Stock. The Tracking Stock Policies generally may be changed by the Sprint
Board at any time after the Recapitalization (although there is no present
intention to do so). In any merger or consolidation, the percentage of the
consideration to be allocated to holders of any class of Common Stock will be
determined by the Sprint Board in accordance with the Tracking Stock Policies.
See "--Limited Separate Stockholder Rights; No Additional Rights with Respect
to the Groups; Effects on Voting Power" and "The Tracking Stock Proposal--
Tracking Stock Policies."
Optional Conversion of PCS Stock. The Sprint Board may at any time after the
third anniversary and before the fourth anniversary of the Closing Date,
convert each share of PCS Stock into a number of shares of FON Stock at a
price equal to 110% of the Optional Conversion Ratio computed as of the fifth
trading day prior to the date that the notice of conversion is sent to holders
of PCS Stock. The Sprint Board may also convert shares of PCS Stock into
shares of FON Stock on or after the fourth anniversary of the Closing Date,
and the applicable conversion rate will be determined by the Sprint Board,
subject to a provision in the Articles Amendment requiring the Sprint Board to
make independent determinations with regard to the fairness of the conversion
ratio to the holders of the FON Stock, taken as a separate class, and to the
holders of the PCS Stock, taken as a separate class. In addition, the Sprint
Board could determine to convert each share of PCS Stock into shares of
FON Stock at a price equal to 110% of the average Market Values of one share
of Series 1 PCS Stock to one share of Series 1 FON Stock, calculated over a
10-trading day period beginning on the 16th trading day after consummation of
the disposition following any disposition of all or substantially all of the
properties or assets attributed to the PCS Group. Also, if Sprint redeems
substantially all (but not all) of the shares of PCS Stock (or declares and
pays a dividend on the PCS Stock) following such a disposition, the Sprint
Board could determine to convert each share of PCS Stock still outstanding at
a price equal to 110% of the Optional Conversion Ratio prior to the first
anniversary of such payment. In each such case, the number of unissued shares,
if any, of PCS Stock represented by the shares of Class A Common Stock would
be converted into a number of unissued shares of FON Stock on an equivalent
basis. Any such determination could be made at a time when either or both of
the FON Stock and the PCS Stock may be considered to be overvalued or
undervalued. In addition, any such conversion at any premium would dilute the
interests of the holders of the
42
<PAGE>
FON Stock in Sprint and would preclude holders of both FON Stock and PCS Stock
from retaining their investment in a security that is intended to reflect
separately the performance of the relevant Group. See "The Tracking Stock
Proposal" and "Description of Capital Stock--Conversion and Redemption."
Dispositions of Group Assets. Assuming the assets attributed to either Group
represent less than substantially all of the properties and assets of Sprint,
the Sprint Board could, without stockholder approval, approve sales and other
dispositions of any amount of the properties and assets attributed to such
Group in compliance with Kansas law and the Articles Amendment, which require
stockholder approval only for a sale or other disposition of all or
substantially all of the properties and assets of Sprint as a whole. The
proceeds from any such disposition would be assets attributed to such Group
and used for its benefit, subject to the Tracking Stock Policies described
under "The Tracking Stock Proposal--Tracking Stock Policies." The Articles
Amendment also contains provisions to the effect that, in the event of a
disposition of all or substantially all of the properties and assets
attributed to the PCS Group (defined to mean 80% or more on a then-current
market value basis), other than, among others, in a Related Business
Transaction, Sprint will be required to either (i) distribute to holders of
PCS Stock and Class A Common Stock (but only to the extent such stock
represents a number of unissued shares of PCS Stock) an amount of cash and/or
securities (other than Common Stock) or other property equal to the fair value
of the net proceeds of such disposition on an after-tax basis, either by
special dividend or by redemption of all or part of the outstanding shares of
PCS Stock, or (ii) convert each outstanding share of PCS Stock into a number
of shares of FON Stock equal to 110% of the ratio, calculated over a 10-day
trading period beginning on the 16th day after the consummation of the
disposition transaction of the average Market Value of one share of PCS Stock
to the average Market Value of one share of FON Stock (and a conversion of the
number of unissued shares, if any, of PCS Stock represented by the Class A
Common Stock into a number of unissued shares of FON Stock on an equivalent
basis). See "The Tracking Stock Proposal" and "Description of Capital Stock--
Conversion and Redemption." The terms of the Common Stock do not require the
Sprint Board to select the option which would result in the distribution with
the highest value to the holders of the PCS Stock or with the smallest effect
on the Common Stock relating to the FON Group. See "--Fiduciary Duties of the
Sprint Board; Potential Conflicts of Interest."
Public Policy Determinations. Because of the nature of the businesses of the
FON Group and the PCS Group, the Groups may have diverging interests as to the
position Sprint should take with respect to various regulatory issues. For
example, FCC regulations which may advance the interests of one Group may not
advance the interests of the other Group. Pursuant to the Tracking Stock
Policies, material matters involving potentially divergent interests will be
resolved in a manner that the Sprint Board (or the Capital Stock Committee)
determines to be in the best interests of Sprint and all of its common
stockholders after giving fair consideration to the potentially divergent
interests and all other relevant interests of the holders of the separate
classes of Common Stock. Nevertheless, the Sprint Board could take steps that
may benefit one Group at the expense of another.
Operational and Financial Decisions. In the future, the Sprint Board could,
subject to the provisions of the Tracking Stock Policies (which generally may
be changed by the Sprint Board (although there is no present intention to do
so, and Sprint has agreed with the Cable Parents, FT and DT not to do so prior
to the Recapitalization)), make operational and financial decisions or
implement policies that affect disproportionately the businesses of the FON
Group and the PCS Group, such as transfers of services, funds or assets
between Groups and other inter-Group transactions, the allocation of financing
opportunities in the public markets and the allocation of business
opportunities, resources and personnel. Any such decision may benefit one
Group at the expense of the other. For example, the decision to obtain funds
for one Group may adversely affect the ability of the other Group to obtain
funds sufficient to implement its growth strategies or the cost of such funds.
In addition, any increased overlap between the businesses of the two Groups as
a result of regulatory changes, technological advancements or other factors
will make such operational and financial decisions more difficult. For further
discussion of potential divergences of interests, see "--Fiduciary Duties of
the Sprint Board; Potential Conflicts of Interest," "--Inter-Group
Transactions" and "The Tracking Stock Proposal--Tracking Stock Policies."
43
<PAGE>
FIDUCIARY DUTIES OF THE SPRINT BOARD; POTENTIAL CONFLICTS OF INTEREST
Sprint is not aware of any legislative or judicial precedent involving the
fiduciary duties of directors of corporations having two classes of common
stock, or separate classes or series of capital stock, the rights of which are
defined by reference to specified operations of the corporation. Principles of
Kansas law and Delaware law (treated as persuasive authority by Kansas courts
when interpreting the Kansas General Corporation Code, which is based upon the
Delaware General Corporation Law) established in cases involving differing
treatment of two classes of capital stock or two groups of holders of the same
class of capital stock provide that a board of directors owes an equal duty to
all stockholders regardless of class or series and does not have separate or
additional duties to either group of stockholders. Under these principles and
the related principle known as the "business judgment rule," absent abuse of
discretion, a good faith business decision made by a disinterested and
adequately informed Sprint Board, or a committee thereof, with respect to any
matter having disparate impacts upon holders of FON Stock and holders of PCS
Stock would be an adequate defense to any challenge to such determination made
by or on behalf of the holders of either class of Common Stock. Moreover, a
court hearing a case involving such a challenge may decide to apply principles
of law other than those discussed above, or may develop new principles of law,
in order to decide such a case.
Directors of Sprint will, as a result of the Recapitalization, own shares of
FON Stock and PCS Stock in the same proportion as such shares are issued to
holders of Existing Common Stock. Thus, each director will have a greater
economic interest in the FON Group than in the PCS Group. Disproportionate
ownership interests of members of the Sprint Board in FON Stock or PCS Stock
or disparities in the respective market values of the FON Stock and the PCS
Stock could give rise to potential claims of conflicts of interest when
Directors are faced with decisions that could have different implications for
the different classes.
INTER-GROUP TRANSACTIONS
The Sprint Board may in certain circumstances determine to transfer funds
between Groups. Transfers of assets from the FON Group to the PCS Group that
are designated by the Sprint Board (consistent with the provisions of the
Tracking Stock Policies) to be treated as an equity contribution by the FON
Group to the PCS Group will result in an increase in the Inter-Group Interest
of the FON Group in the PCS Group.
Although any increase in the Inter-Group Interest resulting from an equity
contribution by the FON Group to the PCS Group, or any decrease in the Inter-
Group Interest resulting from a transfer of funds from the PCS Group to the
FON Group, would be determined by reference to the then-current Market Value
of PCS Stock, such an increase could occur at a time when such shares could be
considered under- or over-valued and such a decrease could occur at a time
when such shares could be considered under- or over-valued. Pursuant to the
Amended Articles and the Tracking Stock Policies, an Inter-Group Interest of
the PCS Group in the FON Group cannot be created. See "The Tracking Stock
Proposal" and "Future Inter-Group Interest."
Pursuant to the Tracking Stock Policies, loans from Sprint or any member of
the FON Group to any member of the PCS Group will be made at interest rates
and on terms and conditions substantially equivalent to the interest rates and
terms and conditions that the PCS Group would be able to obtain from third
parties (including the public markets) as a direct or indirect wholly-owned
subsidiary of Sprint, but without the benefit of any guaranty by Sprint or any
member of the FON Group. The Tracking Stock Policies contemplate that such
loans will be made on the basis set forth above regardless of the interest
rates and terms and conditions on which Sprint or members of the FON Group may
have acquired the subject funds. It is anticipated that interest rates payable
by the PCS Group initially will be higher than that payable by Sprint or the
FON Group.
PAYMENTS PURSUANT TO THE TAX SHARING AGREEMENT SUBJECT TO CHANGE
Sprint expects that significant payments pursuant to the Tax Sharing
Agreement will be made from the FON Group to the PCS Group in the near future,
in light of the substantial operating losses that the PCS Group is expected to
incur during this time. However, there can be no assurances that the FON Group
will continue to generate taxable income in amounts necessary to generate
substantial benefits to the PCS Group or that changes
44
<PAGE>
in law will not adversely affect the availability of tax benefits to Sprint,
the FON Group and the PCS Group. Therefore, there can be no assurance as to
the magnitude of any payments made pursuant to the Tax Sharing Agreement.
The initial Tax Sharing Agreement (including the Stacking Procedure) will
apply to tax years ending on or before December 31, 2001, and will not be
modified, suspended or rescinded, nor will additions or exceptions be made,
for such periods. For subsequent periods, the Sprint Board will adopt a tax
sharing arrangement that will be designed to allocate Sprint's tax benefits
and burdens fairly between the PCS Group and the FON Group. Sprint expects
that tax benefits that cannot be used by a Group generating those benefits but
can be used on a consolidated basis will continue to result in payments to the
Group that generated such benefits based on the value of such benefits to
Sprint on a consolidated basis. In addition, Sprint expects that tax benefits,
if any, pertaining to tax loss or tax credit carry forwards generated by a
Group but not utilized as of the expiration of the initial Tax Sharing
Agreement will continue to result in payments to the Group that generated such
benefits based on the value of such benefits to Sprint on a consolidated basis
when such tax benefits are utilized. Sprint has not determined whether or not
it will continue to utilize the Stacking Procedure for tax years ending after
December 31, 2001.
TRACKING STOCK POLICIES SUBJECT TO CHANGE
The Sprint Board has adopted the Tracking Stock Policies described herein
governing the relationship between the FON Group and the PCS Group and other
"tracking stock" matters. Certain provisions of the Tracking Stock Policies
relating to tax matters (including the Tax Sharing Agreement) and provisions
regarding the allocation of debt expense may not be modified, suspended or
rescinded, nor may additions or exceptions be made to such provisions, prior
to December 31, 2001. The remaining policies may be modified, suspended or
rescinded, or additions or exceptions made thereto, in the sole discretion of
the Sprint Board without approval of the stockholders, although there is no
present intention to do so, and Sprint has agreed with the Cable Parents not
to do so prior to the Recapitalization. The Sprint Board may also adopt
additional policies depending upon the circumstances. In addition, with
respect to accounting matters, generally accepted accounting principles
require that any change in accounting policy be preferable (in accordance with
such principles) to the policy previously established. Any determination of
the Sprint Board to modify, suspend or rescind such policies, or to make
exceptions thereto or adopt additional policies, including any such decision
that would have disparate impacts upon holders of FON Stock and PCS Stock,
would be made by the Sprint Board in a manner consistent with its fiduciary
duties to Sprint and all of its common stockholders after giving fair
consideration to the potentially divergent interests and all other relevant
interests of the holders of the separate classes of Sprint's common stock,
including the holders of FON Stock and the holders of PCS Stock. See "The
Tracking Stock Proposal--Accounting Matters" and "--Tracking Stock Policies."
ABSENCE OF APPROVAL RIGHTS OF FUTURE ISSUANCES OF AUTHORIZED SHARES
The approval of the stockholders of Sprint will not be solicited by Sprint
for the issuance of authorized but unissued shares of FON Stock or PCS Stock,
unless such approval is deemed advisable by the Sprint Board or is required by
applicable law, regulation or stock exchange listing requirements.
LIMITATIONS ON POTENTIAL ACQUISITIONS OF A GROUP
If the FON Group or the PCS Group were stand-alone entities, any person
interested in acquiring either of such entities without negotiation with
management could seek control of the outstanding stock of such entity by means
of a tender offer or proxy contest. Although the Tracking Stock Proposal will
create classes of Common Stock that are intended to reflect the separate
performance of the FON Group and the PCS Group, a person interested in
acquiring only one Group without negotiation with Sprint's management would
still be required to seek control of the voting power represented by all of
the outstanding capital stock of Sprint entitled to vote on such acquisition.
See "--Limited Separate Stockholder Rights; No Additional Rights with Respect
to the Groups; Effects on Voting Power."
45
<PAGE>
POTENTIAL EFFECTS OF POSSIBLE DISPOSITION OF ASSETS ATTRIBUTED TO THE PCS
GROUP
The PCS Stock Amendment provides that upon a disposition of at least 80% of
the assets attributed to the PCS Group on a then-current market value basis,
Sprint would be required, subject to certain exceptions, to pay a special
dividend on or redeem the outstanding shares of PCS Stock and shares of Class
A Common Stock (but only to the extent such shares of Class A Common Stock
represent a number of unissued shares of PCS Stock) or convert such PCS Stock
into shares of FON Stock (and effect an equivalent conversion of the number of
unissued shares, if any, of PCS Stock represented by the Class A Common Stock
into a number of unissued shares of FON Stock). If the PCS Group were a
separate independent company and its shares were acquired by another person,
certain costs of such disposition, including corporate level taxes, might not
be payable in connection with such an acquisition. As a result, the
consideration that would be received by stockholders of such separate
independent company in connection with such an acquisition might be greater
than the Net Proceeds that would be received by holders of the PCS Stock if
the assets attributed to the PCS Group were sold. In addition, no assurance
can be given that the Net Proceeds per share of the PCS Stock to be received
in connection with a disposition of all of the assets attributed to the PCS
Group would be equal to or more than the market value per share of the PCS
Stock prior to or after announcement of such disposition. See "--No Assurance
as to Market Price; No Existing Market," "The Tracking Stock Proposal" and
"Description of Capital Stock--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of PCS Stock."
SIGNIFICANT REGISTRATION RIGHTS
Until the Cable Parents have sold securities covered by the Registration
Rights Agreement with an aggregate offering price of $2 billion (or 12 months
after the commencement of registration rights, whichever is sooner), the Cable
Parents will have priority in selling their shares in offerings of PCS Stock
for which the underwriters require a reduction in the number of shares desired
to be offered (whether by Sprint, the Cable Parents or any other stockholder
having registration rights, including FT and DT, except where FT and DT have
exercised their rights to require registration). Such priority will apply
regardless of which of these parties (other than FT and DT) initiates the
offering, and therefore could result in the Cable Parents' having the right to
sell shares in place of shares that Sprint intended to sell in order to raise
capital to fund the operations of the PCS Group. The existence of these rights
could have a material adverse effect on the ability of Sprint to raise needed
capital through the sale of PCS Stock.
NO ASSURANCE OF COMPLETION OF TRANSACTIONS
This Proxy Statement describes the Tracking Stock Proposal as currently
contemplated by the Sprint Board. The transactions comprising the Tracking
Stock Proposal, including the PCS Restructuring, the IPO and the
Recapitalization, are subject to various conditions and uncertainties. There
can be no assurance that all or any of such transactions will be completed or,
if any are completed, that they will be completed on the terms described in
this Proxy Statement.
46
<PAGE>
RISK FACTORS--THE PCS GROUP
OPERATING LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
As of March 31, 1998, the PCS Group had incurred substantial cumulative net
losses. Sprint expects that the PCS Group will continue to incur significant
operating losses and to generate significant negative cash flow from operating
activities during the next several years while it continues to build its
network and customer base. There can be no assurance that the PCS Group will
achieve or sustain operating profitability or positive cash flow from
operating activities in the future. If the PCS Group does not achieve and
maintain positive cash flow from operating activities and operating
profitability on a timely basis, it may be unable to make capital expenditures
necessary for the implementation of its business plan, meet its debt service
requirements or otherwise conduct its business in an effective and competitive
manner. In any event, there can be no assurance that Sprint will elect to use
funds available to the FON Group to meet the obligations of the PCS Group. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources of the PCS Group in Annex II.
NETWORK BUILDOUT
The PCS Group has significant buildout activities remaining to be completed,
including completion of buildout activities in each of the SprintCom markets.
As the PCS Group continues the buildout of its PCS network, it must continue
to (i) lease, acquire or otherwise obtain rights to a large number of cell and
switch sites, (ii) obtain zoning variances or other local governmental or
third party approvals or permits for network construction, (iii) complete the
radio frequency ("RF") design, including cell site design, frequency planning
and network optimization, for each of its remaining markets, and (iv) complete
the fixed network implementation, which includes designing and installing
network switching systems, radio systems, interconnecting facilities and
systems, and operating support systems. There can be no assurance that these
events will occur on a timely basis, on the cost basis assumed by the PCS
Group, or at all, as the PCS Group's network buildout continues. Additionally,
problems in vendor equipment availability or performance could delay the
launch of operations in new markets or result in increased costs in all
markets, which in turn, could have a material adverse effect on the operations
and financial condition of the PCS Group.
SUBSTANTIAL CAPITAL REQUIREMENTS
The operation and expansion of the PCS Group's network and the marketing and
distribution of its related products and services will continue to require
substantial capital. The PCS Group may require substantial additional capital
for, among other uses, license or system acquisitions, system development and
volume-driven network capacity. In addition, Cox has "put" rights with respect
to its remaining interest in Cox PCS. Cox may elect to require Sprint to
purchase, under certain circumstances, all or a portion of Cox's remaining
interest in Cox PCS, which could involve significant cash requirements. See
"Amendments to Cox PCS Partnership Agreement." There can be no assurance that
Sprint will be able to arrange additional financing to fund the PCS Group's
capital requirements on terms acceptable to Sprint or that Sprint would be
willing to provide such financing. Failure to obtain any such financing could
result in the delay or abandonment of the PCS Group's development or expansion
plans or the failure to meet regulatory buildout requirements. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources of the PCS Group in Annex II.
SYSTEM INTEGRATION
The successful expansion of the PCS Group's network is dependent on its
ability to expand and maintain integrated customer care, network management
and billing systems among companies comprising the PCS Group and external
affiliates. Given the scale and scope of the PCS Group operations and its
centralized systems, vendors frequently do not have systems as large as
required, and as a result, there is often on-going development work associated
with these systems. Although the PCS Group anticipated this need and has
devoted significant resources to internal systems, it is a significant
challenge to add systems capacity, make software enhancements
47
<PAGE>
and ensure uniformity of deployment of features and functions. The failure to
expand, integrate or deploy these systems in a timely manner could have a
material adverse effect on the PCS Group.
SIGNIFICANT INDEBTEDNESS
The PCS Group will have significant outstanding indebtedness following the
consummation of the PCS Restructuring. Upon completion of the PCS
Restructuring (including the effects of the exercise of equity purchase rights
by FT and DT in connection with the PCS Restructuring but excluding any
effects of the IPO and any exercise of equity purchase rights in connection
with the IPO), the PCS Group's aggregate indebtedness, as of March 31, 1998,
on a pro forma basis, would have totalled $4.5 billion. The PCS Group intends
to incur significant additional indebtedness in the future as it implements
its business plan.
The PCS Group's ability to make scheduled payments of principal and interest
on or to refinance its indebtedness depends on its future performance and
successful implementation of its business plan, which is subject not only to
its own actions but also to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control. There can be no
assurance that the PCS Group's business will generate sufficient cash flow
from operations or that future credit will be available in an amount
sufficient to enable the PCS Group to service its indebtedness. In addition,
there can be no assurance that Sprint will be able to arrange additional
financing to fund the PCS Group's debt service on terms acceptable to Sprint
or that Sprint would be willing to provide such financing.
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC and, depending on the jurisdiction, state and local
regulatory agencies. In addition, the FCC, in conjunction with the Federal
Aviation Administration (the "FAA"), regulates tower marking and lighting.
There can be no assurance that either the FCC, the FAA or those state agencies
having jurisdiction over the PCS Group's business will not adopt regulations
or take other actions that would adversely affect the business of the PCS
Group.
FCC licenses to provide PCS services are subject to renewal and revocation.
The PCS Group's MTA licenses will expire in 2005 and the BTA licenses will
expire in 2007. There may be competition for the licenses held by the PCS
Group upon their expiration and there can be no assurance that the PCS Group's
licenses will be renewed. FCC rules require all PCS licensees to meet certain
buildout requirements. There can be no assurance that the PCS Group will be
able to obtain the requisite coverage in each market. Failure to comply with
these requirements could cause revocation or forfeiture of the PCS Group's PCS
licenses or the imposition of fines on the PCS Group by the FCC. See "Annex
II--PCS Group Information--Business--Regulation."
COMPETITION
There is substantial competition in the wireless telecommunications
industry. The PCS Group expects competition to intensify as a result of the
entrance of new competitors and the development of new technologies, products
and services. Each of the markets in which the PCS Group competes will be
served by other two-way wireless service providers, including cellular and PCS
operators and resellers. A majority of markets will have five or more CMRS
service providers, and out of the top 50 metropolitan markets all have at
least one PCS competitor in addition to two cellular incumbents. Many of these
competitors have been operating for a number of years, currently serve a
substantial subscriber base and have significantly greater financial and
technical resources than those available to the PCS Group. Certain of the PCS
Group's competitors are operating, or planning to operate, through joint
ventures and affiliation arrangements, wireless telecommunications systems
that encompass most of the United States. Competition also may increase to the
extent that licenses are transferred from smaller stand-alone operations to
larger, better capitalized and more experienced wireless communications
operations that may be able to offer customers certain network advantages
similar to those offered by the PCS Group.
48
<PAGE>
The PCS Group also expects that existing cellular providers, some of which
have an infrastructure in place and have been operational for a number of
years, will upgrade their systems and provide expanded and digital services to
compete with the PCS Group's PCS system. Many of these wireless providers
require their customers to enter into long term contracts, which may make it
more difficult for the PCS Group to attract these customers away from such
wireless providers. In addition, the PCS Group does not require its customers
to enter into long term contracts, which may make it easier for other wireless
providers to attract these customers away from the PCS Group.
The PCS Group anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The PCS
Group also expects that there will be increases in advertising and promotion
spending, along with increased demands on access to distribution channels. All
of this may lead to greater choices for customers, possible consumer confusion
and increasing churn. The PCS Group's ability to compete successfully will
also depend on marketing and on its ability to anticipate and respond to
various competitive factors affecting the industry, including new services
that may be introduced, changes in consumer preferences, demographic trends,
economic conditions and discount pricing strategies by competitors.
LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT CHANGE IN
WIRELESS INDUSTRY
PCS systems have a limited operating history in the United States, and there
can be no assurance that operation of these systems will become profitable. In
addition, the extent of potential demand for PCS services in the PCS Group's
markets cannot be estimated with any degree of certainty. The wireless
telecommunications industry is experiencing significant technological change,
as evidenced by the increasing pace of digital upgrades in existing analog
wireless systems, evolving industry standards, ongoing improvements in the
capacity and quality of digital technology, shorter development cycles for new
products and enhancements and changes in end-user requirements and
preferences. There is also uncertainty as to the extent of customer demand as
well as the extent to which airtime and monthly recurring charges may continue
to decline. As a result, the future prospects of the industry and the PCS
Group and the success of PCS and other competitive services remain uncertain.
Also, alternative technologies may develop for the provision of services to
customers that may provide wireless telecommunications service or alternative
service superior to PCS. Thus, there can be no assurance that technological
developments will not have a material adverse effect on the PCS Group.
TECHNOLOGY RISKS
CDMA technology has only recently been deployed in the United States and
internationally. Although the PCS Group has selected CDMA technology because
it believes such technology will offer several advantages over other
technologies, CDMA may not provide the advantages expected by the PCS Group.
Existing analog cellular and other digital networks are not compatible with
the PCS Group's network. The PCS Group's network operates at a different
frequency or uses a different technology than analog cellular or other digital
systems. Additionally, for the PCS Group's subscribers to access automatically
another provider's analog cellular or digital system, that provider must agree
to allow the PCS Group's subscribers to roam on its network and customers are
required to utilize dual-mode/dual-band handsets compatible with that system
to take advantage of roaming agreements. There can be no assurance that
roaming agreements with other providers can be obtained or maintained on terms
acceptable to the PCS Group.
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that certain radio frequency ("'RF") emissions
from wireless handsets may be linked to various health concerns, including
cancer, and may interfere with various electronic medical devices, including
hearing aids and pacemakers. Concerns over RF emissions may have the effect of
discouraging the use of wireless handsets or exposing Sprint to potential
litigation, which could have an adverse effect on the PCS Group's results of
operations.
49
<PAGE>
YEAR 2000 RISK
The "Year 2000" issue effects the PCS Group's installed computer systems,
network elements, software applications, and other business systems that have
time sensitive programs that may not properly reflect or recognize the year
2000. Because many computers and computer applications define dates by the
last two digits of the year, "00" may not be properly identified as the year
2000. This error could result in miscalculations or system errors. The Year
2000 issue may also affect the systems and applications of the PCS Group's
customers, vendors or resellers.
The PCS Group is undertaking an evaluation of its critical systems and is
planning for the remediation and testing to be completed by mid-year 1999. The
PCS Group is also contacting others with whom they conduct business to receive
the appropriate warranties and assurances that those third parties are or will
be Year 2000 compliant. The total cost of modifications and conversions is not
known at this time; however, it is not expected to be material to the PCS
Group's financial position and is being expensed as incurred. In addition the
PCS Group uses publicly available services that are acquired without contract
(e.g., global positioning system timing signal) that may be subject to the
Year 2000 issue. While the PCS Group believes these systems will be Year 2000
compliant, the PCS Group has no contractual or other right to compel
compliance.
If compliance is not achieved in a timely manner, the Year 2000 issue could
have a material effect on the PCS Group's operations. However, the PCS Group
is focusing on identifying and addressing all aspects of its operations that
may be affected by the Year 2000 issue and is addressing the most critical
applications first. As a result, PCS Group management does not believe its
operations will be materially adversely affected.
50
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON EXISTING COMMON STOCK
MARKET PRICES; LISTING
The Existing Common Stock is listed on the NYSE under the symbol "FON." The
following table sets forth for each calendar quarter indicated the high and
low sales prices per share of Existing Common Stock as reported on a
consolidated basis on the NYSE.
The following information is not indicative of the Existing Common Stock
prices that would have resulted had the PCS Stock or the FON Stock existed
during the periods indicated, nor is it necessarily indicative of future
Existing Common Stock, PCS Stock or FON Stock prices.
<TABLE>
<CAPTION>
1998 1997 1996
------------------ --------------- ----------------------
HIGH LOW HIGH LOW HIGH LOW
---- ---- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter........... $75 5/8 $55 1/4 $48 $38 3/8 $38 5/8(/2/) $31 15/16(/2/)
Second quarter.......... 74 7/16(/1/) 65(/1/) 52 3/4 42 1/4 44 3/8 37 1/2
Third quarter........... 52 5/8 44 42 7/8 34 1/2
Fourth quarter.......... 60 5/8 48 3/4 44 37 1/2
</TABLE>
- --------
(1) Through June 5, 1998.
(2) Adjusted to reflect the spinoff of Sprint's Cellular division in March
1996.
As of May 31, 1998, Sprint had approximately 85,000 Existing Common Stock
record holders and two Existing Class A Common Stock record holders. The
principal trading market for the Existing Common Stock is the NYSE. The
Existing Common Stock is also listed and traded on the Chicago Stock Exchange
and Pacific Exchange. The Existing Class A Common Stock is not publicly
traded.
On May 26, 1998, the last trading date prior to public announcement of the
execution of the Restructuring Agreement, the closing sale price of the
Existing Common Stock, as reported on a consolidated basis on the NYSE, was
$72 1/8 per share.
DIVIDENDS
Sprint declared Existing Common Stock dividends of $0.25 per share during
the first and second quarters of 1998 and each quarter of 1997 and 1996.
Sprint declared Existing Class A Common Stock dividends of $0.25 per share
during the first and second quarters of 1998, each quarter of 1997 and during
the last three quarters of 1996.
51
<PAGE>
THE SPECIAL MEETING
PROXY SOLICITATION; PURPOSE OF THE SPECIAL MEETING
This Proxy Statement is provided to the stockholders of Sprint in connection
with the Special Meeting. The Sprint Board is soliciting proxies hereby for
use at the Special Meeting. A form of proxy is being provided to Sprint
stockholders with this Proxy Statement. Information with respect to the
execution and the revocation of proxies is provided under "--Proxies;
Revocability of Proxies; Cost of Solicitation." This Proxy Statement and a
form of proxy are first being mailed on or about , 1998, to stockholders
of record at the close of business on the Record Date.
At the Special Meeting, Sprint stockholders eligible to vote will be asked
to consider and vote upon the approval and adoption of the Tracking Stock
Proposal and the Incentive Plans Proposal. See "The Tracking Stock Proposal"
and the "Incentive Plans Proposal."
DATE, TIME AND PLACE; RECORD DATE
The Special Meeting is scheduled to be held at 10:00 a.m. (local time) on
, July , 1998, at Sprint World Headquarters, 2330 Shawnee Mission
Parkway, Westwood, Kansas. The Sprint Board has fixed the close of business on
, 1998 as the Record Date for the determination of holders of Sprint
Voting Stock entitled to notice of and to vote at the Special Meeting. On
, 1998, there were shares of Existing Common Stock,
shares of Existing Class A Common Stock, shares of Sprint First
Series, shares of Sprint Second Series, and shares of Sprint
Fifth Series, in each case outstanding and entitled to vote.
VOTES REQUIRED; QUORUM; ABSENCE OF DISSENTERS' RIGHTS
Each share of Sprint Voting Stock is entitled to one vote. The affirmative
vote of a majority of the outstanding shares of Sprint Voting Stock, voting
together as a single class, the affirmative vote of a majority of the
outstanding shares of Existing Common Stock, voting as a separate class, and
the affirmative vote of a majority of the outstanding shares of Existing Class
A Common Stock, voting as a separate class, are necessary for the approval and
adoption of the Tracking Stock Proposal. The affirmative vote of a majority of
the outstanding shares of Sprint Voting Stock, present in person or voting by
proxy, is necessary for approval of the Incentive Plans Proposal. FT and DT,
the holders of Sprint's Existing Class A Common Stock representing
approximately 20% of the outstanding voting power of Sprint, have agreed to
vote their shares in favor of the Tracking Stock Proposal and the Incentive
Plans Proposal.
Each of the Cable Parents has represented and warranted in the Restructuring
Agreement that as of May 26, 1998, neither it nor any of its Affiliates
"beneficially owned" (as defined in the Restructuring Agreement) any shares of
capital stock of Sprint. In addition, each of the Cable Parents has agreed in
the Standstill Agreements not to, and to cause its affiliates not to, acquire
any Sprint voting securities prior to the Closing Date other than as a result
of purchases from Sprint pursuant to the Restructuring Agreement.
Holders of record of Sprint Voting Stock at the close of business on the
Record Date are entitled to vote on the proposals to be presented to
stockholders at the Special Meeting. The presence, either in person or by
proxy, of the holders of a majority of the outstanding shares of Sprint Voting
Stock, the holders of a majority of the outstanding shares of Existing Common
Stock and the holders of a majority of the outstanding shares of Existing
Class A Common Stock is necessary to constitute a quorum at the Special
Meeting. Shares of Sprint Voting Stock represented by a properly signed, dated
and returned proxy will be treated as present at the Special Meeting for
purposes of determining a quorum, without regard to whether the proxy is
marked as casting a vote or abstaining. See "--Proxies; Revocability of
Proxies; Cost of Solicitation."
Stockholders are not entitled to appraisal or dissenters' rights with
respect to the Tracking Stock Proposal or the Incentive Plans Proposal.
52
<PAGE>
PROXIES; REVOCABILITY OF PROXIES; COST OF SOLICITATION
If a stockholder attends the Special Meeting, he or she may vote by ballot.
However, many Sprint stockholders may be unable to attend the Special Meeting.
Therefore, the Sprint Board is soliciting proxies so that each holder of
shares of Sprint Voting Stock at the close of business on the Record Date has
the opportunity to vote on the proposals to be considered at the Special
Meeting. When a proxy card is returned properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not return a signed proxy card, his or her
shares will not be voted unless the stockholder attends the Special Meeting
and votes in person. Stockholders are urged to mark the box on the proxy card
to indicate how their shares are to be voted. If a stockholder returns a
signed proxy card, but does not indicate how his or her shares are to be voted
and does not indicate that such stockholder is abstaining, the shares
represented by the proxy card will be voted "FOR" approval and adoption of the
Tracking Stock Proposal and the Incentive Plans Proposal. A proxy submitted by
a holder of Sprint Voting Stock may indicate that all or a portion of the
Sprint Voting Stock represented by such proxy is not being voted by such
holder. This could occur, for example, when a broker or other nominee fails to
receive specific instructions as to voting from one or more beneficial owners
of Sprint Voting Stock held by such broker or nominee, because such broker or
nominee is not permitted to vote such Sprint Voting Stock on the Tracking
Stock Proposal and the Incentive Plans Proposal in the absence of specific
instructions from the beneficial owner. The Sprint Voting Stock subject to any
such proxy that is not being voted will have the effect of having been voted
"AGAINST" the Tracking Stock Proposal, since the approval thereof requires, in
part, the affirmative vote of a majority of the outstanding shares of Sprint
Voting Stock in the aggregate. Abstentions will have the same effect as votes
"AGAINST."
The proxy card also confers discretionary authority on the individuals
appointed by the Sprint Board and named on the proxy card to vote the shares
represented thereby on any other matter that is properly presented for action
at the Special Meeting. As far as the Sprint Board is aware, the Tracking
Stock Proposal and the Incentive Plans Proposal are the only matters to be
acted upon at the Special Meeting. Further, a vote "FOR" the approval and
adoption of the Tracking Stock Proposal and the Incentive Plans Proposal also
constitutes a vote to grant authority to adjourn the Special Meeting from time
to time if the holders of such proxies deem it advisable under the
circumstances. However, no proxies instructing that they be voted "AGAINST,"
or "ABSTAIN" from voting on, the Tracking Stock Proposal or the Incentive
Plans Proposal will be voted in favor of any such adjournment.
Any Sprint stockholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Corporate
Secretary of Sprint at 2330 Shawnee Mission Parkway, Westwood, Kansas 66205,
(ii) granting a duly executed proxy bearing a later date, or (iii) appearing
in person and voting at the Special Meeting. Attendance at the Special Meeting
will not in and of itself constitute revocation of a proxy.
The cost of soliciting proxies will be borne by Sprint and will consist of
expenses of printing, postage and handling, including the reasonable out-of-
pocket expenses of brokerage houses, custodians, nominees and fiduciaries
incurred in sending this Proxy Statement and other proxy materials to, and
obtaining instructions relating to such materials from, beneficial owners of
stock. Sprint stockholder proxies may be solicited by directors, officers or
regular employees of Sprint, in person, by letter or by telephone or telegram.
In addition, Sprint has retained D.F. King & Co., Inc. to provide information
to stockholders. D.F. King & Co., Inc. will not solicit any proxies in
connection with the Special Meeting. It is estimated that its fees for
services to Sprint will not exceed $10,000 plus expenses. Such fees and
expenses will not be contingent or in any way depend on the success of the
solicitation or the number of votes in favor of the Tracking Stock Proposal
and the Incentive Plans Proposal that are obtained.
VOTING BY PARTICIPANTS IN CERTAIN PLANS
Participants in the Sprint Retirement Savings Plan and the Sprint Retirement
Savings Plan for Bargaining Unit Employees will receive cards with voting
instructions to the trustees of the plans as to the voting of shares of
Existing Common Stock held in the plans. The trustees will vote shares of
Existing Common Stock allocated
53
<PAGE>
to participants' accounts in the same manner as instructed by participants,
but will not vote shares of Existing Common Stock allocated to participants'
accounts for which they do not receive instructions. The trustees will vote
all unallocated shares held in the trusts in the same proportions as
instructions received for allocated shares.
Participants in the Centel Retirement Savings Plan for Bargaining Unit
Employees and the Centel Employees' Stock Ownership Plan who have Existing
Common Stock in their plan accounts also will receive a form to be used to
instruct the trustees how to vote such shares. The plans provide that each of
the trustees will vote such shares as instructed, and will vote shares of
Existing Common Stock held in participants' accounts for which it does not
receive instructions in the same proportions as it votes the shares of
Existing Common Stock for which it does receive instructions.
CONFIDENTIALITY OF PROXIES AND BALLOTS
Sprint's policy is that all stockholder meeting proxies, ballots and voting
tabulations that identify the vote of a specific stockholder shall, with
certain specific and limited exceptions, be kept confidential from Sprint's
Directors, officers or employees. One exception to Sprint's confidential
voting policy occurs when a stockholder writes comments on his or her proxy
card. This exception is designed to accommodate the stockholders who express
their opinions and views by writing comments on their proxy cards and expect
Sprint to receive those comments.
RECOMMENDATION OF THE SPRINT BOARD
THE SPRINT BOARD HAS APPROVED THE TRACKING STOCK PROPOSAL AND THE INCENTIVE
PLANS PROPOSAL AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE TRACKING
STOCK PROPOSAL AND THE INCENTIVE PLANS PROPOSAL.
54
<PAGE>
THE TRACKING STOCK PROPOSAL
GENERAL
The Sprint stockholders are asked to consider and approve the Tracking Stock
Proposal, relating to the PCS Restructuring. By voting in favor of the
Tracking Stock Proposal, stockholders would approve:
A. The PCS Stock Amendment to the Existing Articles, which would, among other
things:
. define the "PCS Group," which generally is intended consist of all
business conducted by Sprint for offering or providing Domestic Wireless
Mobile Telephony Services and any other Domestic PCS Services, as well
as all acquisitions of Domestic PCS Licenses, and will initially include
the operations of Sprint Spectrum Holdings, SprintCom, PhillieCo and
Sprint's majority interest in Cox PCS;
. define the "FON Group," which will generally consist of Sprint's other
operations, including its long distance and local telecommunications
divisions, its product distribution and directory publishing businesses,
its emerging non-PCS businesses, its interest in the Global One
international strategic alliance and other telecommunications
investments and alliances;
. establish the terms of the PCS Stock, a newly created class of Sprint
Common Stock consisting of 2,350,000,000 authorized shares, to be
divided into three series: (1) Series 1 PCS Stock, entitling the holders
thereof to a vote per share to be adjusted prior to each stockholder
vote as described under "Description of Capital Stock--Voting Rights--
Number of Votes," (2) Series 2 PCS Stock, to be issued to certain
subsidiaries of the Cable Parents pursuant to the Restructuring
Agreement, entitling the holders thereof to a vote per share equal to
1/10th of the vote per share of the Series 1 PCS Stock, and (3) Series 3
PCS Stock, to be issued to FT and DT, entitling the holders thereof to
the same vote per share as the Series 1 PCS Stock;
. establish the terms of the PCS Preferred Stock, consisting of
authorized shares, convertible into shares of Series 1 PCS Stock or
Series 2 PCS Stock as described under "Description of Capital Stock--
Description of PCS Preferred Stock; Preferred Inter-Group Interest--
Conversion Rights;" and
. reclassify each outstanding share of Existing Class A Common Stock that
is held by DT into one share of DT Class A Stock, consisting of
100,000,000 authorized shares, entitling the holder thereof to the same
vote per share as the Existing Class A Common Stock; and
. establish the terms of the Series 2 Common Stock, which will only be
issued if Sprint converts the outstanding shares of PCS Stock into
shares of Existing Common Stock at a time when shares of Series 2 PCS
Stock are outstanding, consisting of 500,000,000 authorized shares, to
be identical to the shares of Existing Common Stock except that each
share of Series 2 Common Stock shall entitle the holder thereof to a
vote per share equal to 1/10th of the vote per share of the Existing
Common Stock;
B. The Recapitalization Amendment to the Existing Articles, which would, among
other things:
. reclassify each outstanding share of Existing Common Stock into 1/2
share of Series 1 PCS Stock and one share of Series 1 FON Stock, a newly
created class of Sprint Common Stock consisting of 2,500,000,000
authorized shares, entitling the holders thereof to one vote per share;
. redesignate the authorized shares of Series 2 Common Stock as "FON
Common Stock--Series 2," which will only be issued if Sprint converts
the outstanding shares of PCS Stock into shares of FON Stock at a time
when shares of Series 2 PCS Stock are outstanding, with each share
identical to a share of Series 2 Common Stock; and
. reclassify each authorized share of Existing Class A Common Stock held
by FT and DT Class A Stock held by DT so that each such share will,
among other things, represent a right to cause Sprint to issue, to such
holder or certain designated transferees of such holder, a number of
shares of Series 1 FON
55
<PAGE>
Stock, Series 3 FON Stock, Series 1 PCS Stock or Series 3 PCS Stock, but
only to the extent such shares of Existing Class A Common Stock or DT
Class A Stock, as the case may be, represent a number of unissued shares
of FON Stock or PCS Stock, as applicable, each share entitling the holder
thereof to a vote per share equivalent to the number of votes that the
share(s) of FON Stock and PCS Stock represented by such share would be
entitled to receive (plus, in certain cases, an increased voting power
resulting from certain anti-dilution protections);
C. The Restructuring Agreement and the performance by Sprint of all
obligations of Sprint contemplated under the Restructuring Agreement,
including, among other things:
. Sprint's acquisition from the Cable Parents of their respective interests
in Sprint Spectrum Holdings by means of tax-free mergers of newly formed,
wholly-owned subsidiaries of Sprint with and into the corporate
subsidiaries of the Cable Parents that directly or indirectly own their
respective interests in Sprint Spectrum Holdings; and
. Sprint's acquisition from TCI and Cox of their respective interests in
PhillieCo by means of tax-free mergers of newly formed, wholly-owned
subsidiaries of Sprint with and into the corporate subsidiaries of TCI
and Cox that directly or indirectly own their respective interests in
PhillieCo;
D. The following issuances by Sprint:
. the issuance of shares of Series 2 PCS Stock and the Warrants to acquire
shares of PCS Stock to certain subsidiaries of the Cable Parents as
consideration for the acquisition of the interests in Sprint Spectrum
Holdings and PhillieCo acquired from such subsidiaries of the Cable
Parents in the Mergers;
. an underwritten initial public offering of Series 1 PCS Stock as
described under "--IPO";
. the issuance of shares of PCS Preferred Stock to the Cable Parents to
purchase up to $240 million of indebtedness advanced by the Cable Parents
to fund the operations of Sprint Spectrum Holdings between May 26, 1998
and the closing of the PCS Restructuring, which shares of PCS Preferred
Stock may be issued directly for the purchase of such indebtedness or as
consideration in the PCS Restructuring with respect to any of such
indebtedness as is capitalized by the Cable Parents before the closing of
the PCS Restructuring;
. the issuance of Series 3 PCS Stock to FT and DT upon the exercise by FT
and DT of their Equity Purchase Rights in connection with the PCS
Restructuring; and the issuance of Series 3 PCS Stock or Series 3 FON
Stock to FT and DT from time in the future pursuant to their exercise of
such Equity Purchase Rights; and
. the issuance of PCS Stock to FT and DT and the Cable Parents (if so
elected by the Cable Parents) upon the exercise of their respective
Equity Purchase Rights in connection with the IPO and (subject to certain
exceptions) any future issuances of PCS Stock or creation of an Inter-
Group Interest; and
E. The creation pursuant to the Restructuring Agreement of the Warrant Inter-
Group Interest and the Preferred Inter-Group Interest.
RECOMMENDATION OF THE SPRINT BOARD
THE SPRINT BOARD HAS APPROVED THE TRACKING STOCK PROPOSAL AND RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE TRACKING STOCK PROPOSAL.
BACKGROUND AND REASONS FOR THE TRACKING STOCK PROPOSAL
The Tracking Stock Proposal was adopted by the Sprint Board following its
review of various alternatives to, among other things, enhance stockholder
value by increasing market awareness of the performance and value of its
wireless PCS operations and restructure its relationship with the Cable
Parents with respect to Sprint Spectrum Holdings and PhillieCo.
56
<PAGE>
Background of the Tracking Stock Proposal. In October 1994, subsidiaries of
Sprint and the Cable Parents entered into the Sprint Spectrum Holdings joint
venture with the intention of building a national wireless telephone network
utilizing PCS technology, as well as offering local telephone services and
specialized data transmission and other services over cable facilities. In
pursuit of this wireless strategy, Sprint Spectrum Holdings acquired A and B
block licenses in the FCC auction covering 155.9 million Pops for a total
purchase price of $2.1 billion and subsequently commenced the construction of
its PCS network.
In early 1996, Sprint and the Cable Parents determined that the joint
venture would focus exclusively on providing wireless telephony services. With
this shift, the Cable Parents began to view their investment in Sprint
Spectrum Holdings as a financial, rather than a strategic, investment, and
began to seek ways in which to obtain additional equity financing for the
venture from the public or other third parties. In addition, Sprint began to
explore means by which its management role in the joint venture could
increase.
Through 1996, Sprint Spectrum Holdings and PhillieCo had utilized Parent
capital contributions, and, in the case of Sprint Spectrum Holdings, bank and
vendor financing and the issuance of public high yield debt, to fund their
respective buildout activities, maintenance requirements and operating losses.
By the end of 1996, Sprint and the Cable Parents had begun to seek ways in
which to gain recognition of the value of their investments in the capital
markets while increasing the liquidity of the investments of the Cable
Parents. The Parents considered various methods of increasing funding
alternatives, including structuring a public offering of equity securities,
but were unable to agree on an appropriate structure for such an offering. The
Parents also continued to investigate means for restructuring their governance
rights and other relationships so as to better reflect the investment and
other objectives of the individual Parents.
Other funding issues had arisen as early as 1996 in light of the
desirability of achieving a nationwide wireless "footprint" of licensed
calling areas. In mid-1996, Sprint Spectrum Holdings owned wireless licenses
covering much of the United States, but still lacked licenses for a number of
significant markets. Because of the significant capital commitment required to
acquire these remaining licenses and disagreement among the Parents as to
timing and cost for such an acquisition, in January 1997, Sprint, acting
individually through SprintCom, acquired licenses covering geographic areas of
the country not covered by any other company within the PCS Group. These
licenses cover approximately 74.9 million Pops (representing approximately 28%
of the U.S. population) and were acquired by SprintCom for $544 million in the
FCC's D and E block auction. See "Annex II--PCS Group Information--Business--
Members of the PCS Group--SprintCom."
It became apparent to Sprint that the establishment of a truly integrated
nationwide footprint would be facilitated by combining SprintCom with the
operations of Sprint Spectrum Holdings and PhillieCo, thereby joining all of
the PCS operations and licenses into one clearly managed and focused
organization. During 1997, representatives of the Parents met on several
occasions to discuss and negotiate possible terms of such a combination, but
the Parents were unable to reach agreement.
The need to resolve issues relating to the Parents' interests in Sprint
Spectrum Holdings and PhillieCo escalated in late 1997 and early 1998. Funding
issues were further highlighted by the lack of agreement with respect to the
approval of an annual business plan and budget for Sprint Spectrum Holdings or
PhillieCo for 1997 and 1998. Although no business plan or budget was ever
formally approved for these years, Sprint Spectrum Holdings and PhillieCo each
was authorized to continue operations based on a proposed budget. However,
under the Sprint Spectrum Holdings Partnership Agreement and the PhillieCo
Partnership Agreement, the Parents' inability to agree as to a business plan
and budget for Sprint Spectrum Holdings and Sprint's, TCI's and Cox's
inability to agree as to a business plan and budget for PhillieCo by January
1, 1998 resulted in "deadlock events," respectively. Thus, as of January 1,
1998, any of the Parents had the right under the Sprint Spectrum Holdings
Partnership Agreement and any of Sprint, TCI or Cox had the right under the
PhillieCo Partnership Agreement to invoke certain partnership buy-sell
procedures.
During the 1997 negotiations among the Parents, the Sprint Board considered
a number of alternatives for bringing all of the PCS operations of Sprint
Spectrum Holdings, PhillieCo and SprintCom under the control of Sprint. The
Sprint Board's desire for a restructuring of Sprint's ownership of Sprint
Spectrum Holdings was also motivated by the effect of the joint venture on
Sprint's earnings; because Sprint's investment in Sprint Spectrum Holdings is
accounted for using the equity method of accounting, Sprint's share of the
joint venture's significant start-up losses had begun to significantly
negatively impact Sprint's consolidated net income.
57
<PAGE>
In the fall of 1997 the Parents initiated discussions of a restructuring in
which the Cable Parents' interests in Sprint Spectrum Holdings would be
purchased by Sprint in exchange for a new class of Sprint common stock that
would track the performance of the parties' PCS operations. In October 1997
the parties began exchanging and negotiating term sheets outlining this
proposal. During this time the Parents' financial advisors began to assist the
Parents in determining the relative values of these operations.
At meetings in late 1997 and early 1998, the Sprint Board considered
presentations from management, legal advisors and the Financial Advisors
regarding the alternatives available in light of the above factors.
Alternatives included: (i) allowing Sprint Spectrum Holdings and PhillieCo to
be sold to the highest bidder among the Parents according to the buy-sell
procedures outlined in the Sprint Spectrum Holdings Partnership Agreement and
the PhillieCo Partnership Agreement (or liquidated if there were no bidders),
(ii) Sprint's direct purchase of all or a portion of the interests of the
Cable Parents for cash or other consideration, (iii) identifying strategic
third party investors that would purchase the interests of the Cable Parents
in Sprint Spectrum Holdings and PhillieCo and continue to contribute capital
as part of meeting such investors' strategic goals, and (iv) creating two
classes of common stock intended to reflect separately the businesses of the
FON Group and the PCS Group, and using the PCS Group common stock to purchase
the interests of the Cable Parents in Sprint Spectrum Holdings and PhillieCo.
Following deliberation over and consideration of the advantages and
disadvantages of the various alternatives, the Sprint Board determined that
the last alternative, together with the other elements of the Tracking Stock
Proposal, was the best course of action for Sprint and its stockholders.
In March 1998, Sprint and the Cable Parents began preparation and
negotiation of definitive agreements relating to the Tracking Stock Proposal.
In April 1998 Sprint commenced negotiations with FT and DT to modify their
existing arrangements in light of the changes to Sprint's capital structure
contemplated by the Tracking Stock Proposal. At a Sprint Board meeting held on
April 21, 1998, Sprint's Financial Advisors, legal advisors and management
made a detailed presentation concerning the Tracking Stock Proposal to the
Sprint Board. The Financial Advisors presented an analysis of the financial
terms of the transaction and indicated that based on their analysis and the
financial terms of the transaction to date they would be prepared to deliver
an opinion regarding the fairness from a financial point of view of the
consideration to be paid to the Cable Parents. At this meeting, the Sprint
Board approved the transactions contemplated by the Tracking Stock Proposal
and authorized the negotiation and preparation of definitive agreements
related thereto, with the directors elected by FT and DT abstaining.
At a telephonic meeting of the Sprint Board held on May 26, 1998, Mr. Esrey
reiterated to the Sprint Board the benefits of the Tracking Stock Proposal.
The Sprint Board discussed the Tracking Stock Proposal and the Incentive Plans
Proposal, and the elements of each proposal. The Financial Advisors delivered
their oral opinion that as of such date the consideration to be paid to the
Cable Parents in connection with the PCS Restructuring is fair from a
financial point of view to Sprint, and stated that a definitive written
opinion to that effect would be provided. The Compensation Committee presented
a report to the Sprint Board concerning the Incentive Plans Proposal and
informed the Sprint Board that the Compensation Committee had approved the
Incentive Plans Proposal. After consideration of these presentations and
presentations by Sprint's legal advisors, the Sprint Board approved the
Tracking Stock Proposal and the Incentive Plans Proposal, with the two
directors elected by the holders of Existing Class A Common Stock that were in
attendance at the meeting abstaining only as to the approval of the Master
Agreement among Sprint and FT and DT. At the close of business on that date
Sprint, the Cable Parents and certain of their subsidiaries executed the
Restructuring Agreement and various related agreements, and Sprint and FT and
DT executed the Master Agreement.
Reasons for the Tracking Stock Proposal. The Sprint Board considered the
following factors in approving, and recommending to its stockholders for
approval, the Tracking Stock Proposal:
. The Tracking Stock Proposal achieves Sprint's strategic objective of
obtaining integrated management control of Sprint Spectrum Holdings,
PhillieCo and SprintCom and efficiently addresses the Cable Parents'
desire for increased liquidity and financing flexibility.
. By separating the performance of the FON Group and the PCS Group into
separate, publicly-traded classes of common stock, stockholder value may
be enhanced in a number of ways, including:
(i) the separate reporting of the PCS Group operating losses from the
results of operations of the FON Group;
58
<PAGE>
(ii) greater market understanding and recognition of the value
(individually and collectively) of Sprint and its individual lines
of business represented by the FON Group and the PCS Group; and
(iii) the fact that the resulting separate investment vehicles meet the
requirements of distinct investor groups--those looking for yield and
income of a relatively more mature business, in the case of the FON
Stock, and those looking for the growth potential of less mature
businesses, in the case of the PCS Stock--which should encourage
proper valuation of the assets in each of the Groups.
. The Tracking Stock Proposal assists in meeting the capital requirements
of the PCS Group by creating an additional publicly-traded equity
security that can be used to raise capital (subject to certain priorities
to sell PCS Stock granted to the Cable Parents for a specified period in
connection with the PCS Restructuring) and can be issued in connection
with acquisitions and investments. Because the Sprint Board does not
expect to declare a dividend on the PCS Stock for the foreseeable future,
any issuance of such stock, in connection with an acquisition or
otherwise, would not reduce cash flow that would otherwise be available
for capital investments.
. Completion of the PCS Restructuring with the Cable Parents avoids the
uncertainty associated with an auction of Sprint Spectrum Holdings
pursuant to the Sprint Spectrum Holdings Partnership Agreement and allows
Sprint to effectively acquire Sprint Spectrum Holdings with stock, rather
than cash as would have been the case in the buy-sell procedure pursuant
to the Sprint Spectrum Holdings Partnership Agreement.
. The Incentive Plans Proposal, in connection with the Tracking Stock
Proposal, permits the creation of more effective management incentive
approaches, with the ability to direct business-specific options and
securities to employees of each Group.
. The Tracking Stock Proposal will retain for Sprint the advantages of
doing business under common ownership. Each Group would be in a position
to benefit from synergies with the other, including certain strategic,
financial and operational benefits that would not be available if the FON
Group and PCS Group were not under common ownership.
. Operating under a single consolidated structure will provide certain
advantages of tax consolidation.
In addition, the Sprint Board considered Sprint's strategic flexibility
after implementation of the Tracking Stock Proposal, including the ability to
engage in mergers, acquisitions, divestitures, spin-offs, split-offs and
recombinations, and to unwind the tracking stock structure after a period of
time pursuant to the Restructuring Agreement. The Sprint Board also considered
other factors relating to the Tracking Stock Proposal:
. Implementation of the Tracking Stock Proposal will not be taxable for
United States federal income tax purposes to Sprint or its stockholders.
. The issuance of low-voting shares of PCS Stock to the Cable Parents
avoids the creation of a substantial concentrated voting block of
securities.
. In determining the fairness of the PCS Restructuring to stockholders, the
Sprint Board considered, in consultation with its Financial Advisors, the
relative valuations of Sprint Spectrum Holdings, PhillieCo and SprintCom.
. Several other large, well-known companies have created equity securities
that are intended to reflect separately the performance of specific
businesses. The Sprint Board considered the performance of such
securities and the performance of other equity securities comparable to
the newly created PCS Stock.
The Sprint Board also considered the following potential adverse
consequences of the Tracking Stock Proposal:
. There can be no assurance as to the degree to which the market price of
the PCS Stock and the FON Stock will reflect the separate performance of
the PCS Group and the FON Group, respectively, nor as to the impact of
the Tracking Stock Proposal on the market price of Sprint's Common Stock
prior to the Recapitalization.
59
<PAGE>
. The Tracking Stock Proposal presents certain corporate governance issues
not present under Sprint's current structure, such as the Sprint Board's
fiduciary obligation to holders of different classes of capital stock
representing different lines of business. In particular, in the future
the interests of the two Groups could diverge, or appear to diverge, and
complex issues could arise in resolving such conflicts that effectively
require the Sprint Board to benefit, or appear to benefit, one Group at
the expense of another.
. In general, the implementation of the Tracking Stock Proposal will make
the capital structure of Sprint more complex and could cause confusion
among investors analyzing Sprint's capital structure.
. Holders of FON Stock and PCS Stock will continue to bear the risks
associated with an investment in a single corporation and all of Sprint's
businesses, assets and liabilities.
. The use of a tracking stock in connection with a future acquisition by
Sprint could have various adverse effects, such as the possible inability
or increased difficulty of receiving a ruling from the IRS in connection
with the acquisition.
. The acquisition of 100% of the ownership of the PCS Group in the PCS
Restructuring could have an adverse impact on Sprint's credit rating and
cost of borrowing.
The Sprint Board determined, however, that, on balance, the positive aspects
of the Tracking Stock Proposal outweighed any potentially adverse consequences
and concluded that the Tracking Stock Proposal should be recommended to
Sprint's stockholders.
OPINIONS OF SPRINT'S FINANCIAL ADVISORS
Sprint retained Salomon Smith Barney and SBC Warburg Dillon Read Inc. ("SBC
Warburg Dillon Read") as Financial Advisors in connection with the PCS
Restructuring. At the meeting of the Sprint Board held on May 26, 1998, each
Financial Advisor delivered its oral opinion, subsequently confirmed in
writing, that, as of such date, the consideration to be paid by Sprint in
connection with the mergers related to the PCS Restructuring is fair to Sprint
from a financial point of view. No limitations were imposed by the Sprint
Board upon either Financial Advisor with respect to the investigations made or
the procedures followed by the Financial Advisors in rendering their
respective opinions.
THE FULL TEXT OF THE WRITTEN OPINIONS OF SALOMON SMITH BARNEY AND SBC
WARBURG DILLON READ ARE SET FORTH TOGETHER AS ANNEX VIII TO THIS PROXY
STATEMENT, AND EACH SUCH OPINION SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED AND MATTERS CONSIDERED BY SALOMON SMITH BARNEY AND SBC WARBURG DILLON
READ, RESPECTIVELY. YOU ARE URGED TO READ EACH FINANCIAL ADVISOR'S OPINION IN
ITS ENTIRETY. THE SUMMARY OF THE OPINIONS AS SET FORTH IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF EACH SUCH
OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE.
In arriving at its opinion, each Financial Advisor reviewed (i) the
Restructuring Agreement and its related exhibits and schedules; (ii) certain
business and financial information, including projections, concerning the
business and operations of Sprint and the PCS Group that was provided to the
Financial Advisors by Sprint and the PCS Group; (iii) certain publicly
available information with respect to certain other companies that each
Financial Advisor believed to be comparable to the PCS Group; and (iv) certain
publicly available information concerning the nature and terms of certain
other transactions that each Financial Advisor considered relevant to its
inquiry. The Financial Advisors have discussed the foregoing, as well as the
past and current operations and financial condition and prospects of Sprint
and the PCS Group, with members of senior management of Sprint and the PCS
Group. The Financial Advisors also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that they deemed relevant.
The Financial Advisors assumed and relied upon the accuracy and completeness
of the information reviewed by them for the purpose of their respective
opinions, and neither Salomon Smith Barney nor SBC Warburg Dillon Read assumed
any responsibility for independent verification of such information or for any
60
<PAGE>
independent evaluation or appraisal of the assets of Sprint or the PCS Group.
With respect to the financial projections of Sprint and the PCS Group, the
management of Sprint and the PCS Group informed the Financial Advisors that
such projections and estimates had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Sprint and the PCS Group, and neither Salomon Smith Barney nor
SBC Warburg Dillon Read expressed an opinion with respect to such projections
or the assumptions on which such projections were based. Neither Salomon Smith
Barney nor SBC Warburg Dillon Read made or obtained, or assumed any
responsibility for making or obtaining, any independent evaluation or
appraisal of any of the assets (including properties and facilities) or
liabilities of Sprint or the PCS Group.
The Financial Advisors' opinions are necessarily based upon business,
market, economic and other conditions as they existed and could be evaluated
on the date thereof. The Financial Advisors' opinions do not imply any
conclusion as to the likely trading ranges for Sprint's common stock
(including the FON Stock and the PCS Stock) following the consummation of the
mergers in connection with the PCS Restructuring, which ranges may vary
depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. The Financial Advisors' opinions
do not address Sprint's underlying business decision to effect the PCS
Restructuring or the strategic and operational benefits of the PCS
Restructuring. Further, the Financial Advisors' opinions are directed only to
the fairness, from a financial point of view, of the consideration to be paid
by Sprint in connection with the mergers related to the PCS Restructuring and
do not constitute recommendations to any holder of Sprint Voting Stock as to
how such holder should vote with respect to the PCS Restructuring.
In connection with their respective opinions, the Financial Advisors
performed certain financial analyses, which they discussed with the Sprint
Board on April 21, 1998 and May 26, 1998. The material portions of the
analyses performed by the Financial Advisors in connection with the rendering
of their opinions, each dated May 26, 1998, are summarized below.
(i) PCS Group Valuation Analysis. The Financial Advisors arrived at a
range of values for Sprint Spectrum Holdings, PhillieCo and SprintCom based
on three principal valuation methodologies: a public market comparable
companies analysis, a precedent transactions analysis and a discounted cash
flow analysis. No company used in the public market comparable PCS
companies analysis described below is identical to Sprint Spectrum
Holdings, PhillieCo or SprintCom or to the consolidated PCS Group, and no
transaction used in the precedent PCS transactions analysis described below
is identical to the mergers contemplated by the PCS Restructuring.
Accordingly, the analysis described below necessarily involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the businesses and other facts that could
affect the public trading value or the acquisition value of the companies
to which they are being compared.
(a) Public Market Comparable PCS Companies Analysis. A public market
comparable companies analysis analyzes a business segment's operating
and trading performance relative to a group of publicly traded peer
companies to determine an implied unaffected market trading value. The
Financial Advisors compared certain financial information of Sprint
Spectrum Holdings, PhillieCo and SprintCom with the following group of
companies: Aerial Communications, Nextel Communications, Omnipoint
Corporation and PowerTel, Inc. (the "PCS Comparables"). The Financial
Advisors reviewed, among other things, the 12/31/97 penetration rates,
the latest twelve months ("LTM") ended 12/31/97 revenue per subscriber
per month, the ratio of "License Value" (firm value based on market
prices less net PP&E) to Pops and the ratio of License Value to
historical license cost. This analysis showed 12/31/97 penetration
rates ranging from 0.5% to 0.9% (median of 0.5%) for the PCS
Comparables versus 0.6% for Sprint Spectrum Holdings (excluding APC)
and 0.2% for PhillieCo (SprintCom is expected to initiate service in
1998); LTM 12/31/97 revenue per subscriber per month ranging from $58
to $70 (median of $63) for the PCS Comparables versus $66 for Sprint
Spectrum Holdings (excluding APC), and $77 for PhillieCo (SprintCom is
expected to initiate service in 1998); the ratio of License Value to
Pops ranging from $18 to $34 (Omnipoint Corporation and PowerTel,
61
<PAGE>
Inc., determined by the Financial Advisors to be the most relevant
comparables, suggested a range of values equal to $30 to $34 of License
Value per Pop) for the PCS Comparables; and the ratio of License Value
to historical license cost ranging from 1.7x to 2.3x (median of 2.2x)
for the PCS Comparables.
(b) Precedent PCS Transactions Analysis. A precedent transactions
analysis provides a valuation range based upon financial information of
peer companies, in the same or similar industries as the business
segment, which have been acquired in selected recent transactions. The
Financial Advisors reviewed and analyzed the implied License Value per
Pop ratio paid in selected PCS mergers and acquisitions (collectively
the "PCS Transactions"), including: Cincinnati Bell's acquisition of
80% of AT&T's Cincinnati/Dayton property (announced 2/3/98), Sprint
Spectrum Holdings acquisition of 42% of APC (announced 1/1/98),
Hutchison Telecom's acquisition of 19.9% of Western Wireless
Corporation's PCS business (announced 10/14/97), DT's acquisition of
8.2% of APC (announced 11/21/96), PowerTel, Inc.'s acquisition of 100%
of GTE's Atlanta MTA (announced 3/5/96) and Western Wireless
Corporation's acquisition of 100% of GTE's Denver MTA (announced
1/16/96). The Cincinnati Bell and Hutchison Telecom investments,
determined by the Financial Advisors to be the most relevant
comparables, suggested a range of License Values per Pop equal to $40
to $50.
(c) Discounted Cash Flow Analysis. A discounted cash flow ("DCF")
analysis determines the net present value of the projected cash flows
for a business or segment. The Financial Advisors analyzed business
plans for Sprint Spectrum Holdings, PhillieCo and SprintCom that were
prepared by the respective managements (the "Management Cases"). In
addition, the Financial Advisors analyzed a sensitivity case which
reflected changes to the management assumptions for Sprint Spectrum
Holdings regarding projected penetration levels and EBITDA margins (the
sensitivity assumptions were based on research analyst projections for
the wireless industry) (the "Sensitivity Case"). In the DCF analysis
the Financial Advisors aggregated for each of Sprint Spectrum Holdings,
PhillieCo and SprintCom (x) the present value of the unlevered free
cash flows for the 1998 to 2006 forecast period with (y) the present
value of a range of terminal values. In valuing Sprint Spectrum
Holdings, PhillieCo and SprintCom based on a DCF analysis the Financial
Advisors applied a range of weighted average costs of capital equal to
13% to 14% and terminal multiples of Year 2006 EBITDA ranging from 9.0x
to 11.0x (SprintCom was based on terminal multiples ranging from 8.0x
to 10.0x due to potential future capacity limitations in certain 10 MHz
markets). A DCF analysis of the Management Cases suggested a range of
License Values per Pop for Sprint Spectrum Holdings (excluding APC) of
$60 to $70 (versus $37 to $49 based on the Sensitivity Case), $70 to
$80 for PhillieCo, and $15 to $25 for SprintCom.
(ii) Implied Sprint Ownership. Based on the various valuation
methodologies the Financial Advisors arrived at a range of License Values
per Pop for Sprint Spectrum Holdings and PhillieCo of $37.50 to 47.50
(which translated into equity values of $6.2 to $8.1 billion after
adjusting for net PP&E, certain investments and net debt). Due to its later
market entry and potential future capacity limitations in certain 10 MHz
markets, SprintCom's License Value per Pop was discounted to a range of $17
to $21 (which translated into equity values of $1.4 to $1.7 billion after
adjusting for net PP&E and net debt) or a range of 2.3x to 2.8x license
cost (which is above the comparable ratios for public companies which have
already initiated service). The reference range values for Sprint Spectrum
Holdings, PhillieCo and SprintCom described above suggested a range of
Sprint ownership interests in the PCS Group (immediately after the
consummation of the PCS Restructuring but prior to the IPO or the
Recapitalization) from 49% to 53%.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above is
not and does not purport to be a complete description of the analyses
underlying the Financial Advisors' opinions or their respective presentations
to the Sprint Board. The Financial Advisors believe that their analyses and
the summary set forth above must be considered as a whole and that selecting
portions of their respective analyses and the factors considered by them,
without considering
62
<PAGE>
all such analyses and factors, could create an incomplete view of the processes
underlying the analyses set forth in their respective opinions.
In performing their analyses, the Financial Advisors made numerous
assumptions with respect to industry performance, general business, financial,
market and economic conditions and other matters, many of which are beyond the
control of Sprint or the PCS Group. The analyses which the Financial Advisors
performed are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of the Financial
Advisor's analyses of the fairness, from a financial point of view, of the
consideration to be paid by Sprint in connection with the mergers related to
the PCS Restructuring. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the
future.
Pursuant to an engagement letter dated November 28, 1997 (the "Engagement
Letter"), Sprint agreed to pay to the Financial Advisors the following advisory
fees, to be shared equally between the Financial Advisors: (i) $250,000 payable
upon the execution of the Engagement Letter; (ii) $2,000,000 payable upon the
execution of the Restructuring Agreement; and (iii) 0.20% of the Price Per
Share (as defined in the Engagement Letter) of the PCS Stock multiplied by the
number of shares of PCS Stock outstanding immediately after the
Recapitalization (adjusted to exclude the impact of any leveraged
recapitalizations and primary offerings of PCS Stock to the public) less the
amounts paid in clauses (i) and (ii) above. In addition, Sprint granted the
Financial Advisors the right to act as sole joint book-running lead managers in
the IPO or, if the Recapitalization occurs before the IPO, any underwritten
public offering of PCS Stock within 18 months of the Recapitalization. In the
event such an offering were to take place, Sprint agreed to pay underwriting
fees customary for such
an offering pursuant to a predetermined range of underwriting discounts as
outlined in the Engagement Letter. The Engagement Letter also provides that an
amount equal to 20% of underwriting fees (after deducting underwriters'
expenses and assuming the amount of underwriting fees received by the Financial
Advisors, before expenses and the credit referred to in this sentence, equals
at least 50% of the total underwriting discounts and commissions in such
offering) earned by the Financial Advisors would be credited against any
advisory fees paid in clauses (i), (ii) and (iii) above. Sprint also agreed to
reimburse the Financial Advisors for expenses reasonably incurred by them in
performing their services in connection with such offering (including the
reasonable fees and disbursements of the Financial Advisors' legal counsel) and
to indemnify the Financial Advisors and certain related parties from and
against certain liabilities arising out of their engagement in connection with
such offering.
Each Financial Advisor is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, each Financial Advisor
regularly engages in the valuation of companies and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and other purposes. From time to time, each Financial Advisor has
rendered certain investment banking and financial advisory services to the
Cable Parents for which each Financial Advisor received compensation. In
addition, in the ordinary course of its business, each Financial Advisor
actively trades the debt and equity securities of Sprint and each of the Cable
Parents and the debt securities of Sprint Spectrum in each case for its own
account and the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. The Financial Advisors and
each of their respective affiliates (including, in the case of Salomon Smith
Barney, Travelers Group Inc. and its affiliates) may maintain business
relationships with Sprint and the Cable Parents.
THE RESTRUCTURING AGREEMENT
The following is a general description of the terms of the Restructuring
Agreement, which is attached to this Proxy Statement as Annex V and
incorporated by reference herein. The following description is qualified in its
entirety by the more specific terms of the attached Restructuring Agreement.
63
<PAGE>
The Sprint Board reserves the right to amend provisions of the Restructuring
Agreement or the exhibits thereto pursuant to the terms of the Restructuring
Agreement without stockholder approval before or after approval of the
Restructuring Agreement by the stockholders of Sprint. The Sprint Board also
reserves the right to terminate the Restructuring Agreement in accordance with
the terms thereof. See "--Termination." However, Sprint will resolicit the
approval of stockholders in the event of any material change to the
Restructuring Agreement.
Mergers With Cable Parent Subsidiaries to Effect the Acquisition of Sprint
Spectrum Holdings And PhillieCo. Pursuant to the Restructuring Agreement, newly
formed wholly-owned subsidiaries of Sprint (the "Merger Subs") will merge (the
"Mergers") with and into certain corporate subsidiaries of the Cable Parents
holding interests directly or indirectly in Sprint Spectrum Holdings and
PhillieCo (the "Cable Subsidiaries"). The only activities of the Cable
Subsidiaries relate to their investments in Sprint Spectrum Holdings and
PhillieCo. On the date and at the time that the certificates of merger with
respect to the Mergers are accepted for filing by the Secretary of State of the
respective state of incorporation of each Merger Sub (or at such other time
specified as the effective time in the applicable certificate of merger) (the
"Effective Time") the separate corporate existence of each Merger Sub will
cease, and the internal corporate affairs of each Cable Subsidiary will
continue to be governed by the laws of its state of incorporation prior to the
Mergers. Upon completion of the Mergers, Sprint Spectrum Holdings and PhillieCo
will become wholly-owned indirect subsidiaries of Sprint. The Restructuring
Agreement provides that after the Mergers, the charter, bylaws, directors and
officers of each Cable Subsidiary will be that of the respective Merger Sub
which merged with and into such Cable Subsidiary.
Issuances Pursuant to the Restructuring Agreement. In the Mergers, the
outstanding shares of common stock of each Cable Subsidiary will be converted
into (i) shares of Series 2 PCS Stock, (ii) Warrants to purchase shares of
Series 2 Stock and (iii) depending upon an election to be made by each Cable
Parent, shares of PCS Preferred Stock. At the Effective Time, after giving
effect to the issuance of the Series 2 PCS Stock and the Warrants in the
Mergers and the creation of the Warrant Inter-Group Interest, but without
giving effect to the IPO, the Recapitalization, the issuance of the PCS
Preferred Stock, the creation of any Preferred Inter-Group Interest, or the
exercise of any Equity Purchase Rights, such consideration will represent PCS
Group Percentage Interests of: (x) 23.83074%, as to TCI, (y) 11.42370%, as to
Comcast, and (z) 11.91537%, as to Cox. At the Effective Time, after giving
effect to the issuance of the Series 2 PCS Stock and the Warrants in the
Mergers and the creation of the Warrant Inter-Group Interest, but without
giving effect to the IPO, the Recapitalization, the issuance of the PCS
Preferred Stock, the creation of the Preferred Inter-Group Interest, or the
exercise of any Equity Purchase Rights, the FON Group will retain an Inter-
Group Interest in the PCS Group which together with the Warrant Inter-Group
Interest will represent a 52.83019% PCS Group Percentage Interest. See
"Description of Capital Stock--Description of Warrants; Warrant Inter-Group
Interest." Depending upon an election to be made by Sprint and the size of the
IPO, Sprint will also retain an Inter-Group Interest on the same terms as the
PCS Preferred Stock (the "Preferred Inter-Group Interest"). See "Description of
Capital Stock--PCS Preferred Stock; Preferred Inter-Group Interest."
The number of shares of Series 2 PCS Stock and PCS Preferred Stock and the
number of Warrants to be received by any shareholder of the Cable Subsidiaries
will be rounded to the nearest whole number of shares or Warrants. All shares
of the Cable Subsidiaries as of the Effective Time will cease to be
outstanding, will be canceled and retired and will cease to exist. Each share
of common stock of each Merger Sub as of the Effective Time will be converted
into one share of common stock of the applicable Cable Subsidiary as the
surviving corporation in such Merger.
In the opinion of the Financial Advisors, the consideration to be paid to the
Cable Parents in connection with the PCS Restructuring is fair, from a
financial point of view, to Sprint and its stockholders. These opinions are
subject to important limitations and assumptions and should be read in their
entirety. See "--Opinions of Sprint's Financial Advisors."
Representations and Warranties; Indemnities. In the Restructuring Agreement,
Sprint and each of the Cable Parents make certain representations and
warranties to each other party to the Restructuring Agreement
64
<PAGE>
concerning, among other things, due incorporation, valid title to the shares of
the Cable Subsidiaries, payment of taxes, absence of litigation and necessary
governmental approvals.
In the Restructuring Agreement, each of the Cable Parents makes certain
representations and warranties to Sprint and each other Cable Parent regarding
its respective Cable Subsidiaries and other entities owned by such Cable Parent
that will become part of the PCS Group concerning, among other things, good
title to its ownership interest in such Cable Subsidiaries and other entities
and in Sprint Spectrum, the absence of any business or activities or
liabilities of the Cable Subsidiaries or such other entities other than
relating to its ownership interest in Sprint Spectrum Holdings and certain tax
matters. Sprint makes certain representations and warranties to the Cable
Parents concerning, among other things, the PCS Group Percentage Interest that
will be held by each Cable Parent immediately following the Effective Time, the
nature and amount of the Inter-Group Interest that will be held in the PCS
Group by the FON Group immediately following the Effective Time, the
capitalization of Sprint and various matters regarding Sprint's ownership
interest in Sprint Spectrum Holdings. Each of Sprint, TCI and Cox make certain
representations and warranties regarding the operations of PhillieCo, and
Sprint makes similar representations and warranties regarding the operations of
SprintCom.
Each of the parties to the Restructuring Agreement has agreed to indemnify
each of the other parties to the Restructuring Agreement for any and all
losses, claims, costs, fines, damages (excluding consequential and special
damages other than amounts paid as consequential or special damages to a third
party), taxes, liabilities and deficiencies arising out of or resulting from
(A) any inaccuracy in the representations and warranties of such party, (B) any
failure by such party to perform any of its covenants or agreements contained
in the Restructuring Agreement or the various other agreements entered into in
connection with the PCS Restructuring, and (C) certain tax matters. Subject to
certain exceptions, the right of any party to seek indemnification with respect
to any inaccuracy of the representations and warranties by another party will
terminate on the first anniversary of the PCS Restructuring. In addition, with
respect to any claim for inaccuracy of representations and warranties, an
indemnifying party will not be required to pay any indemnity (subject to
certain exceptions) until the aggregate amount of the indemnified losses
incurred by all of the indemnified parties exceeds $50 million, at which time
the indemnified parties will be entitled to indemnification for the full amount
of the indemnified losses in excess of $10 million.
Any indemnification payments made by Sprint or any of its subsidiaries under
the Restructuring Agreement will be charged to the FON Group. Any
indemnification payments received by Sprint or any of its subsidiaries under
the Restructuring Agreement will be allocated to the PCS Group.
Conduct of Business Pending Closing. Each of the Cable Parents has agreed
that it will not permit any of its respective Cable Subsidiaries or any other
entities owned by it that will become part of the PCS Group, pending the
closing of the PCS Restructuring to (among other things): (a) issue any
additional shares of stock or other securities; (b) acquire or dispose of any
property or assets or enter into any contracts, arrangements or understandings;
(c) adopt any amendments to its charter or bylaws; (d) incur any indebtedness,
liabilities or obligations of any kind (subject to certain limited exceptions);
or (e) engage in any conduct or business other than owning its interests in
Sprint Spectrum Holdings and PhillieCo (as applicable). The Restructuring
Agreement contains similar agreements by Sprint with respect to the operations
of SprintCom and by TCI, Cox and Sprint with respect to the operations of
PhillieCo.
Tax Matters. All tax settlement agreements and tax sharing agreements between
the Cable Subsidiaries (including their subsidiaries, if any) and any person or
between any entity which will be part of the PCS Group and any person will
terminate prior to the Closing Date. The Cable Parents or the Cable
Subsidiaries will remain liable for consolidated or non-consolidated taxes for
all taxable periods ending on or before Closing. In addition, the Cable Parents
have generally agreed to indemnify/reimburse Sprint and the Cable Subsidiaries
(for the benefit of the PCS Group) for any taxes arising before the Closing
that Sprint must pay as a result of the acquisition of the Cable Subsidiaries.
Sprint shall be responsible for filing all tax returns for the Cable
Subsidiaries after the Closing. If any Cable Subsidiary incurs a loss or other
tax benefit with respect to a tax period beginning on or after the Closing Date
which may be carried back to a period ending on or before the Closing, and a
refund
65
<PAGE>
results therefrom, such refund will be paid to such Cable Subsidiary for the
benefit of the PCS Group. Generally, Sprint and the Cable Parents will have the
right to control any audit for which that entity bears responsibility for the
ultimate liability.
In addition, the Restructuring Agreement includes provisions for
reimbursements by the PCS Group to the FON Group and the Cable Parents for
certain tax benefits (referred to as SRLY Tax Benefits in the Restructuring
Agreement) that were incurred by Sprint or the Cable Subsidiaries before the
Closing, are carried over to post-Closing years, and are used by the PCS Group
to produce a tax benefit that would not otherwise have been received by the PCS
Group. Such reimbursement, which will equal 60% of the net tax benefit received
by the PCS Group, will be made if to the FON Group in cash, and if to a Cable
Parent in shares of PCS Stock.
Sprint and each of the Cable Parents has agreed to use all reasonable efforts
to cause each of the Mergers to constitute a "reorganization" under Section
368(a) of the Code. Sprint also has agreed to use all reasonable efforts to
cause the Recapitalization to constitute a recapitalization as defined in
Section 368(a)(1)(E) of the Code.
Other Provisions. Each of the PCS Partners agrees pursuant to the
Restructuring Agreement not to take any action to trigger the buy/sell
provisions of the Sprint Spectrum Holdings Partnership Agreement prior to the
earlier of the Closing Date or termination of the Restructuring Agreement. See
"--Background and Reasons for the Tracking Stock Proposal." In addition, Sprint
has agreed to seek the necessary approvals of its stockholders, file a
registration statement on Form S-3 covering the sale of shares of PCS Stock in
the IPO, amend its bylaws to create the Capital Stock Committee, adopt the
Tracking Stock Policies and enter into the Tax Sharing Agreement. See "--
Tracking Stock Policies--Allocation of Federal and State Income Taxes."
Additionally, pursuant to the Restructuring Agreement, Sprint and each of the
Cable Parents agrees to execute at the closing a mutual release and waiver
releasing each other party and its Affiliates from any and all claims that such
party may have in connection with the operations of Sprint Spectrum Holdings or
PhillieCo (with respect to the entities in which such parties have ownership
interests) prior to the date of the PCS Restructuring, subject to indemnity
provisions and subject to certain other exceptions.
In the event of a spinoff of all or substantially all of the PCS Group or in
case of a redemption of PCS Stock in exchange for stock of a subsidiary of
Sprint included within the PCS Group, Sprint or its subsidiary will enter into
a trademark license with the PCS Group on substantially the same terms as the
Amended and Restated Sprint Trademark License, dated as of January 31, 1996,
between Sprint Communications Company, L.P. and Sprint Spectrum Holding
Company, L.P., except that, notwithstanding the termination of the provisions
of such agreement, such trademark license (i) will be nonexclusive and (ii)
will terminate in its entirety six months following the effective date of such
spinoff.
In the Restructuring Agreement, Sprint further agrees that it will effect
such changes from time to time to the Preferred Inter-Group Interest and the
Warrant Inter-Group Interest as may be necessary to reflect any changes to the
terms, rights, powers or privileges of the PCS Preferred Stock and the
Warrants, respectively, including as a result of the redemption of the PCS
Preferred Stock. Sprint has further agreed that under its Rights Plan following
Closing, holders of Series 2 PCS Stock and their transferees would not be
deemed to have triggered the definition of "acquiring person" under certain
circumstances.
Conditions to Closing. The Closing is subject to various conditions,
including (i) approval by Sprint's stockholders of the Articles Amendment, the
Restructuring Agreement and the transactions contemplated thereby; provided
that the Closing is not condition upon stockholder approval of the Incentive
Plans Proposal, (ii) the expiration or termination of any waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the receipt of
all required FCC consents, (iii) the absence of an injunction or other order of
a governmental authority that enjoins the completion of the Restructuring and
would result in material adverse consequences to Sprint or a Cable Parent if
Closing occurred in violation thereof, (iv) approval of the Series 1 PCS Stock
for listing on the NYSE, the American Stock Exchange or the National Market
Tier of The Nasdaq Stock Market, (v) consummation of the IPO or the
Recapitalization simultaneously with Closing, (vi) the filing
66
<PAGE>
of the PCS Stock Amendment and the Certificate of Designations (and, if the
Recapitalization occurs on the Closing Date, the Recapitalization Amendment)
with the Kansas Secretary of State, and (vii) the filing of the certificate of
merger for each of the Mergers with the appropriate Secretary of State.
Termination. Any Parent may terminate the Restructuring Agreement upon the
occurrence of certain events. In such case, the PCS Restructuring would not be
completed and, unless further action were taken by the Sprint Board, the
Recapitalization would not occur, meaning that neither the PCS Stock nor the
FON Stock would be created. Termination may be effected: (i) by any Parent, if
the closing of the PCS Restructuring shall be prohibited by any final,
nonappealable order, decree or injunction of any court, governmental agency or
other government body, which would result in material adverse consequences to
any Parent or any of its subsidiaries if the PCS Restructuring occurred in
violation of such order, decree or injunction; (ii) by any Parent (if such
party is not in breach of any material covenant contained in the Restructuring
Agreement), if the date of the Closing Date has not occurred on or before
December 31, 1998; (iii) by any party that is not in material breach of any
material covenant of the Restructuring Agreement, by notice to the other
Parents following the time that any condition to closing set forth in the
Restructuring Agreement has become incapable of being satisfied on or before
December 31, 1998; or (iv) by any Parent (if such party is not in breach of any
material covenant contained in the Restructuring Agreement) following a
material breach of any material covenant contained in the Restructuring
Agreement by any other party thereto if such breach remains uncured in any
material respect for thirty (30) days following the giving of notice of such
breach.
Expenses. Whether or not the PCS Restructuring is consummated, each of the
Parents will bear its own fees and expenses incurred in connection with the
negotiation of the Restructuring Agreement and the consummation of the
transactions contemplated thereby. Any such expenses paid by Sprint will be
allocated to the FON Group; provided that Sprint may (in its discretion)
allocate expenses relating to the IPO to the PCS Group in accordance with the
Tracking Stock Policies. Notwithstanding the foregoing, if and only to the
extent that Sprint makes a cash capital contribution prior to the consummation
of the PCS Restructuring to a subsidiary of Sprint that will be a member of the
PCS Group, the fees and expenses incurred by Sprint will be paid by such
subsidiary of Sprint in connection with the transactions contemplated by the
Restructuring Agreement and will be allocated to the PCS Group.
THE IPO
Pursuant to the Restructuring Agreement, Sprint intends to file with the SEC
a registration statement on Form S-3 relating to the offering of shares of
Series 1 PCS Stock. Under the Restructuring Agreement, Sprint will be entitled
to sell in the IPO without any further approval of the Cable Parents a number
of shares of Series 1 PCS Stock equal to the greater of (i) $500 million
divided by the midpoint of the price range indicated on the cover page of the
preliminary prospectus that is used to market the IPO, regardless of the
proceeds that would result from the sale of such shares, and (ii) the number of
shares that is required to be sold in the IPO to achieve total proceeds of
between $500 million and $525 million (in Sprint's discretion). Prior to filing
the Registration Statement, the underwriters for the offering will advise the
Parents as to the aggregate proceeds that, in the opinion of the underwriters,
could be raised in the IPO without adversely affecting the price per share of
shares sold in the IPO or the after-market trading price of such shares. If
such recommendation is for proceeds of more than $525 million, and any of the
Parents notifies the underwriters within ten days after such underwriter advice
that such Parent is unwilling to proceed with an IPO of the size recommended,
then the total proceeds raised in the IPO shall not exceed $525 million (unless
a larger amount is permitted by clause (i) above) or a larger amount of
proceeds is thereafter unanimously agreed to by the Parents. The Restructuring
Agreement contemplates the issuance of additional shares of Series 1 PCS Stock
in the IPO aggregating up to 15% of the size of the offering to cover over-
allotments, if any, which additional issuance is not included in the
limitations described above. All of the proceeds in the IPO will be allocated
to the PCS Group. Neither Sprint nor the Cable Parents will sell shares on a
secondary basis as part of the IPO. The Sprint Board has reserved the right not
to complete the IPO even if the Tracking Stock Proposal is approved by the
stockholders.
67
<PAGE>
Pursuant to the Restructuring Agreement, Sprint has granted the Cable Parents
certain Equity Purchase Rights to maintain their respective PCS Group
Percentage Interests as a result of the IPO. See "--Equity Purchase Rights."
Pursuant to the Master Agreement, FT and DT have agreed to exercise their
Equity Purchase Rights in connection with the IPO. See "FT and DT
Arrangements--Master Agreement and Related Agreements." The shares of Series 1
PCS Stock issued in the IPO and pursuant to the exercise of Equity Purchase
Rights by FT and DT will dilute the PCS Group Percentage Interests of the FON
Group and the Cable Parents.
THE RECAPITALIZATION
Pursuant to the Recapitalization Amendment Sprint will effect a tax-free
recapitalization by reclassifying each share of Existing Common Stock into 1/2
share of Series 1 PCS Stock and one share of FON Stock. Sprint currently
intends to complete the Recapitalization 90-120 days after the completion of
the PCS Restructuring and concurrent IPO. Pursuant to the terms of the
Restructuring Agreement, the Recapitalization may not be completed even if the
Tracking Stock Proposal is approved by the stockholders. However, if the PCS
Restructuring is completed, the Recapitalization will occur.
In the Recapitalization, each share of Existing Class A Stock held by FT and
each share of DT Class A Stock held by DT will be reclassified so that each
such share will, among other things, represent a right to cause Sprint to
issue, to FT and DT or to certain designated transferees of FT or DT, a number
of shares of Series 1 FON Stock, Series 3 FON Stock, Series 1 PCS Stock or
Series 3 PCS Stock, but only to the extent such shares of Existing Class A
Stock or DT Class A Stock, as the case may be, represent a number of unissued
shares of FON Stock or PCS Stock, as applicable.
No fractional shares of Series 1 PCS Stock will be issued as part of the
Recapitalization. If the number of shares of Series 1 PCS Stock that a holder
of Existing Common Stock is entitled to receive as part of the Recapitalization
includes a fraction of a whole share, Sprint will pay such holder the cash
equivalent of such fractional share.
Upon the implementation of the Tracking Stock Proposal, the certificates
representing shares of Existing Common Stock (the "Existing Certificates") will
be deemed to represent ownership of the same number of shares of Series 1 FON
Stock. Stockholders should not mail their Existing Certificates to either
Sprint or its transfer agents in connection with the Tracking Stock Proposal.
New certificates representing shares of Series 1 FON Stock will be issued upon
the surrender of the Existing Certificates then representing shares of Series 1
FON Stock to Sprint or its co-transfer agents in connection with the transfer
thereof. As soon as practicable after the Recapitalization, either UMB Bank,
n.a. or ChaseMellon Shareholder Services, L.L.C., the co-transfer agents for
Sprint, will mail to each record holder of Existing Common Stock on the date of
the Recapitalization a certificate representing the number of whole shares of
Series 1 PCS Stock to which such holder is entitled and a check for any
fractional share of Series 1 PCS Stock.
Because the Recapitalization will affect all holders of Existing Common Stock
in proportion to the number of shares of Existing Common Stock owned on the
date of the Recapitalization by each stockholder, the relative ownership
interest and voting power of each holder of whole shares of Existing Common
Stock will be substantially the same immediately after effectiveness of the
Recapitalization as it was immediately prior thereto (without giving effect to
the shares of PCS Stock issued to the Cable Parents in the PCS Restructuring or
shares issued to FT or DT pursuant to any exercise of their Equity Purchase
Rights or shares issued in the IPO).
TIMING OF THE IPO AND THE RECAPITALIZATION
Sprint intends to close the IPO as soon as practicable following the date
that the conditions to Closing relating to stockholder approval, regulatory
approval and listing of the PCS Stock have been satisfied (the "Trigger Date"),
assuming that the other conditions to Closing have been satisfied or are
capable of being satisfied at or prior to the Closing. The determination to
proceed with the IPO at any time will remain in Sprint's
68
<PAGE>
sole discretion. If the IPO occurs prior to the Recapitalization, the PCS
Restructuring will occur simultaneously with the closing of the IPO. If Sprint
causes the IPO to be completed simultaneously with the Closing, Sprint will
complete the Recapitalization within 90-120 days following the Closing. In this
event, each Cable Parent has agreed, for a period of one hundred eighty (180)
days following the Closing Date, to refrain from engaging in any public sale or
distribution of any PCS Stock or securities convertible into, or exchangeable
or exercisable for, or the value of which relates to or is based upon, PCS
Stock.
If the IPO occurs at the same time as the closing of the PCS Restructuring as
provided above, shares of PCS Stock would be issued on the date of the PCS
Restructuring, but there would be no impact on the shares of Existing Common
Stock held by Sprint's current stockholders until the Recapitalization is
completed. Until the Recapitalization, the Existing Common Stock and the Class
A Common Stock would continue to reflect the performance of the FON Group, as
well as the performance of the PCS Group to the extent of the FON Group's
Inter-Group Interest in the PCS Group. Therefore, after the PCS Restructuring
is completed and prior to the completion of the Recapitalization, income or
loss from the operations of the PCS Group will continue to be reflected in the
Existing Common Stock and the Class A Common Stock but only in proportion to
such Inter-Group Interest.
The Restructuring Agreement provides that if the IPO is not completed on or
prior to the 30th day following the Trigger Date, then Sprint will, on the
earlier of (i) the date which is 10 days following such date after the Trigger
Date that Sprint reasonably determines that the IPO is not capable of being
completed on or before the 30th day following the Trigger Date or (ii) the 40th
day following the Trigger Date, effect the Recapitalization by filing the PCS
Stock Amendment, the Recapitalization Amendment and the Certificate of
Designations with the Kansas Secretary of State, assuming that the other
conditions to Closing have been satisfied or are capable of being satisfied at
the Closing. If Sprint causes the Recapitalization to be completed as provided
in this paragraph, the Closing of the PCS Restructuring will occur
simultaneously with the completion of the Recapitalization. In such event, the
Restructuring Agreement sets forth Sprint's intent to complete the IPO within
120 days after the Closing Date. If Sprint completes the Recapitalization
simultaneously with the Closing and the IPO is completed within such 120-day
period, each Cable Parent will, and will cause its Controlled Affiliates to,
for a period commencing at the time of Closing and ending on the later of (x)
90 days following the closing of the IPO and (y) 180 days following the Closing
Date, refrain from engaging in any public sale or distribution of any PCS Stock
or securities convertible into, or exchangeable or exercisable for, or the
value of which relates to or is based upon, PCS Stock. If the IPO is not
completed within 120 days following the Closing, Sprint will not engage in any
public sale or distribution of any PCS Stock or securities convertible into, or
exchangeable or exercisable for, or the value of which relates to or is based
upon, PCS Stock until after the Registration Rights Commencement Date, and
then, only after (1) providing notices to the Cable Parents (and any required
Affiliates) as required by the Registration Rights Agreement, (2) providing the
Cable Parents with priority in such sale or distribution in accordance with
Section 3 thereof, and (3) amending the Registration Statement (and amending or
supplementing the related preliminary prospectus if preliminary prospectuses
have been distributed) if necessary to register and offer the shares that the
Cable Parents have elected to sell in such sale or distribution in accordance
with the Registration Rights Agreement. See "--Registration Rights Agreement."
If the Trigger Date occurs after August 1, 1998, and before September 1,
1998, the Trigger Date will be deemed to occur on the earlier of (i) September
1, 1998 or (ii) such date after August 1, 1998, that Sprint reasonably
determines that the IPO is not capable of being completed on or prior to
October 1, 1998.
FUNDING OF THE PCS GROUP PRIOR TO CLOSING; THE PCS PREFERRED STOCK
Sprint Spectrum Holdings. The capital requirements of Sprint Spectrum
Holdings through the Closing Date will be satisfied by capital contributions
from the entities directly holding each of the respective Parents' interests in
Sprint Spectrum Holdings (the "PCS Partners") up to an aggregate amount of $400
million (the "PCS Contributions"). The chief executive officer of Sprint
Spectrum Holdings may call all or a portion of the PCS Contributions at any
time and from time to time prior to the Closing Date by giving written notice
to each
69
<PAGE>
of the Parents. The PCS Contributions will be funded by (i) loans from the
Cable Parents or subsidiaries thereof to certain of their respective Cable
Subsidiaries; provided that in no event will such loans (the "Cable Parent
Loans") be made to a direct subsidiary of the lending entity, and (ii) loans
from Sprint or a subsidiary of Sprint to Sprint's PCS Partner (the "Sprint PCS
Loans"). Each entity receiving Cable Parent Loans will issue to the lender in
consideration for such loans promissory notes (the "Cable Parent Notes").
Sprint's PCS Partner will issue similar promissory notes to Sprint for the
Sprint PCS Loans (the "Sprint PCS Notes").
Unless otherwise agreed among the PCS Partners, no further capital
contributions under the Sprint Spectrum Holdings Partnership Agreement will be
required of any PCS Partner prior to the Closing; provided that if the
Restructuring Agreement is terminated prior to Closing, the capital
contribution provisions of the Sprint Spectrum Holdings Partnership Agreement
will be fully restored.
If the PCS Contributions are not adequate to meet the capital requirements of
Sprint Spectrum Holdings pending the Closing, the PCS Partners will cause
Sprint Spectrum Holdings to obtain a financing proposal from a financial
institution or an opinion from an investment banking firm as to the terms on
which such additional required capital would be available in a placement of
debt securities by Sprint Spectrum Holdings. Any such financing proposal must
contemplate debt with a maturity of at least three years, except that such debt
must be payable in full at the closing of the buy/sell arrangements set forth
in the PCS Partnership Agreement (but shall not otherwise mature or accelerate
as a result of a termination of the Restructuring Agreement) (the "Proposed
Term"). Upon its receipt of written notice specifying the terms of such third
party financing, Sprint's PCS Partner will have the right to provide debt
financing to Sprint Spectrum Holdings (directly or through an Affiliate) on
terms that result in substantially the same net economic cost to Sprint
Spectrum Holdings as the terms contemplated by such proposed financing
(including any expenses that would be incurred by Sprint Spectrum Holdings in
effecting financing through a third party). Sprint's PCS Partner or its
Affiliate may elect to provide such financing for a term equivalent to the
Proposed Term. At the Effective Time, any such debt financing provided by
Sprint's PCS Partner or its Affiliate would become debt of the PCS Group owed
to the FON Group.
SprintCom. Subject to the next sentence, the capital requirements of
SprintCom through the Closing Date will be provided by loans from Sprint or its
Affiliates or third party financing. The loans from Sprint or its Affiliates
will be evidenced by promissory notes (the "SprintCom Notes") with a minimum
aggregate principal amount of (i) $110.6 million times (ii) a fraction, the
numerator of which equals the total amount of PCS Contributions between the
date of the Restructuring Agreement and the Closing Date and the denominator of
which equals $400 million. Such minimum aggregate amount (determined in
accordance with the formula set forth above) of such loans made by Sprint or
its Affiliates is referred to herein as the "SprintCom Loans." Any indebtedness
of SprintCom to Sprint or its Affiliates that was advanced or otherwise existed
prior to January 1, 1998, shall be contributed to the equity of SprintCom on
the Closing Date, and any such indebtedness advanced on or after January 1,
1998 and through the Closing Date (other than the SprintCom Loans), shall on
the Closing Date become intergroup debt of the PCS Group on terms consistent
with the Tracking Stock Policies.
Capitalization or Purchase of Cable Parent Loans, Sprint PCS Loans and
SprintCom Loans. Each Cable Parent may elect to capitalize all or any portion
of its Cable Parent Loans, subject to and in accordance with the following
terms and conditions:
(i) Such capitalization will be effected no later than immediately prior
to Closing in the following manner:
(A) to the extent Cox elects to capitalize any portion of its Cable
Parent Loans, Cox will contribute such portion of its Cable Parent
Loans to one of its Cable Subsidiaries as specified in the
Restructuring Agreement, and
(B) to the extent either Comcast or TCI elects to capitalize any
portion of its Cable Parent Loans, Comcast or TCI, as applicable,
will contribute such portion of its Cable Parent Loans as
sequential
70
<PAGE>
capital contributions through all intermediate corporations from the
creditor to the obligor of such Cable Parent Loans, including a
capital contribution by the owner of the stock of such obligor to
such obligor.
(ii) In the Mergers, the holder of the common stock of the entity to
which any Cable Parent Loans have been contributed as part of a
capitalization discussed above will receive, as consideration in the Merger
of such entity, for the equity representing the Cable Parent Loans
contributed to such entity, a number of shares of PCS Preferred Stock equal
to the aggregate principal amount of the Cable Parent Loans and accrued and
unpaid interest thereon contributed to such entity, divided by $1,000.
(iii) If the IPO is to be completed concurrently with the Closing and a
Cable Parent has elected pursuant to the provisions under "--Election"
below to receive any Available Cash Proceeds, then such Cable Parent may
not capitalize that portion of its Cable Parent Loans at the Closing.
At the Closing, Sprint will purchase any Cable Parent Loans that (i) have not
been capitalized and (ii) are not required to be purchased by Sprint for cash
at the Closing pursuant to (vi)(A) below. Sprint shall pay the purchase price
for any Cable Parent Loans that it is required to purchase pursuant to this
paragraph by delivering to the holder of such Cable Parent Loans a number of
shares of PCS Preferred Stock equal to the aggregate principal amount of such
Cable Parent Loans, plus all accrued and unpaid interest thereon, divided by
$1,000.
At the Closing, any portion of the Sprint PCS Notes and SprintCom Loans that
is not required to be repaid at the Closing pursuant to (vii)(A) below will be
repaid by the creation of the Preferred Inter-Group Interest, which will be the
economic equivalent of a number of shares of PCS Preferred Stock equal to the
outstanding principal amount of such Sprint PCS Notes and SprintCom Loans, plus
all accrued unpaid interest thereon, divided by $1,000.
In connection with the consummation of the IPO or any initial primary
offering of shares of Series 1 PCS Stock prior to the Registration Rights
Commencement Date, each Cable Parent may elect to require that Sprint purchase
for cash all or any portion of its Cable Parent Loans, or all or any portion of
the shares of PCS Preferred Stock issued to such Cable Parent or any Subsidiary
of such Cable Parent at the Closing, but not any shares of PCS Preferred Stock
issued as consideration in any of the Mergers in accordance with paragraph (ii)
above, subject to and in accordance with the following terms and conditions:
(i) Sprint Notice. Not later than twelve Business Days prior to the
scheduled commencement of the marketing "road show" for the IPO, Sprint
will notify each Cable Parent in writing (the "Sprint Notice") of Sprint's
good faith, reasonable estimate of the net proceeds of the IPO (not
including the proceeds of any exercise by FT, DT or any Cable Parent of its
Equity Purchase Rights).
(ii) Election. Each Cable Parent will, at least seven Business Days prior
to the scheduled commencement of the road show for the IPO (but in any
event within two Business Days following the date that Sprint notifies the
Cable Parents that Sprint is prepared to print the preliminary prospectus
to be used in connection with the IPO roadshow (but for inclusion of the
information contained in the Parent Responses)), deliver a binding written
response (each, a "Parent Response") to Sprint indicating the total cash
that such Cable Parent desires to have paid to it and its Subsidiaries in
consideration for the purchase of its Cable Parent Loans or PCS Preferred
Stock issued at Closing, as applicable (such Cable Parent's "Cash Request
Amount"). If Sprint proposes to consummate the IPO concurrently with the
Closing and, after receiving each Cable Parent's Parent Response, (A)
Sprint elects to postpone commencing the road show or printing the
preliminary prospectus by more than 10 Business Days from the schedule
contemplated at the time of the giving of the Sprint Notice or (B) delays
in consummating the IPO require that Sprint reprint the preliminary
prospectus, then, in either such case, any Cable Parent may amend its
Parent Response by written notice to Sprint given prior to the printing or
reprinting, respectively, of the preliminary prospectus, as applicable, to
reduce its Cash Request Amount. If the IPO is proposed to be consummated
after the Closing, a Cable Parent's Cash Request Amount may not exceed the
product of $1,000 times the number of shares of PCS Preferred Stock issued
to such Cable Parent and its Subsidiaries at Closing.
71
<PAGE>
(iii) Cash Request Amount. Within five Business Days after giving the
Sprint Notice, Sprint will notify each of the Cable Parents of the total
cash that Sprint desires to receive in repayment of its Sprint PCS Notes
and SprintCom Loans or for the reduction of the Preferred Intergroup
Interest, as applicable (Sprint's "Cash Request Amount").
(iv) Size of Cash Request Amount. If the IPO is proposed to be
consummated simultaneously with the Closing, neither Sprint's nor a Cable
Parent's Cash Request Amount may exceed the balance of principal and unpaid
and accrued interest on its Cable Parent Loans (in the case of the Cable
Parents) or its Sprint PCS Loans and SprintCom Loans (in the case of
Sprint).
(v) Allocation. The Available Cash Proceeds will be allocated among the
Parents in accordance with the following:
(A) "Available Cash Proceeds" means the amount by which the net
proceeds of the IPO (not including the proceeds of any exercise by
FT or DT of its Equity Purchase Rights but including the proceeds
of any exercise by any Cable Parent of its Equity Purchase Rights)
exceed $500 million.
(B) The Available Cash Proceeds will first be allocated (1) to Sprint,
to the extent of the lesser of 53% of the Available Cash Proceeds
or Sprint's Cash Request Amount, (2) to TCI, to the extent of the
lesser of 23.5% of the Available Cash Proceeds or TCI's Cash
Request Amount, (3) to Comcast, to the extent of the lesser of
11.75% of the Available Cash Proceeds or Comcast's Cash Request
Amount, and (4) to Cox, to the extent of the lesser of 11.75% of
the Available Cash Proceeds or Cox's Cash Request Amount.
(C) After the allocations pursuant to paragraph (B) above, if all of
the Available Cash Proceeds have not been allocated and any Parent
has not been allocated a portion of the Available Cash Proceeds
equal to its Cash Request Amount, then the portion of the Available
Cash Proceeds that was not allocated pursuant to the preceding
paragraph will be allocated among those Parents that have not been
allocated all of their respective Cash Request Amounts, in
proportion to their Cash Request Amounts, until (1) each Parent has
been allocated its Cash Request Amount or (2) all of the Available
Cash Proceeds have been allocated among the Parents.
(D) The sum of the portion of the Available Cash Amount allocated to a
Parent pursuant to paragraph (B) above plus the portion of the
Available Cash Amount allocated to a Parent pursuant to paragraph
(C) above is such Parent's "Allocated Cash Proceeds."
(vi) Upon the consummation of the IPO, Sprint will pay to each Cable
Parent in cash the amount of such Cable Parent's Allocated Cash Proceeds as
consideration for the purchase from such Cable Parent or any Subsidiary of
such Cable Parent of:
(A) in the case of an IPO consummated concurrently with the Closing, a
portion of such Cable Parent's Cable Parent Loans having a
principal amount, together with all accrued and unpaid interest
thereon, equal to such Cable Parent's Allocated Cash Proceeds, and
(B) in the case of an IPO consummated after the Closing, that number of
shares of the PCS Preferred Stock issued to such Cable Parent or
any Subsidiary of such Cable Parent at the Closing having a
Liquidation Preference (as defined in the Certificate of
Designations), plus accumulated unpaid dividends, equal to such
Cable Parent's Allocated Cash Proceeds.
(vii) Upon the consummation of the IPO:
(A) in the case of an IPO consummated concurrently with the Closing, an
amount equal to Sprint's Allocated Cash Proceeds will be used to
repay any outstanding Sprint PCS Loans and SprintCom Loans and to
pay accrued interest thereon (which payment shall be allocated to
the FON Group), and
72
<PAGE>
(B) in the case of an IPO consummated after the Closing, an amount
equal to Sprint's Allocated Cash Proceeds will be used to reduce
the Preferred Intergroup Interest, in a manner comparable to a
redemption of PCS Preferred Stock pursuant to paragraph (vi)(B)
above.
Sprint will in no event issue any fractional shares of PCS Preferred Stock.
Any fractional share of PCS Preferred Stock otherwise required to be issued
pursuant to the above provisions will be rounded to the nearest whole share.
PhillieCo. Sprint, TCI and Cox (the Parents of the PhillieCo Partners) have
loaned to PhillieCo in proportion to their respective interests in PhillieCo an
aggregate of $45 million as of March 31, 1998. Sprint had loaned an additional
$90 million to PhillieCo as of March 31, 1998. Sprint, TCI and Cox have agreed
to loan up to an additional $50 million to PhillieCo in proportion to their
respective interests in PhillieCo prior to Closing. If necessary, Sprint will
arrange for or provide any additional financing required by PhillieCo on the
same basis as contemplated above with respect to Sprint Spectrum Holdings.
Sprint will cause all loans advanced by the Parents of the PhillieCo Partners
or their respective Affiliates to PhillieCo prior to the Closing to be repaid
by PhillieCo (together with accrued interest) on the 90th day following the
Closing Date. If the Restructuring Agreement is terminated prior to Closing,
such financing (and all secured interest thereon) will be repayable to the
applicable PhillieCo Partner or its Affiliate at the closing of the buy/sell
arrangements contemplated by the PhillieCo partnership agreement.
EQUITY PURCHASE RIGHTS
Pursuant to the Restructuring Agreement, the Cable Parents and their
Subsidiaries holding PCS Stock will have certain rights to purchase additional
shares of PCS Stock ("Equity Purchase Rights"), as follows:
(a) Beginning on the Closing Date, each Cable Parent and any Subsidiary of a
Cable Parent that holds shares of PCS Stock (a "Cable Holder") will have the
right to purchase from Sprint:
(i) if on or after the Closing Date (including in connection with the
IPO), Sprint issues shares of PCS Stock for cash, that number of additional
shares of Series 2 PCS Stock sufficient for such Cable Holder to avoid any
reduction in its PCS Group Percentage Interest as in effect immediately
prior to the issuance of such shares (which, for the purposes of the IPO,
shall be determined as if the Mergers occurred immediately before the
consummation of the IPO) solely as a result of such issuance; such shares
of Series 2 PCS Stock to be purchased from Sprint at a per share purchase
price equal to the purchase price paid for such shares of PCS Stock whose
issuance gave rise to such Equity Purchase Right, which purchase price
shall be net of any underwriting discounts in connection with a public
offering of shares of PCS Stock;
(ii) if after the Closing, Sprint issues for cash options, warrants or
other securities of Sprint or any of its Controlled Affiliates that are
exercisable or exchangeable for or convertible into shares of PCS Stock,
that number of such options, warrants or other securities sufficient for
such Cable Holder to avoid any reduction in its PCS Group Percentage
Interest as in effect immediately before such issuance solely as a result
of such issuance; such options, warrants or other securities to be
purchased from Sprint at a price per unit equal to the per unit purchase
price paid for such options, warrants or other securities whose issuance
gave rise to such Equity Purchase Right, which purchase price will be net
of any underwriting discounts in connection with a public offering of such
options, warrants or other securities;
(iii) if after the Closing, the FON Group contributes to the PCS Group
cash or other assets in exchange for the creation or an increase in the FON
Group Inter-Group interest in the PCS Group, that number of additional
shares of Series 2 PCS Stock sufficient for such Cable Holder to avoid any
reduction in its PCS Group Percentage Interest as in effect immediately
prior to such contribution solely as a result of such contribution, such
Series 2 PCS Stock to be purchased at a price per share based on the
corresponding per unit price used by the Sprint Board or its Capital Stock
Committee in determining the appropriate adjustment to the FON Group Inter-
Group interest as a result of such contribution of cash or assets; and
73
<PAGE>
(iv) if after the Closing, the FON Group contributes to the PCS Group
cash or other assets in exchange for an Inter-Group interest that is
convertible into or exchangeable for an Inter-Group interest in the PCS
Group, that number of securities having substantially the same terms as
such Inter-Group interest sufficient for such Cable Holder to avoid any
reduction in its PCS Group Percentage Interest as in effect immediately
prior to such contribution solely as a result of such contribution; such
securities to be purchased at a price per share based on the corresponding
per unit price used by the Sprint Board or its Capital Stock Committee in
determining the amount of the FON Group Inter-Group interest as a result of
such contribution of cash or assets.
The additional shares, options, warrants or other securities to be purchased
pursuant to paragraphs (i), (ii), (iii) and (iv) above are referred to herein
as the "Additional Securities."
(b) Sprint is required to deliver to each Cable Parent written notice of any
proposed action that would give rise to Equity Purchase Rights not less than
fifteen days prior to such action, such notice to describe in reasonable detail
the price per share of PCS Stock (or price per warrant, option or security
exercisable or exchangeable for or convertible into shares of PCS Stock)
reflected in such transaction and contain the calculation thereof (or, in the
case of a public offering, the anticipated price per share or other unit);
provided, that no such notices need be given (and the Cable Holders will not
have any Equity Purchase Rights) with respect to shares of PCS Stock issued
pursuant to (i) the Recapitalization, (ii) exercises of the Warrants, (iii)
conversion of the PCS Preferred Stock, (iv) qualified or non-qualified employee
and director benefit plans, arrangements or contracts (including stock purchase
plans), (v) dividend reinvestment plans, (vi) conversion rights under capital
stock of Sprint outstanding as of May 26, 1998 or (vii) purchase rights that
are exercised by FT and/or DT as a result of the issuance of PCS Stock in
connection with any of the matters described in clauses (ii)-(vi) above. In
addition, a Cable Holder will have no Equity Purchase Rights with respect to
the exercise of Equity Purchase Rights by FT or DT that are triggered by sales
of Series 2 PCS Stock by such Cable Holder or any of its Affiliates.
(c) The Cable Holders may exercise their Equity Purchase Rights by binding
written notice (subject to consummation of the underlying transaction) to
Sprint delivered prior to the fifteenth day after the date of the related
notice provided for in (b) above specifying the number of Additional Securities
to be purchased.
(i) Notwithstanding the foregoing, in connection with a public offering
of PCS Stock by Sprint to which Equity Purchase Rights are applicable, at
least twelve (12) Business Days prior to the printing of the preliminary
prospectus for such offering, Sprint is required to give written notice to
the Cable Parents setting forth Sprint's then-current estimate of the
number of shares of PCS Stock Sprint intends to offer and the anticipated
per share range for the offering price (the "Price Range"). If the midpoint
of the Price Range is $15 or less, the Price Range will extend not more
than $1 above the midpoint nor more than $1 below the midpoint. At least
seven (7) Business Days prior to the printing of the preliminary prospectus
for such offering, each Cable Parent will be required to deliver a binding
notice to Sprint (the "EPR Notice") stating whether and as to how many
shares the Cable Parent and its Subsidiaries will exercise their Equity
Purchase Rights as follows:
(A) for the IPO, whether Equity Purchase Rights will be exercised if
the actual price per share at which shares are sold in the IPO is
in a range (the "Decision Range") as follows: (x) if the midpoint
of the Price Range is $15 or less, the Price Range; (y) if the
midpoint of the Price Range is $15 or more, then from a price per
share 10% above the midpoint of the Price Range (but in no
event more than $1 above the high point) to a price per share 10%
below the midpoint of the Price Range (but in no event lower than $1
below the low point);
(B) for other primary offerings, whether and as to how many shares the
Cable Parent and its Subsidiaries will exercise Equity Purchase
Rights without regard to a price range (subject to (c)(iii) below).
(ii) In the case of (i)(A): (I) if the actual price per share in the IPO
is greater than the high point of the Decision Range, (1) a decision to not
exercise Equity Purchase Rights shall nevertheless be binding and (2) any
Cable Holder that originally exercised its Equity Purchase Rights with
respect to the IPO, in whole
74
<PAGE>
or in part, shall be entitled to rescind such exercise, in whole or in
part, at the time of pricing of the IPO; and (II) if the actual price per
share in the IPO is less than the low point of the Decision Range, (1) an
exercise of Equity Purchase Rights shall nevertheless be binding and (2)
any Cable Holder that originally declined to exercise its Equity Purchase
Rights with respect to the IPO, or originally exercised its Equity Purchase
Rights with respect to the IPO only in part, will be entitled to exercise
its Equity Purchase Rights with respect to the IPO, in whole or in part (or
in greater part, if its Equity Purchase Rights were previously exercised),
at the time of pricing of the IPO.
(iii) In the case of (i)(B): if the actual price per share in such
offering is less than 95% of the closing price of the Series 1 PCS Stock on
the date of pricing of such offering, (1) an exercise of Equity Purchase
Rights shall nevertheless be binding and (2) any Cable Holder that
originally declined to exercise its Equity Purchase Rights with respect to
such public offering, or originally exercised its Equity Purchase Rights
with respect to such public offering only in part, will be entitled to
exercise its Equity Purchase Rights with respect to such public offering,
in whole or in part (or in greater part, if its Equity Purchase Rights were
previously exercised), at the time of pricing of such public offering.
(iv) With respect to any decision to be made by a Cable Holder at the
time of pricing pursuant to paragraph (ii) or (iii) above or with respect
to any primary public offerings by Sprint of securities that are
exercisable or exchangeable for or convertible into shares of PCS Stock,
the Restructuring Agreement provides that Sprint and each affected Cable
Holder will cooperate to develop procedures that will permit such Cable
Holder to exercise its rights under paragraph (ii) or (iii) or with respect
to such offerings concurrently with the applicable pricing decision without
any disruption or delay to the public offering.
(v) Payment for any Additional Securities purchased by the Cable Holders
that exercise their Equity Purchase Rights are required to be made as
provided in (e) below. The total number of Additional Securities specified
by each exercising Cable Holder will be issued and delivered to such Cable
Holder against delivery to Sprint of the purchase price therefor as
provided in (e) below.
(d) If Sprint issues to the Cable Holders upon exercise of their Equity
Purchase Rights Additional Securities on a date after the date the related PCS
Stock is issued, then (i) the per share purchase price paid by the Cable
Holders shall be reduced to reflect the fair market value (as determined by the
Sprint Board) of any dividend or distribution made in respect of the PCS Stock
after the date the related PCS Stock is issued and prior to such issuance and
(ii) such purchase price and the number of shares of Additional Securities
purchased shall be appropriately adjusted to reflect any stock split, stock
dividend or other combination or reclassification of the PCS Stock.
(e) The closing of purchases of Additional Securities pursuant to the
exercise of Equity Purchase Rights by the exercising Cable Holders will take
place on a date specified by the exercising Cable Holders, which date shall be
within 30 days after the exercise of such Equity Purchase Rights or (if later)
within 10 days after the receipt of all required regulatory approvals (in each
case assuming the action giving rise to such Equity Purchase Rights has
occurred), at the executive offices of Sprint, at 10:00 a.m., Kansas City time,
or at such other date, time or place as Sprint and such exercising Cable Holder
may otherwise agree. At such closing:
(i) Sprint will deliver, or cause to be delivered, to such exercising
Cable Holder, certificates representing the shares of Additional Securities
to be purchased by such exercising Cable Holder, in the name of such
holder, against payment of the purchase price therefor, as provided below;
and
(ii) such exercising Cable Holder will deliver to Sprint an amount in
cash by wire transfer in immediately available funds equal to the product
of (i) the applicable price per share determined pursuant to paragraph (a)
above (as adjusted pursuant to paragraph (d) above) and (ii) the number of
shares of Additional Securities to be acquired by such exercising Cable
Holder.
(f) In connection with the occurrence of any issuance or contribution that
gives rise to Equity Purchase Rights and to purchase rights of FT and DT,
Sprint will use its reasonable efforts to coordinate the exercise of purchase
rights by the Cable Holders and FT and DT to avoid a series of successive
exercises of purchase rights triggered by a single issuance or contribution.
75
<PAGE>
(g) The Equity Purchase Rights of a Cable Parent and its Subsidiaries will
terminate simultaneously with the termination of the Standstill Agreement
between Sprint and such Cable Parent.
(h) With respect to each action giving rise to Equity Purchase Rights, if a
Cable Holder elects not to purchase all of the Additional Securities that it is
entitled to purchase after such action, such Cable Holder will thereafter be
entitled to purchase, in open market purchases on the New York Stock Exchange
or other applicable exchange or otherwise from a third party:
(i) as to paragraphs (a)(i) and (iii) above, a number of shares of Series
1 PCS Stock equal to the number of shares of Series 2 PCS Stock that such
Cable Holder was entitled to purchase from Sprint and elected not to so
purchase; or
(ii) as to paragraphs (a)(ii) and (iv) above, either (A) a number of
shares of Series 1 PCS Stock equal to the number of shares of PCS Stock
into which the options, warrants or other securities that such Cable Holder
elected not to purchase would have been convertible, exercisable or
exchangeable on the date of the action giving rise to such Equity Purchase
Rights (disregarding for such purpose any time or other limitations on the
holder's right to convert, exercise, or exchange) or (B) that number of
such securities (other than PCS Stock) that such Cable Holder was entitled
to purchase and elected not to so purchase;
in each case as adjusted to reflect any stock split, stock dividend or other
combination or reclassification of the PCS Stock or other security.
(i) If after the Closing Date Sprint issues shares of PCS Stock (or options,
warrants or other securities of Sprint or any of its Controlled Affiliates that
are exercisable or exchangeable for or convertible into shares of PCS Stock)
other than for cash (including pursuant to a merger, acquisition, share
exchange or similar transaction), each Cable Holder will thereafter have the
right to acquire, in open market purchases on the NYSE or other applicable
exchange or otherwise, that number of additional shares of Series 1 PCS Stock
sufficient for such Cable Holder to avoid any reduction in its PCS Group
Percentage Interest as in effect immediately prior to the issuance of such
shares solely as a result of such issuance, assuming that any such options,
warrants or other securities were converted into shares of PCS Stock as of the
date of issuance of such options, warrants or other securities, and
appropriately adjusted to reflect any stock split, stock dividend or other
combination or reclassification of the PCS Stock.
(j) Any shares of Series 1 PCS Stock acquired by any Cable Holder will be
subject to an Irrevocable Proxy and Voting Agreement to be entered into by
Sprint and each Cable Parent (each, a "Voting Agreement"). See "--Voting
Agreements."
STANDSTILL AGREEMENTS
General. In connection with the execution of the Restructuring Agreement,
Sprint and each Cable Parent have entered into Standstill Agreements dated May
26, 1998 pursuant to which each Cable Parent agrees that it will not, and it
will cause each of its Affiliates not to, (i) at any time before the Closing
Date, acquire any Sprint Voting Securities, other than as a result of purchases
from Sprint pursuant to the Restructuring Agreement, or (ii) on and after the
Closing Date and before the tenth anniversary of the Closing Date (or the
earlier termination of the applicable Standstill Agreement), acquire any Sprint
Voting Securities if, as a result of such acquisition, the Votes represented by
the Sprint Voting Securities owned by the Cable Parent and its Affiliates would
represent in the aggregate more than one and one half percent (1.5%) of the
Voting Power represented by the then-outstanding Sprint Voting Securities,
assuming for this purpose that all shares of Series 2 PCS Stock have the same
voting rights as the Series 1 PCS Stock. Because the Series 2 PCS Stock
received by each Cable Parent in the PCS Restructuring is expected to amount to
more than 1.5% of the Voting Power represented by the then-outstanding Sprint
Voting Securities, as of the Closing Date no further purchases of Sprint Voting
Securities by a Cable Parent or its Affiliates would be permitted under the
Standstill Agreements except as provided below.
The above provisions of the Standstill Agreements will not prohibit or
restrict the Cable Parents or Affiliates of the Cable Parents from (i)
exercising their Equity Purchase Rights, (ii) acquiring additional shares of
Series 2
76
<PAGE>
PCS Stock upon conversion of shares of the PCS Preferred Stock, (C) acquiring
additional shares of Series 2 PCS Stock upon exercise of the Warrants or (D) as
to Cox and its Affiliates only, exercising their Equity Purchase Rights under
the Amended Cox PCS Agreement.
In addition, the Cable Parents have agreed to not propose, participate in or
assist others in any (i) acquisition of Sprint Voting Securities or other
equity interests in Sprint which would result in a breach of the agreements in
the first paragraph of this section; (ii) tender offer for Sprint Voting
Securities, (iii) merger, consolidation, share exchange or business combination
involving Sprint or any material portion of its business or any purchase of all
or any substantial part of the assets of Sprint or any material portion of its
business, (iv) recapitalization, restructuring, liquidation, dissolution or
other extraordinary transaction with respect to Sprint or any material portion
of its business, or (v) any "solicitation" of "proxies" as such terms are
defined under the Exchange Act. Nothing will prevent any Cable Parent, however,
from selling, transferring, tendering or otherwise disposing of shares of
capital stock of Sprint to any person at any time or from voting on, tendering
into or receiving the benefit of any transaction described in clauses (ii),
(iii) and (iv) above, in the same manner as any other non-initiating holder of
publicly-traded common stock of Sprint. The Cable Parents have also agreed in
general, and subject to certain exceptions, not to (a) propose any matter for
submission to a vote of stockholders of Sprint or any of its Affiliates, (b)
form, join or participate in a group (as defined under the Exchange Act) with
respect to any Sprint Voting Securities (except as may arise from the exercise
of rights and performance of duties contemplated by the Restructuring Agreement
and the other agreements executed in connection therewith), (c) grant any proxy
with respect to any Sprint Voting Securities to any person not designated by
Sprint, (d) deposit any Sprint Voting Securities in a voting trust or subject
any Sprint Voting Securities to any similar arrangement, (e) execute any
written stockholder consent with respect to Sprint Voting Securities, (f) take
any other action to seek to affect the control of the management or Board of
Directors of Sprint or any of Sprint's Affiliates, (g) enter into any
discussions, negotiations, arrangements or understandings with any person with
respect to any of the foregoing, or advise, assist, encourage or seek to
persuade others to take any action with respect to any of the foregoing,
(h) disclose to any person any intention, plan or arrangement inconsistent with
the foregoing or form any such intention which would result in the Cable Parent
or any of its Affiliates being required to make any such disclosure in any
filing with a governmental authority or being required by applicable law to
make a public announcement with respect thereto, or (i) request Sprint to amend
or waive any provision of their respective Standstill Agreements, the Sprint
Rights Plan or the articles of incorporation or the Bylaws of Sprint or any of
its Affiliates.
Notwithstanding the above, if Sprint submits to a vote of its stockholders
any Covered Proposal with which a Cable Parent disagrees (a "Rejected
Proposal"), such Cable Parent and its Affiliates will be free to:
i. either alone or acting in concert with others, make a "solicitation"
of "proxies" with respect to Sprint or any of its Affiliates in
response or opposition to such Rejected Proposal;
ii. make a proposal in opposition to such Rejected Proposal for
submission to a vote of stockholders of Sprint or any of its
Affiliates;
iii. form, join in or participate in a group (as defined under the
Exchange Act) with respect to any Sprint Voting Securities for
the sole purpose of responding to or opposing such Rejected
Proposal;
iv. grant a proxy with respect to any Sprint Voting Securities to any
person with specific instructions from the Cable Parent as to the
voting of such Sprint Voting Securities with respect to such
Rejected Proposal; and
v. subject any Sprint Voting Securities to an arrangement or agreement
with respect to the voting of such Sprint Voting Securities with
respect to such Rejected Proposal.
Subject to the following paragraph, each Cable Parent may issue such press
releases and make such other public communications to the financial community
and to its stockholders and such other public statements made in the ordinary
course of business relating to its investment in Sprint, in each case as it
reasonably deems appropriate and customary. Prior to making any such press
release or other communication, each Cable Parent
77
<PAGE>
will use reasonable efforts to consult with Sprint in good faith regarding the
form and content of any such communication, and will use reasonable efforts to
coordinate any such communication with any decisions reached by Sprint with
respect to disclosures relating to such matters.
Notwithstanding the provisions of the prior paragraph, unless required by
applicable law or permitted by the provisions relating to Rejected Proposals
above, neither the Cable Parent nor any of its Affiliates may make any press
release, public announcement or other public communication with respect to any
of the matters described in the third paragraph of this description of the
Standstill Agreements without the prior written consent of the Chairman of
Sprint or by a resolution of a majority of the directors of Sprint. Each Cable
Parent and its Affiliates is permitted to make such public communications as
may be required by law, except for public communications required as a result
of, or relating to, activities undertaken by such Cable Parent or any of its
Affiliates in violation of the Standstill Agreement. Nothing in this or the
prior paragraph will prevent the taking of any actions relating to a Rejected
Proposal described above.
Transfers. Each Cable Parent may transfer shares of capital stock of Sprint
to its Affiliates only if, prior to such transfer, such transferee executes and
delivers to Sprint a Standstill Agreement in the form of the Standstill
Agreement executed by such Cable Parent. If and to the extent that the Cable
Parent elects to transfer shares of Series 2 PCS Stock to one of its Associates
without such shares automatically converting into shares of Series 1 PCS Stock,
the Cable Parent may effect such transfer only if, prior to such transfer, such
transferee executes and delivers to Sprint a Standstill Agreement in the form
of the Standstill Agreement executed by such Cable Parent.
Permitted Activities. Nothing in the Standstill Agreements will prevent any
Cable Parent from (i) selling, transferring, tendering or otherwise disposing
of shares of capital stock of Sprint to any person at any time or from voting
on, tendering into or receiving the benefit of any transaction described in
clauses (ii), (iii), (iv) and (v) of the third paragraph under "--General," in
the same manner as any other non-initiating holder of Sprint Voting Securities
or (ii) taking any actions necessary or appropriate for the Cable Parent and
its Affiliates to exercise their rights under any of the other agreements
executed in connection with the Restructuring Agreement.
Termination. The Standstill Agreements terminate (i) upon the consent of each
party in writing, (ii) upon a Change in Control, (iii) upon a termination of
the Restructuring Agreement prior to the Closing, (iv) following the Closing,
if the Votes represented by the Sprint Voting Securities beneficially owned by
the Cable Parent and its Affiliates, directly or indirectly, either
individually or as part of a group as defined under the Exchange Act in the
aggregate no longer exceed one and one half percent (1.5%) of the Voting Power
represented by the then-outstanding Sprint Voting Securities (assuming for this
purpose that all shares of Series 2 PCS Stock have the same voting rights as
the shares of Series 1 PCS Stock), or (v) upon the occurrence of an Other
Termination Event. As to a Cable Parent that is an Affiliate or an Associate of
a Cable Parent and that has executed a Standstill Agreement, such Agreement
shall terminate, in addition to the above circumstances, when such holder
ceases to be an Affiliate (or Associate, as applicable) of a Cable Parent and
all shares of Series 2 PCS Stock held by such party shall have converted to
Series 1 PCS Stock.
VOTING AGREEMENTS
As a result of the exercise of their Equity Purchase Rights, the Cable
Parents may in certain cases acquire shares of full-vote Series 1 PCS Stock. In
order to avoid any Cable Parent acquiring the right to direct the vote of a
significant block of the outstanding voting securities of Sprint, each of the
Cable Parents has agreed to enter into a Voting Agreement.
Pursuant to the Voting Agreements, subject to certain exceptions described
below, each Cable Parent will grant to William T. Esrey (the "Grantee") an
irrevocable proxy, with full power of substitution, to exercise voting
authority and authority to act by written consent over all shares of Series 1
PCS Stock beneficially owned by such Cable Parent and its Affiliates, at the
time of the PCS Restructuring or at any time in the future (the "Proxy
Shares"), on all matters submitted to a vote of all or any class or classes of
the holders of the Sprint Voting Securities, which proxy will be irrevocable
and coupled with an interest for purposes of the Kansas General Corporation
Code.
78
<PAGE>
Prior to the acquisition by any affiliate of a Cable Parent that has not
previously executed and delivered to Sprint an irrevocable proxy of any shares
of Series 1 PCS Stock, the Cable Parent will cause such affiliate to execute
and deliver to Sprint the form of irrevocable proxy attached to the Voting
Agreements.
Pursuant to the proxies granted by each Cable Parent and its Affiliates under
the Voting Agreements (the "Proxies"), the Grantee is authorized and directed
to vote the Proxy Shares for or against any matter presented for a vote of the
Sprint Voting Securities in the same manner as the majority of votes that are
cast with respect to such matter by the holders of Sprint Voting Securities
(other than the Proxy Shares). Notwithstanding the foregoing, the Proxies shall
not be applicable with respect to any of the Proxy Shares in connection with
any matter on which the holders of Series 1 PCS Stock vote as a class pursuant
to the Articles Amendment or any successor provisions with the same effect, and
the Cable Parents have the power to vote the Proxy Shares in their discretion
with respect to any such matter.
The Grantee's appointment as proxy will terminate at such time as the Grantee
ceases to be the Chief Executive Officer of Sprint, at which time the Proxies
shall automatically be granted, without any further act by the Cable Parents or
their affiliates, to the Grantee's successor as Chief Executive Officer of
Sprint and thereafter to each subsequent successor as the Chief Executive
Officer of Sprint.
If the Proxies are determined to be invalid or unenforceable in any respect,
or the holder of the Proxies is unable or unwilling for any reason to vote the
Proxy Shares at any meeting of the stockholders of Sprint as contemplated
above, then, except in the case of a class vote as described above, the Cable
Parent is required to (and to cause each of its Affiliates to) attend each
meeting of the stockholders of Sprint for the purposes of satisfying quorum
requirements and to vote the Proxy Shares for or against any matter presented
for a vote of the Sprint Voting Securities in the same manner as the majority
of votes that are cast with respect to such matter by the holders of Sprint
Voting Securities (other than the Proxy Shares).
The Voting Agreement (and the Proxies granted thereunder) will terminate on
the earlier to occur of (a) the consent in writing of Sprint and the applicable
Cable Parent, (b) the termination of the Standstill Agreement of such Cable
Parent and (c) the tenth anniversary of the PCS Restructuring.
REGISTRATION RIGHTS AGREEMENT
Sprint and the Cable Parents have agreed pursuant to the Restructuring
Agreement to enter into a Registration Rights Agreement on the Closing Date
pursuant to which Sprint will agree to register the shares of PCS Stock that it
issues to the Cable Parents for sale under the Securities Act.
Registration rights can be exercised by any of the following persons with
respect to each Cable Parent (each a "Stockholder Group"): such Cable Parent,
any Affiliates of such Cable Parent who own Registrable Securities (defined
below) and any other entity (w) to which all or a portion of such Registrable
Securities are transferred by any entity that was, immediately prior to such
transfer, a member of such Cable Parent's Stockholder Group, (x) that continues
to hold such Registrable Securities, (y) to which the transferring member of
such Stockholder Group has assigned any of its registration rights in
accordance with the Registration Rights Agreement and (z) who has executed a
Registration Rights Agreement in connection with the transfer of such
Registrable Securities.
The Registration Rights Agreement applies to the following securities (the
"Registrable Securities"): (A) the shares of PCS Stock owned on the date of
Closing or thereafter acquired (whether pursuant to purchase rights granted in
the Restructuring Agreement, the exercise of any warrants or upon the
conversion of any convertible preferred stock or otherwise) by a Stockholder
Group other than shares acquired in violation of the Standstill Agreement, (B)
any securities of Sprint or its successors issued to Cox or any Affiliate of
Cox pursuant to the Cox PCS Amendment, (C) any securities of Sprint or its
successors issued or issuable with respect to any shares referred to in A or B
whether by way of conversion, exchange, dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise, and (D) any Registrable
Securities described in A, B or C that underlie any securities of a member of a
Stockholder Group
79
<PAGE>
(any such security a "Derivative Security") the value of which relates to or is
based upon the Registrable Securities described in A through C above or which
are exchangeable for or convertible into such Registrable Securities, in each
case to the extent any such Registrable Securities require registration by
Sprint in addition to registration of the Derivative Securities by the
applicable issuer thereof. Registrable Securities, once acquired by a member of
a Stockholder Group will cease to be Registrable Securities (w) when they are
disposed of in accordance with a registration statement that has become
effective under the Securities Act, (x) when they are sold pursuant to Rule 144
or Rule 145 (or any successor provisions) under the Securities Act or in any
other transaction in which the applicable purchaser does not receive
"restricted securities" (as such term is defined in Rule 144 under the
Securities Act), (y) in the case of securities not acquired directly from
Sprint or a member of a Stockholder Group, (I) if such securities did not, as
of the time of the acquisition of such securities by such holder, constitute
restricted securities, when such securities are held by a Person that is not an
"affiliate" (as such term is defined for purposes of Rule 144 under the
Securities Act) of Sprint and (II) if such securities did, as of the time of
the acquisition of securities by such holder, constitute restricted securities,
when such securities can be sold without regard to the volume and manner of
sale limitations set forth in Rule 144 (or any successor provision) or (z) when
they shall have ceased to be outstanding.
The Cable Parents may require Sprint to register under the Securities Act all
or a portion of their Registrable Securities for offer or sale (including the
offer or sale of Registrable Securities upon issuance or settlement of any
Derivative Security) (a "Demand Registration") or may include their shares in
an offering initiated by Sprint or another Sprint stockholder (an "Incidental
Registration") on or after the date (the "Registration Rights Commencement
Date") that is (i) if the IPO is consummated concurrently with the Closing, 180
days following the Closing, (ii) if the IPO is not consummated concurrently
with the Closing but is consummated within 120 days of the Closing, the later
of the ninetieth day following the IPO or 180 days following the Closing, or
(iii) if the IPO is not consummated concurrently with the Closing or within 120
days thereafter, the 180th day following the Closing unless any Cable Parent
shall decide to exercise one of its rights to a Demand Registration after such
120th day following the Closing but prior to such 180th day following the
Closing in which case the date the Demand Notice is given. Pursuant to the
Restructuring Agreement, (a) if the IPO is completed concurrently with the
Closing, each Cable Parent will, and will cause its Controlled Affiliates to,
for a period of 180 days following the Closing Date, refrain from engaging in
any public sale or distribution of any PCS Stock or securities convertible
into, or exchangeable or exercisable for, or the value of which relates to or
is based upon, PCS Stock, and (b) if the Recapitalization is completed
concurrently with the Closing and the IPO is completed within such 120-day
period, each Cable Parent will, and will cause its Controlled Affiliates to,
for a period commencing at the time of Closing and ending on the later of (x)
90 days following the closing of the IPO and (y) 180 days following the Closing
Date, refrain from engaging in any public sale or distribution of any PCS Stock
or securities convertible into, or exchangeable or exercisable for, or the
value of which relates to or is based upon, PCS Stock.
Number of Demand Registrations. At any time on or after the Registration
Rights Commencement Date, each Stockholder Group will have the right to effect
Demand Registrations as follows: the TCI Stockholder Group will be entitled to
six (6) Demand Registrations, the Cox Stockholder Group will be entitled to
three (3) Demand Registrations (plus an additional Demand Registration if Cox
or any Affiliate acquires Registrable Securities pursuant to the Cox PCS
Amendment), and the Comcast Stockholder Group will be entitled to three (3)
Demand Registrations.
In addition, each Stockholder Group will be entitled to one Demand
Registration to be used in connection with the delivery or sale of Registrable
Securities upon settlement of a Derivative Security (including any sale of
shares the proceeds of which are used to settle such Derivative Security). Such
Stockholder Group will pay all Registration Expenses in connection with such
additional Demand Registration. However, Sprint will pay Registration Expenses
in connection with the settlement of a Derivative Security to the extent that
the a Stockholder Group elects to use one of its Demand Registrations described
in the paragraph above for such settlement.
80
<PAGE>
A Demand Registration must request the registration of Registrable Securities
(including for such purposes the securities proposed to be included in such
registration by the other Stockholder Groups exercising Demand Registration
rights) with an aggregate market value on the date of the delivery of the first
applicable Demand Notice of at least $200,000,000 (before any underwriting or
brokerage discounts and commissions), or if lower, Registrable Securities with
an aggregate value at the price per share at which shares of Series 1 PCS Stock
are sold in the IPO of not less than $200,000,000, but in no event with an
aggregate market value on the date of the delivery of the first applicable
Demand Notice of less than $175,000,000) (the "Minimum Condition"). The
Stockholder Group or Groups requesting registration may increase the number of
securities to be registered by them in order to satisfy the Minimum Condition.
Special Priority as to Third Party Demands. During the period beginning on
the Registration Rights Commencement Date and ending on the earlier of (i) the
date upon which the Stockholder Groups have sold Registrable Securities with an
aggregate offering price for such Registrable Securities of $2,000,000,000 or
(ii) 12 months after the Registration Rights Commencement Date (the "Priority
Period"), if Sprint proposes to register securities due to a demand from
another stockholder exercising demand registration rights (other than FT or
DT), each Stockholder Group will be entitled to exercise a right to one of its
Demand Registrations (a "Priority Demand"). Upon exercise of a Priority Demand,
such Demand Registration shall proceed as with any other Demand Registration by
a Stockholder Group, and the demand registration by such other stockholder
shall be treated for all purposes as though it had not occurred.
Timing of Demand Registrations. Pursuant to the Registration Rights
Agreement, Sprint may be required to effect Demand Registrations every three
months for an initial period and thereafter every six months as described
below. Following the effectiveness of a registration statement filed pursuant
to a Demand Registration, Sprint will not be required to file a registration
statement pursuant to a Demand Registration until: (A) before the Stockholder
Groups have sold Registrable Securities and/or Derivative Securities having an
aggregate offering price of $2,000,000,000 (excluding transfers solely between
or among the Cable Stockholders and their Affiliates), the three (3) month
anniversary of the date of the applicable Demand Notice which satisfied the
Minimum Condition; and (B) thereafter, the six month anniversary of the date of
the applicable Demand Notice. Registrations effected for the settlement of
Derivative Securities are not considered Demand Registrations for this purpose.
Thus, Sprint may be required to register securities for the settlement (but not
in connection with the original issuance) of Derivative Securities at any time.
Underwriters; Limitation in Underwritten Offerings. In any Demand
Registration for an underwritten offering other than an offering of Derivative
Securities, a co-lead joint "book running" underwriter will be selected by each
of Sprint and the sellers of 50% or more of the securities to be sold by
Stockholder Groups exercising Demand Registration rights. In offerings of
Derivative Securities, such Stockholder Groups shall select the lead managing
underwriter (who shall be the book running manager), and, if there are co-
managers, (i) there shall be at least one non-book running co-lead manager
selected by such Initial Holder(s) who is reasonably acceptable to Sprint; or
(ii) if such Stockholder Groups shall require Sprint to participate in a
"roadshow" for such offering, Sprint will select a non-book running co-lead
manager.
If the book running managing underwriters of any underwritten public offering
determine that the number of shares to be offered exceeds the number that could
be sold without having an adverse effect on such offering (including the price
at which the Registrable Securities may be sold), then the number of shares to
be offered will be reduced to an amount recommended by the co-lead joint book
running underwriters. Any such required reductions will be made (i) first, from
the securities proposed to be sold by persons who are not part of a Stockholder
Group other than FT or DT, (ii) second, from securities proposed to be
registered pursuant to incidental registration rights held by FT and DT
(together with securities being offered for the account of Sprint); (iii)
third, from securities proposed to be registered by members of Stockholder
Groups registering shares pursuant to their Incidental Registration Rights; and
(iv) last, from the shares to be registered by Stockholder Groups initiating
the Demand Registration.
81
<PAGE>
Withdrawal. Each member of a Stockholder Group selling securities pursuant to
the Registration Rights Agreement may, no less than five business days before
the registration statement pertaining to such sale is declared effective,
withdraw its Registrable Securities from inclusion therein. If (i) due to a
stop order, injunction or other order of the Commission or other governmental
agency, a registration statement filed pursuant to the Registration Rights
Agreement does not remain effective until the sooner to occur of (a) the sale
of all of the Registrable Securities covered by such Registration Statement in
accordance with the intended methods of distribution thereof or (b) the 90th
day following the effective date of such Registration Statement, (ii) each
member of the Stockholder Groups effecting a Demand Registration has not sold
at least two-thirds of its Registrable Securities registered under such
Registration Statement and (iii) such Registration Statement continues to not
be effective for such reasons for a period exceeding an aggregate of 10 days
during such period, then such members may elect to withdraw such Registration
Statement by prompt written notice to Sprint and such registration shall not be
deemed to have been a Demand Registration by any such member for purposes of
the limitations on the number of Demand Registrations described above, and
Sprint shall bear the Registration Expenses incurred in connection with such
registration.
Incidental Registration. If at any time following the Registration Rights
Commencement Date Sprint proposes to register under the Securities Act any
shares of the same class as the Registrable Securities (with Series 1 PCS
Stock, Series 2 PCS Stock and Series 3 PCS Stock being considered shares of the
same class) whether in an underwritten public offering or otherwise and whether
or not for the account of Sprint or for any stockholder of Sprint, including
members of any Stockholder Group registering Registrable Securities in a Demand
Registration (other than a registration statement on Form S-4 (or any other
registration statement registering shares issued in a merger, consolidation,
acquisition or similar transaction) or Form S-8 or any successor or comparable
forms, or a registration statement filed in connection with an exchange offer
or any offering of securities solely to the Company's existing stockholders or
otherwise pursuant to a dividend reinvestment plan, stock purchase plan or
other employee benefit plan), in a manner which would permit the registration
under the Securities Act of Registrable Securities for sale to the public,
Sprint will provide notice of such registration and each member of any
Stockholder Group will have an Incidental Registration Right to participate
therein on the same basis as the planned method of distribution contemplated by
the proposed registration. Upon receipt of such request, Sprint will, subject
to the provisions of Section 3(b) below, use its commercially reasonable
efforts to cause all such Registrable Securities of such same class or series
requested to be included in such Incidental Registration to be so included.
Limitation in Underwritten Offerings. If the lead or co-lead managing
underwriters of any underwritten public offering determine that the number of
shares to be offered exceeds the number that could be sold without having an
adverse effect on such offering (including the price at which the Registrable
Securities may be sold), then the number of shares to be offered will be
reduced to an amount recommended by the co-lead joint book running
underwriters. Any such required reductions will affect any Stockholder Group
participating in such offering as follows:
(i) in connection with an offering initiated by Sprint, all of the
proceeds of which will be allocated to the PCS Group, if securities are
being offered for the account of persons other than Sprint, such reduction
shall be made:
(x) first, from the securities intended to be offered by such other
persons (other than those described in clause (i)(y) below);
(y) second, from (A) the securities requested to be included in such
offering by the Stockholder Group and (B) the securities requested to
be included by FT and/or DT pursuant to their incidental registration
rights on a pro rata basis, based on the number of Registrable
Securities and securities of FT and/or DT which are requested to be
included in such offering; and
(z) last, from the number of securities to be offered for the account
of Sprint; provided, that no reduction pursuant to (i)(y) above shall
be made from the securities of any Stockholder Group until the end of
the Priority Period;
82
<PAGE>
(ii) in connection with an offering initiated by any person(s) other than
Sprint or a member of a Stockholder Group by means of a demand registration
(each, a "Third Party Demand Holder"), such reduction shall be made:
(w) first, from the number of securities requested to be included in
such offering (other than by persons described in clauses (ii)(x),
(ii)(y) and (ii)(z) below) pursuant to incidental registration rights
or otherwise;
(x) second, (A) during the period (the "Secondary Priority Period")
ending on the earlier of fourth anniversary of the Registration Rights
Commencement Date or the date upon which the member of Stockholder
Groups have sold Registrable Securities with an aggregate offering
price of $3,000,000,000, from the number of securities to be included
in such offering for the account of Sprint the proceeds of which will
not be allocated to the PCS Group and (B) during the Priority Period,
the number of securities to be included in such offering for the
account of Sprint the proceeds of which will be allocated to the PCS
Group;
(y) third, from (A) the number of Registrable Securities requested to
be included in such offering by the applicable Stockholder Groups, (B)
the number of securities requested to be included in such offering by
FT and/or DT pursuant to their incidental registration rights and (C)
(1) following the Priority Period, the number of securities to be
included in such offering for the account of Sprint the proceeds of
which will be allocated to the PCS Group and (2) following the
Secondary Priority Period, the number of securities to be included in
such offering for the account of Sprint the proceeds of which will not
be allocated to the PCS Group, on a pro rata basis, based on the number
of Registrable Securities, securities of FT and DT and securities
included by Sprint the proceeds of which will be allocated to the PCS
Group which are requested to be included in the registration; and
(z) last, from securities being offered by the Third Party Demand
Holders; and
(iii) during the Secondary Priority Period, in connection with an
offering initiated by Sprint a portion of the proceeds of which will not be
allocated to the PCS Group, such reduction shall be made:
(w) first, from the number of securities held by persons (other than
those described in clauses (iii)(y) and (iii)(z) below) requested to be
included in such offering pursuant to incidental registration rights of
such persons or otherwise,
(x) second, from (A) the number of securities to be included in such
offering for the account of Sprint the proceeds of which will not be
allocated to the PCS Group and (B) during the Priority Period, the
number of securities to be included in such offering for the account of
Sprint the proceeds of which will be allocated to the PCS Group;
(y) third, from (A) the number of Registrable Securities requested to
be included in such offering by the applicable Stockholders and (B) the
number of securities requested to be included in such offering by FT
and/or DT pursuant to their incidental registration rights, on a pro
rata basis, based on the number of Registrable Securities and
securities of FT and DT which are requested to be included in the
registration; and
(z) last, following the Priority Period, the number of securities, if
any, to be included in such offering for the account of Sprint the
proceeds of which will be allocated to the PCS Group.
Following the Secondary Priority Period, the priorities set forth in clause
(iii) of the preceding sentence shall cease to apply and any offering of
securities initiated by Sprint shall be treated as if the terms of clause (i)
of the preceding sentence applied to such offering.
Withdrawal. Any member of a Stockholder Group may elect to withdraw its
respective Registrable Securities from inclusion in an Incidental Registration
at any time prior to five business days prior to the then anticipated effective
date of the applicable registration statement. Withdrawal will not affect
obligations to pay expenses under the Registration Rights Agreement.
83
<PAGE>
Underwriters; Underwriting Agreement. In connection with any Incidental
Registration involving an underwritten public offering of securities of Sprint
for the account of Sprint or a Third Party Demand Holder, (i) the managing and
lead underwriters shall be selected by Sprint, unless otherwise provided in an
agreement between Sprint and any Third Party Demand Holder, and (ii) each
member of a Stockholder Group electing to participate in such Incidental
Registration shall, as a condition to Sprint's obligation hereunder, enter into
and perform its obligations under an underwriting agreement or other similar
arrangement in customary form with the managing underwriter of such offering.
Delay or Withdrawal of Registration. Sprint may, without the consent of any
Stockholder Group, delay, suspend, abandon or withdraw any proposed
registration in which any member of a Stockholder Group has exercised
Incidental Registration Rights; provided, that any such member or members may
continue such registration as a Demand Registration following any such
withdrawal by Sprint to the extent that such registration would meet the
requirements for Demand Registrations.
Delay of Filing or Sales. Sprint may delay filing or the declaration of
effectiveness of a registration statement and may require such members of a
Stockholder Group not to sell any Registrable Securities pursuant to an
effective registration statement for a period of no more than 90 days if (i)
Sprint has pending any merger, acquisition, other form of business combination,
divestiture, tender offer, financing or other transaction, or there is an event
or state of facts relating to Sprint in any such case which is material to
Sprint (any such event or state of facts is referred to as a "Material
Activity"), (ii) such Material Activity would, in the reasonable opinion of
counsel for Sprint, require disclosure so as to permit the Registrable
Securities to be sold in compliance with law, and (iii) such disclosure would,
in the reasonable judgment of Sprint, be adverse to its interests. Under this
provision Sprint may delay the filing of a registration statement or the sale
of any Registrable Securities for periods of time totaling no more than an
aggregate of 90 days within any 12-month period.
General. Pursuant to the Registration Rights Agreement, Sprint will, in
effecting any registration thereunder, perform customary acts on the part of
issuers registering securities for selling security holders, including using
commercially reasonable efforts to cause the applicable registration statement
to become effective, furnishing the designated representatives of each
Stockholder Group with copies of the registration statement and amendments
thereto, promptly notifying such designated representatives of any stop order
with respect thereto or of the existence of any Material Activity, entering
into customary agreements to facilitate the sale of such securities,
facilitating due diligence and, in the case of an underwritten offering,
"roadshow" presentations by making officers and employees available therefor,
furnishing customary opinions and letters from auditors, qualifying Registrable
Securities under state securities laws, using commercially reasonable efforts
to cause Registrable Securities that are registered to be listed on the
principal exchange on which publicly traded Registrable Securities are listed
and keeping publicly available information current for purposes of Rule 144
sales.
Pursuant to the Registration Rights Agreement the members of Stockholder
Groups will, in connection with any registration in which they participate,
cooperate with Sprint in connection with the preparation of the applicable
registration statement and discontinue sales forthwith upon notice of a
Material Activity or the occurrence of an event necessitating an amendment or
supplement to an applicable registration statement or prospectus.
Holdbacks. Pursuant to the Registration Rights Agreement, in an underwritten
public offering of Derivative Securities or Registrable Securities, if the lead
managing underwriter or underwriters advise Sprint in writing that a public
sale or distribution (including a sale pursuant to Rule 144 under the
Securities Act) of Registrable Securities other than pursuant to such
underwritten public offering would materially adversely impact such
underwritten public offering, then each member of a Stockholder Group will
refrain from effecting any public sale or distribution of Registrable
Securities or securities convertible into, or exchangeable or exercisable for,
or the value of which relates to or is based upon, such securities during the
ten days prior to, and during the ninety day period beginning on, the effective
date of the Registration Statement for such offering or such shorter
84
<PAGE>
period as may be requested by such underwriters, except as part of such
underwritten public offering, in each case including a sale pursuant to Rule
144. Such limitation will not apply to any public sale or distribution of
Registrable Securities made in connection with the settlement of a Derivative
Security or if such limitation would arise solely due to the exercise of
Incidental Registration Rights by one or more other members of a Stockholder
Group.
Pursuant to the Registration Rights Agreement, Sprint (A) will not engage in
any public sale or distribution of any securities of the same class or series
as the Registrable Securities or securities convertible into, or exchangeable
or exercisable for, or the value of which relates to or is based upon, such
securities during the ten days prior to, and during the 90-day period beginning
on, the effective date of any registration statement filed pursuant to any
public offering of Registrable Securities (including any offering of Derivative
Securities to the extent the lead book running managing underwriter for such
offering advises Sprint in writing that a public sale or distribution during
such 90-day period (including a sale pursuant to Rule 144 under the Securities
Act) of Registrable Securities by Sprint other than pursuant to the
underwritten public offering contemplated by such registration statement would
materially adversely impact such underwritten public offering), but not
including the delivery of Registrable Securities to holders of Derivative
Securities upon settlement of such Derivative Securities, except as part of
such registration and (B) that in the Amended Registration Rights Agreement
between Sprint and FT and DT, such parties will agree not to effect any public
sale or distribution of any such securities during the periods described in
clause (A) above, in each case including a sale pursuant to Rule 144; provided,
that such limitation will not apply to: (w) registrations on Form S-4 or any
other registration of shares issued in a merger, consolidation, acquisition or
similar transaction or on Form S-8, or any successor or comparable forms or a
registration statement filed in connection with an exchange offer of securities
of the Company made solely to the Company's existing stockholders or otherwise
pursuant to a dividend reinvestment plan, stock purchase plan or other employee
benefit plan; (x) sales upon exercise or exchange, by the holder thereof, of
options, warrants or convertible securities; (y) any other agreement to issue
equity securities or securities convertible into, or exchangeable or
exercisable for, such securities in effect on the date the members of the
Stockholder Groups deliver the applicable request for registration to Sprint
pursuant to the Registration Rights Agreement; and (z) any employee benefit
plan (if necessary to allow such plan to fulfill its funding obligations in the
ordinary course).
Indemnification. The Registration Rights Agreement provides that Sprint will
indemnify the members of the Stockholder Groups, and that the members of the
Stockholder Groups will indemnify Sprint, against certain liabilities and
expenses, including liabilities under the Securities Act, or will contribute to
payments that the other may be required to make in respect thereof, insofar as
such liabilities and expenses arise out of statements or alleged statements, or
omissions or alleged omissions, contained in the applicable registration
statement (in the case of an offering of Derivative Securities, also including
the registration statement registering the Derivative Securities of such
member).
Other Registration Rights. The Registration Rights Agreement provides that
Sprint shall not grant to any person any demand registration right, incidental
registration right or other right that would be inconsistent with any of the
rights granted in the Registration Rights Agreement.
Designated Representatives. The Registration Rights Agreement provides that
all actions by, and all notices by or to, a Stockholder Group or any member
thereof will be taken or made by or provided to, as the case may be, a
designated representative for such Stockholder Group.
Assignment. Holders of Registrable Securities may transfer any of their
rights under the Registration Rights Agreement, without the consent of Sprint,
to any person to whom such holder transfers any Registrable Securities if such
transfer is not made pursuant to an effective Registration Statement or
pursuant to Rule 144 or Rule 145 (or any successor provisions) under the
Securities Act or in any other manner the effect of which is to cause the
transferred securities to be freely transferable without regard to the volume
and manner of sale limitations set forth in Rule 144 (or any successor
provision) in the hands of the transferee as of the date of such
85
<PAGE>
transfer. Any Person to whom Demand Registration rights or Incidental
Registration Rights are assigned shall thereafter be deemed a member of the
Stockholder Group of which the assigning party was a member immediately prior
to such assignment. Sprint must be provided with written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee, identifying the securities as to which the rights in question are
being assigned and providing a detailed description of the nature and extent of
the rights that are being assigned.
Termination. The Incidental Registration Rights of each member of a
Stockholder Group terminate when all Demand Registrations of all Stockholder
Groups in the aggregate have been effected.
AMENDMENTS TO THE COX PCS AGREEMENTS
The current Cox PCS partnership agreement contains provisions (i) granting
Cox the right to require Sprint Spectrum Holdings to purchase Cox's remaining
interest in Cox PCS and (ii) granting Sprint Spectrum Holdings the right to
require Cox to sell such interest to Sprint Spectrum Holdings, in each case
over a specified period of time and for cash or additional partnership interest
in Sprint Spectrum Holdings. In connection with the Restructuring Agreement,
Sprint Spectrum Holdings and Cox have agreed to modify these put and call
provisions pursuant to the Cox PCS Amendment, which provides, among other
things, Cox with the right to require that Sprint Spectrum Holdings acquire,
for cash, up to a 10.2% interest in Cox PCS in each of 1998, 1999 and 2000 or,
for Series 2 PCS Stock, up to all of its remaining interest in 1998 and 1999.
Beginning in 2000 through 2005, Sprint Spectrum Holdings has the right to
require that Cox transfer up to all of its interest in Cox PCS in exchange for
Series 2 PCS Stock or cash at the election of Sprint Spectrum Holdings.
Purchases pursuant to the put and call arrangement, if any, will be based upon
an appraised market value. In addition, Sprint and Cox agreed that Cox PCS's
obligation to pay an affiliation fee to Sprint Spectrum Holdings under the
affiliation agreement would terminate effective March 31, 1998, provided that
the affiliation fee obligation will be reinstated if the PCS Restructuring is
not consummated. See Management's Discussion and Analysis of Financial and
Results of Operations--Liquidity and Capital Resources of the PCS Group in
Annex II.
REGULATORY APPROVALS
FCC Approvals. Transactions involving changes in ownership or control of FCC
licensees are subject to the jurisdiction of the FCC. Transactions involving
substantial changes in ownership or control of FCC licensees require prior FCC
approval regardless of the type of FCC license held. However, transactions
involving insubstantial (rather than substantial) changes in ownership or
control of FCC wireless licensees require only post-consummation notification
to the FCC. With the exception of the transfer of the Section 214 authorization
held by the PCS Group, it is Sprint's position that the Tracking Stock Proposal
does not require prior FCC approval, but that Sprint's acquisition of the Cable
Parents' interests in Sprint Spectrum Holdings and PhillieCo requires post-
consummation notification to the FCC. Nevertheless, the FCC could disagree with
Sprint's position and require prior approval for components of the Tracking
Stock Proposal. Sprint has discussed with the FCC staff the transfer of control
approval procedures required in connection with the Tracking Stock Proposal and
is prepared to file transfer of control applications if requested by the FCC.
With respect to the IPO, it is Sprint's position that the IPO is not a change
in ownership or control requiring any transfer of control procedures because
the amount of stock issued in the IPO will be insufficient to confer control on
any party (even assuming a single entity were to purchase all of the newly
issued shares), and because the FCC has never required large publicly traded
corporate licensees to obtain FCC approval for the sale of minority, non-
controlling interests in an FCC licensee.
With respect to the Recapitalization, it is Sprint's position that the
Recapitalization is not a change in ownership or control requiring any transfer
of control procedures because Sprint will continue to be owned by existing
stockholders and all Sprint stockholders will be treated equally in the
Recapitalization.
United States Antitrust Laws. Under the HSR Act and the rules and regulations
promulgated thereunder, the transactions comprising the Tracking Stock Proposal
may not be consummated until notifications have been
86
<PAGE>
given and certain information has been furnished to the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and the applicable waiting period has expired or
been terminated. Sprint, Sprint Spectrum Holdings and PhillieCo will file
notification and report forms
under the HSR Act with the FTC and the Antitrust Division relating to the
transactions comprising the Tracking Stock Proposal and will request early
termination of the applicable waiting period.
SUMMARY CHART OF AUTHORIZED CAPITAL STOCK OF SPRINT
The following table shows the number of authorized shares of capital stock of
Sprint if the Tracking Stock Proposal is implemented.
<TABLE>
<CAPTION>
NO. OF
AUTHORIZED
DESIGNATION CLASS SERIES PAR VALUE SHARES
----------- -------------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
The "Series FON Stock Series 1 $2.00 per share 2,500,000,000
1 FON
Stock"
The "Series FON Stock Series 2 $2.00 per share 500,000,000
2 FON
Stock"
The "Series FON Stock Series 3 $2.00 per share 1,200,000,000
3 FON
Stock"
The Class A Common Stock N/A $2.50 per share 100,000,000
"Existing
Class A
Stock"
The "DT Class A Common Stock Series DT $2.50 per share 100,000,000
Class A
Stock"
The "Series PCS Stock Series 1 $1.00 per share 1,250,000,000
1 PCS
Stock"
The "Series PCS Stock Series 2 $1.00 per share 500,000,000
2 PCS
Stock"
The "Series PCS Stock Series 3 $1.00 per share 600,000,000
3 PCS
Stock"
The Preferred Stock First Series No par value 1,742,853
"Preferred
Stock--
First
Series"
The Preferred Stock Second Series No par value 8,758,472
"Preferred
Stock--
Second
Series"
The Preferred Stock Fifth Series No par value 95
"Preferred
Stock--
Fifth
Series"
The "PCS Preferred Stock Seventh Series No par value
Preferred
Stock"
</TABLE>
It is anticipated that two series of preferred stock will be designated in
connection with an amended stockholder rights plan. See "Anti-Takeover
Considerations--Sprint Rights Plan."
COMMON STOCK OF SPRINT
Holders of PCS Stock and FON Stock will be common stockholders of Sprint and,
as such, will be subject to all risks associated with an investment in Sprint
Corporation and all of its businesses, assets and liabilities. Sprint can
provide no assurance as to the degree to which the market price of the PCS
Stock will reflect the separate performance of the PCS Group, or as to the
impact of the Tracking Stock Proposal on the market price of Sprint's Common
Stock (or, following the Recapitalization, the market price of the FON Stock).
See "Risk Factors--Stockholders of One Corporation; Financial Effects of One
Group Could Adversely Affect the Other."
POTENTIAL CONFLICTS
Implementation of the Tracking Stock Proposal may give rise to occasions when
the interests of the holders of FON Stock and the holders of PCS Stock may
diverge or appear to diverge. See "Risk Factors--The Tracking Stock Proposal--
Potential Diverging Interests."
THE TRACKING STOCK POLICIES
In connection with the Tracking Stock Proposal, Sprint has adopted and
intends to follow the Tracking Stock Policies.
General. The Sprint Board has determined that all material matters as to
which the holders of FON Stock and the holders of the PCS Stock may have
potentially divergent interests will be resolved in a manner that the Sprint
Board determines to be in the best interests of Sprint and all of its common
stockholders, after giving fair
87
<PAGE>
consideration to the potentially divergent interests and all other relevant
interests of the holders of the separate classes of Sprint's common stock.
Pursuant to the Tracking Stock Policies, the relationship between the FON Group
and the PCS Group and the means by which the terms of any material transaction
between them will be determined will be governed by a process of fair dealing.
The Sprint Board will not recommend any transaction that would result in a
change in control of Sprint, or any Strategic Merger, without a prior
determination that the terms of such transaction are fair to holders of PCS
Stock, taken as a separate class, and the holders of the FON Stock, taken as a
separate class.
Capital Stock Committee. The Sprint Board has adopted an amendment to the
Bylaws of Sprint, to become effective on the Closing Date, establishing a
committee of the Sprint Board to be known as the Capital Stock Committee. The
Sprint Board has delegated to the Capital Stock Committee the authority to, and
the Capital Stock Committee will, interpret, make determinations under, and
oversee the implementation of the Tracking Stock Policies. All material
commercial transactions between the FON Group and the PCS Group, including any
transaction that results in a change in the size of any Inter-Group Interest
held by the FON Group in the PCS Group, will be on commercially reasonably
terms and will be subject to the review and approval of the Capital Stock
Committee. If such review occurs before the transaction is undertaken and such
transaction is disapproved, the transaction will not proceed. If such review
occurs after such transaction is undertaken and such transaction is
disapproved, appropriate actions will be taken to reinstate the pre-existing
circumstances to the fullest extent practicable. In making any and all
determinations in connection with the Tracking Stock Policies, either directly
or by appropriate delegation of authority, the members of the Sprint Board and
the Capital Stock Committee will act in a fiduciary capacity and pursuant to
legal guidance concerning their respective obligations under applicable law.
The Sprint Board has also provided the Capital Stock Committee with the
authority to engage the services of accountants, investment bankers,
appraisers, attorneys and other service providers to assist it in discharging
its duties.
Each member of the Capital Stock Committee will be an Independent Director or
a person who, except for a relationship with FT or DT or a subsidiary thereof,
would be an Independent Director. Sprint expects that initially the Capital
Stock Committee will consist of each member of the Sprint Board other than Mr.
Esrey and Mr. LeMay.
Pursuant to the Bylaws amendment, the Capital Stock Committee will have and
may exercise such powers, authority and responsibilities as the Sprint Board
may delegate to the Capital Stock Committee in connection with the adoption of
general policies governing the relationship between business groups or
otherwise, including with respect to, among other things: (i) the business and
financial relationships between the FON Group and the PCS Group (or any
business or subsidiary allocated to the FON Group or the PCS Group,
respectively), (ii) dividends in respect of, and transactions by Sprint or the
FON Group (or any business or subsidiary allocated to the FON Group) in, shares
of PCS Stock and (iii) any other matters arising in connection with the
relationships or transactions described in clauses (i) and (ii).
As part of the Articles Amendment, the Existing Articles will be amended to
provide that the provisions of the Bylaws regarding the Capital Stock Committee
will not be amended prior to the fourth anniversary of the Closing Date by the
Sprint Board without (i) the approval of the holders of a majority of the
shares of then outstanding Common Stock and (ii) the approval of the holders of
a majority of the shares of then outstanding PCS Stock, voting as a separate
class.
Scope of the PCS Group; Allocation of Business Opportunities and
Operations. The PCS Stock Amendment sets forth the entities that will comprise
the PCS Group as of the Closing Date of the PCS Restructuring. The Tracking
Stock Policies provide that any business conducted by Sprint for offering or
providing (i) Domestic Wireless Mobile Telephony Services and (ii) any other
Domestic PCS Services will be allocated to the PCS Group. In addition, the
Tracking Stock Policies provide that all acquisitions of Domestic PCS Licenses
will be allocated to the PCS Group. To the extent such businesses or licenses
are acquired by the FON Group, the Sprint Board will arrange for an allocation
or transfer of such assets to the PCS Group as soon as reasonably practicable
at a price equivalent to the fair market value of such businesses or licenses.
However,
88
<PAGE>
in no event will such allocation or transfer be required at a time that would
adversely affect the availability of pooling-of-interests accounting. These
provisions of the Tracking Stock Policies will not preclude the formation of
commercially reasonable contracts or other arrangements between the PCS Group
and the FON Group or any Other Group for sales agency, resale, or any other
arrangement with respect to businesses conducted by either the FON Group or the
PCS Group. Except as provided above, the Sprint Board may allocate business
opportunities and operations to the FON Group, the PCS Group or to any Other
Group as it considers in the best interests of Sprint and its stockholders as a
whole.
Relationship Between Groups; Long Distance Pricing. All material commercial
transactions between the FON Group and the PCS Group will be on commercially
reasonable terms and shall be subject to the review and approval of the Capital
Stock Committee. With respect to pricing of long distance services (whether
from one calling area to another, or within a calling area) purchased by the
PCS Group for purposes of enabling PCS Group customers to complete wireless
calls (whether billed separately or as part of other charges), services will be
provided at the best price offered by the FON Group to third parties in similar
situations when taking into account all relevant factors (e.g., volumes,
peak/off-peak usage and length of commitment). The PCS Group will be permitted
to acquire private line capacity from the FON Group to self-provision long
distance services to the extent that such self-provisioning can be accomplished
on terms more favorable to the PCS Group, and will be at the best price offered
by the FON Group to third parties in similar situations, when taking into
account all relevant factors.
Transfers of assets from the FON Group to the PCS Group that are designated
by the Sprint Board to be treated as an equity contribution by the FON Group to
the PCS Group will result in an increase in the Inter-Group Interest held by
the FON Group in the PCS Group in accordance with the Articles Amendment.
Pursuant to the Tracking Stock Policies, the PCS Group will not acquire an
Inter-Group Interest in the FON Group (or in any Other Group). Transfers of
assets from the PCS Group to the FON Group therefore will not be treated as
creating an Inter-Group Interest of the PCS Group in the FON Group, but may be
treated as a reduction of any existing Inter-Group Interest of the FON Group in
the PCS Group, but not below zero.
All other transfers of assets between one Group (the "Transferor Group") and
another Group (the "Transferee Group"), not designated by the Sprint Board as
equity transfers and not pursuant to a contract for the provision of goods or
services between the Groups, will be accompanied by (i) the transfer by the
Transferee Group to the Transferor Group of other assets, (ii) the creation of
inter-group debt owed by the Transferee Group to the Transferor Group, or (iii)
the reduction of inter-group debt owed by the Transferor Group to the
Transferee Group, in each case in an amount having a fair market value, in the
judgment of the Sprint Board, equivalent to the fair market value of the assets
transferred by the Transferor Group.
Notwithstanding the above, the Sprint Board has determined pursuant to the
Tracking Stock Policies that neither the FON Group nor any Other Group will
acquire in one transaction or in a series of related transactions a significant
portion of the assets of the PCS Group without receiving the consent of the
holders of a majority of the outstanding shares of PCS Stock, voting as a
separate class, and the consent of the holders of a majority of the outstanding
shares of FON Stock or stock of such Other Group, voting as a separate class. A
"significant portion of the business of the PCS Group" is defined as more than
33% of the assets of the PCS Group, based on the fair market value of the
assets, both tangible and intangible, of the PCS Group as of the time that the
proposed transaction is approved by the Sprint Board.
Any inter-group transaction that results in a change in the size of any
Inter-Group Interest held by the FON Group or any Other Group in the PCS Group
will be subject to the review and approval of the Capital Stock Committee. If
such review occurs before such transaction is undertaken and such transaction
is disapproved, the transaction will not proceed. If such review occurs after
such transaction is undertaken and such transaction is disapproved, appropriate
actions will be taken to reinstate the pre-existing circumstances to the
fullest extent practicable.
89
<PAGE>
The Sprint Board has also determined pursuant to the Tracking Stock Policies
that the FON Group will not engage in any transactions including mergers,
consolidations, recapitalizations, or similar transactions, that have the
effect of circumventing the rights of the holders of PCS Stock with respect to
the time restriction and the benefit of the premium payable or procedure to
ensure fairness on Sprint's exercise of its right to convert outstanding shares
of PCS Stock to FON Stock, or the benefit of the provisions of the Articles
Amendment limiting redemptions of the PCS Stock in exchange for shares of a
subsidiary (a "spin off" of the PCS Group) for two years following the Closing
Date unless approved by the holders of a majority of the outstanding shares of
PCS Stock. These provisions will not apply to any transaction involving a third
party the terms of which have been determined in advance by either the Sprint
Board or the Capital Stock Committee to be fair to holders of PCS Stock, taken
as a separate class, and holders of FON Stock, taken as a separate class. The
Tracking Stock Policies also provide that Sprint will not acquire a number of
shares of Series 1 PCS Stock such that, immediately after the acquisition, the
number of shares of Series 1 PCS Stock outstanding is less than 80% of the sum
of (i) number of shares of Series 1 PCS Stock issued to the public in the
Recapitalization and (ii) the number of shares of Series 1 PCS Stock issued to
the public in any primary initial public offering of Series 1 PCS Stock that is
completed before the Registration Rights Commencement Date (all such numbers
being appropriately adjusted for any stock split, stock dividend,
recapitalization or similar transaction affecting the number shares of Series 1
PCS Stock outstanding).
Allocation of Federal and State Income Taxes. Federal and state income taxes
incurred by Sprint which are determined on a consolidated, combined, or unitary
basis will be allocated between the Groups in accordance with a Tax Sharing
Agreement to be entered into and undertaken by Sprint. These allocations will
be based principally on the taxable income and tax credits contributed by each
Group. Such allocations to or from the PCS Group are intended to reflect its
actual incremental cumulative effect (positive or negative) on Sprint's federal
and state taxable income and related tax liability and tax credit position,
subject to certain adjustments. Tax benefits that cannot be used by a Group
generating those benefits but can be used on a consolidated basis will be
credited to the Group that generated such benefits. Accordingly, the amounts of
taxes payable or refundable, which will be allocated\ to each Group, may not
necessarily be the same as that which would have been payable or refundable had
the Group filed a separate income tax return. Sprint expects that significant
payments pursuant to the Tax Sharing Agreement will be made from the FON Group
to the PCS Group in the near future, in light of the substantial operating
losses that the PCS Group is expected to incur during this time. Tax sharing
payments between the Groups will be accrued as of the end of the tax period to
which they relate.
The Tax Sharing Agreement includes a procedure pursuant to which tax sharing
payments to or from the PCS Group shall be calculated excluding the effect of
any cumulative combined net loss or credit of (a) all new businesses directly
or indirectly acquired by the FON Group after May 26, 1998 individually having
an acquisition cost in excess of $500 million, taking into account the amount
of any liabilities assumed by the acquiror or to which the acquired business is
subject, and (b) all Other Groups except to the extent that an Other Group
reflects one or more profitable core business(es) of the FON Group that exists
on the date of creation of the FON Group (the "Stacking Procedure").
The initial Tax Sharing Agreement (including the Stacking Procedure) will
apply to tax years ending on or before December 31, 2001, and shall not be
modified, suspended or rescinded, nor will additions or exceptions be made to
the Tax Sharing Agreement, for such periods. For subsequent periods, the Sprint
Board will adopt a tax sharing arrangement that will be designed to allocate
Sprint's tax benefits and burdens fairly between the PCS Group and the FON
Group. Sprint expects that tax benefits that cannot be used by a Group
generating those benefits but can be used on a consolidated basis will continue
to result in payments to the Group that generated such benefits based on the
value of such benefits to Sprint on a consolidated basis. In addition, Sprint
expects that tax benefits, if any, pertaining to tax loss or tax credit carry
forwards generated by a Group but not utilized as of the expiration of the
initial Tax Sharing Agreement will continue to result in payments to the Group
that generated such benefits based on the value of such benefits to Sprint on a
consolidated basis when such tax benefits are utilized. Sprint has not
determined whether or not it will continue to utilize the Stacking Procedure
for tax years ending after December 31, 2001.
90
<PAGE>
Allocation of Group Financing. Loans from Sprint or any member of the FON
Group to any member of the PCS Group shall be made at interest rates and on
other terms and conditions substantially equivalent to the interest rates and
other terms and conditions that the PCS Group would be able to obtain from
third parties (including the public markets) as a direct or indirect wholly-
owned subsidiary of Sprint, but without the benefit of any guaranty by Sprint
or any member of the FON Group. This policy contemplates that such loans will
be made on the basis set forth above regardless of the interest rates and other
terms and conditions on which Sprint or members of the FON Group may have
acquired the subject funds. The provisions of this policy will only apply
before December 31, 2001 and will not be modified, suspended or rescinded, nor
shall any exception be made to such provisions, prior to December 31, 2001.
Sprint currently does not expect that the Tracking Stock Policies provision
regarding allocation of debt expense will be amended in any material way after
December 31, 2001.
Dividend Policy. The Sprint Board will periodically consider appropriate
dividend policies and practices relating to future dividends on the FON Stock
and the PCS Stock. The Sprint Board does not expect to declare any dividends on
the PCS Stock in the foreseeable future.
Pursuant to the Tracking Stock Policies, dividends on FON Stock may be
declared and paid only out of the lesser of (i) the funds of Sprint legally
available therefor and (ii) the FON Group Available Dividend Amount.
Pursuant to the Tracking Stock Policies, dividends on PCS Stock may be
declared and paid only out of the lesser of (i) the funds of Sprint legally
available therefor and (ii) the PCS Group Available Dividend Amount.
At , 1998, based on their respective financial statements, the
funds of Sprint legally available for the payment of dividends under Kansas law
would have been at least $ billion, the FON Group Available Dividend
Amount would have been at least $ billion and the PCS Group Available
Dividend Amount would have been at least $ billion. No assurance can be
made as to the continued availability of such amounts. Dividend payments on the
FON Stock or on the PCS Stock could be precluded because of the unavailability
of legally available funds under Kansas law, even though the Available Dividend
Amount test with respect to the relevant Group was met. See "Risk Factors--The
Tracking Stock Proposal--Potential Diverging Interests--No Assurance of Payment
of Dividends."
Policies May Be Modified or Rescinded at Any Time. Unless otherwise provided
above, the Tracking Stock Policies may be modified, suspended or rescinded, and
additional policies may be adopted, or exceptions made to such policies in
connection with particular facts and circumstances, all as the Sprint Board may
determine consistent with its fiduciary duties to Sprint and all its common
stockholders at any time with or without the approval of Sprint's stockholders,
although Sprint has no present intention to do so and Sprint has agreed with
the Cable Parents that it will not change such policies prior to the
Recapitalization. Any determination of the Sprint Board to modify, suspend or
rescind such policies, or to make exceptions thereto or adopt additional
policies, including any such decision that would have disparate impacts upon
holders of FON Stock and PCS Stock, would be made by the Spring Board in a
manner consistent with its fiduciary duties to Sprint and all of its common
stockholders after giving fair consideration to the potentially divergent
interests and all other relevant interests of the holders of the separate
classes of Sprint's common stock, including the holders of FON Stock and the
holders of PCS Stock. See "Risk Factors--The Tracking Stock Proposal--Tracking
Stock Policies Subject to Change."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal income
tax consequences of the Recapitalization. The discussion does not address all
aspects of federal taxation that may be relevant to particular stockholders of
Sprint, and it may not be applicable to stockholders who, for federal income
tax purposes, are subject to special tax treatment, such as insurance
companies, corporations subject to the alternative minimum tax, banks, dealers
in securities or tax-exempt organizations, persons that hold Existing Common
Stock as part
91
<PAGE>
of a straddle, hedging or conversion transaction, persons whose functional
currency is not the U.S. dollar or to stockholders who acquired their stocks
pursuant to the exercise of employee stock options or otherwise as
compensation. The discussion does not address the effect of any applicable
state, local or foreign laws or any federal tax laws other than those
pertaining to the income tax.
EACH STOCKHOLDER OF SPRINT SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
RECAPITALIZATION.
The following discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), regulations and rulings now in effect or proposed
thereunder, current administrative rulings and practice, and judicial
precedent, all of which are subject to change. In particular, Congress could
enact legislation affecting the treatment of stock with characteristics similar
to the FON Stock and the PCS Stock, or the Treasury Department could change the
current law in future regulations, including regulations issued pursuant to its
broad authority under Section 337(d) of the Code. Any such change, which may or
may not be retroactive, could alter the tax consequences to Sprint or the
stockholders of Sprint discussed herein. This discussion is also based on
certain assumptions regarding the factual circumstances that will exist at the
time of the Recapitalization, including certain representations made or to be
made by Sprint and others. This discussion assumes that stockholders of Sprint
hold their shares of Sprint as capital assets within the meaning of Section
1221 of the Code.
Sprint has received an opinion from its counsel, King & Spalding, that for
United States federal income tax purposes (i) the Recapitalization will
constitute a recapitalization within the meaning of Section 368(a)(1)(E) of the
Code, (ii) any outstanding stock which is designated as common stock of Sprint
in the Articles Amendment will constitute voting stock of Sprint for federal
income tax purposes, (iii) except with respect to cash paid in lieu of
fractional shares, if any, the holders of such stock of Sprint will not
recognize income, gain or loss in and as a result of the Recapitalization, and
(iv) such stock of Sprint received in the Recapitalization will not constitute
Section 306 stock within the meaning of Section 306(c) of the Code. As a result
of such treatment, holders of Existing Common Stock will take a tax basis in
the FON Stock and PCS Stock equal to the tax basis prior to the
Recapitalization in the Existing Common Stock (reduced by the amount allocable
to any fractional share interest for which cash is received), with such tax
basis being allocated among the FON Stock and PCS Stock in proportion to their
relative fair market values at the time of the Recapitalization. Cash received
in lieu of fractional shares will result in the recognition of gain or loss
equal to the difference, if any, between the stockholder's basis in the
fractional shares and the amount of cash received. A stockholder's holding
period for shares of PCS Stock and FON Stock received in the Recapitalization
will include such stockholder's holding period for the shares of Existing
Common Stock surrendered therefor.
Stock that is received by a shareholder in pursuance of a plan of
reorganization such as the Recapitalization and that is not common stock may be
Section 306 stock. If the stock received in the Recapitalization is considered
Section 306 stock, a shareholder could recognize ordinary income on the taxable
sale or exchange of such stock and dividend income on the redemption of such
stock. Sprint has received an opinion from counsel that such stock will not
constitute Section 306 stock.
The Internal Revenue Service (the "IRS") announced in 1987 that it was
studying and would not issue advance rulings on the classification of an
instrument that has certain voting and liquidation rights in an issuing
corporation but the dividend rights of which are determined by reference to the
earnings of a segregated portion of the issuing corporation's assets, including
assets held by a subsidiary. In 1997 the IRS placed such instruments on its
list of areas in which rulings or determination letters will not be issued.
There are no court decisions or other authorities that bear directly on
transactions similar to the Recapitalization. It is possible, therefore, that
the IRS could assert that the PCS Stock or the FON Stock or both represent
property other than stock of Sprint ("Other Property"). If such stocks were
treated as Other Property, Sprint or its subsidiaries would recognize a
significant taxable gain on the Recapitalization in an amount equal to the
excess of the fair market value of such stock constituting Other Property over
its federal income tax basis to Sprint or its subsidiaries allocable to such
92
<PAGE>
Other Property. In addition, Sprint and the entities in the PCS Group could
lose their ability to file consolidated federal income tax returns. As a
result, the tax losses expected to be incurred by the PCS Group could not
offset the taxable income expected to be earned by the FON Group and any
dividends paid or deemed paid to Sprint by the PCS Group or FON Group could be
taxable to Sprint, subject to any applicable dividends received deduction.
Furthermore, the receipt of PCS Stock or the FON Stock by a stockholder of
Sprint might be treated as a fully taxable dividend to such stockholder in an
amount equal to the fair market value of such stock (subject, in the case of
stockholders of Sprint that are corporations, to any applicable dividends
received deduction) or might be treated as a distribution in complete
liquidation of Sprint, in which case stockholders of Sprint would have gain or
loss with respect to the shares held in Sprint immediately before the
Recapitalization. Counsel believes that if the status for federal income tax
purposes of the FON Stock or PCS Stock were challenged, a court would agree
with counsel's conclusions that such stock represents stock of Sprint, although
there can be no assurance that a court would reach that result.
Dividend payments received by a Non-U.S. Stockholder (as defined below) on
shares of PCS Stock or FON Stock will be subject to the withholding of United
States federal income tax in the same manner as dividends received by such Non-
U.S. Stockholder on shares of the Existing Common Stock. A Non-U.S. Stockholder
will generally be subject to federal income tax on any gain realized on the
taxable sale or exchange of PCS Stock or FON Stock if (i) the gain is
effectively connected with the conduct of a trade or business of the Non-U.S.
Stockholder within the United States, (ii) the gain is derived from sources
within the United States and the Non-U.S. Stockholder is a non-resident alien
individual who is present in the United States for 183 days or more in the
taxable year of such sale or exchange, (iii) the Non-U.S. Stockholder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates, or (iv) Sprint is a "United States real property
holding corporation" under the Foreign Investment in Real Property Tax Act of
1980 and the Non-U.S. Stockholder has owned, directly or indirectly, more than
five percent of the value of the class of stock in question at any time during
the five-year period ending at the time of the sale or exchange. Sprint does
not believe that it is a United States real property holding corporation as of
the date hereof, although it has not determined or established whether it will
be a United States real property holding corporation in the future.
A "Non-U.S. Stockholder" is a holder who, for United States income tax
purposes, is a foreign corporation, a nonresident alien individual or a foreign
estate or trust.
Certain non-corporate holders of PCS Stock or FON Stock might be subject to
backup withholding at a rate of 31% on the payment of dividends on such stock.
Backup withholding will apply only if the stockholder (i) fails to furnish his,
her or its Taxpayer Identification Number ("TIN"), (ii) furnishes an incorrect
TIN, (iii) is notified by the IRS that he, she or it has failed properly to
report payments of interest or dividends, or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that he, she or it has furnished
a correct TIN and has not been notified by the IRS that he, she or it is
subject to backup withholding for failure to report payments of interest or
dividends. Stockholders should consult their tax advisors regarding their
qualifications for a tax exemption from backup withholding and the procedure
for obtaining such an exemption if applicable. The amount of any backup
withholding from a payment to a holder of PCS Stock or FON Stock will be
allowed as a credit against such stockholder's federal income tax liability and
may entitle such stockholder to a refund, provided that the required
information is furnished to the IRS. Recently issued United States Treasury
regulations
that would modify certain of the certification requirements for backup
withholding. The modifications generally will become effective January 1, 2000.
It is possible that certain holders will have to provide to withholding agents
new certifications of exemption from backup withholding to remain exempt after
the new regulations become effective. Stockholders should consult their tax
advisors concerning the effect, if any, of the adoption of these new
regulations on an investment in PCS Stock or FON Stock.
The foregoing is for general information only. Stockholders should consult
their own tax advisors as to the federal, state, local and foreign tax
consequences of the Recapitalization and of the holding of PCS Stock and FON
Stock.
93
<PAGE>
ACCOUNTING MATTERS
General Accounting Matters. If the Tracking Stock Proposal is approved,
Sprint will prepare financial statements in accordance with generally accepted
accounting principles, consistently applied, for each of the Groups, and these
financial statements, taken together, will comprise all of the accounts
included in the corresponding consolidated financial statements of Sprint. The
financial statements of each of the Groups will principally reflect the
financial position, results of operations and cash flows of the businesses
included therein. Notwithstanding any allocation of assets or liabilities for
dividend purposes or the purpose of preparing Group financial statements,
holders of FON Stock or PCS Stock will continue to be subject to risks
associated with an investment in a single corporation and all of Sprint's
businesses, assets and liabilities. See "Risk Factors--Stockholders of One
Corporation; Financial Effects of One Group Could Adversely Affect the Other;
Current Stockholders Will Become Stockholders of a More Leveraged Entity."
Allocation of Shared Services. Certain costs relating to Sprint's general
and administrative services will be directly assigned, where possible, by
Sprint to each Group based upon actual utilization of such services. If direct
attribution based upon utilization is not possible or is impracticable, other
methods and criteria will be used that management believes are equitable and
provide a reasonable estimate of the costs attributable to each Group,
consistent with the Tracking Stock Policies.
94
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Existing Articles provide that Sprint is authorized to issue
1,520,000,000 shares of capital stock, including 20,000,000 shares of
preferred stock, without par value ("Existing Preferred Stock"), and
1,500,000,000 shares of common stock. The common stock consists of 500,000,000
shares designated as Class A Common Stock, par value $2.50 per share, and
1,000,000,000 shares designated as Common Stock, par value $2.50 per share. As
of May 31, 1998 Sprint had issued and outstanding 344,324,375 shares of
Existing Common Stock, 86,236,036 shares of Existing Class A Common Stock and
294,328 shares of Existing Preferred Stock.
If the Tracking Stock Proposal is adopted, pursuant to the PCS Stock
Amendment, Sprint will be authorized to issue 4,070,000,000 shares of capital
stock, including (i) 1,000,000,000 shares of Existing Common Stock, (ii)
500,000,000 shares of Series 2 Common Stock, (iii) 100,000,000 shares of
Existing Class A Common Stock, (iv) 100,000,000 shares of DT Class A Stock (v)
2,350,000,000 shares of PCS Stock, comprised of 1,250,000,000 shares of Series
1 PCS Stock, 500,000,000 shares of Series 2 PCS Stock, 600,000,000 shares of
Series 3 PCS Stock, and (vi) 20,000,000 shares of Preferred Stock. Pursuant to
the PCS Stock Amendment, all shares of Existing Class A Common Stock held by
DT would be automatically reclassified into an identical number of shares of
DT Class A Stock.
Pursuant to the Recapitalization Amendment, (i) each share of Existing
Common Stock would be reclassified into 1/2 share of PCS Stock and one share
of Series 1 FON Stock, (ii) the shares of Series 2 Common Stock will be
reclassified into an identical number of shares of Series 2 FON Stock, and
(iii) Series 3 FON Stock will be created. Sprint will be authorized to issue
2,500,000,000 shares of Series 1 FON Stock, 500,000,000 shares of Series 2 FON
Stock and 1,200,000,000 shares of Series 3 FON Stock.
The Series 3 FON Stock and Series 3 PCS Stock will only be issued to FT and
DT (and certain majority-owned subsidiaries of FT and/or DT which satisfy
certain criteria, the "Qualified Subsidiaries"). The Series 2 Common Stock and
the Series 2 FON Stock will be issued only to the Cable Parents and will only
be issued if the PCS Stock is converted into FON Stock in accordance with the
terms described below prior to the conversion of all shares of Series 2 PCS
Stock into Series 1 PCS Stock.
The authorized but unissued shares of FON Stock, PCS Stock and Preferred
Stock will be available for issuance by Sprint from time to time, as
determined by the Sprint Board, for any proper corporate purpose, which could
include raising capital for use by either Group, payment of dividends,
providing compensation or benefits to employees or acquiring other companies
or businesses. The issuance of such shares would not be subject to approval by
the stockholders of Sprint unless deemed advisable by the Sprint Board or
required by applicable law, regulation or stock exchange listing requirements.
Neither holders of FON Stock or PCS Stock will have any preemptive rights. The
Cable Parents and FT and DT will, however, possess the Top-Up Rights and
Equity Purchase Rights described under "The Tracking Stock Proposal--Top-Up
Rights" and "FT and DT Arrangements--Equity Purchase Rights."
REPRESENTATION OF THE COMMON EQUITY OF SPRINT AND THE GROUPS
After the PCS Restructuring and prior to the Recapitalization, the total
common equity of (i) Sprint will be represented by the outstanding shares of
(A) the Common Stock (and shares of Series 2 Common Stock, if any such shares
are issued), (B) the Class A Common Stock and (C) the PCS Stock, (ii) the FON
Group will be represented by the outstanding shares of (A) the Common Stock
(and shares of Series 2 Common Stock, if any such shares are issued), and (B)
the Class A Common Stock, and (iii) the PCS Group will be represented by (A)
the outstanding shares of PCS Stock and (B) a number representing the number
of unissued shares of Series 1 PCS Stock that would otherwise be issued in
respect of any Inter-Group Interest held by the FON Group in the PCS Group.
See "Future Inter-Group Interest."
95
<PAGE>
Pursuant to the Recapitalization, the total common equity of Sprint, the FON
Group and the PCS Group will be represented as follows:
. The total common equity of Sprint will be represented by the outstanding
shares of (A) the FON Stock, (B) the PCS Stock and (C) the Class A
Common Stock.
. The total common equity of the FON Group will be represented by the
outstanding shares of (A) the FON Stock and (B) the Existing Class A
Common Stock and DT Class A Stock (but only to the extent such stock
represents a Number Of Shares Issuable With Respect To The Existing
Class A Equity Interest In The FON Group and a Number Of Shares Issuable
With Respect To The DT Class A Equity Interest In The FON Group,
respectively).
. The total common equity of the PCS Group will be represented by (A) the
outstanding shares of the PCS Stock, (B) the Number Of Shares Issuable
With Respect To The FON Group Inter-Group Interest, and (C) the
outstanding shares of Existing Class A Common Stock and DT Class A Stock
(but only to the extent such stock represents a Number Of Shares
Issuable With Respect To The Existing Class A Equity Interest In The PCS
Group and a Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group, respectively).
CLASS A COMMON STOCK
Effect of PCS Stock Amendment. The Class A Common Stock currently held by FT
and DT will be affected by each of the PCS Stock Amendment and the
Recapitalization Amendment. Pursuant to the PCS Stock Amendment, the shares of
Existing Class A Common Stock held by DT (or any of its Qualified
Subsidiaries) immediately prior to the effective date of the PCS Stock
Amendment will be reclassified into an identical number of shares of DT Class
A Stock. Despite this reclassification, the rights and other attributes of the
DT Class A Stock will remain identical to the rights and other attributes of
the Existing Class A Common Stock. FT will continue to hold its shares of
Existing Class A Common Stock after the effective date of the PCS Stock
Amendment.
Effect of Recapitalization Amendment. Pursuant to the Recapitalization
Amendment, the Existing Class A Common Stock and DT Class A Stock will remain
outstanding and be reclassified into an equal number of shares of Existing
Class A Common Stock and DT Class A Stock, respectively, each with a par value
per share of $2.50. As a result of this reclassification, the attributes of
such stock will change as follows:
. The Existing Class A Common Stock will, at all times, be deemed to
represent a number of shares of Series 3 FON Stock equal to the Number
Of Shares Issuable With Respect To The Existing Class A Equity Interest
In The FON Group and a number of shares of Series 3 PCS Stock equal to
the Number Of Shares Issuable With Respect To The Existing Class A
Equity Interest In The PCS Group.
. The DT Class A Stock will, at all times, be deemed to represent a number
of shares of Series 3 FON Stock equal to the Number Of Shares Issuable
With Respect To The DT Class A Equity Interest In The FON Group and a
number of shares of Series 3 PCS Stock equal to the Number Of Shares
Issuable With Respect To The DT Class A Equity Interest In The PCS
Group.
The "Number Of Shares Issuable" Concept. Upon the Recapitalization, the
Existing Class A Common Stock and DT Class A Stock will each initially
represent an equity interest in both the FON Group and the PCS Group. The
"Number Of Shares Issuable" terms reflect the number of shares of FON Stock or
PCS Stock that, at any time, might be issued in respect of the equity
interests represented by the Existing Class A Common Stock or DT Class A
Stock. Accordingly,
. the "Number Of Shares Issuable With Respect To The Existing Class A
Equity Interest In The FON Group" represents, at any time, the number of
shares of FON Stock that would otherwise be issuable to holders of
Existing Class A Common Stock in respect of the equity interest of such
stock in the FON Group;
96
<PAGE>
. the "Number Of Shares Issuable With Respect To The Existing Class A
Equity Interest In The PCS Group" represents, at any time, the number of
shares of PCS Stock that would otherwise be issuable to holders of
Existing Class A Common Stock in respect of the equity interest of such
stock in the PCS Group;
. the "Number Of Shares Issuable With Respect To The DT Class A Equity
Interest In The FON Group" represents, at any time, the number of shares
of FON Stock that would otherwise be issuable to holders of DT Class A
Stock in respect of the equity interest of such stock in the FON Group;
and
. the "Number Of Shares Issuable With Respect To The DT Class A Equity
Interest In The PCS Group" represents, at any time, the number of shares
of PCS Stock that would otherwise be issuable to holders of DT Class A
Stock in respect of the equity interest of such stock in the PCS Group.
As used elsewhere in this Proxy Statement, "Shares Issuable With Respect To
The Class A Equity Interest In The FON Group" means, at any time, the Number
Of Shares Issuable With Respect To The Existing Class A Equity Interest In The
FON Group and the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The FON Group, and "Shares Issuable With Respect To The
Class A Equity Interest In The PCS Group" means, at any time, the Number Of
Shares Issuable With Respect To The Existing Class A Equity Interest In The
PCS Group and the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group.
Right to Cause Issuance of FON Stock and PCS Stock. The Recapitalization
Amendment provides each holder of a share of Existing Class A Common Stock
with the right, exercisable at any time and from time to time, to cause Sprint
to issue the following:
(i) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The Existing Class A Equity Interest In The
FON Group, either a share of Series 3 FON Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 FON Stock to a
designated transferee of such holder; and
(ii) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The Existing Class A Equity Interest In The
PCS Group, either a share of Series 3 PCS Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 PCS Stock to a
designated transferee of such holder.
Any transfer of such shares to a designated transferee must be permitted under
the Stockholders' Agreement. A holder of Existing Class A Common Stock may
exercise its right to cause any such issuance solely with respect to the
Number Of Shares Issuable With Respect To The Existing Class A Equity Interest
In The FON Group, solely with respect to the Number Of Shares Issuable With
Respect To The Existing Class A Equity Interest In The PCS Group, or in any
combination thereof; provided,
(x) when the Number Of Shares Issuable With Respect To The Existing Class
A Equity Interest In The FON Group is reduced to zero, no further shares of
Series 1 FON Stock or Series 3 FON Stock may be issued pursuant to this
right,
(y) when the Number Of Shares Issuable With Respect To The Existing Class
A Equity Interest In The PCS Group is reduced to zero, no further shares of
Series 1 PCS Stock or Series 3 PCS Stock may be issued pursuant to this
right, and
(z) if at any time the Number Of Shares Issuable With Respect To The
Existing Class A Equity Interest In The FON Group and the Number Of Shares
Issuable With Respect To The Existing Class A Equity Interest In The PCS
Group are both zero, the Existing Class A Common Stock may be redeemed, at
Sprint's option, at a redemption price of $0.001 per share.
Similarly, the Recapitalization Amendment also provides each holder of a
share of DT Class A Stock with the right, exercisable at any time and from
time to time, to cause Sprint to issue the following:
(i) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The FON
Group, either a share of Series 3 FON Stock to such holder
97
<PAGE>
(or to a Qualified Subsidiary of such holder) or a share of Series 1 FON
Stock to a designated transferee of such holder; and
(ii) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The PCS
Group, either a share of Series 3 PCS Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 PCS Stock to a
designated transferee of such holder.
Any transfer of such shares to a designated transferee must be permitted under
the Stockholders' Agreement. A holder of DT Class A Stock may exercise its
right to cause any such issuance solely with respect to the Number Of Shares
Issuable With Respect To The DT Class A Equity Interest In The FON Group,
solely with respect to the Number Of Shares Issuable With Respect To The DT
Class A Equity Interest In The PCS Group, or in any combination thereof;
provided,
(i) when the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The FON Group is reduced to zero, no further shares of
Series 1 FON Stock or Series 3 FON Stock may be issued pursuant to this
right,
(ii) when the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group is reduced to zero, no further shares of
Series 1 PCS Stock or Series 3 PCS Stock may be issued pursuant to this
right, and
(iii) if at any time the Number Of Shares Issuable With Respect To The DT
Class A Equity Interest In The FON Group and the Number Of Shares Issuable
With Respect To The DT Class A Equity Interest In The PCS Group are both
zero, the DT Class A Stock may be redeemed, at the Corporation's option, at
a redemption price of $0.001 per share.
Automatic Adjustment to Par Value Amount. Upon each issuance of any shares
of Series 1 FON Stock and/or Series 3 FON Stock, on the one hand, and Series 1
PCS Stock and/or Series 3 PCS Stock, on the other, in accordance with the
rights described above under "--Right to Cause Issuance of FON Stock and PCS
Stock,"
(i) in the case of an exercise of such right by a holder of Existing
Class A Common Stock, each share of the Existing Class A Common Stock will
be automatically reclassified into a share of Existing Class A Common Stock
with a new par value amount equal to the Reduced Par Value Amount, and the
Number Of Shares Issuable With Respect To The Existing Class A Equity
Interest In The FON Group and the Number Of Shares Issuable With Respect To
The Existing Class A Equity Interest In The PCS Group, as applicable, will
be reduced to reflect such issuance of shares; and
(ii) in the case of an exercise of such right by a holder of DT Class A
Stock, each share of the existing DT Class A Stock will be automatically
reclassified into a share of Class A Common Stock--Series DT with a new par
value amount equal to the Reduced Par Value Amount, and the Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The FON
Group and the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group, as applicable, will be reduced to reflect
such issuance of shares.
CONVERSION AND REDEMPTION
The Existing Articles do not provide for either mandatory or optional
conversion or redemption of the Existing Common Stock, except for Sprint's
ability to redeem Existing Common Stock beneficially owned by Aliens (as
defined in the Existing Articles) in certain circumstances (although the
Existing Class A Common Stock is convertible into Existing Common Stock under
certain circumstances). The Tracking Stock Proposal will permit the conversion
and redemption of PCS Stock upon the terms described below.
Mandatory Dividend, Redemption or Conversion of PCS Stock. If there is a
Disposition, in one transaction or a series of related transactions, by Sprint
and/or its subsidiaries of all or substantially all of the properties and
assets attributed to the PCS Group to one or more persons or entities (other
than (w) the Disposition by Sprint of its properties and assets in one
transaction or a series of related transactions in connection with the
dissolution or
98
<PAGE>
the liquidation and winding up of Sprint and the distribution of assets to
stockholders, (x) the Disposition of the properties and assets of the PCS
Group as contemplated by "--Redemption of PCS Stock for Subsidiary Stock"
described below, (y) to any person or entity controlled by Sprint or (z)
pursuant to a Related Business Transaction), then Sprint shall, on or prior to
the 85th Trading Day after the date of consummation of such Disposition (the
"PCS Group Disposition Date"), (I) pay a dividend on the PCS Stock or (II)
redeem some or all of the PCS Stock or convert PCS Stock into FON Stock (or
another class or series of common stock of Sprint), all as provided by the
following subparagraphs (1) and (2) as the Sprint Board shall have selected:
(1) provided that there are funds of Sprint legally available therefor:
(a) pay to the holders of the shares of PCS Stock a dividend, subject
to the limitations described above under "--Dividends," in cash
and/or in securities (other than a dividend of any class or series
of FON Stock or PCS Stock) or other property having a fair value
as of the PCS Group Disposition Date in the aggregate equal to the
product of the Outstanding PCS Fraction as of the record date for
determining holders entitled to receive such dividend multiplied
by the fair value of the Net Proceeds of such Disposition; or
(b)(i) if such Disposition involves all (not merely substantially all)
of the properties and assets attributed to the PCS Group, redeem
all outstanding shares of PCS Stock in exchange for cash and/or
for securities (other than any class or series of FON Stock or
PCS Stock) or other property having a Fair Value as of the PCS
Group Disposition Date in the aggregate equal to the product of
the Outstanding PCS Fraction as of such Redemption Date
multiplied by the Fair Value of the Net Proceeds of such
Disposition (such aggregate amount to be allocated to shares of
Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock in
the ratio of the number of shares of each such series
outstanding to the other series (so that the amount of
consideration paid for the redemption of each share of Series 1
PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock is the
same)); or
(ii) if such Disposition involves substantially all (but not all) of
the properties and assets attributed to the PCS Group, redeem
the number of whole shares of PCS Stock (which may be all of
such shares outstanding) as have in the aggregate an average
Market Value during the period of ten consecutive trading days
beginning on the sixteenth trading day immediately succeeding
the PCS Group Disposition Date closest to the product of the
Outstanding PCS Fraction as of the date such shares are selected
for redemption multiplied by the Fair Value as of the PCS Group
Disposition Date of the Net Proceeds of such Disposition, in
exchange for cash and/or securities (other than any class or
series of FON Stock or PCS Stock) or other property having a
Fair Value in the aggregate equal to such product (such
aggregate amount to be allocated to shares of Series 1 PCS
Stock, Series 2 PCS Stock and Series 3 PCS Stock in the ratio of
the number of shares of each such series outstanding to the
other series (so that the amount of consideration paid for the
redemption of each share of Series 1 PCS Stock, Series 2 PCS
Stock and Series 3 PCS Stock is the same)); or
(2) convert each outstanding share of PCS Stock into a number of fully paid
and nonassessable shares of Series 1 FON Stock, Series 2 FON Stock and Series
3 FON Stock, respectively (or, if the Series 1 FON Stock is not publicly
traded at such time and shares of another class or series of common stock of
Sprint (other than PCS Stock) are then publicly traded, of such other class or
series of common stock as has the largest total market capitalization as of
the close of business on the trading day immediately preceding the date of the
notice of such conversion) equal to 110% of the ratio of the average Market
Value of one share of PCS Stock over the period of ten consecutive trading
days beginning on the sixteenth trading day following the PCS Group
Disposition Date to the average Market Value of one share of FON Stock (or
such other class or series of common stock) over the same ten trading day
period;
If Sprint:
(i) pays a dividend to the holders of shares of PCS Stock in accordance
with subparagraph (1)(a), then it will also pay a dividend to the holders
of Class A Common Stock equivalent on a Per Class A PCS Share Basis to that
paid to the holders of Shares;
99
<PAGE>
(ii) redeems all outstanding shares of PCS Stock in accordance with
subparagraph (1)(b)(i), then Sprint will pay an aggregate amount to the
holders of Existing Class A Common Stock and DT Class A Stock equivalent on
a Per Class A PCS Share Basis to the per share redemption amount paid in
accordance with subparagraph (1)(b)(i) in respect of the total Number Of
Shares Issuable With Respect To The Existing Class A Equity Interest In The
PCS Group and Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group, respectively;
(iii) redeems shares of PCS Stock in accordance with subparagraph
(1)(b)(ii), then Sprint will pay to the holders of Existing Class A Common
Stock and DT Class A Stock an amount in accordance with subparagraph
(1)(b)(ii) immediately above but only in respect of the same proportion of
the Number Of Shares Issuable With Respect To The Existing Class A Equity
Interest In The PCS Group and the Number Of Shares Issuable With Respect To
The DT Class A Equity Interest In The PCS Group, respectively, as the PCS
Stock redeemed in accordance with (1)(b)(ii); and
(iv) converts shares of PCS Stock in accordance with subparagraph (2),
then (i) the Number Of Shares Issuable With Respect To The Existing Class A
Equity Interest In The PCS Group will convert into a Number Of Shares
Issuable With Respect To The Existing Class A Equity Interest In The FON
Group and (ii) the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group will convert into a Number of Shares
Issuable With Respect To The DT Class A Equity Interest in the FON Group,
each such conversion to be on the same basis as set forth in subparagraph
(2).
If the payment of the dividend or the redemption price with respect to the
PCS Stock provided for by subparagraph (1) above occurs prior to the third
anniversary of the Closing Date, then the Sprint Board may convert each share
of PCS Stock remaining outstanding, but only as of a Conversion Date prior to
the first anniversary of the payment of such dividend or redemption price,
into a number of fully paid and nonassessable shares of Series 1 FON Stock,
Series 2 FON Stock and Series 3 FON Stock, as applicable (or, if the Series 1
FON Stock is not publicly traded at such time and shares of any other class or
series of common stock of Sprint (other than PCS Stock) are then publicly
traded, of such other class or series of common stock as has the largest total
market capitalization as of the close of business on the trading day
immediately preceding the date of the notice of such conversion) equal to 110%
of the Optional Conversion Ratio as of the fifth trading day prior to the date
of the notice of such conversion; provided that upon such conversion, the
Number Of Shares Issuable With Respect To The Existing Class A Equity Interest
In The PCS Group and the Number Of Shares Issuable With Respect To The Class
A--Series DT Equity Interest In The PCS Group will convert, on the same basis,
into a Number Of Shares Issuable With Respect To The Existing Class A Equity
Interest In The FON Group and a Number Of Shares Issuable With Respect To The
Class A--Series DT Equity Interest In The FON Group, respectively.
Any such conversion described above would dilute the interest in Sprint of
holders of FON Stock and would preclude holders of either FON Stock or PCS
Stock from retaining their investment in a security reflecting separately the
business of their respective Group. In determining whether to effect any such
conversion following a dividend or partial redemption after the disposition of
substantially all (but not all) assets of the PCS Group, the Sprint Board, in
its sole discretion and consistent with its fiduciary duties to all Sprint
stockholders, in addition to other matters, would likely consider whether the
remaining properties and assets attributed to the PCS Group continue to
constitute a viable business. Other considerations could include the number of
shares of PCS Stock remaining issued and outstanding, the per share market
price of such stock and the cost of maintaining stockholder accounts.
Notwithstanding the foregoing provisions, Sprint will redeem PCS Stock as
provided by subparagraph (1)(b)(i) or (1)(b)(ii) above only if the amount to
be paid in redemption of such stock is less than or equal to the sum of (i)
the amount available for the payment of dividends on such shares to be
redeemed measured as of the Redemption Date and (ii) the amount determined to
be capital in respect of the shares to be redeemed in accordance with
applicable corporation law as of the Redemption Date.
100
<PAGE>
The Sprint Board may pay any dividend or redemption price referred to in
subparagraph (A) in cash, securities (other than any class or series of FON
Stock or PCS Stock or other common equity securities of Sprint) or other
property, regardless of the form or nature of the proceeds of the disposition;
provided that if such payment is made in voting securities (other than any
class or series of FON Stock or PCS Stock or other common equity securities of
Sprint) of Sprint or another entity, holders of Series 2 PCS Stock will receive
voting securities with voting power equivalent on a per share basis to such
shares received by holders of Series 1 PCS Stock.
For these purposes, "substantially all of the properties and assets"
attributed to the PCS Group as of any date means a portion of such properties
and assets that represents at least 80% of the Fair Value of the properties and
assets attributed to the PCS Group as of such date.
Conversion at Option of Sprint. At any time following the third anniversary
of the Closing Date, the Sprint Board may convert each outstanding share of
Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock into the number
of fully paid and nonassessable shares of Series 1 FON Stock, Series 2 FON
Stock and Series 3 FON Stock, respectively (or, if the Series 1 FON Stock is
not publicly traded at such time and shares of any other class or series of
common stock of Sprint (other than PCS Stock) are then publicly traded, of such
other class or series of common stock as has the largest total market
capitalization as of the close of business on the trading day immediately
preceding the date of the notice of conversion) equal to, on the Conversion
Date, (i) if following the third anniversary but prior to the fourth
anniversary of the Closing Date, 110% of the Optional Conversion Ratio as of
the fifth trading day prior to the date of the notice of such conversion, or
(ii) if on or after the fourth anniversary of the Closing Date at such
conversion ratio (if any) as Sprint's Board determines to be fair to holders of
the PCS Stock, taken as a separate class, and holders of FON Stock, taken as a
separate class. Upon such conversion, the Number Of Shares Issuable With
Respect To The Existing Class Equity Interest In The PCS Group and the Number
Of Shares Issuable With Respect To The DT Class A DT Equity Interest In The PCS
Group will convert, on the same basis, into a Number Of Shares Issuable With
Respect To The Existing Class A Equity Interest In The FON Group and a Number
Of Shares Issuable With Respect To The DT Class A DT Equity Interest In The FON
Group, respectively.
Redemption of PCS Stock for Subsidiary Stock. At any time, Sprint's Board
may, provided there are funds legally available for such purpose, redeem all of
the outstanding shares of PCS Stock in exchange for the number of shares of
common stock of one or more wholly-owned subsidiaries of Sprint (collectively,
the "PCS Group Subsidiary") that collectively hold directly or indirectly all
of the assets and liabilities attributed to the PCS Group (and no other assets
or liabilities of Sprint or any subsidiary thereof) equal to the product of the
Outstanding PCS Fraction and the number of shares of common stock of such PCS
Group Subsidiary to be outstanding immediately following such exchange of
shares (including any shares of such PCS Group Subsidiary which will be
retained by Sprint in respect of any Inter-Group Interest of the FON Group in
the PCS Group), such PCS Group Subsidiary shares to be divided among the
holders of PCS Stock pro rata in accordance with the number of shares of PCS
Stock held by each on the redemption date, each of which shares of common stock
of such PCS Group Subsidiary will be, upon such delivery, fully paid and
nonassessable; provided, however, that
(i) such redemption may not occur prior to the second anniversary of the
Closing Date unless it is approved by the affirmative vote of the holders
of a majority of shares of PCS Stock and Class A Common Stock (to the
extent such stock represents Shares Issuable With Respect To The Class A
Equity Interest In The PCS Group), voting together as a single class,
(ii) holders of shares of Series 2 PCS Stock and Series 3 PCS Stock
outstanding immediately prior to the redemption date will receive on a per
share basis, pursuant to such redemption, shares of common stock of such
PCS Group Subsidiary with voting power equivalent on a per share basis to
such shares received by holders of Series 1 PCS Stock, and
(iii) on such redemption date, the holders of Existing Class A Common
Stock and DT Class A Stock will receive the number of shares of the PCS
Group Subsidiary equal to the product of (A) the Existing Class A PCS
Interest Fraction, in the case of the holders of the Existing Class A
Common Stock, and the
101
<PAGE>
DT Class A PCS Interest Fraction, in the case of holders of DT Class A
Stock and (B) the number of shares of common stock of such PCS Group
Subsidiary to be outstanding immediately following such issuance of shares;
and provided further, that no such redemption may occur unless (i) the
redemption is tax-free to the holders of PCS Stock or (ii) another arrangement
exists for the benefit of the holders of PCS Stock redeemed such that, net of
all taxes related to such redemption and to such other arrangement itself which
are realized by such stockholders, such stockholders will be in a position that
is substantially equivalent economically to the position they would be in after
a tax-free distribution.
Effects on Convertible Securities. The following provisions with respect to
Convertible Securities only apply to the extent that the terms of such
Convertible Securities do not provide for other adjustments in the event of a
conversion, exchange or redemption.
After any conversion date or redemption date on which all outstanding shares
of any class or series of PCS Stock are converted or redeemed, any share of
such class or series of PCS Stock that is issued on conversion, exchange or
exercise of any Convertible Securities will, immediately upon issuance pursuant
to such conversion, exchange or exercise and without any notice from or to, or
any other action on the part of, Sprint or the Sprint Board or the holder of
such Convertible Security:
(i) if the shares of such class or series of PCS Stock outstanding on
such conversion date were converted into shares of another class or series
of FON Stock or PCS Stock (or another class or series of common stock of
Sprint) pursuant to the provisions described above under "--Mandatory
Dividend, Redemption or Conversion of PCS Stock" or "--Conversion at Option
of Sprint," be converted into the amount of cash and/or the number of
shares of the kind of capital stock and/or other securities or property of
Sprint that the number of shares of such class or Series of PCS Stock
issued upon such conversion, exchange or exercise would have received had
such shares been outstanding on such conversion date; or
(ii) if the shares of such class or series of PCS Stock outstanding on
such redemption date were redeemed pursuant to the provisions described
above under "--Mandatory Dividend, Redemption or Conversion of PCS Stock"
or redeemed for common stock of the PCS Group Subsidiary, pursuant to the
provisions described under "--Redemption of PCS Stock for Subsidiary
Stock," be redeemed, to the extent of funds of Sprint legally available
therefor, for $.01 per share in cash for each share of such class or series
of PCS Stock issued upon such conversion, exchange or exercise.
General Conversion and Redemption Provisions. Not later than the 10th trading
day following the consummation of a Disposition referred to above under "--
Mandatory Dividend, Redemption or Conversion of PCS Stock," Sprint shall
announce publicly by press release (i) the Net Proceeds of such Disposition,
(ii) the number of shares outstanding of PCS Stock, (iii) the number of shares
of PCS Stock into or for which Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof and (iv) the Outstanding PCS Group Fraction, the Existing Class A PCS
Interest Fraction and the DT Class A PCS Interest Fraction on the date of such
notice. Not earlier than the 26th trading day and not later than the 30th
trading day following the consummation of such Disposition, Sprint will
announce publicly by press release which of the actions specified in clause
(a), (b)(i) or (b)(ii) of subparagraph (1) under "--Mandatory Dividend,
Redemption or Conversion of PCS Stock" it has irrevocably determined to take.
If Sprint determines to pay a dividend on shares of PCS Stock as described in
clause (a) of subparagraph (1) under "--Mandatory Dividend, Redemption or
Conversion of PCS Stock," Sprint shall, not later than the 30th trading day
following the consummation of such Disposition, cause notice to be given to
each holder of PCS Stock, Class A Common Stock and Convertible Securities that
are convertible into or exchangeable or exercisable for shares of PCS Stock
(unless alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities),
setting forth (1) the record date for determining holders entitled to receive
such dividend, which shall be not earlier than the 40th trading day and not
later than the 50th trading day following the consummation of such Disposition,
(2) the anticipated payment
102
<PAGE>
date of such dividend (which shall not be more than 85 trading days following
the consummation of such Disposition), (3) the type of property to be paid as
such dividend in respect of the outstanding shares of such PCS Stock, (4) the
Net Proceeds of such Disposition, (5) the Outstanding PCS Group Fraction, the
Existing Class A PCS Interest Fraction and the DT Class A PCS Interest Fraction
on the date of such notice, (6) the number of outstanding shares of PCS Stock
and the number of shares of PCS Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof and (7) in the case of notice to
be given to holders of Convertible Securities, a statement to the effect that a
holder of such Convertible Securities will be entitled to receive such dividend
only if such holder properly converts, exchanges or exercises such convertible
securities on or prior to the record date referred to in clause (1) of this
sentence. Such notice will be sent by first-class mail, postage prepaid, to
each such holder at such holder's address as the same appears on the transfer
books of Sprint.
If Sprint determines to redeem PCS Stock pursuant to clause (b)(i) of
subparagraph (1) under "--Mandatory Dividend, Redemption or Conversion of PCS
Stock," Sprint shall, not earlier than the 35th trading day and not later than
the 45th trading day prior to the redemption date, cause notice to be given to
each holder of shares of PCS Stock, Class A Common Stock and Convertible
Securities convertible into or exchangeable or exercisable for shares of PCS
Stock (unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities), setting forth (1) a statement that all shares of PCS Stock
outstanding on the redemption date will be redeemed, (2) the redemption date
(which shall not be more than 85 trading days following the consummation of
such Disposition), (3) the type of property in which the redemption price for
the shares to be redeemed is to be paid, (4) the Net Proceeds of such
Disposition, (5) the Outstanding PCS Group Fraction, the Existing Class A PCS
Interest Fraction and the DT Class A PCS Interest Fraction on the date of such
notice, (6) the place or places where certificates for shares of PCS Stock,
properly endorsed or assigned for transfer, are to be surrendered for delivery
of cash and/or securities or other property, (7) the number of outstanding
shares of PCS Stock and the number of shares of PCS Stock into or for which
such outstanding Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, (8) in the
case of notice to be given to holders of Convertible Securities, a statement to
the effect that a holder of such Convertible Securities shall be entitled to
participate in such selection for redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on or prior to the
redemption date referred to in clause (2) of this sentence and a statement as
to what, if anything, such holder will be entitled to receive pursuant to the
terms of such Convertible Securities or, if applicable, the provisions
described under "--Effects on Convertible Securities" if such holder thereafter
converts, exchanges or exercises such Convertible Securities and (9) a
statement to the effect that, except as otherwise provided below, dividends on
such shares of PCS Stock will cease to be paid as of such redemption date. Such
notice will be sent by first-class mail, postage prepaid, to each such holder
at such holder's address as the same appears on the transfer books of Sprint.
If Sprint determines to redeem PCS Stock pursuant to clause (b)(ii) of
subparagraph (1) under "--Mandatory Dividend, Redemption or Conversion of PCS
Stock," Sprint shall, not later than the 30th trading day following the
consummation of the Disposition referred to in such subparagraph, cause notice
to be given to each holder of shares of PCS Stock, Class A Common Stock and to
each holder of Convertible Securities that are convertible into or exchangeable
or exercisable for shares of PCS Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities), setting forth (1) a date, not earlier
than the 40th trading day and not later than the 50th trading day following the
consummation of the Disposition in respect of which such redemption is to be
made, on which shares of PCS Stock shall be selected for redemption, (2) the
anticipated redemption date (which shall not be more than 85 trading days
following the consummation of such Disposition), (3) the type of property in
which the redemption price for the shares to be redeemed is to be paid, (4) the
Net Proceeds of such Disposition, (5) the Outstanding PCS Fraction, the
Existing Class A PCS Interest Fraction and the Class A--Series DT Interest
Fraction on the date of such notice, (6) the number of shares of PCS Stock
outstanding and the number of shares of PCS Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or exercisable and
the conversion, exchange or exercise price thereof, (7) in the case of notice
to be given to holders of Convertible Securities, a statement to the effect
that a holder of such Convertible Securities shall be eligible to participate
in
103
<PAGE>
such selection for redemption only if such holder properly converts, exchanges
or exercises such Convertible Securities on or prior to the record date
referred to in clause (1) of this sentence and a statement as to what, if
anything, such holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, the provisions described under "--
Effects on Convertible Securities" if such holder thereafter converts,
exchanges or exercises such Convertible Securities and (8) a statement that
Sprint will not be required to register a transfer of any shares of PCS Stock
for a period of 15 trading days next preceding the date referred to in clause
(1) of this sentence. Promptly following the date referred to in clause (1) of
the preceding sentence, but not earlier than 40 trading days nor more than 50
trading days following the consummation of such Disposition, Sprint will cause
a notice to be given to each holder of record of shares of PCS Stock to be
redeemed setting forth (1) the number of shares of PCS Stock held by such
holder to be redeemed, (2) a statement that such shares of PCS Stock will be
redeemed, (3) the redemption date, (4) the kind and per share amount of cash
and/or securities or other property to be received by such holder with respect
to each share of PCS Stock to be redeemed, including details as to the
calculation thereof, (5) the place or places where certificates for shares of
PCS Stock, properly endorsed or assigned for transfer, are to be surrendered
for delivery of such cash and/or securities or other property, (6) if
applicable, a statement to the effect that the shares being redeemed may no
longer be transferred on the transfer books of Sprint after the redemption date
and (7) a statement to the effect that, except as otherwise provided below,
dividends on such shares of PCS Stock will cease to be paid as of the
redemption date. Such notices shall be sent by first-class mail, postage
prepaid to each such holder, at such holder's address as the same appears on
the transfer books of Sprint.
If Sprint determines to convert the PCS Stock pursuant to subparagraph (2) or
as otherwise described under "--Mandatory Dividend, Redemption or Conversion of
PCS Stock" or "--Conversion at Option of Sprint," as the case may be, Sprint
will, not earlier than the 35th trading day and not later than the 45th trading
day prior to the conversion date, cause notice to be given to each holder of
shares of PCS Stock, Class A Common Stock and Convertible Securities that are
convertible into or exchangeable or exercisable for shares of PCS Stock (unless
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities)
setting forth (1) a statement that all outstanding shares of PCS Stock will be
converted, (2) the conversion date (which, in the case of a conversion after a
Disposition, will not be more than 85 trading days following the consummation
of such Disposition), (3) the per share number of shares of Series 1 FON Stock
(or Series 2 FON Stock or Series 3 FON Stock, if applicable) or another class
or series of common stock of Sprint, as the case may be, to be received with
respect to each share of PCS Stock, including details as to the calculation
thereof, (4) the place or places where certificates for shares of PCS Stock,
properly endorsed or assigned for transfer, are to be surrendered for delivery
of certificates for shares of Series 1 FON Stock (or Series 2 FON Stock or
Series 3 FON Stock, if applicable) or another class or series of common stock
of Sprint, as the case may be, (5) the number of outstanding shares of PCS
Stock and the number of shares of PCS Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or exercisable and
the conversion, exchange or exercise price thereof, (6) a statement to the
effect that, except as otherwise provided below, dividends on such shares of
PCS Stock will cease to be paid as of such Conversion Date and (7) in the case
of notice to holders of such Convertible Securities, a statement to the effect
that a holder of such Convertible Securities will be entitled to receive shares
of common stock upon such conversion only if such holder properly converts,
exchanges or exercises such Convertible Securities on or prior to such
conversion date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible Securities if
such holder thereafter converts, exchanges or exercises such Convertible
Securities. Such notice shall be sent by first-class mail, postage prepaid, to
each such holder at such holder's address as the same appears on the transfer
books of Sprint.
If Sprint determines to redeem shares of PCS Stock as described under "--
Redemption of PCS Stock for Subsidiary Stock," Sprint will cause notice to be
given to each holder of shares of PCS Stock to be redeemed, and to each holder
of Class A Common Stock and Convertible Securities that are convertible into or
exchangeable or exercisable for shares of such class of PCS Stock (unless
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities),
setting forth (1) a statement that all shares of PCS Stock outstanding on the
redemption date will be redeemed in exchange for shares of common stock of the
PCS Group Subsidiary, (2) the redemption date, (3) the Outstanding PCS
Fraction, the Existing Class A PCS Interest Fraction and the DT Class A PCS
Interest Fraction on the date
104
<PAGE>
of such notice, (4) the place or places where certificates for shares of PCS
Stock to be redeemed, properly endorsed or assigned for transfer, are to be
surrendered for delivery of certificates for shares of the PCS Group
Subsidiary, (5) a statement to the effect that, except as otherwise provided
below, dividends on such shares of PCS Stock will cease to be paid as of such
redemption date, (6) the number of shares of PCS Stock outstanding and the
number of shares of PCS Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof and (7) in the case of notice to
holders of Convertible Securities, a statement to the effect that a holder of
Convertible Securities will be entitled to receive shares of common stock of
the PCS Group Subsidiary upon redemption only if such holder properly converts,
exchanges or exercises such Convertible Securities on or prior to the
redemption date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible Securities if
such holder thereafter converts, exchanges or exercises such Convertible
Securities. Such notice will be sent by first-class mail, postage prepaid, not
less than 30 trading days nor more than 45 trading days prior to the redemption
date to each such holder at such holder's address as the same appears on the
transfer books of Sprint. If any shares of Series 2 PCS Stock or Series 3 PCS
Stock are outstanding immediately prior to the redemption date, then the notice
provided to each holder of Series 2 PCS Stock or Series 3 PCS Stock, as the
case may be, pursuant to this provision will also indicate that such holders of
shares of Series 2 PCS Stock and Series 3 PCS Stock outstanding immediately
prior to the redemption date will receive on a per share basis, pursuant to
such redemption, shares of common stock of such PCS Group Subsidiary with
voting power equivalent to such shares received by holders of Series 1 PCS
Stock.
If less than all of the outstanding shares of PCS Stock are to be redeemed as
described above under "--Mandatory Dividend, Redemption or Conversion of PCS
Stock," then the shares to be redeemed by Sprint
will be selected from among the holders of shares of PCS Stock outstanding at
the close of business on the record date for such redemption on a pro rata
basis among each class or Series of PCS Stock and all such holders thereof or,
if Series 2 PCS Stock is no longer outstanding, by lot or such other method as
may be determined by the Sprint Board to be equitable.
Neither the failure to mail any notice described above to any particular
holder of PCS Stock or of Convertible Securities nor any defect therein will
affect the sufficiency thereof with respect to any other holder of outstanding
shares of PCS Stock or of outstanding Convertible Securities or the validity of
any such conversion or redemption.
Sprint will not be required to issue or deliver fractional shares of any
capital stock or any other securities to any holder of PCS Stock upon any
conversion, redemption, dividend or other distribution described above. If more
than one share of PCS Stock will be held at the same time by the same holder,
Sprint may aggregate the number of shares of any capital stock that will be
issuable or any other securities or property that will be distributable to such
holder upon any such conversion, redemption, dividend or other distribution
(including any fractional shares). If there are fractional shares of any
capital stock or of any other securities remaining to be issued or distributed
to the holders of PCS Stock, Sprint will, if such fractional shares are not
issued or distributed to the holder, pay cash in respect of such fractional
shares in an amount equal to the Fair Value on the fifth trading day prior to
the date such payment is to be made (without interest). For purposes of this
provision, "Fair Value" of any fractional share means (A) in the case of any
fraction of a share of Sprint capital stock, the product of such fraction and
the Market Value of one share of such capital stock and (B) in the case of any
other fractional security, such value as is determined by Sprint's Board.
No adjustments in respect of dividends will be made upon the conversion or
redemption of any shares of PCS Stock; provided, however, that if the
conversion date or redemption date, as the case may be, with respect to any
shares of PCS Stock will be subsequent to the record date for the payment of a
dividend or other distribution thereon or with respect thereto the holders of
such shares of PCS Stock at the close of business on such record date will be
entitled to receive the dividend or other distribution payable on or with
respect to such shares on the date set for payment of such dividend or other
distribution, in each case without interest, notwithstanding the subsequent
conversion or redemption of such shares.
105
<PAGE>
Before any holder of PCS Stock will be entitled to receive any cash payment
and/or certificates or instruments representing shares of any capital stock,
and/or other securities or property to be distributed to such holder with
respect to any conversion or redemption of shares of PCS Stock, such holder
will surrender at such place as Sprint will specify certificates for shares of
PCS Stock properly endorsed or assigned for transfer (unless Sprint waives such
requirement). Sprint will, as soon as practicable after receipt of certificates
representing such shares of PCS Stock, deliver to the person for whose account
such shares were so surrendered, or to the nominee or nominees of such person,
the cash and/or the certificates or instruments representing the number of
whole shares of the kind of capital stock and/or other securities or property
to which such person is entitled, together with any fractional payment referred
to above, in each case without interest. If less than all of the shares of PCS
Stock represented by any one certificate are to be converted or redeemed,
Sprint will issue and deliver a new certificate for the shares of PCS Stock not
redeemed.
From and after any applicable conversion date or redemption date, all rights
of a holder of PCS Stock that were converted or redeemed will cease, except for
the right, upon surrender of the certificates representing such shares of PCS
Stock, to receive the cash and/or the certificates or instruments representing
shares of the kind of capital stock and/or other securities or property for
which such shares were converted or redeemed, together with any fractional
payment or rights to dividends as provided above, in each case without
interest. Subject to the next sentence, no holder of a certificate that
immediately prior to the applicable conversion date or redemption date
represented shares of PCS Stock will be entitled to receive any dividend or
other distribution or interest payment with respect to shares of any kind of
capital stock or other security or instrument for which PCS Stock was converted
until the surrender of such holder's certificate in exchange for a certificate
or certificates or instrument or instruments representing such capital stock or
other security. Upon such surrender, there will be paid to the holder the
amount of any dividends or other distributions (without interest) which
theretofore became payable on any class of capital stock of Sprint as of a
record date after the conversion date or redemption date, but which were not
paid by reason of the foregoing, with respect to the number of whole shares of
the kind of capital stock represented by the certificate or certificates issued
upon such surrender. From and after a conversion date, Sprint will, however, be
entitled to treat the certificates for PCS Stock that have not yet been
surrendered for conversion as evidencing the ownership of the number of whole
shares of the kind or kinds of capital stock of Sprint for which the shares of
PCS Stock represented by such certificates shall have been converted,
notwithstanding the failure to surrender such certificates.
Sprint will pay any and all documentary, stamp or similar issue or transfer
taxes that may be payable in respect of the issuance or delivery of any shares
of capital stock and/or other securities upon conversion or redemption of
shares of PCS Stock. Sprint will not, however, be required to pay any tax that
may be payable in respect of any transfer involved in the issuance or delivery
of any shares of capital stock and/or other securities in a name other than
that in which the shares of PCS Stock so converted or redeemed were registered,
and no such issuance or delivery will be made unless and until the person
requesting such issuance or delivery has paid to Sprint the amount of any such
tax or has established to the satisfaction of Sprint that such tax has been
paid.
Automatic Conversion of Series 2 PCS Stock and Series 2 FON Stock--Below One
Percent Voting Power. If the total number of Converted Votes represented by the
aggregate number of issued and outstanding shares of Series 2 PCS Stock or
Series 2 FON Stock, as the case may be, is below one percent of the outstanding
voting power of Sprint for more than 90 consecutive days, then (i) Sprint will
notify FT and DT of the date on which such conversion will occur as soon as
practicable following the date on which such 90-day period ends (the
"Conversion Trigger Date") but in no event later than ten business days after
the Conversion Trigger Date and (ii) each outstanding share of Series 2 PCS
Stock or Series 2 FON Stock will automatically convert (without the payment of
any consideration) into one duly issued, fully paid and nonassessable share of
Series 1 PCS Stock or Series 1 FON Stock, respectively. Such conversion will
take place on the 90th day following the Conversion Trigger Date.
Automatic Conversion of Series 2 PCS Stock and Series 2 FON Stock--Certain
Transfers. Upon any transfer of shares of Series 2 PCS Stock or Series 2 FON
Stock, as the case may be (other than a transfer to a
106
<PAGE>
Cable Holder) each such share so transferred will automatically convert
(without the payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 PCS Stock or Series 1 FON Stock, respectively,
as of the date of such transfer.
Immediately upon the conversion of shares of Series 2 PCS Stock (or, if
applicable, Series 2 FON Stock) into shares of Series 1 PCS Stock (or, if
applicable, Series 1 FON Stock), as described above under "--Automatic
Conversion of Series 2 PCS Stock and Series 2 FON Stock--Below One Percent
Voting Power" or "--Certain Transfers," (such shares so converted hereinafter
referred to as the "Converted Series Shares"), the rights of the holders of
such Converted Series Shares, as such, will cease and the holders thereof will
be treated for all purposes as having become the record owners of the shares of
Series 1 PCS Stock or Series 1 FON Stock, as the case may be, issuable upon
such conversion (the "Newly Issued Shares"), provided that such persons will be
entitled to receive when paid any dividends declared on the Converted Series
Shares as of a record date preceding the time the Converted Series Shares were
converted (the "Series Conversion Time") and unpaid as of the Series Conversion
Time.
VOTING RIGHTS OF COMMON STOCK
In General. Currently, each share of Existing Common Stock and Class A Common
Stock is entitled to one vote per share (subject to certain exceptions), and
the holders of Existing Common Stock and the holders of Class A Common Stock
vote together with the holders of all other classes or series of capital stock
of Sprint which have general voting power on all matters in respect of which
the holders of Common Stock are entitled to vote, voting as a single class.
Pursuant to the Articles Amendment, except as otherwise provided by law or as
expressly set forth in the Amended Articles, each share of FON Stock, PCS Stock
and Class A Common Stock will be entitled to vote, in accordance with the
provisions set forth in "--Number of Votes" and "--Temporary Voting Adjustment
For Class A Holders," on all matters in respect of which the holders of
Sprint's Existing Common Stock are currently entitled to vote, and, except as
otherwise provided by the terms of any outstanding series of Preferred Stock,
the holders of FON Stock, PCS Stock and Class A Common Stock will vote together
with the holders of all other classes or series of capital stock which have
general voting power on all such matters as a single class; provided, however,
that
(i) the affirmative vote of holders of a majority of the FON Stock and
Class A Common Stock, voting together as a single class in accordance with
the provisions set forth in "--Number of Votes" and "--Temporary Voting
Adjustment For Class A Holders," will be required to adopt any proposed
amendment to Sprint's Articles of Incorporation that would (A) increase or
decrease the aggregate number of authorized shares of the FON Stock, (B)
increase or decrease the par value of the shares of the FON Stock or (C)
alter or change the powers, preferences or special rights of the shares of
the FON Stock so as to affect them adversely, and
(ii) the affirmative vote of holders of a majority of the PCS Stock and
Class A Common Stock, voting together as a single class in accordance with
the provisions set forth in "--Number of Votes" and "--Temporary Voting
Adjustment For Class A Holders," will be required to adopt any proposed
amendment to Sprint's Articles of Incorporation that would (A) increase or
decrease the aggregate number of authorized shares of the PCS Stock, (B)
increase or decrease the par value of shares of the PCS Stock or (C) alter
or change the powers, preferences or special rights of the shares of the
PCS Stock so as to affect them adversely.
Number of Votes. Pursuant to the Articles Amendment,
. on each matter to be voted on by the holders of FON Stock, PCS Stock and
Class A Common Stock voting together as a single class,
-- each outstanding share of Series 1 FON Stock and Series 3 FON Stock
will entitled to one vote (subject, in the case of the Series 3 FON
Stock, to any increase in accordance with "--Temporary Voting
Adjustment For Class A Holders");
107
<PAGE>
-- subject to any increase resulting from the provisions described in
"--Temporary Voting Adjustment For Class A Holders," each
outstanding share of Existing Class A Common Stock and DT Class A
Stock will be entitled to a number of votes (which, at any time, may
be more or less than one whole vote and may include a fraction of a
vote) equal to the sum of (A) in the case of the Existing Class A
Common Stock, the Existing Class A FON Vote Per Share and the
Existing Class A PCS Vote Per Share and (B) in the case of the DT
Class A Stock, the DT Class A FON Vote Per Share and the DT Class A
PCS Vote Per Share;
-- each outstanding share of Series 1 PCS Stock will be entitled to a
number of votes (which, at any time, may be more or less than one
whole vote and may include a fraction of a vote) (the "PCS Per Share
Vote") equal to (x) if the record date for determining the
stockholders entitled to vote is on or before December 31, 1998, the
number of votes determined by multiplying one by the PCS Ratio and
(y) if the record date for determining the stockholders entitled to
vote is after December 31, 1998, the number of votes determined by
multiplying one by the ratio of the average trading prices, over a
20 trading day period, of one share of Series 1 PCS Stock to one
share of Series 1 FON Stock, computed as of the tenth trading day
preceding the record date for determining the stockholders entitled
to vote, expressed as a decimal fraction rounded to the nearest
three decimal places;
-- each outstanding share of Series 2 PCS Stock will be entitled to a
number of votes (which, at any time, may be more or less than one
whole vote and may include a fraction of one vote) equal to ten
percent of the applicable PCS Per Share Vote;
-- each outstanding share of Series 3 PCS Stock will be entitled to a
number of votes (which, at any time, may be more or less than one
whole vote and may include a fraction of one vote) equal to the
applicable PCS Per Share Vote (subject to any increase in accordance
with the provisions described in "--Temporary Voting Adjustment For
Class A Holders"); and
-- each outstanding share of Series 2 FON Stock will be entitled to ten
percent of one vote;
. on each matter to be voted on by the holders of Series 1 FON Stock,
Series 2 FON Stock, Series 1 PCS Stock and Series 2 PCS Stock, voting
together as a single class, (i) each outstanding share of Series 1 FON
Stock will be entitled to one vote, (ii) each outstanding share of
Series 2 FON Stock will be entitled to ten percent of one vote; (iii)
each outstanding share of Series 1 PCS Stock will be entitled to the PCS
Per Share Vote determined as described above; and each outstanding share
of Series 2 PCS Stock will be entitled to ten percent of such applicable
PCS Per Share Vote;
. on each matter to be voted on by the holders of FON Stock and Class A
Common Stock, voting together as a single class, each outstanding share
of (i) Series 1 FON Stock, Series 2 FON Stock and Series 3 FON Stock
will be entitled to one vote and (ii) Existing Class A Common Stock and
DT Class A Stock will be entitled to the Existing Class A FON Vote Per
Share and the DT Class A FON Vote Per Share, respectively;
. on each matter to be voted on by the holders of the PCS Stock and Class
A Common Stock voting together as a single class, each outstanding share
of (i) Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock
will be entitled to one vote and (ii) Existing Class A Common Stock and
DT Class A Stock will be entitled to the Existing Class A PCS Vote Per
Share and the DT Class A PCS Vote Per Share, respectively; and
. on each matter to be voted on by the holders of the Class A Common
Stock, Series 3 FON Stock and Series 3 PCS Stock voting together as a
single class, each outstanding share of (i) Series 3 FON Stock will be
entitled to one vote, (ii) Series 3 PCS Stock will be entitled to the
PCS Vote Per Share determined as described above, (iii) DT Class A Stock
will be entitled to the DT Class A PCS Vote Per Share plus the DT Class
A FON Vote Per Share, and (iv) Existing Class A Common Stock will be
entitled to the Existing Class A PCS Vote Per Share and the Existing
Class A FON Vote Per Share, respectively.
108
<PAGE>
In addition to the provisions set forth above, (i) if shares of only one
class or series of Sprint Common Stock are outstanding on the record date for
determining the holders of Sprint Common Stock entitled to vote on any matter,
then each share of that class or series will be entitled to one vote and (ii)
if any class or any series of FON Stock, Class A Common Stock or PCS Stock
votes as a separate class with respect to any matter, each share of that class
or series will, for purposes of such vote, be entitled to one vote on such
matter.
Temporary Voting Adjustment For Class A Holders. If any conversions of shares
of Series 2 PCS Stock or Series 2 FON Stock into shares of Series 1 PCS Stock
or Series 1 FON Stock, respectively, as described above under "Conversion and
Redemption--Automatic Conversion of Series 2 PCS Stock and Series 2 FON Stock--
Below One Percent Voting Power" and "--Certain Transfers," or any increases in
the per share vote of other Sprint voting securities upon a transfer of such
voting securities, occur on or after the tenth trading day preceding a record
date for purposes of determining the stockholders entitled to vote or to
receive the payment of a dividend, then the per share vote of the Class A
Common Stock, Series 3 FON Stock and Series 3 PCS Stock determined in
accordance with "--Number of Votes" will be increased such that the aggregate
Percentage Ownership Interest of each Class A Holder, will not be diluted as a
result of such conversions until 12:01 a.m. on the day immediately following
the date of such stockholder meeting or the dividend payment date,
respectively.
Other Voting-related Matters. Sprint anticipates that the FON Stock would
initially represent a majority of the voting power of all classes and series
entitled to vote in the election of directors (other than Class A directors,
who would be elected solely by the holders of Class A Common Stock, Series 3
FON Stock and Series 3 PCS Stock).
If the Tracking Stock Proposal is approved by Sprint's stockholders and
implemented by the Sprint Board, Sprint will set forth the number of
outstanding shares of FON Stock and PCS Stock in its Annual and Quarterly
Reports filed pursuant to the Exchange Act, and will disclose in any proxy
statement for a stockholder meeting the number of outstanding shares and per
share voting rights of each class or series of the FON Stock and the PCS Stock.
The relative voting rights of the FON Stock, Class A Common Stock and the PCS
Stock will fluctuate as described above so that a holder's voting rights would
more closely reflect the Market Value of such holder's equity investment in
Sprint. Fluctuations in the relative voting rights of the FON Stock and the PCS
Stock could influence an investor interested in acquiring and maintaining a
fixed percentage of the voting power of Sprint to acquire such percentage of
both such classes of FON Stock and PCS Stock, and would limit the ability of
investors in one class to acquire for the same consideration relatively more or
less votes per share than investors in the other class.
Following implementation of the Tracking Stock Proposal, the holders of FON
Stock or PCS Stock will not have any rights to vote separately as a class on
any matter coming before stockholders of Sprint, except (i) for certain limited
class voting rights provided under Kansas law described below and (ii) as
described under "--Conversion and Redemption--Redemption of PCS Stock for
Subsidiary Stock." In addition to the approval of the holders of a majority of
the voting power of all shares of FON Stock, Class A Common Stock and PCS Stock
voting together as a single class, the approval of a majority of the
outstanding shares of the FON Stock, Class A Common Stock or the PCS Stock,
voting as a separate class, would be required under Kansas law to approve any
amendment to Sprint's Articles of Incorporation that would change the par value
of the shares of the class (other than as already provided in Sprint's Articles
of Incorporation) or alter or change the powers, preferences or special rights
of the shares of such class so as to affect them adversely. Similar approval of
a majority of the outstanding shares of any Series of FON Stock, Class A Common
Stock or PCS Stock will be required for similar changes affecting only such
series of stock. Because most matters brought to a stockholder vote would only
require the approval of a majority of the voting power of the FON Stock, Class
A Common Stock and PCS Stock, voting together as a single class, if the holders
of any such class of FON Stock, Class A Common Stock or PCS Stock will have
more than the number of votes required to approve any such matter, the holders
of that class will be in a position to control the outcome of the vote on such
matter. See "Risk Factors--
109
<PAGE>
The Tracking Stock Proposal--Limited Separate Stockholder Rights; No Additional
Rights with respect to the Groups; Effects on Voting Power."
LIQUIDATION
Currently, in the event of a liquidation or dissolution and winding-up of
Sprint, after payment, or provision for payment, of the debts and other
liabilities of Sprint and the payment of full preferential amounts (including
any accumulated and unpaid dividends) to which the holders of the Existing
Preferred Stock are entitled, holders of Existing Common Stock and Existing
Class A Common Stock would be entitled to share ratably in the remaining net
assets of Sprint. Under the Tracking Stock Proposal, if any voluntary or
involuntary liquidation, dissolution or winding up of Sprint occurs, then after
payment or provision for payment of the debts and other liabilities of Sprint,
including the liquidation preferences of any series of Preferred Stock, the
holders of FON Stock, Class A Common Stock and PCS Stock will be entitled to
receive the remaining assets of Sprint, regardless of the Group to which such
assets are attributed, divided among such holders in accordance with the per
share "Liquidation Units" attributable to each such class or series of stock as
follows:
(i) each share of Series 1 FON Stock, Series 2 FON Stock and Series 3 FON
Stock will be attributed one "Liquidation Unit,"
(ii) at the time of the liquidation, dissolution or winding up of Sprint,
each share of Existing Class A Common Stock will be attributed a number of
"Liquidation Units" (which may be more or less than one whole "Liquidation
Unit" and may include a fraction of a "Liquidation Unit") equal to (A) the
sum of (I) the Number Of Shares Issuable With Respect To The Existing Class
A Equity Interest In The FON Group and (II) the product of the Number Of
Shares Issuable With Respect To The Existing Class A Equity Interest In The
PCS Group and the PCS Ratio, divided by (B) the aggregate number of shares
of Existing Class A Common Stock outstanding (provided that after the
effective date of the PCS Stock Amendment and prior to the
Recapitalization, Existing Class A Common Stock will be attributed one
"Liquidation Unit" per share);
(iii) at the time of the liquidation, dissolution or winding up of this
Corporation, each share of DT Class A Stock will be attributed a number of
"Liquidation Units" (which may be more or less than one whole "Liquidation
Unit" and may include a fraction of a "Liquidation Unit") equal to (A) the
sum of (I) the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The FON Group and (II) the product of the Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The PCS
Group and the PCS Ratio, divided by (B) the aggregate number of shares of
DT Class A Stock outstanding (provided that after the effective date of the
PCS Stock Amendment and prior to the Recapitalization, DT Class A Stock
would have one "Liquidation Unit" per share); and
(iv) each share of PCS Stock will be attributed the number of
"Liquidation Units" determined by multiplying one by the PCS Ratio.
The per share "Liquidation Units" of each such class or series of stock will
be subject to adjustment as determined by Sprint's Board to be appropriate to
reflect equitably (i) any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of such class or series of
stock or (ii) any dividend or other distribution of shares of such class or
series of stock to holders of shares of such class or series of stock. For
example, if Sprint were to effect a two-for-one split of the FON Stock, the FON
Stock would be entitled to 0.5 of a "Liquidation Unit" per share in order to
avoid dilution of the aggregate liquidation rights of holders of PCS Stock.
Neither the merger nor consolidation of Sprint, nor the transfer of all or part
of its assets, will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of Sprint within the meaning of this provision.
Notwithstanding the foregoing, any transaction or series of related
transactions which results in the distribution of all or substantially all of
the assets of the PCS Group (excluding any portion of such assets retained by
Sprint or distributed to holders of FON Stock in respect of the FON Group's
Inter-Group Interest in the PCS Group) to the holders of the outstanding PCS
Stock and Class A Common Stock (to the extent of any Shares Issuable With
Respect To The Class A Equity Interest In The PCS Group) by way of the
distribution of
110
<PAGE>
equity interests in one or more entities that collectively hold, directly or
indirectly, all or substantially all of the assets of the PCS Group (including,
without limitation, the PCS Group Subsidiary) will not constitute a voluntary
or involuntary liquidation, dissolution or winding up of Sprint for purposes of
this provision but will instead be subject to the provisions described above
under "Conversion and Redemption--Redemption of PCS Stock for Subsidiary
Stock."
The Liquidation Units of the FON Stock, Class A Common Stock and PCS Stock
were determined by Sprint in consultation with its financial advisors and are
based upon, among other factors, each Group's initial level of debt and equity
capitalization, each Group's recent historical financial performance, the
market prices of shares of comparable companies that are publicly traded and
the current state of the markets for public offerings and other stock
transactions. See "Risk Factors--The Tracking Stock Proposal--No Assurance as
to Market Price; No Existing Market." Sprint considers that its complete
liquidation is a remote contingency, and its financial advisors believe that,
in general, these liquidation provisions are immaterial to trading in FON Stock
and PCS Stock. No holder of FON Stock will have any special right to receive
specific assets attributable to the FON Group and no holder of PCS Stock will
have any special right to receive specific assets attributable to the PCS Group
in the case of a dissolution or liquidation and winding-up of Sprint.
DIVIDENDS ON COMMON STOCK
Both the PCS Stock Amendment and the Recapitalization Amendment provide that
dividends may be declared and paid on the FON Stock, the Class A Common Stock
and the PCS Stock out of the funds of Sprint legally available for such
purpose. Sprint's Board, in accordance with this requirement and the Tracking
Stock Policies, may at any time declare and pay dividends (i) exclusively on
the FON Stock and the Class A Common Stock (on a Per Class A FON Share basis),
(ii) exclusively on the PCS Stock and the Class A Common Stock (on a Per Class
A PCS Share basis) or (iii) on the FON Stock and the Class A Common Stock (on a
Per Class A FON Share basis), on the one hand, and the PCS Stock and the Class
A Common Stock (on a Per Class A PCS Share basis), on the other, in equal or
unequal per share amounts, notwithstanding the amount of dividends previously
declared on each class or series of stock, the respective voting or liquidation
rights of each class or series of stock or any other factor.
Share Distributions. Subject to the requirements for declaration and payment
of dividends generally under the Amended Articles and in accordance with the
Tracking Stock Policies adopted by Sprint's Board, Sprint's Board may declare
and pay dividends or distributions of shares of FON Stock and PCS Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of FON Stock and PCS Stock) on shares of FON Stock, Class A Common Stock
and PCS Stock or shares of Preferred Stock only as follows:
(A) dividends or distributions of shares of (i) Series 1 FON Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
Shares of Series 1 FON Stock), (ii) Series 2 FON Stock (or Convertible
Securities convertible into or exchangeable or exercisable for Shares of
Series 2 FON Stock) and (iii) Series 3 FON Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 3 FON
Stock) on shares of (i) Series 1 FON Stock, (ii) Series 2 FON Stock and
(iii) Series 3 FON Stock and shares of Class A Common Stock (but only in
respect of the Shares Issuable With Respect To The Class A Equity Interest
In The FON Group), respectively, as well as on Preferred Stock attributed
to the Sprint FON Group exclusively;
(B) dividends or distributions of shares of (i) Series 1 PCS Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Series 1 PCS Stock), (ii) Series 2 PCS Stock (or Convertible
Securities convertible into or exchangeable or exercisable for shares of
Series 2 PCS Stock) and (iii) Series 3 PCS Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 3 PCS
Stock) on shares of (i) Series 1 PCS Stock, (ii) Series 2 PCS Stock and
(iii) Series 3 PCS Stock and shares of Class A Common Stock (but only in
respect of the Shares Issuable with Respect to the Class A Equity Interest
In The PCS Group), respectively, and Preferred Stock attributed to the PCS
Group exclusively;
111
<PAGE>
(C) dividends or distributions of shares of (i) Series 1 PCS Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Series 1 PCS Stock), (ii) Series 2 PCS Stock (or Convertible
Securities convertible into or exchangeable or exercisable for shares of
Series 2 PCS Stock) and (iii) Series 3 PCS Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 3 PCS
Stock) on (x) shares of (i) Series 1 FON Stock, (ii) Series 2 FON Stock and
(iii) Series 3 FON Stock and shares of Class A Common Stock (but only with
respect to any Shares Issuable With Respect To The Class A Equity Interest
In The FON Group), respectively, or (y) shares of Preferred Stock to the
extent attributed to the FON Group, but in any such case only if
immediately prior to such dividend or distribution the Number Of Shares
Issuable With Respect To The FON Group Inter-Group Interest is greater than
or equal to the sum of (1) the amount of any decrease in the Number Of
Shares Issuable With Respect To The FON Group Inter-Group Interest required
under the terms of Sprint's Articles of Incorporation as a result of such
dividend or distribution, plus (2) the number of shares of PCS Stock
issuable upon conversion, exchange or exercise of any Convertible
Securities to be so issued or any other outstanding Convertible Securities
that have been issued as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of
FON Stock or shares of Preferred Stock to the extent attributed to the FON
Group; and
(D) dividends or distributions of shares of Preferred Stock to the extent
attributed to the PCS Group (or Convertible Securities convertible into or
exchangeable or exercisable for shares of Preferred Stock to the extent
attributed to the PCS Group) on shares of FON Stock or Class A Common Stock
(but only with respect to any Shares Issuable With Respect To The Class A
Equity Interest In The FON Group) or shares of Preferred Stock to the
extent attributed to the FON Group, but in any such case only if
immediately prior to such dividend or distribution the Number Of Shares
Issuable With Respect To The FON Group Inter-Group Interest is greater than
or equal to the sum of (1) the amount of any decrease in the Number Of
Shares Issuable With Respect To The FON Group Inter-Group Interest required
under the terms of Sprint's Articles of Incorporation as a result of such
dividend or distribution plus (2) the number of shares of PCS Stock
issuable upon conversion, exchange or exercise of any Convertible
Securities that have been issued as a dividend or other distribution
(including in connection with any reclassification or exchange of shares)
to holders of FON Stock or shares of Preferred Stock to the extent
attributed to the Sprint FON Group.
For purposes of this provision, any outstanding Convertible Securities that
are convertible into or exchangeable or exercisable for any other Convertible
Securities which are themselves convertible into or exchangeable or exercisable
for FON Stock (or other Convertible Securities that are so convertible,
exchangeable or exercisable) or PCS Stock (or other Convertible Securities that
are so convertible, exchangeable or exercisable) will be deemed to have been
converted, exchanged or exercised in full for such Convertible Securities.
DETERMINATIONS BY THE SPRINT BOARD
If the Tracking Stock Proposal is approved by the stockholders and
implemented by the Sprint Board, any determinations made in good faith by the
Sprint Board under any provision described under "--Description of Capital
Stock," and any determinations with respect to any Group or the rights of
holders of shares of either FON Stock or PCS Stock, would be final and binding
on all stockholders of Sprint, subject to the rights of stockholders under
applicable Kansas law and under the federal securities laws.
STOCK TRANSFER AGENT AND REGISTRAR
UMB Bank, n.a. is the transfer agent, registrar and dividend paying agent for
the Existing Common Stock and ChaseMellon Shareholder Services, L.L.C. is the
co-transfer agent and registrar for the Existing Common Stock. If the Tracking
Stock Proposal is approved by the stockholders and implemented by the Sprint
Board, UMB Bank, n.a. will be selected as the transfer agent, registrar and
dividend paying agent for the FON Stock and the PCS Stock and ChaseMellon
Shareholder Services, L.L.C. will be selected as the co-transfer agent and
registrar for the FON Stock and the PCS Stock.
112
<PAGE>
STOCK EXCHANGE LISTINGS
Sprint will file applications with the NYSE for the listing of Series 1 FON
Stock, which will be traded under the symbol "FON," and the listing of the
Series 1 PCS Stock, which will be traded under the symbol "PCS."
DESCRIPTION OF WARRANTS; WARRANT INTER-GROUP INTEREST
The Warrants will be issued as part of the consideration to be issued to the
Cable Parents and their subsidiaries in connection with the PCS Restructuring.
The Warrants will be issued pursuant to the terms of Warrant Agreements (the
"Warrant Agreements") to be entered into in connection with the PCS
Restructuring between Sprint and each Affiliate of the Cable Parents that will
be issued Warrants. Subject to adjustment as described below, each Warrant will
be exercisable for a share of PCS Stock at the option of the holder at any time
prior to the fifth anniversary of the closing of the PCS Restructuring at an
initial exercise price (the "Exercise Price") with respect to each Warrant
equal to the first to be determined of (i) the initial price per share at which
shares of Series 1 PCS Stock are purchased by the public in the IPO and (ii)
the average daily closing prices of a share of Series 1 PCS Stock for the
period of 30 consecutive trading days ending on the 45th trading day following
the commencement of regular way trading in connection with the
Recapitalization.
Concurrently with the consummation of the PCS Restructuring and pursuant to
the Restructuring Agreement, Sprint will create an Inter-Group Interest of the
FON Group in the PCS Group that has terms equivalent to the Warrants (the
"Warrant Inter-Group Interest").
At the Effective Time, after giving effect to the issuance of the Series 2
PCS Stock and the Warrants in the Mergers and the creation of the Warrant
Inter-Group Interest, but without giving effect to the IPO, the
Recapitalization, the issuance of the PCS Preferred Stock, the creation of the
Preferred Inter-Group Interest or the exercise of any Equity Purchase Rights,
(a) the Warrants held by TCI, Comcast and Cox and their respective Affiliates
will represent a 1.42985%, 0.68542% and 0.71492% PCS Group Percentage Interest,
respectively, and (b) the Warrant Inter-Group Interest of the FON Group will
represent a 2.83019% PCS Group Percetage Interest (which equals the sum of the
PCS Group Percentage Interest represented by the Warrants held by the Cable
Parents and their respective Affiliates).
The Warrants will be freely transferable by the Cable Parents and their
subsidiaries. Each Warrant will represent the right, subject to the provisions
of the Warrant Agreements, to purchase (i) if the holder of such Warrant is a
Cable Holder, one share of Series 2 PCS Stock and (ii) if such holder is not a
Cable Holder, one share of Series 1 PCS Stock. Any whole number of Warrants may
be exercised by the holder by the surrender of the certificate evidencing such
Warrants at the principal office of Sprint at any time prior to the fifth
anniversary of the closing of the PCS Restructuring. Such surrender must be
accompanied by any of (i) the payment to Sprint of the amount, in cash or by
certified or bank cashier's check or by wire transfer in immediately available
funds, of the Exercise Price then in effect for each Warrant exercised, (ii) a
request that Sprint withhold from the number of shares of PCS Stock to be
issued upon exercise of the Warrants a number of shares equal to (A) the
Exercise Price multiplied by the aggregate number of Warrants then being
exercised, divided by (B) the closing price per share of the Series 1 PCS Stock
on the trading day immediately preceding the date of the notice of exercise or
(iii) a combination of payment as set forth in (i) and (ii) in an amount equal
to such aggregate Exercise Price.
The Exercise Price and the number of shares of PCS Stock issuable upon
exercise of the Warrants will be subject to adjustment on the occurrence of
certain events, including:
(i) the payment by Sprint of dividends (or the making of other
distributions) with respect to PCS Stock payable in shares of PCS Stock;
(ii) subdivisions, combinations and reclassifications of the PCS Stock;
(iii) the issuance of rights or warrants to the holders of the PCS Stock
entitling them to subscribe for or purchase shares of PCS Stock (or
securities convertible into PCS Stock), in each case for consideration
113
<PAGE>
per share of PCS Stock which is less than the then current market price per
share of Series 1 PCS Stock (as determined pursuant to the Warrant
Agreement); and
(iv) the distribution to the holders of PCS Stock of any of Sprint's
assets, debt securities or any rights or warrants to purchase securities
(but excluding any cash dividend on the PCS Stock unless the aggregate
amount of such cash dividend together with the amount of all cash dividends
on the PCS Stock with ex-dividend dates occurring in the 365 consecutive-
day period ending on the date immediately prior to the ex-dividend date
with respect to such cash dividend is on a per share basis more than 5% of
the average market value per share of the Series 1 PCS Stock as measured
during a specified portion of such period).
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least 1.0% in the Exercise Price;
provided that any adjustment which is not made will be carried forward and
taken into account in any subsequent adjustment.
In the event Sprint consolidates with, merges with or into, or sells all or
substantially all of its property and assets to another person, each Warrant
thereafter will entitle the holder thereof to receive upon exercise thereof the
number of shares of capital stock or other securities or property which the
holder of a number of shares of PCS Stock for which the Warrant could have been
exercised immediately prior to such consolidation, merger or sale of assets
would have been entitled to receive upon completion of such consolidation,
merger or sale of assets. Sprint has agreed not to effect any such
consolidation, merger, transfer or share exchange unless prior to or
simultaneously with the consummation thereof the successor (if other than
Sprint) resulting from such consolidation or merger or the person purchasing
such assets or other appropriate person assumes, by written instrument, the
obligation to deliver to the holder of the Warrant such securities, cash or
other assets as, in accordance with the foregoing provisions, the holder may be
entitled to purchase and the other obligations under the Warrant.
Subject to the following paragraph, in the event that the PCS Stock into
which the Warrant is convertible is redeemed by Sprint, then, from and after
the effective date of such redemption, the holders of Warrants then outstanding
will be entitled to receive upon exercise of such Warrants, in lieu of shares
of PCS Stock, the kind and amount of shares of stock and other securities and
property receivable in such redemption by a holder of the number of shares of
PCS Stock for which the Warrant could have been exercised immediately prior to
the effective date of such redemption.
In the case of (i) a redemption by Sprint of the outstanding shares of PCS
Stock by distribution of stock of a subsidiary of Sprint in payment of the
redemption price of the PCS Stock, or (ii) a spinoff by means of the
distribution of stock of a subsidiary of Sprint as a dividend to all holders of
PCS Stock, then each holder of the Warrants may elect to have the Warrants
thereafter exercisable for shares of stock of the subsidiary (the "Spun-Off
Subsidiary") that is spun off as a result of such transaction (the "Redemption
Securities"). If, pursuant to such redemption or spinoff, the holders of PCS
Stock also receive property or assets of Sprint other than the Redemption
Securities, then each holder of the Warrants may elect to have each Warrant
converted into two separate warrants, one of which will be an obligation of the
Spun-Off Subsidiary and will be convertible into those Redemption Securities
that would have been received by the holder of a number of shares of PCS Stock
for which the Warrant could have been exercised immediately prior to such
redemption or spinoff and the other of which will be an obligation of Sprint
and will be convertible into such other property or assets that would have been
received by the holder of a number of shares of PCS Stock for which the Warrant
could have been exercised immediately prior to such redemption or spinoff. If
any holder of the Warrants elects not to so convert the Warrant, the Warrant
will remain an obligation of Sprint and will thereafter be convertible only
into such property or assets (if any) other than Redemption Securities that
would have been received by the holder of a number of shares of PCS Stock for
which the Warrant could have been exercised immediately prior to such
redemption or spinoff.
Any Warrants that are not exercised on or prior to the fifth anniversary of
the closing of the PCS Restructuring will terminate and be of no further
effect.
114
<PAGE>
The holders of unexercised Warrants are not entitled, as such, to receive
dividends or other distributions with respect to the PCS Stock, receive notice
of any meeting of the stockholders of Sprint, consent to any action of the
stockholders of Sprint, receive notice of any other stockholder meeting, or to
any other rights as stockholders of Sprint.
The Warrant Inter-Group Interest will have terms equivalent to the Warrants,
as summarized above and as set forth in the Warrant Agreements. Under the
Restructuring Agreement, Sprint has agreed that it will effect such changes
from time to time to the Warrant Inter-Group Interest as may be necessary to
reflect any changes to the terms, rights, powers and privileges of the
Warrants.
Sprint has authorized and reserved for issuance such number of shares of
Series 1 PCS Stock and Series 2 PCS Stock as are issuable upon the exercise of
all outstanding Warrants and the conversion of the Warrant Inter-Group
Interest.
DESCRIPTION OF PCS PREFERRED STOCK; PREFERRED INTER-GROUP INTEREST
The following statements with respect to the PCS Preferred Stock and the
Preferred Inter-Group Interest are subject to the detailed provisions of the
certificate of designations relating to the PCS Preferred Stock (the
"Certificate of Designations"). These statements do not purport to be complete,
or to give full effect to the provisions of statutory or common law, and are
subject to, and are qualified in their entirety by reference to, the terms of
the Amended Articles (which give effect to the PCS Stock Amendment and the
Recapitalization Amendment), copies of which are attached to this Proxy
Statement as Annex IV.
General. The PCS Preferred Stock will be issued to the Cable Parents to
purchase up to $240 million of indebtedness advanced by the Cable Parents to
fund the operations of Sprint Spectrum Holdings between May 26, 1998, and the
Closing, which shares of PCS Preferred Stock may be issued directly for the
purchase of such indebtedness or as consideration in the Mergers with respect
to any of such indebtedness as is capitalized by the Cable Parents prior to the
closing of the PCS Restructuring. The Preferred Inter-Group Interest will be
issued by the PCS Group to the FON Group to extinguish up to $270.6 million of
indebtedness advanced by Sprint (and allocated to the FON Group) to fund the
operations of Sprint Spectrum Holdings and SprintCom between May 26, 1998 and
the closing of the PCS Restructuring. See "The Tracking Stock Proposal--Funding
of the PCS Group Prior to Closing; The PCS Preferred Stock."
The number of authorized shares of PCS Preferred Stock is . When
issued, the PCS Preferred Stock, and the PCS Stock issuable upon conversion
thereof, will be validly issued, fully paid and nonassessable. The holders of
the PCS Preferred Stock will not have, by virtue of such ownership, any
preemptive rights with respect to any shares of capital stock of Sprint or any
other securities of Sprint convertible into or carrying rights or options to
purchase any such shares. The PCS Preferred Stock will not be subject to any
sinking fund or other obligation of Sprint to set aside funds in order to
redeem the PCS Preferred Stock . If not converted by the holder or earlier
redeemed by Sprint, the PCS Preferred Stock will become mandatorily redeemable
on the tenth anniversary of the PCS Restructuring. The PCS Preferred Stock will
not be listed on the NYSE. The shares of PCS Stock issuable upon conversion of
the PCS Preferred Stock will be listed on the NYSE.
Ranking. The PCS Preferred Stock will rank junior as to dividends and upon
liquidation to shares of the First Series of the Preferred Stock, Second Series
of the Preferred Stock, Fifth Series of the Preferred Stock and any other
Preferred Stock designated as senior to the PCS Preferred Stock as to dividends
or upon liquidation, dissolution or winding up ("Senior Stock"), and will have
a preference over shares of Common Stock and any other class or series of
Junior Stock. The term "Junior Stock" means any stock ranking junior as to
dividends or upon liquidation, dissolution or winding up to the PCS Preferred
Stock.
Dividends. Holders of shares of PCS Preferred Stock will be entitled to
receive, when, as and if declared by the Sprint Board out of funds of Sprint
legally available for payment, cumulative dividends at a rate per
115
<PAGE>
annum to be determined and fixed at issuance by adjusting a 3.0% per annum base
rate as follows: for every fluctuation (or portion thereof) in the per annum
rate of return of 10-year U.S. Treasuries as in effect on the date of issuance
higher or lower than 5.627% (the rate for 10-year U.S. Treasuries due May
2008), the 3.0% base rate will be adjusted higher or lower, as applicable, by
0.375, or the applicable proportion of such adjustment. Dividends will be paid
on a specified date in each September, December, March and June (each a
"Dividend Payment Date") or, if any such date is not a business day; the
dividends due on such Dividend Payment Date shall be paid on the next
succeeding business day. The first dividend period shall be from the date of
initial issuance of the PCS Preferred Stock to but excluding December 31, 1998
and the first dividend shall be payable on the first Dividend Payment Date
thereafter. Dividends on the PCS Preferred Stock will be cumulative and will
accumulate from the date of original issuance of the PCS Preferred Stock.
Dividends will be cumulative from such date, whether or not in any dividend
period or periods there shall be funds of Sprint legally available for the
payment of such dividends.
Each such dividend will be payable, net of any amounts required to be
withheld for taxes, to holders of record as they appear on the stock records of
Sprint at the close of business on such record dates, not more than 60 days
preceding the payment dates thereof, as shall be fixed by the Sprint Board.
Dividends payable for any period less than a full quarterly dividend period
shall be computed on the basis of a 360-day year of twelve 30-day months and
the actual number of days elapsed in any period less than one month. Dividends
shall accrue on a daily basis whether or not there are funds of Sprint legally
available for the payment of such dividends and whether or not such dividends
are declared. Accrued but unpaid dividends shall accumulate as of the Dividend
Payment Date on which they first become payable, but no interest shall accrue
on accumulated but unpaid dividends. Before any dividends on the Common Stock
or any other class or series of stock of Sprint ranking junior to the PCS
Preferred Stock as to dividends shall be paid or declared and set apart for
payment, the holders of shares of the PCS Preferred Stock will be entitled to
receive the full accumulated cash dividends for all quarterly dividend periods
ending on or before the date on which any dividend on any such class or series
of stock ranking junior to the PCS Preferred Stock as to dividends is declared
or is to be paid.
Redemption. Except as provided below, shares of PCS Preferred Stock will not
be redeemable prior to the third anniversary of the PCS Restructuring. Sprint
may at its option redeem the PCS Preferred Stock in whole or in part after the
third anniversary of the PCS Restructuring, at any time or from time to time,
upon at least thirty days' prior notice, at a redemption price equal to the
Liquidation Preference per share of PCS Preferred Stock, plus any accumulated
unpaid dividends (whether or not declared) up to but excluding such redemption
date. In connection with a Spin Off or a Redemption Event, Sprint may, at its
option, redeem the PCS Preferred Stock in whole after the second anniversary of
the PCS Restructuring and before the third anniversary of the PCS
Restructuring, upon at least thirty days prior notice, at a redemption price
equal to the Premium Price per share of PCS Preferred Stock, plus any
accumulated unpaid dividends (whether or not declared) up to but excluding such
redemption date, which redemption will be deemed effective immediately prior to
the consummation of the Spin Off or the Redemption Event. If less than all the
outstanding PCS Preferred Stock is to be redeemed, the shares to be redeemed
shall be selected pro rata as nearly as practicable or by lot, or by such other
method as may be determined by the Sprint Board to be equitable, without regard
to whether the shares to be redeemed are convertible into Series 1 PCS Stock or
Series 2 PCS Stock. Shares so redeemed shall be cancelled and upon such
cancellation shall be deemed to be authorized and unissued shares of Preferred
Stock, without par value, of Sprint but will not be reissued as shares of the
same series.
To the extent permitted by law, Sprint will redeem, on the tenth anniversary
of the PCS Restructuring (or, if such day is not a business day, on the first
business day thereafter) (subject to extension as provided in the last sentence
of this paragraph, the "Mandatory Redemption Date"), all remaining shares of
PCS Preferred Stock then outstanding, at the redemption price of $1,000 for
each share outstanding, plus an amount in cash equal to all accrued but unpaid
dividends thereon to the Mandatory Redemption Date. Prior to authorizing or
making such redemption with respect to the PCS Preferred Stock, Sprint, by
resolution of the Sprint Board will, to the extent of funds legally available
therefor, declare a dividend on the PCS Preferred Stock payable on the
Mandatory Redemption Date in an amount equal to any accrued and unpaid
dividends on the PCS Preferred Stock as of
116
<PAGE>
such date and, if Sprint does not have sufficient legally available funds to
declare and pay all dividends accrued at the time of such redemption, any
remaining accrued and unpaid dividends will be added to the redemption price.
After paying any accrued and unpaid dividends pursuant to the foregoing
sentence, if the funds of Sprint legally available for redemption of shares of
the PCS Preferred Stock then required to be redeemed are insufficient to redeem
the total number of such shares then outstanding, those funds which are legally
available will be used to redeem the maximum possible number of shares of the
PCS Preferred Stock. At any time and from time to time thereafter, when
additional funds of Sprint are legally available to discharge its obligation to
redeem all of the outstanding shares of PCS Preferred Stock required to be
redeemed pursuant to this paragraph (the "Mandatory Redemption Obligation"),
such funds will be immediately used to discharge such Mandatory Redemption
Obligation until the balance of such shares have been redeemed. If and so long
as the Mandatory Redemption Obligation shall not be fully discharged, (x)
dividends on any remaining outstanding shares of PCS Preferred Stock shall
continue to accrue and be added to the dividend payable pursuant to the second
preceding sentence and (y) Sprint shall not declare or pay any dividend or make
any distribution on any Parity Stock or Junior Stock. With respect to any
Exchange Preferred Stock or Mirror Preferred Stock, the Mandatory Redemption
Date shall be the later to occur of (i) the tenth anniversary of the PCS
Restructuring, and (ii) the fifth anniversary of the date of issuance of such
Exchange Preferred Stock or Mirror Preferred Stock.
In the event that any quarterly dividend payable on the PCS Preferred Stock
is in arrears and until all such dividends in arrears have been paid or
declared and set apart for payment, Sprint may not redeem any shares of Parity
Stock or Junior Stock unless all outstanding shares of PCS Preferred Stock are
simultaneously redeemed and may not purchase or otherwise acquire any shares of
PCS Preferred Stock or any Parity Stock or Junior Stock except (i) by
conversion into or exchange for stock ranking junior as to dividends or (ii) in
accordance with a purchase or exchange offer made by Sprint to all holders of
record of PCS Preferred Stock and such Parity Stock upon the same terms as to
holders of any series and, in the case of offers relating to more than one
series, upon such terms as between such series as the Board of Directors or, to
the extent permitted by applicable law, any authorized committee thereof, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series of stock, will result in fair and
equitable treatment as between such series, which determination will be
conclusive.
Sprint will redeem the PCS Preferred Stock in whole or in part in accordance
with and to the extent required by Section 6.6 of the Restructuring Agreement.
See "The Tracking Stock Proposal--Funding of the PCS Group Prior to Closing;
The PCS Preferred Stock--Sprint Spectrum Holdings" and "--SprintCom."
Liquidation Preference. Subject to prior payment of preferred amounts to
which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of Sprint the holders of the PCS Preferred Stock will
be entitled to receive out of the assets of Sprint available for distribution
to stockholders, before any distribution of the assets is made to the holders
of Sprint Common Stock or any other class or series of stock ranking junior to
the PCS Preferred Stock upon liquidation, the sum of U.S. $1,000 per share (the
"Liquidation Preference"), plus in each case any accumulated unpaid dividends
(whether or not declared), to the date of final distribution. If upon any
liquidation, dissolution or winding up of Sprint the amounts payable with
respect to the PCS Preferred Stock and any other Parity Stock are not paid in
full, the holders of the PCS Preferred Stock and such Parity Stock will share
ratably in any distribution of assets in proportion to the full preferential
amounts to which they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of PCS
Preferred Stock will not be entitled to any further participation in any
distribution of assets by Sprint. A consolidation or merger of Sprint with or
into one or more other corporations (whether or not Sprint is the surviving
corporation such consolidation or merger), or a sale, lease or exchange of all
or substantially all of the assets of Sprint shall not be deemed to be a
voluntary or involuntary liquidation, dissolution, or winding up of Sprint.
Notice of a liquidation, dissolution or winding up of Sprint shall be filed at
each office or agency maintained for the purpose of conversion of the PCS
Preferred Stock, and shall be mailed to the holders of PCS Preferred Stock at
their last addresses as they shall appear on the stock register of Sprint, at
least 20 business days before any such action, stating the date on which any
such action is expected to become effective. The failure to give or receive
such notice or any defect therein will not affect the legality or validity of
any such action.
117
<PAGE>
Voting Rights. Except as otherwise required by law, each outstanding share
of the PCS Preferred Stock shall be entitled to vote on all matters in respect
of which the holders of the common stock of Sprint are entitled to vote, and
the holders of the PCS Preferred Stock will vote together with the holders of
all other classes or series of capital stock that have general voting power on
all such matters as a single class; provided, however, that the affirmative
vote or consent of two-thirds of the votes to which the holders of the
outstanding shares of the PCS Preferred Stock is necessary for authorizing,
effecting or validating the amendment, alteration or repeal of any of the
provisions of the Amended Articles or of any amendment thereto (including any
certificate of designation or any similar document relating to any series of
preferred stock) of Sprint, which would materially and adversely affect the
voting powers, preferences, rights, powers or privileges, qualifications,
limitations and restrictions of the PCS Preferred Stock; provided, however,
that neither (i) the creation, issuance, or increase in the amount of
authorized shares of, any series of preferred stock nor (ii) the consummation
of any transaction described under "--Conversion Rights" in which the voting
powers, preferences, rights, powers or privileges, qualifications, limitations
and restrictions of the PCS Preferred Stock are addressed as contemplated
thereunder will (in either such case) be deemed to materially and adversely
affect such voting powers, preferences, rights, powers or privileges,
qualifications, limitations and restrictions of the PCS Preferred Stock.
On each matter to be voted on by the holders of the PCS Preferred Stock,
each outstanding share of the PCS Preferred Stock is entitled to a number of
votes equal to the number of votes that could be cast with respect to such
matter by the holder of that number of shares of the series of PCS Stock into
which such share of PCS Preferred Stock could be converted if the requirements
for conversion under "--Conversion" had been satisfied by such voting party on
the record date for determining the stockholders of Sprint who are entitled to
vote with respect to such matter.
Conversion Rights. Each holder of shares of PCS Preferred Stock may at such
holder's option at any time convert any or all of such holder's shares of PCS
Preferred Stock into (i) if such holder is a Cable Holder, shares of Series 2
PCS Stock, and (ii) if such holder is not a Cable Holder, shares of Series 1
PCS Stock. All references herein to shares of Series 2 PCS Stock issuable upon
conversion of shares of PCS Preferred Stock refer to shares of Series 1 PCS
Stock if the holder of such PCS Preferred Stock is not a Cable Holder. Such
shares of PCS Preferred Stock are convertible into a number of fully paid and
nonassessable whole shares of Series 2 PCS Stock as is equal to the aggregate
Liquidation Preference of the shares of PCS Preferred Stock surrendered for
conversion divided by the Initial Conversion Price (as adjusted from time to
time, the "Conversion Price"). In case of the redemption of any shares of the
PCS Preferred Stock, such right of conversion shall cease and terminate as to
the shares duly called for redemption at the close of business on the date
fixed for redemption, unless Sprint defaults in the payment of the redemption
price plus all accrued and unpaid dividends. If Sprint defaults with respect
to such payment, the right to convert the shares designated for redemption
shall terminate at the close of business on the business day next preceding
the date that such default is cured. Upon conversion Sprint will make no
payment or adjustment on account of dividends accrued or in arrears on the PCS
Preferred Stock surrendered for conversion.
Holders of shares of PCS Preferred Stock at the close of business on a
record date for any payment of declared preferred dividends will be entitled
to receive the Preferred Dividends payable on those shares of PCS Preferred
Stock on the corresponding Dividend Payment Date notwithstanding the
conversion pursuant to this section of those shares of PCS Preferred Stock
following such record date and before the close of business on such Dividend
Payment Date. Except as provided in the preceding sentence, upon any
conversion of shares of PCS Preferred Stock, Sprint will make no payment of or
allowance of unpaid Preferred Dividends, whether or not in arrears, on such
shares of PCS Preferred Stock, or for previously declared dividends or
distributions on the shares of Series 2 PCS Stock issued upon conversion.
Conversion of shares of PCS Preferred Stock may be effected by delivering
certificates evidencing such shares of PCS Preferred Stock, together with
written notice of conversion stating the number of shares to be converted and
a proper assignment of such certificates to Sprint or in blank, to the office
of the transfer agent for the PCS Preferred Stock or to any other office or
agency maintained by Sprint for that purpose and otherwise in
118
<PAGE>
accordance with conversion procedures established by Sprint. Each conversion
will be deemed to have been effected immediately before the close of business
on the date on which the foregoing requirements will have been satisfied.
No fraction of a share of Series 2 PCS Stock will be issued upon any
conversion. In lieu of the fraction of a share to which the holder of shares
of the PCS Preferred Stock surrendered for conversion would otherwise be
entitled, such holder shall receive, as soon as practicable after the date of
conversion, an amount in cash equal to the same fraction of the market value
of a full share of Series 1 PCS Stock. For the purposes of this subparagraph,
the market value of a share of Series 1 PCS Stock shall be the Closing Price
of such a share on the day immediately preceding the date upon which such
shares of PCS Preferred Stock are surrendered for conversion.
Conversion Price Adjustments. The Conversion Price will be subject to
adjustment on the occurrence of certain events, including:
(i) the payment by Sprint of dividends (or the making of other
distributions) with respect to PCS Stock payable in shares of PCS Stock;
(ii) subdivisions, combinations and reclassifications of the PCS Stock;
(iii) the issuance of rights or warrants to the holders of the PCS Stock
entitling them to subscribe for or purchase shares of PCS Stock (or
securities convertible into PCS Stock), in each case for consideration per
share of PCS Stock which is less than the then current market price per
share of Series 1 PCS Stock (as determined pursuant to the Certificate of
Designations); and
(iv) the distribution to the holders of PCS Stock of any of Sprint's
assets, debt securities or any rights or warrants to purchase securities
(but excluding any cash dividend on the PCS Stock unless the aggregate
amount of such cash dividend together with the amount of all cash dividends
on the PCS Stock with ex-dividend dates occurring in the 365 consecutive-
day period ending on the date immediately prior to the ex-dividend date
with respect to such cash dividend is on a per share basis more than 5% of
the average market value per share of the Series 1 PCS Stock as measured
during a specified portion of such period).
No adjustment in the Conversion Price will be required unless such
adjustment would require an increase or decrease of at least 1.0% in the
Conversion Price; provided that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment.
In the event Sprint consolidates with, mergers with or into, or sells all or
substantially all of its property and assets to another person, each share of
PCS Preferred Stock thereafter shall entitle the holder thereof to receive
upon conversion thereof the number of shares of capital stock or other
securities or property which the holder of a number of shares of PCS Stock
into which such share of PCS Preferred Stock would have been converted
immediately prior to such consolidation, merger or sale of assets would have
received upon completion of such consolidation, merger or sale of assets.
Sprint has agreed not to effect any such consolidation, merger, transfer or
share exchange unless prior to or simultaneously with the consummation thereof
the successor (if other than Sprint) resulting from such consolidation or
merger or the person purchasing such assets or other appropriate person shall
assume, by written instrument, the obligation to deliver to the holders of the
PCS Preferred Stock such securities, cash or other assets as, in accordance
with the foregoing provisions, the holder may be entitled to purchase and the
other obligations under the Certificate of Designations.
Subject to the following paragraph, in the event that the PCS Stock into
which the PCS Preferred Stock is convertible is redeemed by Sprint, then, from
and after the effective date of such redemption, the holders of PCS Preferred
Stock then outstanding shall be entitled to receive upon exercise of such PCS
Preferred Stock, in lieu of shares of PCS Stock, the kind and amount of shares
of stock and other securities and property receivable in such redemption by a
holder of the number of shares of PCS Stock into which each share of PCS
Preferred Stock could have been converted immediately prior to the effective
date of such redemption.
119
<PAGE>
In the case of (i) a redemption by Sprint of the outstanding shares of PCS
Stock by distribution of stock of a subsidiary of Sprint in payment of the
redemption price of the PCS Stock or (ii) a spinoff by means of the
distribution of stock of a subsidiary of Sprint as a dividend to all holders
of PCS Stock, then each holder of the PCS Preferred Stock may elect to have
the PCS Preferred Stock thereafter convertible into shares of stock of the
subsidiary (the "Spun-Off Subsidiary") that is spun off as a result of such
transaction (the "Redemption Securities"). If, pursuant to such redemption or
spinoff, the holders of PCS Stock also receive property or assets of Sprint
other than the Redemption Securities, then each holder of the PCS Preferred
Stock may elect to have each share of PCS Preferred Stock converted into two
separate shares of preferred stock, one of which will be issued by the Spun-
Off Subsidiary and will be convertible into those Redemption Securities that
would have been received by the holder of a share of PCS Preferred Stock if
such shares of PCS Preferred Stock had been converted into PCS Stock
immediately prior to such redemption or spinoff and the other of which will be
issued by Sprint and will be convertible into such other property or assets
that would have been received by the holder of a share of PCS Preferred Stock
if such share of PCS Preferred Stock had been converted into PCS Stock
immediately prior to such redemption or spinoff. If any holder of the PCS
Preferred Stock elects not to so convert any share of PCS Preferred Stock,
such share of PCS Preferred Stock will remain an obligation of Sprint and will
thereafter be convertible only into such property or assets (if any) other
than Redemption Securities that would have been received by the holder of a
share of PCS Preferred Stock if such share had been converted into PCS Stock
immediately prior to such redemption or spinoff.
Under the Restructuring Agreement, Sprint has agreed that it will effect
such changes from time to time to the Preferred Inter-Group Interest as may be
necessary to reflect any changes to the terms, rights, powers and privileges
of the PCS Preferred Stock.
120
<PAGE>
FUTURE INTER-GROUP INTEREST
It is Sprint's intention that, upon completion of the Recapitalization, the
FON Group will have no Inter-Group Interest in the PCS Group except for the
Warrant Inter-Group Interest and the Preferred Inter-Group Interest. Under the
Tracking Stock Policies, however, the Sprint Board could determine from time
to time to contribute, as additional equity, cash or other property of the FON
Group to the PCS Group or purchase shares of PCS Stock in the open market with
cash or other property of the FON Group. In such event, the FON Group would
hold an Inter-Group Interest, representing an interest in the equity value of
Sprint attributable to the PCS Group. In structuring the terms of the Tracking
Stock Proposal, the Sprint Board determined that the PCS Group should not have
or be able to have an Inter-Group Interest in the FON Group. In restricting
the PCS Group from creating such an interest in the FON Group, the Sprint
Board determined that, because of the disparity in the relative sizes (based
upon asset values) between the two Groups and the resultant effects that an
interest in the FON Group could have on the value of the PCS Stock, an Inter-
Group Interest held by the PCS Group in the FON Group could adversely affect
the ability of the PCS Stock to reflect the separate performance of the PCS
Group.
An Inter-Group Interest in the PCS Group, because it represents an interest
between two business groups within Sprint, would not be represented by
outstanding shares of PCS Stock and, accordingly, would not be voted on any
matter, including any matter requiring the vote of the holders of PCS Stock as
a separate class. However, the Market Value attributable to the Inter-Group
Interest should be reflected in the Market Value of the FON Stock, which in
turn would affect the aggregate voting power represented by the FON Stock on
any matter in which holders of FON Stock and PCS Stock vote together as a
single class.
If an Inter-Group Interest exists and additional shares of PCS Stock are
subsequently issued by Sprint, the Sprint Board would determine (i) the number
of shares of such PCS Stock issued for the account of the FON Group with
respect to the Inter-Group Interest, the net proceeds of which will be
reflected entirely in the financial
statements of the FON Group, and (ii) the number of shares of such PCS Stock
issued for the account of the PCS Group as an additional equity interest in
the PCS Group, the net proceeds of which will be reflected entirely in the
financial statements of the PCS Group. As additional shares of PCS Stock are
issued for the account of the FON Group, the Inter-Group Interest Fraction and
the Number Of Shares Issuable With Respect To The Inter-Group Interest would
decrease and the Outstanding PCS Fraction would increase accordingly. At the
time all shares of PCS Stock issuable with respect to the Inter-Group Interest
are issued, the Number Of Shares Issuable With Respect To The FON Group Inter-
Group Interest would be zero and shares of PCS Stock could no longer be issued
for the account of the FON Group without incurring an inter-Group debt owed by
the FON Group. If additional shares of PCS Stock are issued for the account of
the PCS Group, the Number Of Shares Issuable With Respect To The FON Group
Inter-Group Interest would not decrease but the Inter-Group Interest Fraction
would nonetheless decrease and the Outstanding PCS Fraction would increase
accordingly.
If an Inter-Group Interest exists and the Sprint Board determines to issue
shares of PCS Stock as a distribution on the FON Stock, such distribution
would be treated as a distribution of shares issuable with respect to the
Inter-Group Interest, and, as a result, the Number Of Shares Issuable With
Respect To The FON Group Inter-Group Interest would decrease by the number of
shares of PCS Stock distributed to the holders of FON Stock, resulting in a
proportionate decrease in the Inter-Group Interest Fraction and a
corresponding increase in the Outstanding PCS Fraction.
If an Inter-Group Interest exists and Sprint repurchases shares of PCS Stock
with cash or property of the FON Group, the Number of Shares Issuable with
Respect to the Inter-Group Interest and the Inter-Group Interest Fraction
would increase and the Outstanding PCS Fraction would decrease accordingly. If
the repurchase of shares of PCS Stock were attributed to the PCS Group, the
Number Of Shares Issuable With Respect To The FON Group Inter-Group Interest
would not increase but the Inter-Group Interest Fraction would nonetheless
increase and the Outstanding PCS Fraction would decrease accordingly.
The financial statements of the FON Group will be credited, and the
financial statements of the PCS Group will be charged with, an amount equal to
the product of (i) the Fair Value of any dividend or other distribution paid
or distributed in respect of the outstanding shares of PCS Stock and (ii) a
fraction, the numerator of which is the Inter-Group Interest Fraction on the
record date for such dividend or distribution and the denominator of which is
the Outstanding PCS Fraction on the record date for such dividend or
distribution.
121
<PAGE>
ANTI-TAKEOVER CONSIDERATIONS
The Kansas General Corporation Code contains, and if the Tracking Stock
Proposal is approved and implemented by the Sprint Board, the Amended Articles
and the Amended Bylaws will contain, provisions which could serve to
discourage or make more difficult a change in control of Sprint without the
support of the Sprint Board or without meeting various other conditions. A
summary of such provisions is set forth below.
SPRINT PREFERRED STOCK
The Existing Articles authorize the issuance by the Sprint Board, without
the necessity of further notice or authorization by the stockholders, of up to
20,000,000 shares of Preferred Stock. The Sprint Board has authorized the
issuance of four series of Preferred Stock, aggregating in total 12,001,420
shares, including 1,742,853 shares of Preferred Stock--First Series, 8,758,472
shares of the Preferred Stock--Second Series, 95 shares of the Preferred
Stock--Fifth Series, and 1,500,000 shares of the Preferred Stock--Sixth
Series. Accordingly, 7,998,580 shares of the Sprint Preferred Stock remain
unissued, unreserved and available for issuance. The unissued and unreserved
Preferred Stock may be issued from time to time in one or more series and may
have such voting powers, preferences, relative rights, designations,
qualifications and limitations as the Sprint Board may fix by resolution at
the time of issuance. In addition, the authorized but unissued shares of FON
Stock or PCS Stock will be available for issuance from time to time at the
discretion of the Sprint Board without the approval of the stockholders of
Sprint, unless such stockholder approval is deemed advisable by the Sprint
Board or required by applicable law, regulation or stock exchange listing
requirements. One of the effects of the existence of authorized, unissued and
unreserved Common Stock and Preferred Stock could be to enable the Sprint
Board to issue shares to persons friendly to current management which could
render more difficult or discourage an attempt to obtain control of Sprint by
means of a merger, tender offer, proxy contest or otherwise, and thereby
protect the continuity of Sprint's management. Such additional shares also
could be used to dilute the stock ownership of persons seeking to obtain
control of Sprint.
"FAIR PRICE" PROVISIONS
The Existing Articles contain a provision (ARTICLE SEVENTH) to the effect
that certain business combinations must be approved by the affirmative vote of
the holders of 80% of the outstanding shares entitled to vote in an election
of directors. Transactions subject to such approval (each a "Fair Price
Business Combination") include mergers, consolidations, sales or other
dispositions of assets valued at $1 million or more, and issuances of
securities valued at $1 million or more, between, or otherwise involving,
Sprint or any of its subsidiaries and any Interested Stockholder (defined
generally as the direct or indirect beneficial owner of 10% or more of the
outstanding capital stock of Sprint) or an affiliate of an Interested
Stockholder, certain liquidations or dissolutions of Sprint and certain
reclassifications of securities or recapitalizations of Sprint. These
provisions do not apply if (i) the transaction has been approved by a majority
of directors ("Continuing Directors") who were directors prior to the time the
Interested Stockholder attained such status (or certain successors of such
directors) and who are unaffiliated with the Interested Stockholder if such
approval is obtained at a meeting at which at least seven Continuing Directors
are present, or (ii) the Fair Price Business Combination is a merger or
consolidation and the cash or fair market value of the property, securities or
other consideration to be received by Sprint stockholders is not less than the
highest price per share paid by the Interested Stockholder for its holdings of
Sprint capital stock.
"GREENMAIL" PROVISIONS
In order to avoid the payment of "greenmail" by Sprint, the Existing
Articles contain a provision (ARTICLE EIGHTH) that requires the affirmative
vote of a majority of the Sprint voting power to approve any purchase,
redemption or other acquisition by Sprint of any capital stock of Sprint at
above-market prices from an Interested Securityholder (defined generally as
any person who beneficially owns, directly or indirectly, five percent or more
of the class of securities to be acquired) who has owned such securities for
less than two years. Shares beneficially owned by the Interested
Securityholder are excluded from this computation. This requirement for
stockholder approval does not apply to a tender or exchange offer made on the
same terms to all holders of such securities.
122
<PAGE>
CLASSIFIED BOARD
The Existing Articles contain a provision (ARTICLE FIFTH) that provides for
a classified Sprint Board under which one-third of the total number of
directors are elected each year. The Existing Articles provide that the number
of directors shall not be less than ten or more than twenty, as may be
determined by the Sprint Board. The Sprint Board currently has fixed the
number of directors at eleven. The effect of these provisions, may be to
prevent a holder of a large block of voting shares from gaining control of the
Sprint Board for at least two successive annual meetings. Under the Existing
Articles of Incorporation, a director may be removed only for cause and then
only by the affirmative vote of the holders of a majority of the shares
entitled to vote in an election of directors. Vacancies created by an increase
in the size of the Sprint Board or for any other reason may be filled by the
remaining directors then in office; provided that if the vacancy occurs as a
result of an increase in the size of the Sprint Board the directors electing
such members must constitute a majority of the Sprint Board.
The provision for a classified Sprint Board, together with the limitation on
removal of directors, make it more difficult to remove directors, and
ultimately incumbent management, even if a majority of stockholders desire to
do so, particularly if the only reason for the proposed removal may be
stockholder dissatisfaction with the performance of the incumbent directors. A
person who has gained as much as majority voting control of Sprint will be
unable to gain immediate control of the Sprint Board unless such person can
obtain sufficient additional votes to amend various provisions of the Existing
Articles and the Bylaws, and even then, under the Kansas General Corporation
Code, an amendment to the Existing Articles may only be presented to
stockholders for approval if adopted and declared advisable by the then-
sitting Sprint Board.
PROVISIONS RELATING TO STOCKHOLDER MEETINGS
Under the Bylaws, a special meeting of stockholders may be called only by
the Chairman of the Sprint Board, the President or the Sprint Board or at the
request of the holders of a majority of the shares of stock issued and
outstanding and entitled to vote. The Bylaws require that for business to be
properly brought before a meeting by a stockholder and for nominations by
stockholders for the election of directors notice must be given to the
Corporate Secretary of Sprint not less than 50 days nor more than 75 days
prior to the meeting of the stockholders for the election of directors, unless
than the 65 days' notice or prior public disclosure of the date of the meeting
is made or given to the stockholders, in which case notice must be given to
the Corporate Secretary of Sprint no later than the close of business on the
fifteenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever first occurs.
The provision also requires that such notice must contain certain information
(a) about each proposed nominee, including (i) name, age and business and
residence addresses, (ii) principal occupation or employment, (iii) the class
and number of shares of capital stock of Sprint beneficially owned by such
person and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for the election of directors
pursuant to Regulation 14A under the Exchange Act, and (b) about the
stockholder giving the notice, including (i) the name and record address of
such stockholder and (ii) the class and number of shares of capital stock of
Sprint beneficially owned by such stockholder. This advance notice provision
is not applicable to nominations made by the Sprint Board. This advance notice
requirement, by regulating nominations from the floor at any meeting of
stockholders, affords management the opportunity to consider the
qualifications of the proposed non-management nominees and, to the extent
deemed necessary or desirable by management, inform the stockholders about
such qualifications in Sprint's proxy statement for the annual meeting.
SPRINT RIGHTS PLAN
On June 9, 1997, the Sprint Board adopted the Rights Agreement pursuant to
which Sprint distributed a dividend of one right (a "Right") to purchase
certain shares of capital stock of Sprint under certain circumstances, for
each outstanding share of Existing Common Stock and Existing Class A Common
Stock. The Rights are currently traded with the Existing Common Stock and
detach and become exercisable only if, in a transaction not approved by the
Sprint Board, a person or entity acquires 15% or more of the outstanding
shares of Existing Common Stock or announces a tender offer the consummation
of which would result in ownership by a person or group of 15% or more of such
shares.
123
<PAGE>
Once the Rights detach and become exercisable, unless subsequently redeemed,
each Right then entitles its holder to purchase one one-thousandth of a share
of the Preferred Stock--Sixth Series for an exercise price of $225, subject to
certain adjustments. If Sprint is involved in a merger or other business
combination transaction after the Rights become exercisable, each Right will
entitle its holder to purchase, for the Right's exercise price, a number of
the acquiring of surviving company's shares of common stock having a market
value equal to twice the exercise price. Sprint will be entitled to redeem the
Rights at $.01 per Right at any time until ten business days following a
public announcement that a person or group of persons has acquired beneficial
ownership of 15% or more of the outstanding shares of Existing Common Stock
(or in excess of the shares permitted to be acquired under the Standstill
Agreement, in the case of FT and DT). The terms of the Sprint Rights will
expire on June 25, 2007, unless earlier redeemed by Sprint. The Rights
Agreement was not intended to deter all takeover bids for Sprint and will not
do so. For example, the Rights Agreement does not foreclose an attractive
offer to acquire all the Existing Common Stock at the same price or
transactions approved by the Sprint Board. To the extent an acquiror is
discouraged by the Rights Agreement from acquiring an equity position in
Sprint, stockholders may be deprived from receiving a premium for their
shares. The issuance of additional shares of Existing Common Stock or Class A
Common Stock prior to the time the Rights become exercisable will result in an
increase in the number of Rights outstanding. Sprint expects to amend its
Rights Agreement to reflect the creation of the FON Stock and PCS Stock with
the 15% threshold applicable to voting power rather than share ownership.
Pursuant to the Restructuring Agreement, Sprint has agreed that under the
applicable governing documents for any stockholder rights plan in effect for
stockholders of Sprint following the Closing, (i) a holder of Series 2 PCS
Stock (or Series 2 FON Stock) will not be deemed to "beneficially own" the
shares of Series 1 PCS Stock (or Series 1 FON Stock) issuable upon conversion
of such shares before such conversion, (ii) shares of Common Stock acquired by
the Cable Parents or their Affiliates pursuant to the Restructuring Agreement
(including pursuant to their Equity Purchase Rights, the Mergers and
provisions for the repayment of certain tax benefits in shares of Common Stock
under certain circumstances), or acquired upon conversion of such shares, will
not result in such holders being deemed "acquiring persons" under such rights
plan, and (iii) if a transferee of Common Stock of a Cable Parent or its
Affiliate did not exceed the applicable threshold as of the time of
acquisition of such shares so as to make such transferee an "acquiring person"
under such rights plan, and such transferee subsequently exceeds such
threshold as a result of the fluctuating vote per share of the PCS Stock, such
transferee will have 30 days to sell enough shares to decrease its ownership
below such threshold before being deemed an "acquiring person" for purposes of
such rights plan.
BUSINESS COMBINATION STATUTE
Section 17-12,101 of the Business Combination Statute limits business
combinations (as defined in Section 17-12,100 of the Business Combination
Statute) between corporations and interested stockholders. However, Section
17-12,101 of the Business Combination Statute exempts from the provisions of
the Business Combination Statute business combinations with interested
stockholders who became such in a transaction approved by the board of
directors.
CONTROL SHARE ACQUISITION STATUTE
The Kansas Control Share Acquisition Statute (the "CSA Statute") provides
that persons who acquire beneficial ownership of the Common Stock of Sprint in
excess of certain thresholds -- 20%, 33-1/3% and 50%-- lose the right to vote
the shares acquired in the transaction ("Control Shares") that resulted in the
person exceeding one of those thresholds, unless the acquisition is approved
by (i) a majority of the outstanding shares of Sprint and (ii) a majority of
the outstanding shares of Sprint excluding the Control Shares and shares held
by Sprint officers and Sprint directors who are also Sprint employees. The CSA
Statute limits the ability of a stockholder to acquire a substantial equity
stake in Sprint without the approval of Sprint's stockholders and reduces the
coercive effect of a front-end loaded tender offer.
124
<PAGE>
FT AND DT ARRANGEMENTS
THE MASTER AGREEMENT AND RELATED AGREEMENTS
In General. The following is a summary of the terms of the Master Agreement,
a copy of which was filed as an Exhibit to Sprint's Current Report on Form 8-K
dated May 26, 1998, and certain related documents (the "Amended Investment
Documents"). The following summary is qualified in its entirety by the more
specific terms of the Master Agreement and the Related Investment Documents.
The Original Investment Agreement and Related Investment Documents. Sprint,
FT and DT entered into an Investment Agreement, dated as of July 31, 1995,
which was amended on November 21, 1995 (the "Original Investment Agreement"),
and also entered into certain related agreements executed pursuant to the
Original Investment Agreement (the "Related Investment Documents"). The
Related Investment Documents include (i) the Registration Rights Agreement,
dated as of January 31, 1996, among FT, DT and Sprint, as amended (the
"Original Registration Rights Agreement"), (ii) the Stockholders' Agreement,
dated as of January 31, 1996, among FT, DT and Sprint, as amended (the
"Original Stockholders' Agreement"), and (iii) the Standstill Agreement, dated
as of July 31, 1996, as amended (the "Original Standstill Agreement").
Pursuant to the Original Investment Agreement and the Related Investment
Documents, FT and DT purchased shares of Existing Class A Common Stock from
Sprint. Although the provisions of the Original Investment Agreement and the
Related Investment Documents, along with the terms of the Existing Articles,
set forth certain rights and restrictions with respect to the ownership of FT
and DT of the Existing Class A Common Stock, the existing arrangements lack
certain terms necessary to address the Tracking Stock Proposal.
Accordingly, one objective of the Master Agreement and the Amended
Investment Documents is to adapt the terms of the Original Investment
Agreement and the Related Investment Documents to Sprint's proposed tracking
stock equity structure. In particular, these documents provide, among other
things, for Class A Common Stock to remain outstanding following the
Recapitalization, but to represent interests in the underlying FON Stock and
PCS Stock, and for the Equity Purchase Rights of FT and DT to apply to FON
Stock and PCS Stock after the Recapitalization has occurred. Another objective
is for FT and DT (and/or certain of their designated subsidiaries) to purchase
shares of Series 3 PCS Stock in connection with the PCS Restructuring and the
IPO. Such purchases are intended to ensure that FT and DT will maintain their
aggregate 20% voting power after the consummation of the PCS Restructuring and
the IPO.
Purchases of Series 3 PCS Stock. The Master Agreement contemplates a minimum
of one purchase and a maximum of three purchases of Series 3 PCS Stock by FT
and DT. Series 3 PCS Stock will have most of the same voting rights as the
Series 1 PCS Stock (except it will be voted along with the Series 3 FON Stock
and Class A Common Stock for the election of the Class A Directors) and
dividend and liquidation rights that are identical to the Series 1 PCS Stock.
The initial purchase of Series 3 PCS Stock (the "Primary Purchase") will occur
simultaneously with the PCS Restructuring. Subsequent purchases may be
necessary if the IPO occurs after the PCS Restructuring (i.e., the "Secondary
Purchase") or the underwriters exercise an over-allotment option in connection
with the IPO (i.e., the "Greenshoe Purchase" and, collectively with the
Primary Purchase and the Secondary Purchase, the "Top Up Purchases").
Pursuant to the Top Up Purchases and subject to the terms and conditions set
forth in the Master Agreement, FT and DT have agreed to purchase a number of
whole shares (rounded up to the nearest whole share) of Series 3 PCS Stock
sufficient for FT and DT to have acquired Beneficial Ownership, in the
aggregate, equal to 25% of the aggregate voting power attributable to the
shares of Series 1 PCS Stock, Series 2 PCS Stock and PCS Preferred Stock
issued in the PCS Restructuring and the IPO (including issuances resulting
from the exercise of
Equity Purchase Rights by any of the Cable Parents). Each of FT and DT has
agreed to purchase one-half of the shares of Series 3 PCS Stock to be so
purchased; such purchases would be consummated concurrently and no purchase by
one of FT or DT will be made unless and until the concurrent purchase by the
other of FT or DT is so effected. With respect to each of the Top Up
Purchases, Sprint will use its reasonable efforts to coordinate the
125
<PAGE>
exercise of Equity Purchase Rights by the Cable Parents and FT and DT to avoid
a series of successive exercises of such rights triggered by a single initial
issuance.
The Top Up Purchases made pursuant to the Master Agreement will be in lieu
of the Equity Purchase Rights which FT and DT otherwise have under the
Original Stockholders' Agreement and the Amended and Restated Stockholders'
Agreement, which will be entered into by Sprint, FT and DT on the date of the
Primary Purchase.
If prior to any Top Up Purchase all outstanding shares of Series 3 FON
Stock, Series 3 PCS Stock and Class A Common Stock have been converted into
publicly-held Common Stock, each share of Series 3 PCS Stock to have been
issued by Sprint pursuant to such Top Up Purchase (and the Master Agreement)
shall instead be issued as one duly issued, fully paid and nonassessable share
of Series 1 PCS Stock.
FT and DT will purchase the shares of Series 3 PCS Stock pursuant to the
Primary Purchase at the applicable price specified below and determined at the
date of the Primary Purchase:
(i) if Sprint elects to complete the IPO concurrently with the PCS
Restructuring, the purchase price per share will be the IPO Price net of
any underwriting discounts in connection with the IPO, which purchase price
will be paid in cash in immediately available funds, or
(ii) if Sprint elects to complete the Recapitalization concurrently with
the PCS Restructuring and prior to the IPO, then the purchase price per
share will be an amount equal to the volume-weighted average Closing Price
for Series 1 PCS Stock for the period of 20 consecutive trading days
following the commencement of regular way trading in connection with the
Recapitalization, which purchase price shall be paid by the issuance to
Sprint by FT and DT of notes of FT or DT (as applicable) ("Top Up Notes")
or a combination of cash and Top Up Notes.
If the IPO occurs after the PCS Restructuring and the Recapitalization, FT and
DT will purchase the shares of Series 3 PCS Stock pursuant to the Secondary
Purchase and Greenshoe Purchase at the IPO Price net of any underwriting
discounts in connection with the IPO. Simultaneously with the Primary
Purchase, Sprint, FT and DT will execute the Amended Investment Documents.
The number of shares of Series 3 PCS Stock to be purchased by FT and DT
under the Master Agreement and the purchase price for such shares will be
adjusted to reflect any stock split, subdivision, stock dividend or other
reclassification, consolidation or a combination of the Sprint Voting
Securities or similar action or transaction after the date of the Master
Agreement, except that no adjustment shall be made in respect of the
Recapitalization.
The Master Agreement--Other Provisions. Each of FT and DT agrees to vote (or
cause to be voted) the shares of capital stock of Sprint it owns (directly or
indirectly) in favor of the PCS Stock Amendment, the Recapitalization
Amendment, the PCS Restructuring Agreement and the transactions contemplated
thereby and the other matters related thereto presented for a vote at the
Stockholders Meeting (including any class vote of the holders of Class A
Common Stock required), and agrees not to exercise any disapproval rights
which it may have with respect to any such matters. In addition, each of
Sprint, FT and DT agrees to use its commercially reasonable efforts to obtain
all consents and authorizations of third parties and governmental authorities
and to make all filings with and give all notices to third parties and
governmental authorities which may be necessary or required in order to effect
the transactions contemplated by the Master Agreement. Each of Sprint, FT and
DT also agrees to use all reasonable efforts to cause the Recapitalization to
constitute a tax-free "reorganization" under the Internal Revenue Code. Sprint
will, at the request of FT and DT, use its commercially reasonable efforts to
obtain, as soon as is practicable, any United States regulatory approvals or
other regulatory relief as FT and DT reasonably deem appropriate in order for
FT and DT to exercise and benefit from their rights under the Master
Agreement, certain of the Amended Investment Documents and the Amended
Articles.
126
<PAGE>
The Master Agreement--Representations and Warranties;
Indemnification. Sprint, FT and DT make certain representations and warranties
to each other party to the Master Agreement concerning, among other things,
due organization, absence of litigation and necessary governmental approvals
and in the case of Sprint, certain changes involving Sprint and certain
actions taken by Sprint's Board. Certain of these representations and
warranties (the "Surviving Representations") survive until the earlier to
occur of (i) 15 months after the date of the applicable Top Up Purchase and
(ii) 90 days after the publication of the results of the first full audit of
the consolidated financial statements of Sprint and Sprint's subsidiaries by
Sprint's independent auditors following the applicable Top Up Purchase. Others
of these representations will survive without limitation as to time. FT and DT
will be entitled to recovery with respect to breaches of the Surviving
Representations and certain other representations only if the aggregate amount
of loss, liability or damage (including reasonable attorneys' fees and other
costs and expenses) (collectively, "Damages") incurred or sustained by FT and
DT arising from or relating to such breaches exceeds $30 million. FT and DT
will be entitled to compensation for Damages only to the extent such Damages
directly relate to the investment in Sprint made by FT and DT pursuant to the
Master Agreement, and except as otherwise provided in the Master Agreement, FT
and DT will have no claim for Damages under the Master Agreement with respect
to any actual or alleged diminution in value of, or other loss, liability or
damage associated with, FT and DT's existing investment in Sprint or any
additional purchases of capital stock of Sprint made by them pursuant to the
Master Agreement (unless the validity of such shares is affected by the
Recapitalization).
The Master Agreement--Conditions to the Closing of the Primary Purchase. The
obligations of Sprint, FT and DT to effect the transactions contemplated by
the Master Agreement to occur at the closing of the Primary Purchase (the
"Primary Closing"), other than the purchase and sale of capital stock of
Sprint to be acquired by FT and DT under the Master Agreement at the Primary
Closing, are subject to the fulfillment or waiver by the relevant party or
parties of the following conditions:
(i) The matters presented for a vote of the stockholders of Sprint at the
Stockholders Meeting will have been duly approved;
(ii) The CP Closing will be consummated simultaneously with the Primary
Closing;
(iii) No injunction or other order, decree or ruling issued by a
governmental authority, nor any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority, shall be in
effect that enjoins certain actions to be effected at the Primary Closing
under the Master Agreement or the transactions contemplated by the PCS
Restructuring Agreement;
(iv) The IPO or the Recapitalization (whichever Sprint has elected to
complete concurrently with the CP Exchange on the date of the Primary
Closing) shall be consummated simultaneously with the Primary Closing; and
(v) The PCS Stock Amendment and (if the Recapitalization is to occur
concurrently with the PCS Restructuring) the Recapitalization Amendment
will have been filed with the Kansas Secretary of State.
The obligations of Sprint to effect the transactions contemplated by the
Master Agreement to occur at the Primary Closing, including the purchase and
sale of capital stock of Sprint to be acquired by FT and DT under the Master
Agreement at the Primary Closing, are subject to the fulfillment or waiver by
Sprint of the following additional conditions:
(i) The representations and warranties of each of FT and DT made pursuant
to the Master Agreement will be accurate in all material respects on the
date of the Primary Closing with the same effect as if made on such date;
(ii) All covenants and agreements of each of FT and DT contained in the
Master Agreement and required to be performed on or prior to the date of
the Primary Closing shall have been performed in all material respects on
or prior to such date;
127
<PAGE>
(iii) There shall not have occurred any change in applicable law or any
change in facts beyond Sprint's reasonable control, in either case
occurring after the date of the Master Agreement, that would prevent
Sprint's legal counsel from reaffirming to Sprint on the date of the
Primary Closing such counsel's opinion on certain tax and related matters;
and
(iv) Each of the Amended Investment Documents will have been executed and
delivered by the parties thereto.
The obligations of FT and DT to effect the transactions contemplated by the
Master Agreement to occur at the Primary Closing, other than the purchase and
sale of capital stock of Sprint to be acquired by FT and DT under the Master
Agreement at the Primary Closing, are subject to the fulfillment or waiver by
them of the following additional conditions:
(i) Certain representations and warranties of Sprint made pursuant to the
Master Agreement will be accurate in all material respects on the date of
the Primary Closing with the same effect as if made on such date;
(ii) All covenants and agreements of Sprint contained in the Master
Agreement and required to be performed on or prior to the date of the
Primary Closing shall have been performed in all material respects on or
prior to such date;
(iii) Each of the Amended Investment Documents will have been executed
and delivered by the parties thereto;
(iv) Sprint will have amended the Existing Articles in accordance with
the Articles Amendment and will have duly adopted the Bylaw Amendment and
such amended terms shall be in full force and effect;
(v) Sprint's Board of Directors will have taken appropriate action so
that the provisions of Kan. Stat. Ann. Section 17-12,101 (the "Business
Combination Statute") restricting "business combinations" with "interested
stockholders" (each as defined in Kan. Stat. Ann. Section 17-12,100) will
not apply to FT, DT or any person who as of the date of the Master
Agreement is an Affiliate of FT or DT with respect to the purchase and sale
of shares of capital stock of Sprint pursuant to and permitted by the
Master Agreement and the Amended Investment Documents;
(vi) The Series 1 FON Stock and Series 1 PCS Stock issuable upon
conversion of the Class A Stock to be issued pursuant to the Master
Agreement will have been approved for listing on the New York Stock
Exchange, or if not so approved, will have been approved for listing on the
American Stock Exchange or approved for quotation on the National
Association of Securities Dealers Inc. Automated Quotations National Market
System subject to official notice of issuance; and
(vii) Each of FT and DT will have received certain opinions dated as of
the date of Primary Closing, from counsel to Sprint reasonably satisfactory
to each of FT and DT, in form reasonably satisfactory to the parties.
The obligations of Sprint, FT and DT to consummate the purchase and sale
of capital stock to be acquired by FT and DT under the Master Agreement at
the Primary Closing are subject to the fulfillment or waiver by the
relevant party or parties of the following conditions;
(i) All consents, if any, required from the FCC in order to permit the
purchase and sale of the shares of capital stock of Sprint to be purchased
by FT and DT at the Primary Closing will have been granted, in each case
without any material limitation, restriction, requirement or condition on
Sprint, FT or DT;
(ii) FT shall have received all approvals, if any, of the French minister
in charge of economic affairs and finance (ministre charge de l'economie et
des finances) and all approvals, if any, of the French minister in charge
of posts and telecommunications (ministre charge des postes et des
telecommunications) required
128
<PAGE>
in order to permit the purchase and sale of the shares of capital stock of
Sprint to be purchased by FT and DT at the Primary Closing;
(iii) DT shall have received all approvals, if any, of the
Bundeskartellamt required in order to permit the purchase and sale of the
shares of capital stock of Sprint to be purchased by FT and DT at the
Primary Closing;
(iv) All other material governmental approvals, if any, required in order
to permit the purchase and sale of the shares of capital stock of Sprint to
be purchased by FT and DT at the Primary Closing shall have been received;
and
(v) No Change of Control shall have occurred.
In addition, the obligations of each of FT and DT to purchase the capital
stock of Sprint to be acquired by FT and DT under the Master Agreement at the
Primary Closing are subject to the satisfaction, on or prior to the date of
the Primary Closing, of the following conditions, compliance with which or the
occurrence of which may be waived by FT and DT:
(A) Certain representations and warranties of Sprint set forth in the
Master Agreement will be accurate in all material respects on the date of
the Primary Closing with the same effect as if made on such date;
(B) There shall not have occurred after the date of the Master Agreement
any change in applicable law that would cause the Recapitalization to be
deemed taxable to FT or DT under French or German tax law; and
(C) Unless FT and DT have otherwise consented in writing, the PCS
Restructuring Agreement shall not have been amended in a manner which
fundamentally changes the transactions contemplated by the PCS
Restructuring Agreement or which is materially adverse to FT and DT.
The Master Agreement--Conditions to the Closing of the Secondary and
Greenshoe Purchases During the Anticipated IPO Period. If the IPO occurs
within 180 days following the CP Exchange, the respective obligations of
Sprint, FT and DT to consummate the transactions contemplated by the Master
Agreement to occur at the closing of the Secondary Purchase (the "Secondary
Closing") and the closing of the Greenshoe Purchase (the "Greenshoe Closing"
and, with the Secondary Closing, an "Applicable Closing") are subject to the
fulfillment at or prior to the date of the Secondary Closing and at or prior
to the date of the Greenshoe Closing, respectively, of the following
conditions, which may be waived by the party being benefitted thereby, to the
extent permitted by applicable law:
(A) No injunction or other order, decree or ruling issued by a
governmental authority, nor any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority, will be in
effect that enjoins the consummation of the transactions to be effected at
the Secondary Closing or the Greenshoe Closing, as the case may be; and
(B) All material governmental approvals, if any, required in order to
permit the purchase and sale of the shares of capital stock of Sprint to be
purchased by FT and DT at the Secondary Closing or the Greenshoe Closing,
as the case may be, shall have been received.
If the IPO occurs within 180 days following the PCS Restructuring, the
obligation of each of FT and DT to consummate the transactions contemplated by
the Master Agreement at the Secondary Closing or Greenshoe Closing is also
subject to the fulfillment of each of the following conditions:
(i) Certain representations and warranties of Sprint set forth in the
Master Agreement will be true and correct in all material respects at and
as of the date of the Master Agreement and at and as of the date of such
Secondary Closing or Greenshoe Closing, as the case may be, as if such
representations and warranties were made at and as of such date.
129
<PAGE>
(ii) Sprint shall have performed and complied in all material respects
with certain obligations under the Master Agreement; Article FIFTH of the
Amended Articles (to the extent such Article relates to the rights of the
holders of Class A Stock concerning, among other things, election of
directors and amendments to Sprint's Bylaws); certain other provisions in
the Amended Articles, concerning, among other things, various rights of
Class A Common Stock, the Series 3 PCS Stock and the Series 3 FON Stock;
and certain Articles and Sections of the Stockholders' Agreement and the
Amended Stockholders' Agreement;
(iii) No Change of Control shall have occurred; and
(iv) There shall not have occurred after the date of the Master Agreement
any change in applicable law that would cause the Recapitalization to be
deemed taxable to FT or DT under French and German tax law.
Sprint's obligation to consummate the transactions contemplated by the
Master Agreement at a Secondary Closing or Greenshoe Closing is subject to the
fulfillment of each of the following conditions:
(i) Certain representations and warranties of FT and DT set forth in the
Master Agreement will be true and correct in all material respects at and
as of the date of the Master Agreement and at and as of the date of such
Secondary Closing or Greenshoe Closing, as the case may be, as if such
representations and warranties were made at and as of such date; and
(ii) Each of FT and DT will have performed and complied in all material
respects with certain of its obligations under, among other agreements, the
Master Agreement, the Stockholders' Agreement and the Amended Stockholders'
Agreement, the Standstill Agreement and the Amended Standstill Agreement.
The Master Agreement--Conditions to the Closing of the Secondary and
Greenshoe Purchases After the Anticipated IPO Period. If the IPO occurs after
180 days following the PCS Restructuring, the respective obligations of each
of Sprint, FT and DT to consummate the transactions contemplated by the Master
Agreement to occur at the Secondary Closing and the Greenshoe Closing are
subject to the fulfillment at or prior to the Secondary Closing Date and
Greenshoe Closing Date, respectively, of the following conditions which may be
waived by the party being benefitted thereby, to the extent permitted by
applicable law:
(i) No injunction or other order, decree or ruling issued by a
governmental authority, nor any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority, shall be in
effect that enjoins the consummation of the transactions to be effected at
the Secondary Closing or the Greenshoe Closing, as the case may be; and
(ii) All other material governmental approvals, if any, required in order
to permit the purchase and sale of the shares of capital stock of Sprint to
be purchased by FT and DT at the Secondary Closing or the Greenshoe
Closing, as the case may be, shall have been received.
If the IPO occurs after 180 days following the PCS Restructuring, in
addition to the conditions described in clauses (i) through (iv) of the second
paragraph under "--The Master Agreement--Conditions to the Closing of the
Secondary and Greenshoe Purchases During the Anticipated IPO Period," the
obligations of FT and DT to consummate the transactions contemplated by the
Master Agreement to occur at the Secondary Closing and the Greenshoe Closing
are subject to additional conditions, which may be waived by FT and DT, to the
extent permitted by applicable law, that the representations and warranties of
Sprint contained in the Master Agreement shall be accurate in all material
respects on the date of the Applicable Closing with the same effect as if made
on the date of the Applicable Closing, with certain limited exceptions.
If the IPO occurs after 180 days following the PCS Restructuring, in
addition to the conditions described in the third paragraph under "--The
Master Agreement--Conditions to the Closing of the Secondary and Greenshoe
Purchases During the Anticipated IPO Period" for the benefit of Sprint, the
obligations of Sprint to consummate the transactions contemplated by the
Master Agreement to occur at the Secondary Closing and the Greenshoe Closing
are subject to the additional condition, which may be waived by Sprint, to the
extent permitted by applicable law, that the representations and warranties of
each of FT and DT contained in the
130
<PAGE>
Master Agreement will be accurate in all material respects on the date of the
Applicable Closing with the same effect as if made on the date of the
Applicable Closing, with certain limited exceptions.
The Master Agreement--Termination. Sprint, FT or DT may terminate the Master
Agreement prior to the Primary Purchase upon the occurrence of certain events.
In such case, none of the Top Up Purchases would occur and the Amended
Investment Documents would not be executed and delivered, but the Related
Investment Documents would continue in full force and effect until terminated
in accordance with their respective terms, without any amendment to the rights
and obligations of the parties thereto. Termination may be effected as
follows:
(i) by mutual written consent of the parties;
(ii) by any party, if certain actions to be taken by the parties at the
time of the Primary Purchase are prohibited by any final, nonappealable
order, decree or injunction of a government authority;
(iii) by any party that is not in material breach of any material
covenant contained in the Master Agreement, if the Primary Purchase has not
occurred on or before December 31, 1998;
(iv) by any party that is not in material breach of any material covenant
contained in the Master Agreement, following the time that certain
conditions to the Primary Purchase become incapable of being satisfied on
or prior to December 31, 1998;
(v) by any party that is not in material breach of any material covenant
contained in the Master Agreement, following a material breach of any
material covenant contained in the Master Agreement by any other party if
such breach remains uncured in any material respect for 30 days following
the giving of notice of the breach of such material covenant from the party
seeking to terminate the Master Agreement to each other party; provided,
that the party seeking to terminate the Master Agreement gives written
notice of such termination to each other party within 30 days following the
end of such 30-day cure period; or
(vi) by FT or DT, if Sprint's Board of Directors shall have withdrawn its
recommendation of the approval of the PCS Stock Amendment, the
Recapitalization Amendment, the PCS Restructuring Agreement and the
transactions contemplated thereby, and the other matters related thereto
presented for a vote at the Stockholders' Meeting or shall have qualified
its recommendation in a manner materially adverse to FT and DT. If Sprint's
Board of Directors continues its recommendation and approval of such
proposals, but reflects in its recommendation additional information, the
inclusion of such additional information, in and of itself, shall not be
deemed to be a qualification that is materially adverse to FT and DT or
otherwise provide FT and DT with a termination right under this clause
(vi).
If the Master Agreement is terminated pursuant to clause (vi) above, in
addition to any other remedies FT and DT may have under the Master Agreement,
at law, in equity or otherwise, Sprint shall promptly reimburse each of FT and
DT for their actual reasonable out-of-pocket expenses (including certain
attorneys' fees) incurred by it relating to the transactions contemplated by
the Master Agreement and the Amended Investment Documents up to a maximum
aggregate amount of $5 million for FT and DT collectively.
If the Master Agreement is terminated in accordance with the provision
described above, then (i) it will become null and void and have no further
effect, without any liability of any party to any other party, except that the
obligations of the parties with respect to the reimbursement of certain
expenses and under any provision of the Master Agreement that expressly
provides for certain actions to occur simultaneously with or following the
termination of the Master Agreement will survive the termination of the Master
Agreement indefinitely; provided, that no such termination will release or
relieve any party from liability for any willful material breach of any
material provision of the Master Agreement occurring prior to such
termination; and (ii) the Related Investment Documents will continue in full
force and effect until terminated in accordance with their respective terms,
without any amendment to the right and obligations of the parties thereto.
131
<PAGE>
The Master Agreement--Abandonment of the Primary Purchase of Capital
Stock. The obligations of the parties to consummate the Primary Purchase may
be abandoned at any time prior to such purchase at the Primary Closing:
(i) by any party, if the Primary Purchase is prohibited by any final,
nonappealable order, decree or injunction of a governmental authority; or
(ii) if a Change of Control shall have occurred.
Notwithstanding any such abandonment of the Primary Purchase, the Master
Agreement will not be terminated and such abandonment will have no effect
whatsoever on (i) the obligations of FT and DT under the Master Agreement to
vote (or cause to be voted) the shares of capital stock of Sprint they own
(directly or indirectly) in favor of the PCS Stock Amendment, the
Recapitalization Amendment, the PCS Restructuring Agreement and the
transactions contemplated thereby and the other matters related thereto
presented for a vote at the Stockholders Meeting (including any class vote of
the holders of Class A Common Stock required), and their agreement not to
exercise any disapproval rights which they may have with respect to any such
matters, or (ii) any other actions to be taken by the parties at the time of
the Primary Purchase, including the parties' obligations to proceed with all
of the transactions and deliveries contemplated to be undertaken at such time
(other than the Primary Purchase itself), and such transactions and deliveries
shall proceed if all of the other conditions to the Primary Closing have been
satisfied or waived.
The Master Agreement--Abandonment of the Secondary Purchase and/or Greenshoe
Purchase. The obligations of the parties to consummate the Secondary Purchase
and/or the Greenshoe Purchase may be abandoned at any time after the Primary
Purchase and prior to such Secondary Purchase or Greenshoe Purchase, as the
case may be:
(i) by mutual written consent of the parties;
(ii) by any party, if the Secondary Purchase or Greenshoe Purchase, as
the case may be, shall be prohibited by any final, nonappealable order,
decree or injunction of a governmental authority;
(iii) by any party that is not in material breach of any material
covenant contained in the Master Agreement, if the Secondary Purchase has
not occurred on or before June 30, 1999;
(iv) by any party that is not in material breach of any material covenant
contained in the Master Agreement, following the time that any condition to
closing set forth in the Master Agreement and applicable to the Secondary
Purchase and/or Greenshoe Purchase has become incapable of being satisfied
on or prior to June 30, 1999;
(v) by any party that is not in material breach of any material covenant
contained in the Master Agreement, following a material breach of any
material covenant contained in the Master Agreement by any other party if
such breach remains uncured in any material respect for 30 days following
the giving of notice of the breach of such material covenant from the party
seeking to terminate the Master Agreement to each other Party; provided,
that the party seeking to abandon the Secondary Purchase or the Greenshoe
Purchase gives written notice of such termination to each other party
within 30 days following the end of such 30-day cure period; or
(vi) if a Change of Control shall have occurred.
Notwithstanding any such abandonment of the Secondary Purchase or the
Greenshoe Purchase, the Master Agreement shall not be terminated and such
abandonment shall have no effect whatsoever on the actions taken or to be
taken by the parties simultaneously with the Primary Purchase, including the
execution and delivery by the parties of the Amended Investment Documents.
AMENDED REGISTRATION RIGHTS AGREEMENT
Registration Rights--Number of Registrations. The holders of Existing Class
A Common Stock have previously been granted certain rights by Sprint pursuant
to the Original Registration Rights Agreement to register the sale of the
shares of Sprint voting securities held by them pursuant to the Securities
Act. The Original Registration Rights Agreement provides that the holders of a
majority of the Existing Class A Common Stock will be entitled to demand one
registration in any 12-month period, up to a maximum of seven registrations.
132
<PAGE>
Sprint will be responsible for the registration expenses in connection with
the first five of such registrations; the holders of the Existing Class A
Common Stock requesting registration would be responsible for the registration
expenses in connection with the remaining two registrations under the Original
Registration Rights Agreement. Sprint is not required to effect any
registration unless the market value of the Existing Class A Common Stock
requested to be registered exceeds $200 million. The holders of the Existing
Class A Common Stock also have the right to participate in all registrations
of Sprint Common Stock by Sprint on behalf of itself or any other party, other
than registrations on Forms S-4 or S-8, registrations in connection with an
exchange offer or offerings solely to Sprint's existing stockholders or
pursuant to dividend reinvestment plans or dividend reinvestment and stock
purchase plans.
Under the Amended Registration Rights Agreement, the total number of
registrations that the holders of a majority of Class A Common Stock are
entitled to demand would be increased to ten, though the limitation to one
such registration within any 12-month period remains. Sprint will be
responsible for the registration expenses in connection with the first seven
of such registrations; the holders of a majority of Class A Common Stock
requesting registration will be responsible for the registration expenses in
connection with the remaining three registrations. Sprint would continue not
to be required to effect any registration unless the market value of the Class
A Common Stock requested to be registered exceeds $200 million, except if the
registration relates to the sale of Series 3 PCS Stock ("Post-Restructuring
Series 3 PCS Shares")
(i) acquired by the holders of Class A Common Stock pursuant to the
Master Agreement in respect of the exercise by any of the Cable Parents of
certain Equity Purchase Rights,
(ii) acquired by the Class A Holders in respect of the exercise by FT and
DT of their equity purchase rights pursuant to, and on or after the date
of, the Amended Stockholders' Agreement,
(iii) issued to FT or DT upon conversion of Series 1 PCS Stock acquired
by FT and DT from third parties and not in violation of the Amended
Standstill Agreement, and
(iv) into which shares described in clauses (i) through (iii) are
converted pursuant to any recapitalization,
but not any such shares acquired by the holders of Class A Common Stock in the
Recapitalization or pursuant to the Master Agreement as a result of the IPO or
PCS Restructuring (other than the exercise by the Cable Parents of their
equity purchase rights in connection with the IPO). In the event a request is
made to register Post-Restructuring Series 3 PCS Shares, (x) the aggregate
market value of such Post-Restructuring Series 3 PCS Shares must exceed $100
million on the date of delivery of the request for registration and (y) the
registration must involve the lesser of (A) Post-Restructuring Series 3 PCS
Shares with an aggregate market value of at least $200 million on the date of
delivery of the request for registration and (B) all of the Post-Restructuring
Series 3 PCS Shares owned by the holders of Existing Class A Common Stock.
Registration Rights--Demand Registration Priorities. The Original
Registration Rights Agreement provides that if the managing or lead
underwriter determines that the number of securities requested to be
registered in a demand registration exceeds the number which can be sold in
such offering within a price range acceptable to the holders of Existing Class
A Common Stock requesting registration, Sprint will either (i) include all of
the Existing Class A Common Stock requested to be registered before it
includes any of the securities that Sprint desires to include in the
registration or (ii) include the Existing Class A Common Stock and the
securities Sprint desires to be registered on a pro rata basis. In either
case, securities requested to be registered by third parties will be included
after the Existing Class A Common Stock. If Sprint elects to include
securities it desires to be registered on a pro rata basis with the securities
requested to be registered by the holders of Existing Class A Common Stock and
the managing or lead underwriter continues to determine that the number of
securities to be included in the registration exceeds the number which can be
sold within a price range acceptable to the holders of Existing Class A Common
Stock participating in the registration, such registration shall not be
counted toward the seven demand registrations.
133
<PAGE>
The Amended Registration Rights Agreement has changed these priorities in
registrations demanded by FT and DT as follows:
(i) if the registration is effected during the CP Preference Period and
involves the sale of PCS Stock, unless Sprint exercises its option
described in clause (iii) below, then (w) the securities proposed to be
included by the holders of Class A Common Stock requesting registration
(the "Selling Stockholders") have first priority to be included in such
registration, (x) so long as the Cable Parents' Registration Rights
Agreement is in effect, any securities requested to be included in such
registration by the Cable Parents have second priority , (y) the securities
to be included in such registration by Sprint, unless otherwise provided in
an agreement between Sprint and another person or persons, have third
priority, and (z) the securities of any other person or persons proposed to
be included in such registration, have last priority, or
(ii) if the registration is not effected during the CP Preference Period
or does not involve the sale of PCS Stock, unless Sprint exercises its
option described in clause (iii) below, (x) the securities proposed to be
included by the Selling Stockholders have first priority, (y) the
securities requested to be included in such registration by Sprint and, so
long as the Cable Parents' Registration Rights Agreement is in effect and
the offering involves the issuance of PCS Stock, the Cable Parents, unless
otherwise provided in an agreement between Sprint and another person or
persons, share second priority and (z) the securities of any other person
or persons proposed to be included in such registration, have third
priority (provided, however, in the case of this clause (ii), if the
registration is during the CP Secondary Preference Period and the Cable
Parents' Registration Rights Agreement is in effect, unless the Cable
Parents otherwise consent, any shares of PCS Stock proposed to be included
in such registration by Sprint, the proceeds with respect to which will not
be allocated to the PCS Group, shall be third in priority, and the
securities of such other persons shall be fourth in priority), or
(iii) at Sprint's option, (x) the securities proposed to be included by
the Selling Stockholders and the securities requested to be included in
such registration by Sprint and, so long as the Cable Parents' Registration
Rights Agreement is in effect and the offering involves the sale of PCS
Stock, the Cable Parents, each pro rata in accordance with the number of
securities proposed to be included by the Selling Stockholders and the
number of securities so proposed to be included by Sprint and, if
applicable, the Cable Parents, respectively, have first priority and (y)
second, the securities of any other person or persons proposed to be
included in such registration, have second priority. If Sprint selects the
option set forth in this clause (iii), such registration shall not count
toward the maximum of ten registrations provided to the holders of Class A
Common Stock under the Amended Registration Rights Agreement if, due to
Sprint's (and, if applicable, the Cable Parents') participation, the
managing or lead underwriter or underwriters determines in its good faith
judgment that the number of securities requested to be included in such
registration by the Selling Stockholders, Sprint and, if applicable, the
Cable Parents exceeds the number which can be sold in such offering within
a price range acceptable to the Selling Stockholders.
Registration Rights--Incidental ("Piggyback") Registration Priorities. The
Original Registration Rights Agreement provides that if the Selling
Stockholders request inclusion in a registration on behalf of Sprint and the
managing or lead underwriter determines that the number of securities
requested to be included in the registration exceeds the number that can be
sold within a price range acceptable to Sprint, Sprint has the right to
include all securities proposed to be registered by it before including any
securities requested to be included by the Selling Stockholders. If the
registration is a registration on behalf of third parties, Sprint may include,
after the securities of such third parties, the securities it proposes to
include on a pro rata basis with the Selling Stockholders unless it has an
equal or better priority with the third party, in which case it may include
securities it proposes to include prior to the securities requested to be
included by the Selling Stockholders.
The Amended Registration Rights Agreement has changed these priorities in
incidental registrations by FT and DT as follows:
(i) if the registration is a primary registration on behalf of Sprint
which is effected during the CP Preference Period and involves the sale of
PCS Stock, (w) the securities proposed to be included by the
134
<PAGE>
Cable Parents pursuant to the Cable Parents' Registration Rights Agreement
(if then in effect) have first priority to be included in such
registration, (x) the securities proposed to be included by Sprint have
second priority, (y) the securities requested to be included in such
registration by the Selling Stockholders have third priority and (z) the
securities of other persons requested to be included in such registration
have fourth priority;
(ii) if the registration is a primary registration on behalf of Sprint
which is effected after the CP Preference Period or does not involve the
sale of PCS Stock, (x) the securities proposed to be included by Sprint
have first priority, (y) the securities proposed to be included in such
registration by the Selling Stockholders and, if the registration involves
the sale of PCS Stock, the securities requested to be included by the Cable
Parents pursuant to the Cable Parents' Registration Rights Agreement (if
then in effect), each pro rata in accordance with the number of securities
so proposed to be included, share second priority, and (z) the securities
of other persons requested to be included in such registration have third
priority (provided, however, that if the registration is during the CP
Secondary Preference Period and the Cable Parents' Registration Rights
Agreement is in effect, unless the Cable Parents otherwise consent, any
shares of PCS Stock proposed to be included in such registration by Sprint,
the proceeds with respect to which will not be allocated to the PCS Group,
shall be third in priority, and the securities of such other persons shall
be fourth in priority); and
(iii) if the registration is a secondary registration on behalf of a
person or persons other than Sprint or a Selling Stockholder which is
effected during the CP Preference Period and involves the sale of PCS
Stock, (w) the securities proposed to be included by such other person or
persons have first priority, (x) the securities proposed to be included by
the Cable Parents pursuant to the Cable Parents' Registration Rights
Agreement (other than the Cable Parent or Cable Parents, if any, which
initiated such secondary registration) have second priority, (y) the
securities of Sprint and the securities requested to be included in such
registration by the Selling Stockholders, each pro rata in accordance with
the number of securities proposed to be registered by Sprint and the number
of securities so requested by the Selling Stockholders to be included,
respectively, share third priority and (z) the securities of any other
persons requested to be included in such registration would have fourth
priority; and
(iv) if the registration is a secondary registration on behalf of a
person or persons other than Sprint or a Selling Stockholder which is
effected after the CP Preference Period or does not involve the sale of PCS
Stock, (w) the securities proposed to be included by such other person or
persons have first priority, (x) if such party exercising demand
registration rights is a Cable Partner, then any other Cable Parents
exercising incidental registration rights pursuant to the Cable Parents'
Registration Rights Agreement have second priority, (y) the securities of
Sprint, the securities requested to be included in such registration by the
Selling Stockholders and, if the registration involves the sale of PCS
Stock but the party exercising demand registration rights is not a Cable
Parent, the securities requested to be included by the Cable Parents
pursuant to the Cable Parents' Registration Rights Agreement, share third
priority, each pro rata in accordance with the number of securities
proposed to be registered by Sprint and the number of securities so
requested to be included by the Selling Stockholders and the Cable Parents,
and (z) the securities of any other persons requested to be included in
such registration have fourth priority; (provided, however, that if the
registration is during the CP Secondary Preference Period and the Cable
Parents' Registration Rights Agreement is in effect, unless the Cable
Parents otherwise consent, any shares of PCS Stock proposed to be included
in such registration by Sprint, the proceeds with respect to which will not
be allocated to the PCS Group, shall be fourth in priority, and the
securities of such other persons shall be fifth in priority).
Notwithstanding these priorities, if at any time Sprint proposes to effect a
registration described above and the Selling Stockholders are entitled to
effect a disposition of their securities pursuant to Rule 144(k) (or any
successor provision) under the Securities Act, the priorities described above
will be changed so that the securities proposed to be included by the Selling
Stockholders have the lowest priority of all securities proposed to be
registered in such registration.
135
<PAGE>
Registration Rights--Other Provisions. The Original Registration Rights
Agreement contains other provisions addressing Sprint's ability to effect
other public offerings near the effectiveness of demand or incidental
registrations, the filing of all reports required to be filed by Sprint under
the Securities Act and the Exchange Act, and indemnification. The Amended
Registration Rights Agreement has not changed these provisions in any material
way.
THE AMENDED AND RESTATED STANDSTILL AGREEMENT
Pursuant to the Original Standstill Agreement, FT and DT have agreed that
they will not make certain acquisitions of Existing Common Stock, Existing
Class A Common Stock or any other voting securities of Sprint. FT and DT also
agreed to refrain from taking certain actions unless specifically requested in
advance in writing by the Chairman of the Sprint Board or by a resolution of a
majority of the Sprint Board.
Due mainly to the need to adapt the acquisition restrictions of the Original
Standstill Agreement to Sprint's new equity structure, the Master Agreement
provides that FT and DT will enter into the Amended Standstill Agreement,
which would provide additional acquisition restrictions.
Subject to certain exceptions described below, each of FT and DT, prior to
July 31, 2010 (the "Initial Standstill Period"), will not, and will cause each
of its respective affiliates and associates not to, directly or indirectly,
acquire, offer to acquire, or agree to acquire, by purchase or otherwise,
beneficial ownership of any Sprint voting securities such that the Sprint
voting securities beneficially owned in the aggregate by FT and DT and their
respective affiliates and associates (including all Sprint voting securities
the beneficial ownership of which FT and DT have the right to acquire under
the Master Agreement) would represent in the aggregate more than 20% of the
outstanding Sprint voting securities. This limitation is consistent with the
limitation in the Original Standstill Agreement.
In addition, during the Initial Standstill Period, each of FT and DT will
not, and will cause each of its respective affiliates and associates not to,
directly or indirectly, acquire, offer to acquire, or agree to acquire, by
purchase or otherwise, beneficial ownership of any FON Stock or PCS Stock such
that the FON Stock or the PCS Stock, as the case may be, beneficially owned in
the aggregate by FT and DT and their respective affiliates and associates
(including the FON Stock and the PCS Stock underlying the Class A Common Stock
beneficially owned by FT and DT and including all PCS Stock the beneficial
ownership of which FT and DT have the right to acquire under the Master
Agreement) would represent in the aggregate more than 33% of the outstanding
FON Stock or PCS Stock. The limitations on the acquisition of Sprint Voting
Securities are referred to herein as the "Percentage Limitations").
Following the Initial Standstill Period, the 20% Percentage Limitation on
the ownership of outstanding Sprint voting securities increases to 30%, as
long as the ownership does not exceed 80% of the Foreign Ownership Limitation.
For purposes of the Original Standstill Agreement and the Amended Standstill
Agreement, the "Foreign Ownership Limitation" means the maximum aggregate
percentage of the Sprint Voting Securities that may be owned of record or
voted by Aliens under Section 310(b)(4) of the Communications Act, without
such ownership or voting resulting in the possible loss, or possible failure
to secure the renewal or reinstatement, of any license or franchise of any
governmental authority held by Sprint or any of its affiliates to conduct any
portion of the business of Sprint or such affiliate, as such maximum aggregate
percentage may be increased from time to time by amendments to Section 310 or
by actions of the FCC.
Under both the Original Standstill Agreement and the Amended Standstill
Agreement, FT and DT and their respective affiliates generally will be
permitted, subject to the Sprint Rights Plan, to increase their beneficial
ownership beyond the applicable Percentage Limitations to the extent required
to match the percentage
136
<PAGE>
ownership of Sprint voting securities owned by any other shareholder, provided
that the beneficial ownership of FT and DT and their respective affiliates
does not exceed 33% of either the outstanding FON Stock or the outstanding PCS
Stock or 80% of the Foreign Ownership Limitation.
In addition, neither FT nor DT will be deemed in violation of the beneficial
ownership restrictions if the beneficial ownership of Sprint Voting Securities
by FT and DT exceeds the applicable Percentage Limitations
(i) due to an acquisition of Sprint Voting Securities by Sprint, unless
FT and DT have previously been notified of such acquisition;
(ii) due to purchases by FT and DT of Sprint Voting Securities in
reliance on information regarding the number of outstanding Sprint Voting
Securities of Sprint provided by Sprint to FT and DT, unless FT and DT have
previously been notified that such information is incorrect;
(iii) if FT, DT and their affiliates and associates are in compliance
with certain provisions of the Standstill Agreement and the beneficial
ownership of Sprint voting securities by FT, DT and their respective
affiliates and associates does not exceed the 20% Percentage Limitation
during the Initial Standstill Period (or, after the Initial Standstill
Period, the 30% Percentage Limitation) by more than 0.5% and the
acquisitions which resulted in FT, DT and their respective affiliates and
associates exceeding such Percentage Limitation were undertaken in good
faith and such applicable Percentage Limitation was exceeded inadvertently;
(iv) as a result of any readjustment in the relative voting power of the
FON Stock and the PCS Stock in accordance with the terms of the Amended
Articles; or
(v) as a result of a redemption or conversion of any PCS Stock pursuant
to ARTICLE SIXTH, Section 7 of Sprint's Articles of Incorporation.
TRANSFER RESTRICTIONS
Limitations on Transfer. Pursuant to the Original Stockholders' Agreement,
the holders of Existing Class A Common Stock have agreed not to transfer any
equity interests in Sprint until January 31, 2001, subject to certain
exceptions. They have also agreed to certain other transfer restrictions
thereafter. The Amended Stockholders' Agreement provides, however, that the
Post-Restructuring Series 3 PCS Shares are not subject to any restrictions on
transfer prior to January 31, 2001 except as follows:
. Until such time as the sum of (i) the Committed Percentage of the holders
of Class A Common Stock and (ii) the percentage of the Sprint voting power
represented by Sprint Voting Securities which the holders of Class A
Common Stock have the right to commit to purchase pursuant to the Amended
Stockholders' Agreement is less than 3.5% of the outstanding Sprint voting
power for more than 150 days, no holders of Class A Common Stock may make
any transfer to a holder of more than 5% of the Sprint voting power (after
giving effect to such transfer), other than in an underwritten public
offering. In connection with any such public offering, a holder of Class A
Common Stock may not to the best of its knowledge (i) sell more than 2% of
the outstanding Sprint voting power to any person or group that, prior to
such sale, owned 3% or more of such Sprint voting power, (ii) sell more
than 5% of the outstanding Sprint voting power to any person or group or
(iii) sell to a person or group required under Section 13(d) of the
Exchange Act to file a Schedule 13D with respect to Sprint (a "Schedule
13D Filer") or to a person or group who, as a result of such sale, would
become a Schedule 13D Filer.
. So long as the sum of (i) the Committed Percentage of the holders of
Class A Common Stock and (ii) the percentage of the Sprint voting power
which the holders of Class A Common Stock have the right to commit to
purchase pursuant to the Amended Stockholders' Agreement is greater than
5%, but less than 9% (immediately following a transfer of shares of Class
A Common Stock by the holders of Class A Common Stock) or 10% (for more
than 150 days immediately following the issuance of additional Sprint
Voting Securities other than pursuant to a transaction resulting in the
issuance of 30% or more of Sprint voting power, no holder of Class A
Common Stock may transfer shares of Class A Common Stock
137
<PAGE>
representing more than 1% of the Sprint voting power to any one person or
group of persons in any transaction or series of transactions, except in
connection with any such public offering, or transfer shares other than in
any such public offering to any Major Competitor of Sprint.
EQUITY PURCHASE RIGHTS
Overview of Current Equity Purchase Rights. Pursuant to the Original
Stockholders' Agreement, the holders of Existing Class A Common Stock have the
right, based upon their Committed Percentage, to acquire shares of Existing
Class A Common Stock upon the issuance by Sprint of any new voting stock
(including upon the exercise of options or warrants or the conversion of
Sprint's securities into Existing Common Stock generally at, if Existing
Common Stock is issued, the weighted average price paid for such shares of
Existing Common Stock or, if Sprint voting stock other than Existing Common
Stock is issued, at the market price of a share of Existing Common Stock at
the date of such issuance.
The Equity Purchase Rights described in the preceding paragraph must be
exercised by the holders of Existing Class A Common Stock by written notice to
Sprint within 30 days of the date of the post-issuance notice of the issuance
of shares by Sprint which gives rise to such Equity Purchase Rights. Payment
by the holders of Existing Class A Common Stock for shares to be purchased in
respect of such rights will be made as follows:
(i) If the aggregate purchase price with respect to the shares of
Existing Class A Common Stock to be acquired by the holders of Existing
Class A Common Stock is less than $200 million, then payment will be made
in cash within 30 days of the date of exercise of such right.
(ii) If the aggregate purchase price with respect to such shares of
Existing Class A Common Stock to be acquired by the holders of Existing
Class A Common Stock is between $200 million and $500 million, $200 million
of such purchase price will be paid in cash within 30 days of the exercise
of such right. The remainder of such purchase price will be paid in two
equal annual installments beginning on the date which is one year from the
date of such purchase. The obligation to pay such installments will be
evidenced by marketable notes issued by the holder of Existing Class A
Common Stock. Such notes will be designed, taking into account the likely
manner and timing of resale, to sell at par value ("Class A Holder Eligible
Notes").
(iii) If the aggregate purchase price with respect to such shares of
Existing Class A Common Stock to be acquired by the holders of Existing
Class A Common Stock exceeds $500 million, then the first $200 million of
such purchase price will be paid in cash within 30 days of the exercise of
such right. The remainder of such purchase price will be paid in three
equal annual installments beginning on the date which is one year from the
date of the exercise of such right. The obligation to pay such installments
will be evidenced by Class A Holder Eligible Notes.
Each of FT and DT may suffer adverse tax consequences if at any time its
ownership of Sprint voting power falls below 10%. Accordingly, both the
Original Stockholders' Agreement and the Amended Stockholders' Agreement
contain a mechanism whereby the Equity Purchase Rights of the holders of Class
A Common Stock will be automatically exercised and Sprint will immediately
issue to FT and DT the shares of, in the case of the Amended Stockholders'
Agreement, Class A Common Stock which they are entitled to purchase pursuant
to such rights at the same price which would have applied had FT or DT
exercised its Equity Purchase Rights according to the notice provisions
described above.
Special Equity Purchase Rights also exist in both the Original Stockholders'
Agreement and the Amended Stockholders' Agreement if the Committed Percentage
of the holders of Class A Common Stock is diluted to less than 10% as a result
of a transaction resulting in the issuance of 30% or more of Sprint voting
power or, until January 31, 2006, if a Major Competitor of FT/DT obtains
securities representing 20% or more of the Sprint voting power as a result of
a Strategic Merger. A "Major Competitor of FT/DT" is defined generally as a
company which materially competes with a major portion of the
telecommunications services business of FT or
138
<PAGE>
DT in Europe or the business of the Global One international strategic
alliance, or a company which has taken substantial steps to become such a
Major Competitor and which FT or DT has reasonably concluded, in its good
faith judgment, will be a Major Competitor in the near future in France or
Germany.
Amendments to FT/DT Equity Purchase Rights. The Amended Stockholders'
Agreement continues to permit the holders of Class A Common Stock to purchase
from Sprint shares of Class A Stock upon the issuance by Sprint of new voting
stock; however, for the most part, they must purchase Series 3 FON Stock when
Sprint issues Series 1 FON Stock and Series 3 PCS Stock when Sprint issues
Series 1 PCS Stock or Series 2 PCS Stock. The holders of Class A Common Stock
will have up to 2 years to exercise their Equity Purchase Rights to purchase
Series 3 PCS Stock from Sprint. If they do not exercise such rights during the
45-day period at the date of issuance of the shares of PCS Stock giving rise
to the Equity Purchase Right, they must pay the higher of the market price of
a share of Series 1 PCS Stock on the date of such issuance giving rise to the
Equity Purchase Right and the market price of a share of Series 1 PCS Stock on
the date of exercise of the Equity Purchase Right.
The Amended Stockholders Agreement also allows the holders of Class A Common
Stock to purchase from Sprint shares of Series 3 FON Stock or Series 3 PCS
Stock, as applicable, when Sprint issues higher voting stock on the transfer
of lower voting stock and when the Warrants are exercised in exchange for the
issuance of PCS Stock. In such event, even though Sprint has issued PCS Stock,
the holders of Class A Common Stock may purchase Series 3 FON Stock at the
market price of a share of Series 1 FON Stock, provided that the maximum
aggregate amount of Series 3 FON Stock which may be purchased under such
circumstances (either in a single purchase or in the aggregate through
purchases over time) cannot exceed $300 million.
The payment provisions described above under "--Overview of Current Equity
Purchase Rights" continue to apply to the Equity Purchase Rights under the
Amended Stockholders' Agreement.
Record Date Blackout Purchases. The Amended Stockholders Agreement also
provides that, if the holders of Class A Common Stock are prohibited from
purchasing shares of FON Stock and PCS Stock from third parties in the open
market due to anti-fraud rules during a period of 10 trading days beginning on
the ninth trading day before a record date for a meeting of Sprint's
stockholders or a record date for the payment of dividends with respect to
Class A Stock, and certain conditions are met, the holders of Class A Common
Stock have limited rights to purchase Series 3 FON Stock and/or Series 3 PCS
Stock in order to increase their beneficial ownership to 20% of the voting
power of Sprint.
Automatic Exercise of Equity Purchase Rights With Respect to
Conversions. The Amended Stockholders' Agreement provides that for so long as
the holders of Class A Common Stock are entitled to exercise their Equity
Purchase Rights under such agreement, each holder of Class A Common Stock
agrees to exercise its rights to purchase from Sprint, and will so purchase
and Sprint will sell, shares of Series 3 PCS Stock pursuant to such agreement
upon, and simultaneously with, any issuance of higher voting Series 1 PCS
Stock upon conversion of lower voting Series 2 PCS Stock when such issuance
occurs during a period beginning on the fifth day prior to a record date
relating to a vote of Sprint's stockholders or the payment of dividends to
Sprint's stockholders and ending on the day following such record date. This
provision will become immediately inoperative and of no force and effect with
respect to any holder of Class A Common Stock upon delivery by such holder of
Class A Common Stock to Sprint of a notice to that effect.
Exclusionary Tender Offers. The Original Stockholders' Agreement provides FT
and DT with certain protections if the Sprint Board determines not to oppose a
tender offer by a person other than FT, DT or their respective affiliates for
not less than 35% of Sprint voting power which does not permit the holder of
Existing Class A Common Stock to sell an equal or greater percentage of their
shares as the other holders of Sprint voting securities are permitted to sell
(an "Exclusionary Tender Offer"). The Amended Stockholders' Agreement
continues to provide for these rights and expands the definition of an
Exclusionary Tender Offer to include each of the following situations:
139
<PAGE>
(i) if the tender offer involves only Series 1 FON Stock, and the tender
offer does not permit the holder of Class A Common Stock to sell an equal
or greater percentage of their Series 3 FON Stock and Shares Issuable With
Respect To The Class A Equity Interest In The FON Group (the "Class A FON
Shares") as the holders of Series 1 FON Stock are permitted to sell taking
into account any proration,
(ii) if the tender offer involves only Series 1 PCS Stock, and the tender
offer does not permit the holders of Class A Common Stock to sell an equal
or greater percentage of their Series 3 PCS Stock and Shares Issuable With
Respect To The Class A Equity Interest In The PCS Group (the "Class A PCS
Shares") as the holders of Series 1 PCS Stock are permitted to sell taking
into account any proration, and
(iii) if the tender offer involves both Series 1 FON Stock and Series 1
PCS Stock, and the tender offer does not permit the holders of Class A
Common Stock to sell an equal or greater percentage of their Class A FON
Shares and Class A PCS Shares as the holders of Series 1 FON Stock and
Series 1 PCS Stock, respectively, are permitted to sell taking into account
any proration.
Upon the purchase by such person of securities representing not less than 35
percent of Sprint's voting power in such tender offer, FT, DT and their
Qualified Subsidiaries, as a group, have the option to sell to Sprint all but
not less than all of the shares that they were unable to tender on the same
basis as the other stockholders, at a price per share (x) in the case of Class
A FON Shares, equal to the price per share of Series 1 FON Stock offered
pursuant to the tender offer, (y) in the case of Class A PCS Shares, equal to
the price per share of Series 1 PCS Stock offered pursuant to the tender
offer, and (z) in the case of Class A FON Shares and Class A PCS Shares, equal
to the price per share of Series 1 FON Stock and Series 1 PCS Stock offered
pursuant to the tender offer. The holders of Class A Common Stock have no such
rights if, at the date of termination of the period during which tenders may
be made into such tender offer, the holders of Class A Common Stock have a
right to receive in exchange for all the shares of each class and/or series of
Class A Common Stock corresponding to the classes and/or series of stock
subject to the tender offer, publicly traded securities with an aggregate fair
market value, and/or cash in an amount, not less than the aggregate price per
share of the Series 1 FON Stock and/or Series 1 PCS Stock, as the case may be,
paid pursuant to the tender offer in a back-end transaction required to be
effected within 90 days after the close of the tender offer.
Ownership Ratios. Pursuant to the Amended Stockholders' Agreement, FT and DT
have agreed that (i) the ratio of the aggregate Percentage Ownership Interest
of the overall voting power of Sprint of one of FT or DT (and its Qualified
Subsidiaries) to the aggregate Percentage Ownership Interest of the overall
voting power of Sprint of the other of FT or DT (and its Qualified
Subsidiaries) will not be greater than 3 to 2, (ii) the ratio of the aggregate
Percentage Ownership Interest of the voting power represented by the Class A
FON Shares of one of FT or DT (and its Qualified Subsidiaries) to the
aggregate Percentage Ownership Interest of the voting power represented by the
Class A FON Shares of the other of FT or DT (and its Qualified Subsidiaries)
shall not be greater than 4 to 1 and (iii) the ratio of the aggregate
Percentage Ownership Interest of the voting power represented by the Class A
PCS Shares of one of FT or DT (and its Qualified Subsidiaries) to the
aggregate Percentage Ownership Interest of the voting power represented by the
Class A PCS Shares of the other of FT or DT (and its Qualified Subsidiaries)
shall not be greater than 4 to 1. Under the Original Stockholders' Agreement
and the Existing Articles, FT and DT have agreed that if the ratio in clause
(i) above is exceeded for more than 60 days after notice from Sprint to FT and
DT, then each share of Existing Class A Common Stock outstanding would
automatically convert into one share of Sprint Common Stock, and the rights of
the holders of Class A Common Stock to elect directors and exercise
disapproval rights and the right of FT and DT to participate in a proposed
Change of Control would terminate. The Amended Stockholders' Agreement
provides that such consequences will also result if the ownership ratio of the
aggregate Percentage Ownership Interest of the voting power represented by the
Class A FON Shares held by either FT or DT (and their Qualified Subsidiaries)
to the number held by the other of FT or DT (and their Qualified Subsidiaries)
exceeds 80/20 or if the ownership ratio of the aggregate Percentage Ownership
Interest of the voting power represented by the Class A PCS Shares held by
either FT or DT (and their Qualified Subsidiaries) to the number held by the
other of FT or DT (and their Qualified Subsidiaries) exceeds 80/20.
140
<PAGE>
INCENTIVE PLANS PROPOSAL
In anticipation of the Recapitalization, the Sprint Board adopted amendments
to Sprint's Long-Term Stock Incentive Program (the "Omnibus Plan"), approved
by the stockholders in 1997, and the Management Incentive Stock Option Plan
(the "MISOP"), approved by the stockholders in 1995, and is asking Sprint's
stockholders to approve the amendments.
Implementation of the Incentive Plans Proposal is conditional upon the
receipt of stockholder approval of the Incentive Plans Proposal and the
Tracking Stock Proposal; however, the Tracking Stock Proposal may still be
implemented if it is approved by stockholders and the Incentive Plans Proposal
is not approved. If the Incentive Plans Proposal is not approved by
stockholders and the Tracking Stock Proposal is implemented, Sprint will take
such actions with respect to the incentive plans as it considers necessary and
appropriate, including, among other things, modifying the incentive plans to
the extent it is authorized to do so, adopting new incentive plans or
proposing for subsequent stockholder consideration other incentive plan
proposals.
SUMMARY OF AMENDMENTS TO OMNIBUS PLAN
If the Incentive Plans Proposal is approved, the amendments to the Omnibus
Plan, will:
(1) Authorize, in addition to the number of shares authorized under the
annual percentage provisions of the Omnibus Plan, the issuance of stock
based awards (the "awards") covering 10,000,000 shares of PCS Stock. The
Sprint Board is seeking authority to issue these awards in order to replace
the current Long-Term Incentive Compensation Plan covering employees of
Sprint Spectrum. If approved, awards will be issued in a combination of
shares of PCS Stock and options to purchase PCS Stock to replace units
under Sprint Spectrum's current Long-Term Incentive Compensation Plan for
the years 1996, 1997 and 1998. The Sprint Board expects that most of these
awards will be in the form of options to purchase PCS Stock.
(2) Eliminate the current provisions of the Omnibus Plan that provide for
annual grants to Sprint's non-employee directors (the "Outside Directors")
of options to purchase 2,000 shares of Existing Common Stock, and instead
allow Outside Directors to participate in normal, discretionary awards
under the Omnibus Plan. In order to allow the Sprint Board to have the
Directors maintain an appropriate balance between awards based on FON Stock
and awards based on PCS Stock, Sprint believes that the discretionary award
approach is necessary; a fixed formula provision would not allow the Sprint
Board to take into account the changing relative values of the two classes
of stock, the number of outstanding shares of each class of stock, the
relative market volatility of the two classes of stock, and other factors
that the Sprint Board may consider relevant to maintaining an appropriate
compensation mix between the two classes of stock for Outside Directors.
(3) Eliminate provisions prohibiting the Directors from amending Section
11 of the Omnibus Plan, which provides that Outside Directors may elect to
receive all or a portion of their fees in Existing Common Stock. The Sprint
Board believes the ability to amend the share purchase provisions of the
Omnibus Plan will provide the Sprint Board with needed flexibility to
manage outside Director acquisitions of shares of the FON Stock and the PCS
Stock in an appropriately balanced manner.
(4) Authorize the issuance to any one individual in any year options to
acquire up to 3,000,000 shares of FON Stock and options to acquire up to
1,500,000 shares of PCS Stock. The current provisions permit the issuance
of options to acquire up to 3,000,000 shares of common stock to any
individual during any year. As under the existing plan, all employees are
eligible to receive options under the amended plan and exercise price of
the option will not be less than the fair market value of the stock on the
date of grant.
In addition to the above amendments for which Sprint is seeking stockholder
approval, the Sprint Board, has adopted a Board Resolution to amend the
Omnibus Plan to take into account the effect of the PCS Restructuring and
Recapitalization. The Board Resolution amends the Omnibus Plan, contingent on
the closing of the Restructuring Agreement, to authorize the issuance of both
FON Stock and PCS Stock and makes other
141
<PAGE>
conforming changes. The Omnibus Plan, as amended by the Incentive Plans
Proposal and the Board Resolution, is set out in Annex VII to this Proxy
Statement.
SUMMARY OF AMENDMENTS TO THE MISOP PLAN
If the Incentive Plans Proposal is approved, the amendments to the MISOP
will:
(1) Expand the Sprint Board's ability to adjust the terms of outstanding
stock options to take into account the effects of the Recapitalization. The
current provision allows the strike price of options to be adjusted but
does not provide for changing the classes of securities subject to purchase
under outstanding options. The Sprint Board needs this authority in order
to convert options to buy Existing Common Stock into options to buy PCS
Stock and FON Stock; and
(2) Permit the Sprint Board to adjust the number and class of shares
issuable to any individual in any year under the MISOP to take into account
the effect of the Recapitalization.
The Sprint Board has, subject to approval of this amendment by the
stockholders, (i) declared that each option to purchase shares of Existing
Common Stock will be changed into an option to purchase shares of FON Stock
and an option to purchase shares of PCS Stock, (ii) amended the MISOP to
provide for the issuance of options to purchase both FON Stock and PCS Stock,
and (iii) made other conforming amendments.
The MISOP, as amended by the Incentive Plans Proposal and the Board
Resolution, is set out in Annex IX to this Proxy Statement.
THE SPRINT BOARD HAS APPROVED THE INCENTIVE PLANS PROPOSAL AND RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE INCENTIVE PLANS PROPOSAL.
BOARD ADJUSTMENTS TO PLAN PROVISIONS
Pursuant to its authority to adjust the terms of the plans to take into
account the effect of the Recapitalization, the Sprint Board has adopted
additional amendments to the Omnibus Plan and the MISOP conditioned on the
closing of the Restructuring Agreement and on the approval by the stockholders
of the Incentive Plans Proposal. These amendments are, with respect to the
Omnibus Plan, being made pursuant to existing authority given to the Sprint
Board by the provisions of the plan and, with respect to the MISOP, pursuant
to the expanded capital-changes authority, the stockholders are being asked to
approve the Incentive Plans Proposal.
Authority to Issue FON Stock and PCS Stock. Under the amendments, both the
Omnibus Plan and the MISOP authorize the issuance of awards and options with
respect to any class of Sprint's publicly-traded common stock, including the
FON Stock and the PCS Stock. Which class of common stock would be subject to
any given award or options under the plans would be determined by the Sprint
Board or the Organization, Compensation, and Nominating Committee of the
Sprint Board (the "Compensation Committee") at the time the award is made. The
Compensation Committee may grant awards with respect to either class of stock
to employees of either the FON Group or the PCS Group.
Adjustment of Shares Authorized under the Plans. The number of shares of
Existing Common Stock authorized but unissued as of the effective date of the
Recapitalization (the "Recapitalization Date") would become the number of
shares of FON Stock authorized but unissued (the "Existing Authorized Amount")
under both plans, and the number of shares of PCS Stock authorized but
unissued under the plans would be one-half the Existing Authorized Amount.
Similar adjustments will be made under both plans to the number and class of
shares that may be subject to options granted to any individual in any year,
both as to total shares issued and shares issuable with respect to incentive
stock options.
142
<PAGE>
BOARD ADJUSTMENT TO OUTSTANDING OPTIONS
Pursuant to its authority to adjust the terms of outstanding awards under
the Omnibus Plan and the MISOP, the Sprint Board adopted a resolution to
provide for the adjustment of the terms of outstanding options to reflect the
effect of the Recapitalization on shares of Existing Common Stock. Effective
on the Recapitalization Date, each option issued to employees to purchase
shares of Existing Common Stock ("Existing Options") will be converted into an
option to purchase the same number of shares of FON Stock (the "FON Option")
and an option to purchase one-half the number of shares of PCS Stock (the "PCS
Option"). Neither the FON Options nor the PCS Options will reduce the number
of authorized but unissued shares as of the Recapitalization Date but will be
considered a continuation of issued and outstanding options.
The strike prices of the FON Options and the PCS Options will be set to
prices based on the volume-weighted trading prices of the FON Stock (the "FON
Value") and the PCS Stock (the "PCS Value") for the first 10 trading days
beginning on or after the Recapitalization Date on which the FON Stock begins
regular-way trading. A combined value of the two classes of stock (the
"Combined Value") will be set at the sum of (i) the FON Value and (ii) one-
half of the PCS Value. Each FON Option will have its strike price set at the
product of (i) the FON Value and (ii) a fraction (the "Adjustment Factor"),
the numerator of which is the strike price of the Existing Option and the
denominator of which is the Combined Value. Each PCS Option will have its
strike price set at the product of (i) the PCS Value and (ii) the Adjustment
Factor. All other terms of each FON Option and PCS Option will be the same as
the terms of the related Existing Option.
During 1997, Mr. Esrey and Mr. LeMay each received performance-based options
to purchase Existing Common Stock that will become exercisable only if the
fair market value of the Existing Common Stock reaches a price of $95.875 per
share for period of 30 trading days within a period of 45 consecutive trading
days occurring after June 8, 2001, and on or before June 9, 2003. These
options will be adjusted in the same manner as all other Existing Options
except that the condition on exercise for both the FON Option and the PCS
Option will require that the combined fair market value of the FON Stock and
the PCS Stock reaches $95.875 within the prescribed time. The combined value
of the FON Stock and the PCS Stock will be computed by adding the trading
price of FON Stock to one-half the trading price of PCS Stock.
SUMMARY OF OTHER OMNIBUS PLAN PROVISIONS
Eligible Participants under the Omnibus Plan. Sprint's Outside Directors and
employees of Sprint and its subsidiaries are eligible to receive awards under
the Omnibus Plan.
Shares Subject to the Omnibus Plan. Subject to adjustment as described below
(see "Adjustment for Capital Changes"), one and one-half percent (1.5%) of the
outstanding shares of FON Stock and one and one-half percent (1.5%) of the
outstanding shares of PCS Stock (including Series 1 PCS Stock and Series 2 PCS
Stock) as of the first day of each calendar year, beginning with 1999, will be
available for grant during the year.
In addition to the foregoing, 10,000,000 shares of PCS Stock will be
available for awards under the Omnibus Plan. Sprint expects that substantially
all of those shares will be allocated to awards under the Omnibus Plan to
replace units granted and outstanding under Sprint Spectrum's Long-Term
Incentive Compensation Plan.
All shares available in any year that are not granted under the Omnibus Plan
are available for grant in subsequent years. If Sprint acquires another
company, any of Sprint's shares covered by or issued as a result of the
assumption or substitution of outstanding grants of the acquired company would
not be deemed issued under the Omnibus Plan. If any shares subject to any
award are forfeited, or the award is terminated without issuance of shares or
other consideration, the shares subject to the award will again be available
for grant pursuant to the Omnibus Plan. The Compensation Committee may also
determine that outstanding securities other than FON Stock and the PCS Stock
will be subject to awards under the plan.
The issuance of FON Options and PCS Options in lieu of Existing Options
pursuant to the action by the Sprint Board described above (see "Board
Adjustment to Outstanding Options") will not reduce the number of shares
available for grant under the Omnibus Plan.
143
<PAGE>
ADMINISTRATION
The Omnibus Plan is administered by the Compensation Committee, none of the
members of which may be an employee of Sprint. The Compensation Committee has
the authority to select participants to whom awards are granted, to determine
the types of awards and the number of shares covered and to set the terms and
conditions of such awards and to cancel or suspend awards. The Compensation
Committee is authorized to interpret the Omnibus Plan, to establish, amend,
and rescind any rules and regulations relating to the Omnibus Plan, to
determine the terms and provisions of agreements entered into with employees
under the Omnibus Plan, and to make all other determinations that may be
necessary or advisable for the administration of the plan.
The Compensation Committee may delegate to one or more Senior Officers or
one or more committees of Senior Officers the right to grant awards and to
cancel or suspend awards with respect to employees who are not officers or
Directors of Sprint. The Sprint Board may amend, alter or discontinue the
Omnibus Plan or any portion thereof at any time, but no such action may impair
the rights of a participant without the participant's consent and no amendment
may be made without stockholder approval that will increase the total number
of shares reserved for issuance pursuant to the Omnibus Plan.
Stock Options. Under the Plans, the Compensation Committee may grant stock
options to participants to purchase, at the Compensation Committee's
discretion, either FON Stock or PCS Stock. The strike price per share of
common stock purchasable under any stock option granted to an employee will be
determined by the Compensation Committee, but may not be less than 100% of the
fair market value of the class of common stock subject to the option on the
option's grant date. The term of each option and the time or times when it may
be exercised will be fixed by the Compensation Committee. The grant and the
terms of incentive stock options (ISOs) are restricted to the extent required
by the Code. Options may only be exercised by payment of the exercise price,
either in cash or, at the discretion of the Compensation Committee, in common
stock or other consideration having a fair market value on the date the option
is exercised equal to the exercise price. Currently, the Compensation
Committee permits payment of the exercise price with previously owned shares
of the same class of common stock subject to the option.
Reload options, which are options granted when an optionee exercises a stock
option and makes payment of the exercise price with previously owned shares of
Common Stock, may be granted under the Omnibus Plan. A reload option grant is
for the number and class of shares used in payment of the exercise price and
tax withholding, if any. The strike price for a reload option is equal to the
fair market value of one share of the class of Common Stock used in payment of
the exercise price of, or tax withholding with respect to, the underlying
option on the date the reload option is granted. Reload options may also be
granted at the time an optionee uses previously owned Common Stock to pay tax
withholding on vesting of restricted stock received upon exercise of an
option.
Section 162(m) of the Code limits Sprint's deduction for compensation paid
to certain executive officers to $1 million per year unless such compensation
is "performance-based." For purposes of satisfying this requirement, the
Omnibus Plan limits the number of shares subject to options that can be
granted to any individual during any calendar year to 3,000,000 shares of FON
Stock and 1,500,000 shares of PCS Stock.
Restricted Stock. Restricted stock may not be disposed of by the recipient
until certain restrictions established by the Compensation Committee lapse.
Restricted Stock may be issued for such consideration as the Compensation
Committee determines; the Omnibus Plan permits the Compensation Committee to
require no consideration other than the rendering of services. The recipient
of restricted stock has all of the rights of a Sprint stockholder including
the right to vote the shares and the right to receive any cash dividends,
unless the Compensation Committee determines otherwise. If employment is
terminated during the restriction period, all restricted stock is forfeited,
subject to such exceptions, if any, authorized by the Compensation Committee.
Shares of FON Stock and PCS Stock issued in the Recapitalization for
restricted shares of Existing Common Stock will continue to be subject to the
same restrictions as such restricted stock.
144
<PAGE>
Performance Award. From time to time, the Compensation Committee may select
a period during which performance criteria determined by the Compensation
Committee are measured for the purpose of determining the extent to which a
performance award has been earned. Performance awards may be in the form of
performance shares (valued by reference to shares of stock), or performance
units (valued by reference to cash or property other than stock). Performance
awards may be paid in cash, stock, other property or a combination thereof.
Performance awards may be issued for such consideration as the Compensation
Committee determines.
Other Stock Unit Awards. The Compensation Committee is also authorized to
grant to participants, either alone or in addition to other awards granted
under the Omnibus Plan, awards of stock and other awards that are valued in
whole or in part by reference to, or are otherwise based on, Common Stock or
other securities of Sprint ("other stock unit awards"). Other stock unit
awards may be paid in Common Stock or other securities of Sprint, cash or any
other form of property as the Compensation Committee determines. Securities
granted pursuant to such awards may be issued for such consideration as the
Compensation Committee determines.
Payment of Outside Directors' Fees in Common Stock. The Omnibus Plan
provides that Outside Directors may elect to receive all or part of their
annual retainer and their meeting and committee meeting fees in any class of
Common Stock in lieu of cash payments. The price at which Outside Directors
may acquire shares is the fair market value of each class of Common Stock on
the last trading day of the month in which the fees are earned.
In addition, Outside Directors may elect annually to defer receipt of such
Common Stock. Shares deferred pursuant to this election will be transferred by
Sprint to a trust that will hold the shares until the Outside Director's
termination of Sprint Board service. The Outside Directors may elect to
receive payment in a lump sum or installments and in common stock or cash.
During the period the shares are held in trust, the Outside Director will have
voting rights with respect to the shares and the trustee will reinvest the
dividends on the shares in shares of the same class of Common Stock. The trust
will be subject to the claims of creditors of Sprint.
Adjustment for Capital Changes. In the event of any change affecting the
shares of Common Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, combination or exchange of
shares or other corporate changes affecting the common stock of Sprint, the
options granted to Outside Directors will be adjusted and the Compensation
Committee may make such substitution or adjustment in the aggregate number or
class of shares which may be distributed under the Omnibus Plan, in the
number, class and option price or other price of shares subject to outstanding
awards granted under the Omnibus Plan and in the number and class of shares
that may be subject to an option granted to any individual during any year
under the Omnibus Plan as it deems to be appropriate.
Change of Control. In order to maintain all of the participants' rights in
the event of a change of control of Sprint, the Compensation Committee, in its
sole discretion, may, as to any outstanding awards, take any one or more of
the following actions: (i) provide for the acceleration of any time periods
relating to the exercise or realization of any such award so that such award
may be exercised or realized in full on or before a date fixed by the
Compensation Committee; (ii) provide for the purchase of any such award by
Sprint, upon a participant's request, for an amount of cash equal to the
excess of the fair market value of the property which could have been received
upon the exercise of such award or realization of such participant's rights
had such award been currently exercisable or payable over the amount which
would have been paid, if any, by the participant for such property, (iii) make
such adjustment to any such award then outstanding as the Compensation
Committee deems appropriate to reflect such change of control; or (iv) cause
any such award then outstanding to be assumed, or new rights substituted for
such award, by the acquiring or surviving corporation in such change of
control. Unless the Compensation Committee determines otherwise with respect
to any award granted under the Omnibus Plan, a change of control is deemed to
occur if someone acquires 20% or more of the combined voting power of Sprint's
outstanding stock or if there is a change of a majority of the Directors
within a two-year period. The Compensation Committee has determined that an
acquisition by FT and DT of more than 20% of the voting power does not
constitute a change in control unless they acquire, in any combination, more
than 35% of the combined voting power of Sprint's outstanding common stock.
145
<PAGE>
SUMMARY OF OTHER MISOP PROVISIONS
Eligible Participants under the MISOP. The Compensation Committee determines
each year which employees of Sprint and its subsidiaries who participate in
Sprint's annual management incentive compensation plans will be eligible to
receive options under the MISOP. Any salaried employee of Sprint and its
subsidiaries is eligible to be selected as a participant in the annual
management incentive compensation plans. After the PCS Restructuring,
employees of the PCS Group will be eligible to be selected as participants in
the MISOP. Outside Directors are not eligible to receive options under the
MISOP.
Shares subject to the MISOP. Subject to adjustment as described below, 0.9%
of the outstanding shares of FON Stock and 0.9% of the outstanding shares of
PCS Stock (both Series 1 and Series 2 PCS Stock) as of the first day of each
calendar year for which the MISOP is in effect are available for grant under
the MISOP in such year. All shares available in any year that are not subject
to an option granted under the MISOP are available for grant in the following
years. The shares of stock deliverable under the MISOP may consist in whole or
in part of authorized and unissued shares or treasury shares. If any option is
terminated without issuance of shares, the shares subject to such options
shall again be available for grant pursuant to the MISOP.
Administration. The Compensation Committee administers the MISOP and is
authorized to interpret the MISOP, to establish, amend, and rescind any rules
and regulations relating to the MISOP, and to make all other determinations
which may be necessary or advisable for the administration of the MISOP.
The Sprint Board may amend, alter or discontinue the MISOP or any portion
thereof at any time, but no such action shall materially impair the rights of
a participant without the participant's consent and provided that no amendment
will be made without stockholder approval that increases the total number of
shares reserved for issuance pursuant to the MISOP.
Terms and Conditions of the Options. Each year, the Compensation Committee
set the terms and conditions of options granted under the MISOP, including the
amount of incentive compensation that must be foregone by participants for
each share subject to options granted under the MISOP. After the PCS
Restructuring, the Compensation Committee will also determine which class of
Common Stock, FON Stock or PCS Stock, that eligible employees will be allowed
to purchase under options and may specify different classes of options for
different groups of employees.
The strike price per share of FON Stock or PCS Stock purchasable under any
option is 100% of the fair market value of the stock on the option's grant
date.
Section 162(m) of the Code limits Sprint's deduction for compensation paid
to certain executive officers to $1,000,000 per year unless such compensation
is "performance-based." For purposes of satisfying this requirement, the MISOP
limits the number of shares subject to options that can be granted to any
individual during any calendar year to 500,000 shares of FON Stock and 250,000
shares of PCS Stock.
The options have a ten-year term and become exercisable on December 31 of
the year in which granted. Options can be exercised by payment of the exercise
price, either in cash or in shares of the same class of common stock subject
to the option. Optionees that exercise an option by payment of the exercise
price in shares of stock are entitled to (i) pay withholding taxes in shares
of common stock (either by withholding shares from those issuable in the
exercise up to the optionee's marginal tax rate or by delivery of previously-
owned shares of the same class for withholding above that rate) and (ii) the
grant of a reload option to purchase a number of shares of the same class
equal to the number used by the optionee in payment of the exercise price and
tax withholding, if any. The strike price of the reload option is the fair
market value of the stock on the exercise date of the underlying option and
its term is the unexpired term of the underlying option. Certain optionees are
entitled to receive restricted stock on exercise of an option.
Exercisable options of employees whose employment with Sprint has been
terminated other than for cause remain exercisable as follows (but in no event
may an option be exercised after the end of the ten-year term): (i)
involuntary termination by Sprint other than for cause, for ten years from
grant date; (ii) in the case of death,
146
<PAGE>
one year from date of death; (iii) in the case of retirement or disability,
five years from date of termination of employment; and (iv) in the case of
voluntary termination, three months from date of termination.
Adjustments. In the event of any stock dividend or split, recapitalization,
merger, consolidation, spin-off, combination or exchange of shares, or any
other corporate change affecting the shares of Sprint's common stock, the
Compensation Committee may make adjustments as it considers appropriate in the
number and class of shares authorized to be issued under the MISOP, in the
number and class of shares that may be subject to an option granted to any
individual during a calendar year under the MISOP, and in the number and class
of shares subject to, and the strike price of, outstanding options granted
under the MISOP.
TAX ASPECTS OF THE PLANS
Omnibus Plan. Under present law, the following are the federal tax
consequences generally arising with respect to awards granted under the
Omnibus Plan. The grant of an option will create no tax consequences for an
optionee or Sprint at the time of grant. The optionee will have no taxable
income upon exercising an ISO (unless the alternative minimum tax is
applicable), and Sprint will receive no deduction when an ISO is exercised.
Except where the stock received is non-transferable and subject to forfeiture
(as described below), upon exercising an option (other than an ISO), the
optionee must recognize additional compensation equal to the difference
between the exercise price and the fair market value of the stock on the date
of the exercise; Sprint will be entitled to a deduction for the same amount.
The treatment of a disposition of shares acquired through the exercise of an
option depends on how long the shares have been held and on whether such
shares were acquired by exercising an ISO or by exercising an option (other
than an ISO). Generally, there will be no tax consequence to Sprint in
connection with a disposition of shares acquired under an option except that
Sprint may be entitled to a deduction in the case of a disposition of shares
acquired under an ISO before the applicable ISO holding periods have been
satisfied.
With respect to other awards granted under the Omnibus Plan that are settled
either in cash or in stock or other property that is either transferable or
not subject to substantial risk of forfeiture, the participant must recognize
additional compensation equal to the cash or the fair market value of shares
or other property received; Sprint will be entitled to a deduction for the
same amount. With respect to awards that are settled in stock or other
property that is restricted as to transferability and subject to substantial
risk of forfeiture, the participant must recognize additional compensation
equal to the fair market value of the shares or other property received at the
first time the shares or other property become transferable or not subject to
substantial risk of forfeiture, whichever occurs earlier; Sprint will be
entitled to a deduction for the same amount. Prior to the time the shares
become transferable or not subject to substantial risk of forfeiture, any
dividends received by the participant are treated as additional compensation.
Sprint will be entitled to a deduction for the same amount. Different tax
rules apply to executive officers and Outside Directors who are subject to
Section 16 of the Exchange Act.
MISOP. Under present law, the following are the federal tax consequences
generally arising with respect to awards granted under the Plan. The grant or
vesting of an option will create no tax consequences for an optionee or
Sprint. Upon exercising an option and receiving unrestricted shares, the
optionee must recognize ordinary income equal to the difference between the
exercise price and the fair market value of the stock on the date of exercise.
Sprint will be entitled to a deduction for the same amount. Certain optionees
may elect to receive restricted stock from the exercise when they use
previously owned shares to pay the purchase price. These optionees will not
recognize ordinary income until the date the restrictions lapse. The ordinary
income will be equal to the difference between the fair market value of the
stock (i.e., shares received which are in excess of the shares given up for
payment of the purchase price) on the date the restrictions lapse and any cash
paid for the shares. Sprint will be entitled to a deduction for the same
amount. The treatment of a disposition of the shares acquired through the
exercise of an option will result in short-term or long-term capital gain
depending on how long the shares have been held. There will be no tax
consequence to Sprint in connection with a disposition of shares acquired
under an option. There will be no tax consequences to the optionee or Sprint
if an option is canceled or expires.
147
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF SPRINT
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<C> <C> <S>
William T. Esrey 58 Chairman and Chief Executive Officer and Director
Ronald T. LeMay 52 President and Chief Operating Officer and Director
DuBose Ausley 61 Director
Warren L. Batts 65 Director
Michel Bon 54 Director
Irvine O. Hockaday, Jr. 61 Director
Harold S. Hook 66 Director
Linda Koch Lorimer 46 Director
Charles E. Rice 62 Director
Ron Sommer 48 Director
Stewart Turley 63 Director
Michael B. Fuller 53 President and Chief Operating Officer--Local
Telecommunications Division
Patti S. Manuel 41 President and Chief Operating Officer--Long
Distance Division
John E. Berndt 58 President--Sprint International
Kevin E. Brauer 47 President--National Integrated Services
J. Richard Devlin 47 Executive Vice President--General Counsel and
External Affairs
Arthur B. Krause 56 Executive Vice President--Chief Financial Officer
Gene M. Betts 45 Senior Vice President--Corporate Finance
John R. Hoffman 52 Senior Vice President--External Affairs
Len J. Lauer 41 Senior Vice President--Brand Management and Public
Relations
John P. Meyer 47 Senior Vice President--Controller
Theodore H. Schell 53 Senior Vice President--Strategic Planning and
Corporate Development
M. Jeannine Strandjord 52 Senior Vice President--Treasurer
I. Benjamin Watson 49 Senior Vice President--Human Resources
Don A. Jensen 62 Vice President--Secretary
</TABLE>
WILLIAM T. ESREY was elected Chairman of Sprint in 1990. He was elected
Chief Executive Officer and a member of the Board of Directors in 1985.
RONALD T. LEMAY was first elected President and Chief Operating Officer of
Sprint in February 1996. From July 1997 to October 1997, Mr. LeMay served as
Chairman and Chief Executive Officer of Waste Management, Inc., a provider of
comprehensive waste management services. He was re-elected President and Chief
Operating Officer of Sprint and Chairman of Sprint Spectrum Holdings effective
October 1997. From 1995 to 1996 Mr. LeMay served as Vice Chairman of Sprint.
He also served as Chief Executive Officer of Sprint Spectrum Holdings from
1995 to 1996. From 1989 to 1995, he served as President and Chief Operating
Officer--Long Distance Division. Mr. LeMay served on the Sprint Board from
1993 until he went to work for Waste Management, Inc. He was re-elected to the
Sprint Board in December 1997.
DUBOSE AUSLEY has served as a Director of Sprint since 1993. He is chairman
of Ausley & McMullen, a law firm, Tallahassee, Florida. 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.
WARREN L. BATTS has served as a Director of Sprint since 1982. He is retired
Chairman and Chief Executive Officer of Tupperware Corporation, a diversified
consumer products company, Orlando, Florida. Mr. Batts is also a retired
Chairman of Premark International, Inc., a diversified consumer products
company, Deerfield, Illinois.
148
<PAGE>
Prior to his retirement in 1997, Mr. Batts had 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.
MICHEL BON has served as a Director of Sprint since 1996. He is Chairman and
Chief Executive Officer of France Telecom S.A., a telecommunications company,
Paris, France. Mr. Bon became Chairman and Chief Executive Officer of France
Telecom S.A. in September of 1995. He served as head of 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.
IRVINE O. HOCKADAY, JR. has served as a Director of Sprint since June of
1997. He is President and Chief Executive Officer of Hallmark Cards, Inc.,
manufacturer of greeting cards, Kansas City, Missouri. Mr. Hockaday has been
President and Chief Executive Officer of Hallmark Cards, Inc. since 1985.
HAROLD S. HOOK has served as a Director of Sprint since 1982. He is a
retired Chairman and Chief Executive Officer of American General Corporation,
a financial services holding corporation, Houston, Texas. Mr. Hook was
Chairman of American General Corporation from 1978 to 1997 and Chief Executive
Officer from 1978 to 1996.
LINDA KOCH LORIMER has served as a Director of Sprint since 1993. She is
Vice President and Secretary of the University, Yale University, New Haven,
Connecticut. Prior to becoming Vice President and Secretary of Yale University
in 1993, Ms. Lorimer was President of Randolph-Macon Woman's College for more
than six years.
CHARLES E. RICE has served as a Director of Sprint since 1975. He is
Chairman of NationsBank Corporation, a bank holding company, Charlotte, North
Carolina. Mr. Rice was Chairman and Chief Executive Officer of Barnett Banks,
Inc. for more than five years prior to its merger with NationsBank Corporation
on January 9, 1998.
RON SOMMER has served as a Director of Sprint since 1996. He is Chairman of
the Board of Management of Deutsche Telekom AG, a telecommunications company,
Bonn, Germany. Prior to becoming Chairman of Deutsche Telekom AG in May of
1995, Mr. Sommer was President and Chief Operating Officer of Sony Corporation
of America beginning in 1990, and in 1993, he took over the management of Sony
Europe in the same function.
STEWART TURLEY has served as a Director of Sprint since 1980. He is retired
Chairman of Eckerd Corporation, a diversified retailer, Clearwater, Florida.
Mr. Turley had been Chairman of Eckerd Corporation for more than five years
prior to his retirement in 1997.
MICHAEL B. FULLER was elected President and Chief Operating Officer--Local
Telecommunications Division of Sprint in October 1996. From 1990 to 1996, he
served as President of United Telephone--Midwest Group, an operating group of
subsidiaries of Sprint.
PATTI S. MANUEL was elected President and Chief Operating Officer--Long
Distance Division of Sprint in February 1998. She was also elected as
President and Chief Operating Officer of Sprint Communications Company L.P.
(the "Limited Partnership"), a subsidiary of Sprint, in February 1998. She had
served as President of Sprint Business, a division of the Limited Partnership,
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.
149
<PAGE>
JOHN E. BERNDT joined Sprint as President--Sprint International in April
1998. Prior to that Mr. Berndt was President of Fluor Daniel
Telecommunications since January 1997. He was President--Multimedia Ventures
and Technologies for AT&T and Lucent Technologies from 1995 to 1996. From 1993
to 1995, Mr. Berndt was President of New Business Development for AT&T.
KEVIN E. BRAUER was elected President--National Integrated Services of
Sprint in October 1997. He had served as Senior Vice President since June
1997. From 1992 to 1997, he was President of Sprint Business.
J. RICHARD DEVLIN was elected Executive Vice President--General Counsel and
External Affairs of Sprint in 1989.
ARTHUR B. KRAUSE was elected Executive Vice President--Chief Financial
Officer of Sprint in 1988.
GENE M. BETTS was elected Senior Vice President of Sprint in 1990.
JOHN R. HOFFMAN was elected Senior Vice President--External Affairs of
Sprint in 1990.
LEN J. LAUER joined Sprint as Senior Vice President--Brand Management and
Public Relations in April 1998. Before that Mr. Lauer spent more than five
years with Bell Atlantic Corporation, first as Vice President--Sales and
Services in the Large Business Services unit and, starting in 1995, as
President and Chief Executive Officer of Bell Atlantic--New Jersey.
JOHN P. MEYER was elected Senior Vice President--Controller of Sprint in
1993.
THEODORE H. SCHELL was elected Senior Vice President--Strategic Planning and
Corporate Development of Sprint in 1990.
M. JEANNINE STRANDJORD was elected Senior Vice President--Treasurer of
Sprint in 1990.
I. BENJAMIN WATSON was elected Senior Vice President--Human Resources of
Sprint in 1993.
DON A. JENSEN was elected Vice President--Secretary of Sprint in 1975.
150
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 31, 1998, information about the
only known beneficial owners of more than five percent of Sprint's outstanding
voting stock, based solely on Schedules 13G and 13D received by Sprint:
<TABLE>
<CAPTION>
NAME AND AMOUNT AND
ADDRESS OF NATURE OF
BENEFICIAL BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------- ---------- --------
<S> <C> <C> <C>
Class A Common Stock..... France Telecom S.A.(1) 43,118,018 shares 50%
Class A Common Stock..... Deutsche Telekom AG(2) 43,118,018 shares 50%
Existing Common Stock.... Putnam Investments, Inc.(3) 21,355,530 shares 6%
</TABLE>
- --------
(1) The address of France Telecom S.A. is 6 place d'Alleray, 75505 Paris Cedex
15, France.
(2) The address of Deutsche Telekom S.A. is Friedrich-Ebert-Allee 140, D-
53113, Germany.
(3) The address of Putnam Investments is One Post Office Square, Boston,
Massachusetts.
The following table states the number of shares of Existing Common Stock
beneficially owned, as of April 30, 1998, by each current Director, each
executive officer named in the "Summary Compensation Table" and by all
Directors and executive officers as a group. The number of shares beneficially
owned by all Directors and executive officers as a group represented less than
one percent of the outstanding shares. Except as otherwise indicated, each
individual named has sole investment and voting power with respect to the
securities shown.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
DuBose Ausley.......................................... 7,652(1)
Warren L. Batts........................................ 5,000(1)
Michel Bon............................................. 0(1)
William T. Esrey....................................... 380,424(1)(2)
Gary D. Forsee......................................... 39,486(1)
Michael B. Fuller...................................... 27,716(1)
Irvine O. Hockaday, Jr................................. 1,500(1)
Harold S. Hook......................................... 16,000(1)
Arthur B. Krause....................................... 90,376(1)(2)
Ronald T. LeMay........................................ 284,905(1)
Linda Koch Lorimer..................................... 1,465(1)
D. Wayne Peterson...................................... 78,378(1)
Charles E. Rice........................................ 3,000(1)
Ron Sommer............................................. 0(1)
Stewart Turley......................................... 3,400(1)
All Directors and executive officers as a group 26 per-
sons.................................................. 1,202,277(1)(2)
</TABLE>
- --------
(1) Does not include shares which may be acquired upon the exercise of stock
options exercisable on or within sixty days after April 30, 1998, under
Sprint's stock option plans as follows: 22,500, 18,496, 1,500, 981,674,
219,408, 126,735, 0, 18,496, 195,575, 224,828, 36,227, 107,255, 18,496,
1,500 and 18,496 shares for Messrs. Ausley, Batts, Bon, Esrey, Forsee,
Fuller, Hockaday, Hook, Krause, LeMay, Ms. Lorimer, Messrs. Peterson,
Rice, Sommer and Turley, respectively, and 2,802,519 shares for all
Directors and executive officers as a group.
(2) Includes shares held by or for the benefit of family members in which
beneficial ownership has been disclaimed: 16,442 shares held in trust for
Mr. Esrey's children, 13,644 shares owned by Mr. Krause's wife and 30,086
shares held by or for the benefit of family members for all Directors and
executive officers as a group.
151
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is composed of independent, non-employee
Directors, has furnished the following report on executive compensation:
Sprint's compensation philosophy is to link, by using specific objectives,
executives' compensation to the short-term and long-term performance of Sprint
so as to maximize long-term stockholder value. Sprint's executive compensation
program consists of four elements: (1) base salary, (2) short-term incentive
compensation, (3) long-term incentive compensation and (4) stock options. To
develop a competitive compensation package, both base salary and total
compensation (i.e., the sum of all four elements) are compared to market data
from similarly sized companies in the telecommunications industry as well as
other industries from surveys conducted by independent compensation
consultants and from proxy data. The Compensation Committee believes that the
comparison groups accurately reflect the market in which Sprint competes for
executive talent. Eleven of the 12 companies in the S&P Telephone Utility
Index and the S&P Telecommunications (Long Distance) Index, which are used in
the Stock Performance Graph on page [113] of this Proxy Statement, are
included in the comparison groups. The Compensation Committee's policy is to
target base salaries at the 50th percentile for base pay of similar positions
within the comparison group, and total compensation at the 75th percentile
provided certain performance objectives are achieved.
Section 162(m) of the Code denies a tax deduction to any publicly held
corporation, such as Sprint, for compensation in excess of $1 million paid to
any Named Officer (as defined in "Summary Compensation Table") unless such
compensation is performance-based under Section 162(m). Sprint took all action
required under Section 162(m) for Sprint's incentive compensation plans to be
performance-based so as to preserve Sprint's tax deduction for compensation
earned under such plans for 1997.
Base Salary. Each year the Compensation Committee makes a recommendation to
the Sprint Board establishing base pay for all Named Officers. In making this
recommendation for 1997, the Compensation Committee considered the salaries of
other executives within the comparison group and the executives' performance
during 1996. With respect to the latter, the Compensation Committee exercised
its judgment in evaluating the executives' accomplishments during the year. As
a result of his performance evaluations during his tenure as Chief Executive
Officer, Mr. Esrey's base salary exceeds the median of the comparison group.
Short-Term Incentive Compensation. Sprint's short-term incentive
compensation ("STIC") is a performance-driven annual incentive designed to
promote the near term objectives of the organization. For the Named Officers,
the material terms of the performance goals under STIC were approved by the
Stockholders at the 1997 Annual Meeting.
Target incentive opportunity for STIC is based on job level and potential
impact on organization results. The STIC payout is based on the achievement of
six financial objectives--three for LTD and three for LDD. For each objective,
targets were established and compared to actual 1997 financial results.
. The objectives for LTD related to operating income (55% weighting), net
collectible revenue (25%), and economic value added ("EVA") (20%). Actual
results were 70.4% of target on a weighted average basis.
. The objectives for LDD related to operating income (40% weighting), net
collectible revenue (40%), and EVA (20%). Actual results were 32.7% of
target on a weighted average basis.
The weights assigned for a particular executive among LTD and LDD depended on
an executive's responsibilities with Sprint.
The entire STIC payout for Messrs. Esrey and LeMay was based on the
achievement of these financial objectives. For the remaining executive
officers except Mr. Peterson, 15% of the STIC payout was based on the
152
<PAGE>
achievement of certain personal objectives in 1997. Fifty percent of Mr.
Peterson's STIC payout was based on personal objectives. These personal
objectives included qualitative factors relating to business unit and
departmental results of a nonfinancial nature, the support the executive
provided in furthering strategic and tactical objectives, contributing to the
progress of the quality improvement process, and individual professional
growth and development.
Based on the financial results described above and the achievement of their
personal objectives, the executive officers earned STIC payouts on average of
56.7% of target. Mr. Esrey's STIC payout was based on the financial results
described above using relative weights for objectives by division as follows:
45% for LTD and 55% for LDD. Based on these factors, Mr. Esrey earned a payout
of 49.7% of target.
Long-Term Incentive Compensation. Sprint's long-term incentive compensation
("LTIP") is a three-year performance-driven incentive plan designed to promote
the long-term objectives of the organization and to pay out in common stock.
For the Named Officers, the material terms of the performance goals under LTIP
were approved by the stockholders at the 1997 Annual Meeting. Target incentive
opportunity is established as a percentage of the three-year average salary
range midpoint and is based on job level and potential impact on organization
results.
LTIP payouts were based entirely on the achievement of financial objectives.
These financial objectives related to LTD, LDD, Sprint's former Cellular
Division, and Sprint consolidated.
. The objectives for LTD related to return on assets (55% weighting),
nonregulated cumulative net collectible revenue (15%), 1997 nonregulated
operating income (15%) and EVA (15%). For LTD, actual results were 115.1%
of target on a weighted average basis.
. The objectives for LDD related to net collectible revenue growth relative
to market (50%), cumulative operating margin (40%) and EVA (10%). For LDD,
actual results were 152.0% of target on a weighted average basis.
. The objectives for Sprint's former Cellular Division related to
cumulative operating income (45%), cumulative net collectible revenue
(45%) and EVA (10%) from January 1, 1995 through March 7, 1996. On March
7, 1996, there was a spin-off of the Cellular Division. For the Cellular
Division, actual results were 107.5% of target on a weighted average
basis.
. The objective for Sprint consolidated related to EVA. Actual results were
80.9% of target.
As with the STIC, the relative weights assigned to the LTIP objectives among
LTD, LDD, Cellular Division, and Sprint consolidated depend on an executive's
responsibilities with Sprint.
The specific amounts of the LTIP payouts were determined by comparing actual
financial results to the pre-established targets for each objective. The
payout is also adjusted by a stock price factor under which the payout based
on financial objectives as described above is multiplied by a fraction, the
numerator of which is the market price of Common Stock on the last day of the
performance period and the denominator of which is the market price on the
first day of the performance period. The three-year increase in the price of
Existing Common Stock resulted in a multiplier of 263.0%.
Mr. Esrey's LTIP payout was based on the financial results described above
using relative weights for each objective as follows: 28% for LTD, 55% for
LDD, 6% for the Cellular Division and 11% for Sprint consolidated. Based on
the financial results and the methodology described above, Mr. Esrey received
a payout of 346.4% of target. The LTIP payouts, if not deferred under the
Executive Deferred Compensation Plan, were paid in restricted or unrestricted
shares of Existing Common Stock.
Stock Options. Stock option grants combined with LTIP comprise long-term
incentive compensation awarded to executive officers of Sprint. Total long-
term incentive compensation is targeted at the 75th percentile of the
comparison group. The Compensation Committee does not consider any measures of
corporate or
153
<PAGE>
individual performance in determining option grants and does not consider the
number of options already held by an executive. The telecommunications
industry is going through tremendous changes and industry leaders are in high
demand, both inside and outside the industry. The Sprint Board believes that
granting options and other stock awards to officers and other key employees
enhances Sprint's ability to attract, retain and provide incentives to
individuals of exceptional talent necessary for the continued success of
Sprint. In furtherance of these objectives, a special grant of options was
made to Mr. Esrey and Mr. LeMay in 1997.
During 1997 certain executive officers elected under Sprint's MISOP to
receive options in lieu of receiving up to 50% of their target opportunity
under Sprint's management incentive plans. For each $3.95 reduction in an
executive's target opportunity resulting from such election, the executive
received an option to purchase one share of Existing Common Stock. The MISOP
is in keeping with Sprint's philosophy of increasing the percentage of
compensation tied to stock ownership. The Compensation Committee believes
stock options more closely align stockholder and employee interests by
focusing executives on long-term growth and profitability of Sprint and its
Common Stock.
Stewart Turley, Chairman
Harold S. Hook
Linda Koch Lorimer
Charles E. Rice
Ron Sommer
154
<PAGE>
SUMMARY COMPENSATION TABLE
The following table reflects the cash and non-cash compensation for services
in all capacities to Sprint by those persons who were, as of December 31, 1997,
the chief executive officer and the other four most highly compensated
executive officers of Sprint, and by Mr. Peterson, who served as an executive
officer until October 14, 1997 (the "Named Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ----------------------------------
AWARDS PAYOUTS
------------------------ ---------
OTHER RESTRICTED SECURITIES ALL OTHER
ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS SATION
POSITION YEAR ($) (1) ($) (1) ($) ($) (2) (#) ($) ($) (3)
------------------ ---- --------- --------- ------------ ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William T. Esrey 1997 1,000,000 0 73,134(4) 0 2,536,183 1,221,064 38,880
Chairman and Chief 1996 987,500 2,280,250 76,480 0 336,468 597,948 33,645
Executive Officer 1995 937,502 541,200 76,989 0 291,360 768,140 31,506
Gary D. Forsee 1997 474,828 0 12,775 0 176,512 459,447 7,513
President-Long 1996 412,746 1,177,866 6,172 577,500 88,688 203,570 5,173
Distance Division 1995 344,237 258,809 6,404 0 50,372 214,524 7,846
Michael B. Fuller(5) 1997 307,864 230,500 1,519 363,750 64,608 204,762 10,511
President--Local 1996 269,485 298,808 1,569 0 28,720 87,851 7,612
Telecommunications
Division
Arthur B. Krause 1997 401,852 192,642 2,840 0 64,608 304,057 23,491
Executive Vice 1996 373,581 670,321 3,787 0 52,200 153,437 16,302
President--Chief 1995 349,172 271,518 8,614 0 36,420 204,099 16,134
Financial Officer
Ronald T. LeMay 1997 602,966 0 9,944 8,896,817(6) 1,603,546 574,008 8,395
President and Chief 1996 700,002 1,684,142 71,975 0 269,531 315,615 9,321
Operating Officer 1995 668,122 287,000 10,979 0 160,268 398,676 12,178
D. Wayne Petersen (7) 1997 431,770 92,482 4,427 0 177,107 365,238 21,302
Former President-- 1996 389,355 738,212 7,890 0 64,337 193,364 14,567
National Integrated
Services 1995 344,129 382,485 6,198 0 48,935 213,519 14,729
</TABLE>
- --------
(1) Includes all amounts earned for the respective years, even if deferred
under Sprint's Executive Deferred Compensation Plan. All bonuses were paid
under Sprint's Management Incentive Plans.
(2) The value of the Restricted Stock Awards shown for 1997 is based on the
closing prices of Existing Common Stock on August 12, 1997 and October 30,
1997, the dates of grant for Messrs. Fuller and LeMay, respectively. As of
December 31, 1997, Messrs. Esrey, Forsee, Fuller, Krause, LeMay and
Peterson held 101,820; 19,801; 9,424; 10,000; 174,876 and 6,133 shares,
respectively, of restricted stock. The shares had a market value of
$5,969,198; $1,160,834; $552,482; $586,250; $10,252,106 and $359,547,
respectively, at December 31, 1997, based on a value of $58.625 per share.
Each of the Named Officers has the right to vote and receive dividends on
the restricted shares.
(3) Consists of the following amounts for 1997: (a) $6,365 contributed on
behalf of each of Messrs. Esrey, Forsee, Fuller, Krause, LeMay and Peterson
as matching contributions under the Sprint Retirement Savings Plan; and (b)
$32,515, $1,148, $4,146, $17,126, $2,030 and $14,937 for Messrs. Esrey,
Forsee, Fuller, Krause, LeMay and Peterson, respectively, representing the
portion of interest credits on deferred compensation accounts under
Sprint's Executive Deferred Compensation Plan that are at above-market
rates.
(4) Includes the cost to Sprint of providing tax and financial services of
$15,000, club memberships of $14,717 and automobile allowance of $18,000.
(5) Mr. Fuller became President--Local Telecommunications Division on October
8, 1996.
(6) When Mr. LeMay left Sprint to join Waste Management, Inc. last July, all of
his unvested options to purchase Sprint stock and restricted Sprint shares
were canceled. Upon Mr. LeMay's return to Sprint last October, he was
granted restricted stock in amounts designed to place Mr. LeMay in the same
economic position he was in before his leaving Sprint with respect to such
options and restricted shares. These replacement grants included:(1) 14,876
shares that vest on March 31, 1999 to replace his canceled restricted
stock, and (2) 100,000 shares that vest on April 30, 2000 to replace the
unrealized gain on canceled Sprint stock options.\
(7) Mr. Peterson resigned from his position as President--National Integrated
Services on October 14, 1997.
155
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not officers of Sprint (the "Outside Directors") are paid
$35,000 annually plus $1,250 for each meeting attended and $1,000 for each
committee meeting attended.
The Long-Term Stock Incentive Program, which was approved at the 1997 Annual
Meeting of Stockholders, provides for the grant of stock options to Outside
Directors. Under the program each Outside Director receives an annual grant of
an option to purchase 2,000 shares of Existing Common Stock at an option price
equal to 100% of the fair market value of the Common Stock on the date of
grant. The options expire ten years from the date of grant; 25% of the shares
subject to each option become exercisable as of December 31 of the year in
which the option is granted and an additional 25% become exercisable on
December 31 of each of the three succeeding years. For a description of
proposed changes in the Long-Term Stock Incentive Program relating to
Director's compensation, see "Incentive Plans Proposal."
In 1982, Sprint adopted a retirement plan for its Outside Directors. Any
Director who served five years as a Director without simultaneously being
employed by Sprint or any of its subsidiaries is eligible to receive benefits
under the plan. The retirement plan was amended in December of 1996 to
eliminate the retirement benefit for any Director who had not served five
years as of the date of the amendment. An eligible Director retiring after
March 30, 1989, will receive monthly benefit payments equal to the monthly fee
(not including meeting fees) being paid to Directors at the time of the
Director's retirement. The monthly retirement benefit would be $2,917 for any
Director retiring while the current $35,000 annual fee remains in effect. The
number of monthly benefit payments to a Director under the plan will equal the
number of months served as a Director without simultaneously being employed by
Sprint or any of its subsidiaries, up to a maximum of 120 payments.
Outside Directors of Sprint and certain of its subsidiaries are also
eligible for a Directors' Deferred Fee Plan under which Outside Directors may
elect to defer all or some of their fees. New Directors, who are not eligible
for benefits under the retirement plan after the December 1996 amendment, will
receive units representing 2,500 shares of Existing Common Stock credited to
their accounts under the Directors' Deferred Fee Plan upon becoming a
Director. Half of these units will vest upon completion of five years of Board
service and ten percent will vest on each succeeding anniversary. Under the
Long-Term Stock Incentive Program, Outside Directors can elect to use their
fees to purchase Existing Common Stock. They can also elect to have the
purchased shares deferred and placed in a trust.
In addition, Outside Directors are provided with Sprint residential long
distance service valued in the following amounts for 1997: Mr. Ausley, $4,609;
Mr. Batts, $2,225; Mr. Hockaday, $352; Mr. Hook, $700; Ms. Lorimer, $2,585;
Mr. Rice, $4,228; and Mr. Turley, $4,961.
OPTION GRANTS
The following table summarizes options granted during 1997 under Sprint's
stock option plans to the Named Officers. The amounts shown as potential
realizable values on these options are based on arbitrarily assumed annualized
rates of appreciation in the price of Existing Common Stock of five percent
and ten percent over the term of the options, as set forth in Securities and
Exchange Commission (the "SEC") rules. The Named Officers will realize no gain
on these options without an increase in the price of Common Stock that will
benefit all shareholders proportionately.
Each option listed below has a reload feature. Unless otherwise indicated,
vesting is accelerated in the event of a change in control if the change in
control occurs at least one year after the grant date of the option. A change
in control is deemed to occur if someone acquires 20% or more of the
outstanding stock of Sprint or if there is a change of a majority of the
Directors within a two-year period. No stock appreciation rights were granted
during 1997.
156
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATES OF STOCK
UNDERLYING TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM(1)
GRANTED IN PRICE EXPIRATION --------------------------------
NAME # FISCAL YEAR $/SH DATE 0% 5% 10%
---- ----------- ----------- -------- ---------- -- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
William T. Esrey 160,000(2) 1.7% $43.38 2/11/07 $ 0 $ 4,364,529 $ 11,060,573
100,810(3) 1.1% 43.38 2/11/07 0 2,749,926 6,968,852
151,899(4) 1.6% 43.38 2/11/07 0 4,143,547 10,500,562
91,179(5) 1.0% 44.94 3/15/05 0 1,942,564 4,646,788
32,295(5) 0.3% 44.94 2/17/05 0 680,621 1,624,906
1,000,000(6) 10.6% 47.94 6/9/07 0 30,147,636 76,400,029
1,000,000(7) 10.6% 47.94 6/9/07 0 30,147,636 76,400,029
Gary D. Forsee 55,000(2) 0.6% 43.38 2/11/07 0 1,500,307 3,802,072
38,354(3) 0.4% 43.38 2/11/07 0 1,046,232 2,651,358
66,456(4) 0.7% 43.38 2/11/07 0 1,812,807 4,594,009
3,588(5) 0.0% 55.28 2/16/00 0 23,748 49,034
8,217(5) 0.1% 55.28 2/15/01 0 79,746 168,787
4,897(5) 0.1% 55.28 3/9/03 0 81,178 181,152
Michael B. Fuller 40,000(2) 0.4% 43.38 2/11/07 0 1,091,132 2,765,143
24,608(3) 0.3% 43.38 2/11/07 0 671,265 1,701,116
Arthur B. Krause 40,000(2) 0.4% 43.38 2/11/07 0 1,091,132 2,765,143
24,608(3) 0.3% 43.38 2/11/07 0 671,265 1,701,116
Ronald T. LeMay 100,000(2) 1.1% 51.69 2/11/07 0 2,961,927 7,354,406
55,519(3) 0.6% 51.69 2/11/07 0 1,644,432 4,083,092
117,089(4) 1.2% 51.69 2/11/07 0 3,468,091 8,611,200
81,945(8) 0.9% 51.69 2/12/06 0 2,110,729 5,096,086
45,524(9) 0.5% 51.69 2/17/05 0 1,006,959 2,365,970
17,757(10) 0.2% 51.69 2/17/05 0 392,773 922,866
17,109(11) 0.2% 51.69 2/17/05 0 378,439 889,188
91,050(12) 1.0% 51.69 7/12/04 0 1,820,090 4,207,454
14,905(10) 0.2% 51.69 3/9/03 0 230,083 513,180
62,648(11) 0.7% 51.69 2/16/00 0 384,304 793,127
500,000(6) 5.3% 51.69 6/9/07 0 15,455,956 38,731,415
500,000(7) 5.3% 51.69 6/9/07 0 15,455,956 38,731,415
D. Wayne Peterson 40,000(2) 0.4% 43.38 2/11/07 0 1,091,132 2,765,143
32,076(3) 0.3% 43.38 2/11/07 0 874,979 2,217,368
56,329(4) 0.6% 43.38 2/11/07 0 1,536,560 3,893,944
6,850(5) 0.1% 46.63 2/17/05 0 150,037 358,304
5,095(5) 0.1% 46.63 3/9/03 0 79,984 181,205
6,475(5) 0.1% 46.63 2/16/00 0 45,723 95,753
28,247(5) 0.3% 54.47 2/11/04 0 556,324 1,273,134
2,035(5) 0.0% 54.47 2/16/00 0 13,404 27,691
All stockholders(13) 343,323,103 -- 46.14 2/11/07 0 9,962,473,482 25,246,863,815
Named Officers' gain as
a % of all
stockholders' gain -- -- -- -- 0.08% 0.08%
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at the
five percent and ten percent rates set by the SEC and are not intended to
forecast future appreciation of Existing Common Stock.
(2) Twenty-five percent of this option became exercisable on February 11,
1998, and an additional 25% will become exercisable on February 11 of each
of the three successive years.
157
<PAGE>
(3) This option was granted in lieu of a potential award under the LTIP for
the three-year period ending on December 31, 1999. This option becomes
exercisable on December 31, 1999. This option is not immediately
exercisable upon a change in control.
(4) This option was granted under the MISOP. Under the MISOP, the optionee
elected to receive options in lieu of receiving a portion of his bonus
under the management incentive compensation plans. The MISOP benefits
Sprint by reducing the cash bonus paid to the executive. It further
increases the percentage of compensation tied to stock ownership, in
keeping with Sprint's philosophy to more closely align stockholder and
employee interests. This option became exercisable on December 31, 1997.
(5) This option is a reload option. A reload option is an option granted when
an optionee exercises a stock option and makes payment of the purchase
price using shares of previously owned common stock. A reload option
grant is for the number of shares utilized in payment of the purchase
price and tax withholding, if any. The option price for a reload option
is equal to the market price of common stock on the date the reload
option is granted. A reload option becomes exercisable one year from the
date the original option was exercised.
(6) This option becomes exercisable on June 9, 2002 only if the market value
of Existing Common Stock equals or exceeds $95.875 per share on any 30
trading days within a consecutive period of 45 trading days, all of which
fall after June 9, 2001 and on or before June 9, 2002. Alternatively, if
the market value of Existing Common Stock equals or exceeds $95.875 per
share on any 30 trading days within a consecutive period of 45 trading
days, all of which fall after June 9, 2001 and on or before June 9, 2003,
this option becomes exercisable on the last day of the 45-day period. If
no such 45-day period occurs by June 9, 2003, the option will be
forfeited. See "Incentive Plans Proposal--Board Adjustments for
Outstanding Options" for the adjustments in these options that will be
effected if the Incentive Plans Proposal is implemented.
(7) This option becomes exercisable on June 9, 2002.
(8) One-third of this option became exercisable on February 12, 1998, and an
additional one-third will become exercisable on February 12, 1999 and on
February 12, 2000.
(9) Fifty percent of this option became exercisable on February 17, 1998 and
an additional 50% will become exercisable on February 17, 1999.
(10) This option became exercisable on November 15, 1997.
(11) This option became exercisable on May 20, 1998.
(12) This option becomes exercisable on July 12, 1999.
(13) The amounts shown as potential realizable value for all stockholders,
which are presented for comparison purposes only, represent the aggregate
net gain for all holders of record, as of February 23, 1998, of Existing
Common Stock assuming a hypothetical option granted at $46.14 per share
(the weighted average price of all options granted in 1997) on February
11, 1997 and expiring on February 11, 2007, if the price of Existing
Common Stock appreciates at the rates shown in the table. There can be no
assurance that the potential realizable values shown in the table will be
achieved. Sprint will neither make nor endorse any prediction as to
future stock performance.
158
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table summarizes the net value realized on the exercise of
options in 1997, and the value of the outstanding options at December 31,
1997, for the Named Officers.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT 12/31/97 MONEY OPTIONS AT 12/31/97(2)
------------------------------- -------------------------------
SHARES
ACQUIRED ON VALUE
EXERCISE(#) REALIZED(1)($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
----------- -------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William T. Esrey........ 330,544 $7,466,939 856,694 2,736,344 $21,732,707 $35,258,353
Gary D. Forsee.......... 23,836 750,953 184,413 184,412 4,075,005 3,319,224
Michael B. Fuller....... 16,996 450,007 109,451 82,818 3,426,780 1,426,311
Arthur B. Krause........ 0 0 165,847 151,105 4,803,963 3,279,384
Ronald T. LeMay......... 368,155 6,112,173 149,751 1,453,795 954,663 9,267,943
D. Wayne Peterson....... 117,683 2,623,292 76,010 211,828 1,248,317 3,805,337
</TABLE>
- --------
(1) The value realized upon exercise of an option is the difference between
the fair market value of the shares of Existing Common Stock received upon
the exercise, valued on the exercise date, and the exercise price paid.
(2) The value of unexercised, in-the-money options is the difference between
the exercise price of the options and the fair market value of Existing
Common Stock at December 31, 1997 ($58.0625).
PENSION PLANS
The following table reflects the estimated annual pension benefit payable to
an individual retiring in 1998 at age 65. The amounts include all prospective
benefits under Sprint's plans, whether tax-qualified or not.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
-------------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
- --------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$ 500,000 $114,612 $152,816 $191,020 $229,224 $ 267,428
700,000 161,112 214,816 268,520 322,224 375,928
900,000 207,612 276,816 346,020 415,224 484,428
1,100,000 254,112 338,816 423,520 508,224 592,928
1,300,000 300,612 400,816 501,020 601,224 701,428
1,500,000 347,112 462,816 578,520 694,224 809,928
1,700,000 393,612 524,816 656,020 787,224 918,428
1,900,000 440,112 586,816 733,520 880,224 1,026,928
2,100,000 486,612 648,816 811,020 973,224 1,135,428
</TABLE>
- --------
(1) Compensation, for purposes of estimating a pension benefit, includes
salary and bonus as reflected under Annual Compensation in the Summary
Compensation Table on page 107. The calculation of benefits under the
pension plans generally is based upon average compensation for the highest
five consecutive years of the ten years preceding retirement.
(2) These amounts are straight life annuity amounts and would not be subject
to reduction because of Social Security benefits. For purposes of estimating
a pension benefit, the years of service credited are 33, 16, 23, 34, 24 and
40 years for Messrs. Esrey, Forsee, Fuller, Krause, LeMay and Peterson,
respectively.
In addition, Sprint has a Key Management Benefit Plan that permits a
participant to elect a retirement benefit equal to 300% (or a reduced
percentage if the participant retires before age 60) of the participant's
highest annual salary during the five-year period immediately prior to the
time of retirement. More information on the plan is provided in the following
section under "--Employment Contracts."
159
<PAGE>
EMPLOYMENT CONTRACTS
Sprint has contingency employment agreements with Messrs. Esrey, Forsee,
Fuller, Krause and LeMay which provide for separation pay and benefits if
employment is involuntarily terminated following a change in control. A change
in control is deemed to occur if someone acquires 20% or more of the
outstanding voting stock of Sprint or if there is a change of a majority of
the Directors within a two-year period. Benefits will include monthly salary
payments for 35 months (or until the officer reaches age 65 if this occurs
earlier) and three payments each equal to the highest short-term plus the
highest long-term incentive compensation awards received during the three
years preceding termination. In addition, life, disability, medical and dental
insurance coverages will be provided for 35 months. For purposes of the Key
Management Benefit Plan, an officer will be deemed to have remained a Key
Executive (as defined in the plan) until age 60; interest will be credited
under the Executive Deferred Compensation Plan at the maximum rate allowed
under the plan. Retirement benefits will be determined assuming three years of
additional service and no early retirement pension reduction will be imposed.
If any excise tax is imposed by Section 4999 of the Code, Sprint will make the
executive whole with respect to any additional taxes due. The agreements are
not intended as an anti-takeover provision but could discourage an attempt to
acquire control of Sprint by increasing its cost.
The Named Officers have each signed non-competition agreements with Sprint
which provide that he will not associate himself with a competitor for an 18-
month period following termination of employment. In addition, the agreements
provide that each executive will receive 18 months of compensation and
benefits following an involuntary termination of employment. In connection
with Mr. Peterson's resignation as President--National Integrated Services
last October, his non-competition agreement was amended to shorten his non-
compete period to end on December 31, 1998. Until that date, Mr. Peterson will
continue to receive his pay and benefits as an employee.
Sprint has a Key Management Benefit Plan providing for a survivor benefit in
the event of the death of a participant or, in the alternative, a supplemental
retirement benefit. Under the plan, if a participant dies prior to retirement,
the participant's beneficiary will receive ten annual payments each equal to
25% of the participant's highest annual salary during the five-year period
immediately prior to the time of death. If a participant dies after retiring
or becoming permanently disabled, the participant's beneficiary will receive a
benefit equal to 300% (or a reduced percentage if the participant retires
before age 60) of the participant's highest annual salary during the five-year
period immediately prior to the time of retirement or disability, payable
either in a lump sum or in installments at the election of the participant. At
least 13 months before retirement, a participant may elect a supplemental
retirement benefit in lieu of all or a portion of the survivor benefit. Each
Named Officer is a participant in the plan.
160
<PAGE>
PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative
total stockholder return for Existing Common Stock as compared with the S&P
500(R) Stock Index, the S&P(R) Telephone Utility Index and the S&P(R)
Telecommunications (Long Distance) Index, for the five-year period from
December 31, 1992 to December 31, 1997. The companies which comprise the S&P
Telephone Utility Index are ALLTEL Corp., Ameritech, Inc., Bell Atlantic
Corp., BellSouth, Frontier Corp, GTE, SBC Communications, Inc. and U.S. West,
Inc. The companies which comprise the S&P Telecommunications (Long Distance)
Index are AT&T Corp., MCI Communications, Sprint and WorldCom, Inc.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sprint................................ 100.00 140.20 115.49 169.83 212.51 317.77
S&P 500............................... 100.00 109.92 111.34 152.66 187.28 249.28
S&P (Long Distance)................... 100.00 113.16 103.21 138.74 143.09 201.83
S&P Telephone......................... 100.00 115.35 110.74 165.35 166.64 231.64
</TABLE>
INDEPENDENT AUDITORS
The consolidated financial statements of Sprint and the combined financial
statements of the FON Group and the PCS Group as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 included
in this Proxy Statement have been audited by Ernst & Young LLP, independent
auditors, as stated in their reports thereon appearing elsewhere herein which,
as to the year 1997 for the consolidated financial statements of Sprint and
the years 1997, 1996, and 1995 for the combined financial statements of the
PCS Group, are based in part on the reports of Deloitte & Touche LLP,
independent auditors.
The consolidated financial statements and consolidated financial statement
schedule of Sprint appearing in Sprint's Annual Report (Form 10-K) for the
year ended December 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as stated in their report thereon included therein and
incorporated herein by reference which, as to the year 1997, is based in part
on the report of Deloitte & Touche LLP, independent auditors.
The combined balance sheets of Sprint Spectrum Holding Company, L.P. and
subsidiaries, MinorCo, L.P. and subsidiaries, PhillieCo Partners I, L.P. and
subsidiaries and PhillieCo Partners II, L.P. and subsidiaries as of
161
<PAGE>
December 31, 1997 and 1996 and the related combined statements of operations
and cash flows for the three years then ended, included in this Proxy
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this Proxy Statement (which expresses an
unqualified opinion and includes an explanatory paragraph referring to the
emergence from the development stage),
The consolidated financial statements and the related financial statement
schedule incorporated in this Proxy Statement by reference from the Sprint
Spectrum L.P. and Sprint Spectrum Finance Corporation Annual Report on Form
10-K for the year ended December 31, 1997 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report (which expresses
an unqualified opinion and includes an explanatory paragraph referring to the
emergence from the development stage).
The consolidated financial statements of Sprint Spectrum Holding Company,
L.P. and subsidiaries as of December 31, 1997 and 1996, not separately
presented in this Proxy Statement, have been audited by Deloitte & Touche LLP,
independent auditors, whose report thereon (which expresses an unqualified
opinion and includes an explanatory paragraph referring to the emergence from
the development stage) has been included herein and incorporated by reference
from the Annual Report on Form 10-K of Sprint Corporation.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in Sprint's proxy solicitation
materials for its Annual Meeting of Stockholders to be held in 1999, any
stockholder proposal to be considered at such meeting must be received by the
Corporate Secretary at Sprint's principal office, 2330 Shawnee Mission
Parkway, Westwood, Kansas 66205 on or before November 10, 1998. Any such
proposal will be subject to the requirements contained in the Sprint Bylaws
relating to stockholder proposals and the proxy rules under the Exchange Act.
AVAILABLE INFORMATION
Sprint is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed with the SEC by Sprint can be inspected and copied at the office of the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its
Regional Offices located at 7 World Trade Center, Suite 1300, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661,
and copies of such materials can be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a web site on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC and that is located at
http://www.sec.gov. In addition, the Existing Common Stock is listed on the
NYSE and similar information concerning Sprint can be inspected and copied at
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Statements contained in this Proxy Statement as to the contents of any
contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to Sprint's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and its Current Report on Form 8-K dated May 26, 1998, each
such statement being qualified in all respects by such reference.
162
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Sprint are
incorporated by reference into this Proxy Statement:
(i) Sprint's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(ii) Sprint's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
(iii) Sprint's Current Report on Form 8-K dated May 26, 1998.
The following documents previously filed with the Commission by Sprint
Spectrum are incorporated by reference into this Proxy Statement:
(i) Sprint Spectrum's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(ii) Sprint Spectrum's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
(iii) Sprint Spectrum's Current Report on Form 8-K dated May 26, 1998.
In addition, all documents filed by Sprint and Sprint Spectrum pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference into this Proxy Statement and to be a
part hereof from the date of filing of such documents. Any statements
contained in a previously filed document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein (or in a
subsequently filed document which also is incorporated by reference herein)
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Proxy Statement
except as so modified or superseded.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR
ORAL REQUEST FROM THE INVESTMENT RELATIONS DEPARTMENT OF SPRINT. IN ORDER TO
ENSURE TIMELY DELIVERY OR REQUEST DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE
BY [5 DAYS PRIOR TO SPECIAL MEETING DATE].
163
<PAGE>
GLOSSARY
"ADSL" means Asymmetric Digital Subscriber Line, a method for moving data
over regular phone lines.
"Affiliate," as defined in the Restructuring Agreement, means, with respect
to any person, any other person that directly, or indirectly through one or
more intermediaries, Controls or is Controlled by, or is under common Control
with, such Person. For purposes of the provisions described under "The
Tracking Stock Proposal--Standstill Agreements--Transfers," "Affiliate" of a
Holder includes any person that is jointly Controlled, directly, or indirectly
through one or more intermediaries, by one or more Cable Holders, or
Affiliates of one or more Cable Holders, without regard to whether such person
would be an Affiliate of the Holder pursuant to the first sentence of this
definition.
"Associate" means any associate within the meaning of Rule 12b-2 under the
Exchange Act.
"ATM" means Asynchronous Transfer Mode, a high speed transmission
technology. ATM is a high bandwidth, low-delay connection-oriented packet-like
switching and multiplexing technique used to transfer voice, video, images and
character-based data.
"Available Record Date Blackout Shares," as defined in the Amended
Stockholders' Agreement with respect to any Record Date Blackout Period, means
a number of shares of Series 3 FON Stock and/or Series 3 PCS Stock, which
after giving effect to the issuance of such shares represents Votes in an
amount equal to the lesser of (i) 20% of the Voting Power of Sprint minus the
sum of (x) the Percentage Ownership Interest of the Class A Holders as of the
beginning of such Record Date Blackout Period, and (y) the Percentage
Ownership Interest which would be represented by shares with respect to which
the Class A Holders have equity purchase rights, after giving effect to the
issuance of such shares, (ii) 0.75% of the outstanding Voting Power of Sprint
as of the first day of the Record Date Blackout Period, and (iii) 1.25% of the
outstanding Voting Power of Sprint as of the first day of the Record Date
Blackout Period, less the Percentage Ownership Interest represented by the
number of shares purchased pursuant to the Amended Stockholders' Agreement
during the preceding 12 months. The price to be paid for such shares will be
(i) with respect to Series 3 FON Stock, the Market Price of the Series 1 FON
Stock as of the date of purchase of the Series 3 FON Stock, and (ii) with
respect to Series 3 PCS Stock, the Market Price of the Series 1 PCS Stock as
of the date of purchase of the Series 3 PCS Stock.
"Average Trading Price" of a share of any class or series of capital stock
of Sprint on any day, as defined in the Amended Articles, means the average
Closing Price of such capital stock determined over the 20 Trading Days
immediately preceding the date of such determination; provided that for
purposes of this definition only, in determining the "Closing Price" of a
share of any class or series of capital stock for such 20 Trading Day period,
(i) the "Closing Price" of a share of capital stock on any day prior to any
"ex-dividend" date or any similar date occurring during such period for any
dividend or distribution (other than any dividend or distribution contemplated
by clause (ii)(B) of this definition) paid or to be paid with respect to such
capital stock shall be reduced by the Fair Value of the per share amount of
such dividend or distribution and (ii) the "Closing Price" of any share of
capital stock on any day prior to (A) the effective date of any subdivision
(by stock split or otherwise) or combination (by reverse stock split or
otherwise) of outstanding shares of such class of capital stock occurring
during such period or (B) any "ex-dividend" date or any similar date occurring
during such period for any dividend or distribution with respect to such
capital stock to be made in shares of such class or series of capital stock or
Convertible Securities that are convertible, exchangeable or exercisable for
such class or series of capital stock, shall be appropriately adjusted, as
determined by the Sprint Board, to reflect such subdivision, combination,
dividend or distribution.
"BTA" means Basic Trading Area, a wireless telecommunications term. The
United States is broken down into 493 MTAs for economic purposes. These areas
were defined by the FCC for the purpose of issuing licenses for PCS. Several
BTAs make up each MTA.
"CDMA" means Code Division Multiple Access, a digital spread-spectrum
wireless technology which allows a large number of users to access a single
frequency band that assigns a code to all speech bits, sends a scrambled
transmission of the encoded speech over the air and reassembles the speech
into its original format.
G-1
<PAGE>
"Change of Control," as defined in the Amended Articles, means a:
(a) decision by the Sprint Board to sell Control of Sprint or not to
oppose a third party tender offer for Sprint Voting Securities representing
more than 35% of the Voting Power of Sprint; or
(b) change in the identity of a majority of the Directors due to (i) a
proxy contest (or the threat to engage in a proxy contest) or the election
of Directors by the holders of Preferred Stock; or (ii) any unsolicited
tender, exchange or other purchase offer which has not been approved by a
majority of the Independent Directors,
provided that a Strategic Merger shall not be deemed to be a Change of Control
and provided, further, that any transaction between Sprint and FT and DT or
otherwise involving FT and DT and any of their direct or indirect subsidiaries
which are party to a contract therefor shall not be deemed to be a Change of
Control.
"Change of Control," as defined in the Standstill Agreements with the Cable
Parents, means the consummation of:
(a) a third party tender offer for Voting Securities of Sprint
representing more than 35% of the Voting Power of Sprint;
(b) a sale of all or substantially all of the assets of Sprint in one
transaction or in a series of related transactions;
(c) a merger or other business combination that would result in (a) a
Person holding Voting Securities of the resulting entity representing 35%
or more of the Voting Power of Sprint or (ii) the stockholders of Sprint
immediately prior to the record date for such transaction owning less than
50% of the outstanding equity securities of the surviving Person following
such combination; or
(d) a change in the identity of a majority of the directors on the Sprint
Board due to (i) a proxy contest (or the threat to engage in a proxy
contest) or the election of directors by the holders of Preferred Stock; or
(ii) any unsolicited tender, exchange or other purchase offer which has not
been approved by a majority of the Independent Directors;
provided that a Strategic Merger shall not be deemed a Change of Control.
"CLEC" means a competitive local exchange carrier, a company that competes
with local exchange carriers in the local services market.
"Closing Price," as defined in the Amended Articles, means, with respect to
a security on any day, the last sale price, regular way, or in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if such security is not listed or admitted to trading
on such exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the security is listed or admitted to trading or,
if the security is not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use, or, if on any such
date such security is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the security selected in good faith by the Sprint Board. If
the security is not publicly held or so listed or publicly traded, "Closing
Price" means the fair market value of such security.
"CMRS" means Commercial Mobile Radio Service providers, an FCC term for
cellular and PCS providers.
"Committed Percentage," as defined in the Amended Stockholders' Agreement,
means the percentage of Sprint voting power owned by the holders of Class A
Stock plus the percentage they are committed to purchase (but not pursuant to
the Master Agreement until such shares are acquired pursuant to such
agreement),
G-2
<PAGE>
determined on a basis that includes as outstanding the shares such holders of
Class A Stock are committed to purchase (but not pursuant to the Master
Agreement until such shares are acquired pursuant to such agreement).
"Common Stock" means any class of common stock of Sprint, including the
Existing Common Stock, the Class A Common Stock, the PCS Stock or the FON
Stock.
"Control" (including, with its correlative meanings, "Controlled by" and
"under common Control with"), as defined in the Amended Articles, means, with
respect to a person or group, any of the following:
(a) ownership by such person or group of Votes entitling it to exercise
in the aggregate more than 35 percent of the Voting Power of the entity in
question; or
(b) possession by such person or group of the power, directly or
indirectly, (i) to elect a majority of the board of directors (or
equivalent governing body) of the entity in question or (ii) to direct or
cause the direction of the management and policies of or with respect to
the entity in question, whether through ownership of securities, by
contract or otherwise.
"Conversion Date," as defined in the Amended Articles, means the date fixed
by the Sprint Board as the effective date for the conversion of shares of PCS
Stock into shares of FON Stock (and Shares Issuable With Respect To The Class
A Equity Interest In The PCS Group into Shares Issuable With Respect To The
Class A Equity Interest In The FON Group) as shall be set forth in the notice
to holders of shares of PCS Stock and to holders of any Convertible Securities
that are convertible into or exchangeable or exercisable for shares of PCS
Stock.
"Converted Votes," as defined in the Amended Articles, means, on any
particular day, (i) in the case of a share of Series 2 PCS Stock, the
applicable PCS Per Share Vote such stock would have had on such date if such
stock were considered a share of Series 1 PCS Stock and (ii) in the case of a
share of Series 2 FON Stock, one vote per share.
"Convertible Securities," as defined in the Amended Articles, means any
securities of Sprint or of any subsidiary thereof (other than shares of FON
Stock or PCS Stock), including warrants and options, outstanding at such time
that by their terms are convertible into or exchangeable or exercisable for or
evidence the right to acquire any shares of any class of series of FON Stock
or PCS Stock, whether convertible, exchangeable or exercisable at such time or
a later time or only upon the occurrence of certain events, pursuant to
antidilution provisions of such securities or otherwise.
"Covered Proposal," as defined in the Standstill Agreements, means any
proposal by Sprint (i) for a merger, consolidation, business combination,
recapitalization or similar transaction, (ii) to modify or amend either the
Amended Articles or the provisions of the Sprint Bylaws relating to the
Capital Stock Committee in a manner that would adversely affect the rights of
the holders of the Series 1 PCS Stock or the Series 2 PCS Stock, (iii) for the
issuance of Sprint Voting Securities, (iv) for the sale of substantially all
assets or a dissolution or liquidation of Sprint, or (v) for any other matter
that would require approval of the holders of PCS Stock, voting as a separate
class.
"CP Conversion Shares" means shares of Series 1 PCS Stock issued upon the
conversion of shares of Series 2 PCS Stock.
"CP Preference Period," as defined in the Registration Rights Agreement,
means the period beginning on the CP Registration Rights Commencement Date and
ending on the earlier of (i) the date upon which the Cable Parents have
completed registered public offerings of Registrable Securities (as defined in
the Cable Partner Registration Rights Agreement) with an aggregate public
offering price for such Registrable Securities of $2 billion or (ii) the date
which is 12 months after the CP Registration Rights Commencement Date.
"CP Registration Rights Commencement Date," as defined in the Registration
Rights Agreement, means (i) if the IPO is consummated concurrently with the
initial issuance of Series 2 PCS Stock to the Cable Parents (the "CP
Closing"), the date that is 180 days following the CP Closing, (ii) if the IPO
is not consummated
G-3
<PAGE>
concurrently with the CP Closing but is consummated within 120 days of the CP
Closing, the date that is the later of the 90th day following the IPO or 180
days following the CP Closing, or (iii) if the IPO is not consummated
concurrently with the CP Closing or within 120 days thereafter, the date that
is the 180th day following the CP Closing, unless any Cable Parent shall
decide to exercise one of its rights to a demand registration after such 120th
day following the CP Closing but prior to such 180th day following the CP
Closing, in which case it shall be the date the demand notice is given
pursuant to the Cable Partner Registration Rights Agreement.
"CP Secondary Preference Period," as defined in the Registration Rights
Agreement, means the period ending on the earlier of (i) the fourth
anniversary of the CP Registration Rights Commencement Date or (ii) the date
upon which the Cable Parents have completed registered public offerings of
Registrable Securities with an aggregate public offering price for such
Registrable Securities of $3 billion.
"Disposition," as defined in the Amended Articles, means a sale, transfer,
assignment or other disposition (whether by merger, consolidation, sale or
contribution of assets or stock or otherwise) of properties or assets.
"Domestic," as defined in the Tracking Stock Policies, means geographically
within the 50 states of the United States or the District of Columbia, Puerto
Rico and the U.S. Virgin Islands.
"Domestic PCS License," as defined in the Tracking Stock Policies, means a
license to use PCS Spectrum within Domestic areas granted by the FCC or other
applicable authority.
"Domestic PCS Services," as defined in the Tracking Stock Policies, means
any services offered or provided within a Domestic geographic area using a
Domestic PCS License.
"Domestic Wireless Mobile Telephony Services," as defined in the Tracking
Stock Policies, means a communications service provided through the use of a
wireless connection from the user to a Domestic terrestrial telecommunications
network that is capable of and generally utilized by Sprint for handing-off
calls from one wireless cell to another and from one wireless sector within a
cell to another and which is intended to allow the continuation of a user's
single conversation, without interruption, as the user travels between cells
and/or sectors within such network.
"DT Class A FON Vote Per Share," as defined in the Amended Articles, means,
on any date, a number equal to X / Y, where "X" equals the Number Of Shares
Issuable With Respect To The DT Class A Equity Interest In The FON Group, and
"Y" equals the aggregate number of outstanding shares of DT Class A Stock.
"DT Class A PCS Interest Fraction," as defined in the Amended Articles
means, as of any date, the fraction the numerator of which is the Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The PCS
Group, on such date and the denominator of which is the sum of (i) the number
of shares of PCS Stock outstanding, (ii) the Number Of Shares Issuable With
Respect To The FON Group Inter-Group Interest, (iii) the Number Of Shares
Issuable With Respect To The Existing Class A Equity Interest In The PCS Group
and (iv) the Number Of Shares Issuable With Respect To The DT Class A Equity
Interest In The PCS Group, in each case as of such date.
"DT Class A PCS Vote Per Share," as defined in the Amended Articles, means,
on any date, a number equal to (X/Y) x Z, where "X" equals the Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The PCS
Group, "Y" equals the aggregate number of outstanding shares of DT Class A
Stock, and "Z" equals the applicable PCS Per Share Vote on such date.
"Dual-Band Handset" means a handset that will work (transmit and receive) on
either the 800 MHz or 1,900-MHz frequencies.
"Dual-Mode Handset" means a handset that will work (transmit and receive)
for both analog and digital telecommunications systems.
G-4
<PAGE>
"DWDM" means Dense Wave Division Multiplexing, a high-speed version of wave
division multiplexing, which is a means of increasing the capacity of SONET
fiber-optic transmission systems through the multiplexing of multiple
wavelengths of light.
"ESMR" means Enhanced Specialized Mobile Radio communications services,
supplied by converting analog SMR services into an integrated, digital
transmission system providing for call hand-off, frequency reuse and wide-call
delivery networks.
"Exchange Preferred Stock," as defined in the Certificate of Designations,
means a series of convertible preferred stock of Sprint having terms,
conditions, designations, dividend rights, voting powers, rights on
liquidation and other preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof
that are identical, or as nearly so as is practicable in the judgment of the
Sprint Board, to those of the PCS Preferred Stock for which such Exchange
Preferred Stock is exchanged, except that (i) the liquidation preference will
be determined as provided in the Certificate of Designations, (ii) the running
of any time periods pursuant to the terms of the PCS Preferred Stock shall be
tacked to the corresponding time periods in the Exchange Preferred Stock and
(iii) the Exchange Preferred Stock will not be convertible into, and the
holders will have no conversion rights thereunder with respect to, (x) in the
case of a redemption of Redeemable Capital Stock, the Redeemable Capital Stock
redeemed, or the Redemption Securities issued, in the Redemption Event, and
(y) in the case of a Spin Off, the Spin Off Securities;
"Existing Class A FON Vote Per Share," as defined in the Amended Articles,
means, on any date, a number equal to X / Y, where "X" equals the Number Of
Shares Issuable With Respect To The Existing Class A Equity Interest In The
FON Group and "Y" equals the aggregate number of outstanding shares of
Existing Class A Common Stock.
"Existing Class A PCS Interest Fraction," as defined in the Amended
Articles, means the fraction the numerator of which is the Number of Shares
Issuable With Respect To The Existing Class A Equity Interest In The PCS Group
on such date and the denominator of which is the sum of (i) the number of
shares of PCS Stock outstanding, (ii) the Number Of Shares Issuable With
Respect To The FON Group Inter-Group Interest, (iii) the Number Of Shares
Issuable With Respect To The Existing Class A Equity Interest In The PCS Group
and (iv) the Number Of Shares Issuable With Respect To The DT Class A Equity
Interest In The PCS Group, in each case as of such date.
"Existing Class A PCS Vote Per Share," as defined in the Amended Articles,
means, on any date, a number equal to (X/Y) x Z, where "X" equals the Number
Of Shares Issuable With Respect To The Existing Class A Equity Interest In The
PCS Group, "Y" equals the aggregate number of outstanding shares of Existing
Class A Common Stock and "Z" equals the applicable PCS Per Share Vote on such
date.
"Fair Value," as defined in the Amended Articles, means, in the case of
equity securities or debt securities of a class that has previously been
Publicly Traded for a period of at least 15 months, the Market Value thereof
(if such value, as so defined, can be determined) or, in the case of an equity
security or debt security that has not been Publicly Traded for at least such
period, means the fair value per share of stock or per other unit of such
other security, on a fully distributed basis, as determined by an independent
investment banking firm experienced in the valuation of securities selected in
good faith by the Sprint Board, or, if no such investment banking firm is, as
determined in the good faith judgment of the Sprint Board; provided, however,
that in the case of property other than securities, the "Fair Value" thereof
shall be determined in good faith by the Sprint Board based upon such
appraisals or valuation reports of such independent experts as the Sprint
Board shall in good faith determine to be appropriate in accordance with good
business practice. Any such determination of Fair Value shall be described in
a statement filed with the records of the actions of the Sprint Board.
"FON Group," as defined in the Amended Articles, means, as of any date from
and as of the Closing Date.
(A) the interest of Sprint or any of its subsidiaries on such date in all
of the assets, liabilities and businesses of Sprint or any of its
subsidiaries (and any successor companies), other than any assets,
liabilities and businesses attributed to the PCS Group;
G-5
<PAGE>
(B) a proportionate undivided interest in each and every business, asset
and liability attributed to the PCS Group equal to the FON Group Inter-
Group Interest Fraction as of such date;
(C) all properties and assets transferred to the FON Group from the PCS
Group (other than pursuant to paragraph (D) or (F) of this definition)
after the Closing Date pursuant to transactions in the ordinary course of
business of both the FON Group and the PCS Group or otherwise as the Sprint
Board may have directed as permitted by the Amended Articles;
(D) all properties and assets transferred to the FON Group from the PCS
Group in connection with a reduction of the Number Of Shares Issuable With
Respect To The Inter-Group Interest;
(E) the interest of Sprint or any of its subsidiaries in any business or
asset acquired and any liabilities assumed by Sprint or any of its
subsidiaries outside the ordinary course of business and attributed to the
FON Group, as determined by the Sprint Board as contemplated by the Amended
Articles; and
(F) from and after the payment date of any dividend or other distribution
with respect to shares of PCS Stock (other than a dividend or other
distribution payable in shares of PCS Stock, with respect to which
adjustment shall be made as provided in the definition of "Number Of Shares
Issuable In Respect Of The Inter-Group Interest," or in securities of
Sprint attributed to the PCS Group, for which provision shall be made as
set forth in the third to last sentence of this definition), an amount of
assets or properties previously attributed to the PCS Group of the same
kind as were paid in such dividend or other distribution with respect to
shares of PCS Stock and Class A Common Stock (with respect to Shares
Issuable With Respect To The Class A Equity Interest In The PCS Group) as
have a Fair Value on the record date for such dividend or distribution
equal to the product of (1) the Fair Value on such record date of such
dividend or distribution to holders of shares of PCS Stock declared on a
per share basis multiplied by (2) the Number Of Shares Issuable With
Respect To The FON Group Inter-Group Interest (determined as of the record
date for such dividend or distribution).
provided that from and after any transfer of any assets or properties from the
FON Group to the PCS Group, the FON Group shall no longer include such assets
or properties so transferred (other than as reflected in respect of such a
transfer by the FON Group Inter-Group Interest Fraction, as provided by
paragraph (B) of this definition).
If Sprint shall pay a dividend or make some other distribution with respect
to shares of PCS Stock payable in securities of Sprint that are attributed to
the PCS Group (other than PCS Stock), the FON Group shall be
deemed to hold an interest in the PCS Group equivalent to the number or amount
of such securities that is equal to the product of the number or amount of
securities so distributed to holders of PCS Stock on a per share basis
multiplied by the Number Of Shares Issuable With Respect To The FON Group
Intergroup Interest (determined as of the record date for such distribution)
and, to the extent interest is or dividends are paid on the securities so
distributed, the FON Group shall include, and there shall be transferred
thereto out of the PCS Group, a corresponding ratable amount of the kind of
assets paid as such interest or dividends as would have been paid in respect
of such securities so deemed to be held by the FON Group if such securities
were outstanding.
Sprint may also, to the extent the securities so paid as a dividend or other
distribution to the holders of PCS Stock are Convertible Securities and at the
time are convertible into or exchangeable or exercisable for shares of PCS
Stock, treat such Convertible Securities as are so deemed to be held by the
FON Group to be deemed to be converted, exchanged or exercised, and shall do
so to the extent such Convertible Securities are mandatorily converted,
exchanged or exercised (and to the extent the terms of such Convertible
Securities require payment of consideration for such conversion, exchange or
exercise, the FON Group shall then no longer include an amount of the kind of
properties or assets required to be paid as such consideration for the amount
of Convertible Securities deemed converted, exchanged or exercised (and such
properties or assets shall be attributed to the PCS Group)), in which case,
from and after such time, the securities into or for which such Convertible
Securities so deemed to be held by the FON Group were so considered converted,
exchanged or exercised shall be deemed held by the FON Group and such
Convertible Securities shall no longer be deemed to be held by the FON Group.
A statement setting forth the election to effectuate any such deemed
conversion, exchange or exercise of Convertible Securities so deemed to be
held by the FON Group and the properties or assets, if any, to be
G-6
<PAGE>
attributed to the PCS Group in consideration of such conversion, exchange or
exercise (if any) shall be filed in the records of the actions of the Sprint
Board and, upon such filing, such deemed conversion, exchange or exercise
shall be effectuated.
Reference to the FON Group prior to the Closing Date means those operations
of Sprint other than the PCS Group.
"FON Group Available Dividend Amount," on any date, as defined in the
Tracking Stock Policies, means the amount, if any, by which (1) the fair
market value of the total assets attributed to the FON Group less the total
amount of the liabilities attributed to the FON Group (provided that Preferred
Stock shall not be treated as a liability), in each case as of such date and
determined on a basis consistent with the determination of the FON Group Net
Earnings (Loss), exceeds (2) the aggregate par value of, or any greater amount
determined in accordance with applicable corporation law to be capital in
respect of, all outstanding shares of FON Stock and each class or series of
Preferred Stock attributed to the FON Group.
"FON Group Net Earnings (Loss)," for any period through any date, as defined
in the Tracking Stock Policies, means the net income or loss of the FON Group
for such period (or in respect of fiscal periods of Sprint commencing prior to
the Closing Date, the pro forma net income or loss of the FON Group for such
period as if the Closing Date had been the first day of such period)
determined in accordance with generally accepted accounting principles in
effect at such time, reflecting income and expense of Sprint attributed to the
FON Group on a basis substantially consistent with attributions of income and
expense made in the calculation of PCS Group Net Earnings (Loss), including,
without limitation, corporate administrative costs, net interest and other
financial costs and income taxes.
"Frame Relay" means a service which employs a form of packet switching
similar to a streamlined version of X.25 networks. The packets are in the form
of "frames" which vary in length and is completely protocol independent.
Because the "frame" is undisturbed and the conversions are the responsibility
of the user, the transmission speed is faster, up to 1.544 mbps, and less
expensive.
"GSM" means Global System for Mobile Communications or Groupe Special
Mobile, an international digital cellular radio standard first developed in
Western Europe. The GSM standard defines the components of the cellular radio
network infrastructure, including base stations, switching centers, signaling
system and interfaces and the radio access protocol. In Europe, GSM operates
in the 900 MHz frequency range. It has been upgraded to function in the 1.8
GHz (DCN) and 1.9 GHz (PCS-1900) frequency ranges.
"ILEC" means an Incumbent Local Exchange Carrier, a company historically
providing local telephone service. Often refers to one of the Regional Bell
Operating Companies (RBOCs) or GTE. Often referred to as "LEC" (Local Exchange
Carrier).
"Independent Director," as defined in the Amended Articles, means any member
of the Sprint Board who (a) is not an officer or employee of Sprint, or any
holder of Class A Stock, or any of their respective subsidiaries, (b) is not a
former officer of Sprint, or any holder of Class A Stock, or any of their
respective subsidiaries, (c) does not, in addition to such person's role as a
Director, act on a regular basis, either individually or as a member or
representative of an organization, serving as a professional adviser, legal
counsel or consultant to Sprint, or any holder of Class A Stock, or their
respective subsidiaries, if, in the opinion of the Nominating Committee of the
Sprint Board or the Sprint Board if a Nominating Committee is not in
existence, such relationship is material to Sprint, any holder of Class A
Stock, or the organization so represented or such person, and (d) does not
represent, and is not a member of the immediate family of, a person who would
not satisfy the requirements of the preceding clauses (a), (b) and (c) of this
sentence. A person who has been or is a partner, officer or director of an
organization that has customary commercial, industrial, banking or
underwriting relationships with Sprint, any holder of Class A Stock, or any of
their respective subsidiaries, that are carried on in the ordinary course of
business on an arms-length basis and who otherwise satisfies the requirements
set forth in clauses (a), (b), (c) and (d) of the first sentence of this
definition, may qualify as an Independent Director, unless, in the opinion of
G-7
<PAGE>
the Nominating Committee or the Sprint Broad if a Nominating Committee is not
in existence, such person is not independent of the management of Sprint, or
any holder of Class A Stock or any of their respective subsidiaries, or the
relationship would interfere with the exercise of independent judgment as a
member of the Sprint Board. A person who otherwise satisfies the requirements
set forth in clauses (a), (b), (c) and (d) of the first sentence of this
definition and who, in addition to fulfilling the customary director's role,
also provides additional services directly for the Sprint Board and is
separately compensated therefor, would nonetheless qualify as an Independent
Director. Notwithstanding anything to the contrary contained in this
definition, each Director as of the date of the execution of the Investment
Agreement (as defined in the Amended Articles) who is not an executive officer
of Sprint shall be deemed to be an Independent Director hereunder.
"Inter-Group Interest," as defined in the Tracking Stock Policies, and
"Inter-Group Interest Fraction," as defined in the Articles Amendment, means a
fraction the numerator of which is the Number Of Shares Issuable With Respect
To The Inter-Group Interest on such date and the denominator of which is the
sum of (A) such Number Of Shares Issuable With Respect To The Intergroup
Interest and (B) the aggregate number of shares of PCS Stock outstanding on
such date. A statement setting forth the Inter-Group Interest Fraction as of
the record date for any dividend or distribution on any class of FON Stock or
PCS Stock, as of the end of each fiscal quarter of Sprint and as of any date
otherwise required under the Amended Articles by the Sprint Board shall be
filed by the Secretary of Sprint in the records of the Sprint Board not later
than fifteen business days after such date.
"ISDN" means Integrated Services Digital Network, a switched network
providing end-to-end digital connectivity for the simultaneous transmission of
voice, data, video, imaging and facsimile, over several multiplexed
communications channels.
"Kbps" means one thousand bits per second.
"LATA" means Local Access Transport Area, a geographic area in the United
States within which a local telephone company may offer telecommunications
services.
"LEC" means a local exchange carrier, a company providing local telephone
service.
"Major Competitor of Sprint" means, in general, a company that materially
competes with a portion of the telecommunications services business of Sprint
in North America or the business of Global One or a company that has taken
substantial steps to become such a Major Competitor.
"Mbps" means one million bits per second.
"Market Capitalization," as defined in the Amended Articles, means, with
respect to Sprint at any date, the sum of the average Market Price over the
immediately preceding 20 business days of each share of outstanding capital
stock of Sprint, securities convertible into such capital stock and options,
warrants or other rights to acquire such capital stock.
"Market Price," as defined in the Amended Articles, means, with respect to a
security on any date, the Closing Price of such security on the Trading Day
immediately prior to such date. The Market Price shall be deemed to be equal
to, (i) in the case of a share of Series 3 FON Stock or Series 2 FON Stock, as
the case may be, the Market Price of a share of Series 1 FON Stock and (ii) in
the case of a share of Series 3 PCS Stock or Series 2 PCS Stock, as the case
may be, the Market Price of a share of Series 1 PCS Stock. The Market Price of
(x) any options, warrants, rights or other securities convertible into or
exercisable for Series 3 FON Stock or Series 2 FON Stock shall be equal to the
Market Price of options, warrants, rights or other securities convertible into
or exercisable Series 1 FON Stock upon the same terms and otherwise containing
the same terms as such options, warrants, rights or other securities
convertible into or exercisable for Series 3 FON Stock or Series 2 FON Stock,
as the case may be, and (y) any options, warrants, rights or other securities
convertible into or exercisable for Series 3 PCS Stock or Series 2 PCS Stock,
as the case may be, shall be equal to the Market Price of options, warrants,
rights or other securities convertible into or exercisable for Series 1 PCS
Stock upon the same terms and otherwise containing the same terms as such
options, warrants, rights or other securities convertible into or exercisable
for Series 3 PCS Stock or Series 2 PCS Stock, as the case may be.
G-8
<PAGE>
"Market Value" of a share of any class or series of capital stock of Sprint
on any day (as defined in the Amended Articles) means the average of the high
and low reported sales prices regular way of a share of such class or series
on such day (if such day is a Trading Day, and if such day is not a Trading
Day, on the Trading Day immediately preceding such day) or, in case no such
reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices regular way of a share of such class or series on
such Trading Day, in either case as reported on the NYSE Composite Tape or, if
the shares of such class or series are not listed or admitted to trading on
such exchange on such Trading Day, on the principal national securities
exchange in the United States on which the shares of such class or series are
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange on such Trading Day, on the National Market tier
of The Nasdaq Stock Market or, if the shares of such class or series are not
listed or admitted to trading on any national securities exchange or quoted on
such National Market System on such Trading Day, the average of the closing
bid and asked prices of a share of such class or series in the over-the-
counter market on such Trading Day as furnished by any NYSE member firm
selected from time to time by the Sprint Board or, if such closing bid and
asked prices are not made available by any such NYSE member firm on such
Trading Day, the Fair Value of a share of such class or series; provided that,
for purposes of determining the Market Value of a share of any class or series
of capital stock for any period,
(i) the "Market Value" of a share of capital stock on any day prior to
any "ex-dividend" date or any similar date occurring during such period for
any dividend or distribution (other than any dividend or distribution
contemplated by clause (ii)(B) of this definition) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and
(ii) The "Market Value" of any share of capital stock on any day prior to
(A) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of
such period or (B) any "ex-dividend" date or any similar date occurring
during such period for any dividend or distribution with respect to such
capital stock to be made in shares of such class or series of capital stock
or Convertible Securities that are convertible, exchangeable or exercisable
for such class or series of capital stock shall be appropriately adjusted,
as determined by the Sprint Board, to reflect such subdivision,
combination, dividend or distribution.
"Mirror Preferred Stock," as defined in the Certificate of Designations,
means convertible preferred stock issued by (i) in the case of a redemption of
Redeemable Capital Stock, the issuer of the applicable Redemption Securities,
and (b) in the case of a Spin Off, the issuer of the applicable Spin Off
Securities and having terms, designations, conditions, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as is
practicable in the judgment of the Sprint Board, to those of the PCS Preferred
Stock for which such Mirror Preferred Stock is exchanged, except that (i) the
liquidation preference will be determined as provided in the Certificate of
Designations, (ii) the running of any time periods pursuant to the terms of
the PCS Preferred Stock shall be tacked to the corresponding time periods in
the Mirror Preferred Stock and (iii) the Mirror Preferred Stock shall be
convertible into the kind and amount of Redemption Securities or Spin Off
Securities, as applicable, and other securities and property that the holder
of a share of PCS Preferred Stock in respect of which such Mirror Preferred
Stock is issued pursuant to the terms hereof would have received (x) in the
case of the redemption of Redeemable Capital Stock, upon such redemption had
such share of PCS Preferred Stock been converted immediately prior to the
effective date of the Redemption Event and (y) in the case of a Spin Off, in
such Spin Off had such share of PCS Preferred Stock been converted immediately
prior to the record date for such Spin Off;
"MSA" means Metropolitan Statistical Area, an area defined by the Office of
Management and Budget for use in publishing Census data and other government
statistics. An area qualifies for recognition as a Metropolitan Statistical
Area in one of two ways: the area has (1) a city of at least 50,000 population
or (2) an urbanized area of at least 50,000 with a total metropolitan
population of 50,000.
"MTA" means Metropolitan Trading Area, an area defined by the FCC for the
purpose of issuing licenses for PCS. Each MTA consists of several BTAs. The
United States is broken down into 51 MTAs.
G-9
<PAGE>
"Net Proceeds," as defined in the Amended Articles, means, as of any date
with respect to any disposition of any of the properties and assets attributed
to the PCS Group, an amount, if any, equal to what remains of the gross
proceeds of such disposition after payment of, or reasonable provision is made
as determined by the Sprint Board for, (A) any taxes payable by Sprint (or
which would have been payable but for the utilization of tax benefits
attributable to the FON Group) in respect of such disposition or in respect of
any resulting dividend or redemption, (B) any transaction costs, including,
without limitation, any legal, investment banking and accounting fees and
expenses and (C) any liabilities (contingent or otherwise) of or attributed to
the PCS Group, including, without limitation, any liabilities for deferred
taxes or any indemnity or guarantee obligations of Sprint incurred in
connection with the disposition or otherwise, and any liabilities for future
purchase price adjustments and any preferential amounts plus any accumulated
and unpaid dividends in respect of Preferred Stock attributed to the PCS
Group. For purposes of this definition, any properties and assets attributed
to the PCS Group remaining after such disposition shall constitute "reasonable
provision" for such amount of taxes, costs and liabilities (contingent or
otherwise) as the Sprint Board determines can be expected to be supported by
such properties and assets.
"Non-Class A Common Stock" means the Existing Common Stock, the Series 2
Common Stock, the Series 1 PCS Stock, the Series 2 PCS Stock and the Series 3
PCS Stock.
"Number Of Shares Issuable With Respect To The DT Class A Equity Interest In
The FON Group", as defined in the Amended Articles, means, as of the Effective
Date, a number equal to the aggregate number of outstanding shares of DT Class
A Common Stock as of the Effective Date; provided, however, that such number
shall from time to time thereafter be:
(A) adjusted, on an equivalent Per Class A FON Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the FON Stock or any reclassification of FON
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by the number of shares of Series 1 FON Stock
or Series 3 FON Stock issued in accordance with the Amended Articles and
any reduction required to reflect the redemption of Shares Issuable With
Respect To Class A Equity Interest In The FON Group to the extent allocated
to shares of DT Class A Common Stock; and
(C) adjusted by the Sprint Board to properly reflect any other necessary
changes on an equivalent Per Class A FON Share Basis.
"Number Of Shares Issuable With Respect To The DT Class A Equity Interest In
The PCS Group", as defined in the Amended Articles, means, as of the Effective
Date, a number (rounded up to the nearest whole share) equal to one-half of
the aggregate number of outstanding shares of DT Class A Common Stock as of
the Effective Date; provided, however, that such number shall from time to
time thereafter be:
(A) adjusted, on an equivalent Per Class A PCS Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the PCS Stock or any reclassification of PCS
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Board of Directors by (1) the
number of shares of Series 1 PCS Stock or Series 3 PCS Stock issued by
Sprint, (2) the amount of any payment made to the holders of DT Class A
Common Stock or divided by the corresponding redemption price per share of
PCS Stock, (3) any reduction required to reflect the redemption of Shares
Issuable With Respect To Class A Equity Interest In The PCS Group to the
extent allocated to shares of DT Class A Common Stock, (4) the conversion
of some or all of this number into a Number Of Shares Issuable With Respect
To The Class A--Series DT Equity Interest In The FON Group, and (5) the
redemption thereof in exchange for the issuance of shares of common stock
of the PCS Group Subsidiary; and
(C) adjusted by the Sprint Board to properly reflect any other necessary
changes on an equivalent Per Class A PCS Share Basis.
G-10
<PAGE>
"Number Of Shares Issuable With Respect To The FON Group Inter-Group
Interest," as defined in the Amended Articles, means, as of the Effective
Date, a number equal to 220,000,000 less the sum of (i) the Number Of Shares
Issuable With Respect To The Existing Class A Common Equity Interest In The
PCS Group, (ii) the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group (iii) one-half of the number of shares of
Common Stock, par value $2.50 per share, outstanding immediately prior to the
Effective Date, and (iv) one-half of the number of shares of Common Stock, par
value $2.50 per share, held as treasury shares by Sprint immediately prior to
the Effective Date; provided, however, that such number shall from time to
time thereafter be:
(A) adjusted, as determined by the Sprint Board to be appropriate to
reflect equitably any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of the PCS Stock or any
dividend or other distribution of shares of PCS Stock to holders of shares
of PCS Stock or any reclassification of PCS Stock;
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Sprint Board by (1) the
number of shares of PCS Stock issued or sold by Sprint that, immediately
prior to such issuance or sale, were included (as determined by the Sprint
Board pursuant to paragraph (C) of this definition) in the Number Of Shares
Issuable With Respect To The FON Group Inter-Group Interest, (2) the number
of shares of PCS Stock issued upon conversion, exchange or exercise of
Convertible Securities that, immediately prior to the issuance or sale of
such Convertible Securities, were included in the Number Of Shares Issuable
With Respect To The FON Group Inter-Group Interest, (3) the number of
shares of PCS Stock issued by Sprint as a dividend or other distribution
(including in connection with any reclassification or exchange of shares)
to holders of FON Stock and Class A Common Stock (but only with respect to
any Shares Issuable With Respect To The Class A Equity Interest In The FON
Group) or shares of FON Preferred Stock, as the case may be, (4) the number
of shares of PCS Stock issued upon the conversion, exchange or exercise of
any Convertible Securities issued by Sprint as a dividend or other
distribution (including in connection with any reclassification or exchange
of shares) to holders of FON Stock or Class A Common Stock (but only with
respect to any Shares Issuable With Respect To The Class A Equity Interest
In The FON Group) or shares of FON Preferred Stock, as the case may be, (5)
the quotient of (a) the aggregate Fair Value of any PCS Preferred Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of PCS Preferred Stock) issued by Sprint as a dividend or other
distribution (including in connection with any classification or exchange
of shares) to holders of FON Stock, Class A Common Stock (but only with
respect to any Shares Issuable With Respect To The Class A Equity Interest
In The FON Group), or shares of FON Preferred Stock, as the case may be,
divided by (b) the Market Value of one share of PCS Stock as of the date of
issuance of such PCS Preferred Stock (or Convertible Securities), or (6)
the number (rounded, if necessary, to the nearest whole number) equal to
the quotient of (a) the aggregate Fair Value as of the date of contribution
of properties or assets (including cash) transferred from the PCS Group to
the FON Group in consideration for a reduction in the Number Of Shares
Issuable With Respect To The FON Group Inter-Group Interest divided by (b)
the Market Value of one share of PCS Stock as of the date of such transfer;
and
(C) increased by (1) the number of outstanding shares of PCS Stock
repurchased by Sprint for consideration that had been attributed to the FON
Group, (2) the number (rounded, if necessary, to the nearest whole number)
equal to the quotient of (a) the Fair Value of properties or assets
(including cash) theretofore attributed to the FON Group that are
contributed, by action of the Sprint Board, to the PCS Group in
consideration of an increase in the Number Of Shares Issuable With Respect
To The FON Group Intergroup Interest, divided by (b) the Market Value of
one share of PCS Stock as of the date of such contribution and (3) the
number of shares of PCS Stock into or for which Convertible Securities are
deemed converted, exchanged or exercised.
"Number Of Shares Issuable With Respect To The Existing Class A Equity
Interest In The FON Group," as defined in the Amended Articles, means, as of
the Effective Date, a number equal to the aggregate number of outstanding
shares of Existing Class A Common Stock; provided, however, that such number
shall from time to time thereafter be:
(A) adjusted, on an equivalent Per Class A FON Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the FON Stock or any reclassification of FON
Stock; and
G-11
<PAGE>
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by the number of Shares of Series 1 FON Stock
or Series 3 FON Stock issued and any reduction required to reflect the
redemption of Shares Issuable With Respect To Class A Equity Interest In
The FON Group to the extent allocated to shares of Existing Class A Common
Stock; and
(C) adjusted by the Sprint Board to properly reflect any other necessary
changes on an equivalent Per Class A FON Share Basis.
"Number Of Shares Issuable With Respect To The Existing Class A Equity
Interest In The PCS Group," as defined in the Amended Articles, as of the
Effective Date, a number (rounded up the nearest whole share) equal to one-
half of the aggregate number of outstanding shares of Existing Class A Common
Stock as of the Effective Date; provided, however, that such number shall from
time to time thereafter be:
(A) adjusted, on an equivalent Per Class A PCS Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the PCS Stock or any reclassification of PCS
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Sprint Board by (1) the
number of shares of Series 1 PCS Stock or Series 3 PCS Stock issued by
Sprint, (2) the amount of any payment made to the holders of Existing Class
A Common Stock divided by the corresponding redemption price per share of
PCS Stock, (3) any reduction required to reflect the redemption of Shares
Issuable With Respect To The Class A Equity Interest In The PCS Group to
the extent allocated to shares of Existing Class A Common Stock, (4) the
conversion of some or all of this number into a Number Of Shares Issuable
With Respect To The Existing Class A Equity Interest In The FON Group, and
(5) the redemption thereof in exchange for the issuance of shares of common
stock of the PCS Group Subsidiary; and
(C) adjusted by the Sprint Board to properly reflect any other necessary
changes on an equivalent Per Class A PCS Share Basis.
"Optional Conversion Ratio" as of any date, as defined in the Amended
Articles, means the ratio of the Average Trading Price of a share of Series 1
PCS Stock to the Average Trading Price of a share of Series 1 FON Stock;
provided, that such ratio would be determined over a 60-trading day period if
the 20-trading day period normally used to determine the Average Trading Price
is less than 90% of such ratio as determined over a 60-trading day period.
"Other Group," as defined in the Tracking Stock Policies, means any tracked
group that Sprint may designate by future amendment to the Amended Articles
with respect to which Sprint creates or issues tracking stock to which it
attributes or allocates any present or future assets or businesses.
"Other Termination Event," as defined in the Standstill Agreement, means (i)
a redemption of all of the outstanding shares of PCS Stock for the common
equity securities of one or more wholly owned subsidiaries of Sprint that hold
all or substantially all of the assets attributed to the PCS Group (as such
term is defined in the Restructuring Agreement), (ii) a redemption of all or a
substantial portion of the outstanding shares of PCS Stock upon the sale of
all or substantially all of the assets of the PCS Group, or (iii) a conversion
of all of the outstanding shares of PCS Stock into any class of Sprint common
stock that is not a common equity tracking security that continues to reflect
substantially all of the business, assets and liabilities comprising the PCS
Group immediately prior to such conversion, but which shall not represent any
business, assets or liabilities comprising any part of the FON Group
immediately prior to such conversion.
"Outstanding PCS Fraction," as defined by the Amended Articles, means the
fraction the numerator of which shall be the number of shares of PCS Stock
outstanding on such date and the denominator of which shall be the sum of (i)
the number of shares of PCS Stock outstanding on such date, (ii) the Number of
Shares Issuable With Respect To the FON Group Intergroup Interest on such
date, (iii) the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group on such date and (iv) the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The PCS
Group on such date. A statement
G-12
<PAGE>
setting forth the Outstanding PCS Fraction as of the record date for the
payment of any dividend or distribution on PCS Stock and as of the end of each
fiscal quarter of the Corporation shall be filed by the Secretary of the
Corporation in the records of the actions of the Board of Directors not later
than fifteen business days after such date.
"Outstanding Sprint Voting Securities" means the Sprint Voting Securities
outstanding as of any particular date.
"Percentage Ownership Interest," as defined in the Amended Articles, means,
with respect to any person, that percentage of the Voting Power of Sprint
represented by Votes associated with the Voting Securities of Sprint owned of
record by such person or by its nominees.
"PCS" means personal communications service. In Canada and the United
States, PCS spectrum has been allocated for use by public systems at the 1.9
GHz frequency range. It is expected that PCS will initially consist primarily
of enhanced voice, two-way data and text messaging services. Such PCS
applications are expected to be followed over time by services offering
integrated voice, data, image and eventually perhaps video capability. PCS
systems operate in a similar manner to Cellular systems.
"PCS Group," as defined in the Amended Articles, means, as of any date from
and after the Closing Date:
(A) the interest on such date of Sprint and any of its subsidiaries in
any of the following entities or any of their respective subsidiaries
(including any successor thereto by merger, consolidation or sale of all or
substantially all of its assets, whether or not in connection with a
Related Business Transaction) (the "PCS Group Companies") and the
corresponding interests in their respective assets and liabilities and the
businesses conducted by such entities: SWV Six, Inc. (fka TCI Spectrum
Holdings, Inc.); SWV One, Inc. (fka Com Telephony Services, Inc.); SWV Two,
Inc. (fka Comcast Telephony Services, Inc.); SWV Three, Inc. (fka Cox
Telephony Partners, Inc.); SWV Four, Inc. (fka Cox Communications Wireless,
Inc.); Comcast Telephony Services; Cox Telephony Partnership; Sprint
Enterprises, L.P.; MinorCo, L.P.; Sprint Spectrum Holding Company, L.P.;
American PCS, L.P.; Cox Communications PCS, L.P.; NewTelco, L.P.; Sprint
Spectrum L.P.; American Personal Communications Holdings, Inc.; American
PCS Communications, LLC; APC PCS, LLC; APC Realty and Equipment Company,
LLC; Sprint Spectrum Finance Corporation; Sprint Spectrum Equipment
Company, L.P.; Sprint Spectrum Realty Company, L.P.; WirelessCo, L.P.; SWV
Five, Inc. (fka TCI Philadelphia Holdings, Inc.); PhillieCo Partners I,
L.P.; PhillieCo Partners II, L.P.; PhillieCo Sub, L.P.; PhillieCo., L.P.;
PhillieCo Equipment & Realty Company, L.P.; SprintCom, Inc.; SprintCom
Equipment Company, L.P.; PCS Leasing Co., L.P.; Cox PCS Assets, L.L.C.; and
Cox PCS License, L.L.C.;
(B) all assets and liabilities of Sprint and its subsidiaries attributed
by the Sprint Board to the PCS Group, whether or not such assets or
liabilities are or were also assets or liabilities of any of the PCS Group
Companies;
(C) all properties and assets transferred to the PCS Group from the FON
Group (other than a transaction pursuant to paragraph (D) below) after the
Effective Date of the Articles Amendment pursuant to transactions in the
ordinary course of business of both the FON Group and the PCS Group or
otherwise as the Sprint Board may have directed;
(D) all properties and assets transferred to the PCS Group from the FON
Group in connection with an increase in the Number Of Shares Issuable With
Respect To The FON Group Inter-Group Interest; and
(E) the interest of Sprint or any of its subsidiaries in any business or
asset acquired and any liabilities assumed by Sprint or any of its
subsidiaries outside of the ordinary course of business and attributed to
the PCS Group, as determined by the Sprint Board;
provided that
(1) from and after the payment date of any dividend or other
distribution with respect to shares of PCS Stock (other than a dividend
or other distribution payable in shares of PCS Stock, with respect to
which adjustment shall be made as provided in the definition of "Number
Of Shares Issuable In
G-13
<PAGE>
Respect Of The FON Group Inter-Group Interest" in the Amended Articles
or in Sprint securities attributed to the PCS Group, for which
provision shall be made as set forth in clause (2) below), the PCS
Group will no longer include an amount of assets or properties
previously attributed to the PCS Group of the same kind as so paid in
such dividend or other distribution with respect of shares of PCS Stock
as have a fair value on the record date for such dividend or
distribution equal to the product of (a) the fair value on such record
date of the aggregate of such dividend or distribution to holders of
shares of PCS Stock declared multiplied by (b) a fraction the numerator
of which is equal to the FON Group Inter-Group Interest Fraction in
effect on the record date for such dividend or distribution and the
denominator of which is equal to the Outstanding PCS Fraction in effect
on the record date for such dividend or distribution (and in such
eventuality such assets as are no longer included in the PCS Group will
be attributed to the FON Group), and
(2) if Sprint pays a dividend or makes some other distribution with
respect to shares of PCS Stock payable in Sprint securities that are
attributed to the PCS Group (other than PCS Stock), there will be
excluded from the PCS Group an interest in the PCS Group equivalent to
the number or amount of such securities that is equal to the product of
the number or amount of securities so distributed to holders of PCS
Stock multiplied by the fraction specified in clause 1(b) above
(determined as of the record date for such distribution) (and such
interest in the PCS Group shall be attributed to the FON Group) and, to
the extent interest is or dividends are paid on the securities so
distributed, the PCS Group will no longer include a corresponding
ratable amount of the kind of assets paid as such interest or dividends
as would have been paid in respect of the securities equivalent to such
interest in the PCS Group deemed held by the FON Group if the
securities equivalent to such interest were outstanding (and in such
eventuality such assets as are no longer included in the PCS Group will
be attributed to the FON Group).
Sprint may also, to the extent a dividend or distribution on the PCS Stock has
been paid in Convertible Securities that are convertible into or exchangeable
or exercisable for PCS Stock, cause such Convertible Securities as are deemed
to be held by the FON Group in accordance with the terms of the Amended
Articles and clause (2) above to be deemed to be converted, exchanged or
exercised, in which case such Convertible Securities will no longer be deemed
to be held by the FON Group.
The Tracking Stock Policies adopted by the Sprint Board provide that all
businesses conducted by Sprint for offering or providing Domestic Wireless
Mobile Telephony Services or any other Domestic PCS Services, and all
acquisitions of Domestic PCS Licenses, will be allocated to the PCS Group. The
Tracking Stock Policies generally may be changed by the Sprint Board at any
time after the Recapitalization, although there is no present intention to do
so.
The "PCS Group Available Dividend Amount," on any date, as defined in the
Tracking Stock Policies, means the amount, if any, by which (1) the product of
(a) the Outstanding PCS Fraction as of such date multiplied by (b) an amount
equal to the fair market value of the total assets attributed to the PCS Group
less the total amount of the liabilities attributed to the PCS Group (provided
that Preferred Stock shall not be treated as a liability), in each case as of
such date and determined on a basis consistent with the determination of the
PCS Group Net Earnings (Loss), exceeds (2) the aggregate par value of, or any
greater amount determined in accordance with applicable corporation law to be
capital in respect of, all outstanding shares of PCS Stock and each class or
series of Preferred Stock attributed to the PCS Group.
The "PCS Group Net Earnings (Loss)," for any period through any date, as
defined in the Tracking Stock Policies, means the net income or loss of the
PCS Group for such period (or in respect of the fiscal periods of Sprint
commencing prior to the Closing Date, the pro forma net income or loss of the
PCS Group for such period as if the Closing Date had been the first day of
such period) determined in accordance with generally accepted accounting
principles in effect at such time, reflecting income and expense of Sprint
attributed to the PCS Group on a basis substantially consistent with
attributions of income and expense made in the calculation of the FON Group
Net Earnings (Loss), including, without limitation, corporate administrative
costs, net interest and other financial costs and income taxes.
G-14
<PAGE>
"PCS Group Percentage Interest," as defined in the Restructuring Agreement,
means, with respect to any person, as the percentage of the notional equity
interest in the PCS Group owned by such Person, taking into account (i) the
outstanding shares of PCS Stock, (ii) the shares of PCS Stock that would be
outstanding if the Inter-Group Interest in the PCS Group then held by the
Sprint FON Group were represented by shares of PCS Stock, (iii) after the
Recapitalization, the shares of PCS Stock that would be outstanding if all of
the outstanding shares of Class A Stock were converted into Series 3 PCS Stock
and Series 3 FON Stock pursuant to the Amended Articles, and (iv) the maximum
number of shares of PCS Stock that are issuable upon the exercise, conversion
or exchange of the PCS Options (or that would be issuable in the case of a PCS
Option represented by an Inter-Group interest held by the Sprint FON Group in
the PCS Group), excluding from clause (iv) any Pre-Closing Options to the
extent reflected as part of the Inter-Group Interest referred to in clause
(ii).
"PCS Options," as defined in the Restructuring Agreement, means (i) the
options, warrants or other securities of Sprint or any of its Controlled
Affiliates outstanding at such time that are exercisable or exchangeable for
or convertible into shares of PCS Stock, but excluding (A) any rights of Cox
Pioneer Partnership or its Affiliates under the Agreement of Limited
Partnership of Cox Communications, PCS, L.P., dated as of December 31, 1996,
as it is to be amended pursuant to the Cox L.A. Amendments, (B) the
outstanding shares of Class A Common Stock, and (C) any such options, warrants
or other securities that will be satisfied by Sprint without the allocation of
any cost or expense to the PCS Group or otherwise economically diluting the
PCS Group Percentage Interest of any Cable Parent, and (ii) the Preferred
Inter-Group Interest, the Warrant Intergroup Interest and any other Inter-
Group Interests held by the Sprint FON Group in the PCS Group that have the
same effect as the options, warrants and other securities referred to in
clause (i) above.
"PCS Per Share Vote," as defined in the Amended Articles, means (i) a number
of votes (which, at any time, may be more or less than one whole vote and may
include a fraction of a vote) equal to (i) if the record date for determining
the stockholders entitled to vote is on or before December 31, 1998, the
number of votes determined by multiplying one by the PCS Ratio and (ii) if the
record date for determining the stockholders entitled to vote is after
December 31, 1998, the number of votes determined by multiplying one by the
ratio of the Average Trading Price of one share of Series 1 PCS Stock to the
Average Trading Price of one share of Common Stock computed as of the tenth
Trading Day preceding the record date for determining the stockholders
entitled to vote, expressed as a decimal fraction rounded to the nearest three
decimal places.
"PCS Ratio," as defined in the Amended Articles means the ratio of, if the
IPO occurs concurrently with the PCS Restructuring, the price of a share of
Series 1 PCS Stock in the IPO to the closing price on the date that the IPO
pricing occurs of a share of Series 1 FON Stock or, if the Recapitalization
occurs concurrently with the PCS Restructuring, the average trading price,
over a 20 trading day period, of one share of Series 1 PCS Stock to one share
of Series 1 FON Stock determined, in each such case, as of the 21st trading
day following the commencement of regular way trading of both the Series 1 PCS
Stock and the Series 1 FON Stock, provided that for purposes of any vote of
Sprint stockholders for which the record date for determining the stockholders
entitled to vote occurs prior to such 21st trading day, such ratio will be
determined by the Sprint Board based on the relative market values of the
Series 1 FON Stock and the Series 1 PCS Stock.
"PCS Spectrum," as defined in the Tracking Stock Policies, means the
electromagnetic spectrum between 1850MHz and 1910MHz and between 1930MHz and
1990MHz or such other electromagnetic spectrum as the FCC may allocate to
license holders of electromagnetic spectrum between 1850MHz and 1910MHz and
between 1930MHz and 1990MHz in exchange for the surrender of electromagnetic
spectrum within the identified frequencies.
"Per Class A FON Share Basis," as defined in the Amended Articles, means,
with respect to Existing Class A Common Stock or DT Class A Stock, an amount
per share equal to (X / Y) x Z, where "X" equals the Number Of Shares Issuable
With Respect To The Existing Class A Equity Interest In The FON Group or the
Number Of Shares Issuable With Respect To The DT Class A Equity Interest In
The PCS Group, respectively, "Y" equals the number of shares outstanding of
Existing Class A Common Stock or DT Class A Stock, respectively, and "Z"
equals the per share dividend amount, redemption amount or other payment paid
to the class or series of FON Stock to which the Existing Class A Common Stock
or DT Class A Stock is being compared.
G-15
<PAGE>
"Per Class A PCS Share Basis," as defined in the Amended Articles, means,
with respect to Existing Class A Common Stock or DT Class A Stock, an amount
per share equal to (X / Y) x Z, where "X" equals the Number Of Shares Issuable
With Respect To The Existing Class A Equity Interest In The PCS Group or the
Number Of Shares Issuable With Respect To The DT Class A Equity Interest In
The PCS Group, respectively, "Y" equals the number of shares outstanding of
Existing Class A Common Stock or DT Class A Stock, respectively, and "Z"
equals the per share dividend amount, redemption amount or other payment paid
to the class or series of PCS Stock to which the Existing Class A Common Stock
or DT Class A Stock is being compared.
"Pre-Closing Options," as defined in the Restructuring Agreement, means the
options, warrants and other securities of Sprint or any of its subsidiaries
that were issued prior to and are outstanding as of the Closing and that are
exercisable or exchangeable for or convertible into shares of Sprint Common
Stock, which, in connection with the Recapitalization, will become, in whole
or in part, options, warrants or other securities that are exercisable or
exchangeable for or convertible into shares of Series 1 PCS Stock (but
excluding any PCS Options held by FT or DT).
"Pops" means population equivalent. One person residing in a license area
equals one Pop.
"Publicly-Traded" with respect to any security, as defined in the Amended
Articles, means (i) registered under Section 12 of the Exchange Act, and (ii)
listed for trading on the NYSE or the American Stock Exchange (or any national
securities exchange registered under Section 7 of the Exchange Act, that is
the successor to either such exchange) or quoted in the National Association
of Securities Dealers Inc. Automated Quotations System (or any successor
system).
"RBOC" means Regional Bell Operating Company, the five remaining local
telephone companies (formerly part of AT&T) established as a result of the
AT&T Divestiture Decree.
"Record Date Blackout Period" means a period of ten trading days beginning
on the ninth trading day before a record date for a meeting of Sprint's
stockholders or for the payment of dividends with respect to Class A Stock and
ending on (and including) such record date (which will be a trading day), if
during such period the holders of Class A Stock are prohibited from purchasing
shares of FON Stock and PCS Stock from third parties in the open market due to
applicable anti-fraud rules.
"Reduced Par Value Amount," as defined in the Amended Articles, means at any
time and only with respect to either the Existing Class A Common Stock or the
DT Class A Stock following an issuance of FON Stock and/or PCS Stock in
accordance with the rights described under "--Right to Cause Issuance of FON
Stock and PCS Stock," the amount resulting from (X - Y)/ Z, where
"X" equals Z times the par value per share of either the Existing Class A
Common Stock or the DT Class A Stock, as applicable, immediately prior to
an issuance of shares of FON Stock and/or PCS Stock in accordance with such
rights,
"Y" equals the number of shares of FON Stock and/or PCS Stock issued in
accordance with such rights times the par value of such shares so issued,
and
"Z" equals the aggregate outstanding shares of Existing Class A Common
Stock or the DT Class A Stock, as applicable.
"Registration Rights Commencement Date," as defined in the Registration
Rights Agreement, means (i) if the IPO is consummated concurrently with the
Closing, 180 days following the Closing, (ii) if the IPO is not consummated
concurrently with the Closing but is consummated within 120 days of the
Closing, the later of the ninetieth day following the IPO or 180 days
following the Closing, or (iii) if the IPO is not consummated concurrently
with the Closing or within 120 days thereafter, the 180th day following the
Closing unless any Stockholder Group shall decide to exercise one of its
rights to a Demand Registration after such 120th day following the Closing but
prior to such 180th day following the Closing in which case the date the
Demand Notice is given.
G-16
<PAGE>
"Related Business Transaction," as defined in the Amended Articles, means
any disposition of all or substantially all the properties and assets
attributed the PCS Group in a transaction or series of related transactions
that result in Sprint receiving in consideration of such properties and assets
primarily equity securities (including, without limitation, capital stock,
debt securities convertible into or exchangeable for equity securities or
interests in a general or limited partnership or limited liability company,
without regard to the voting power or other management or governance rights
associated therewith) of any entity which (i) acquires such properties or
assets or succeeds (by merger, formation of a joint venture or otherwise) to
the business conducted with such properties or assets or controls such
acquiror or successor and (ii) which the Sprint Board determines is primarily
engaged or proposes to engage primarily in one or more businesses similar or
complementary to the businesses conducted by such Group prior to such
Disposition.
"SMR" means Specialized Mobile Radio, also known as TMR (Trunk Mobile
Radio), a two-way radio telephony service making use of macrocells covering an
area of up to 50 miles in diameter.
"SONET" means an electronics and network architecture for variable bandwidth
products which enables transmission of voice, data and video (multimedia) at
very high speeds. SONET ring architecture provides for virtually instantaneous
restoration of service in the event of a fiber cut by automatically rerouting
traffic in the opposite direction around the ring.
"Spin-off," as defined in the Amended Articles, means any spin-off or other
pro rata distribution of equity interests of a wholly-owned direct or indirect
subsidiary of Sprint to the stockholders of Sprint.
"Sprint Voting Securities" means the Existing Common Stock, the Class A
Common Stock, the FON Stock, the PCS Stock, the Preferred Stock and any other
securities of Sprint having the right to vote.
"SS7" means Signaling System 7, a sophisticated network signaling system
that utilizes out-of-band signaling where signaling information is sent over a
separate channel than the call itself. Improves call processing set-up times
and frees circuits for voice, data and video transmissions.
"Strategic Merger," as defined in the Amended Articles, means a merger or
other business combination involving Sprint (a) in which the holders of Class
A Stock are entitled to retain or receive, as the case may be, voting equity
securities of the surviving parent entity in exchange for or in respect of (by
conversion or otherwise) such Class A Stock, with an aggregate Fair Market
Value equal to at least 75% of the sum of (i) the Fair Market Value of all
consideration which such holders of Class A Stock have a right to receive with
respect to such merger or other business combination, and (ii) if Sprint is
the surviving parent entity, the Fair Market Value of the equity securities of
the surviving parent entity which the holders of Class A Stock are entitled to
retain, (b) immediately after which the surviving parent entity is an entity
whose voting equity securities are registered pursuant to Section 12(b) or
Section 12(g) of the Exchange Act or which otherwise has any class or series
of its voting equity securities held by at least 500 holders and (c)
immediately after which no person or group (other than the holders of Class A
Stock) owns Voting Securities of such surviving parent entity with Votes equal
to more than 35 percent of the Voting Power of such surviving parent entity.
"Strategic Merger," as defined in the Standstill Agreements with the Cable
Parents, means a merger or other business combination involving Sprint (a) in
which the Cable Parent is entitled to retain or receive, as the case may be,
voting equity securities of the surviving parent entity in exchange for or in
respect of (by conversion or otherwise) its shares of PCS Stock, with an
aggregate fair market value equal to the sum of (i) the fair market value of
all consideration that the Cable Parent has a right to receive with respect to
such merger or other business combination, and (ii) if Sprint is the surviving
parent entity, the fair market value of the equity securities of the surviving
parent entity that the Cable Parent is entitled to retain, (b) immediately
after which the surviving parent entity is an entity whose voting equity
securities are registered pursuant to Section 12(b) or Section 12(g) of the
Exchange Act or which otherwise has any class or series of its voting equity
securities held by at least 500 holders, (c) immediately after which no person
or group, as defined under the Exchange Act, (other than the Cable Parents)
owns Voting Securities of such surviving parent entity with Votes equal to
more than 35 percent of the Voting Power of such surviving parent entity and
(d) in which holders of PCS Stock receive a common
G-17
<PAGE>
equity tracking security that continues to reflect substantially all of the
business, assets and liabilities comprising the PCS Group immediately prior to
such merger or other business combination together with such additional
wireless business, assets and liabilities which may be included in the PCS
Group of the surviving parent entity, but which shall not represent any
business, assets or liabilities comprising any part of the other businesses,
assets or liabilities of the surviving parent entity or its subsidiaries,
including businesses, assets or liabilities of the FON Group immediately prior
to such merger or business combination, it being understood that no merger or
business combination shall be deemed to meet the requirements of this
definition unless the requirements of each of clauses (a) through (d) above
have been met. "Fair market value" with respect to any property, for purposes
of this definition, shall be as determined in writing in good faith by a
majority of the independent directors of Sprint.
"TDMA" means Time Division Multiple Access, a digital spread-spectrum
technology which allocates a discrete amount of frequency bandwidth to each
user in order to permit more than one simultaneous conversation on a single RF
channel.
"Total Market Capitalization" of any class or series of common stock on any
date, as defined in the Amended Articles, means the product of (i) the Market
Value of one share of such class or series of common stock on such date and
(ii) the number of shares of such class or series of common stock outstanding
on such date.
"Trading Day," as defined in the Amended Articles means, with respect to any
security, any day on which the principal national securities exchange on which
such security is listed or admitted to trading or NASDAQ, if such security is
listed or admitted to trading thereon, is open for the transaction of business
(unless such trading shall have been suspended for the entire day) or, if such
security is not listed or admitted to trading on any national securities
exchange or NASDAQ, any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
"Vote," as defined in the Amended Articles and the Standstill Agreements,
means, with respect to any entity, the ability to cast a vote at a
stockholders', members' or comparable meeting of such entity with respect to
the election of directors, managers or other members of such entity's
governing body, or the ability to cast a general partnership or comparable
vote, provided that with respect to Sprint, the term "Vote" means the ability
to exercise general voting power (as opposed to the exercise of special voting
or disapproval rights such as those set forth in the Amended Articles) with
respect to matters other than the election of directors at a meeting of the
stockholders of Sprint.
"Voting Power," as defined in the Amended Articles and the Standstill
Agreements, means, with respect to an entity, the aggregate number of Votes
outstanding as of such date in respect of such entity; provided that, pursuant
to the Standstill Agreements, with respect to PCS Stock, the Vote per share
used to calculate such aggregate number of Votes shall be the Vote per share
most recently established by the Sprint Board, whether for the most recent
vote of stockholders or for a vote of stockholders to be conducted in the
future.
"X.25" means a standard protocol suite for packet-switched networks, by
which mainframe computers, word processors, mini-computers, VDUs,
microcomputers and a wide variety of specialized terminal equipment from many
manufacturers can be made to work in conjunction.
18
<PAGE>
INDEX OF OTHER DEFINED TERMS
Set forth is a list of certain other defined terms used in this Proxy
Statement:
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN
TERM PROXY STATEMENT
- ---- ------------------
<S> <C>
Additional Securities........................................ 74
Adjustment Factor............................................ 143
Allocated Cash Proceeds...................................... 72
Amended Articles............................................. 126
Amended Cox PCS Agreement.................................... 86
Amended Investment Documents................................. 125
Amended Stockholders' Agreement ............................. 126
Antitrust Division........................................... 87
APC ......................................................... 1
Applicable Closing........................................... 129
Articles Amendment........................................... 9
Available Cash Proceeds...................................... 72
Beneficially Owned........................................... 52
Board Resolution............................................. 141
Business Combination......................................... 128
Business Combination Statute................................. 128
Business judgement rule...................................... 44
Cable Holder................................................. 73
Cable Parent Loans........................................... 70
Cable Parent Notes........................................... 70
Cable Parents................................................ 1
Cable Subsidiaries........................................... 64
CALEA........................................................ II-11
Call-Net..................................................... III-7
Capital Stock Committee...................................... 14
Cash Request Amount.......................................... 72
Cell Site.................................................... II-3
Cellular..................................................... II-3
Certificate of Designations.................................. 115
Class A Common Stock......................................... 10
Class A Holder Eligible Notes................................ 138
Class A FON Shares........................................... 140
Class A PCS Shares........................................... 140
Closing ..................................................... 16
Closing Date................................................. 18
Code......................................................... 92
Combined Value............................................... 143
Comcast...................................................... 6
Companies.................................................... II-18
Compensation Committee....................................... 142
Continuing Directors......................................... 122
Control Shares............................................... 124
Controlled Affiliates........................................ 80
Conversion Price............................................. 118
Conversion Trigger Date...................................... 106
Converted Series Shares...................................... 106
Cox.......................................................... 6
</TABLE>
G-19
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN
TERM PROXY STATEMENT
- ---- ------------------
<S> <C>
Cox PCS...................................................... 1
Cox PCS Amendment............................................ 17
CP Closing................................................... G-3
CSA Statute.................................................. 124
CSB.......................................................... III-3
CSG.......................................................... III-2
CTIA......................................................... II-3
Damages...................................................... 127
DCF.......................................................... 62
Decision Range............................................... 74
Demand Registration.......................................... 80
Derivative Security.......................................... 80
Dividend Payment Date........................................ 116
DOJ.......................................................... II-11
DT........................................................... 2
DT Class A Stock............................................. 10
EarthLink.................................................... III-5
Effective Time............................................... 64
Engagement Letter............................................ 63
EPR Notice................................................... 74
EPS.......................................................... 31
Equity Purchase Rights....................................... 9
EVA.......................................................... 152
Exclusionary Tender Offer.................................... 139
Exercise Price............................................... 113
Existing Articles............................................ 8
Existing Authorized Amount................................... 142
Existing Class A Common Stock................................ 8
Existing Certificates........................................ 68
Existing Common Stock........................................ 8
Existing Options............................................. 143
Existing Preferred Stock..................................... 95
FAA.......................................................... 48
Fair Price Business Combination.............................. 122
FCC.......................................................... 38
Financial Advisors........................................... 11
FON.......................................................... 4
FON Group.................................................... 1
FON Option................................................... 143
FON Stock.................................................... 9
FON Value.................................................... 143
Foreign Ownership Limitation................................. 136
Forward-looking statements................................... 38
FT........................................................... 2
FTC.......................................................... 87
Grantee...................................................... 78
Greenshoe Closing............................................ 129
Greenshoe Purchase........................................... 125
Incentive Plans Proposal..................................... 1
Incidental Registration...................................... 80
Initial Standstill Period.................................... 136
</TABLE>
G-20
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN
TERM PROXY STATEMENT
- ---- ------------------
<S> <C>
IPO.......................................................... 9
IRS.......................................................... 92
ISO.......................................................... 147
Junior Stock................................................. 115
LDD.......................................................... 7
License Value................................................ 61
Limited Partnership.......................................... 149
Liquidation Unit............................................. 29
Liquidation Preference....................................... 117
LTD.......................................................... 7
LTIP......................................................... 153
LTM.......................................................... 61
Major Competitor of FT/DT.................................... 138
Management Cases............................................. 62
Mandatory Redemption Date.................................... 116
Mandatory Redemption Obligation.............................. 117
Material Activity............................................ 84
MCI.......................................................... III-1
Master Agreement............................................. 10
Mergers...................................................... 64
Merger Subs ................................................. 64
Minimum Condition............................................ 81
MISOP........................................................ 141
Named Officers............................................... 155
NYSE......................................................... 21
Newly Issued Shares.......................................... 107
NIS.......................................................... III-5
Non-U.S. Stockholder ........................................ 93
Omnibus Plan................................................. 141
Original Investment Agreement................................ 125
Original Registration Rights Agreement....................... 125
Original Standstill Agreement................................ 125
Original Stockholders Agreement.............................. 125
Other Property............................................... 92
Outside Directors............................................ 141
Parents...................................................... 6
Parent Response.............................................. 71
PCS.......................................................... 1
PCS Comparables.............................................. 61
PCS Contributions............................................ 69
PCS Group Disposition Date................................... 99
PCS Group Historical Financial Statements.................... 33
PCS Group Subsidiary......................................... 101
PCS Partner.................................................. 69
PCS Preferred Stock.......................................... 9
PCS Restructuring............................................ 6
PCS Stock.................................................... 9
PCS Stock Amendment.......................................... 8
PCS Transactions ............................................ 62
PCS Value.................................................... 143
Percentage Limitations ...................................... 136
PhillieCo.................................................... 1
</TABLE>
G-21
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN
TERM PROXY STATEMENT
- ---- ------------------
<S> <C>
Preferred Inter-Group Interest............................... 10
Price Range.................................................. 74
Primary Closing.............................................. 127
Primary Purchase............................................. 125
Priority Demand.............................................. 81
Priority Period.............................................. 81
Proposed Term................................................ 70
Proxies...................................................... 79
Proxy Statement.............................................. 6
Proxy Shares................................................. 78
Recapitalization............................................. 10
Recapitalization Amendment................................... 9
Recapitalization Date........................................ 142
Record Date.................................................. 8
Redemption Securities........................................ 114
Registrable Securities....................................... 79
Registration Rights Agreement................................ 16
Related Investment Documents................................. 125
Renewal Expectancy........................................... II-10
Rejected Proposal............................................ 77
Resellers.................................................... II-9
Restructuring Agreement...................................... 6
RF........................................................... 47
Right........................................................ 123
Schedule 13D Filer........................................... 137
SEC.......................................................... 156
Securities Act............................................... 16
Secondary Closing............................................ 129
Secondary Priority Period.................................... 83
Secondary Purchase........................................... 125
Selling Stockholders......................................... 134
Senior Stock................................................. 115
Sensitivity Case............................................. 62
Series 1 FON Stock........................................... 9
Series 2 FON Stock........................................... 9
Series 3 FON Stock........................................... 9
Series 1 PCS Stock........................................... 9
Series 2 PCS Stock........................................... 9
Series 3 PCS Stock........................................... 9
Series Conversion Time....................................... 106
SI........................................................... III-6
SPA.......................................................... III-4
Special Meeting.............................................. 8
Spin-off .................................................... 90
Sprint....................................................... 31
Sprint Board................................................. 7
SprintCom.................................................... 1
SprintCom Loans.............................................. 70
SprintCom Notes.............................................. 70
Sprint International......................................... 7
Sprint Notice................................................ 71
Sprint Paranet............................................... 7
Sprint Spectrum Holdings..................................... 1
</TABLE>
G-22
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN
TERM PROXY STATEMENT
- ---- ------------------
<S> <C>
Sprint PCS Loans............................................. 70
Sprint PCS Notes............................................. 70
Sprint Voting Stock.......................................... 8
Spun-Off Subsidiary.......................................... 119
Stacking Procedure........................................... 16
SS7.......................................................... III-4
Standstill Agreement......................................... 76
Stockholder Group............................................ 79
Substantial Service.......................................... II-10
Surviving Representations.................................... 127
Tax Sharing Agreement........................................ 15
TCI.......................................................... 6
Telecom Act.................................................. 38
Third Party Demand Holder.................................... 83
TIN.......................................................... 93
Top-Up Notes ................................................ 126
Top-Up Purchases............................................. 125
Tracking Stocks.............................................. 1
Tracking Stock Policies...................................... 7
Tracking Stock Proposal...................................... 1
Transferor Group............................................. 89
Transferee Group............................................. 89
Trigger Date................................................. 68
Voting Agreement............................................. 17
Warrants..................................................... 9
Warrant Agreements........................................... 113
Warrant Inter-Group Interest................................. 10
WSG.......................................................... III-2
Year 2000.................................................... 50
</TABLE>
G-23
<PAGE>
SPRINT CORPORATION
SELECTED FINANCIAL DATA
The following unaudited table sets forth the Selected Financial Data of
Sprint Corporation and its subsidiaries ("Sprint") and should be read in
conjunction with Sprint's Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and Notes thereto. The Selected Financial Data at December 31, 1997, 1996,
1995, 1994 and 1993, and for each of the five years in the period ended
December 31, 1997, have been derived from the Consolidated Financial
Statements of Sprint which have been audited by Ernst & Young LLP, independent
auditors. The Selected Financial Data at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, have been derived from the unaudited
Consolidated Financial Statements of Sprint, which have been prepared on the
same basis as Sprint's audited Consolidated Financial Statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial
position and results of operations for these periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net operating revenues.. $ 3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 668.2 604.7 2,451.4 2,267.2 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 216.5 290.0 952.5 1,190.9 946.1 899.2 517.1
Earnings per common
share from continuing
operations(1), (2)
Basic................. 0.50 0.67 2.21 2.82 2.71 2.59 1.51
Diluted............... 0.49 0.67 2.18 2.79 2.69 2.56 1.49
Dividends per common
share.................. 0.25 0.25 1.00 1.00 1.00 1.00 1.00
CASH FLOW DATA
Cash from operating
activities--continuing
operations(3).......... $ 988.4 $ 700.1 $ 3,379.0 $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8
Capital expenditures.... 787.9 574.4 2,862.6 2,433.6 1,857.3 1,751.6 1,429.8
BALANCE SHEET DATA
Total assets............ $18,891.8 $18,184.8 $16,826.4 $15,074.3 $14,425.2 $13,781.8
Property, plant and
equipment, net......... 11,914.2 11,494.1 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
short-term borrowings). 4,203.5 3,879.6 3,273.9 5,668.9 4,927.7 5,084.1
Redeemable preferred
stock.................. 9.5 11.5 11.8 32.5 37.1 38.6
Common stock and other
stockholders' equity... 9,156.2 9,025.2 8,519.9 4,642.6 4,524.8 3,918.3
</TABLE>
- --------
SPRINT ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE" ("EPS"), AT YEAR-END 1997 (SEE NOTE 12 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS). EPS AMOUNTS HAVE BEEN RESTATED TO COMPLY
WITH THIS NEW STANDARD. ALL EPS AMOUNTS DISCUSSED HEREIN REPRESENT "BASIC" EPS
AS DEFINED IN THE NEW STANDARD.
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT-
YEAR PRESENTATION. THESE RECLASSIFICATIONS HAD NO EFFECT ON THE RESULTS OF
OPERATIONS OR STOCKHOLDERS' EQUITY AS PREVIOUSLY REPORTED.
I-1
<PAGE>
(1) During 1997 and 1996, Sprint recorded nonrecurring charges of $20 and $60
million, respectively, related to litigation within the long distance
division. These charges reduced income from continuing operations by $13
million ($0.03 per share) in 1997 and $36 million ($0.09 per share) in
1996.
During 1995, Sprint recorded a nonrecurring charge of $88 million related
to a restructuring within the local telecommunications division, which
reduced income from continuing operations by $55 million ($0.16 per share).
During 1993, Sprint recorded nonrecurring charges of $293 million related
to (a) transaction costs from the merger with Centel Corporation and
expenses of integrating and restructuring the operations of the two
companies and (b) a realignment and restructuring within the long distance
division. These charges reduced income from continuing operations by $193
million ($0.57 per share).
(2) During 1997, Sprint recognized gains of $45 million on sales of local
exchanges and a $26 million gain on the sale of an equity investment in an
equipment provider. These gains increased income from continuing
operations by $27 million ($0.06 per share) and $17 million ($0.04 per
share), respectively.
During 1994, Sprint recognized a $35 million gain on the sale of equity
securities, which increased income from continuing operations by $22
million ($0.06 per share).
During 1993, due to the enactment of the Revenue Reconciliation Act of
1993, Sprint adjusted its deferred income tax assets and liabilities to
reflect the increased tax rate. This adjustment reduced income from
continuing operations by $11 million ($0.03 per share).
(3) The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
I-2
<PAGE>
SPRINT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sprint Corporation (and with its subsidiaries "Sprint") has entered into a
restructuring agreement with the Cable Parents to restructure Sprint's
wireless PCS operations. Sprint will acquire the joint venture interests of
the Cable Parents in Sprint Spectrum Holdings and the joint venture interests
of TCI and Cox in PhillieCo. In exchange for these joint venture interests,
Sprint will issue to the Cable Parents a newly created class of Sprint Common
Stock, the PCS Stock. The PCS Stock is intended to reflect separately the
performance of these joint ventures and the domestic PCS operations of
Sprint's wholly-owned subsidiary, SprintCom. These operations will be referred
to as the PCS Group.
Sprint will effect the Recapitalization by reclassifying each share of
Sprint's existing Common Stock into 1/2 share of PCS Stock and one share of
FON Stock. The FON Stock is intended to reflect separately the performance of
all of Sprint's other operations, including its long distance, local
telecommunications and product distribution and directory publishing
divisions, emerging businesses and its interest in Global One. These
operations will be referred to as the FON Group.
FORWARD-LOOKING INFORMATION
Sprint includes certain estimates, projections and other forward-looking
statements in its reports, in presentations to analysts and others, and in
other publicly available material. Future performance cannot be ensured.
Actual results may differ materially from those in the forward-looking
statements. Factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include
(i) the effects of vigorous competition in the markets in which Sprint
operates; (ii) the cost of entering new markets necessary to provide
nationwide services; (iii) the ability of the PCS Group to establish a
significant market presence; (iv) the risks related to Sprint's investments in
Global One and other joint ventures; (v) the impact of any unusual items
resulting from ongoing evaluations of Sprint's business strategies; (vi)
requirements imposed on Sprint or latitude allowed its competitors by the FCC
or state regulatory commissions under the Telecommunications Act of 1996;
(vii) unexpected results of litigation filed against Sprint; and (viii) the
possibility of one or more of the markets in which Sprint competes being
impacted by changes in political, economic or other factors such as monetary
policy, legal and regulatory changes or other external factors over which
Sprint has no control.
The words "estimate", "project", "intend", "expect", "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Sprint undertakes no
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Moreover, Sprint, through
senior management, may from time to time make forward-looking statements about
the matters described herein or other matters concerning Sprint.
GENERAL OVERVIEW OF THE FON GROUP
The principal activities of the FON Group include (i) its core businesses
consisting of domestic and international long distance communications, local
exchange communications, and product distribution and directory publishing
activities, (ii) its emerging businesses, which consist of the development of
new integrated communications services, consumer internet access services,
Sprint Paranet and Sprint International and (iii) Sprint's Global One
strategic international alliance, as well as other telecommunications
investments and partnerships.
Spinoff of Cellular Division
In March 1996, Sprint completed the tax-free spinoff of Sprint's cellular
division ("Cellular") to Sprint common stockholders ("Spinoff"). See
"Liquidity and Capital Resources--Discontinued Operation" for more
information. The Spinoff is accounted for by Sprint in the FON Group Combined
Financial Statements.
I-3
<PAGE>
GENERAL OVERVIEW OF THE PCS GROUP
The PCS Group includes Sprint's domestic wireless mobile telephony
activities and any other domestic PCS services, which include (i) the
investment in Sprint Spectrum Holdings and the investment in PhillieCo, both
of which are reflected on the equity basis and (ii) SprintCom. Upon completion
of the PCS Restructuring, the results of Sprint Spectrum Holdings and
PhillieCo will be reflected on the consolidated basis in the PCS Group
Combined Financial Statements.
Sprint Spectrum Holdings, PhillieCo and SprintCom are building the nation's
first single-technology, all-digital, state-of-the-art wireless network to
provide PCS across the United States operating on one frequency. PCS uses
digital technology, which has sound quality superior to analog cellular
technology and is less susceptible to interference and eavesdropping. PCS also
offers features such as voicemail and Caller ID.
Sprint Spectrum Holdings commenced initial commercial PCS operations late in
the fourth quarter of 1996, and emerged from the development stage during the
third quarter of 1997. SprintCom expects to commence initial operations in the
third quarter of 1998.
REGULATORY DEVELOPMENTS
See "Annex II--PCS Group Information--Business--Regulation" and "Annex III--
FON Group Information--Business--Regulation" for a complete discussion of the
regulatory developments that could have a future impact on Sprint.
RESULTS OF OPERATIONS
Sprint adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" ("EPS"), at year-end 1997 (see Note 12 of Notes to
Consolidated Financial Statements). EPS amounts have been restated to comply
with this new standard. All EPS amounts in the following discussions represent
"basic" EPS as defined in SFAS 128.
CONSOLIDATED
Total net operating revenues for the three months ended March 31, 1998 were
$3.9 billion, a 9% increase from $3.6 billion for the same period in 1997.
Total net operating revenues for 1997 were $14.9 billion, a 7% increase from
$13.9 billion in 1996. Total net operating revenues for 1996 increased 9% over
total net operating revenues for 1995 of $12.7 billion.
Income from continuing operations was $217 million ($0.50 per share) for the
first quarter of 1998 compared with $290 million ($0.67 per share) for the
first quarter of 1997. Income from continuing operations was $953 million
($2.21 per share) in 1997 compared with $1.2 billion ($2.82 per share) in 1996
and $946 million ($2.71 per share) in 1995. The following table sets forth the
combined income (loss) from continuing operations for the FON Group and the
PCS Group:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, DECEMBER 31,
-------------- --------------------------
1998 1997 1997 1996 1995
------ ------ -------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FON Group(1)........................ $359.2 $343.0 $1,371.6 $1,310.6 $966.0
PCS Group........................... (142.7) (53.0) (419.1) (119.7) (19.9)
------ ------ -------- -------- ------
Income from continuing operations... $216.5 $290.0 $ 952.5 $1,190.9 $946.1
====== ====== ======== ======== ======
</TABLE>
- --------
(1) The FON Group income from continuing operations for the year ended
December 31, 1997 includes gains of $27 million on sales of local
exchanges ($0.06 per share) and a gain of $17 million on the sale of an
equity investment in an equipment provider ($0.04 per share). In addition,
the years ended December 31, 1997 and 1996 include litigation charges
within the long distance division of $13 million and $36 million,
respectively ($0.03 per share and $0.09 per share, respectively). The year
ended December 31, 1995 amounts include a charge of $55 million for
restructuring the local telecommunications division ($0.16 per share).
I-4
<PAGE>
FON GROUP
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net operating revenues..... $3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3
Total operating expenses... 3,224.1 2,973.0 12,404.0 11,619.8 10,901.0
-------- -------- --------- --------- ---------
Operating income........... $ 686.8 $ 605.5 $ 2,469.9 $ 2,267.7 $ 1,834.3
======== ======== ========= ========= =========
Operating margin........... 17.6% 16.9% 16.6% 16.3% 14.4%
======== ======== ========= ========= =========
Capital expenditures....... $ 609.3 $ 567.4 $ 2,708.9 $ 2,433.6 $ 1,857.3
======== ======== ========= ========= =========
</TABLE>
For further detailed discussion regarding the results of operations of the
FON Group, refer to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the FON Group at Annex III.
Three Months Ended March 31, 1998 and 1997
Net Operating Revenues
First quarter 1998 net operating revenues increased 9% from the same 1997
period. This mainly reflects growth of the FON Group's long distance and local
telecommunications divisions.
The long distance division's revenue growth is a result of increases in all
major market segments--residential, business and wholesale. In general, the
increase reflects strong minute growth and continued growth within the data
services market. The residential market increase reflects growth from prepaid
calling cards and long distance calling card calls made by LEC customers. The
business market reflects growth in data services, toll-free and direct
distance-dialing toll calls, and growth in small and medium business due to
Fridays Free. The wholesale market showed strong growth in the domestic
market.
The local telecommunications division's growth was primarily due to an
increase in customer access lines. Local service revenue reflects economic
growth in the division's service areas, increases in second-line service for
residential customers and increases in demand for network-based services such
as Caller ID and Call Waiting. Network access revenues increased primarily due
to larger calling volumes partly offset by FCC-mandated access rate
reductions. Toll Service revenues decreased due to extended local area calling
plans and increased competition in the intrastate long distance market.
Additionally, the division phased out its interexchange long distance reseller
services in 1997. Other revenue increased mainly due to sales of
telecommunications equipment.
The product distribution and directory publishing division's revenue growth
was mainly due to increased sales of telecommunications equipment and
distribution services to affiliates.
Revenues in the emerging businesses segment increased due to the acquisition
of Sprint Paranet in late 1997.
Operating Expenses
First quarter 1998 operating expenses increased 8% from the same 1997
period.
The long distance division's operating expenses increase was largely due to
higher selling, general and administrative costs as a result of increased
advertising costs to promote products and services. Interconnection costs
decreased reflecting lower unit costs for domestic and international access.
Operations expense increased primarily due to increased data services growth.
The local telecommunications division's increased operating expenses were
caused by an increase of costs of services and products as well as selling,
general and administrative expenses. Costs of services and products
I-5
<PAGE>
increased mainly due to customer access line growth and increased equipment
sales. Selling, general and administrative costs were higher due to increased
customer service costs from access line growth and marketing costs to promote
new products and services.
The product distribution and directory publishing division's operating
expense increase was mainly due to increased sales of telecommunications
equipment and distribution services to affiliates.
Operating expenses for the emerging businesses segment largely reflect
activities to develop or enter newly competitive domestic and international
markets, such as internet access and competitive local services.
Years Ended December 31, 1997, 1996 and 1995
Net Operating Revenues
Net operating revenues increased 7% in 1997 and 9% in 1996. This mainly
reflects growth of the FON Group's long distance and local telecommunications
divisions for both years.
The long distance division's revenue growth was a result of increases in all
major market segments--residential, business and wholesale. In general, the
increase reflects strong calling volume growth and continued growth within the
data services market. The residential market reflects the ongoing success of
Sprint Sense(R) as well as growth in international calls, prepaid phone cards
and casual callers. The business market reflects growth in data services,
toll-free and direct distance-dialing toll calls, and growth in small and
medium business due to Fridays Free. The wholesale market showed strong growth
in both the domestic and international markets.
The local telecommunications division's growth was primarily due to an
increase in customer access lines. Local service revenue reflects economic
growth in the division's service areas, an increase in second-line services,
an increase due to extended area calling plans, and increased demand for
advanced intelligent network services. Network access revenues increased
primarily due to larger calling volumes partly offset by FCC-mandated access
rate reductions effective in July 1997. Toll service revenues decreased due to
extended local area calling plans and increased competition in the intrastate
long distance market. Additionally, the division phased out its interexchange
long distance reseller services in 1997. Other revenue increased mainly due to
sales of telecommunications equipment.
The product distribution and directory publishing division's revenue growth
was mainly due to increased sales of telecommunications equipment and
distribution services to affiliates.
Revenues for the emerging businesses segment increased due to the
acquisition of Sprint Paranet in late 1997 and an increase in subscribers for
Sprint Internet access services.
Operating Expenses
Operating expenses increased 7% in 1997 and 1996 largely due to increased
revenue streams.
The long distance division's operating expenses increase was primarily due
to higher interconnection costs and operations expense. Interconnection costs
increased due to strong growth in calling volumes, partially offset by lower
unit costs for domestic and international access. Operations expense increased
due to FCC-mandated payments to public payphone providers, network equipment
leasing costs, costs related to data services growth and equipment sales as
well as overall revenue growth.
The local telecommunications division's increased operating expenses were
caused by an increase in costs of services, selling, general and
administrative expenses and depreciation. Costs of services and products
increased mainly due to customer access line growth and increased equipment
sales whereas selling, general and administrative costs increased due to
access line growth and marketing costs to promote new products and services.
The increase in depreciation expense is due to increased plant additions.
The product distribution and directory publishing division's operating
expense increase was mainly due to additional costs associated with the
increase in sales of telecommunications equipment and distribution services to
affiliates.
I-6
<PAGE>
Operating expenses for the emerging businesses segment largely reflect
activities to develop or enter newly competitive domestic and international
markets, such as internet access and competitive local services.
PCS GROUP
The following table reflects the results of operations of the PCS Group,
which for the periods presented are comprised solely of the operations of
SprintCom. Sprint's investments in Sprint Spectrum Holdings and PhillieCo,
which are included in the PCS Group, were accounted for on the equity basis
and therefore no operations are reflected in the table below. Sprint's equity
in loss from its investments in Sprint Spectrum Holdings and PhillieCo are
discussed below, see "Sprint Spectrum Holdings and PhillieCo."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------- ----------------------
1998 1997 1997 1996 1995
------ ----- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Total operating expenses................. $ 18.6 $ 0.8 $ 18.5 $ 0.5 $ --
------ ----- ------ ------ ------
Operating loss........................... $(18.6) $(0.8) $(18.5) $ (0.5) $ --
====== ===== ====== ====== ======
Capital expenditures..................... $178.6 $ 7.0 $153.7 $ -- $ --
====== ===== ====== ====== ======
Purchase of PCS Licenses................. $ -- $25.2 $460.1 $ 84.0 $ --
====== ===== ====== ====== ======
Investments in Sprint Spectrum Holdings
and Affiliates.......................... $ 33.5 $16.5 $405.9 $297.5 $910.9
====== ===== ====== ====== ======
</TABLE>
For further detailed discussion regarding the results of operations of the
PCS Group, refer to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the PCS Group at Annex II.
Three Months Ended March 31, 1998 and 1997
Operating Expenses
First quarter operating expenses were $19 million for 1998 and $1 million
for 1997. These consist of selling, general and administrative expenses
related to the network buildout for those PCS licenses directly owned by
Sprint.
Years Ended December 31, 1997, 1996 and 1995
Operating Expenses
Operating expenses were $19 million for 1997 and $1 million for 1996. These
consist of selling, general and administrative expenses related to the network
buildout for those PCS licenses directly owned by Sprint.
NONOPERATING ITEMS
INTEREST EXPENSE
Interest costs on borrowings consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Interest expense on
outstanding debt............ $ 54.5 $ 35.7 $ 159.9 $ 161.2 $ 231.0
Interest expense related to
Cellular (1)................ -- -- -- 21.5 124.0
Capitalized interest costs... 18.6 29.0 93.0 104.0 57.0
-------- -------- -------- -------- --------
Total interest costs on
outstanding debt............ $ 73.1 $ 64.7 $ 252.9 $ 286.7 $ 412.0
======== ======== ======== ======== ========
Average debt outstanding..... $3,977.7 $3,226.4 $3,251.3 $3,604.9 $5,505.2
======== ======== ======== ======== ========
Effective interest rate...... 7.4% 8.0% 7.8% 8.0% 7.5%
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Interest expense related to Cellular is included in "Discontinued
operation, net" on the Consolidated Statements of Income.
I-7
<PAGE>
Sprint capitalizes interest costs on its investment in the directly acquired
PCS licenses and the related network buildout. Through June 1997, Sprint also
capitalized interest costs on borrowings related to its investment in Sprint
Spectrum Holdings and PhillieCo. Sprint stopped capitalizing interest costs on
its investment in Sprint Spectrum Holdings and PhillieCo in July 1997 because
Sprint Spectrum Holdings and PhillieCo no longer qualified as development-
stage companies.
Average debt outstanding decreased $1.9 billion in 1996, generally because
of repayments funded by a portion of the cash received from FT and DT for
their equity investments in Sprint and from Cellular's repayment of
intercompany debt in connection with the Spinoff.
Sprint's effective interest rate for the three months ended March 31, 1998
decreased to 7.4% from 8.0% for the same period in 1997 mainly because of an
increase in short-term borrowings as a percentage of total borrowings.
Sprint's effective interest rate increased to 8.0% in 1996 from 7.5% in 1995,
mainly because of the decline in short-term borrowings as a percentage of
total borrowings. Short-term borrowings at March 31, 1998 and December 31,
1997 have been classified as long-term debt because of Sprint's intent and
ability, through unused credit facilities, to refinance these borrowings.
GLOBAL ONE
Sprint's investment in Global One is accounted for on the equity basis in
the FON Group. Global One's revenues totaled $265 million in first quarter
1998 compared with $243 million in the same period a year ago. Sprint's share
of operating losses from Global One totaled $45 million in first quarter 1998
compared with $24 million a year ago. The increased losses in 1998 were due to
lower product margins primarily as a result of higher operating costs.
Global One's revenues totaled $1.1 billion for 1997 compared to $800 million
in 1996. Sprint's share of operating losses from Global One totaled $162
million in 1997, $82 million in 1996 and $23 million in 1995. The increased
losses in 1997 were due to higher operating costs within Global One's existing
global markets due to the slower-than-expected integration of the parent
companies' networks and start-up related costs. Global One is continuing to
review its operations, is implementing expense controls, and is focusing on
improving the network infrastructure in an effort to improve efficiencies and
reduce operating costs and expects to begin implementing various components of
a plan addressing such items in the near future, which are expected to result
in related non-recurring charges being incurred as the plan is executed.
SPRINT SPECTRUM HOLDINGS AND PHILLIECO
Sprint's equity ownership of Sprint Spectrum Holdings and PhillieCo, prior
to the PCS Restructuring, is accounted for on the equity basis in the PCS
Group. The combined revenues from Sprint Spectrum Holdings and PhillieCo
totaled $184 million in first quarter 1998 versus $10 million a year ago.
Sprint's share of the combined operating losses from Sprint Spectrum Holdings
and PhillieCo was $210 million in first quarter 1998 compared with $86 million
a year ago. The increase in 1998 losses reflect marketing and promotional
costs to support a growing customer base. In early 1998, the customer base of
Sprint Spectrum Holdings and PhillieCo exceeded one million customers. The
venture plans to continue to aggressively obtain new customers, which will
likely result in higher losses in 1998 compared with 1997.
Revenues from Sprint Spectrum Holdings and PhillieCo totaled $258 million in
1997 and $4 million in 1996. Sprint's share of operating losses from Sprint
Spectrum Holdings and PhillieCo was $660 million in 1997, $192 million in 1996
and $31 million in 1995. The increase in 1997 losses reflects marketing and
promotional costs to support a growing customer base.
Average monthly revenue per customer through the first quarter of 1998
approximated $64, which is higher than wireless industry averages. This higher
average is being driven by marketing plans that both target and encourage
higher usage. Sprint Spectrum Holdings and PhillieCo customer churn rates and
customer marketing costs have been as expected at this stage of development.
As the PCS markets mature and the PCS Group gains additional scale, both of
these measures are expected to trend toward cellular industry levels.
I-8
<PAGE>
OTHER INCOME (EXPENSE), NET
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ----------------------
1998 1997 1997 1996 1995
------- ------- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Dividend and interest income............ $ 15.6 $ 27.1 $ 75.4 $ 99.7 $ 12.6
Net gains on sales of assets............ -- -- 71.5 15.9 --
Loss on sales of accounts receivable.... -- -- -- (4.2) (38.6)
Other, net.............................. 5.6 7.8 (6.4) 3.9 (12.9)
------- ------- ------ ------ ------
Total other income (expense), net....... $ 21.2 $ 34.9 $140.5 $115.3 $(38.9)
======= ======= ====== ====== ======
</TABLE>
Dividend and interest income for the three months ended March 31, 1998
reflects interest earned on loans to affiliates. Dividend and interest income
for first quarter 1997 and for the years ended December 31, 1997 and 1996
reflects income earned on the cash received from FT and DT for their 1996
equity investment in Sprint as well as the repayment of intercompany debt in
connection with the Spinoff. Sprint has since invested these funds in
strategic initiatives and has decreased certain borrowings, reducing the
balance held in temporary investments. For the year ended December 31, 1997,
Sprint recognized pretax gains of $45 million on sales of local exchanges and
Sprint sold its equity interest in an equipment provider, resulting in a $26
million pretax gain.
INCOME TAXES
Sprint's effective tax rates for the first quarter were 41.1% in 1998 and
40.2% in 1997. Sprint's effective tax rates for the years ended December 31
were 39.8% in 1997, 37.7% in 1996 and 36.1% in 1995. See Note 5 of Notes to
Consolidated Financial Statements for information about the differences that
cause the effective income tax rate to vary from the statutory federal rate.
DISCONTINUED OPERATION, NET
Sprint recognized an after-tax loss of $3 million ($0.01 per share) in 1996
and after-tax income of $15 million ($0.04 per share) in 1995 related to its
investment in Cellular. Cellular was spun off to Sprint common stockholders in
March 1996 (see Note 15 of Notes to Consolidated Financial Statements).
EXTRAORDINARY ITEMS, NET
In first quarter 1998, Sprint redeemed, prior to maturity, $115 million of
debt with a 9.25% interest rate. This resulted in a $4 million ($0.01 per
share) after-tax loss.
During 1996, Sprint redeemed, prior to maturity, $190 million of debt with
interest rates ranging from 6.0% to 9.5%. This resulted in a $5 million ($0.01
per share) after-tax loss.
At year-end 1995, Sprint adopted accounting principles for a competitive
marketplace and discontinued applying SFAS 71 to its local telecommunications
division (see Note 14 of Notes to Consolidated Financial Statements). This
resulted in an after-tax, noncash extraordinary charge of $565 million ($1.62
per share) in 1995.
FINANCIAL CONDITION
Sprint's consolidated assets totaled $18.9 billion at March 31, 1998, $18.2
billion at year-end 1997 and $16.8 billion at year-end 1996. Net property,
plant and equipment increased $420 million since year-end 1997 and $1.0
billion in 1997 mainly because of capital expenditures to support the core
long distance and local networks and expanded product and service offerings.
In addition, this growth reflects an increase in capital expenditures and new
capital leases related to the buildout of the SprintCom markets. Sprint's
debt-to-capital ratio was 31.4% at March 31, 1998 versus 30.0% at year-end
1997 and 27.7% at year-end 1996. See "Liquidity and Capital Resources" for
additional discussions of changes in Sprint's Consolidated Balance Sheets.
I-9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash flows from operating activities, which are Sprint's main source of
liquidity, were $988 million in first quarter 1998 versus $700 million in
first quarter 1997 and were $3.4 billion in 1997, $2.4 billion in 1996 and
$2.6 billion in 1995. The growth in operating cash flows over these periods
mainly reflects improved operating results in Sprint's core businesses partly
offset by increased losses from its emerging businesses. During 1996, Sprint
terminated an accounts receivable sales agreement, which reduced cash flows by
$600 million. Excluding this termination, 1996 cash flows increased $394
million, mainly because of improved operating results in all divisions.
Investing Activities
Sprint's investing activities from continuing operations used cash of $996
million in first quarter 1998 and $580 million in first quarter 1997 and used
cash of $4.5 billion in 1997, $3.1 billion in 1996 and $2.9 billion in 1995.
Capital expenditures, which are Sprint's largest investing activity, totaled
$788 million in first quarter 1998 and $574 million in first quarter 1997 and
totaled $2.9 billion in 1997, $2.4 billion in 1996 and $1.9 billion in 1995.
Expenditures in the long distance division were incurred mainly to enhance
network reliability, meet increased demand for data-related services, and
upgrade capabilities for providing new products and services. Local
telecommunications division capital expenditures were made to accommodate
access line growth and expand capabilities for providing enhanced services.
Additional capital expenditures relate primarily to the buildout of the
SprintCom markets.
Investments in and loans to Sprint Spectrum Holdings and PhillieCo were $124
million in first quarter 1998 versus a reduction of $26 million in first
quarter 1997 and were $706 million in 1997, $561 million in 1996 and $954
million in 1995. These capital contributions, loans and advances to Sprint
Spectrum Holdings and PhillieCo for the first quarters of 1998 and 1997 and
for the years 1997 and 1996 were used to fund its capital and operating
requirements. The 1995 contributions were mainly used to fund payments for PCS
licenses. Included in the loans to Sprint Spectrum Holdings in 1997 is $300
million borrowed from Sprint under a vendor financing facility. In 1996,
Sprint purchased $183 million (face value) of Sprint Spectrum Senior Discount
notes for $100 million. In addition, Sprint paid the remaining $460 million
for the SprintCom PCS licenses in 1997, bringing the total payments to $544
million.
"Investments in and advances to other affiliates, net" mainly consists of
net contributions to Global One to fund operations.
In 1997, Sprint purchased the net assets of Paranet, Inc. for $375 million
(see Note 13 of Notes to Consolidated Financial Statements).
Financing Activities
Sprint's financing activities provided cash of $64 million in first quarter
1998, while first quarter 1997 activities used cash of $211 million. Financing
activities during first quarter 1998 reflect long-term borrowings of $290
million, partly offset by payments on long-term debt of $130 million.
Financing activities in the first quarter of 1997 reflect payments of $100
million on short-term borrowings and $38 million on long-term debt.
For the years ended December 31, Sprint's financing activities provided cash
of $72 million in 1997, $479 million in 1996 and $423 million in 1995. In
1997, Sprint borrowed $867 million, mainly to fund investments in and loans to
affiliates. In 1996, FT and DT acquired Class A common shares for a combined
total of $3.7 billion. Sprint mainly used these proceeds, and the $1.4 billion
of cash from Cellular repaying intercompany debt, to reduce outstanding debt.
In 1995, Sprint increased its short-term borrowings by $1.1 billion to fund
commitments related to Sprint Spectrum Holdings and repay long-term debt.
I-10
<PAGE>
Sprint paid common and preferred dividends totaling $98 million in the first
quarter of 1998, $100 million in the first quarter of 1997, $430 million in
1997, $420 million in 1996 and $352 million in 1995. Sprint's indicated annual
dividend rate on common stock is currently $1.00 per share.
Sprint purchased 3 million and 10 million treasury shares in 1997 and 1996,
respectively. Sprint may repurchase common shares on the open market through
1998 to meet share issuance requirements for employee benefit plans and for
the conversion of preferred stock.
Discontinued Operation
In connection with the March 1996 Spinoff, Cellular repaid $1.4 billion of
intercompany debt owed to Sprint. Prior to the Spinoff, Cellular's investing
activities required net cash of $141 and $325 million in 1996 and 1995,
respectively, mainly to fund capital expenditures and acquire cellular
properties.
Capital Requirements
Sprint's investing activities, consisting of capital expenditures and
investments in affiliates, and including funds required for Sprint Spectrum
Holdings and PhillieCo as a result of the PCS Restructuring, are expected to
require cash of $6.9 billion to $7.2 billion for 1998. Dividend payments are
expected to total $430 million in 1998.
Sprint expects to spend $6.5 billion to $6.8 billion on capital expenditures
in 1998. Of this total, the FON Group, primarily consisting of the long
distance and local telecommunications divisions, will require an estimated
$3.3 billion to $3.5 billion. The remainder will mainly be used to fund
operations and continue to fund the buildout of the network for the PCS Group.
Global One will require $300 to $400 million to fund operations and ongoing
development activities.
Sprint and the Cable Parents have agreed to loan up to $400 million, based
on respective ownership interests, to fund the capital requirements of Sprint
Spectrum Holdings from the date of the signing of the PCS Restructuring
Agreement, May 26, 1998, through the closing date. The PhillieCo Partners have
agreed to lend up to $50 million to PhillieCo to fund operating and working
capital requirements and capital expenditures prior to closing. Sprint has
also agreed to loan up to $110.6 million to fund SprintCom's capital
requirements during the same period. Sprint has been financing SprintCom with
Sprint's cash from operations, commercial paper borrowings and leases on
specific equipment. Sprint intends to continue to fund the buildout of the
SprintCom markets through the closing of this transaction. The above mentioned
loans, totaling $510.6 million excluding loans to PhillieCo, may be repaid
from the proceeds of an anticipated IPO, as further discussed below, but only
to the extent the net proceeds of the IPO exceed $500 million. In the event
the loans remain outstanding after the IPO, the remaining balance will be
converted into 10-year preferred stock convertible into PCS Stock. See "The
Tracking Stock Proposal--Funding of the PCS Group Prior to Closing; The PCS
Preferred Stock."
Liquidity
At March 31, 1998, Sprint could borrow $744 million under a revolving credit
agreement with a syndicate of domestic and international banks. In addition,
in 1997, Sprint negotiated a separate five-year revolving credit facility with
a bank. At March 31, 1998 and year-end 1997, Sprint's unused capacity under
the committed portion of this facility was $100 million. Sprint could offer
for sale up to $1.1 billion of debt securities under existing shelf
registration statements filed with the Securities and Exchange Commission. Any
borrowings Sprint may incur are ultimately limited by certain debt covenants.
At March 31, 1998 and year-end 1997, Sprint could borrow up to $13.5 billion
under the most restrictive debt covenants.
The most restrictive covenant related to dividends results from Sprint's
revolving credit agreement. As a result, $2.8 billion of Sprint's $3.8 billion
at March 31, 1998 and $2.7 billion of Sprint's $3.7 billion retained earnings
at year-end 1997 were restricted from the payment of dividends. Among other
restrictions, Sprint must maintain specified levels of consolidated net worth.
Sprint currently uses the commercial paper market to fund its short-term
working capital needs. Sprint uses four commercial paper dealers to place the
paper at the most favorable rates and maturities. Sprint also uses the medium-
term note and long-term bond markets as well as other debt markets to fund its
needs. Sprint intends to borrow funds through the U.S. and international money
and capital markets and bank credit markets to fund
I-11
<PAGE>
capital expenditures, operating and working capital requirements and to
refinance existing debt obligations of the PCS Group.
Financing activities for the Groups will be managed by Sprint on a
centralized basis. Loans from Sprint or any member of the FON Group to any
member of the PCS Group will be made at interest rates and on other terms and
conditions substantially equivalent to the interest rates and other terms and
conditions that the PCS Group would be able to obtain from third parties
(including the public markets) as a direct or indirect wholly-owned subsidiary
of Sprint, but without the benefit of any guaranty by Sprint or any member of
the FON Group. Such policy contemplates that such loans will be made on the
basis set forth above regardless of the interest rates and other terms and
conditions on which Sprint or members of the FON Group may have acquired the
subject funds. Any difference between Sprint's borrowing rate and the rate
charged to the PCS Group, which rates are expected to be higher than the rates
at which Sprint obtained such financing, will be reflected in the FON Group
Combined Financial Statements. This process will be governed by the Tracking
Stock Policies as overseen by the Capital Stock Committee.
Sprint intends to file with the SEC a registration statement on Form S-3
relating to the registration of shares of Series 1 PCS Stock aggregating total
proceeds of between $500 million and $525 million, subject to market
conditions. Sprint, subject to a disapproval right held by each of the Cable
Parents, may elect an offering netting higher proceeds in the IPO if the Board
of Directors of Sprint determines that market conditions are favorable to a
larger offering. All of the proceeds in the IPO will be allocated to the PCS
Group. Proceeds in excess of the initial $500 million to $525 million may be
used to repay loans from Sprint and the Cable Parents to Sprint Spectrum
Holdings as discussed above. Neither Sprint nor the Cable Parents would sell
shares on a secondary basis as part of the IPO. Sprint intends to complete the
IPO and the PCS Restructuring concurrently, after stockholder approval of the
transaction, subject to prevailing market conditions and other factors. There
can be no assurance that the IPO will occur. See "The Tracking Stock
Proposal--The IPO."
Sprint intends to file a shelf registration to sell up to $8 billion of
fixed income debt securities, subject to market conditions, to replace its
existing $1.1 billion of shelf registrations. Proceeds from the sale of these
securities will be used to repay short-term borrowings, to refinance existing
long-term borrowings, and to provide funds for working capital and new capital
expenditures for both the PCS Group and the FON Group.
Sprint is in the process of negotiating revolving credit facilities for
approximately $5 billion which will be used to support commercial paper
operations and replace its existing credit facilities. Sprint believes the
agreements will be negotiated on market terms, conditions and covenants and
will not place any undue burden on the business plan or execution thereof.
In connection with the PCS Restructuring and the IPO, FT and DT have agreed
to purchase shares of PCS Stock so that they will maintain their aggregate 20%
voting power. Proceeds from the exercise of these Equity Purchase Rights are
expected to total between $225 million and $250 million. See "FT and DT
Arrangements--Equity Purchase Rights."
FINANCIAL STRATEGIES
GENERAL HEDGING POLICIES
Sprint selectively enters into interest rate swap and cap agreements to
manage its exposure to interest rate changes on its debt. Sprint also enters
into forward contracts and options in foreign currencies to reduce the impact
of changes in foreign exchange rates. Sprint seeks to minimize counterparty
credit risk through stringent credit approval and review processes, the
selection of only the most creditworthy counterparties, continual review and
monitoring of all counterparties, and thorough legal review of contracts.
Sprint also controls exposure to market risk by regularly monitoring changes
in foreign exchange and interest rate positions under normal and stress
conditions to ensure they do not exceed established limits.
Sprint's derivative transactions are used for hedging purposes only and
comply with Board-approved policies. Senior management receives monthly status
updates of all outstanding derivative positions.
I-12
<PAGE>
INTEREST RATE RISK MANAGEMENT
Sprint's interest rate risk management program focuses on minimizing
exposure to interest rate movements, setting an optimal mixture of floating-
and fixed-rate debt, and minimizing liquidity risk. Sprint uses simulation
analysis to assess its interest rate exposure and establish the desired ratio
of floating- and fixed-rate debt. To the extent possible, Sprint manages
interest rate exposure and the floating-to-fixed ratio through its borrowings,
but sometimes uses interest rate swaps and caps to adjust its risk profile.
FOREIGN EXCHANGE RISK MANAGEMENT
Sprint's foreign exchange risk management program focuses on hedging
transaction exposure to optimize consolidated cash flow. Sprint's main
transaction exposure results from net payments made to overseas
telecommunications companies for completing international calls made by
Sprint's domestic customers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Sprint's exposure to market risk through derivative financial instruments
and other financial instruments, such as investments in marketable securities
and long-term debt, is not material.
YEAR 2000 ISSUE
The "Year 2000" issue affects Sprint's installed computer systems, network
elements, software applications, and other business systems that have time
sensitive programs that may not properly reflect or recognize the year 2000.
Because many computers and computer applications define dates by the last two
digits of the year, "00" may not be properly identified as the year 2000. This
error could result in miscalculations or systems errors. The Year 2000 issue
may also affect the systems and applications of Sprint's customers, vendors or
resellers.
The FON Group started a program in 1996 to identify and address the Year
2000 issue. It is taking an inventory of its network and computer systems and
is creating and implementing plans to make them Year 2000 compliant. The FON
Group is using both internal and external resources to identify, correct or
reprogram, and test its systems for Year 2000 compliance. The FON Group is
also contacting others with whom they conduct business to receive the
appropriate warranties and assurances that those third parties are or will be
Year 2000 compliant.
The PCS Group is undertaking an evaluation of its critical systems and is
planning for the remediation and testing to be completed by mid-year 1999. The
PCS Group is also contacting others with whom they conduct business to receive
the appropriate warranties and assurances that those third parties are or will
be Year 2000 compliant. In addition, the PCS Group uses publicly available
services that are acquired without contract (e.g., global positioning system
timing signal) that may be subject to the Year 2000 issue. While the PCS Group
believes these systems will be Year 2000 compliant, the PCS Group has no
contractual or other right to compel compliance.
The total cost of modifications and conversions for Sprint is not known at
this time; however, it is not expected to be material to Sprint's financial
position, results of operations or cash flows and is being expensed as
incurred. If compliance is not achieved in a timely manner, the Year 2000
issue could have a material effect on Sprint's operations. However, Sprint is
focusing on identifying and addressing all aspects of its operations that may
be affected by the Year 2000 issue and is addressing the most critical
applications first. As a result, Sprint management does not believe its
operations will be materially adversely affected.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 18 of Notes to Consolidated Financial Statements for a discussion
of recently issued accounting pronouncements.
I-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sprint Corporation
We have audited the accompanying consolidated balance sheets of Sprint
Corporation ("Sprint") as of December 31, 1997 and 1996, and the related
consolidated statements of income, cash flows, and common stock and other
stockholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the management
of Sprint. Our responsibility is to express an opinion on these financial
statements based on our audits. The 1997 financial statements of Sprint
Spectrum Holding Company, L.P., a partnership in which Sprint has a 40%
interest, have been audited by other auditors whose report has been furnished
to us; insofar as our opinion on the 1997 consolidated financial statements
relates to data included for Sprint Spectrum Holding Company, L.P., it is
based solely on their report. In the consolidated financial statements,
Sprint's equity in Sprint Spectrum Holding Company, L.P. is stated at $749
million at December 31, 1997, and Sprint's equity in the net loss of Sprint
Spectrum Holding Company, L.P. is stated at $625 million for the year then
ended.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sprint at December
31, 1997 and 1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements, Sprint
discontinued accounting for the operations of its local telecommunications
division in accordance with Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation," in 1995.
Ernst & Young LLP
Kansas City, Missouri
February 3, 1998, except for Note 1, as
to which the date is May 26, 1998
I-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries ("the Partnership") as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
partners' capital and cash flows for the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Sprint Spectrum
Holding Company, L.P. and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the three years then
ended, in conformity with generally accepted accounting principles.
The Partnership was in the development stage at December 31, 1996; during
the year ended December 31, 1997, the Partnership completed its development
activities and commenced its planned principal operations.
Deloitte & Touche LLP
Kansas City, Missouri
February 3, 1998
I-15
<PAGE>
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.... $3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3
OPERATING EXPENSES
Costs of services and
products............... 1,884.3 1,794.9 7,451.0 6,912.9 6,504.9
Selling, general and
administrative......... 891.1 768.0 3,245.2 3,116.4 2,842.1
Depreciation and
amortization........... 467.3 410.9 1,726.3 1,591.0 1,466.4
Restructuring costs..... -- -- -- -- 87.6
-------- -------- --------- --------- ---------
Total operating
expenses............... 3,242.7 2,973.8 12,422.5 11,620.3 10,901.0
-------- -------- --------- --------- ---------
OPERATING INCOME.......... 668.2 604.7 2,451.4 2,267.2 1,834.3
Interest expense.......... (66.7) (44.8) (187.2) (196.7) (260.7)
Equity in loss of Global
One...................... (45.2) (23.7) (162.1) (82.1) (22.9)
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo................ (209.7) (85.9) (659.6) (191.8) (31.4)
Other income (expense),
net...................... 21.2 34.9 140.5 115.3 (38.9)
-------- -------- --------- --------- ---------
Income from continuing
operations before income
taxes.................... 367.8 485.2 1,583.0 1,911.9 1,480.4
Income taxes.............. (151.3) (195.2) (630.5) (721.0) (534.3)
-------- -------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS............... 216.5 290.0 952.5 1,190.9 946.1
Discontinued operation,
net...................... -- -- -- (2.6) 14.5
Extraordinary items, net.. (4.4) -- -- (4.5) (565.3)
-------- -------- --------- --------- ---------
NET INCOME................ 212.1 290.0 952.5 1,183.8 395.3
Preferred stock dividends. (0.3) (0.3) (1.0) (1.3) (2.6)
-------- -------- --------- --------- ---------
Earnings applicable to
common stock............. $ 211.8 $ 289.7 $ 951.5 $ 1,182.5 $ 392.7
======== ======== ========= ========= =========
BASIC EARNINGS PER COMMON
SHARE
Continuing operations... $ 0.50 $ 0.67 $ 2.21 $ 2.82 $ 2.71
Discontinued operation.. -- -- -- (0.01) 0.04
Extraordinary items..... (0.01) -- -- (0.01) (1.62)
-------- -------- --------- --------- ---------
Total..................... $ 0.49 $ 0.67 $ 2.21 $ 2.80 $ 1.13
======== ======== ========= ========= =========
Basic weighted average
common shares............ 430.1 430.5 430.2 421.7 348.7
======== ======== ========= ========= =========
DILUTED EARNINGS PER
COMMON SHARE
Continuing operations... $ 0.49 $ 0.67 $ 2.18 $ 2.79 $ 2.69
Discontinued operation.. -- -- -- (0.01) 0.04
Extraordinary items..... (0.01) -- -- (0.01) (1.61)
-------- -------- --------- --------- ---------
Total..................... $ 0.48 $ 0.67 $ 2.18 $ 2.77 $ 1.12
======== ======== ========= ========= =========
Diluted weighted average
common shares............ 438.7 435.8 436.5 427.0 351.3
======== ======== ========= ========= =========
DIVIDENDS PER COMMON
SHARE.................... $ 0.25 $ 0.25 $ 1.00 $ 1.00 $ 1.00
======== ======== ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-16
<PAGE>
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents....................... $ 158.2 $ 101.7 $ 1,150.6
Accounts receivable, net of allowance for
doubtful accounts of $165.6 (unaudited),
$146.7 and $117.4......................... 2,519.1 2,495.6 2,343.6
Inventories................................ 378.5 352.0 305.3
Notes and other receivables................ 444.0 443.4 101.9
Other...................................... 406.7 358.7 331.5
--------- --------- ---------
Total current assets..................... 3,906.5 3,751.4 4,232.9
Investments in equity securities............. 397.7 303.0 254.5
Property, plant and equipment
Long distance communications services...... 8,403.7 8,245.5 7,467.8
Local communications services.............. 14,241.7 14,011.5 13,368.7
Other...................................... 1,292.8 953.9 574.3
--------- --------- ---------
Total property, plant and equipment........ 23,938.2 23,210.9 21,410.8
Less accumulated depreciation.............. 12,024.0 11,716.8 10,946.7
--------- --------- ---------
Net property, plant and equipment.......... 11,914.2 11,494.1 10,464.1
Investment in and advances to Sprint Spectrum
Holdings and PhillieCo...................... 903.4 989.6 1,242.9
Investments in and advances to other
affiliates.................................. 499.6 459.1 284.2
Other assets................................. 1,270.4 1,187.6 347.8
--------- --------- ---------
Total.................................... $18,891.8 $18,184.8 $16,826.4
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt....... $ 127.8 $ 131.0 $ 99.1
Short-term borrowings...................... -- -- 200.0
Accounts payable........................... 1,040.1 1,100.1 1,026.7
Accrued interconnection costs.............. 711.9 672.7 709.0
Accrued taxes.............................. 302.2 270.7 189.2
Advance billings........................... 204.9 202.9 199.7
Other...................................... 936.0 699.4 770.6
--------- --------- ---------
Total current liabilities................ 3,322.9 3,076.8 3,194.3
Long-term debt............................... 4,075.7 3,748.6 2,974.8
Deferred credits and other liabilities
Deferred income taxes and investment tax
credits................................... 925.0 1,016.5 846.9
Postretirement and other benefit
obligations............................... 1,061.2 947.4 919.7
Other...................................... 341.3 358.8 359.0
--------- --------- ---------
Total deferred credits and other
liabilities............................. 2,327.5 2,322.7 2,125.6
Redeemable preferred stock................... 9.5 11.5 11.8
Common stock and other stockholders' equity
Common stock, par value $2.50 per share,
1,000.0 shares authorized, 350.3 shares
issued, and 344.3 (unaudited), 343.8 and
343.9 shares outstanding.................. 875.7 875.7 875.7
Class A common stock, par value $2.50 per
share, 500.0 shares authorized, 86.2
shares issued and outstanding............. 215.6 215.6 215.6
Capital in excess of par or stated value... 4,469.8 4,457.7 4,425.9
Retained earnings.......................... 3,796.0 3,693.1 3,222.4
Treasury stock, at cost, 6.0 (unaudited),
6.5 and 6.4 shares........................ (296.9) (292.9) (262.2)
Other...................................... 96.0 76.0 42.5
--------- --------- ---------
Total common stock and other
stockholders' equity.................... 9,156.2 9,025.2 8,519.9
--------- --------- ---------
Total.................................... $18,891.8 $18,184.8 $16,826.4
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-17
<PAGE>
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------- ----------------------------
1998 1997 1997 1996 1995
------ -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................... $212.1 $ 290.0 $ 952.5 $1,183.8 $ 395.3
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in net losses of
affiliates................. 255.5 107.0 843.7 273.7 39.1
Extraordinary items, net.... 1.1 -- -- 4.9 565.3
Depreciation and
amortization............... 467.3 410.9 1,726.3 1,591.0 1,466.4
Deferred income taxes and
investment tax credits..... (101.9) 41.8 165.7 (10.3) 5.8
Net (gains) losses on sales
of assets.................. -- -- (93.2) 7.5 4.2
Changes in assets and
liabilities:
Accounts receivable, net.. (23.5) (92.6) (127.0) (982.1) (135.4)
Inventories and other
current assets........... (60.1) 26.0 (94.4) 15.7 (38.6)
Accounts payable and other
current liabilities...... 246.7 (75.8) 18.0 362.0 178.1
Noncurrent assets and
liabilities, net......... (11.3) (6.3) (18.4) (25.5) 123.0
Other, net.................. 2.5 (0.9) 5.8 (17.1) 6.4
------ -------- -------- -------- --------
Net cash provided by
continuing operations........ 988.4 700.1 3,379.0 2,403.6 2,609.6
Net cash provided (used) by
cellular division............ -- -- -- (0.1) 162.5
------ -------- -------- -------- --------
Net cash provided by operating
activities................... 988.4 700.1 3,379.0 2,403.5 2,772.1
------ -------- -------- -------- --------
INVESTING ACTIVITIES
Capital expenditures.......... (787.9) (574.4) (2,862.6) (2,433.6) (1,857.3)
Purchase of PCS licenses...... -- (25.2) (460.1) (84.0) --
Investments in and loans to
Sprint Spectrum Holdings and
PhillieCo.................... (123.5) 25.6 (706.3) (561.0) (954.1)
Investments in and loans to
other affiliates, net........ (89.1) (9.9) (385.5) (81.4) (37.8)
Paranet acquisition........... -- -- (375.0) -- --
Proceeds from sales of assets. -- -- 292.3 2.1 6.7
Other, net.................... 4.3 4.4 (2.3) 42.4 (17.1)
------ -------- -------- -------- --------
Net cash used by continuing
operations................... (996.2) (579.5) (4,499.5) (3,115.5) (2,859.6)
Repayment by cellular division
of intercompany advances..... -- -- -- 1,400.0 --
Net cash used by cellular
division..................... -- -- -- (140.7) (324.6)
------ -------- -------- -------- --------
Net cash used by investing
activities................... (996.2) (579.5) (4,499.5) (1,856.2) (3,184.2)
------ -------- -------- -------- --------
FINANCING ACTIVITIES
Payments on long-term debt.... (130.3) (37.5) (135.0) (433.1) (630.0)
Proceeds from long-term debt.. 289.5 -- 866.5 9.4 260.7
Net change in short-term
borrowings................... -- (100.0) (200.0) (1,986.8) 1,109.5
Proceeds from Class A common
stock issued................. -- -- -- 3,661.3 --
Dividends paid................ (97.7) (99.8) (430.0) (419.6) (351.5)
Treasury stock purchased...... (48.8) (22.7) (144.5) (407.2) --
Other, net.................... 51.6 49.0 114.6 55.1 33.9
------ -------- -------- -------- --------
Net cash provided (used) by
financing activities......... 64.3 (211.0) 71.6 479.1 422.6
------ -------- -------- -------- --------
Increase (Decrease) in Cash
and Equivalents.............. 56.5 (90.4) (1,048.9) 1,026.4 10.5
Cash and Equivalents at
Beginning of Period.......... 101.7 1,150.6 1,150.6 124.2 113.7
------ -------- -------- -------- --------
Cash and Equivalents at End of
Period....................... $158.2 $1,060.2 $ 101.7 $1,150.6 $ 124.2
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-18
<PAGE>
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS OF
COMMON CLASS A PAR OR
SHARES COMMON COMMON STATED RETAINED TREASURY
OUTSTANDING STOCK STOCK VALUE EARNINGS STOCK OTHER TOTAL
----------- ------- ------- ---------- --------- -------- ------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING 1995 BALANCE.. 348.3 $ 871.4 $ -- $ 942.9 $ 2,730.6 $ (9.6) $(10.5) $ 4,524.8
Net income.............. -- -- -- -- 395.3 -- -- 395.3
Common stock dividends.. -- -- -- -- (348.9) -- -- (348.9)
Common stock issued..... 0.6 1.4 -- 13.5 -- -- -- 14.9
Treasury stock issued... 0.3 -- -- -- (3.5) 9.6 -- 6.1
Change in unrealized
holding gains on
investments, net....... -- -- -- -- -- -- 54.6 54.6
Other, net.............. -- 0.1 -- 3.6 (0.6) -- (7.3) (4.2)
----- ------- ------- --------- --------- -------- ------ ---------
ENDING 1995 BALANCE..... 349.2 872.9 -- 960.0 2,772.9 -- 36.8 4,642.6
Net income.............. -- -- -- -- 1,183.8 -- -- 1,183.8
Common stock dividends.. -- -- -- -- (346.1) -- -- (346.1)
Class A common stock and
preference stock
dividends.............. -- -- -- -- (74.9) -- -- (74.9)
Common stock issued..... 1.1 2.5 -- 17.5 -- -- -- 20.0
Class A common stock
issued................. 86.2 -- 215.6 3,436.3 -- -- -- 3,651.9
Treasury stock
purchased.............. (10.1) -- -- -- -- (407.2) -- (407.2)
Treasury stock issued... 3.7 -- -- -- (52.9) 145.0 -- 92.1
Spinoff of cellular
division............... -- -- -- -- (260.2) -- -- (260.2)
Other, net.............. -- 0.3 -- 12.1 (0.2) -- 5.7 17.9
----- ------- ------- --------- --------- -------- ------ ---------
ENDING 1996 BALANCE..... 430.1 875.7 215.6 4,425.9 3,222.4 (262.2) 42.5 8,519.9
Net income.............. -- -- -- -- 952.5 -- -- 952.5
Common stock dividends.. -- -- -- -- (343.3) -- -- (343.3)
Class A common stock
dividends.............. -- -- -- -- (86.2) -- -- (86.2)
Treasury stock
purchased.............. (3.0) -- -- -- -- (144.5) -- (144.5)
Treasury stock issued... 2.9 -- -- -- (48.8) 113.8 -- 65.0
Tax benefit from stock
options exercised...... -- -- -- 26.2 -- -- -- 26.2
Other, net.............. -- -- -- 5.6 (3.5) -- 33.5 35.6
----- ------- ------- --------- --------- -------- ------ ---------
ENDING 1997 BALANCE..... 430.0 875.7 215.6 4,457.7 3,693.1 (292.9) 76.0 9,025.2
Net income (unaudited).. -- -- -- -- 212.1 -- -- 212.1
Common stock dividends
(unaudited)............ -- -- -- -- (86.3) -- -- (86.3)
Class A common stock
dividends (unaudited).. -- -- -- -- (21.6) -- -- (21.6)
Treasury stock purchased
(unaudited)............ (0.8) -- -- -- -- (48.8) -- (48.8)
Treasury stock issued
(unaudited)............ 1.3 -- -- -- (3.3) 39.5 -- 36.2
Other, net (unaudited).. -- -- -- 12.1 2.0 5.3 20.0 39.4
----- ------- ------- --------- --------- -------- ------ ---------
MARCH 31, 1998 BALANCE
(unaudited)............ 430.5 $ 875.7 $ 215.6 $ 4,469.8 $ 3,796.0 $ (296.9) $ 96.0 $ 9,156.2
===== ======= ======= ========= ========= ======== ====== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-19
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. RESTRUCTURING AND RECAPITALIZATION PLANS
Sprint Corporation ("Sprint") has entered into a restructuring agreement
with Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and
Cox Communications, Inc. ("Cox," and together with TCI and Comcast the "Cable
Parents") to restructure Sprint's wireless personal communications services
("PCS") operations (the "PCS Restructuring"). Sprint will acquire the joint
venture interests of TCI, Comcast and Cox in Sprint Spectrum Holdings Company,
L.P. and MinorCo, L.P. (together, "Sprint Spectrum Holdings") and the joint
venture interests of TCI and Cox in PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P. (together, "PhillieCo"). In exchange for these joint venture
interests, Sprint will issue to the Cable Parents a newly created class of
Sprint Common Stock (the "PCS Stock"). The PCS Stock is intended to reflect
separately the performance of these joint ventures and the domestic PCS
operations of Sprint's wholly-owned subsidiaries, SprintCom, Inc. and
SprintCom Equipment Company, L.P. (together, "SprintCom"). These operations,
which after the PCS Restructuring will be 100% owned by Sprint, will be
referred to as the PCS Group.
Subsequent to the PCS Restructuring, Sprint will commence a tax-free
recapitalization of Sprint's Common Stock (the "Recapitalization") to be
effected by reclassifying each share of Sprint's existing Common Stock into [
1/2] share of PCS Stock and one share of a newly created class of Sprint
Common Stock (the "FON Stock"). The FON Stock is intended to reflect
separately the performance of all of Sprint's other operations, including its
long distance, local telecommunications and product distribution and directory
publishing divisions, emerging businesses and its interest in Global One.
These operations will be referred to as the FON Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Presentation
The consolidated financial statements include the accounts of Sprint and its
wholly-owned and majority-owned subsidiaries. Investments in entities in which
Sprint exercises significant influence, but does not control, are accounted
for using the equity method (see Note 3).
The consolidated financial statements are prepared according to generally
accepted accounting principles ("GAAP"). These principles require management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
The unaudited interim financial information presented has been prepared
according to GAAP and the rules and regulations of the Securities and Exchange
Commission. In management's opinion, the information presented reflects all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly Sprint's consolidated financial position, results of operations
and cash flows.
Certain prior-year amounts have been reclassified to conform to the current-
year presentation. These reclassifications had no effect on the results of
operations or stockholders' equity as previously reported.
Sprint applied Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting for the Effects of Certain Types of Regulation," to its financial
statements until December 1995. Under SFAS 71, revenues and related net income
resulting from transactions between Sprint's nonregulated operations and its
regulated local exchange carriers were not eliminated from the consolidated
financial statements. Revenues from these intercompany transactions were $262
million in 1995. All other significant intercompany transactions have been
eliminated.
Classification of Operations
FON GROUP
The principal activities of the FON Group include (i) its core businesses
consisting of domestic and international long distance communications, local
exchange communications, and product distribution and
I-20
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
directory publishing activities, (ii) its emerging businesses, which consist
of the development of new integrated communications services, consumer
internet access services, Sprint Paranet and Sprint International and (iii)
Sprint's Global One strategic international alliance, as well as other
telecommunications investments and partnerships.
PCS GROUP
The PCS Group includes Sprint's domestic wireless mobile telephony
activities and any other domestic PCS services, which include (i) the
investment in Sprint Spectrum Holdings and the investment in PhillieCo, both
of which are reflected on the equity basis and (ii) SprintCom. Upon completion
of the PCS Restructuring, the results of Sprint Spectrum Holdings and
PhillieCo will be reflected on the consolidated basis in the PCS Group
Combined Financial Statements.
Revenue Recognition
Sprint recognizes operating revenues as services are rendered or as products
are delivered to customers. Sprint records operating revenues net of an
estimate for uncollectible accounts.
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which
approximates market value. Sprint uses controlled disbursement banking
arrangements as part of its cash management program. Outstanding checks in
excess of cash balances, which were included in accounts payable, totaled $225
million at year-end 1997 and $127 million at year-end 1996. Sprint had
sufficient funds available to fund these outstanding checks when they were
presented for payment.
Investments in Debt and Equity Securities
Investments in debt and equity securities are classified as available for
sale and reported at fair value (estimated based on quoted market prices).
Gross unrealized holding gains and losses are reflected as adjustments to
"Common stock and other stockholders' equity--Other," net of related income
taxes.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. Repairs and maintenance costs are expensed as
incurred.
Depreciation
The cost of property, plant and equipment is generally depreciated on a
straight-line basis over estimated economic useful lives. Prior to Sprint's
discontinued use of SFAS 71 at year-end 1995, the cost of property, plant and
equipment for the local division had been generally depreciated on a straight-
line basis over lives prescribed by regulatory commissions.
Income Taxes
Sprint records deferred income taxes based on certain temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for tax purposes. Investment tax credits
I-21
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
related to regulated telephone property, plant and equipment have been
deferred and are being amortized over the estimated useful lives of the
related assets.
Capitalized Interest
Sprint capitalizes interest costs related to constructing capital assets,
and to its investments in Sprint Spectrum Holdings and affiliates and its
directly owned PCS licenses. Sprint stopped capitalizing interest on its
investment in Sprint Spectrum Holdings and affiliates in July 1997 because
Sprint Spectrum Holdings and affiliates no longer qualified as development-
stage companies. Capitalized interest totaled $93 million in 1997, $104
million in 1996 and $57 million in 1995.
3. INVESTMENTS
INVESTMENTS IN EQUITY SECURITIES
The cost of investments in equity securities was $105 million at year-end
1997 and 1996. Gross unrealized holding gains were $198 million at year-end
1997 and $149 million at year-end 1996.
INVESTMENTS IN AND LOANS TO AFFILIATES
Investments accounted for using the equity method mainly consist of Sprint's
investments in Sprint Spectrum Holdings and Global One.
Sprint is a 40% partner in Sprint Spectrum Holdings, a partnership with TCI,
Comcast and Cox. Sprint Spectrum Holdings is building the nation's first
single-technology, state-of-the-art wireless network to provide PCS across the
United States. See Note 1 for more information regarding the PCS
Restructuring, which will result in Sprint acquiring the interests of TCI,
Comcast and Cox in Sprint Spectrum Holdings.
Combined, summarized financial information (100% basis) for Sprint Spectrum
Holdings and PhillieCo accounted for using the equity method is as follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------
1998 1997 1997 1996 1995
------- ------- --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues........ $ 184.2 $ 9.5 $ 258.0 $ 4.2 $ --
======= ======= ========= ======== =======
Operating loss................ $(388.9) $(192.5) $(1,379.7) $ (357.6) $ (66.9)
======= ======= ========= ======== =======
Net loss...................... $(514.4) $(217.1) $(1,632.7) $ (444.6) $(112.7)
======= ======= ========= ======== =======
Financial position
Current assets................ $ 417.9 $ 401.8
Noncurrent assets............. 6,640.0 4,041.8
--------- --------
Total......................... $ 7,057.9 $4,443.6
========= ========
Current liabilities........... $ 834.5 $ 471.2
Noncurrent liabilities........ 4,289.4 1,412.5
Partners' equity.............. 1,934.0 2,559.9
--------- --------
Total......................... $ 7,057.9 $4,443.6
========= ========
</TABLE>
At year-end 1997 and 1996, Sprint's investment in Sprint Spectrum Holdings,
including advances and a vendor financing loan, totaled $1.2 billion.
I-22
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1996, Sprint purchased $183 million (face value) of Sprint Spectrum
Senior Discount notes for $100 million. The bonds mature in 2006. At year-end
1997 and 1996, the accreted cost of the notes was $118 and $104 million and
gross unrealized holding gains totaled $24 and $18 million, respectively. This
investment has been included in "Current assets--Other" on the Consolidated
Balance Sheets.
Sprint is also a partner in Global One, a joint venture with France Telecom
S.A. ("FT") and Deutsche Telekom AG ("DT") formed 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. At year-end 1997, Sprint's share of underlying equity in Global
One's net assets exceeded the carrying value of Sprint's investment in Global
One by $158 million. This difference is being amortized through January 2001.
Combined, summarized financial information (100% basis) for Global One and
all other affiliates accounted for using the equity method are as follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
------- ------- -------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues.......... $ 496.5 $ 422.7 $1,937.6 $1,723.7 $779.5
======= ======= ======== ======== ======
Operating income (loss)......... $(187.9) $(125.9) $ (782.5) $ (436.4) $ 8.6
======= ======= ======== ======== ======
Net income (loss)............... $(225.3) $(124.1) $ (826.3) $ (399.7) $ 22.1
======= ======= ======== ======== ======
Financial position
Current assets.................. $1,913.6 $ 958.9
Noncurrent assets............... 4,221.0 2,737.5
-------- --------
Total........................... $6,134.6 $3,696.4
======== ========
Current liabilities............. $1,965.7 $ 714.3
Noncurrent liabilities.......... 2,105.8 629.6
Partners' equity................ 2,063.1 2,352.5
-------- --------
Total........................... $6,134.6 $3,696.4
======== ========
</TABLE>
Sprint's investment in Global One, including advances, totaled $93 and $38
million at year-end 1997 and 1996, respectively.
4. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
Substantially all Sprint employees are covered by a noncontributory defined
benefit pension plan. Benefits for plan participants represented by collective
bargaining units are based on negotiated schedules of defined amounts. For
participants not covered by collective bargaining agreements, the plan
provides pension benefits based on years of service and participants'
compensation.
Sprint's policy is to make annual plan contributions equal to an actuarially
determined amount consistent with applicable federal tax regulations. The
funding objective is to accumulate funds at a relatively stable rate over the
participants' working lives so benefits are fully funded at retirement. At
year-end 1997, the plan's assets consisted mainly of investments in corporate
equity securities and U.S. government and corporate debt securities.
I-23
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net pension cost (credit) consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits earned during the period..... $ 61.7 $ 65.4 $ 51.8
Interest cost on projected benefit obligation....... 148.9 138.5 129.7
Actual return on plan assets........................ (448.5) (353.0) (472.1)
Net amortization and deferral....................... 240.0 159.4 287.9
------- ------- -------
Net pension cost (credit)........................... $ 2.1 $ 10.3 $ (2.7)
======= ======= =======
Discount rate....................................... 7.75% 7.25% 8.50%
Expected long-term rate of return on plan assets.... 9.50% 9.50% 9.50%
Anticipated composite rate of future compensation
increases.......................................... 4.75% 4.25% 5.00%
</TABLE>
At year-end, the funded status and amounts recognized in the Consolidated
Balance Sheets for the plan were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation.............................. $(1,966.7) $(1,713.6)
========= =========
Accumulated benefit obligation......................... $(2,129.6) $(1,864.1)
========= =========
Projected benefit obligation............................. $(2,240.9) $(1,967.0)
Plan assets at fair value................................ 2,929.4 2,584.2
--------- ---------
Plan assets in excess of the projected benefit
obligation.............................................. 688.5 617.2
Unrecognized net gains................................... (585.2) (481.8)
Unrecognized prior service cost.......................... 105.4 100.4
Unamortized transition asset............................. (122.1) (147.1)
--------- ---------
Prepaid pension cost..................................... $ 86.6 $ 88.7
========= =========
Discount rate............................................ 7.25% 7.75%
Anticipated composite rate of future compensation
increases............................................... 4.25% 4.75%
</TABLE>
DEFINED CONTRIBUTION PLANS
Sprint sponsors defined contribution employee savings plans covering
substantially all employees. Participants may contribute portions of their pay
to the plans. For employees represented by collective bargaining units, Sprint
matches contributions based on negotiated amounts. Sprint also matches
contributions of employees not covered by collective bargaining agreements.
For those participants, Sprint matches their contributions in Sprint common
stock. The matching is equal to 50% of participants' contributions up to 6% of
their pay. In addition, Sprint may, at the discretion of the Board of
Directors, provide matching contributions based on the performance of Sprint
common stock compared to other telecommunications companies' stock. Sprint's
matching contributions were $54 million in 1997, $56 million in 1996 and $51
million in 1995. At year-end 1997, the plans held 20 million Sprint common
shares.
POSTRETIREMENT BENEFITS
Sprint provides postretirement benefits (principally medical benefits) to
substantially all employees. Employees retiring before certain dates are
eligible for benefits at no cost, or at a reduced cost. Employees retiring
after certain dates are eligible for benefits on a shared-cost basis. Sprint
funds the accrued costs as benefits are paid.
I-24
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net postretirement benefits cost consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits
earned during the year. $20.8 $21.7 $22.2
Interest on accumulated
postretirement benefit
obligation............. 52.3 49.9 58.7
Net amortization and
deferral............... (19.4) (13.7) (9.4)
----- ----- -----
Net postretirement
benefits cost.......... $53.7 $57.9 $71.5
===== ===== =====
Discount rate........... 7.75% 7.25% 8.50%
</TABLE>
For measurement purposes, the assumed 1997 weighted average annual health
care cost trend rate was 9%, gradually decreasing to an ultimate level of 5%
by 2005. A 1% increase in the rate would have increased the 1997 net
postretirement benefits cost by an estimated $12 million.
Amounts included in the Consolidated Balance Sheets at year-end are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees...................................................... $328.3 $277.9
Active plan participants--
Fully eligible.............................................. 145.2 127.6
Other....................................................... 269.9 320.7
------ ------
743.4 726.2
Unrecognized prior service benefit.............................. 5.4 5.7
Unrecognized net gains.......................................... 190.0 178.7
------ ------
Accrued postretirement benefits cost............................ $938.8 $910.6
====== ======
Discount rate................................................... 7.25% 7.75%
</TABLE>
The assumed 1998 annual health care cost trend rate was 8.5%, gradually
decreasing to an ultimate level of 5% by 2005. A 1% increase in the rate would
have increased the 1997 accumulated postretirement benefit obligation by an
estimated $61 million.
5. INCOME TAXES
Income tax expense allocated to continuing operations consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Current income tax expense
Federal............................................... $385.9 $655.4 $437.4
State................................................. 78.9 75.9 91.1
------ ------ ------
Total current........................................... 464.8 731.3 528.5
------ ------ ------
Deferred income tax expense (benefit)
Federal............................................... 174.3 (22.2) 45.9
State................................................. (4.8) 23.5 (23.6)
Amortization of deferred investment tax credits......... (3.8) (11.6) (16.5)
------ ------ ------
Total deferred.......................................... 165.7 (10.3) 5.8
------ ------ ------
Total................................................... $630.5 $721.0 $534.3
====== ====== ======
</TABLE>
I-25
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences that cause the effective income tax rate to vary from the
statutory federal rate of 35% were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Income tax expense at the statutory rate............... $554.1 $669.2 $518.1
Less investment tax credits included in income......... 3.8 11.6 16.5
------ ------ ------
Expected federal income tax expense after investment
tax credits........................................... 550.3 657.6 501.6
Effect of state income taxes, net of federal income tax
effect................................................ 48.2 64.6 43.9
Equity in losses of foreign joint ventures............. 36.4 8.6 --
Other, net............................................. (4.4) (9.8) (11.2)
------ ------ ------
Income tax expense, including investment tax credits... $630.5 $721.0 $534.3
====== ====== ======
Effective income tax rate.............................. 39.8% 37.7% 36.1%
====== ====== ======
</TABLE>
Income tax expense (benefit) allocated to other items was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Discontinued operation................................ $ -- $ 7.0 $ 31.2
Extraordinary items................................... -- (2.9) (437.4)
Unrealized holding gains on investments (1)........... 4.4 1.7 30.7
Stock ownership, purchase and options arrangements
(1).................................................. (26.2) (14.1) (7.5)
</TABLE>
- --------
(1) These amounts have been recorded directly to "Common stock and other
stockholders' equity--Other."
Sprint recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial
statement purposes and their tax bases. The sources of the differences that
give rise to the deferred income tax assets and liabilities at year-end 1997
and 1996, along with the income tax effect of each, were as follows:
<TABLE>
<CAPTION>
1997 DEFERRED 1996 DEFERRED
INCOME TAX INCOME TAX
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Property, plant and equipment............. $ -- $1,488.8 $ -- $1,304.3
Postretirement and other benefits......... 376.1 -- 360.3 --
Reserves and allowances................... 111.3 -- 115.6 --
Unrealized holding gains on investments... -- 61.7 -- 57.3
Other, net................................ 108.5 -- 106.8 --
------ -------- ------ --------
595.9 1,550.5 582.7 1,361.6
Less valuation allowance.................. 11.8 -- 13.7 --
------ -------- ------ --------
Total..................................... $584.1 $1,550.5 $569.0 $1,361.6
====== ======== ====== ========
</TABLE>
The valuation allowance related to deferred income tax assets decreased $2
million in 1997 and $4 million in 1996 and 1995.
Management believes it is more likely than not that these deferred income
tax assets, net of the allowance, will be realized based on current income tax
laws and expectations of future taxable income stemming from the reversal of
existing deferred tax liabilities or ordinary operations. Uncertainties
surrounding income tax law
I-26
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
changes, shifts in operations between state taxing jurisdictions, and future
operating income levels may, however, affect the ultimate realization of all
or some of these deferred income tax assets.
At year-end 1997, Sprint had available for income tax purposes $4 million of
state alternative minimum tax credit carryforwards to offset state income tax
payable in future years. In addition, Sprint had tax benefits of $49 million
related to state operating loss carryforwards. The loss carryforwards expire
in varying amounts per year from 1998 through 2012.
6. BORROWINGS
LONG-TERM DEBT
Long-term debt at year-end was as follows:
<TABLE>
<CAPTION>
MATURING 1997 1996
------------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Corporate
Senior notes
8.1% to 9.8%............................... 1998 to 2002 $ 475.3 $ 475.3
9.5%....................................... 2003 to 2007 200.0 200.0
Debentures
9.0% to 9.3%............................... 2019 to 2022 350.0 350.0
Notes payable and commercial paper -- 866.5 --
Other
5.4% to 8.9% (1)........................... 1998 to 2006 237.5 194.9
Long Distance Division
Vendor financing agreements
7.4% to 8.9%............................... 1997 to 1999 23.8 44.8
Other
6.2% to 8.4%............................... 1997 to 2007 16.5 23.1
Local Telecommunications Division
First mortgage bonds
2.0% to 7.8%............................... 1997 to 2002 452.3 487.0
4.0% to 7.8%............................... 2003 to 2007 346.0 346.8
6.9% to 9.8%............................... 2008 to 2012 116.7 116.7
6.9% to 8.8%............................... 2013 to 2017 169.6 169.8
8.8% to 9.9%............................... 2018 to 2022 244.9 245.7
7.1% to 8.4%............................... 2023 to 2027 145.0 145.0
Debentures and notes
5.8% to 9.6%............................... 1998 to 2020 237.0 275.3
Other
2.0% to 9.8%............................... 1998 to 2006 4.6 6.2
Unamortized debt discount...................... (6.1) (6.7)
-------- --------
3,879.6 3,073.9
Less current maturities........................ 131.0 99.1
-------- --------
Long-term debt................................. $3,748.6 $2,974.8
======== ========
</TABLE>
- --------
(1) Notes may be exchanged at maturity for Southern New England
Telecommunications Corporation (SNET) common shares owned by Sprint, or
for cash. Based on SNET's closing market price, had the notes matured at
year-end 1997, they could have been exchanged for 3.8 million SNET shares.
At year-end 1997, Sprint held 4.2 million SNET shares, which have been
included in "Investments in equity securities" on the Consolidated Balance
Sheets.
I-27
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt maturities, excluding reclassified short-term borrowings,
during each of the next five years are as follows (in millions):
<TABLE>
<S> <C>
1998............................................................... $131.0
1999............................................................... 33.4
2000............................................................... 693.3
2001............................................................... 40.8
2002............................................................... 354.5
</TABLE>
Property, plant and equipment with a total cost of $12.9 billion is either
pledged as security for first mortgage bonds and certain notes or is
restricted for use as mortgaged property.
During 1996, Sprint redeemed, prior to scheduled maturities, $190 million of
debt with interest rates ranging from 6.0% to 9.5%. This resulted in a $5
million after-tax extraordinary loss.
SHORT-TERM BORROWINGS
At year-end 1997, Sprint had borrowed $618 million of bank notes payable and
$249 million of commercial paper. Though these borrowings are renewable at
various dates throughout the year, they have been classified as long-term debt
because of Sprint's intent and ability, through unused credit facilities, to
refinance these borrowings. Commercial paper and certain bank notes payable
are supported by Sprint's revolving credit facility with a syndicate of
domestic and international banks. Other notes payable relate to a separate
revolving credit facility that Sprint executed with a bank in 1997. At year-
end 1997, Sprint's unused lines of credit totaled $1.1 billion.
Bank notes outstanding at year-end 1997 and 1996 had weighted average
interest rates of 6.1% and 5.9%, respectively. At year-end 1997, the weighted
average interest rate of commercial paper was 6.8%.
OTHER
Sprint was in compliance with all restrictive or financial covenants
relating to its debt arrangements at year-end 1997.
7. REDEEMABLE PREFERRED STOCK
Sprint has approximately 22 million authorized preferred shares, including
nonredeemable preferred stock. The redeemable preferred stock outstanding, at
year-end, is as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN
MILLIONS,
EXCEPT PER
SHARE AND
SHARE DATA)
<S> <C> <C>
Fifth series--stated value $100,000 per share, shares--95, voting,
cumulative 6% annual dividend rate................................ $ 9.5 $ 9.5
Other--stated value $100 per share, shares--19,493 and 22,800, 4.7%
annual dividend rate.............................................. 2.0 2.3
----- -----
Total.......................................................... $11.5 $11.8
===== =====
</TABLE>
Sprint's Fifth series preferred stock must be redeemed in full in 2003. If
less than full dividends have been paid for four consecutive dividend periods,
or if dividends in arrears exceed an amount equal to the dividends for six
dividend periods, the Fifth series preferred stockholders may elect a majority
of directors standing for election until all dividends in arrears have been
paid.
I-28
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK
COMMON STOCK
At year-end 1997, common stock reserved for future grants under stock option
plans or for future issuances under various other arrangements was as follows:
<TABLE>
<CAPTION>
SHARES
-------------
(IN MILLIONS)
<S> <C>
Employees Stock Purchase Plan............................... 6.4
Employee savings plans...................................... 3.4
Automatic Dividend Reinvestment Plan........................ 1.2
Officer and key employees' and directors' stock options..... 8.2
Conversion of preferred stock and other..................... 1.4
----
Total................................................... 20.6
====
</TABLE>
Under a Shareholder Rights Plan, one preferred stock purchase right is
attached to each common and Class A common share. Each right is exercisable
only if certain takeover events occur. Each right will initially entitle the
holder to purchase 1/1000 of a share (a Unit) of a no par Preferred Stock-
Sixth Series, Junior Participating (Preferred Stock) at $225 per Unit or, in
certain cases, common stock. The Preferred Stock is voting, cumulative and
accrues dividends on a quarterly basis generally equal to the greater of $100
per share or 1,000 times the total per share amount of all common dividends.
No Preferred Stock shares were issued or outstanding at year-end 1997. The
rights may be redeemed by Sprint at $0.01 per right and will expire in June
2007, unless extended.
During 1997, 1996 and 1995, Sprint declared and paid annual common stock
dividends of $1.00 per share. The most restrictive covenant related to common
dividends results from Sprint's $1.5 billion revolving credit agreement. Among
other restrictions, this agreement requires Sprint to maintain specified
levels of consolidated net worth. Due to this requirement, $2.7 billion of
Sprint's $3.7 billion consolidated retained earnings was effectively
restricted from the payment of dividends at year-end 1997. The indentures and
financing agreements of certain of Sprint's subsidiaries contain provisions
limiting cash dividend payments on subsidiary common stock held by Sprint. As
a result, $567 million of those subsidiaries' $1.3 billion total retained
earnings was restricted at year-end 1997. The flow of cash in the form of
advances from the subsidiaries to Sprint is generally not restricted.
During 1990, the Savings Plan Trust, an employee savings plan, acquired
common stock from Sprint in exchange for a $75 million promissory note payable
to Sprint. The note bears interest at 9% and is to be repaid from common stock
dividends received by the plan and contributions made to the plan by Sprint
according to plan provisions. The remaining $34 million note receivable
balance at year-end 1997 is reflected as a reduction to "Common stock and
other stockholders' equity--Other."
CLASS A COMMON STOCK
In January 1996, FT and DT acquired shares of a new class of convertible
preference stock for a combined total of $3.0 billion. This resulted in FT and
DT each holding 7.5% of Sprint's voting power. In April 1996, following the
spinoff of Sprint's cellular division (Cellular) (see Note 15), the preference
stock was converted into Class A common stock, and FT and DT each acquired
additional Class A common shares. Following their combined investment of $3.7
billion, FT and DT each own Class A common shares with 10% of Sprint's voting
power. During 1997, Sprint declared and paid Class A common dividends of $1.00
per share. During 1996, preference dividends totaled $0.16 per share, and
Class A common dividends totaled $0.75 per share.
I-29
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FT and DT, as Class A common stockholders, have the right in most
circumstances to proportionate representation on Sprint's Board of Directors.
They may also purchase additional Class A common shares from Sprint to keep
their ownership level at 10% each. FT and DT have entered into a standstill
agreement with Sprint restricting their ability to acquire Sprint voting
shares (other than as intended by their investment agreement with Sprint and
related agreements). The standstill agreement also contains customary
provisions restricting FT and DT from initiating or participating in any
proposal with respect to the control of Sprint.
9. STOCK-BASED COMPENSATION
Sprint's Management Incentive Stock Option Plan (MISOP) provides for the
granting of stock options to employees who are eligible to receive annual
incentive compensation. Eligible employees are entitled to receive stock
options in lieu of a portion of the target incentive under Sprint's management
incentive plans. The options generally become exercisable on December 31 of
the year granted and have a maximum term of 10 years. MISOP options are
granted with exercise prices equal to the market price of Sprint's common
stock on the grant date. At year-end 1997, authorized shares under this plan
approximated 11 million. This amount increased by approximately 3 million
shares on January 1, 1998.
The Sprint Corporation Stock Option Plan (SOP) provides for the granting of
stock options to officers and key employees. The options generally become
exercisable at the rate of 25% per year, beginning one year from the grant
date, and have a maximum term of 10 years. SOP options are granted with
exercise prices equal to the market price of Sprint's common stock on the
grant date. At year-end 1997, authorized shares under this plan approximated
20 million.
Every two years, the Employees Stock Purchase Plan (ESPP) offers all
employees the election to purchase Sprint common stock at a price equal to 85%
of the market value on the grant or exercise date, whichever is less. At year-
end 1997, authorized shares under this plan approximated 18 million.
In 1996, Sprint adopted the pro forma disclosure requirements under SFAS No.
123, "Accounting for Stock-based Compensation," and continued to apply
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," to its stock option and employee stock purchase plans. Under
APB 25, Sprint has recognized no compensation expense related to these plans.
Pro forma net income and earnings per share (EPS) have been determined as if
Sprint had used the fair value method of accounting for its stock option
grants and ESPP share elections after 1994. Under this method, compensation
expense is recognized over the applicable vesting periods and is based on the
shares under option and their related fair values on the grant date.
The following pro forma information will not likely represent the
information reported in future years because options granted and ESPP shares
elected after 1994 will continue to vest over the next several years. In
addition, compensation expense resulting from the spinoff of Cellular
(Spinoff) (see Note 15) will decline over the next several years.
Sprint's pro forma net income and EPS were as follows:
<TABLE>
<CAPTION>
1997(1) 1996(1) 1995
------- ------- -----
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net income...................................... $ 908 $1,158 $ 388
===== ====== =====
Pro forma basic EPS....................................... $2.11 $ 2.74 $1.11
===== ====== =====
</TABLE>
- --------
(1) Pro forma net income was reduced by $3 million ($0.01 per share) in 1997
and $6 million ($0.01 per share) in 1996 due to additional compensation
resulting from modifications to terms of options and ESPP share elections
made in connection with the Spinoff.
I-30
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1996, Sprint employees elected to purchase 2.8 million ESPP shares
with a weighted average fair value (using the Black-Scholes pricing model) of
$10.06 per share. No ESPP shares were offered in 1997 or 1995.
The following tables reflect the weighted average fair value per option
granted during the year, as well as the significant weighted average
assumptions used in determining those fair values using the Black-Scholes
pricing model:
<TABLE>
<CAPTION>
MISOP SOP
----- ------
<S> <C> <C>
1997
Fair value on grant date....................................... $9.66 $11.74
Risk-free interest rate........................................ 6.2% 6.2%
Expected volatility............................................ 22.8% 22.8%
Expected dividend yield........................................ 2.3% 2.3%
Expected life (years).......................................... 4 6
1996
Fair value on grant date....................................... $9.17 $10.96
Risk-free interest rate........................................ 5.2% 5.2%
Expected volatility............................................ 23.3% 23.3%
Expected dividend yield........................................ 2.5% 2.5%
Expected life (years).......................................... 4 6
1995
Fair value on grant date....................................... $6.67 $ 8.73
Risk-free interest rate........................................ 6.9% 7.2%
Expected volatility............................................ 23.3% 23.3%
Expected dividend yield........................................ 2.5% 2.5%
Expected life (years).......................................... 4 6
</TABLE>
Stock option plan activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
PER SHARE
SHARES (1) EXERCISE PRICE (1)
---------- ------------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Outstanding, beginning of 1995.............. 9.3 $24.67
Granted................................... 4.3 24.69
Exercised................................. (0.8) 19.81
Forfeited/Expired......................... (0.5) 27.06
----
Outstanding, year-end 1995.................. 12.3 24.88
Granted................................... 4.9 36.94
Exercised................................. (2.6) 22.28
Forfeited/Expired......................... (1.0) 29.22
----
Outstanding, year-end 1996.................. 13.6 29.42
Granted................................... 9.4 46.14
Exercised................................. (3.4) 27.17
Forfeited/Expired......................... (0.9) 38.10
----
Outstanding, year-end 1997.................. 18.7 $37.85
==== ======
</TABLE>
- --------
(1) Due to the Spinoff, the shares and related exercise prices have been
adjusted to maintain both the total fair market value of common stock
underlying the options, and the relationship between the market value of
Sprint's common stock and the option's exercise price.
Outstanding options held by Cellular employees were converted into options
and grants to purchase Cellular common stock and are not included in the
above table.
I-31
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After adjustment for the Spinoff, options exercisable at year-end 1996 and
1995 were 8.4 and 6.4 million, respectively. At year-end 1996, the weighted
average exercise price for exercisable options was $27.77. The following table
summarizes outstanding and exercisable options at year-end 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- ----------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED WEIGHTED
OUTSTANDING CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF (IN LIFE EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES MILLIONS) (IN YEARS) PRICE (IN MILLIONS) PRICE
- --------------- ----------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$11.92--$14.96 0.1 2.2 $14.31 0.1 $14.31
$15.18--$19.24 0.1 3.7 17.91 0.1 17.91
$20.08--$24.50 2.7 6.2 23.71 1.7 23.30
$25.11--$29.96 1.8 4.7 27.38 1.4 26.80
$30.22--$39.94 5.0 7.6 35.16 3.0 34.28
$40.06--$49.88 7.3 8.5 44.88 1.9 43.33
$50.31--$58.38 1.7 7.4 51.92 0.1 51.69
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LITIGATION, CLAIMS AND ASSESSMENTS
In December 1996, an arbitration panel entered a $61 million award in favor
of Network 2000 Communications Corporation (Network 2000) on its breach of
contract claim against Sprint. The arbitrators directed Sprint to pay one-half
of this award to Network 2000. The remainder was directed to be paid to the
Missouri state court in which a proposed class action by Network 2000's
independent marketing representatives against Network 2000 and Sprint is
pending.
Sprint filed an action in federal district court seeking to have the
arbitration panel's award struck down, modified, or corrected, and asking the
court to enter an order regarding the distribution of the award. In April
1997, the court denied Sprint's request that the arbitration award be struck
down and granted Network 2000's request that the award be confirmed.
In June 1997, Sprint recorded an additional $20 million charge in connection
with the settlement of both the class action lawsuit against Sprint and
Network 2000 and the related claims of Network 2000 against Sprint. The court
has preliminarily approved the class action settlement and final approval is
expected; however, a number of potential class members have decided not to
participate in the settlement.
Various other suits arising in the ordinary course of business are pending
against Sprint. Management cannot predict the final outcome of these actions
but believes they will not result in a material effect on Sprint's
consolidated financial statements.
CONTINGENCIES
On January 1, 1998, a "Deadlock Event" occurred due to the failure of the
Sprint Spectrum Holdings partnership board to approve the proposed Sprint
Spectrum Holdings budget and business plan. Under the partnership agreement,
if a partner refers the issue for resolution pursuant to specified procedures
and it remains unresolved, buy/sell provisions can be triggered, which could
result in Sprint either increasing or selling its partnership interest.
Discussions among the partners about restructuring their interests in Sprint
Spectrum Holdings have resulted in the partners entering into a restructuring
agreement (see Note 1).
I-32
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPERATING LEASES
Minimum rental commitments at year-end 1997 for all noncancelable operating
leases, consisting mainly of leases for data processing equipment and real
estate, are as follows (in millions):
<TABLE>
<S> <C>
1998............................................................... $324.1
1999............................................................... 276.4
2000............................................................... 174.2
2001............................................................... 119.1
2002............................................................... 97.1
Thereafter......................................................... 243.7
</TABLE>
Gross rental expense totaled $410 million in 1997, $401 million in 1996 and
$402 million in 1995. Rental commitments for subleases, contingent rentals and
executory costs were not significant.
11. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
Sprint estimates the fair value of its financial instruments using available
market information and appropriate valuation methodologies. As a result, the
following estimates do not necessarily represent the values Sprint could
realize in a current market exchange. Although management is not aware of any
factors that would affect the estimated fair values presented at year-end
1997, those amounts have not been comprehensively revalued for purposes of
these financial statements since that date. Therefore, estimates of fair value
after year-end 1997 may differ significantly from the amounts presented below.
The carrying amounts and estimated fair values of Sprint's financial
instruments at year-end were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets
Cash and equivalents............... $ 101.7 $ 101.7 $1,150.6 $1,150.6
Investment in affiliate debt
securities........................ 142.4 142.4 122.5 122.5
Investments in equity securities... 303.0 303.0 254.5 254.5
Financial liabilities
Short-term borrowings.............. -- -- 200.0 200.0
Long-term debt
Corporate........................ 2,129.3 2,301.8 1,220.2 1,348.9
Long distance division........... 40.3 41.7 67.9 69.0
Local telecommunications
division........................ 1,710.0 1,812.3 1,785.8 1,846.9
Other financial instruments
Interest rate swap agreements...... -- 0.3 -- 0.2
Foreign currency contracts......... (0.6) (0.6) (0.5) (0.5)
</TABLE>
The carrying values of Sprint's cash and equivalents approximate fair value
at year-end 1997 and 1996. The estimated fair value of Sprint's investments in
debt and equity securities is based on quoted market prices. The estimated
fair value of Sprint's long-term debt is based on quoted market prices for
publicly traded issues. The estimated fair value of all other issues is based
on the present value of estimated future cash flows using a discount rate
based on the risks involved. The estimated fair value of interest rate swap
agreements is the amount Sprint would receive to terminate the swap agreements
at year-end 1997 and 1996, taking into account the then-
I-33
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
current interest rates. The estimated fair value of foreign currency contracts
is the replacement cost of the contracts at year-end 1997 and 1996, taking
into account the then-current foreign currency exchange rates.
CONCENTRATIONS OF CREDIT RISK
Sprint's accounts receivable are not subject to any concentration of credit
risk. Sprint controls credit risk of its interest rate swap agreements and
foreign currency contracts through credit approvals, dollar exposure limits
and internal monitoring procedures. In the event of nonperformance by the
counterparties, Sprint's accounting loss would be limited to the net amount it
would be entitled to receive under the terms of the applicable interest rate
swap agreement or foreign currency contract. However, Sprint does not
anticipate nonperformance by any of the counterparties related to these
agreements.
INTEREST RATE SWAP AGREEMENTS
Sprint uses interest rate swap agreements as part of its interest rate risk
management program. Net interest paid or received related to these agreements
is recorded using the accrual method and is recorded as an adjustment to
interest expense. Sprint had interest rate swap agreements with notional
amounts of $150 and $350 million outstanding at year-end 1997 and 1996,
respectively. Net interest expense (income) related to interest rate swap
agreements was $(200,000) in 1997, $2 million in 1996 and $(400,000) in 1995.
There were no deferred gains or losses related to any terminated interest rate
swap agreements at year-end 1997, 1996 or 1995.
FOREIGN CURRENCY CONTRACTS
As part of its foreign currency exchange risk management program, Sprint
purchases and sells over-the-counter forward contracts and options in various
foreign currencies. Sprint had outstanding $29 and $46 million of open forward
contracts to buy various foreign currencies at year-end 1997 and 1996,
respectively. Sprint had $14 and $3 million of outstanding open purchase
option contracts to call various foreign currencies at year-end 1997 and 1996,
respectively. The premium paid for an option is expensed as incurred. The fair
value of an option is recorded as an asset at the end of each period. The
forward contracts and options open at year-end 1997 and 1996 all had original
maturities of six months or less. The net gain or loss recorded to reflect the
fair value of these contracts is recorded in the period incurred. Total net
losses of $40,000 in 1997, $400,000 in 1996 and $1 million in 1995 were
recorded related to foreign currency transactions and contracts.
12. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share." This new standard simplifies the EPS
calculation and makes the U.S. standard for computing EPS more consistent with
international accounting standards. Sprint adopted SFAS 128 at year-end 1997.
EPS for prior years has been restated to comply with SFAS 128.
Under SFAS 128, primary EPS was replaced with a simpler calculation called
basic EPS. Basic EPS is calculated by dividing income available to common
stockholders by the weighted average common shares outstanding. Previously,
primary EPS was based on the weighted average of both outstanding and issuable
shares assuming all dilutive options had been exercised. Under SFAS 128, fully
diluted EPS has not changed significantly, but has been renamed diluted EPS.
Diluted EPS includes the effect of all potentially dilutive securities, such
as options and convertible preferred stock.
Sprint's convertible preferred stock dividends were $0.5 million in 1997,
1996 and 1995. Dilutive securities, such as options (see Note 9), included in
the calculation of diluted weighted average common shares were 6.3 million
shares in 1997, 5.3 million shares in 1996 and 2.6 million shares in 1995.
Dilutive securities represented 8.6 and 5.3 million shares (unaudited) for the
three months ended March 31, 1998 and 1997, respectively.
I-34
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. PARANET ACQUISITION
On September 30, 1997, Sprint paid $375 million to purchase the net assets
of Houston-based Paranet, Inc., a provider of integration, management and
support services for computer networks. Sprint could pay up to an additional
$70 million if Sprint Paranet meets certain financial targets through 1998.
The transaction was accounted for using the purchase method of accounting.
As a result, Sprint's financial statements reflect Sprint Paranet's results of
operations beginning in October 1997.
The excess of the purchase price over the tangible net assets acquired was
$357 million. This excess was allocated to noncompete agreements and goodwill,
and will be amortized on a straight-line basis over four to 10 years.
14. ADOPTION OF ACCOUNTING PRINCIPLES FOR A COMPETITIVE MARKETPLACE
At year-end 1995, Sprint determined that its local telecommunications
division no longer met the criteria necessary for the continued use of SFAS
71. As a result, 1995 operating results included a noncash, extraordinary
charge of $565 million, net of income tax benefits of $437 million. The
decision to discontinue using SFAS 71 was based on changes in the regulatory
framework and the convergence of competition in the telecommunications
industry.
The 1995 extraordinary charge recognized when Sprint discontinued using SFAS
71 consisted of the following:
<TABLE>
<CAPTION>
PRETAX AFTER-TAX
-------- ---------
(IN MILLIONS)
<S> <C> <C>
Increase in accumulated depreciation.................. $ 979.1 $607.9
Recognition of switch software asset.................. (99.5) (61.7)
Elimination of other net regulatory asset............. 123.1 76.3
-------- ------
Total............................................. $1,002.7 622.5
========
Tax-related net regulatory liabilities................ (43.9)
Accelerated amortization of investment tax credits.... (13.3)
------
Extraordinary charge.................................. $565.3
======
</TABLE>
15. SPINOFF OF CELLULAR DIVISION
In March 1996, Sprint completed the tax-free spinoff of Cellular to Sprint
common stockholders. To complete the Spinoff, Sprint distributed all Cellular
common shares at a rate of one share for every three Sprint common shares
held. In addition, Cellular repaid $1.4 billion of its intercompany debt owed
to Sprint. Sprint also contributed to Cellular's equity capital $185 million
of debt owed by Cellular in excess of the amount repaid.
I-35
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cellular's net operating results, as summarized below, were separately
classified as a discontinued operation in the Consolidated Statements of
Income. Interest expense was allocated to Cellular based on the assumed
repayment of intercompany debt to Sprint by Cellular. The operating expenses
as presented below do not include Cellular's share of Sprint's general
corporate overhead expenses. These expenses, totaling $2 million in 1996 and
$13 million in 1995, were reallocated to Sprint's other operating segments.
<TABLE>
<CAPTION>
1996(1) 1995
------- -------
(IN MILLIONS)
<S> <C> <C>
Net operating revenues.................................. $190.2 $ 834.4
Operating expenses...................................... 156.0 675.6
------ -------
Operating income........................................ 34.2 158.8
Interest expense........................................ (21.5) (124.0)
Other income (expense), net............................. (8.3) 10.9
------ -------
Income before income taxes.............................. 4.4 45.7
Income taxes............................................ (7.0) (31.2)
------ -------
Income (Loss) from cellular division.................... $ (2.6) $ 14.5
====== =======
</TABLE>
- --------
(1) 1996 reflects Cellular's operating results only through the date of the
Spinoff.
16. SEGMENT INFORMATION
The FON Group operates in four industry segments: the long distance
division, the local telecommunications division, the product distribution and
directory publishing division and emerging businesses. Sprint's corporate
assets mainly included investments and loans to affiliates, cash and temporary
investments and general corporate assets. In 1995, corporate assets also
included the net assets of the discontinued cellular division. The long
distance division provides domestic and international voice, video and data
communications services. The local telecommunications division provides local
exchange services, access to Sprint's local exchange facilities, sales of
telecommunications equipment and long distance within specified geographical
areas. The product distribution and directory publishing division provides
wholesale distribution services of telecommunications products and publishes
and markets white and yellow page telephone directories. Emerging businesses,
which consists of the development of new integrated communications services,
consumer Internet access services, Sprint Paranet and Sprint International.
The businesses comprising the PCS Group operate in a single segment. The PCS
Group is building the nation's first single-technology, all-digital, state-of-
the-art wireless network to provide PCS across the United States. PCS uses
digital technology, which has sound quality superior to existing cellular
technology and is less susceptible to interference and eavesdropping. PCS also
offers features such as voice mail and Caller ID.
I-36
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Industry segment financial information follows:
<TABLE>
<CAPTION>
PRODUCT
DISTRIBUTION
LONG LOCAL & DIRECTORY
DISTANCE TELECOMMUNICATIONS PUBLISHING EMERGING INTERSEGMENT
DIVISION DIVISION DIVISION BUSINESSES PCS CORPORATE ELIMINATIONS TOTAL
-------- ------------------ ------------ ---------- ------- --------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Net operating
revenues(1)........... $8,954.8 $5,290.2 $1,454.3 $ 57.4 $ -- $ -- $(882.8) $14,873.9
Depreciation and
amortization.......... 716.7 934.1 8.2 23.3 -- 44.0 -- 1,726.3
Operating expenses..... 7,857.3 3,896.2 1,274.4 221.9 18.5 -- (845.8) 12,422.5
Operating income(loss). 1,097.5 1,394.0 179.9 (164.5) (18.5) -- (37.0) 2,451.4
Operating margin....... 12.3% 26.4% 12.4% -- -- -- -- 16.5%
Capital expenditures... 1,218.1 1,258.4 10.5 79.6 153.7 142.3 -- 2,862.6
Identifiable assets.... 6,464.6 7,609.7 519.0 585.9 1,693.1 1,312.5 -- 18,184.8
1996
Net operating
revenues(2)........... $8,302.1 $5,126.8 $1,225.4 $ 0.5 $ -- $ -- $(767.3) $13,887.5
Depreciation and
amortization.......... 633.3 909.1 7.2 0.5 -- 40.9 -- 1,591.0
Operating expenses..... 7,378.1 3,789.8 1,123.8 63.8 0.5 -- (735.7) 11,620.3
Operating income(loss). 924.0 1,337.0 101.6 (63.3) (0.5) -- (31.6) 2,267.2
Operating margin....... 11.1% 26.1% 8.3% -- -- -- -- 16.3%
Capital expenditures... 1,133.7 1,142.6 9.4 49.9 -- 98.0 -- 2,433.6
Identifiable assets.... 5,997.7 7,425.4 446.1 54.3 1,259.8 1,643.1 -- 16,826.4
1995
Net operating
revenues(3)........... $7,277.4 $4,690.0 $1,147.6 $ -- $ -- $ -- $(379.7) $12,735.3
Depreciation and
amortization.......... 581.6 835.6 7.4 -- -- 41.8 -- 1,466.4
Operating expenses..... 6,570.6 3,649.2 1,060.9 -- -- -- (379.7) 10,901.0
Operating income....... 706.8 1,040.8 86.7 -- -- -- -- 1,834.3
Operating margin....... 9.7% 22.2% 7.6% -- -- -- -- 14.4%
Capital expenditures... 861.7 950.8 7.8 -- -- 37.0 -- 1,857.3
Identifiable assets.... 4,799.0 6,962.0 395.4 -- 973.7 1,944.2 -- 15,074.3
</TABLE>
(1) Includes intercompany revenues eliminated in consolidation in 1997 of $3.3
million, $309.0 million and $570.5 million for the long distance division,
local telecommunications division and product distribution and directory
publishing division, respectively.
(2) Includes intercompany revenues eliminated in consolidation in 1996 of
$30.9 million, $410.5 million and $325.9 million for the long distance
division, local telecommunications division and product distribution and
directory publishing division, respectively.
(3) Includes intercompany revenues eliminated in consolidation in 1995 of
$38.9 million, $266.4 million and $336.8 million for the long distance
division, local telecommunications division and product distribution and
directory publishing division, respectively. Also included in 1995 were
intercompany revenues of $262.4 million not eliminated under SFAS 71.
Operating income (loss) represents sales and other revenues less operating
expenses, and excludes interest expense, equity in losses of unconsolidated
ventures, other income (expense) and income taxes.
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between affiliates to more accurately reflect market pricing. The
main effect of the pricing change was to reduce "net operating revenues" of
the local telecommunications division and reduce "operating expenses" of the
product distribution and directory publishing division. Had this change been
effective as of January 1, 1995, the operating income for the local
telecommunications division would have been $1.3 billion, $1.2 billion and
$1.1 billion in 1997, 1996 and 1995, respectively. The operating income for
the product distribution and directory publishing division would have been
$228 million, $198 million and $180 million in 1997, 1996 and 1995,
respectively.
I-37
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. ADDITIONAL FINANCIAL INFORMATION
SUPPLEMENTAL CASH FLOWS INFORMATION (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31 DECEMBER 31
------------ --------------------
1999 1997 1997 1996 1995
------ ----- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest (net of amounts capitalized)
Continuing operations.................... $ 57.4 $40.6 $197.9 $212.1 $263.5
====== ===== ====== ====== ======
Cellular division........................ $ -- $ -- $ -- $ 21.5 $124.0
====== ===== ====== ====== ======
Income taxes............................... $200.3 $ 8.2 $365.8 $695.3 $532.8
====== ===== ====== ====== ======
Noncash activities:
Capital lease obligations.................. $ 80.9 $ -- $ 30.1 $ -- $ --
====== ===== ====== ====== ======
Tax benefit from stock options exercised... $ -- $ -- $ 26.2 $ 14.1 $ 7.5
====== ===== ====== ====== ======
Net book value of assets and liabilities
contributed to Global One................. $ -- $ -- $ -- $ 73.3 $ --
====== ===== ====== ====== ======
Common stock issued under Sprint's ESPP.... $ -- $ -- $ 5.2 $ 65.2 $ 3.0
====== ===== ====== ====== ======
</TABLE>
During 1996, Sprint completed the Spinoff (see Note 15) which had no
immediate effect on cash flows other than Cellular's repayment of $1.4 billion
in intercompany debt owed to Sprint.
SUPPLEMENTAL RELATED PARTY TRANSACTIONS
Sprint provided various voice, data and administrative services to Global
One totaling $415 million in 1997 and $361 million in 1996. In addition,
Global One provided data and administrative services to Sprint totaling $114
million in 1997 and $130 million in 1996. At year-end 1997 and 1996, Sprint's
receivable from Global One was $154 and $163 million, respectively, and
Sprint's payable to Global One was $104 and $49 million, respectively.
RESTRUCTURING CHARGE
In 1995, Sprint's local telecommunications division recorded an $88 million
restructuring charge, which reduced income from continuing operations by $55
million ($0.16 per share). The restructuring plan included the planned
elimination over several years of approximately 1,600 positions, mainly in the
network and finance functions. Through 1997, most of the positions have been
eliminated resulting in termination benefit payments of $42 million, with the
remainder to be paid in 1998 and 1999.
18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This new standard requires companies
to disclose segment data based on how management makes decisions about
allocating resources to segments and how it measures segment performance. SFAS
131 requires companies to disclose a measure of segment profit or loss
(operating income, for example), segment assets, and reconciliations to
consolidated totals. It also requires entity-wide disclosures about a
company's products and services, its major customers and the material
countries in which it holds assets and reports revenues. Sprint will adopt
SFAS 131 in its 1998 year-end financial statements. This statement is not
expected to have a significant effect on Sprint's reported segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements for pensions and postretirement benefits where
practical. It also eliminates certain disclosures and requires additional
information on changes in benefit obligations and fair values of plan assets.
Sprint will adopt SFAS 132 in its 1998 year-end financial statements. SFAS 132
is not expected to have a significant effect on Sprint's pension and
postretirement benefit plan disclosures.
I-38
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. SUBSEQUENT EVENTS (UNAUDITED)
In April 1998, Sprint's Board of Directors declared common and Class A
common stock dividends of $0.25 per share payable June 30, 1998.
In April 1998, Sprint signed an agreement to sell approximately 79,000
residential and business access lines in rural Illinois. Sprint expects to
complete the sale of these properties, which is subject to regulatory
approval, in late 1998.
20. COMPREHENSIVE INCOME (UNAUDITED)
As of January 1, 1998 Sprint adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on Sprint's results of operations or stockholders'
equity. SFAS 130 requires unrealized holding gains or losses on Sprint's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in other stockholders'
equity, to be included in other comprehensive income.
Total comprehensive income amounted to $224 million during the first quarter
of 1998 and $290 million during the first quarter of 1997.
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-----------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1997
Net operating revenues(1)................ $3,578.5 $3,667.5 $3,778.9 $3,849.0
Operating income(1), (2)................. 604.7 595.5 640.7 610.5
Income before extraordinary items(2),
(3)..................................... 290.0 255.9 211.7 194.9
Net income............................... 290.0 255.9 211.7 194.9
EPS from income before extraordinary
items(4)
Basic.................................. $ 0.67 $ 0.59 $ 0.49 $ 0.45
Diluted................................ $ 0.67 $ 0.59 $ 0.49 $ 0.45
<CAPTION>
QUARTER
-----------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1996
Net operating revenues(1)................ $3,335.3 $3,471.3 $3,502.5 $3,578.4
Operating income(1), (2)................. 574.9 580.9 598.9 512.5
Income before extraordinary items(2)..... 309.3 316.8 316.2 246.0
Net income............................... 309.3 316.8 312.4 245.3
EPS from income before extraordinary
items(4)
Basic.................................. $ 0.78 $ 0.74 $ 0.73 $ 0.57
Diluted................................ $ 0.77 $ 0.73 $ 0.73 $ 0.56
</TABLE>
- --------
(1) Consolidated net operating revenues and operating expenses reflect certain
reclassifications to conform to the current presentation. These
reclassifications had no effect on operating income or net income.
(2) In the 1997 second quarter and the 1996 fourth quarter, Sprint recorded
nonrecurring charges of $20 and $60 million, respectively, related to
litigation within the long distance division. These charges reduced income
from continuing operations by $13 million ($0.03 per share) and $36
million ($0.09 per share), respectively (see Note 10).
(3) In the 1997 fourth quarter, Sprint recognized gains of $45 million on
sales of local exchanges and a $26 million gain on the sale of an equity
investment in an equipment provider. These gains increased income from
continuing operations by $27 million ($0.06 per share) and $17 million
($0.04 per share), respectively.
(4) Sprint adopted SFAS 128 at year-end 1997 (see Note 12). All EPS amounts
comply with this new standard.
I-39
<PAGE>
SPRINT CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are presented to give effect to (1) the proposed restructuring of Sprint's
wireless PCS operations whereby Sprint will acquire the joint venture
interests of the Cable Parents in Sprint Spectrum Holdings and the joint
venture interests of TCI and Cox in PhillieCo, in exchange for shares of a
newly created class of Sprint common stock, the PCS Stock, including the sale
of shares to FT and DT to maintain their combined 20% voting interest; (2) the
proposed tax-free recapitalization of Sprint's common stock to be effected by
reclassifying each share of Sprint's existing common stock into 1/2 share of
PCS Stock and one share of FON Stock; and (3) the proposed initial public
offering ("IPO") of the PCS Stock, including the sale of shares to FT and DT
to maintain their combined 20% voting interest. There can be no assurance that
the IPO will occur. The acquisitions of Sprint Spectrum Holdings and PhillieCo
will be accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined statements of income include the
historical results of Sprint and the historical combined results of Sprint
Spectrum Holdings and PhillieCo for the year ended December 31, 1997 and the
three months ended March 31, 1998, and include the effect of the acquisitions,
recapitalization and IPO as though such transactions had occurred on January
1, 1997. The unaudited pro forma condensed combined balance sheet is based
upon the historical balance sheet of Sprint and the historical combined
balance sheet of Sprint Spectrum Holdings and PhillieCo as of March 31, 1998.
The historical balance sheet amounts have been adjusted to reflect the
acquisitions, recapitalization and IPO as though such transactions had
occurred on March 31, 1998. Certain historical amounts have been reclassified
to conform to the pro forma presentation. These reclassifications had no
effect on the results of operations or stockholders' equity as previously
reported.
The pro forma condensed combined statements of income are not necessarily
indicative of what actual results of operations would have been had the
transactions occurred at the beginning of the periods presented nor do they
purport to indicate the results of future operations. The unaudited pro forma
condensed combined financial statements should be read in conjunction with the
historical financial statements of Sprint and the historical combined
financial statements of Sprint Spectrum Holdings and PhillieCo included
elsewhere in this Proxy Statement.
I-40
<PAGE>
SPRINT CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(Unaudited, in millions)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------
HISTORICAL
COMBINED SPRINT PRO FORMA
SPRINT SPECTRUM ADJUSTMENTS
HISTORICAL SPECTRUM HOLDINGS AND FOR INITIAL PRO FORMA
SPRINT HOLDINGS AND PHILLIECO PUBLIC AS
CORP. PHILLIECO ACQUISITIONS RECAPITALIZATION PRO FORMA OFFERING ADJUSTED
---------- ------------ ------------ ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents... $ 158.2 $ 135.3 $ (24.0)A $ 269.5 $ 269.5
Accounts receivable,
net................... 2,519.1 140.8 (8.3)D 2,651.6 2,651.6
Inventories............ 378.5 91.0 469.5 469.5
Notes and other receiv-
ables................. 444.0 -- 444.0 444.0
Other.................. 406.7 41.6 (153.8)C 294.5 294.5
--------- -------- -------- --------- ---------
Total current assets... 3,906.5 408.7 (186.1) 4,129.1 4,129.1
Investments in equity
securities............. 397.7 -- 397.7 397.7
Property, plant and
equipment, net......... 11,914.2 3,722.5 15,636.7 15,636.7
Investment in and ad-
vances to Sprint Spec-
trum Holdings and af-
filiates............... 903.4 -- (606.8)B -- --
(185.4)B
(111.2)E
Investments in and ad-
vances to other affil-
iates.................. 499.6 258.2 757.8 757.8
Intangibles, net
PCS licenses........... 544.5 2,452.8 2,997.3 2,997.3
Customer base.......... -- -- 313.2 A 313.2 313.2
Goodwill............... 363.3 -- 3,647.8 A 4,011.1 4,011.1
Other assets............ 362.6 392.0 185.4 B 938.4 $ (9.3)H 929.1
(1.6)H
--------- -------- -------- ---- --------- ------- ---------
Total................... $18,891.8 $7,234.2 $3,055.3 $-- $29,181.3 $ (9.3) $29,172.0
========= ======== ======== ==== ========= ======= =========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities
Current maturities of
long-term debt........ $ 127.8 $ 34.7 $ 162.5 $ 162.5
Partner advances....... -- 135.0 $ (111.2)E 23.8 23.8
Accounts payable....... 1,040.1 247.7 1,287.8 1,287.8
Accrued interconnection
costs................. 711.9 -- 711.9 711.9
Accrued taxes.......... 302.2 -- 302.2 302.2
Advance billings....... 204.9 -- 204.9 204.9
Other.................. 936.0 352.1 (8.3)D 1,279.8 1,279.8
--------- -------- -------- --------- ---------
Total current liabili-
ties.................. 3,322.9 769.5 (119.5) 3,972.9 3,972.9
Construction obliga-
tions.................. -- 486.2 486.2 486.2
Long-term debt.......... 4,075.7 4,411.9 75.4 A 8,329.5 $(471.2)G 7,733.3
(121.5)C (125.0)G
(112.0)F
Deferred credits and
other liabilities
Deferred income taxes
and investment tax
credits............... 925.0 -- 340.2 A 1,265.2 1,265.2
Postretirement and
other benefit obliga-
tions................. 1,061.2 -- 1,061.2 1,061.2
Other.................. 341.3 63.2 404.5 404.5
--------- -------- -------- --------- ---------
Total deferred credits
and other liabilities. 2,327.5 63.2 340.2 2,730.9 2,730.9
Redeemable preferred
stock.................. 9.5 -- 9.5 9.5
Common stock and other
stockholders' equity
Common stock
Common stock.......... 875.7 -- I 875.7 875.7
Class A common stock.. 215.6 -- 215.6 215.6
FON Group............. -- -- I
PCS Group............. -- -- I G
G
Capital in excess of
par or stated value... 4,469.8 4,211.0 4,418.0 A 8,999.8 471.2 G 9,596.0
(2,516.9)A 125.0 G
(1,694.1)B
112.0 F
Retained earnings...... 3,796.0 (2,707.6) 1,620.3 A 3,794.4 (9.3)H 3,785.1
1,087.3 B
(1.6)H
Treasury stock, at
cost.................. (296.9) -- (296.9) (296.9)
Other.................. 96.0 -- (32.3)C 63.7 63.7
--------- -------- -------- ---- --------- ------- ---------
Total common stock and
other stockholders'
equity................ 9,156.2 1,503.4 2,992.7 -- 13,652.3 586.9 14,239.2
--------- -------- -------- ---- --------- ------- ---------
Total................... $18,891.8 $7,234.2 $3,055.3 $-- $29,181.3 $ (9.3) $29,172.0
========= ======== ======== ==== ========= ======= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
I-41
<PAGE>
SPRINT CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------
HISTORICAL
COMBINED SPRINT PRO FORMA
SPRINT SPECTRUM ADJUSTMENTS
HISTORICAL SPECTRUM HOLDINGS AND FOR INITIAL PRO
SPRINT HOLDINGS AND PHILLIECO PRO PUBLIC FORMA AS
CORP. PHILLIECO ACQUISITIONS RECAPITALIZATION FORMA OFFERING ADJUSTED
---------- ------------ ------------ ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.. $3,910.9 $ 184.2 $4,095.1 $4,095.1
OPERATING EXPENSES
Costs of services and
products............... 1,884.3 192.1 2,076.4 2,076.4
Selling, general and
administrative......... 891.1 252.4 1,143.5 1,143.5
Depreciation and amor-
tization............... 467.3 128.7 $ 1.7 J 646.6 646.6
22.8 K
26.1 L
-------- -------- ------ -------- --------
Total operating ex-
penses................. 3,242.7 573.2 50.6 3,866.5 3,866.5
-------- -------- ------ -------- --------
OPERATING INCOME
(LOSS)................. 668.2 (389.0) (50.6) 228.6 228.6
Interest expense........ (66.7) (93.8) 2.6 M (145.7) $14.3 M (131.6)
8.6 N (0.2)N
3.6 O
Equity in loss of
Global One............. (45.2) -- (45.2) (45.2)
Equity in loss of
Sprint Spectrum Hold-
ings and affiliates.... (209.7) -- 208.0 J -- --
1.7 J
Equity in loss of un-
consolidated partner-
ship................... -- (38.4) (38.4) (38.4)
Other income............ 21.2 6.8 (3.6)O 24.4 24.4
-------- -------- ------ -------- ----- --------
Income (loss) before
income taxes and ex-
traordinary item....... 367.8 (514.4) 170.3 23.7 14.1 37.8
Income taxes............ (151.3) -- 115.3 P (30.4) (5.4)Q (35.8)
5.6 Q
-------- -------- ------ -------- ----- --------
INCOME (LOSS) FROM CON-
TINUING OPERATIONS..... 216.5 (514.4) 291.2 (6.7) 8.7 2.0
Preferred stock divi-
dends.................. (0.3) -- -- (0.3) -- (0.3)
-------- -------- ------ -------- ----- --------
Earnings (loss) appli-
cable to common stock.. $ 216.2 $(514.4) $291.2 $ (7.0) $ 8.7 $ 1.7
======== ======== ====== ======== ===== ========
Earnings (loss) appli-
cable to common stock:
Sprint Corporation..... $ 216.2 $ -- $ --
FON Group.............. -- 355.4 355.4
PCS Group.............. -- (362.4) (353.7)
-------- -------- --------
$216.2 $ (7.0) $ 1.7
======== ======== ========
BASIC EARNINGS (LOSS)
PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Sprint Corporation..... $ 0.50 $ -- $ --
======== ======== ========
FON Group.............. $ -- $ $
======== ======== ========
PCS Group.............. $ -- $ $
======== ======== ========
Basic weighted average
common shares:
Sprint Corporation..... 430.1 -- R -- R
======== ======== ========
FON Group.............. -- S S
======== ======== ========
PCS Group.............. -- T U
======== ======== ========
DILUTED EARNINGS (LOSS)
PER COMMON SHARE FROM
COTINUING OPERATIONS:
Sprint Corporation..... $ 0.49 $ -- $ --
======== ======== ========
FON Group.............. $ -- $ $
======== ======== ========
PCS Group.............. $ -- $ $
======== ======== ========
Diluted weighted aver-
age common shares:
Sprint Corporation..... 438.7 -- R -- R
======== ======== ========
FON Group.............. -- S S
======== ======== ========
PCS Group.............. -- T U
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
I-42
<PAGE>
SPRINT CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
HISTORICAL SPRINT
COMBINED SPECTRUM
SPRINT HOLDINGS PRO FORMA
SPECTRUM AND ADJUSTMENTS
HISTORICAL HOLDINGS AND PHILLIECO FOR INITIAL PUBLIC PRO FORMA
SPRINT CORP. PHILLIECO ACQUISITIONS RECAPITALIZATION PRO FORMA OFFERING AS ADJUSTED
------------ ------------ ------------ ---------------- --------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES. $14,873.9 $ 258.0 $15,131.9 $15,131.9
OPERATING EXPENSES
Costs of services and
products............. 7,451.0 574.3 8,025.3 8,025.3
Selling, general and
administrative....... 3,245.2 747.1 3,992.3 3,992.3
Depreciation and
amortization......... 1,726.3 316.3 $ 3.5 J 2,241.7 2,241.7
91.2 K
104.4 L
--------- --------- ------ --------- ---------
Total operating
expenses............. 12,422.5 1,637.7 199.1 14,259.3 14,259.3
--------- --------- ------ --------- ---------
OPERATING INCOME
(LOSS)................ 2,451.4 (1,379.7) (199.1) 872.6 872.6
Interest expense....... (187.2) (123.5) 10.7 M (273.9) $57.0 M (217.3)
12.6 N
13.5 O
Equity in loss of
Global One............ (162.1) -- (162.1) (0.4) N (162.1)
Equity in loss of
Sprint Spectrum
Holdings and
affiliates............ (659.6) -- 656.1 J -- --
3.5 J
Equity in loss of
unconsolidated
partnership........... -- (168.9) (168.9) (168.9)
Other income........... 140.5 39.4 (13.5) O 166.4 166.4
--------- --------- ------ --------- ----- ---------
Income (loss) before
income taxes.......... 1,583.0 (1,632.7) 483.8 434.1 56.6 490.7
Income taxes........... (630.5) -- 372.4 P (227.1) (21.7) Q (248.8)
31.0 Q
--------- --------- ------ --- --------- ----- ---------
NET INCOME (LOSS)...... 952.5 (1,632.7) 887.2 207.0 34.9 241.9
Preferred stock (1.0) -- -- (1.0) -- (1.0)
dividends............. --------- --------- ------ --------- ----- ---------
Earnings applicable to
common stock.......... $ 951.5 $(1,632.7) $887.2 $ 206.0 $34.9 $ 240.9
========= ========= ====== ========= ===== =========
Earnings (loss)
applicable to common
stock:
Sprint Corporation.... $ 951.5 $ -- $ --
FON Group............. -- 1,365.4 1,365.4
PCS Group............. -- (1,159.4) (1,124.5)
--------- --------- ---------
$ 951.5 $ 206.0 $ 240.9
========= ========= =========
BASIC EARNINGS (LOSS)
PER COMMON SHARE:
Sprint Corporation.... $ 2.21 $ -- $ --
========= ========= =========
FON Group............. $ -- $ $
========= ========= =========
PCS Group............. $ -- $ $
========= ========= =========
Basic weighted average
common shares:
Sprint Corporation ... 430.2 -- R -- R
========= ========= =========
FON Group............. -- S S
========= ========= =========
PCS Group............. -- T U
========= ========= =========
DILUTED EARNINGS (LOSS)
PER COMMON SHARE:
Sprint Corporation.... $ 2.18 $ -- $ --
========= ========= =========
FON Group............. $ -- $ $
========= ========= =========
PCS Group............. $ -- $ $
========= === ========= =========
Diluted weighted
average common shares:
Sprint Corporation.... 436.5 -- R -- R
========= ========= =========
FON Group............. -- S S
========= ========= =========
PCS Group............. -- T U
========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
I-43
<PAGE>
SPRINT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following adjustments have been made in the preparation of the unaudited
pro forma condensed combined financial statements:
Pro Forma Balance Sheet Adjustments
A To record the purchase of the remaining 60% of Sprint Spectrum Holdings and
52.9% of PhillieCo. The consideration given in connection with the purchase
will be shares of PCS Stock ( million shares, par value $1.00) and
warrants to purchase additional shares of PCS Stock representing 47% of the
PCS Group common equity following the PCS Restructuring. The preliminary
purchase price is based on the estimated market value of the PCS Group and
will be updated at the time of the PCS Restructuring. The excess of the
purchase price over the fair value of net assets to be acquired is
calculated as follows (in millions):
<TABLE>
<S> <C>
Preliminary purchase price...................................... $ 4,418.0
Transaction costs............................................... 24.0
Net assets to be acquired....................................... (896.6)
Customer base................................................... (313.2)
Step-up in long-term debt to fair value......................... 75.4
Deferred taxes on acquired assets and liabilities............... 340.2
---------
Goodwill........................................................ $ 3,647.8
=========
</TABLE>
The carrying amounts of the assets to be acquired and liabilities to be
assumed are assumed for purposes of the preliminary purchase price
allocation to approximate fair market value, except for certain long-term
debt of Sprint Spectrum that has been recorded at fair value. A portion of
the purchase price was attributed to the customers acquired in the Sprint
Spectrum Holdings and PhillieCo acquisitions. In addition, deferred taxes
have been recorded for the difference in the book and tax bases of the
assets acquired and liabilities assumed.
B To eliminate Sprint's historical investment in Sprint Spectrum Holdings and
PhillieCo, accounted for by Sprint on the equity method of accounting
($606.8 million), and to reclassify interest capitalized as part of that
investment to other assets ($185.4 million).
C To eliminate Sprint's investment in Sprint Spectrum bonds ($153.8 million)
and the related unrealized gain ($32.3 million).
D To eliminate Sprint's payable to Sprint Spectrum Holdings ($21.9 million)
and Sprint's receivable from Sprint Spectrum Holdings ($13.6 million).
E To eliminate Sprint's advances to PhillieCo.
F To record the sale of shares to FT and DT ( million shares, par value
$1.00). As a result of the issuance of PCS Stock to the Cable Parents in
exchange for their interests in Sprint Spectrum Holdings and PhillieCo, the
sale of these additional shares is required in order for FT and DT to
maintain their combined 20% voting interest in Sprint. The proceeds are
assumed to reduce the long-term debt of Sprint Spectrum Holdings.
G To record the sale of shares in the IPO of the PCS Stock ($471.2 million
proceeds and million shares, par value $1.00). IPO proceeds of $500
million have been assumed, net of estimated offering costs of $28.8
million, although the actual amount of the IPO may vary based on market
conditions. Also to record the sale of shares to FT and DT in order for
their combined 20% voting interest in Sprint to be maintained ($125 million
proceeds and million shares, par value $1.00). The proceeds from both
the IPO and the sale of additional shares to FT and DT are assumed to
reduce the long-term debt of Sprint Spectrum Holdings.
H To write off deferred financing costs associated with the assumed repayment
of Sprint Spectrum Holdings debt with proceeds from the sale of shares to
FT and DT related to shares issued to the Cable Parents in connection with
the PCS Restructuring and proceeds from the IPO and the related sale of
shares to FT and DT.
I To record the effects of the recapitalization of Sprint's existing common
stock into one share of FON Stock, par value $2.00 ( million shares) and
1/2 share of PCS Stock, par value $1.00 ( shares).
I-44
<PAGE>
SPRINT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--
(CONTINUED)
Pro Forma Statement of Income Adjustments
J To eliminate Sprint's equity in the losses of Sprint Spectrum Holdings and
PhillieCo, historically accounted for by Sprint on the equity method of
accounting ($208.0 million for the three months ended March 31, 1998 and
$656.1 million for the year ended December 31, 1997). The amortization of
interest previously capitalized on Sprint's equity investment in Sprint
Spectrum Holdings and PhillieCo has been reclassified to depreciation and
amortization expense ($1.7 million for the three months ended March 31, 1998
and $3.5 million for the year ended December 31, 1997).
K To reflect the amortization of the goodwill recorded in connection with the
purchase of the remaining interests in Sprint Spectrum Holdings and
PhillieCo, which is being amortized over 40 years.
L To reflect the amortization of the customer base recorded in connection with
the purchase of the remaining interests in Sprint Spectrum Holdings and
PhillieCo, which is being amortized over three years.
M To record a reduction in interest expense and amortization of deferred
financing costs as a result of the assumed repayment of Sprint Spectrum
Holdings debt with the proceeds from the sale of shares to FT and DT and the
IPO. An average interest rate of 9.0% was used in determining the amount of
this adjustment.
N To record an adjustment to interest expense as a result of the additional
current tax benefit on the losses being acquired. The increased tax benefits
are assumed to reduce long-term debt of Sprint Spectrum Holdings that
carries an average interest rate of 9.0%.
O To eliminate interest income recorded by Sprint and interest expense
recorded by Sprint Spectrum Holdings related to Sprint's investment in
Sprint Spectrum bonds.
P To record the income tax benefit relating to the remaining interests in
Sprint Spectrum Holdings and PhillieCo to be acquired by Sprint using an
effective tax rate of 37.5% and 38.2% for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively.
Q To record income taxes on pro forma adjustments L through N using an
effective tax rate of 37.5% and 38.2% for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively.
R The weighted average common shares outstanding for Sprint are eliminated in
the recapitalization.
S The weighted average common shares outstanding for the FON Group reflect the
recapitalization of Sprint's existing common stock into shares of FON Stock
on a share for share basis.
T The weighted average common shares outstanding for the PCS Group reflect (1)
the issuance of PCS Stock to the Cable Parents ( million shares), (2) the
recapitalization of Sprint's existing common stock into 1/2 share of PCS
Stock ( million shares for each period presented) and (3) the sale of
shares to FT and DT related to the issuance of PCS Stock to the Cable
Parents ( million shares).
U The weighted average common shares outstanding for the PCS Group reflect the
items in adjustment "T", as well as the shares assumed to be sold in the IPO
( million shares) and the related sale of shares to FT and DT ( million
shares).
I-45
<PAGE>
ANNEX II--PCS GROUP INFORMATION
BUSINESS
The PCS Stock, when issued, is intended to track the performance of the PCS
Group. The following description should be read in conjunction with the PCS
Group financial statements and the notes thereto provided elsewhere in this
Annex. The term "Sprint Spectrum Holdings" refers to Sprint Spectrum Holding
Company, L.P., and to MinorCo, L.P. and their subsidiaries. Currently, the
partners of Sprint Spectrum Holdings are Sprint Enterprises, L.P., which has a
40% partnership interest, TCI Spectrum Holdings, Inc., which has a 30%
partnership interest, and Comcast Telephony Services and Cox Telephony
Partnership, each of which has a 15% partnership interest. The partners are
subsidiaries of Sprint, TCI, Comcast and Cox, respectively. The principal
subsidiaries of Sprint Spectrum Holdings are Sprint Spectrum, Cox PCS and APC.
The term "Sprint Spectrum" refers to Sprint Spectrum L.P., and its
subsidiaries. The term "Cox PCS" refers to Cox Communications PCS, L.P. and
its subsidiaries. The term "APC" refers to American PCS, L.P. and its
subsidiaries. The term "PhillieCo" refers to PhillieCo Partners I, L.P. and
PhillieCo Partners II, L.P. and their subsidiaries. Currently, the partners of
PhillieCo are Sprint Enterprises, L.P., which has a 47.1% partnership
interest, TCI Philadelphia Holdings, Inc., which has a 35.3% partnership
interest, and Cox Communications Wireless, Inc., which has a 17.6% partnership
interest. The partners are subsidiaries of Sprint, TCI and Cox, respectively.
The term "SprintCom" refers to SprintCom, Inc. and SprintCom Equipment
Company, L.P., which are subsidiaries of Sprint.
GENERAL OVERVIEW OF THE PCS GROUP
The PCS Group, which markets its products and services under the Sprint PCS
and Sprint brand names, is the only 100% digital PCS wireless network in the
United States with licenses to provide service nationwide utilizing a single
frequency and a single technology. The PCS Group owns licenses to provide
service to the entire United States population, including Puerto Rico and the
U.S. Virgin Islands. The PCS Group currently operates PCS systems in 2,264
cities within the United States, which includes 37 of the 50 largest
metropolitan areas. By the end of the first half of 1999, the PCS Group
expects to operate PCS systems in all of the 50 largest metropolitan areas and
80 of the 100 largest metropolitan areas. The PCS Group already provides
nationwide service through a combination of its own digital network in major
metropolitan areas and roaming on digital PCS and on analog cellular networks
using dual-band/dual-mode handsets. Since launching the first commercial PCS
service in the United States in November 1995, the PCS Group has experienced
rapid customer growth, providing service to approximately 1.2 million
customers as of April 30, 1998.
MEMBERS OF THE PCS GROUP
The PCS Group consists of the following entities: (i) Sprint Spectrum
Holdings (which includes Sprint Spectrum, Cox PCS and APC); (ii) PhillieCo;
and (iii) SprintCom. Certain information, including the number of Pops covered
by licenses held by the PCS Group, is set forth in the chart below:
<TABLE>
<CAPTION>
SPRINT OWNERSHIP
----------------
BEFORE PCS AFTER PCS
ENTITY POPS(1) RESTRUCTURING RESTRUCTURING LICENSES
------ ------------- ------------- ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Sprint Spectrum......... 155.9 40.0% 100.0% 30 MTAs
Cox PCS(/2/)............ 21.0 23.7(/3/) 59.2 Los Angeles-San Diego-Las Vegas MTA
APC..................... 8.3 40.0 100.0 Washington D.C.-Baltimore MTA
PhillieCo............... 9.2 47.1 100.0 Philadelphia MTA
SprintCom............... 74.9 100.0 100.0 139 BTAs
-----
269.3
=====
</TABLE>
- --------
/1Based/upon 1997 population data supplied by Equifax Inc.
/2Sprint/Spectrum Holdings expects to increase its interest in Cox PCS from
49.0% to 59.2% by the end of June 1998. Pops data for Cox PCS includes
100% of its Pops, not the PCS Group's proportional interest.
/3Reflects/Sprint's 40.0% pre-PCS Restructuring ownership interest in
Sprint Spectrum Holdings and assumes Sprint Spectrum Holdings has
increased its interest in Cox PCS to 59.2%.
II-1
<PAGE>
Sprint Spectrum. Sprint Spectrum owns PCS licenses covering 30 MTAs, which
were acquired in the FCC's A and B Block auction in March 1995 for $2.1
billion. Sprint Spectrum's licenses cover approximately 155.9 million Pops,
which include 31 of the 50 largest United States metropolitan areas such as
New York, San Francisco, Detroit, Dallas/Fort Worth and Boston. Sprint
Spectrum launched commercial PCS operations in the fourth quarter of 1996.
Cox PCS. In December 1994, the FCC granted Cox PCS a license for the Los
Angeles-San Diego-Las Vegas MTA, which covers approximately 21.0 million Pops.
The FCC ultimately set a purchase price of $252.0 million for the license. Cox
PCS launched commercial service in the San Diego area in December 1996 and in
the Los Angeles area in November 1997 and expects to launch commercial service
in Las Vegas by the end of 1998. In December 1996, Cox PCS entered into an
affiliation agreement with Sprint Spectrum under which Cox PCS agreed to
market its wireless services under the Sprint PCS brand name.
Sprint Spectrum Holdings currently owns 49.0% of Cox PCS and expects to
increase its ownership to 59.2% by the end of June 1998. Sprint Spectrum
Holdings and Cox Pioneer Partnership have entered into an arrangement whereby
Cox may require Sprint Spectrum Holdings to purchase Cox's partnership
interests in Cox PCS, which could result in the acquisition by Sprint Spectrum
Holdings of all remaining partnership interests in Cox PCS. Commencing in
2001, Sprint Spectrum Holdings will have the right to require that Cox sell
its remaining partnership interests in Cox PCS to Sprint Spectrum Holdings.
See "The Tracking Stock Proposal --Amendments to the Cox PCS Agreements."
APC. In December 1994, the FCC granted APC a license for the Washington
D.C.-Baltimore MTA, which covers approximately 8.3 million Pops. The FCC
ultimately set a purchase price of $102.3 million for the license. APC
launched commercial service in November 1995 using GSM technology, becoming
the nation's first commercially operational PCS system, and in April 1998, APC
launched commercial service on its CDMA system that overlays nearly all of the
existing GSM system. In January 1995, Sprint Spectrum Holdings acquired a
49.0% interest in APC. Through capital contributions, Sprint Spectrum Holdings
increased its interest to 58.3% and became the managing partner of APC in
November 1997. In January 1998, Sprint Spectrum Holdings acquired the
remaining 41.7% interest in APC.
PhillieCo. PhillieCo owns a PCS license for the Philadelphia MTA, which was
acquired in the FCC's B Block auction in March 1995 for $85.0 million.
PhillieCo's license covers approximately 9.2 million Pops. PhillieCo launched
commercial operations in April 1997. Because of FCC spectrum limitations
placed on wireless providers, Comcast, which already owned a cellular license
for the Philadelphia metropolitan area, was precluded from owning an interest
in a PCS license for the Philadelphia MTA.
SprintCom. Sprint, with the consent of the Cable Parents, formed SprintCom,
a wholly owned subsidiary of Sprint, to acquire PCS licenses for all of the
geographic areas not covered by licenses held by any other entity within the
PCS Group. In January 1997, SprintCom acquired licenses for $544 million in
the FCC's D and E Block auctions to provide PCS service in 139 BTAs, including
13 of the 50 largest United States metropolitan areas such as Atlanta, Chicago
and Houston, thereby completing the PCS Group's nationwide license coverage.
The SprintCom licenses cover approximately 74.9 million Pops. The PCS Group
expects to launch service in certain of the SprintCom markets during the third
quarter of 1998 and intends to reach approximately 38.6 million Pops during
the first half of 1999 (or approximately 50% coverage of its licensed Pops).
The timing of launch in individual markets will be determined by various
factors, principally zoning and microwave relocation issues, equipment
delivery and network optimization schedules and local market and competitive
considerations.
THE WIRELESS COMMUNICATIONS INDUSTRY
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular, PCS and ESMR networks.
Historically, each application has been licensed and operates in a distinct
radio frequency block.
II-2
<PAGE>
In the wireless communications industry there are two principal services
licensed by the FCC for transmitting two-way, real time voice and data
signals: "cellular" and "PCS." Cellular, which uses the 800 MHz frequency
block, is the predominant form of wireless voice communications service
utilized by subscribers today. Cellular systems are predominantly analog-based
systems, although digital technology has been introduced in most metropolitan
markets. Analog-based systems send signals in which the transmitted signal
resembles the input signal, while in digital systems the input signal is coded
into a binary form before the signal is transmitted.
In 1993, the FCC allocated the 1900 MHz frequency block of the radio
spectrum for the provision of a new wireless personal communications service,
commonly known as PCS. PCS differs from traditional analog cellular telephone
service principally in that PCS systems operate at a higher frequency and
employ advanced digital technology. Digital systems convert voice or data
signals into a stream of digits that permit a single radio channel to carry
multiple simultaneous transmissions. Digital systems also achieve greater
frequency reuse than analog systems resulting in greater capacity than analog
systems. This enhanced capacity, along with enhancements in digital protocols,
allows digital-based wireless technologies (whether using PCS or cellular
frequencies) to offer new and enhanced services, such as greater call privacy
and more robust data transmission features, such as "mobile office"
applications (including facsimile, electronic mail and connecting notebook
computers with computer/data networks).
Cellular service was first introduced in the United States in 1983. As of
December 31, 1997, according to the Cellular Telecommunications Industry
Association ("CTIA"), there were 55.3 million wireless telephone subscribers
in the United States, representing an overall wireless penetration rate of
20.4% and a growth rate of 25.6% from December 31, 1996.
The following table sets forth certain statistics for the domestic wireless
telephone industry as a whole, as published semi-annually by the CTIA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Service Revenues (in
billions)..................... $ 27.5 $ 23.6 $ 19.0 $ 14.2 $ 10.9
Ending Wireless Subscribers (in
millions)..................... 55.3 44.0 33.8 24.1 16.0
Subscriber Growth.............. 25.6% 30.4% 40.0% 50.8% 45.1%
Average Monthly Revenue per
Subscriber.................... $ 41.12 $ 44.66 $ 47.59 $ 51.48 $ 58.74
Ending Penetration............. 20.4% 16.3% 13.0% 9.4% 6.2%
</TABLE>
The CTIA estimates that the number of cellular and PCS wireless service
subscribers will reach 84.5 million by the year 2000 and that PCS subscribers
will account for approximately 23.1 million of such subscribers. The PCS Group
believes that a significant portion of this predicted growth in the consumer
market for wireless telecommunications will result from anticipated declines
in costs of service, increased functional versatility, and increased awareness
of the productivity, convenience and privacy benefits associated with the
services provided by PCS providers, which are the first direct wireless
competitors of cellular providers to offer all-digital mobile networks. The
PCS Group also believes that the rapid growth of notebook computers and
personal digital assistants, combined with emerging software applications for
delivery of electronic mail, fax and database searching, will contribute to
the demand for wireless service.
Wireless communications systems, whether PCS or cellular, are divided into
multiple geographic areas, known as "cells." In both PCS and cellular systems,
each cell contains a transmitter, a receiver and signaling equipment (the
"Cell Site"). The Cell Site is connected by microwave or landline telephone
lines to a switch that uses computers to control the operation of the cellular
or PCS communications system for the entire service area. The system controls
the transfer of calls from cell to cell as a subscriber's handset travels,
coordinates calls to and from handsets, allocates calls among the cells within
the system and connects calls to the local landline telephone system or to a
long distance carrier. Wireless communications providers establish
interconnection
II-3
<PAGE>
agreements with local exchange carriers and interexchange carriers, thereby
integrating their system with the existing landline communications system.
Because the signal strength of a transmission between a handset and a Cell
Site declines as the handset moves away from the Cell Site, the switching
office and the Cell Site monitor the signal strength of calls in progress.
When the signal strength of a call declines to a predetermined level, the
switching office may "hand off" the call to another Cell Site where the signal
strength is stronger.
Wireless digital signal transmission is accomplished through the use of
various forms of frequency management technology or "air interface protocols."
The FCC has not mandated a universal air interface protocol for PCS systems.
PCS systems operate under one of three principal air interface protocols:
CDMA, TDMA and GSM. TDMA and GSM are both "time division-based" but are
incompatible with each other and with CDMA. Accordingly, a subscriber of a
system that utilizes CDMA technology is unable to use a CDMA handset when
travelling in an area not served by CDMA-based PCS operators, unless the
subscriber carries a dual band/dual-mode handset that permits the subscriber
to use the analog cellular system in that area. The same issue would apply to
users of TDMA or GSM systems.
Because various wireless networks operate on different frequencies and
utilize different air interface protocols, it generally is not possible for
users of one type of system to "roam" on a different type of system outside of
their service area, unless the handset is capable of operating on multiple
frequencies or technology platforms (i.e., dual-band and/or dual-mode). This
is also true for PCS subscribers seeking to roam in a PCS service area served
by other operators.
STRATEGY
The PCS Group's goal is to expand network coverage and increase market
penetration by aggressively marketing competitively priced PCS services under
the Sprint PCS and the Sprint brand names, offering enhanced services and
seeking to provide superior customer service. The principal elements of the
PCS Group's strategy are:
Operate a Nationwide Digital Wireless Network. The PCS Group is the only
provider in the United States with a 100% digital wireless network with
licenses to provide services nationwide utilizing a single frequency and a
single technology. The PCS Group believes that its all-digital network
provides its customers with consistency of service and features on a national
basis. The national scope of its network also allows the PCS Group to provide
its customers with flexible pricing and promotions on a national basis while
retaining local flexibility. In addition, the significant operating scale of
the PCS Group's network is expected to result in significant cost advantages
in purchasing power, operations and marketing. The PCS Group plans to complete
the initial phase of construction in its SprintCom markets, including Chicago,
Atlanta and Houston, by the end of the first half of 1999.
Leverage Sprint's National Brand. The PCS Group believes that using the
established Sprint brand contributes significantly to consumer confidence in,
and acceptance of, its products and services. As competition in the wireless
industry intensifies, the PCS Group believes that the power of a strong
national brand will play an increasingly important role in consumers' purchase
decisions.
Utilize State-of-the-Art CDMA Technology. The PCS Group utilizes a state-of-
the-art PCS network using CDMA digital technology which, management believes,
provides significant operating, and customer benefits relative to analog and
other digital technologies. The PCS Group believes that its implementation of
CDMA digital technology will eventually provide system capacity that is
approximately 7 to 10 times greater than that of analog technology and 3 times
greater than that of TDMA systems, resulting in significant operating and cost
efficiencies which can be passed on to customers. Additionally, the PCS Group
believes that CDMA technology provides call quality that is superior to that
of other wireless technologies.
Deliver a Superior Value Proposition to its Customers. In marketing its
services, the PCS Group emphasizes the superior voice quality and future data
communications capability of its wireless service compared
II-4
<PAGE>
to that of analog cellular service. In addition, the PCS Group bundles its
basic service offering with a package of sophisticated features which either
cannot be offered by analog cellular providers or for which they typically
charge their customers separately. The PCS Group also offers several
innovative pricing plans that allow its customers to select billing plans that
suit their usage patterns. Management believes that its ability to provide
wireless service at competitive prices without requiring customers to sign
long-term contracts is an important marketing advantage.
Grow Customer Base Using Multiple Distribution Channels. The PCS Group seeks
to maximize customer growth in each market by utilizing multiple distribution
channels. The PCS Group's products are currently available at approximately
5,000 retail locations nationwide, including retailers such as RadioShack,
Circuit City and Best Buy. The PCS Group plans to have 8,000 retail locations
by the end of the first half of 1999. The PCS Group seeks innovative
distribution channels through which to market its products, such as the Sprint
Store-Within-A-Store at RadioShack which combines exclusive PCS marketing by
RadioShack with PCS Group and FON Group products. In addition, the PCS Group
intends to continue expanding the number of Sprint-owned direct retail
locations, of which 121 were open as of May 31, 1998. The PCS Group
continually evaluates alternative distribution channels.
Continue Network Expansion. The PCS Group plans to continue the expansion of
its existing network. One method the PCS Group intends to use to expand its
wireless coverage in some of the areas it does not intend to serve with its
own networks is to pursue arrangements with other companies to build networks
in portions of its licensed coverage area and then affiliate the network with
the PCS Group. Such networks will be built using the same technological
standards as those of the PCS Group. These companies will use the Sprint PCS
brand name to market their services and will be required to maintain certain
quality standards to be established by the PCS Group.
MARKETING
The PCS Group's principal marketing strategy is to differentiate itself
through its state-of-the-art network, Sprint brand name, a variety of
sophisticated features, attractive pricing plans, superior customer service
and the ability to bundle Sprint PCS service with the telecommunications
services offered by the FON Group.
The Sprint Brand Name. The PCS Group prominently features the nationally
recognized Sprint brand name and logo on its products and services. The PCS
Group believes that the use of the Sprint brand name will continue to be a
distinct marketing advantage.
Customer Service. The PCS Group considers quality customer service to be a
critical element of its marketing and operating philosophy. In an effort to
minimize service disruptions to customers, the PCS Group's national network
control center continually monitors the performance of its PCS network and
provides rapid response for system maintenance needs. Customer care service
representatives are available to address customers' questions/concerns about
PCS service, activation, changing personal options and other service options
on a 24 hour/7 day a week basis. Customer care representatives are accessible
from any point within the network on a PCS Group handset at no charge or can
be accessed by any other telephone. All customer care service representatives
undergo a required initial training regimen and participate in ongoing
training programs designed to meet customer needs.
Pricing. The PCS Group's pricing strategy is based on simple,
straightforward service plans. The PCS Group's consumer pricing plans are
typically structured with competitive monthly recurring charges, large local
calling areas, enhanced service features (such as voicemail, caller ID, call
waiting and three-way calling) and competitive per-minute rates. Lower per-
minute rates relative to analog cellular providers are possible because the
CDMA system has greater capacity, thereby enabling the PCS Group to market
high usage customer plans at lower prices. The PCS Group also offers its
customers savings through expanded home service area plans and other special
pricing features, like "first incoming minute free." Two national pricing
plans, Home Rate USASM and Toll-Free USASM, which were launched in 1997, are
examples of how the PCS Group offers customers
II-5
<PAGE>
creative pricing. Home Rate USA allows customers travelling to other PCS Group
markets to have their home market rate apply. Toll-Free USA essentially
eliminates uncertainty about long distance cost by providing 1,000 domestic
minutes of long distance calls per month for a fixed fee.
Advertising and Promotions. The PCS Group leverages Sprint's substantial
investment in national advertising to build its brand awareness. The PCS Group
uses national as well as regional television, radio, print, outdoor and other
advertising campaigns using the Sprint and Sprint PCS brand names to promote
its products. In its advertising and promotional campaigns, the PCS Group
emphasizes its superior voice quality as "the clear alternative to cellular."
The PCS Group also runs numerous promotional campaigns which provide customers
with benefits such as additional features at the same rate or free minutes of
use for limited time periods.
Sponsorships. The PCS Group is a sponsor of numerous selective, broad-based
national, regional and local events, including the National Football League
and Treadway IndyCar Racing. These sponsorships provide the PCS Group with
brand name and product recognition in high profile events, provide a forum for
sales and promotional events and enhance the PCS Group's local presence.
Bundling of Services and Cross-Marketing with the FON Group. The PCS Group
intends to take advantage of the complete array of communications services
offered by Sprint by bundling its PCS service with other Sprint products, such
as long distance and local service. The PCS Group also plans to actively
cross-market with the FON Group's divisions and capitalize on the size and
breadth of its customer base in long distance and local service. Any benefits
that may result from such bundling or cross-marketing will be shared with the
FON Group pursuant to the Tracking Stock Policies.
SALES AND DISTRIBUTION
The PCS Group uses multiple distribution channels to market its products and
services, including its own retail stores, third-party retail stores, its own
direct sales force, telemarketing and other channels. The PCS Group expects
its retail channels to be the largest contributor to customer additions. The
PCS Group will continue to evaluate alternative distribution channels in the
future.
Sprint PCS Retail Stores. As of May 31, 1998, the PCS Group had opened 121
Sprint PCS retail locations. At a Sprint PCS retail store, trained sales
representatives assist customers in acquiring their PCS phones and choosing
their rate plan and also offer after-sales support. The PCS Group expects to
have approximately 200 Sprint PCS retail locations in operation by the end of
the first half of 1999.
Third Party Retail Stores. The PCS Group currently sells its products and
services in approximately 5,000 third party retail locations. The PCS Group
expects to increase this distribution channel to approximately 8,000 retail
locations by the end of the first half of 1999. The PCS Group provides
training and support for the retailer's sales personnel. The PCS Group
launched its third party retail distribution channel in 1995 with RadioShack,
which now sells Sprint PCS products in approximately 2,500 locations and has
approximately 25,000 of its employees trained in PCS sales. Many RadioShack
stores contain a Sprint Store-Within-A-Store which sells PCS Group and FON
Group services and products. In addition to RadioShack, the PCS Group has
third-party distribution arrangements with major national and regional
retailers, including Office Max, Office Depot, Circuit City, Best Buy,
Dillard's, The May Company Department Stores, Car Toys, Fred Meyer, Sam's
Wholesale Clubs, Ritz Camera and The Good Guys.
Direct Sales Force. The PCS Group has divided its direct sales force into
the business-to-business sales force and the national sales team. The
business-to-business sales force is locally based and targets businesses
within the local coverage area. The national sales team targets large
companies who purchase their wireless products and services on a national
basis.
Telemarketing and Other Channels. The PCS Group operates an inbound
telemarketing effort and also distributes its services through cross-marketing
efforts with Sprint.
II-6
<PAGE>
SERVICES AND FEATURES
The PCS Group currently offers several value-added services and features
that generally are not offered by analog cellular providers and are offered by
digital competitors to varying extents:
Enhanced Features. The PCS Group's standard service includes a number of
enhanced features that are not generally offered on most traditional analog
cellular phones without additional cost, including Call Waiting, Caller ID,
Call Forwarding and Three Way Calling.
Messaging Services. The PCS Group offers a number of message services,
including voicemail and numeric paging. The PCS Group is in the process of
extending the benefits of its nationwide voice messaging service platform by
offering Enhanced Voicemail which will permit customers of the PCS Group to
send, reply to and forward messages to other PCS Group voicemail customers.
Enhanced Voicemail is expected to be available to PCS Group customers by the
end of the third quarter of 1998.
Call Security and Privacy. Digital wireless communications systems provide
increased call security from fraud and eavesdropping by persons using
scanners, which permits users to make private business and personal calls with
significantly lower risk of cloning and eavesdropping than on analog-based
systems. Customers (including PCS Group customers) using dual-mode handsets in
analog mode do not have the benefit of digital security.
Data Services. The PCS Group expects to introduce several data services,
including text messaging and facsimile capabilities, in select markets in 1998
with full roll out in 1999. Text messaging will allow customers to receive
alpha-numeric messages of up to 100 characters in length. Senders will be able
to create messages via the Sprint PCS web site, e-mail or personal computer
software. Using a data cable, customers also will be able to connect their
handsets to a personal computer and use their handsets to connect to a
landline network at speeds up to 14.4 Kbps.
Dual-Band/Dual-Mode Handsets. Through dual-band/dual-mode PCS handsets, the
PCS Group offers customers the ability to make and receive calls on both PCS
and cellular frequency bands utilizing the appropriate digital or analog
technology. These advanced handsets allow roaming on cellular networks in
areas where the PCS Group's digital service is not offered. The PCS Group's
dual-mode handsets do not allow for automatic call hand-off between a PCS
network and another wireless network, thus requiring a customer to initiate a
new call when leaving the PCS network.
Extended Battery Life. CDMA digital handsets use advanced battery technology
and have lower power requirements than analog cellular and other digital
technologies. The PCS Group believes that this feature increases usage,
especially for incoming calls, as the handset can be left on longer than
handsets for analog cellular and other digital systems. However, dual-mode
handsets do not have longer battery life when operating in analog mode.
NETWORK
Network Buildout and Expansion. The initial buildout of the PCS Group's
network involved systems design, acquisition and construction of cell sites,
equipment procurement and installation, interconnection with other
communications providers and implementation of advanced management and
information systems. As of the end of 1997, the PCS Group's network was able
to provide service in areas covering 105 million Pops or 54% of its licensed
MTA Pops. Although there continues to be significant buildout activity, the
emphasis and focus in many of the markets served by the PCS Group shifted
during 1997 from an initial network buildout process to network operations.
The PCS Group is actively constructing its network in the SprintCom markets,
which include 13 of the 50 largest metropolitan areas (including Chicago,
Atlanta and Houston). When the initial buildout of SprintCom markets is
complete (which is expected to occur by the end of the first half of 1999),
the PCS Group expects to
II-7
<PAGE>
have network coverage of 38.6 million Pops in addition to the 105 million Pops
already covered by the PCS Group network. With respect to the SprintCom
markets, of the approximately 3,200 sites budgeted for the SprintCom buildout,
approximately 2,800 sites are leased and construction has commenced on
approximately 1,700 sites.
The PCS Group's principal network objective is to maximize the quality of
coverage (i.e., sound quality and in-building penetration) and depth of
coverage (i.e., network availability when a customer wants to make a call).
The PCS Group evaluates coverage expansion within its markets in commercial
operation on a market-by-market basis and considers, among other things,
population and traffic density, FCC coverage requirements, capital
requirements and the ability to cluster groups of markets. The PCS Group also
intends to expand network coverage by contracting with other companies that
desire to build and manage portions of the nationwide network for the PCS
Group.
The PCS Group selected CDMA digital technology because of its increased
customer capacity relative to other technologies, higher quality of
transmission and expected long term lower infrastructure and ongoing support
costs. Sprint believes that CDMA provides significant advantages over
competing air interface protocols including superior voice quality, cost
effectiveness, increased functionality and greater security and capacity. The
PCS Group believes that CDMA is the leading digital wireless air interface
protocol in North America.
Roaming Agreements. The PCS Group has roaming agreements with analog
cellular carriers encompassing 80% of the geographic area covered by cellular
service in the United States. Pursuant to these roaming agreements, PCS Group
customers who have dual-band/dual-mode handsets have the ability to roam
automatically in many areas where PCS service is not or will not be available.
In geographic areas not covered by a roaming agreement yet still covered by
analog cellular, customers may roam manually (i.e. by providing an operator
with a credit card number). The PCS Group also has negotiated roaming
agreements with other CDMA PCS carriers who provide service in some of the
geographic areas not covered by the PCS Group's network. The PCS Group intends
to continue to expand the ability for its customers to roam both domestically
and internationally.
Vendors. The PCS Group selected Lucent Technologies, Northern Telecom and
Motorola to provide the PCS technology for its wireless network because of
their extensive experience in wireless technology and their willingness to
guarantee delivery in accordance with specifications developed by the PCS
Group. These vendors provide the PCS Group with infrastructure equipment
including switches, base station controllers and PCS transmitters and
receivers and in certain cases vendor financing. The PCS Group also contracts
with various vendors for the supply of towers, cabling, hardware and software
and other equipment necessary to support the network.
The PCS Group has entered into purchase agreements with four manufacturers
of CDMA handsets, of which three also provide or will provide the PCS Group
with dual-band handsets. The PCS Group intends to enter into additional
agreements with other handset vendors in the future.
The PCS Group purchases long distance services from the FON Group at
wholesale rates which the PCS Group uses in providing long distance services
to its customers. Pursuant to the Tracking Stock Policies, the FON Group
receives the benefit of such purchases by the PCS Group. The PCS Group does
not intend to purchase long distance services from any provider other than the
FON Group.
COMPETITION
Competition for customers among wireless providers is based principally upon
the services and features offered, the technical quality of the wireless
system, the distribution system for products and services, customer service,
system coverage, capacity and price. Such competition may increase to the
extent that licenses are transferred from smaller stand-alone operations to
larger, better capitalized and more experienced wireless
II-8
<PAGE>
communications operations that may be able to offer customers certain network
advantages similar to those offered by the PCS Group.
The PCS Group competes with other two-way wireless service providers,
including cellular and, in some markets, PCS operators and resellers. The PCS
Group also competes with paging, ESMR dispatch and conventional mobile
telephone companies in its markets. Potential users of PCS systems may find
their communications needs satisfied by other current and developing
technologies. One or two-way paging or beeper services that feature voice
messaging and data display as well as tone only service may be adequate for
potential customers who do not need to speak to the caller.
The PCS Group directly competes with existing cellular service providers in
its markets, many of which have been operational for a number of years, have
greater local geographical coverage, and some of which have significantly
greater financial resources than those of the PCS Group. However, the PCS
Group believes that its product offerings using the CDMA technology are
superior to analog cellular and other digital systems as a result of their (i)
consistent functionality, including better call quality and clarity and
advanced features and applications, (ii) competitive pricing, (iii) customer
care and (iv) nationwide network.
The PCS Group also faces competition from "resellers" which provide wireless
service to customers but do not hold FCC licenses or own facilities. Instead,
the reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to
the public. Thus, a reseller is both a customer of a wireless licensee's
services and also a competitor of that and other licensees. The FCC requires
all cellular and PCS licensees to permit resale of carrier service to a
reseller.
In the future, the PCS Group expects to face increased competition from
entities providing similar services using other communications technologies,
including satellite-based telecommunications and wireless cable systems. While
some of these technologies and services are currently operational, others are
being developed or may be developed in the future.
Over the past several years the FCC has and will continue to auction large
amounts of wireless spectrum that could be used to compete with the PCS
Group's services. Based upon increased competition, the PCS Group anticipates
that market prices for two-way wireless services generally will decline in the
future. The PCS Group competes to attract and retain customers principally on
the basis of services and features, the size and location of its service areas
and pricing. The PCS Group's ability to compete successfully also depends, in
part, on its ability to anticipate and respond to various competitive factors
affecting the industry, including new services that may be introduced, changes
in consumer preferences, demographic trends, economic conditions and discount
pricing strategies by competitors.
REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States. The FCC has promulgated, and is in the process of promulgating,
a series of rules, regulations and policies to, among other things, (i) grant
or deny licenses for PCS frequencies, (ii) grant or deny PCS license renewals,
(iii) rule on assignments and/or transfers of control of PCS licenses, (iv)
govern the interconnection of PCS networks with other wireless and wireline
carriers, (v) establish access and universal service funding provisions, (vi)
impose fines and forfeitures for violations of any of the FCC's rules, and
(vii) regulate the technical standards of PCS networks. The FCC prohibits a
single entity from having a combined attributable interest (20% or greater
interest in any license) in broadband PCS, cellular and SMR licenses totaling
more than 45 MHz in any geographic area.
Transfers and Assignments of PCS Licenses. The FCC must give prior approval
to the assignment of, or transfers involving, substantial changes in ownership
or control of a PCS license. Non-controlling interests in an entity that holds
a PCS license or operates PCS networks generally may be bought or sold without
prior FCC
II-9
<PAGE>
approval. In addition, a recent FCC order requires only post-consummation
notification of certain pro forma assignments or transfers of control.
Conditions of PCS Licenses. All PCS licenses are granted for 10-year terms
conditioned upon timely compliance with the FCC's buildout requirements.
Pursuant to the FCC's buildout requirements, all 30 MHz broadband MTA
licensees must construct facilities that offer coverage to one-third of the
population within 5 years and to two-thirds of the population within 10 years,
and all 10 MHz broadband PCS licensees must construct facilities that offer
coverage to at least one-quarter of the population within 5 years or make a
showing of "substantial service" within that 5 year period. Rule violations
could result in license revocations or fines.
PCS License Renewal. PCS licensees can renew their licenses for additional
10 year terms. PCS renewal applications are not subject to auctions. However,
under the FCC's rules, third parties may oppose renewal applications and/or
file competing applications. If one or more competing applications are filed,
a renewal application will be subject to a comparative renewal hearing. The
FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is
applicable if the PCS renewal applicant has: (i) provided "substantial
service" during its license term; and (ii) substantially complied with all
applicable law and FCC rules and policies. The FCC's rules define "substantial
service" in this context as service that is sound, favorable and substantially
above the level of mediocre service that might minimally warrant renewal.
Interconnection. The FCC has the authority to order interconnection between
CMRS providers and any other common carrier. The FCC's authority further
preempts the authority of any state public service commission over the rates
and entry of CMRS providers in the market place. The FCC has ordered local
exchange carriers to provide reciprocal compensation to CMRS providers for the
termination of traffic. Moreover, the FCC has found that CMRS carriers could
use the interconnection rates of the landline companies as proxies for their
own rates, at least until such time as the CMRS carrier conducted its own cost
study to determine its own termination rate.
Using these new rules, the PCS Group has negotiated interconnection
agreements with all of the major regional Bell operating companies, GTE and
several smaller independent local exchange carriers. These agreements have
lowered rates for interconnection and created revenues resulting from
termination charges on the Sprint PCS network. The PCS Group is continuing to
negotiate agreements with other independent local exchange carriers and is
investigating additional ways to benefit from the FCC's regulations.
Other FCC Requirements. In June 1996, the FCC adopted rules that prohibit
broadband PCS providers from unreasonably restricting or disallowing resale of
their services or unreasonably discriminating against resellers. Resale
obligations will automatically expire five years after the FCC concludes its
initial round of licensing of currently allocated broadband PCS spectrum. The
FCC is also considering whether wireless providers should be required to offer
unbundled communications capacity to resellers who intend to operate their own
switching facilities.
The FCC also adopted rules in June 1996 that require local exchange and most
CMRS carriers to program their networks to allow customers to change service
providers without changing telephone numbers, which is referred to as service
provider number portability. The FCC required that most CMRS providers be able
to deliver calls from their networks to ported numbers anywhere in the country
by December 31, 1998. The FCC also has determined that CMRS providers, by June
30, 1999, must be able to offer their own customers number portability in
their switches in the 100 largest metropolitan areas for which they receive a
request for number portability capability at least nine months prior to the
deadline. The CTIA has petitioned the FCC to forbear entirely from requiring
any CMRS provider to provide number portability capability to its own
customers until at least after the five-year build-out period for PCS carriers
has expired.
The FCC recently adopted rules permitting broadband PCS and other CMRS
providers to provide wireless local loop and other fixed services that would
directly compete with the wireline services of LECs. In June 1996, the FCC
adopted rules requiring broadband PCS and other CMRS providers to implement
enhanced emergency
II-10
<PAGE>
911 capabilities within 18 months after the effective date of the FCC's rules.
In December 1997, the FCC revised these rules to extend the compliance
deadline for phase I until October 1, 1998 and for phase II until October 1,
2001 for digital CMRS carriers to ensure access for customers using devices
for the hearing-impaired. Currently the PCS Group and other wireless carriers
are in compliance with phase I and are analyzing various technical methods for
complying with phase II.
Communications Assistance for Law Enforcement Act ("CALEA"). The
Communications Assistance for Law Enforcement Act, enacted in 1994 to preserve
electronic surveillance capabilities authorized by Federal and state law,
requires telecommunications carriers to meet certain "capability requirements"
by October 25, 1998. Toward the end of 1997 telecommunications industry
standard setting organizations agreed to a joint standard to implement CALEA's
capability requirements, known as J-STD-025. CALEA provides that a
telecommunications carrier meeting industry CALEA standards shall have safe
harbor for purposes of compliance with CALEA. Although the PCS Group is able
to offer traditional electronic surveillance capabilities to law enforcement,
it, as well as the other participants in the wireless industry, will not be
able to meet the requirements of the joint standard by October 25, 1998, given
hardware changes that are yet to be developed and implemented by switch
manufacturers. The wireless industry has petitioned to delay the date that
compliance with the joint standard is required. In any event, the United
States Department of Justice ("DOJ") objected to the industry joint standard
as being insufficient to meet CALEA's capability requirements and has
petitioned the FCC to require the industry to include a so-called "punch list"
of additional electronic surveillance capabilities. The DOJ has threatened to
seek court enforcement actions against carriers not complying with CALEA's
capability requirements, including the so-called "punch list" items. In an
enforcement action, a court may impose a civil penalty of up to $10,000 per
day for each day in violation. The Center for Democracy and Technology has
petitioned the FCC for a determination that the industry joint standard
violates CALEA by providing more than is required.
The continued delay in implementation of CALEA and the inability of the DOJ
and the industry to agree on technical standards has prompted numerous
industry and privacy groups to ask the FCC to extend the CALEA compliance
deadline by at least two years. In addition, the FCC is considering petitions
from numerous parties to establish and implement technical compliance
standards pursuant to CALEA requirements.
Other Federal Regulations. Wireless systems must comply with certain FCC and
FAA regulations regarding the siting, lighting and construction of transmitter
towers and antennas. In addition, certain FCC environmental regulations may
cause certain cell site locations to become subject to regulation under the
National Environmental Policy Act. The FCC is required to implement the Act by
requiring carriers to meet certain land use and radio frequency standards.
Review of Universal Service Requirements. The FCC and the states are re-
quired to establish a "universal service" program to ensure that affordable,
quality telecommunications services are available to all Americans. Although
the PCS Group is challenging in federal court the authority of the states to
collect universal service contributions from CMRS providers, at present the
PCS Group is required to contribute to the federal universal service program
as well as existing state programs. The FCC has determined that the PCS
Group's "contribution" to the federal universal service program is a variable
percentage of "end-user telecommunications revenues." Although many states are
likely to adopt a similar assessment methodology, the states are free to cal-
culate telecommunications service provider contributions in any manner they
choose as long as the process is not inconsistent with the FCC's rules. At the
present time it is not possible to predict the extent of the PCS Group's total
federal and state universal service assessments or ability to recover from the
universal service fund.
Partitioning; Disaggregation. The FCC has modified its rules to allow
broadband PCS licensees to partition their market areas and/or to disaggregate
their assigned spectrum and to transfer partial market areas or spectrum
assignments to eligible third parties.
Wireless Facilities Siting. States and localities are not permitted to
regulate the placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. In addition, so long as a wireless system complies with the FCC's
rules, states and localities are
II-11
<PAGE>
prohibited from using radio frequency health effects as a basis to regulate
the placement, construction or operation of wireless facilities. The FCC is
considering numerous requests for preemption of local actions affecting
wireless facilities siting.
Equal Access. Wireless providers are not required to provide equal access to
common carriers for toll services. However, the FCC is authorized to require
unblocked access to toll carriers subject to certain conditions.
Deregulation. The FCC is required to forbear from applying any statutory or
regulatory provision if it is not necessary to keep telecommunications rates
and terms reasonable or to protect customers. Correspondingly, a state may not
apply a statutory or regulatory provision that the FCC decides not to apply.
In addition, the FCC must review its telecommunications regulations every two
years to determine if any can be eliminated or modified as no longer in the
public interest as a result of increased competition.
EMPLOYEES
At May 31, 1998, the PCS Group employed approximately 8,000 people. None of
the PCS Group employees is represented by a labor union. Management believes
that the PCS Group's employee relations are good. The PCS Group engages
independent contractors to perform a variety of functions, including
construction and maintenance of the PCS Group's network, research,
advertising, and information technology.
FACILITIES
The PCS Group leases space for base station towers and switch sites for its
nationwide network. As of May 31, 1998, the PCS Group had under lease
approximately 70 switch sites and had entered into leases (or options to
lease) for approximately 9,300 cell sites. In addition, the PCS Group leases
approximately 110 other facilities including the PCS Group headquarters in
Kansas City, Missouri, customer care facilities in Bethesda, Maryland, Ft.
Worth, Texas, and Irvine, California, as well as numerous sales and marketing
offices.
PATENTS, TRADEMARKS AND SERVICE MARKS
Sprint owns various trademarks utilized by the PCS Group. Sprint expects to
apply for and develop trademarks, service marks and patents for the benefit of
the PCS Group in the ordinary course of business. Sprint is a registered
trademark of Sprint and Sprint PCS is an unregistered service mark of Sprint,
both of which are utilized by the PCS Group on a royalty-free basis under
trademark license agreements.
Pursuant to certain of the PCS Group's third party supplier contracts, the
PCS Group has certain rights to use third party supplier trademarks in
connection with the buildout, marketing and operation of its network.
ENVIRONMENT
The PCS Group's environmental compliance expenditures primarily result from
the operation of standby power generators for its telecommunications equipment
and compliance with various environmental rules during network buildout. The
expenditures arise in connection with standards compliance or permits which
are usually related to generators, batteries or fuel storage. The PCS Group's
environmental compliance expenditures have not been material to its financial
statements or to its operations and are not expected to have any future
material adverse effects.
LEGAL PROCEEDINGS
The PCS Group is involved in various legal proceedings incidental to the
conduct of its business. The PCS Group has been involved in various legal
proceedings in various states concerning the imposition of moratoria on the
processing or approval of permits for wireless telecommunication towers, the
denial of applications for permits and other issues arising in connection with
tower siting. There can be no assurance that such litigation,
II-12
<PAGE>
and similar actions taken by others seeking to block actions necessary for the
construction of the PCS Group's network in other locations, will not, in the
aggregate, have a material adverse effect on the PCS Group. In addition, the
PCS Group is involved in several class actions alleging fraud in connection
with inadequate network capacity or treatment of consumer issues. None of the
cases has yet been certified as a class action, and the PCS Group is
vigorously opposing such certification. While it is not possible to determine
the ultimate disposition of each of these proceedings, the PCS Group believes
that the outcome of such proceedings, individually and in the aggregate, will
not have a material adverse effect on the PCS Group's financial condition or
results of operations or cash flows.
MANAGEMENT
The following table sets forth the members of the senior management of
Sprint Spectrum Holdings who will serve in similar capacities in the PCS
Group. For a list of the executive officers of Sprint, see "Executive Officers
and Directors of Sprint" in this Proxy Statement.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ----------------------------------
<S> <C> <C>
Ronald T. LeMay..................... 52 Chairman
Andrew Sukawaty..................... 42 Chief Executive Officer
Arthur A. Kurtze.................... 53 Chief Operating Officer
Bernard A. Bianchino................ 49 Chief Business Development Officer
Robert M. Neumeister, Jr. .......... 48 Chief Financial Officer
F. Edward Mattix.................... 44 Chief Public Relations Officer
Charles E. Levine................... 45 Chief Sales and Marketing Officer
Joseph M. Gensheimer................ 46 General Counsel and Secretary
</TABLE>
RONALD T. LEMAY was first elected President and Chief Operating Officer of
Sprint in February 1996 and became Chairman of Sprint Spectrum Holdings in May
1998. Mr. LeMay is also a director of Ceridian Corporation, Imation
Corporation, and Yellow Corporation. From July 1997 to October 1997, he served
as Chairman and Chief Executive Officer of Waste Management, Inc., a provider
of comprehensive waste management services. He was re-elected President and
Chief Operating Officer of Sprint effective October 1997. From 1995 to 1996
Mr. LeMay served as Vice Chairman of Sprint. He also served as Chief Executive
Officer of Sprint Spectrum Holdings from 1995 to 1996. From 1989 to 1995, he
served as President and Chief Operating Officer--Long Distance Division. Mr.
LeMay served on the Sprint Board from 1993 until he went to work for Waste
Management, Inc. He was re-elected to the Sprint Board in December 1997.
ANDREW SUKAWATY was appointed Chief Executive Officer of Sprint Spectrum
Holdings effective September 2, 1996. Prior to joining Sprint Spectrum
Holdings, Mr. Sukawaty was Chief Executive Officer of NTL, the British
diversified broadcast transmission and communications company, since 1994.
From 1989 to 1994, he was Chief Operating Officer of Mercury One-2-One, the
British company which started the world's first PCS service in the U.K. in
1993. Prior to joining Mercury One-2-One, Mr. Sukawaty held numerous positions
for US WEST, Inc., including: Chief Operating Officer of US WEST Paging,
President of Coastel, a cellular communications company, and Vice President
and branch manager for US WEST Cellular. He also held marketing positions with
AT&T and Northwestern Bell Telephone Company. He is a director of PowerWare
Inc., a wireless systems infrastructure component manufacturer, and serves on
the boards and executive committees of the Cellular Telecommunications
Industry Association and the Personal Communications Industry Association.
ARTHUR A. KURTZE was appointed Chief Operating Officer of Sprint Spectrum
Holdings in June 1995. Prior to joining Sprint Spectrum Holdings, Mr. Kurtze
was Senior Vice President--Operations for Sprint's Local Telecommunications
Division. Prior to joining Sprint in March 1993, Mr. Kurtze was Executive Vice
President
II-13
<PAGE>
in charge of strategic planning and corporate development for Centel Corp. Mr.
Kurtze joined Centel in 1972 and served in various positions there, including
Vice President of Centel Communications Co., Vice President-- Staff of Centel
Business Systems, Vice President--Market Planning for Centel Corp., Group Vice
President of Centel Cable Television Co. and Senior Vice President--Planning
and Technology.
BERNARD A. BIANCHINO was appointed Chief Business Development Officer of
Sprint Spectrum Holdings in September 1995. Most recently, Mr. Bianchino was
Executive Vice President, General Counsel and External Affairs for Qwest
Communications Corporation. He served as Vice President--Law for Sprint from
1992 to 1994 and as General Attorney, Vice President and Associate General
Counsel for US Sprint Communications Company from 1986 to 1992. From 1978 to
1986, Mr. Bianchino was counsel to a number of affiliates of Exxon Corporation
in its Enterprises Group, including Reliance Comm/Tec (now RELTEC) and Exxon
Office Systems. Prior to joining Exxon, he was an attorney with the United
States Department of Energy.
ROBERT M. NEUMEISTER, JR. was named Chief Financial Officer of Sprint
Spectrum Holdings in September 1995. Prior to joining Sprint Spectrum
Holdings, Mr. Neumeister served in various capacities at Northern Telecom
Ltd., including Vice President of Finance, Vice President, and Controller. He
also served as head of various geographical finance organizations including
Canada, Latin America, Asia, and the United States. He also held the position
of Senior Vice President & Chief Financial Officer of Motorola Nortel
Communications Co.
F. EDWARD MATTIX was named Chief Public Relations Officer of Sprint Spectrum
Holdings in April 1996. Prior to joining Sprint Spectrum Holdings, he was Vice
President--Public Relations for US WEST Communications, Inc. Mr. Mattix served
in various management level positions relating to public relations or
governmental affairs since joining US WEST, Inc. in 1976.
CHARLES E. LEVINE was appointed Chief Sales and Marketing Officer of Sprint
Spectrum Holdings in January 1998. Mr. Levine joined Sprint Spectrum Holdings
in January 1997 as Chief Marketing Officer. Prior to joining Sprint Spectrum
Holdings, Mr. Levine was President of Octel Link, a voice mail equipment and
services provider, and Senior Vice President of Octel Services from 1994 to
1996. From 1993 to 1994, he was President and Chief Executive Officer of CAD
Forms Technology a developer of hardware and software products for mobile
computing. Prior to joining CAD Forms Technology, Mr. Levine held numerous
positions with AT&T Corporation from 1986 to 1993, including Vice President,
General Business Systems, Products and New Services; Vice President, Consumer
Products, Product Management; and Director, Consumer Products, Product
Management. Mr. Levine has also served in management positions for General
Electric Corporation and Proctor & Gamble Company.
JOSEPH M. GENSHEIMER was named General Counsel and secretary of Sprint
Spectrum Holdings in October 1995. Mr. Gensheimer is responsible for all legal
and regulatory functions. Prior to joining Sprint Spectrum Holdings, he was
Senior Counsel for IBM's mainframe and supercomputer divisions. Mr. Gensheimer
served in various legal management positions after joining IBM in 1988. Prior
to joining IBM, he was General Counsel and Secretary of RealCom Communications
Corporation, a telecommunications services provider. From 1982 to 1984, Mr.
Gensheimer was Senior Attorney and Assistant Secretary for GTE Corporation.
Prior to joining GTE, he was an associate at Morgan, Lewis & Bockius and an
attorney for the United States Department of Justice.
II-14
<PAGE>
HISTORICAL PCS GROUP
SELECTED FINANCIAL DATA
The following unaudited table sets forth historical Selected Financial Data
of SprintCom and Sprint's investments in Sprint Spectrum Holdings and
PhillieCo. The investments in Sprint Spectrum Holdings (which includes Sprint
Spectrum, Cox PCS and APC) and PhillieCo during the periods shown have been
accounted for on the equity basis. The results of SprintCom, a wholly-owned
subsidiary of Sprint, are accounted for on a consolidated basis. Subsequent to
the PCS Restructuring, the results of Sprint Spectrum Holdings and PhillieCo
will be accounted for on the consolidated basis in the PCS Group Combined
Financial Statements. The Selected Financial Data set forth below should be
read in conjunction with the PCS Group Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the PCS Group Combined
Financial Statements and Notes thereto (the "PCS Group Historical Financial
Statements"). The Selected Financial Data at December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997, have been
derived from the PCS Group Historical Financial Statements, which have been
audited by Ernst & Young LLP, independent auditors. The Selected Financial
Data at December 31, 1995 and 1994 and at March 31, 1998 and for the year
ended December 31, 1994 and for the three months ended March 31, 1998 and
1997, have been derived from the unaudited PCS Group Historical Financial
Statements. The unaudited PCS Group Historical Financial Statements have been
prepared on the same basis as the audited PCS Group Historical Financial
Statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for these
periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -----------------------------------
1998 1997 1997 1996 1995 1994(1)
-------- ------ -------- -------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Operating loss........... $ (18.6) $ (0.8) $ (18.5) $ (0.5) $ -- $ --
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo............... (209.7) (85.9) (659.6) (191.8) (31.4) --
Net loss................. (142.7) (53.0) (419.1) (119.7) (19.9) --
CASH FLOW DATA
Cash from operating
activities.............. $ (31.0) $ 4.2 $ 37.5 $ (0.5) $ -- $ --
Capital expenditures..... 178.6 7.0 153.7 -- -- --
Purchase of PCS licenses. -- 25.2 460.1 84.0 -- --
Investments in Sprint
Spectrum Holdings and
PhillieCo............... 33.5 16.5 405.9 297.5 910.9 51.1
BALANCE SHEET DATA
Total assets............. $1,802.5 $1,693.1 $1,259.8 $973.7 $51.1
Property, plant and
equipment............... 447.7 177.3 -- -- --
Investments in Sprint
Spectrum Holdings and
PhillieCo............... 792.2 968.4 1,175.8 973.7 51.1
Construction and capital
lease obligations....... 215.9 -- -- -- --
Group equity............. 1,183.9 1,385.9 1,187.6 965.7 51.1
</TABLE>
- --------
(1) The PCS Group had no operations prior to 1994.
II-15
<PAGE>
HISTORICAL SUPPLEMENTAL FINANCIAL AND OTHER DATA OF SPRINT SPECTRUM,
APC, COX PCS, PHILLIECO AND SPRINTCOM ON A COMBINED BASIS
The following unaudited table sets forth certain historical supplemental
financial and other data of Sprint Spectrum, APC, Cox PCS, PhillieCo and
SprintCom on a combined basis. Sprint Spectrum Holdings expects to increase
its ownership interest in Cox PCS from 49.0% to 59.2% by the end of June,
1998. The minority interest in Cox PCS has been reflected in the table below.
The table is not intended to replace the Historical PCS Group Selected
Financial Data, as presented on the previous page. This combined financial
information is presented to supplement the Historical PCS Group Selected
Financial Data in order to facilitate an understanding of the underlying
historical combined operations, cash flows and financial position of the
various PCS businesses that will comprise the PCS Group subsequent to the PCS
Restructuring. Subsequent to the PCS Restructuring, the financial statements
of the PCS Group will include the operating results of Sprint Spectrum, APC,
Cox PCS and PhillieCo as well as the operating results of SprintCom. The
following supplemental information, however, does not reflect the effects of
the PCS Restructuring, the Recapitalization or the IPO and is not intended to
indicate the results of future operations.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
-------- -------- --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA
Net operating revenues...... $ 207.6 $ 43.9 $ 401.8 $ 76.7 $ 5.2
Operating expenses
Cost of revenues.......... 254.1 101.5 775.7 178.8 17.4
Selling, general and
administrative........... 280.4 175.6 946.5 456.2 108.4
Depreciation and
amortization............. 140.2 48.3 378.5 36.1 3.1
-------- -------- --------- -------- --------
Total operating expenses.... 674.7 325.4 2,100.7 671.1 128.9
-------- -------- --------- -------- --------
Operating loss.............. (467.1) (281.5) (1,698.9) (594.4) (123.7)
Interest expense............ (105.5) (10.9) (164.3) (26.4) (2.0)
Other income................ 6.0 18.4 27.2 9.6 1.6
Minority interest........... 29.4 22.7 92.5 24.8 2.4
-------- -------- --------- -------- --------
Pretax loss................. $ (537.2) $ (251.3) $(1,743.5) $ (586.4) $ (121.7)
======== ======== ========= ======== ========
CASH FLOW DATA
Capital expenditures........ $ 519.9 $ 437.7 $ 2,617.6 $1,661.8 $ 146.1
Purchase of PCS licenses.... -- 277.1 460.1 84.0 2,086.3
BALANCE SHEET DATA
Property, plant and
equipment, net............. $4,556.9 $ 4,042.4 $1,808.8 $ 157.4
Investment in PCS licenses.. 3,279.9 3,213.9 2,391.6 2,311.9
Long-term debt and
construction obligations... 5,600.6 4,564.7 1,370.5 88.8
OTHER DATA
Subscribers at end of period
(in thousands)............. 1,114 192 887 154 --
Operating cash flow (1)..... $ (326.9) $ (233.2) $(1,320.4) $ (558.3) $ (120.6)
</TABLE>
- --------
(1) Operating cash flow represents operating loss plus depreciation and
amortization. This measurement is not an alternative to operating income as
an indicator of operating performance or an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles.
II-16
<PAGE>
PCS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sprint Corporation (and with its subsidiaries "Sprint") has entered into a
restructuring agreement with the Cable Parents to restructure Sprint's
wireless PCS operations. Sprint will acquire the joint venture interests of
the Cable Parents in Sprint Spectrum Holdings and the joint venture interests
of TCI and Cox in PhillieCo. In exchange for these joint venture interests,
Sprint will issue to the Cable Parents a newly created class of Sprint Common
Stock, the PCS Stock. The PCS Stock is intended to reflect separately the
performance of these joint ventures and the domestic PCS operations of
Sprint's wholly owned subsidiary, SprintCom. These operations, which after the
PCS Restructuring will be 100% owned by Sprint, will be referred to as the PCS
Group.
Sprint will effect the Recapitalization by reclassifying each share of
Sprint's existing Common Stock into 1/2 share of PCS Stock and one share of
FON Stock. The FON Stock is intended to reflect separately the performance of
all of Sprint's other operations, including its long distance, local
telecommunications and product distribution and directory publishing
divisions, emerging businesses and its interest in Global One. These
operations will be referred to as the FON Group.
The PCS Group Historical Financial Statements include the combined
historical balance sheets, results of operations and cash flows of the
businesses that comprise the PCS Group. All significant intragroup financial
transactions have been eliminated; however, transactions between the FON Group
and the PCS Group have not been eliminated.
GENERAL
FORWARD-LOOKING INFORMATION
Sprint includes certain estimates, projections and other forward-looking
statements in its reports, in presentations to analysts and others, and in
other publicly available material. Future performance cannot be ensured.
Actual results may differ materially from those in the forward-looking
statements. Factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include
(i) the effects of vigorous competition in the markets in which the PCS Group
operates; (ii) the cost of entering new markets necessary to provide
nationwide service; (iii) the ability of the PCS Group to establish a
significant market presence; (iv) the impact of any unusual items resulting
from ongoing evaluations of the PCS Group's business strategies; (v) the
potential impacts of changes in regulations on the PCS Group; (vi) unexpected
results of litigation filed against Sprint; and (vii) the possibility of one
or more of the markets in which Sprint competes being affected by changes in
political, economic or other factors such as monetary policy, legal and
regulatory changes or other external factors over which Sprint or the PCS
Group have no control.
The words "estimate", "project", "intend", "expect", "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Sprint undertakes no
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Moreover, Sprint, through
senior management, may from time to time make forward-looking statements about
the matters described herein or other matters concerning Sprint.
THE PCS GROUP
The PCS Group includes Sprint's domestic wireless mobile telephony
activities and any other domestic PCS services, which includes (i) Sprint's
investment in Sprint Spectrum Holdings and Sprint's investment in PhillieCo,
both of which are reflected on the equity basis in the PCS Group Historical
Financial Statements and (ii) SprintCom. Upon completion of the PCS
Restructuring, the operating results of Sprint Spectrum Holdings and PhillieCo
will be reflected in the PCS Group Combined Financial Statements.
II-17
<PAGE>
Sprint Spectrum Holdings, PhillieCo and SprintCom are building the nation's
first single-technology, all-digital, state-of-the-art wireless network to
provide PCS across the United States operating on one frequency. PCS uses
digital technology, which has sound quality superior to analog cellular
technology and is less susceptible to interference and eavesdropping. PCS also
offers features such as voicemail and Caller ID.
Sprint Spectrum Holdings commenced commercial PCS operations late in the
fourth quarter of 1996, and emerged from the development stage during the
third quarter of 1997. SprintCom expects to commence initial operations in the
third quarter of 1998.
REGULATORY DEVELOPMENTS
See "PCS Group Information--Business--Regulation" for a discussion of
regulatory developments that could have a future impact on the PCS Group.
RESULTS OF OPERATIONS
As stated above, the PCS Group Historical Financial Statements include the
operations of SprintCom while the investments in Sprint Spectrum Holdings and
PhillieCo are accounted for on the equity basis. In order to provide a more
meaningful discussion and analysis of the underlying operating results of the
PCS Group businesses, the following discussion is based on the historical
supplemental combined results of operations of Sprint Spectrum, APC, Cox PCS,
PhillieCo and SprintCom (collectively referred to in this discussion as the
"Companies") as reflected in the table on page II-16.
Three Months Ended March 31, 1998 and 1997
Net Operating Revenues
Net operating revenues increased to $208 million for the first quarter of
1998 from $44 million the first quarter of 1997 primarily due to increases in
the number of markets launched and in the number of subscribers. The Companies
are currently operating in 37 of the largest 50 metropolitan areas.
Subscribers increased from 192,000 at March 31, 1997 to 1,114,000 at March 31,
1998. Revenues include subscriber revenues (including monthly recurring
charges and usage charges), roaming revenues and sales of handsets and
accessory equipment through multiple distribution channels (including Sprint
PCS retail locations, telemarketing, and other distribution channels) and to
third party vendors such as RadioShack.
The Companies' average monthly service revenue per subscriber for the three-
month period ended March 31, 1998 was approximately $58. This average is
expected to decline in the future (consistent with industry projections) due
to increased competition resulting from additional wireless service providers
entering the market. The Companies have adopted marketing plans that both
target and encourage higher usage and higher average monthly revenue per
subscriber. The average monthly service revenue for the three-month period
ended March 31, 1998 for Sprint Spectrum Holdings and PhillieCo, the two
entities in which Sprint had a direct investment, was approximately $65.
Operating Expenses
Cost of revenues increased to $254 million for the first quarter of 1998
from $102 million for the first quarter of 1997. This increase was primarily
due to increases in the number of markets launched and in the number of
subscribers. Cost of revenues consists principally of handset and accessory
costs, interconnection costs and switch and cell site expenses, including
maintenance, site rental and utilities.
For the three months ended March 31, 1998, selling expenses have grown due
to increased sales volumes and costs incurred in conjunction with local and
national advertising for existing markets. Such costs include costs associated
with a growing sales and marketing function to accommodate increasing activity
levels as well as costs of participation with Sprint in an NFL sponsorship,
development and production expenses associated
II-18
<PAGE>
with advertisements in various media (i.e., television, radio, print), the
development of printed brochures to promote Sprint PCS branded products and
services, and sales incentive programs. Selling expenses will continue to
increase as the Companies expand their sales and marketing activities.
General and administrative expenses for the first quarter of 1998 increased
principally due to increases in salary and related benefits, leased computer
equipment and related expenses and professional and consulting fees. Salaries
and benefits and leased computer equipment and related expenses increased due
to an increase in employee headcount. Employees increased from 5,984 at March
31, 1997 to 7,824 at March 31, 1998. These additional employees have been
added over the last year to support the continued growth of the Companies.
Professional and consulting fees increased due to the use of consultants and
other experts to assist with the continuing development and enhancement of
information systems, continued rollout and development of employee training,
and various other projects.
Depreciation and amortization expense for the first quarter of 1998 was $140
million compared to $48 million for the same period in the prior year as
network equipment in launched markets has been placed in service and
amortization of PCS licenses and microwave relocation costs in those same
markets commenced.
Years Ended December 31, 1997, 1996 and 1995
Net Operating Revenues
Net operating revenues totaled $402 million in 1997 compared to $77 million
in 1996 and $5 million in 1995. The Companies began generating revenues in
1995. The majority of the Companies' revenues in 1997 was generated in the
third and fourth quarters and includes both service revenues and the sales of
handsets and accessory equipment. Handsets and accessory equipment are sold
through multiple distribution channels (including Sprint PCS retail locations,
telemarketing, and other distribution channels) and to third party vendors
such as RadioShack. Sales to RadioShack represented 17% and 16% of net
operating revenues for the years ended December 31, 1997 and 1996,
respectively.
Operating Expenses
Cost of revenues totaled $776 million in 1997 compared to $179 million in
1996 and $17 million in 1995. Cost of revenues consists principally of handset
and accessory costs, interconnection costs, and switch and cell site expenses,
including maintenance, site rental and utilities. The increase in these costs
from 1995 to 1996 and from 1996 to 1997 is primarily a result of increases in
the volume of handsets sold and increases in interconnection costs related to
increased customer usage.
The Companies' selling, general and administrative expenses for the year
were $947 million in 1997 compared to $456 million for 1996 and $108 million
for 1995. Selling expenses increased due to costs incurred during the initial
commercial service launch in various markets and to costs incurred in
conjunction with local and national advertising for existing markets. Such
costs include participation with Sprint in an NFL sponsorship, development and
production expenses associated with advertisements in various media (i.e.,
television, radio, print), and the development of printed brochures to promote
Sprint PCS branded products and services. The Companies expect selling
expenses will continue to increase in 1998 as the Companies expand their sales
and marketing activities. General and administrative expenses increased due
principally to increases in salary and related benefits, leased computer
equipment and related expenses and professional and consulting fees. Salaries
and benefits and leased computer equipment and related expenses increased due
to an increase in employee headcount. These additional employees were added
during 1997 to support the continued growth of the Companies. Professional and
consulting fees increased due to the use of consultants and other experts to
assist with the continuing development and enhancement of the Companies'
sophisticated information systems, continued rollout and tailoring of employee
training, and various other projects.
Depreciation and amortization expense was $379 million for 1997, $36 million
for 1996 and $3 million for 1995. These increases occurred as network
equipment in launched markets has been placed in service and amortization of
PCS licenses and microwave relocation costs in those same markets has
commenced.
II-19
<PAGE>
NON OPERATING ITEMS
INTEREST EXPENSE
The PCS Group historical results are also impacted by non operating items of
the Companies, consisting primarily of interest expense. On a combined basis,
interest expense of the Companies was $106 million and $11 million for the
three months ended March 31, 1998 and 1997, respectively, and $164 million,
$26 million and $2 million for the years ended December 31, 1997, 1996 and
1995, respectively. The increased interest expense reflects the Companies'
increased borrowings.
INCOME TAXES
The PCS Group's effective tax rates for the first quarter were 37.5% in 1998
and 38.9% in 1997. The PCS Group's effective tax rates for the years ended
December 31 were 38.2% in 1997, 37.8% in 1996 and 36.6% in 1995. See Note 4 of
Notes to PCS Group Historical Financial Statements for information about the
differences that cause the effective income tax rate to vary from the
statutory federal rate.
LIQUIDITY AND CAPITAL RESOURCES
The Companies' primary uses of cash historically have been to fund initial
operating losses, capital expenditures, the acquisition of PCS licenses and
microwave relocation costs. Operating losses before depreciation and
amortization were $327 million and $233 million for the three months ended
March 31, 1998 and 1997, respectively, and were $1.3 billion, $558 million and
$121 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Capital expenditures totaled $520 million and $438 million for
the three months ended March 31, 1998 and 1997, respectively, and totaled $2.6
billion, $1.7 billion and $146 million for the years ended December 31, 1997,
1996 and 1995, respectively. Capital expenditures were incurred primarily to
fund the buildout of the Companies' network. The Companies have also spent a
total of approximately $3.0 billion to acquire the PCS licenses.
Historically, the primary sources of funds for the Companies have been long-
term public debt, bank facilities, vendor financing arrangements, partner
loans and capital contributions. Long-term debt outstanding, including vendor
financing and construction obligations, was $5.6 billion at March 31, 1998 and
was $4.6 billion, $1.4 billion and $89 million at December 31, 1997, 1996 and
1995, respectively. The Companies have used vendor financing arrangements to
fund the purchase of the equipment and software manufactured by the vendors as
well as a substantial part of the construction labor and ancillary equipment
(e.g., towers, antennae) required to construct the Companies' PCS network.
These facilities serve as a primary financing source for the buildout of the
network.
The continued expansion of Sprint Spectrum Holdings' network and buildout of
the SprintCom network as well as the marketing and distribution of Sprint PCS
products and services will continue to require substantial capital. The PCS
Group currently estimates that capital expenditures through 1999 will total
approximately $4.7 billion to $5.0 billion. Capital expenditures for the
network buildout include switches, base stations, towers, antennae, radio
frequency engineering, cell site construction and microwave relocation. Actual
amounts of the funds required may vary materially from these estimates and
additional funds would be required in the event of significant departures from
the current business plan, unforeseen delays, cost overruns, unanticipated
expenses, regulatory changes, engineering design changes and other
technological risks. Additional funds will be required to fund anticipated
operating losses, working capital requirements and debt service requirements.
In addition to the above capital requirements, under the Sprint Spectrum
Holdings' partnership agreement with Cox, Cox has the right to require that
Sprint Spectrum Holdings acquire all or part of the remaining interest in Cox
PCS based on the fair market value at the time of the transaction. Subsequent
to December 31, 1997, Cox PCS elected to exercise this right and put an
additional 10.2% ownership interest in Cox PCS to Sprint Spectrum Holdings,
subject to FCC approval which is expected in June 1998., This put will give
Sprint Spectrum
II-20
<PAGE>
Holdings a controlling interest of 59.2%. The purchase price is currently
estimated at approximately $80 million and is based on the fair market of Cox
PCS as determined by independent appraisals. Cox may put certain remaining
interests in Cox PCS to Sprint Spectrum Holdings through December 2008. See
"The Tracking Stock Proposal--Amendments to the Cox PCS Agreements."
Sprint expects that significant payments pursuant to the Tax Sharing
Agreement will be made from the FON Group to the PCS Group in light of the
substantial operating losses that the PCS Group is expected to incur in the
near future. Such payments are intended to reflect the PCS Group's incremental
cumulative effect on Sprint's federal and state tax liability and tax credit
position.
Sprint and the Cable Parents have agreed to loan up to $400 million, based
on respective ownership interests, to fund the capital requirements of Sprint
Spectrum Holdings from the date of the signing of the PCS Restructuring
Agreement, May 26, 1998, through the closing date. The PhillieCo Partners have
agreed to lend up to $50 million to PhillieCo to fund operating and working
capital requirements and capital expenditures prior to closing. Sprint has
also agreed to loan up to $110.6 million to fund SprintCom's capital
requirements during this same period. Sprint has been financing SprintCom with
Sprint's cash from operations, commercial paper borrowings and leases on
specific equipment. Sprint intends to continue to fund the buildout of the
SprintCom markets through the closing of this transaction. The above mentioned
loans, totaling $510.6 million excluding loans to PhillieCo, may be repaid
from the proceeds of an anticipated IPO, as further discussed below, but only
to the extent the net proceeds of the IPO exceed $500 million. In the event
the loans remain outstanding after the IPO, the remaining balance will be
converted into 10-year preferred stock convertible into PCS Stock. See "The
Tracking Stock Proposal--Funding of the PCS Group Prior to Closing; The PCS
Preferred Stock."
Sprint currently uses the commercial paper market to fund its short-term
working capital needs. Sprint uses four commercial paper dealers to place the
paper at the most favorable rates and maturities. Sprint also uses the medium-
term note and long-term bond markets as well as other debt markets to fund its
needs. Sprint intends to borrow funds through the U.S. and international money
and capital markets and bank credit markets to fund capital expenditures and
operating and working capital requirements and to refinance existing debt
obligations of the PCS Group.
Financing activities for the Groups will be managed by Sprint on a
centralized basis. Loans from Sprint or any member of the FON Group to any
member of the PCS Group will be made at interest rates and on other terms and
conditions substantially equivalent to the interest rates and other terms and
conditions that the PCS Group would be able to obtain from third parties
(including the public markets) as a direct or indirect wholly-owned subsidiary
of Sprint, but without the benefit of any guaranty by Sprint or any member of
the FON Group. Such policy contemplates that such loans will be made on the
basis set forth above regardless of the interest rates and other terms and
conditions on which Sprint or members of the FON Group may have acquired the
subject funds. Any difference between Sprint's borrowing rate and the rate
charged to the PCS Group, which rates are expected to be higher than the rates
at which Sprint obtained such financing, will be reflected in the FON Group
Combined Financial Statements. This process will be governed by the Tracking
Stock Policies as overseen by the Capital Stock Committee.
Sprint intends to offer to the public shares of Series 1 PCS Stock
aggregating total proceeds of between $500 million and $525 million subject to
market conditions. Sprint, subject to a disapproval right held by each of the
Cable Parents, may elect an offering netting higher proceeds in the IPO if the
Board of Directors of Sprint determines that market conditions are favorable
to a larger offering. All of the proceeds in the IPO will be allocated to the
PCS Group. Proceeds in excess of the initial $500 million to $525 million may
be used to repay loans from Sprint and the Cable Parents to Sprint Spectrum
Holdings as discussed above. Neither Sprint nor the Cable Parents would sell
shares on a secondary basis as part of the IPO. Sprint intends to complete the
IPO and the PCS Restructuring concurrently, after stockholder approval of the
transaction, subject to prevailing market conditions and other factors. There
can be no assurance that the IPO will occur. See "The Tracking Stock
Proposal--The IPO."
II-21
<PAGE>
Sprint intends to file a shelf registration to sell up to $8 billion of
fixed income debt securities, subject to market conditions, to replace its
existing $1.1 billion of shelf registrations. Proceeds from the sale of these
securities will be used to repay short-term borrowings, to refinance existing
long-term borrowings, and to provide funds for working capital and new capital
expenditures for both the PCS Group and the FON Group.
Sprint is in the process of negotiating revolving credit facilities for
approximately $5 billion which will be used to support commercial paper
operations and replace its existing credit facilities. Of this amount, $2
billion will be committed for a term of 5 years and $3 billion for a term of
364 days. Sprint believes the agreements will be negotiated on market terms,
conditions and covenants and will not place any undue burden on the business
plan or execution thereof.
In connection with the PCS Restructuring and the IPO, FT and DT have agreed
to purchase shares of PCS Stock so that they will maintain their aggregate 20%
voting power. Proceeds from the exercise of these Equity Purchase Rights are
expected to total between $225 million and $250 million. See "FT and DT
Arrangements--Equity Purchase Rights."
FINANCIAL STRATEGIES
For information on general hedging policies, interest rate risk management
and foreign exchange risk management, please see "Sprint--Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Strategies" located in Annex I.
YEAR 2000 ISSUE
The "Year 2000" issue affects the PCS Group's installed computer systems,
network elements, software applications, and other business systems that have
time sensitive programs that may not properly reflect or recognize the year
2000. Because many computers and computer applications define dates by the
last two digits of the year, "00" may not be properly identified as the year
2000. This error could result in miscalculations or system errors. The Year
2000 issue may also affect the systems and applications of the PCS Group's
customers, vendors or resellers.
The PCS Group is undertaking an evaluation of its critical systems and is
planning for the remediation and testing to be completed by mid-year 1999. The
PCS Group is also contacting others with whom they conduct business to receive
the appropriate warranties and assurances that those third parties are or will
be Year 2000 compliant. The total cost of modifications and conversions is not
known at this time; however, it is not expected to be material to the PCS
Group's financial position and is being expensed as incurred. In addition, the
PCS Group uses publicly available services that are acquired without contract
(e.g., global positioning system timing signal) that may be subject to the
Year 2000 issue. While the PCS Group believes these systems will be Year 2000
compliant, the PCS Group has no contractual or other right to compel
compliance.
If compliance is not achieved in a timely manner, the Year 2000 issue could
have a material effect on the PCS Group's operations. However, the PCS Group
is focusing on identifying and addressing all aspects of its operations that
may be affected by the Year 2000 issue and is addressing the most critical
applications first. As a result, PCS Group management does not believe its
operations will be materially adversely affected.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 8 of Notes to PCS Group Combined Financial Statements for a
discussion of recently issued accounting pronouncements.
II-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sprint Corporation
We have audited the accompanying combined balance sheets of the PCS Group
(as described in Note 2) as of December 31, 1997 and 1996, and the related
combined statements of operations and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the management of Sprint Corporation ("Sprint"). Our
responsibility is to express an opinion on these financial statements based on
our audits. The combined financial statements of Sprint Spectrum Holding
Company, L.P., MinorCo., L.P., PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P., (the "Partnerships") have been audited by other auditors
whose report has been furnished to us; insofar as our opinion on the combined
financial statements of the PCS Group relates to data included for the
Partnerships, it is based solely on their report. The PCS Group has a 40%
interest in Sprint Spectrum Holding Company, L.P. and MinorCo., L.P. and a
47.1% interest in PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P.
In the combined financial statements, the PCS Group's combined equity in the
Partnerships is stated at $781 million and $1,032 million at December 31, 1997
and 1996, respectively, and the PCS Group's combined equity in the net loss of
Sprint Spectrum Holding Company, L.P. and PhillieCo, L.P. is stated at $656
million, $192 million and $31 million for the years ended December 31, 1997,
1996 and 1995, respectively.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all
material respects, the combined financial position of the PCS Group at
December 31, 1997 and 1996, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
As more fully discussed in Note 2, the combined financial statements of the
PCS Group should be read in connection with the audited consolidated financial
statements of Sprint.
Ernst & Young LLP
Kansas City, Missouri
May 26, 1998
II-23
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED DECEMBER
31, 31,
--------------- ------------------------
1998 1997 1997 1996 1995
------- ------ ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses........................... $ 18.6 $ 0.8 $ 18.5 $ 0.5 $ --
Equity in loss of Sprint Spectrum
Holdings and PhillieCo............. 209.7 85.9 659.6 191.8 31.4
------- ------ ------- ------- ------
Loss before income taxes............ (228.3) (86.7) (678.1) (192.3) (31.4)
Income tax benefit.................. 85.6 33.7 259.0 72.6 11.5
------- ------ ------- ------- ------
Net loss ........................... $(142.7) $(53.0) $(419.1) $(119.7) $(19.9)
======= ====== ======= ======= ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-24
<PAGE>
PCS GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Prepaid expenses and other current assets........ $ 18.1 $ 2.9 $ --
Property, plant and equipment.................... 447.7 177.3 --
Investments in Sprint Spectrum Holdings and
PhillieCo....................................... 792.2 968.4 1,175.8
Investment in PCS licenses....................... 544.5 544.5 84.0
-------- -------- --------
Total........................................ $1,802.5 $1,693.1 $1,259.8
======== ======== ========
LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable............................... $ 36.9 $ 17.8 $ --
Advance from the FON Group..................... 79.9 -- --
Payable to Sprint Spectrum Holdings............ 21.9 19.0 --
Accrued expenses and other current liabilities. 0.9 20.8 --
-------- -------- --------
Total current liabilities.................... 139.6 57.6 --
Construction obligations......................... 135.0 -- --
Capital lease obligations........................ 80.9 -- --
Deferred income taxes and other liabilities...... 263.1 249.6 72.2
Group equity..................................... 1,183.9 1,385.9 1,187.6
-------- -------- --------
Total........................................ $1,802.5 $1,693.1 $1,259.8
======== ======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-25
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, DECEMBER 31,
--------------- ---------------------------
1998 1997 1997 1996 1995
------- ------ --------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................ $(142.7) $(53.0) $ (419.1) $(119.7) $ (19.9)
Adjustments to reconcile net
loss to net cash provided
(used) by operating activities:
Equity in net losses of
affiliates................... 209.7 85.9 659.6 191.8 31.4
Deferred income taxes......... 12.8 11.4 175.7 64.2 8.0
Current tax benefit utilized
by the FON Group............. (98.4) (45.1) (434.7) (136.8) (19.5)
Changes in assets and
liabilities:
Prepaid expenses and other
current assets............. (15.2) -- (2.9) -- --
Accounts payable and other
current liabilities........ 2.1 5.2 57.6 -- --
Noncurrent assets and
liabilities, net........... 0.7 (0.2) 1.3 -- --
------- ------ --------- ------- -------
Net cash provided (used) by
operating activities........... (31.0) 4.2 37.5 (0.5) --
------- ------ --------- ------- -------
INVESTING ACTIVITIES
Capital expenditures............ (178.6) (7.0) (153.7) -- --
Purchase of PCS licenses........ -- (25.2) (460.1) (84.0) --
Investments in Sprint Spectrum
Holdings and PhillieCo......... (33.5) (16.5) (405.9) (297.5) (910.9)
------- ------ --------- ------- -------
Net cash used by investing
activities..................... (212.1) (48.7) (1,019.7) (381.5) (910.9)
------- ------ --------- ------- -------
FINANCING ACTIVITIES
Advance from the FON Group...... 79.9 -- -- -- --
Contributions from (to) the FON
Group.......................... (70.2) (0.6) 547.5 245.2 891.4
Current tax benefit utilized by
the FON Group.................. 98.4 45.1 434.7 136.8 19.5
Change in construction
obligations.................... 135.0 -- -- -- --
------- ------ --------- ------- -------
Net cash provided by financing
activities..................... 243.1 44.5 982.2 382.0 910.9
------- ------ --------- ------- -------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS.................... -- -- -- -- --
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD............ -- -- -- -- --
------- ------ --------- ------- -------
CASH AND EQUIVALENTS AT END OF
PERIOD......................... $ -- $ -- $ -- $ -- $ --
======= ====== ========= ======= =======
NONCASH INVESTING AND FINANCING
ACTIVITIES
Assets acquired under a capital
lease obligation............... $ 80.9 $ -- $ -- $ -- $ --
======= ====== ========= ======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-26
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. RECAPITALIZATION PLAN
Sprint Corporation (and with its subsidiaries "Sprint") has entered into a
restructuring agreement with Tele-Communications, Inc. ("TCI"), Comcast
Corporation ("Comcast") and Cox Communications, Inc. ("Cox," and together with
TCI and Comcast the "Cable Parents") to restructure Sprint's wireless personal
communications services ("PCS") operations (the "PCS Restructuring"). Sprint
will acquire the joint venture interests of TCI, Comcast and Cox in Sprint
Spectrum Holding Company, L.P. and MinorCo, L.P. (together, "Sprint Spectrum
Holdings") and the joint venture interests of TCI and Cox in PhillieCo
Partners I, L.P. and PhillieCo Partners II, L.P. (together, "PhillieCo"). In
exchange for these joint venture interests, Sprint will issue to the Cable
Parents a newly created class of Sprint Common Stock (the "PCS Stock"). The
PCS Stock is intended to reflect separately the performance of these joint
ventures and the domestic PCS operations of Sprint's wholly-owned
subsidiaries, SprintCom, Inc. and SprintCom Equipment Company, L.P. (together,
"SprintCom"). These operations will be referred to as the PCS Group.
Subsequent to the PCS Restructuring, Sprint will commence a tax-free
recapitalization of Sprint's Common Stock (the "Recapitalization") to be
effected by reclassifying each share of Sprint's existing Common Stock into
1/2 share of PCS Stock and one share of a newly created class of Sprint Common
Stock (the "FON Stock"). The FON Stock is intended to reflect separately the
performance of all of Sprint's other operations, including its long distance,
local telecommunications and product distribution and directory publishing
divisions, emerging businesses and its interest in Global One. These
operations will be referred to as the FON Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination and Presentation
The Combined Financial Statements of the PCS Group together with the
Combined Financial Statements of the FON Group (the "Groups") comprise all of
the accounts included in the corresponding Consolidated Financial Statements
of Sprint. Investments in entities in which the PCS Group exercises
significant influence, but does not control, are accounted for using the
equity method (see Note 3). The separate Group Combined Financial Statements
give effect to the accounting policies that will be applicable upon
implementation of the PCS Restructuring. The separate Groups' Combined
Financial Statements have been prepared on a basis that management believes to
be reasonable and appropriate and include: (i) the combined historical balance
sheets, results of operations and cash flows of the businesses that comprise
each of the Groups with all significant intragroup amounts and transactions
eliminated and (ii) in the case of the FON Group Combined Financial
Statements, corporate assets and liabilities and related transactions of
Sprint.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and stockholders' equity between the PCS Group and the
FON Group for the purpose of preparing the respective financial statements of
such Groups, stockholders of PCS Stock and FON Stock are subject to risks
associated with an investment in a single company and all of Sprint's
businesses, assets and liabilities. Financial effects arising from either
Group that affect Sprint's results of operations or financial condition could
affect the results of operations or financial position of the other Group or
market price of the class of common stock relating to the other Group. Any net
losses of the PCS Group or the FON Group, and dividends or distributions on,
or repurchases of, PCS Stock or FON Stock, will reduce the funds of Sprint
legally available for payment of dividends on both the PCS Stock and the FON
Stock. Accordingly, the PCS Group Combined Financial Statements should be read
in conjunction with Sprint's Consolidated Financial Statements and the FON
Group Combined Financial Statements.
The PCS Group Combined Financial Statements are prepared according to
generally accepted accounting principles ("GAAP"). These principles require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.
II-27
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited interim financial information presented has been prepared
according to GAAP and the rules and regulations of the Securities and Exchange
Commission for interim reporting. In management's opinion, the information
presented reflects all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the interim combined financial position,
results of operations and cash flows of the PCS Group.
Classification of Operations
The PCS Group includes Sprint's domestic wireless mobile telephony
activities and any other domestic PCS services, which includes (i) the
investment in Sprint Spectrum Holdings and the investment in PhillieCo, both
of which are reflected on the equity basis and (ii) SprintCom. Upon completion
of the PCS Restructuring, the results of Sprint Spectrum Holdings and
PhillieCo will be reflected on a consolidated basis in the PCS Group Combined
Financial Statements.
Sprint Spectrum Holdings, PhillieCo and SprintCom are building the nation's
first single-technology, all digital, state-of-the-art wireless network to
provide PCS across the United States operating on one frequency. PCS uses
digital technology, which has sound quality superior to analog cellular
technology and is less susceptible to interference and eavesdropping. PCS also
offers features such as voicemail and Caller ID.
Earnings Per Share
Historical earnings per share are omitted from the Combined Statements of
Operations because the PCS Stock was not part of the capital structure of
Sprint for the periods presented. See the Sprint Consolidated Financial
Statements in Annex I for information regarding earnings per share based on
Sprint's existing capital structure. Following implementation of the PCS
Restructuring, the method of calculating earnings per share for the PCS Group
will reflect the terms of the proposed amendments to Sprint's articles.
Earnings per share will be computed by dividing the net income or loss of the
PCS Group by the weighted average number of shares of PCS Stock and dilutive
securities, such as warrants and options, outstanding during the applicable
period.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and consists primarily of
construction work in progress. Generally, ordinary asset retirements and
disposals are charged against accumulated depreciation with no gain or loss
recognized. Repairs and maintenance costs are expensed as incurred. Once
operations of SprintCom commence, property, plant and equipment will be
depreciated on a straight-line basis over their estimated economic useful
lives.
Investment in PCS Licenses
The PCS group has acquired licenses from the Federal Communications
Commission ("FCC") to operate as a PCS service provider. These licenses are
recorded at cost and will be amortized over a 40 year period commencing with
the initiation of service in a specific geographic area. The FCC grants
licenses for terms of up to ten years, and generally grants renewals if the
licensee has complied with its license obligations. The PCS Group believes it
will be able to secure renewal of the PCS licenses that are held by the
entities comprising the PCS Group.
Income Taxes
The PCS Group records deferred income taxes based on certain temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for tax purposes.
II-28
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The operations of the PCS Group are included in the consolidated federal
income tax return of Sprint. The PCS Group's federal income tax represents the
difference between the Sprint consolidated federal income tax and the FON
Group's federal income tax. The related current tax benefits generated from
the inclusion of the PCS Group operating losses in the Sprint consolidated
federal income tax return have been reflected as contributions from the FON
Group to the PCS Group in the PCS Group combined statements of cash flow. The
PCS Group's state tax is computed using a methodology consistent with that
used to compute federal income tax.
Capitalized Interest
Sprint capitalized interest costs related to its investments in Sprint
Spectrum Holdings and PhillieCo until July 1997, at which time Sprint Spectrum
Holdings and PhillieCo no longer qualified as development-stage companies.
Amounts capitalized totaled $46 million, $96 million, and $43 million at
December 31, 1997, 1996, and 1995, respectively. The capitalized interest on
the investments in Sprint Spectrum Holdings and PhillieCo was contributed to
and is being amortized by the PCS Group.
In addition, Sprint capitalizes interest costs associated with the network
buildout of SprintCom. Interest capitalized for the year ended December 31,
1997 was $24 million. Such interest was also contributed to and will be
amortized by the PCS Group.
3. INVESTMENTS IN SPRINT SPECTRUM HOLDINGS AND PHILLIECO
Sprint has a 40% interest in Sprint Spectrum Holdings and a 47.1% interest
in PhillieCo, respectively. These investments are accounted for using the
equity method. Combined, summarized financial information (100% basis) of
these entities is as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------
1998 1997 1997 1996 1995
------- ------- --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues..... $ 184.2 $ 9.5 $ 258.0 $ 4.2 $ --
======= ======= ========= ======== =======
Operating loss............. $(388.9) $(192.5) $(1,379.7) $ (357.6) $ (66.9)
======= ======= ========= ======== =======
Net loss................... $(514.4) $(217.1) $(1,632.7) $ (444.6) $(112.7)
======= ======= ========= ======== =======
Financial position
Current assets............. $ 417.9 $ 401.8
Noncurrent assets.......... 6,640.0 4,041.8
--------- --------
Total...................... $ 7,057.9 $4,443.6
========= ========
Current liabilities........ $ 834.5 $ 471.2
Noncurrent liabilities..... 4,289.4 1,412.5
Partners' equity........... 1,934.0 2,559.9
--------- --------
Total...................... $ 7,057.9 $4,443.6
========= ========
</TABLE>
II-29
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Current income tax benefit
Federal...................................... $(414.1) $(122.8) $(16.3)
State........................................ (20.6) (14.0) (3.2)
------- ------- ------
Total current.................................. (434.7) (136.8) (19.5)
------- ------- ------
Deferred income tax expense (benefit)
Federal...................................... 187.0 59.4 5.8
State........................................ (11.3) 4.8 2.2
------- ------- ------
Total deferred................................. 175.7 64.2 8.0
------- ------- ------
Total income tax benefit....................... $(259.0) $ (72.6) $(11.5)
======= ======= ======
</TABLE>
The differences that cause the effective income tax rate to vary from the
statutory federal rate of 35% were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Income tax benefit at the statutory rate........ $(237.3) $(67.3) $(11.0)
Effect of
State income taxes, net of federal income tax
effect....................................... (20.7) (6.0) (0.7)
Other, net.................................... (1.0) 0.7 0.2
------- ------ ------
Income tax benefit.............................. $(259.0) $(72.6) $(11.5)
======= ====== ======
Effective income tax rate....................... 38.2% 37.8% 36.6%
======= ====== ======
</TABLE>
The PCS Group recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial
statement purposes and their tax bases and for its share of similar temporary
differences of Sprint Spectrum Holdings and PhillieCo. The sources of the
differences that give rise to the deferred income tax assets and liabilities
at December 31, 1997 and 1996, along with the income tax effect of each, were
as follows:
<TABLE>
<CAPTION>
1997 DEFERRED 1996 DEFERRED
INCOME TAX INCOME TAX
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Property, plant and equipment.......... $ -- $183.0 $ -- $28.5
Capitalized interest................... -- 83.6 -- 55.8
Reserves and allowances................ 8.2 -- 2.2 --
Operating loss carryforwards........... 24.1 -- 8.9 --
Other, net............................. -- 13.6 1.0 --
----- ------ ----- -----
Total.................................. $32.3 $280.2 $12.1 $84.3
===== ====== ===== =====
</TABLE>
Management believes it is more likely than not that the deferred income tax
asset will be realized based on current income tax laws and expectations of
future taxable income stemming from the reversal of the existing
II-30
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
deferred tax liability. Uncertainties surrounding income tax law changes,
shifts in operations between state taxing jurisdictions, and future operating
income levels may, however, affect the ultimate realization of all or some of
this deferred income tax asset.
At December 31, 1997, the PCS Group had recorded tax benefits of $37 million
related to state operating loss carryforwards. The loss carryforwards expire
in varying amounts per year from 2000 through 2012.
5. PCS GROUP EQUITY
Following is a reconciliation of the PCS Group's equity (in millions):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ --------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period..................... $1,385.9 $1,187.6 $1,187.6 $ 965.8 $ 51.1
Net loss.................... (142.7) (53.0) (419.1) (119.7) (19.9)
Contributions from (equity
transfers to) the FON
Group...................... (59.3) 24.4 617.4 341.5 934.6
-------- -------- -------- -------- ------
Balance at end of period.... $1,183.9 $1,159.0 $1,385.9 $1,187.6 $965.8
======== ======== ======== ======== ======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Litigation, Claims and Assessments
The holders of PCS Stock will be stockholders of Sprint and will continue to
be subject to all of the risks associated with an investment in Sprint,
including any legal proceedings and claims affecting the FON Group.
Various suits arising in the ordinary course of business are pending against
Sprint. Management cannot predict the final outcome of these actions but
believes they will not result in a material effect on the PCS Group's Combined
Financial Statements.
Commitments
In the third and fourth quarters of 1997, SprintCom entered into procurement
and services contracts with Motorola and Nortel, respectively, for equipment,
software and certain engineering services. These contracts provide for an
initial term of five years with renewals for additional one-year periods.
Pricing for the initial equipment, software and engineering services has been
established in the procurement contracts. The procurement contracts provide
for payment terms based on delivery dates and various acceptance milestones.
In the event of delay in delivering equipment or services, the procurement
contracts provide for certain amounts to be paid to SprintCom by the vendor.
The minimum commitments for the initial term are approximately $300 million
and $200 million for Motorola and Nortel, respectively, for PCS CDMA 1900 MHz
equipment and software.
Sprint and the Cable Parents have agreed to loan up to $400 million, based
on respective ownership interests, to fund the capital requirements of Sprint
Spectrum Holdings and PhillieCo from the date of the signing of the PCS
Restructuring agreement through the closing date. Sprint has also agreed to
loan up to $110.6 million to fund SprintCom's capital requirements during the
same period. Sprint has been financing SprintCom with cash from operations,
commercial paper borrowings and leases on specific equipment. Sprint intends
to continue to fund the buildout of the SprintCom markets through the closing
of this transaction. The above mentioned loans,
II-31
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
totaling $510.6 million, may be repaid from the proceeds of an anticipated
IPO, as further discussed below, but only to the extent the net proceeds of
the IPO exceed $500 million. In the event the loans remain outstanding after
the IPO, the remaining balance will be converted into 10-year preferred stock
convertible into PCS Stock.
Operating Leases
Minimum rental commitments at December 31, 1997 for all non-cancelable
operating leases, consisting mainly of leases for cell and switch sites and
office space, are as follows (in millions):
<TABLE>
<S> <C>
1998................................................................ $18.9
1999................................................................ 13.3
2000................................................................ 13.4
2001................................................................ 13.4
2002................................................................ 8.0
Thereafter.......................................................... 5.1
</TABLE>
Gross rental expense aggregated $4 million for the year ended December 31,
1997. Certain cell and switch site leases contain renewal options (generally
for terms of five years) that may be exercised from time to time and are
excluded from the above amounts.
7. ADDITIONAL FINANCIAL INFORMATION
Related Party Transactions
Sprint Spectrum L.P. provides general management, engineering, procurement,
accounting and other related services to SprintCom. Sprint Spectrum L.P. is
currently building out the network infrastructure in certain BTA markets where
SprintCom was awarded licenses. For the year ended December 31, 1997, Sprint
Spectrum L.P. provided $29 million in services to SprintCom, the majority of
which are capitalized as property, plant and equipment within the Combined
Balance Sheets of the PCS Group.
Certain members of the FON Group provide management, printing/mailing and
warehousing services to the PCS Group. Charges to the PCS Group for such
services totaled $17 million, $12 million, and $3 million, for the year ended
December 31, 1997, 1996 and 1995, respectively.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This new standard
requires companies to disclose segment data based on how management makes
decisions about allocating resources to segments and how it measures segment
performance. SFAS 131 requires companies to disclose a measure of segment
profit or loss (operating income, for example), segment assets, and
reconciliations to consolidated totals. It also requires entity-wide
disclosures about a company's products and services, its major customers and
the material countries in which it holds assets and reports revenues. Sprint
will adopt SFAS 131 in its December 31, 1998 financial statements. This
statement is not expected to have a significant effect on the PCS Group, as it
only operates within one segment under the new standard.
9. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, SprintCom entered into leveraged lease
arrangements for certain telecommunications equipment. The leveraged leases
are accounted for as capital leases. Lease obligations of $122 million have
been recorded under these arrangements as of April 30, 1998.
II-32
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
SELECTED FINANCIAL DATA
The following table sets forth Selected Financial Data of Sprint Spectrum
Holding Company, MinorCo and PhillieCo should be read in conjunction with the
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the Sprint Spectrum Holding Company with MinorCo and PhillieCo
Combined Financial Statements and Notes thereto. The Selected Financial Data
at December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, have been derived from the Sprint Spectrum Holding
Company with MinorCo and PhillieCo Combined Financial Statements, which have
been audited by Deloitte & Touche LLP, independent auditors. The Selected
Financial Data at December 31, 1995 and at March 31, 1998 and for the three
months ended March 31, 1998 and 1997, have been derived from the unaudited
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo Financial
Statements. The unaudited Sprint Spectrum Holding Company Combined with
MinorCo and PhillieCo Financial Statements have been prepared on the same
basis as the audited Sprint Spectrum Holding Company Combined with MinorCo and
PhillieCo Financial Statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations for
these periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------
1998 1997 1997 1996 1995(1)
-------- ------- --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net operating revenues... $ 184.2 $ 9.5 $ 258.0 $ 4.2 $ --
Operating loss........... (388.9) (192.5) (1,379.7) (357.6) (66.9)
Net loss................. (514.4) (217.1) (1,632.7) (444.6) (112.7)
CASH FLOW DATA
Cash from operating
activities.............. $ (457.3) $(176.3) $ (848.2) $ (172.4) $ (16.9)
Capital expenditures..... (295.5) (367.0) (2,124.6) (1,419.2) (31.8)
Purchase of PCS licenses. -- -- -- -- (2,085.8)
FINANCIAL POSITION
Total assets............. $7,234.2 $ 7,057.9 $4,443.6 $2,329.3
Property, plant and
equipment............... 3,722.5 3,538.2 1,441.6 32.0
Long-term debt and
construction
obligations............. 4,932.8 4,273.8 1,401.2 --
</TABLE>
- --------
(1) Sprint Spectrum Holding Company, MinorCo and PhillieCo had no operations
prior to 1995.
II-33
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
combined financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries, MinorCo, L.P. and subsidiaries, PhillieCo Partners I, L.P. and
subsidiaries and PhillieCo Partners II, L.P. and subsidiaries (collectively,
the "Company" or the "Partnerships") which offer services as Sprint PCS.
Sprint Spectrum Holding Company, L.P. ("Holdings") and MinorCo, L.P.
("MinorCo") are limited partnerships formed by subsidiaries (the "Partners")
of Sprint Corporation ("Sprint"), Tele-Communications, Inc. ("TCI"), Cox
Communications, Inc. ("Cox"), and Comcast Corporation ("Comcast", and together
with Sprint, TCI and Cox, the "Parents"). Holdings is the 99% general partner
of, and is consolidated with, its subsidiaries, including NewTelco, L.P.
("NewTelco"), American PCS, L.P. ("APC") and Sprint Spectrum L.P., which, in
turn, has several subsidiaries. Sprint Spectrum L.P.'s subsidiaries are Sprint
Spectrum Equipment Company, L.P. ("EquipmentCo"), Sprint Spectrum Realty
Company, L.P. ("RealtyCo"), Sprint Spectrum Finance Corporation ("FinCo"), and
WirelessCo. MinorCo holds the minority ownership interests of 1% in NewTelco,
Sprint Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at March 31, 1998,
December 31, 1997 and 1996, and APC at March 31, 1998 and December 31, 1997.
PhillieCo Partners I, L.P. ("PhillieCo I") and PhillieCo Partners II, L.P.
("PhillieCo II") are limited partnerships formed by subsidiaries of Sprint,
TCI and Cox (the "PhillieCo Parents"). PhillieCo I is the 99% general partner
of, and is consolidated with, its subsidiaries, including PhillieCo Sub, L.P.
("PhillieCo Sub") and PhillieCo, L.P. ("PhillieCo"). PhillieCo II holds the
minority ownership interests of 1% in PhillieCo Sub and PhillieCo.
The Company includes certain estimates, projections and other forward-
looking statements in its reports as well as in presentations to analysts and
others and in other material disseminated to the public. There can be no
assurances of future performance and actual results may differ materially from
those in the forward-looking statements. Factors which could cause actual
results to differ materially from estimates or projections contained in
forward-looking statements include:
. the establishment of a market for new digital personal communications
services ("PCS");
. the introduction of competitive service plans and pricing and other
effects of vigorous competition in the markets in which the Company
currently operates or intends to market its services;
. the impact of technological change which may diminish the value of
existing equipment which may, in turn, result in the need to incur
additional costs to upgrade previously sold communications equipment;
. the cost of entering new markets necessary to provide services;
. the impact of any unusual items resulting from ongoing evaluations of
the Company's business strategies;
. the impact of changes brought about by possible restructuring of
partners' ownership interests;
. the effects of unanticipated delays or problems with the development of
technologies and systems used by the Company;
. requirements imposed on the Company and its competitors by the Federal
Communications Commission ("FCC") and state regulatory commissions under
the Telecommunications Act of 1996;
. the possibility of one or more of the markets in which the Company will
compete being impacted by variations in political, economic or other
factors over which the Company has no control;
II-34
<PAGE>
. the effects of unanticipated delays resulting from zoning or other
disputes with municipalities; and
. unexpected results in litigation.
GENERAL
LICENSE AND NETWORK COVERAGE--The Company acquired PCS licenses in the FCC's
A Block and B Block PCS auction, which concluded in March 1995, to provide
service to 30 major trading areas ("MTAs") covering 159.4 million Pops.
Additionally, Cox contributed to the Company, effective February 6, 1997, a
PCS license for the Omaha MTA covering 1.7 million Pops. The Company has also
affiliated with and expects to continue to affiliate with other PCS providers.
Pursuant to affiliation agreements, each affiliated PCS service provider will
use the Sprint(R) and Sprint PCS SM brand names, trademarks of Sprint
Communications Company L.P. ("Sprint Communications").
In 1997 the Company commenced service in all of the MTAs in which it owns a
license and expects to continue to incur additional construction costs as it
expands coverage in existing license areas. Additionally, the Company will
require substantial working capital to fund initial operating activities,
including the up-front customer acquisition costs. The extent to which the
Company is able to generate operating revenue and earnings is dependent on a
number of business factors, including maintaining existing financing,
generating operating revenues, and attaining profitable levels of market
demand for the Company's products and services.
AFFILIATIONS--The following is a detail of affiliates in which the Partners
have an ownership interest and to which Sprint Spectrum L.P. provides
management services.
APC--As of January 1, 1998, Holdings and MinorCo own 99.75% and 0.25%,
respectively, of the partnership interests in APC. APC, through subsidiaries,
owns a PCS license for and operates both a broadband CDMA (code division
multiple access) network and GSM (global system for mobile communications)
network in the Washington D.C./Baltimore MTA, which covers approximately 8.3
million Pops. APC launched CDMA service at the end of the first quarter of
1998. APC has affiliated with Sprint Spectrum L.P. and is marketing its
products and services under the Sprint brand name.
Cox Communications PCS, L.P. ("Cox PCS")--Holdings also owns a 49% limited
partnership interest in Cox PCS, a limited partnership that owns a PCS license
for the Los Angeles-San Diego-Las Vegas MTA covering 21.5 million Pops. Cox,
which previously owned this license, contributed the license to Cox PCS on
March 31, 1997, and is managing partner of Cox PCS. Sprint Spectrum L.P.
signed an affiliation agreement with Cox PCS on December 31, 1996.
On February 3, 1998, Cox Pioneer Partnership ("CPP") notified Holdings that
CPP was exercising its put rights and would transfer 10.2% of the interest in
Cox PCS to Holdings, subject to FCC approval, which will give Holdings
controlling interest. The purchase price, currently estimated at approximately
$80 million, is based on the fair market value of Cox PCS as determined by
independent appraisals. Through December 2008, CPP may put certain remaining
interests in Cox PCS to Holdings.
SprintCom, Inc. ("SprintCom")--SprintCom, a wholly-owned subsidiary of
Sprint, participated in the FCC's D and E Block auction which ended January
14, 1997, and was awarded licenses for 139 of 493 BTAs, covering approximately
70 million Pops, all of which are geographic areas not covered by the
Company's owned PCS licenses or licenses owned by APC or Cox PCS. In
accordance with the Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P. (renamed Sprint Spectrum Holding Company, L.P. ) dated January
31, 1996, SprintCom is required to offer to enter into an affiliation
agreement with Holdings with respect to such BTA licenses pursuant to which
SprintCom's systems in such areas would be included in the Company's national
PCS network, although a final agreement has not yet been reached. In the
interim, Sprint Spectrum L.P. has been providing buildout services in certain
BTA markets where SprintCom was awarded PCS licenses and is being reimbursed
for such services, which include engineering, management, purchasing,
accounting, and other related services. SprintCom intends to market its
products and services as Sprint PCS.
II-35
<PAGE>
ROAMING--The Company has entered into roaming agreements with various analog
cellular providers throughout the United States and Canada. Additionally, the
Company has negotiated roaming arrangements with other CDMA PCS carriers who
provide service in geographic areas not currently covered by the CDMA network
of Sprint Spectrum L.P. and its affiliates. As a result, customers with dual-
mode handsets capable of transmitting over cellular and CDMA PCS frequencies
have the ability to roam automatically in areas where Sprint PCS service is
not available and where there are roaming agreements.
EMERGENCE FROM DEVELOPMENT STAGE AND CONTINUING RISK FACTORS
EMERGENCE FROM DEVELOPMENT STAGE--Prior to the third quarter of 1997, the
Company reported its operations as a development stage enterprise. During the
development stage, the Company incurred expenditures in conjunction with PCS
license acquisitions, initial design and construction of the PCS network,
engineering, marketing, administrative and other start-up expenses. The
Company has now commenced service in all of the MTAs in which it owns a
license and expects to continue to incur additional construction costs as it
expands coverage in existing license areas. Additionally, the Company will
require substantial working capital to fund initial operating activities,
including the up-front customer acquisition costs. The extent to which the
Company is able to generate operating revenue and earnings is dependent on a
number of business factors, including maintaining existing financing,
generating operating revenues and attaining profitable levels of market demand
for the Company's products and services.
DEADLOCK EVENT--The proposed budgets for fiscal year 1998 have not been
approved by the Holdings or PhillieCo I partnership boards, which resulted in
the occurrence of a "Deadlock Event" as of January 1, 1998 under the Holdings
and PhillieCo I Partnership Agreements. Holdings is the sole general partner
of Sprint Spectrum L.P. PhillieCo I is the sole general partner of PhillieCo
Sub. Under the Holdings and PhillieCo I Partnership Agreements, if one of the
Partners refers the budget issue to the chief executive officers of the
Parents for resolution pursuant to specified procedures and the issue remains
unresolved, buy/sell provisions would be triggered which may result in the
purchase by one or more of the Partners of the interest of the other partners,
or, in certain circumstances, the liquidation of Holdings and PhillieCo I and
their subsidiaries. Discussions among the Partners about restructuring their
interests in Holdings and PhillieCo I, in lieu of triggering such buy/sell
procedures, have resulted in the Partners entering into a restructuring
agreement dated May 26, 1998. See "PCS Restructuring" below for a discussion
of the restructuring agreement between the Partners.
BUSINESS PLAN--The Company's business plan will require additional capital
financing prior to the end of 1998. Sources of funding for the Company's
further financing requirements may include additional vendor financing, public
offerings or private placements of equity and/or debt securities, commercial
bank loans and/or capital contributions from the partners. There can be no
assurance that any additional financing can be obtained on a timely basis and
on terms acceptable to the Company and its partners and within limitations
contained in the Notes, the agreements governing the Secured Financing and any
new financing arrangements. Failure to obtain any such financing could result
in the delay or abandonment of the Company's development and expansion plans
and expenditures, the failure to meet regulatory requirements or other
potential adverse consequences.
PCS RESTRUCTURING--Sprint has entered into a restructuring agreement with
TCI, Comcast, and Cox to restructure Sprint's PCS operations (the "PCS
Restructuring") subject to a Sprint stockholder and FCC approvals. If the PCS
Restructuring occurs as planned, Sprint will acquire the joint venture
interests of TCI, Comcast and Cox in Sprint PCS and the joint venture interest
of TCI and Cox in PhillieCo I and II. In exchange for these joint venture
interests, Sprint will issue to TCI, Comcast, and Cox a newly created class of
Sprint common stock (the "PCS Stock"). The PCS Stock will be intended to
reflect separately the performance of these joint ventures and Sprint's other
PCS interests. The operations will be referred to as the PCS Group.
YEAR 2000 ISSUE--The "Year 2000" issue effects the Company's installed
computer systems, network elements, software applications, and other business
systems that have time sensitive programs that may not properly reflect or
recognize the year 2000. Because many computers and computer applications
define dates by
II-36
<PAGE>
the last two digits of the year, "00" may not be properly identified as the
year 2000. This error could result in miscalculations or system errors. The
Year 2000 issue may also affect the systems and applications of the Company's
customers, vendors or resellers.
The Company is undertaking an evaluation of its critical systems and is
planning for the remediation and testing to be completed by mid-year 1999. The
Company is also contacting others with whom they conduct business to receive
the appropriate warranties and assurances that those third parties are or will
be Year 2000 compliant. The total cost of modifications and conversions is not
known at this time; however, it is not expected to be material to the
Company's financial position and is being expensed as incurred. In addition,
the Company uses publicly available services that are acquired without
contract (e.g., global positioning system timing signal) that may be subject
to the Year 2000 issue. While the Company believes these systems will be Year
2000 compliant, the Company has no contractual or other right to compel
compliance.
If compliance is not achieved in a timely manner, the Year 2000 issue could
have a material effect on the Company's operations. However, the Company is
focusing on identifying and addressing all aspects of its operations that may
be affected by the Year 2000 issue and is addressing the most critical
applications first. As a result, Company management does not believe its
operations will be materially adversely affected.
ASIAN SITUATION--The Asian situation addresses the impact that the financial
upheaval in certain Asian countries may have on the Company's operations. The
Company has made a preliminary assessment of the impact and has determined
that there is not a direct effect on its ability to obtain handsets and other
network equipment in sufficient quantities to meet customer needs. However,
the Company is aware that certain manufacturers of component parts used in the
handsets and other network equipment may be adversely affected by the
financial situation in Asia, although the Company is unable to assess the
likelihood of such adverse effect. If such component manufacturers are unable
to produce the necessary components, such disruption in supply could have a
material adverse impact on the operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The continued expansion of the Company's PCS network and the marketing and
distribution of the Company's PCS products and services will continue to
require substantial capital. Actual amounts of the funds required may vary in
the event of, unforeseen delays, cost overruns, unanticipated expenses,
regulatory changes, engineering design changes and other technological risks.
The Company currently has limited sources of revenue to meet its capital
requirements and has relied upon capital contributions, third party debt and
public debt. The Holdings Partnership Agreement provides for planned aggregate
equity capital contributions of approximately $4.2 billion by the Partners
("Total Mandatory Contributions"). Total Mandatory Contributions include
agreed upon values attributable to the contributions of certain additional PCS
licenses by a Partner. The Total Mandatory Contributions amount is required to
be contributed in accordance with capital contribution schedules to be set
forth in approved annual budgets. The partnership board of Holdings may
request capital contributions to be made in the absence of an approved budget
or more quickly than provided for in an approved budget, but always subject to
the Total Mandatory Contributions limit. Throughout 1997, the Partners
continued to make such capital contributions by mutual agreement in the
absence of an approved budget for 1997. However, the Partners have no such
obligation in the absence of an approved budget, and there can be no assurance
the Partners will reach such an agreement or approve the 1998 proposed budget.
As of March 31, 1998, the Partners have fulfilled their capital contribution
commitments under the Holdings Partnership Agreement. Amounts budgeted by the
Partners in future years will determine the extent to which the remaining
commitments will be available to the Company.
In October 1996 and as amended in December 1997, Sprint Spectrum L.P.
entered into a credit agreement with The Chase Manhattan Bank, as
administrative agent for a group of lenders, for a $2.0 billion senior secured
credit facility (the "Bank Facility"). The proceeds of the Bank Facility are
to be used to finance working capital
II-37
<PAGE>
needs, subscriber acquisition costs, capital expenditures and other general
purposes of Sprint Spectrum L.P. The Bank Facility consists of a $300 million
term loan commitment and a revolving credit commitment of $1.7 billion. As of
March 31, 1998 and December 31, 1997, $300 million had been borrowed under the
term loan. As of March 31, 1998 and December 31, 1997, $985.0 million and
$605.0 million had been borrowed under the revolving credit facility,
respectively, with $715 million and $1.1 billion remaining available,
respectively. There were no borrowings under the revolving credit commitment
at December 31, 1996.
Also in October 1996, Sprint Spectrum L.P. entered into credit agreements
for up to an aggregate of $3.1 billion of senior secured multiple drawdown
term loan facilities from two of its network infrastructure equipment vendors.
As amended in April and December 1997, the Nortel facility provides $1.3
billion in senior secured loans. The Lucent facility, as amended in May and
November 1997, provides $1.8 billion in senior secured loans (together the
"Vendor Financing" and together with the Bank Facility, the "Secured
Financing"). The Company is using the proceeds from the Vendor Financing to
fund the purchase of the equipment and software manufactured by the vendors as
well as a substantial part of the construction and ancillary equipment (e.g.,
towers, antennae, cable) required to construct the Company's PCS network.
These facilities serve as the primary financing mechanism for the buildout of
the network. The Company has borrowed $2.1 billion and $1.6 billion under such
facilities at March 31, 1998 and December 31, 1997, respectively, of which
$300 million was syndicated to Sprint.
The Bank Credit Facility agreement and the Vendor Financing agreements
contain certain restrictive financial and operating covenants, including,
among other requirements, maximum debt ratios (including debt to total
capitalization), limitations on capital expenditures, limitations on
additional indebtedness and limitations on dividends and other payment
restrictions affecting certain restricted subsidiaries. The loss of the right
to use the Sprint trademark, the termination or non-renewal of any FCC license
that reduces population coverage below specified limits, or changes in
controlling interest in the Company, as defined, among other provisions,
constitute events of default.
Borrowings under the Secured Financing are secured by Sprint Spectrum L.P.'s
interest in WirelessCo, RealtyCo and EquipmentCo and certain other personal
and real property (the "Shared Lien"). The Shared Lien equally and ratably
secures the Bank Facility and the Vendor Financing. The Secured Financing is
jointly and severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and
is non-recourse to the Partners.
In August 1996, Sprint Spectrum L.P. and FinCo issued $250 million aggregate
principal amount of the 11% Senior Notes and $500 million aggregate principal
amount at maturity of 12 1/2% Senior Discount Notes (together, the "Notes").
The Senior Discount Notes were issued at a discount to their aggregate
principal amount at maturity and generated proceeds of approximately $273
million. Cash interest on the Senior Notes will accrue at a rate of 11% per
annum and is payable semi-annually in arrears on each February 15 and August
15, commencing February 15, 1997. Cash interest will not accrue or be payable
on the Senior Discount Notes prior to August 15, 2001. Thereafter, cash
interest on the Senior Discount Notes will accrue at a rate of 12 1/2% per
annum and will be payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 2002. FinCo was formed solely to be a co-
obligor of the Notes. FinCo has only nominal assets and no operations or
revenues, and Sprint Spectrum L.P. will be responsible for payment of the
Notes. On August 15, 2001, Sprint Spectrum L.P. will be required to redeem an
amount equal to $384.772 per $1,000 principal amount at maturity of each
Senior Discount Note then outstanding ($192 million in aggregate principal
amount at maturity, assuming all of the Senior Discount Notes remain
outstanding at such date). The proceeds of approximately $509 million from the
issuance of the Notes (net of approximately $14 million of underwriting
discounts, commissions, and offering expenses) were used to fund capital
expenditures, including the buildout of the nationwide PCS network, to fund
working capital requirements, to fund operating losses and for other
partnership purposes. Sprint purchased, and continues to hold, approximately
$183 million principal amount at maturity of the Senior Discount Notes. The
Notes contain certain restrictive covenants, including, among other
requirements limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting restricted subsidiaries.
II-38
<PAGE>
The Company is obligated to the FCC for $102 million for the receipt of the
commercial PCS license covering the Washington D.C./Baltimore MTA. In March
1996, the FCC determined that interest on the amount due would begin to accrue
on March 8, 1996, at an interest rate of 7.75%. Beginning with the first
payment due in April 1996, the FCC granted two years of interest-only payments
followed by three years of principal and interest payments.
In February 1997 and as amended in January 1998, American PCS
Communications, LLC entered into credit facilities of $420 million, consisting
of a term loan facility of $220 million and a reducing revolving credit
facility of $200 million (together, the "APC Credit Agreement"). As of March
31, 1998 and December 31, 1997, $220 million had been borrowed under the term
loan. As of March 31, 1998 and December 31, 1997, $152.4 million and $141.4
million had been borrowed under the revolving credit facility, respectively,
with $47.6 million and $58.6 million remaining available, respectively. The
APC Credit Agreement is secured by first priority liens on all the equity
interests held by American PCS Communications LLC in its direct subsidiaries,
including the equity interests of the subsidiaries which will hold APC's PCS
license and certain real property interests and equipment and a first priority
security interest in, and mortgages on, substantially all other intangible and
tangible assets of APC and subsidiaries. The APC Credit Agreement matures
February 7, 2005, with an interest rate of LIBOR plus 2.25%.
The APC Credit Agreement, as amended, contains covenants which require APC
to maintain certain levels of wireless subscribers, as well as other financial
and non-financial requirements. The covenants require American PCS
Communications, LLC to enter into interest rate contracts on a quarterly basis
to protect and limit the interest rate on 40% of its aggregate debt
outstanding.
Both the FCC debt and the APC Credit Agreement relate specifically to the
Washington D.C./Baltimore MTA, however, these agreements should be considered
on a combined basis consistent with other Company obligations.
At December 31, 1997, the partners of PhillieCo I had advanced $45 million
to PhillieCo I, for general operating purposes. The advances accrue interest
at prime and mature in May 1998. Subsequent to December 31, 1997 and through
March 31 1998, Sprint advanced an additional $90 million to PhillieCo I. These
advances accrue interest at rates from prime to prime plus 1 5/8% and also
mature in May 1998.
The Company's business plan will require additional capital financing prior
to the end of 1998. Sources of funding for the Company's further financing
requirements may include additional vendor financing, public offerings or
private placements of equity and/or debt securities, commercial bank loans
and/or capital contributions from the Partners. There can be no assurance that
any additional financing can be obtained on a timely basis and on terms
acceptable to the Company and its Partners and within limitations contained in
the Notes, the agreements governing the Secured Financing and any new
financing arrangements. Failure to obtain any such financing could result in
the delay or abandonment of the Company's development and expansion plans and
expenditures, the failure to meet regulatory requirements or other potential
adverse consequences. See Note 10 to the Combined Financial Statements
included herein for a discussion of the PCS Restructuring and its potential
impact on future sources of liquidity.
For the year ended December 31, 1995, the Company used cash of $16.9 million
in operating activities, which consisted of the operating loss of $112.7
million offset by the equity in loss of unconsolidated partnership of $46.2
million and a net change in working capital of $47.8 million. Cash used in
investing activities totaled $2.3 billion, consisting mainly of the purchase
of PCS licenses.
For the year ended December 31, 1996, the Company used cash of $172.4
million in operating activities, which consisted of the operating loss of
$444.6 million offset by the equity in loss of unconsolidated partnership of
$96.9 million and a net change in working capital of $140.5 million. Cash used
in investing activities totaled $2.0 billion, consisting mainly of capital
expenditures and microwave relocation costs of $1.6 billion and advances to
APC, prior to acquisition, of $232.0 million.
II-39
<PAGE>
For the year ended December 31, 1997, the Company used cash of $848.2
million in operating activities, which consisted of the operating loss of $1.6
billion offset by equity in loss of unconsolidated partnership of $168.9
million, depreciation and amortization of $365.9 million and a net change in
working capital of $217.4 million. As discussed above, the Company has
required (and expects to continue to require) significant working capital to
fund the operations supporting the network buildout and service launch. Cash
used in investing activities totaled $2.3 billion, consisting mainly of
capital expenditures and microwave relocation costs, also discussed above.
Cash flow from financing activities totaled $3.2 billion during 1997, and
included partner capital contributions of $1.0 billion, net proceeds from term
loans and vendor financing of $1.8 billion, and net borrowings under a
revolving credit facility of $605 million after deduction of long-term debt
issuance costs. The Company's available financing sources are described more
fully above.
For the three months ended March 31, 1998, the Company used cash of
approximately $457.3 million in operating activities, which consisted of the
operating loss of $514.4 million less depreciation and amortization of $141.8
million and a net change in working capital of $136.1 million. Cash used in
investing activities totaled $355.2 million for the three months ended March
31, 1998, consisting of capital expenditures, the completion of the purchase
of APC (net of cash acquired), the investment in unconsolidated partnerships
and microwave relocation costs. Cash flow from financing activities totaled
$822.9 million for the three months ended March 31, 1998, and included net
proceeds from vendor financing of $479.0 million and net borrowings under a
revolving credit facility of $391.0 million. The Company's available financing
sources are more fully described above. See Note 10 to the Combined Financial
Statements incurred herein for a discussion of the PCS Restructuring and its
potential impact on future sources of liquidity.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
The Company incurred a loss of $112.7 million for the year ended December
31, 1995, which included equity in APC loss of $46.2 million. There was no
amortization of licenses during the period as PCS service had not been
launched commercially.
FOR THE YEAR ENDED DECEMBER 31, 1996
The Company incurred a loss of $444.6 million for the year ended December
31, 1996, which included equity in APC loss of $96.9 million. Certain network
equipment had been placed in service and amortization of PCS licenses and
microwave relocation costs in the launched markets commenced.
The Company commenced initial commercial operations for its PCS services
late in the fourth quarter of 1996 and, as a result, had generated minimal
operating revenues. Cost of revenues consisted principally of switch and cell
site expenses, including site rental, utilities and access charges. Such costs
were incurred prior to service launch during the network buildout and testing
phases.
Selling, general and administrative expenses increased from $66.7 million
for the year ended December 31, 1995 to $313.6 million for the year ended
December 31, 1996. Selling expenses increased $36.9 million in 1996 due to
costs incurred in preparation of and during the initial commercial service
launch. Such costs included participation with Sprint in the NFL sponsorship,
development and production expenses associated with advertisements in various
media (i.e., television, radio, print), and the development of printed
brochures to promote the Company's products and services.
General and administrative expenses increased from $66.7 million for the
year ended December 31, 1995 to $276.7 million for the year ended December 31,
1996 due principally to increases in salary and related benefits, leased
computer equipment and related expenses and professional and consulting fees.
Salaries and benefits and leased computer equipment and related expenses
increased due to an increase in employee headcount. Professional and
consulting fees increased due to the use of consultants and other experts to
assist with the development of the Company's sophisticated information systems
(including systems to handle customer care, billing, network management and
financial and administrative services), development and rollout of training
programs for the Company's sales force, and various other projects associated
with the development of the corporate infrastructure.
II-40
<PAGE>
Depreciation and amortization expense increased from $0.2 million for the
year ended December 31, 1995 to $11.3 million for the year ended December 31,
1996 as certain network equipment had been placed in service and amortization
of PCS licenses and microwave relocation costs in the launched markets
commenced.
FOR THE YEAR ENDED DECEMBER 31, 1997
Operating Revenues/Margin
The Company emerged from the development stage in the third quarter of 1997.
The majority of the revenue was generated in the third and fourth quarters and
includes both service revenues and the sales of handsets and accessory
equipment through multiple distribution channels (including Sprint PCS retail
stores, telemarketing, and business channels) and to third party vendors. Cost
of revenues consists principally of handset and accessory costs,
interconnection costs and switch and cell site expenses, including maintenance
site rental and utilities.
Average monthly revenue per subscriber for 1997 was approximately $64,
excluding APC and Cox PCS. This average is expected to decline in the future
(consistent with industry projections) due to increased competition resulting
from additional wireless service providers entering the market.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for the year were
$747.1 million compared to $313.6 million for 1996. Selling expenses increased
$176.2 million due to costs incurred during the initial commercial service
launch in various markets and to costs incurred in conjunction with local and
national advertising for existing markets. Such costs include participation
with Sprint in an NFL sponsorship, development and production expenses
associated with advertisements in various media (i.e., television, radio,
print), and the development of printed brochures to promote the Company's
products and services. The Company expects selling expenses will continue to
increase in 1998 as the Company expands its sales and marketing activities.
General and administrative expenses increased $257.3 million due principally
to increases in salary and related benefits, computer equipment and related
expenses and professional and consulting fees. Salaries and benefits, computer
equipment and related expenses increased due to an increase in employee
headcount. These additional employees were added during 1997 to support the
continued growth of the Company. Professional and consulting fees increased
due to the use of consultants and other experts to assist with the continuing
development and enhancement of the Company's sophisticated information
systems, continued rollout and tailoring of employee training, and various
other projects.
Depreciation and Amortization
Depreciation and amortization expense for 1997 was $316.3 million compared
to $11.3 million for 1996. This increase occurred as network equipment in
launched markets has been placed in service and amortization of PCS licenses
and microwave relocation costs in those same markets commenced.
Other Income/Expense
Interest income increased from $8.6 million for the year ended December 31,
1996 to $27.8 million for the year ended December 31, 1997 as the average
daily invested cash balance increased during the comparative periods due to
the receipt in the prior year of partner equity contributions in advance of
capital and operational requirements. Additionally, Holdings received $15.8
million of interest in conjunction with APC's repayment of advances from
Holdings.
Interest expense increased to $123.5 million for the year ended December 31,
1997, compared to $0.3 million for 1996. The balance of the Company's
construction accounts eligible for interest capitalization declined
II-41
<PAGE>
during the year as markets launched commercial service and equipment was
placed in service. Additionally, interest expense continues to increase as
borrowings increase.
Sprint Spectrum L.P. participates in an affiliation agreement with Cox PCS.
Fees earned under this agreement of $1.1 million for the year ended December
31, 1997 and are included in other income. No fees were earned in 1996.
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Operating Revenues/Margin
Revenues and cost of revenues have increased for the first quarter of 1998
compared to the first quarter of 1997 due to increases in the number of
markets launched and in the number of subscribers. Revenues include service
and the sales of handsets and accessory equipment through multiple
distribution channels (including Sprint PCS retail stores, telemarketing, and
business channels) and to third party vendors. Cost of revenues consists
principally of handset and accessory costs, interconnection costs and switch
and cell site expenses, including site rental and utilities.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for the first
quarter of 1998 were $252.4 million compared to $118.9 million for the first
quarter of 1997. For the three months ended March 31, 1998, selling expenses
increased $49.2 million over the same period in 1997 due to costs incurred in
conjunction with local and national advertising for existing markets. Such
costs include participation with Sprint in an NFL sponsorship, development and
production expenses associated with advertisements in various media (i.e.,
television, radio, print), the development of printed brochures to promote the
Company's products and services, and sales incentive programs. The Company
expects selling expenses will continue to increase as the Company expands its
sales and marketing activities.
General and administrative expenses for the first quarter of 1998 increased
$84.3 million compared to the first quarter of 1997 due principally to
increases in salary and related benefits, computer equipment and related
expenses and professional and consulting fees. Salaries and benefits, computer
equipment and related expenses increased due to an increase in employee
headcount. These additional employees have been added over the last year to
support the continued growth of the Company. Professional and consulting fees
increased due to the use of consultants and other experts to assist with the
continuing development and enhancement of the Company's information systems,
continued rollout and tailoring of employee training, and various other
projects.
Depreciation and Amortization
Depreciation and amortization expense for the first quarter of 1998 was
$128.7 million compared to $34.4 million for the same period in the prior year
as network equipment in launched markets has been placed in service and
amortization of PCS licenses and microwave relocation costs in those same
markets commenced.
Other Income/Expense:
Interest expense increased to $93.8 million for the three months ended March
31, 1998, compared to $1.6 million for the same period in 1997. The balance of
the Company's construction accounts eligible for interest capitalization
declined during the period as markets launched commercial service and
equipment was placed in service. Additionally, interest expense continues to
increase as borrowings increase.
Sprint Spectrum L.P. participates in an affiliation agreement with Cox PCS.
Aggregate fees of $0.7 million earned under this agreement for the three
months ended March 31, 1998 are shown in other income.
II-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P., MinorCo, L.P., PhillieCo
Partners I, L.P. and PhillieCo
Partners II, L.P.
Kansas City, Missouri
We have audited the accompanying combined balance sheets of Sprint Spectrum
Holding Company, L.P. and subsidiaries, MinorCo, L.P. and subsidiaries,
PhillieCo Partners I, L.P. and subsidiaries, and PhillieCo Partners II, L.P.
and subsidiaries (the "Partnerships") as of December 31, 1997 and 1996, and
the related combined statements of operations, changes in partners' capital,
and cash flows for the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Partnerships at December 31,
1997 and 1996, and the results of their operations and their cash flows for
the three years then ended, in conformity with generally accepted accounting
principles.
The Partnerships were in the development stage at December 31, 1996; during
the year ended December 31, 1997, the Partnerships completed their development
activities and commenced their planned principal operations.
Deloitte & Touche LLP
Kansas City, Missouri
May 26, 1998
II-43
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 135,262 $ 124,886 $ 71,098
Accounts receivable, net................ 105,044 116,415 3,315
Receivable from affiliates.............. 35,774 43,006 13,375
Inventory............................... 90,986 103,894 72,414
Prepaid expenses and other assets, net.. 41,663 29,648 14,951
Note receivable--unconsolidated partner-
ship................................... -- -- 226,670
----------- ----------- ----------
Total current assets................... 408,729 417,849 401,823
INVESTMENT IN PCS LICENSES, net.......... 2,452,794 2,386,799 2,207,903
INVESTMENTS IN UNCONSOLIDATED PARTNER-
SHIP(S)................................. 258,205 273,541 179,086
PROPERTY, PLANT AND EQUIPMENT, net....... 3,722,507 3,538,238 1,441,627
MICROWAVE RELOCATION COSTS, net.......... 281,265 271,612 135,802
MINORITY INTEREST........................ -- 56,667 --
OTHER ASSETS, net........................ 110,739 113,153 77,403
----------- ----------- ----------
TOTAL ASSETS............................. $ 7,234,239 $ 7,057,859 $4,443,644
=========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners.................. $ 135,000 $ 45,000 $ 167,819
Accounts payable........................ 245,547 446,263 214,205
Payable to affiliate.................... 2,187 11,933 5,626
Accrued interest........................ 71,851 59,605 34,057
Accrued expenses........................ 280,244 237,123 49,482
Current maturities of long-term debt.... 34,718 34,562 49
----------- ----------- ----------
Total current liabilities.............. 769,547 834,486 471,238
CONSTRUCTION OBLIGATIONS................. 486,238 705,280 714,934
LONG-TERM DEBT........................... 4,411,855 3,533,954 686,192
OTHER NONCURRENT LIABILITIES............. 63,206 50,103 11,356
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL AND ACCUMULATED DEFI-
CIT:
Partners' capital....................... 4,211,025 4,127,244 3,120,479
Accumulated deficit..................... (2,707,632) (2,193,208) (560,555)
----------- ----------- ----------
Total partners' capital................ 1,503,393 1,934,036 2,559,924
----------- ----------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL.. $ 7,234,239 $ 7,057,859 $4,443,644
=========== =========== ==========
</TABLE>
See notes to combined financial statements.
II-44
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- ---------------------------------
1998 1997 1997 1996 1995
--------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 184,213 $ 9,487 $ 258,029 $ 4,175 $ --
OPERATING EXPENSES:
Cost of revenues........ 192,084 48,658 574,343 36,824 --
Selling, general and ad-
ministrative........... 252,354 118,925 747,084 313,629 66,719
Depreciation and amorti-
zation................. 128,721 34,428 316,276 11,297 211
--------- --------- ----------- --------- ---------
Total operating ex-
penses.............. 573,159 202,011 1,637,703 361,750 66,930
--------- --------- ----------- --------- ---------
LOSS FROM OPERATIONS.... (388,946) (192,524) (1,379,674) (357,575) (66,930)
OTHER INCOME (EXPENSE):
Interest income........ 5,353 17,593 27,817 8,593 476
Interest expense....... (93,775) (1,590) (123,490) (323) --
Other income........... 1,317 1,124 5,108 1,586 (19)
Equity in loss of
unconsolidated
partnerships.......... (38,373) (41,672) (168,935) (96,850) (46,206)
--------- --------- ----------- --------- ---------
Total other expense.. (125,478) (24,545) (259,500) (86,994) (45,749)
--------- --------- ----------- --------- ---------
NET LOSS BEFORE MINORITY
INTEREST............... (514,424) (217,069) (1,639,174) (444,569) (112,679)
MINORITY INTEREST....... -- -- 6,521 -- --
--------- --------- ----------- --------- ---------
NET LOSS................ $(514,424) $(217,069) $(1,632,653) $(444,569) $(112,679)
========= ========= =========== ========= =========
</TABLE>
See notes to combined financial statements.
II-45
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at beginning of
period................. $4,127,244 $3,120,479 $3,120,479 $2,391,801 $ 128,795
Contributions of capi-
tal.................... 83,781 51,229 1,018,500 728,678 2,263,006
Return of capital....... -- (11,735) (11,735) -- --
---------- ---------- ---------- ---------- ----------
Balance at end of peri-
od..................... 4,211,025 3,159,973 4,127,244 3,120,479 2,391,801
ACCUMULATED DEFICIT:
Balance at beginning of
period................. (2,193,208) (560,555) (560,555) (115,986) (3,307)
Net loss................ (514,424) (217,069) (1,632,653) (444,569) (112,679)
---------- ---------- ---------- ---------- ----------
Balance at end of peri-
od..................... (2,707,632) (777,624) (2,193,208) (560,555) (115,986)
---------- ---------- ---------- ---------- ----------
TOTAL PARTNERS' CAPITAL. $1,503,393 $2,382,349 $1,934,036 $2,559,924 $2,275,815
========== ========== ========== ========== ==========
</TABLE>
See notes to combined financial statements.
II-46
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -----------------------------------
1998 1997 1997 1996 1995
--------- --------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net loss............... $(514,424) $(217,069) $(1,632,653) $ (444,569) $ (112,679)
Adjustments to recon-
cile net loss to net
cash provided by
(used in) operating
activities:
Equity in loss of un-
consolidated partner-
ship.................. 38,373 41,672 168,935 96,850 46,206
Minority interest...... -- -- (6,521) -- --
Depreciation and amor-
tization.............. 128,401 34,428 316,854 11,278 242
Amortization of debt
discount and issuance
costs................. 13,423 10,959 49,061 14,008 --
Changes in assets and
liabilities, net of
effects of
acquisition of APC:
Receivables.......... 15,279 2,596 (132,026) (16,350) (147)
Inventory............ 12,909 (57,212) (27,398) (72,413) --
Prepaid expenses and
other assets........ (9,220) (1,933) (12,965) (22,513) (178)
Accounts payable and
accrued expenses.... (155,096) 5,828 389,740 251,791 47,836
Other noncurrent lia-
bilities............ 13,103 4,430 38,747 9,500 1,856
--------- --------- ----------- ---------- ----------
Net cash used in op-
erating activities. (457,252) (176,301) (848,226) (172,418) (16,864)
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Capital expenditures... (295,525) (366,965) (2,124,556) (1,419,216) (31,806)
Microwave relocation
costs, net............ (7,871) (49,437) (123,816) (135,828) --
Purchase of PCS li-
censes................ -- -- -- -- (2,085,794)
Purchase of APC, net of
cash acquired......... (28,815) -- (6,764) -- --
Investment in unconsol-
idated partnerships... (23,037) (3,961) (191,171) (190,390) (131,752)
Loan to unconsolidated
partnership........... -- (28,150) (111,468) (231,964) (655)
Payment received on
loan to unconsolidated
partnership........... -- 246,670 246,670 5,949 --
--------- --------- ----------- ---------- ----------
Net cash used in in-
vesting activities. (355,248) (201,843) (2,311,105) (1,971,449) (2,250,007)
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Advances from partners. 90,000 -- 45,000 167,819 --
Net borrowing under re-
volving credit agree-
ment.................. 391,000 200,000 605,000 -- --
Proceeds from issuance
of long-term debt..... 478,978 429,214 1,763,045 674,200 --
Change in construction
obligations........... (219,042) -- (9,654) 714,934 --
Payments on long-term
debt.................. (1,841) (167,830) (170,809) (24) --
Debt issuance costs.... -- (20,000) (20,000) (71,791) --
Partner capital contri-
butions............... 83,781 45,000 1,012,272 728,678 2,263,006
Return of capital...... -- (11,735) (11,735) -- --
--------- --------- ----------- ---------- ----------
Net cash provided by
financing activi-
ties............... 822,876 474,649 3,213,119 2,213,816 2,263,006
--------- --------- ----------- ---------- ----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVA-
LENTS.................. 10,376 96,505 53,788 69,949 (3,865)
CASH AND CASH EQUIVA-
LENTS, beginning of pe-
riod................... 124,886 71,098 71,098 1,149 5,014
--------- --------- ----------- ---------- ----------
CASH AND CASH EQUIVA-
LENTS, end of period... $ 135,262 $ 167,603 $ 124,886 $ 71,098 $ 1,149
========= ========= =========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
. Interest paid, net
of amount capital-
ized................ $ 45,873 $ 25 $ 35,629 $ 323 $ --
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
. Accrued interest of
$32,000 and $51,673
related to vendor
financing was con-
verted to long-term
debt during the
three months ended
March 31, 1998 and
the year ended De-
cember 31, 1997, re-
spectively.
. A PCS license cover-
ing the Omaha MTA
and valued at $6,229
was contributed to
the Company by Cox
Communications dur-
ing the three months
ended March 31, 1997
and the year ended
December 31, 1997.
</TABLE>
See notes to combined financial statements.
II-47
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
The accompanying combined financial statements present a combination of the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries, MinorCo, L.P. and subsidiaries, PhillieCo Partners I, L.P. and
subsidiaries and PhillieCo Partners II, L.P. and subsidiaries (collectively,
the "Company" or the "Partnerships") which offer services as Sprint PCS.
The unaudited interim financial information presented has been prepared
according to generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for interim reporting.
In management's opinion, the information presented reflects all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
interim financial position, results of operations and cash flows of the
Company.
SPRINT SPECTRUM HOLDING COMPANY, L.P.--Sprint Spectrum Holding Company, L.P.
("Holdings") is a limited partnership formed in Delaware on March 28, 1995, by
Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Cox Telephony
Partnership and Comcast Telephony Services (together the "Partners"). Holdings
was formed pursuant to a reorganization of the operations of an existing
partnership, WirelessCo, L.P. ("WirelessCo") which transferred certain
operating functions to Holdings. The Partners are subsidiaries of Sprint
Corporation ("Sprint"), Tele-Communications, Inc. ("TCI"), Cox Communications,
Inc. ("Cox"), and Comcast Corporation ("Comcast", and together with Sprint,
TCI and Cox, the "Parents"), respectively.
The Partners of Holdings and MinorCo, L.P. have the following ownership
interests as of December 31, 1997, and 1996 and March 31, 1998 and 1997:
<TABLE>
<S> <C>
Sprint Enterprises, L.P.............................................. 40%
TCI Spectrum Holdings, Inc........................................... 30%
Cox Telephony Partnership............................................ 15%
Comcast Telephony Services........................................... 15%
</TABLE>
Each Partner's ownership interest consists of a 99% general partner interest
and a 1% limited partnership interest.
Holdings is the 99% general partner of, and is consolidated with, its
subsidiaries, including NewTelco, L.P. ("NewTelco") and Sprint Spectrum L.P.,
which, in turn, has several subsidiaries. Sprint Spectrum L.P.'s subsidiaries
are Sprint Spectrum Equipment Company, L.P. ("EquipmentCo"), Sprint Spectrum
Realty Company, L.P. ("RealtyCo"), Sprint Spectrum Finance Corporation
("FinCo"), and WirelessCo. RealtyCo and EquipmentCo were organized on May 15,
1996 for the purpose of holding personal communications service ("PCS")
network-related real estate interests and assets. FinCo was formed on May 20,
1996 to be a co-obligor of the debt obligations discussed in Note 5.
Additionally, the results of American PCS, L.P. ("APC") are consolidated from
November 1997, the date the Federal Communications Commission ("FCC") approved
Holdings as the new managing partner (Note 4). APC, through subsidiaries, owns
a PCS license for and operates a broadband GSM (global system for mobile
communications) in the Washington D.C./Baltimore Major Trading Area ("MTA"),
and has launched a code division multiple access ("CDMA") overlay for its
existing GSM PCS system. APC includes American PCS Communications, LLC, APC
PCS, LLC, APC Realty and Equipment Company, LLC and American Personal
Communications Holdings, Inc.
MINORCO, L.P. ("MINORCO")--MinorCo holds the minority ownership interests of
1% in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at
March 31, 1998, December 31, 1997 and 1996, and APC at March 31, 1998 and
December 31, 1997.
II-48
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PHILLIECO PARTNERS--The consolidated financial statements of PhillieCo
Partners I, L.P. ("PhillieCo I") and subsidiaries, included in these combined
financial statements, include the accounts of PhillieCo I and its consolidated
subsidiaries, including PhillieCo Sub, L.P. ("PhillieCo Sub") and PhillieCo,
L.P ("PhillieCo").
The consolidated financial statements of PhillieCo Partners II, L.P.
("PhillieCo II") and subsidiaries, included in these combined financial
statements, include the accounts of PhillieCo II and its minority investment
interests in PhillieCo Sub, L.P. and PhillieCo, L.P.
PhillieCo Sub was formed by PhillieCo I and PhillieCo II, both of which were
formed by Sprint Enterprises, L.P., TCI Philadelphia Holdings, Inc. and Cox
Communications Wireless, Inc. (together the "PhillieCo Partners"). PhillieCo
Sub was formed pursuant to a reorganization under which the PhillieCo Partners
transferred their ownership interests in PhillieCo, which was formed in
Delaware on October 24, 1994, to PhillieCo I and PhillieCo II. The PhillieCo
Partners are subsidiaries of Sprint, TCI and Cox, respectively.
The PhillieCo Partners have the following ownership interest as of December
31, 1997 and 1996 and March 31, 1998 and 1997:
<TABLE>
<S> <C>
Sprint Enterprises, L.P............................................ 47.1%
TCI Philadelphia Holdings, Inc..................................... 35.3%
Cox Communications Wireless, Inc................................... 17.6%
</TABLE>
Each PhillieCo partner's ownership interest consists of a 99% general
partner interest and a 1% limited partnership interest.
VENTURE FORMATION AND AFFILIATED PARTNERSHIPS--A Joint Venture Formation
Agreement (the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by the Parents, pursuant to which the Parents agreed to form certain
entities to (i) provide national wireless telecommunications services,
including acquisition and development of PCS licenses, (ii) develop a PCS
wireless system in the Los Angeles-San Diego-Las Vegas MTA, and (iii) take
certain other actions.
On October 24, 1994, WirelessCo was formed and on March 28, 1995, additional
partnerships were formed consisting of Holdings, MinorCo, NewTelco, and Sprint
Spectrum L.P. The Partners' ownership interests in WirelessCo were initially
held directly by the Partners as of October 24, 1994, the formation date of
WirelessCo, but were subsequently contributed to Holdings and then to Sprint
Spectrum L.P. on March 28, 1995.
SPRINT SPECTRUM HOLDING COMPANY, L.P. PARTNERSHIP AGREEMENT--The Amended and
Restated Agreement of Limited Partnership of MajorCo, L.P. (the "Holdings
Agreement"), dated as of January 31, 1996, among Sprint Enterprises, L.P., TCI
Spectrum Holdings, Inc., Comcast Telephony Services and Cox Telephony
Partnership provides that the purpose of Holdings is to engage in wireless
communications services.
The Holdings Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
The Holdings Agreement provides for planned capital contributions by the
Partners ("Total Mandatory Contributions") of $4.2 billion, which includes
agreed upon values attributable to the contributions of certain additional PCS
licenses by a Partner. The Total Mandatory Contributions amount is required to
be contributed in accordance with capital contribution schedules to be set
forth in approved annual budgets. The partnership board of Holdings may
request capital contributions to be made in the absence of an approved budget
or more quickly
II-49
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
than provided for in an approved budget, but always subject to the Total
Mandatory Contributions limit. The proposed budget for fiscal 1998 has not yet
been approved by the partnership board, which has resulted in the occurrence
of a Deadlock Event (as defined) under the Holdings Agreement as of January 1,
1998. If the 1998 proposed budget is not approved through resolution
procedures set forth in the Holdings Agreement, certain specified buy/sell
procedures may be triggered which may result in a restructuring of the
partners' interest in Holdings or, in limited circumstances, liquidation of
Holdings. As of March 31, 1998 and December 31, 1997, approximately $4.2
billion and $4.0 billion, respectively, of the Total Mandatory Contributions
had been contributed by the Partners to Holdings and its affiliated
partnerships, of which approximately $3.3 billion had been contributed to
Sprint Spectrum L.P.
PHILLIECO PARTNERSHIP AGREEMENT--The Second Amended and Restated Agreement
of Limited Partnership of PhillieCo, L.P., (the "PhillieCo Agreement") dated
as of March 12, 1997, among PhillieCo Sub and PhillieCo II provides that the
purpose of PhillieCo is to engage in wireless communications services in the
Philadelphia MTA. The PhillieCo Agreement provides for the governance and
administration of partnership business, allocation of profits and losses
(including provisions for special and curative allocations), tax allocations,
transactions with partners, disposition of partnership interests and other
matters. The PhillieCo Agreement provides for additional capital contributions
to be made in accordance with capital contribution schedules to be set forth
in approved annual budgets.
The PhillieCo Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
EMERGENCE FROM DEVELOPMENT STAGE COMPANY--Prior to the third quarter of
1997, the Company reported its operations as a development stage enterprise.
The Company has commenced service in all of the MTAs in which it owns a
license. As a result, the Company is no longer considered a development stage
enterprise, and the balance sheets and statements of operations and of cash
flows are no longer presented in development stage format.
Management believes that the Company will incur additional losses in 1998
and require additional financial resources to support the current level of
operations and the remaining network buildout for the year ended December 31,
1998. Management believes the Company has the ability to obtain the required
levels of financing through additional financing arrangements or additional
equity funding from the partners.
DEADLOCK EVENT--The proposed budgets for fiscal year 1998 have not been
approved by the Holdings or PhillieCo I partnership boards, which resulted in
the occurrence of a "Deadlock Event" as of January 1, 1998 under the Holdings
and PhillieCo I Partnership Agreements. Holdings is the sole general partner
of Sprint Spectrum L.P. PhillieCo I is the sole general partner of PhillieCo
Sub. Under the Holdings and PhillieCo I Partnership Agreements, if one of the
partners refers the budget issue to the chief executive officers of the
Parents for resolution pursuant to specified procedures and the issue remains
unresolved, buy/sell provisions would be triggered which may result in the
purchase by one or more of the partners of the interest of the other partners,
or, in certain circumstances, the liquidation of Holdings and PhillieCo I and
their subsidiaries. See further discussions regarding a restructuring of the
partnership structure in Note 10.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The financial statements are presented on a combined
basis as the Partnerships are under common management for all periods
presented. The assets, liabilities, results of operations and cash flows
II-50
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of entities in which the Company has a controlling interest have been
consolidated. All significant intercompany accounts and transactions have been
eliminated.
MINORITY INTERESTS--In November 1997, concurrent with the acquisition
discussed in Note 4, American Personal Communications II, L.P. ("APC II")
became the minority owner in APC. APC II has been allocated approximately $6.5
million in losses in APC since the date of acquisition. Prior to November
1997, APC II, as majority owner, had been allocated approximately $50 million
in losses in excess of its investment. At December 31, 1997, after
consolidation of APC, the total of such losses, approximately $56.7 million,
was recorded as minority interest in the Partnerships' combined balance sheet.
This treatment reflects that APC II continued to be responsible for funding
its share of losses until January 1, 1998 when Holdings and MinorCo acquired
the remaining interest in APC.
TRADEMARK AGREEMENT--Sprint(R) is a registered trademark of Sprint
Communications Company L.P. and Sprint(R) and Sprint PCS SM are licensed to
Holdings on a royalty-free basis pursuant to a trademark license agreement
between Holdings and Sprint Communications Company L.P.
REVENUE RECOGNITION--Operating revenues for PCS services are recognized as
service is rendered. Operating revenues for equipment sales are recognized at
the time the equipment is delivered to a customer or an unaffiliated agent.
COST OF EQUIPMENT--The Company uses multiple distribution channels for its
inventory, including third-party retailers, Company-owned retail stores, its
direct sales force and telemarketing. Cost of equipment varies by distribution
channel and includes the cost of multiple models of handsets, related
accessory equipment, and warehousing and shipping expenses.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents. The Company maintains cash and cash equivalents in financial
institutions with the highest credit ratings.
ACCOUNTS RECEIVABLE--Accounts receivable are net of an allowance for
doubtful accounts of approximately $15.9 million, $9.3 million and $0.2
million, at March 31, 1998 and December 31, 1997 and 1996, respectively.
INVENTORY--Inventory consists of wireless communication equipment (primarily
handsets). Inventory is stated at lower of cost (on a first-in, first-out
basis) or replacement value. Any losses on the sales of handsets are
recognized at the time of sale.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost or fair value at the date of acquisition. Construction work in progress
represents costs incurred to design and construct the PCS network. Repair and
maintenance costs are charged to expense as incurred. When network equipment
is retired, or otherwise disposed of, its book value, net of salvage, is
charged to accumulated depreciation. When non-network equipment is sold,
retired or abandoned, the cost and accumulated depreciation are relieved and
any gain or loss is recognized. Property, plant and equipment are depreciated
using the straight-line method based on estimated useful lives of the assets.
Depreciable lives range from 3 to 20 years.
EQUIPMENT UNDER CAPITAL LEASES--APC leases certain of its office and other
equipment under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options,
or the fair value of the assets under lease. Assets under these capital leases
are depreciated over their estimated useful lives of 5 to 7 years.
Depreciation related to capital leases is included within depreciation
expense.
II-51
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INVESTMENT IN PCS LICENSES--During 1994 and 1995, the Federal Communications
Commission ("FCC") auctioned PCS licenses in specific geographic service
areas. The FCC grants licenses for terms of up to ten years, and generally
grants renewals if the licensee has complied with its license obligations. The
Company believes it will be able to secure renewal of the PCS licenses held by
its subsidiaries. PCS licenses are amortized over estimated useful lives of 40
years once placed in service. Accumulated amortization for PCS licenses
totaled approximately $61.3 million, $46.8 million and $1.7 million as of
March 31, 1998, December 31, 1997, and 1996, respectively. There was no
amortization in 1995.
MICROWAVE RELOCATION COSTS--The Company has also incurred costs associated
with microwave relocation in the construction of the PCS network. Microwave
relocation costs are amortized over the remaining life of the PCS licenses.
Accumulated amortization for microwave relocation costs totaled approximately
$6.9 million and $5.3 million as of March 31, 1998 and December 31, 1997,
respectively. There was no amortization in 1996 or 1995.
INTANGIBLE ASSETS--The ongoing value and remaining useful life of intangible
assets are subject to periodic evaluation. The Company currently expects the
carrying amounts to be fully recoverable. Impairments of intangibles and long-
lived assets are assessed based on an undiscounted cash flow methodology.
CAPITALIZED INTEREST--Interest costs associated with the construction of
capital assets (including the PCS licenses) incurred during the period of
construction are capitalized. The total interest costs capitalized in the
three months ended March 31, 1998 was approximately $18.4 million, and was
approximately $100.0 million and $30.5 million in 1997 and 1996, respectively.
There were no amounts capitalized in 1995.
DEBT ISSUANCE COSTS--Included in other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Accumulated amortization for the three months ended March 31,
1998 was approximately $16.5 million, and was approximately $13.4 million and
$1.9 million for the years ended December 31, 1997 and 1996, respectively.
There was no amortization in 1995.
OPERATING LEASES--Rent expense is recognized on the straight-line basis over
the life of the lease agreement, including renewal periods. Lease expense
recognized in excess of cash expended is included in non-current liabilities
in the combined balance sheet.
MAJOR CUSTOMER--The Company markets its products through multiple
distribution channels, including Company-owned retail stores and third-party
retail outlets. The Company's subscribers are disbursed throughout the United
States. Sales to one third-party retail customer represented approximately 21%
and 88% of operating revenues in the combined statements of operations for the
years ended December 31, 1997 and 1996, respectively. The Company reviews the
credit history of retailers prior to extending credit and maintains allowances
for potential credit losses. The Company believes that its risk from
concentration of credit is limited.
INCOME TAXES--The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
FINANCIAL INSTRUMENTS--The carrying value of the Company's short-term
financial instruments, including cash and cash equivalents, receivables from
customers and affiliates and accounts payable approximates fair value. The
fair value of the Company's long-term debt is based on quoted market prices
for the same issues or current rates offered to the Company for similar debt.
A summary of the fair value of the Company's long-term debt at December 31,
1996 and 1997 is included in Note 5.
II-52
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of the interest rate contracts is the estimated net amount
that APC would pay to terminate the contracts at the balance sheet date. The
fair value of the fixed rate loans is estimated using discounted cash flow
analysis based on APC's current incremental borrowing rate at which similar
borrowing agreements would be made under current conditions.
DERIVATIVE FINANCIAL INSTRUMENTS--Derivative financial instruments (interest
rate contracts) are utilized by APC to reduce interest rate risk. APC has
established a control environment which includes risk assessment and
management approval, reporting and monitoring of derivative financial
instrument activities. APC does not hold or issue derivative financial
instruments for trading purposes.
The differentials to be received or paid under interest rate contracts that
are matched against underlying debt instruments and qualify for settlement
accounting are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts are recognized as other income or expense when terminated in
conjunction with the retirement of associated debt. Gains and losses on
terminations of interest rate contracts not associated with the retirement of
debt are deferred and amortized to interest expense over the remaining life of
the associated debt to the extent that such debt remains outstanding.
COMPREHENSIVE INCOME--In June 1997, the Financial Accounting Standards Board
issued Statement of financial Accounting Standards No. 130, Reporting
Comprehensive Income, ("SFAS No. 130") which establishes standards for
reporting and disclosure of comprehensive income and its components (revenues,
expenses, gains and losses). SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires reclassification of financial
statements for earlier periods to be provided for comparative purposes. The
Company's total comprehensive loss for all periods presented herein would not
have differed from those amounts reported as net loss in the combined
statements of operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1996 and
1995 combined financial statements to conform to the 1997 combined financial
statement presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at March 31, 1998,
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................... $ 1,445 $ 1,445 $ 905
Buildings and leasehold improvements.... 657,962 641,167 86,496
Fixtures and office furniture........... 171,870 168,301 68,520
Network equipment....................... 2,597,582 2,335,965 255,691
Telecommunications plant--construction
work in progress....................... 666,677 653,133 1,039,620
---------- ---------- ----------
4,095,536 3,800,011 1,451,232
Less accumulated depreciation........... (373,029) (261,773) (9,605)
---------- ---------- ----------
$3,722,507 $3,538,238 $1,441,627
========== ========== ==========
</TABLE>
II-53
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense on property, plant and equipment for the three months
ended March 31, 1998 was approximately $111.3 million and was approximately
$251.9 million, $9.6 million, and $0.2 million for the years ended December
31, 1997, 1996 and 1995, respectively.
4. INVESTMENTS IN PARTNERSHIPS
APC--On January 9, 1995, WirelessCo acquired a 49% limited partnership
interest in APC. In September 1997, Holdings increased its ownership in APC to
58.3% through additional capital contributions of $30 million, and became the
managing partner upon FCC approval in November, 1997. As of January 1, 1998,
Holdings and MinorCo increased their ownership percentages to 99.75% and
0.25%, respectively, of the partnership interests for approximately $30
million.
The acquisition increasing ownership to 58.3% and subsequently to 100% was
accounted for as a purchase and, accordingly, the operating results of APC
have been consolidated since the date of the FCC's approval of the
acquisition. In conjunction with the acquisition in November 1997, liabilities
were assumed as follows with the remaining minority interest acquired on
January 1, 1998 (in millions):
<TABLE>
<S> <C>
Assets acquired.................................................... $503
Cash paid.......................................................... (30)
Minority interest.................................................. 50
----
Liabilities assumed................................................ $523
====
</TABLE>
The purchase price was allocated to the assets acquired and the liabilities
assumed based on an estimate of fair value.
The following unaudited pro forma financial information assumes the
acquisition had occurred on January 1 of each year and that Holdings had owned
100% of APC and consolidated its results in the financial statements:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Net sales............................................ $ 364,460 $ 76,013
Net loss (before minority interest).................. (1,716,142) (554,976)
</TABLE>
Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented and is not intended to be a projection of future results.
Prior to acquisition of controlling interest, Holdings' investment in APC
was accounted for under the equity method. The partnership agreement between
Holdings and APC II specified that losses were allocated based on percentage
ownership interests and certain other factors. In January 1997, Holdings and
APC II amended the APC partnership agreement with respect to the allocation of
profits and losses. For financial reporting purposes, profits and losses were
allocated in proportion to Holdings' and APC II's respective partnership
interests, except for costs related to stock appreciation rights and interest
expense attributable to the FCC interest payments which were allocated
entirely to APC II. Losses of approximately $60 million, $97 million and $46
million for the years ended December 31, 1997, 1996 and 1995, respectively,
are included in equity in losses of unconsolidated subsidiaries during the
period prior to the acquisition of controlling interest.
COX COMMUNICATIONS PCS, L.P.--On December 31, 1996, Holdings acquired a 49%
limited partner interest in Cox Communications PCS, L.P. ("Cox PCS"). Cox
Pioneer Partnership ("CPP") holds a 50.5% general and a 0.5% limited partner
interest and is the general and managing partner. The investment in Cox PCS is
accounted for under the equity method. Under the terms of the partnership
agreement, CPP and the Company
II-54
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
are obligated to, among other things: (a) upon FCC consent to the assumption
and recognition of the license payment obligations by Cox PCS, CPP is
obligated to make capital contributions in an amount equal to such liability
and related interest (the PCS license covering the Los Angeles-San Diego MTA
was contributed to Cox PCS in March 1997) (b) Holdings is obligated to make
capital contributions of approximately $368.9 million to Cox PCS; (c) Holdings
is not obligated to make any cash capital contributions upon the assumption by
Cox PCS of the FCC payment obligations until CPP has contributed cash in an
amount equal to the aggregate principal and interest of such obligations; and,
(d) CPP and Holdings are obligated to make additional capital contributions in
an amount equal to such partner's percentage interest times the amount of
additional capital contributions being requested.
As of December 31, 1997, approximately $348.2 million in equity, including
$2.45 million to PCS Leasing Co, L.P. ("LeasingCo"), a subsidiary of Cox PCS,
had been contributed to Cox PCS by the Company. Through December 31, 1996,
$168 million had been contributed to Cox PCS. Losses are allocated to the
partners based on their ownership percentages. Subsequent to December 31,
1997, Holdings completed its funding obligation to Cox PCS under the
partnership agreement. Concurrent with this funding, Holdings paid
approximately $33.2 million in interest that had accrued on the unfunded
capital obligation.
Additionally, Holdings acquired a 49% limited partner interest in LeasingCo.
LeasingCo was formed to acquire, construct or otherwise develop equipment and
other personal property to be leased to Cox PCS. Holdings is not obligated to
make additional capital contributions to LeasingCo beyond the initial funding
of approximately $2.45 million.
Under the partnership agreement, CPP has the right to require that Holdings
acquire all or part of CPP's interest in Cox PCS based on fair market value at
the time of the transaction. Subsequent to December 31, 1997, CPP elected to
exercise this right. As a result, Holdings intends to acquire 10.2% of Cox
PCS, subject to FCC approval, which will give Holdings controlling interest.
The purchase price, currently estimated at approximately $80 million, is based
on the fair market value of Cox PCS as determined by independent appraisals.
Through December 2008, CPP may put certain remaining interests in Cox PCS to
Holdings.
II-55
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consists of the following as of March 31, 1998 and December
31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
11% Senior Notes due in 2006................ $ 250,000 $ 250,000 $250,000
12 1/2% Senior Discount Notes due in 2006,
net of unamortized discount of $167,799 at
March 31, 1998; $177,720 and $214,501 at
December 31, 1997 and 1996, respectively... 332,201 322,280 285,499
Credit Facility--term loans................. 300,000 300,000 150,000
Credit Facility--revolving credit........... 985,000 605,000 --
Vendor Financing............................ 2,091,737 1,612,914 --
APC Senior Secured Term Loan Facility....... 220,000 220,000 --
APC Senior Secured Reducing Revolving Credit
Facility................................... 152,429 141,429 --
Due To FCC, net of unamortized discount of
$10,990 at March 31, 1998 and $11,989 at
December 31, 1997.......................... 91,354 90,355 --
Other....................................... 23,852 26,538 742
---------- ---------- --------
Total debt.................................. 4,446,573 3,568,516 686,241
Less current maturities..................... 34,718 34,562 49
---------- ---------- --------
Long-term debt.............................. $4,411,855 $3,533,954 $686,192
========== ========== ========
</TABLE>
SENIOR NOTES AND SENIOR DISCOUNT NOTES--In August 1996, Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated
proceeds of approximately $273 million. Cash interest on the Senior Notes
accrues at a rate of 11% per annum and is payable semi-annually in arrears on
each February 15 and August 15, commencing February 15, 1997. Cash interest
will not accrue or be payable on the Senior Discount Notes prior to August 15,
2001. Thereafter, cash interest on the Senior Discount Notes will accrue at a
rate of 12 1/2% per annum and will be payable semi-annually in arrears on each
February 15 and August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal
to $384.772 per $1,000 principal amount at maturity of each Senior Discount
Note then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part,
at any time on or after August 15, 2001 at the redemption prices set forth
below, respectively, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12 month period beginning on August 15
of the years indicated below:
<TABLE>
<CAPTION>
SENIOR NOTES SENIOR DISCOUNT NOTES
YEAR REDEMPTION PRICE REDEMPTION PRICE
---- ---------------- ---------------------
<S> <C> <C>
2001.................................. 105.500% 110.000%
2002.................................. 103.667% 106.500%
2003.................................. 101.833% 103.250%
2004 and thereafter................... 100.000% 100.000%
</TABLE>
II-56
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of
the originally issued principal amount of the Notes with the net proceeds of
one or more public equity offerings, provided that at least 65% of the
originally issued principal amount at maturity of the Senior Notes and Senior
Discount Notes would remain outstanding immediately after giving effect to
such redemption. The redemption price of the Senior Notes is equal to 111.0%
of the principal amount of the Senior Notes so redeemed, plus accrued and
unpaid interest, if any, to the redemption date. The redemption price of the
Senior Discount Notes is equal to 112.5% of the accreted value at the
redemption date of the Senior Discount Notes so redeemed.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on
restricted payments, limitations on liens, and limitations on dividends and
other payment restrictions affecting certain restricted subsidiaries.
BANK CREDIT FACILITY--Sprint Spectrum L.P. (the "Borrower") entered into an
agreement with The Chase Manhattan Bank ("Chase") as agent for a group of
lenders for a $2 billion bank credit facility dated October 2, 1996. The
proceeds of this facility are to be used to finance working capital needs,
subscriber acquisition costs, capital expenditures and other general Borrower
purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment. In November 1997, certain terms relating to
the financial and operating conditions were amended. As of March 31, 1998,
$985.0 million had been drawn under the revolving credit facility at a
weighted average interest rate of 8.26% with $715.0 million remaining
available. As of December 31, 1997, $605 million had been drawn under the
revolving credit facility at a weighted average interest rate of 8.42%, with
$1.1 billion remaining available. There were no borrowings under the revolving
credit commitment as of December 31, 1996. Commitment fees for the revolving
portion of the agreement are payable quarterly based on average unused
revolving commitments.
The revolving credit commitment expires July 13, 2005. Availability will be
reduced in quarterly installments ranging from $75 million to $175 million
commencing January 2002. Further reductions may be required after January 1,
2002 to the extent that the Borrower meets certain financial conditions.
The term loans are due in sixteen consecutive quarterly installments
beginning January 2002 in aggregate principal amounts of $125,000 for each of
the first fifteen payments with the remaining aggregate outstanding principal
amount of the term loans due as the last installment.
Interest on the term loans and/or the revolving credit loans is at the
applicable LIBOR rate plus 2.5% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5% ("ABR
Loans"), at the Borrower's option. The interest rate may be adjusted downward
for improvements in the bond rating and/or leverage ratios. Interest on ABR
Loans and Eurodollar Loans with interest period terms in excess of 3 months is
payable quarterly. Interest on Eurodollar Loans with interest period terms of
less than 3 months is payable on the last day of the interest period. As of
March 31, 1998, and December 31, 1997 and 1996, the weighted average interest
rate on the term loans was 8.29%, 8.39% and 8.19%, respectively.
Borrowings under the Bank Credit Facility are secured by the Borrower's
interests in WirelessCo, RealtyCo and EquipmentCo and certain other personal
and real property (the "Shared Lien"). The Shared Lien equally and ratably
secures the Bank Credit Facility, the Vendor Financing agreements (discussed
below) and certain other indebtedness of the Borrower. The credit facility is
jointly and severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and
is non-recourse to the Parents and the Partners.
The Bank Credit Facility agreement and Vendor Financing agreements contain
certain restrictive financial and operating covenants, including (among other
requirements) maximum debt ratios (including debt to total
II-57
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
capitalization), limitations on capital expenditures, limitations on
additional indebtedness and limitations on dividends and other payment
restrictions affecting certain restricted subsidiaries. The loss of the right
to use the Sprint trademark, the termination or non-renewal of any FCC license
that reduces population coverage below specified limits, or certain changes in
controlling interest in the Borrower, as defined, among other provisions,
constitute events of default.
VENDOR FINANCING--As of October 2, 1996, the Company entered into financing
agreements with Northern Telecom, Inc. ("Nortel") and Lucent Technologies,
Inc. ("Lucent" and together with Nortel, the "Vendors") for multiple drawdown
term loan facilities totaling $1.3 billion and $1.8 billion, respectively. The
proceeds of such facilities are to be used to finance the purchase of goods
and services provided by the Vendors. Additionally, the commitments allow for
the conversion of accrued interest into additional principal. Such conversions
do not reduce the availability under the commitments. Interest accruing on the
debt outstanding at December 31, 1997, can be converted into additional
principal through February 8, 1999 and March 30, 1999, for Lucent and Nortel,
respectively.
On April 30, 1997 and November 20, 1997, the Company amended the terms of
its financing agreement with Nortel. The amendments provide for a syndication
of the financing commitment between Nortel, several banks and other vendors
(the "Nortel Lenders"), and the modification of certain operating and
financial covenants. The commitment provides financing in two phases. During
the first phase, the Nortel Lenders will finance up to $800 million. Under the
second phase, the Nortel Lenders will finance up to an additional $500 million
upon the achievement of certain operating and financial conditions, as
amended. As of March 31, 1998, $760.5 million, including converted accrued
interest of $29.1 million, had been borrowed at a weighted average interest
rate 8.95% with $568.6 million remaining available under the first phase. At
December 31, 1997, $630 million, including converted accrued interest of $18.6
million, had been borrowed at a weighted average interest rate of 8.98% with
$189 million remaining available under the first phase. In addition, the
Company paid $20 million in origination fees upon the initial drawdown under
the first phase and will be obligated to pay additional origination fees on
the date of the initial drawdown loan under the second phase. There were no
borrowings under the Nortel facility at December 31, 1996.
On May 29, 1997 and November 20, 1997, the Company amended the terms of its
financing agreement with Lucent. The amendments provide for a syndication of
the financing commitment between Lucent, Sprint and other banks and vendors
(the "Lucent Lenders"), and the modification of certain operating and
financial covenants. The Lucent Lenders have committed to financing up to $1.5
billion through December 31, 1997, and up to an aggregate of $1.8 billion
thereafter. The Company pays a facility fee on the daily amount of certain
loans outstanding under the agreement, payable quarterly. The Lucent agreement
terminates June 30, 2001. As of March 31, 1998, the Company had borrowed
approximately $1.3 billion with $523.2 million remaining available under the
Lucent facility, including converted accrued interest of $54.5 million, at a
weighted average interest rate of 8.82%. As of December 31, 1997, the Company
had borrowed approximately $983 million, including converted accrued interest
of $33.1 million, under the Lucent facility at a weighted average interest
rate of 8.94%, with $850 million remaining available. There were no borrowings
under the Lucent facility at December 31, 1996.
The principal amounts of the loans drawn under both the Nortel and Lucent
agreements are due in twenty consecutive quarterly installments, commencing on
the date which is thirty-nine months after the last day of such "Borrowing
Year" (defined in the agreements as any one of the five consecutive 12-month
periods following the date of the initial drawdown of the loan). The aggregate
amount due each year is equal to percentages ranging from 10% to 30%
multiplied by the total principal amount of loans during each Borrowing Year.
II-58
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The agreements provide two borrowing rate options. During the first phase of
the Nortel agreement and throughout the term of the Lucent agreement "ABR
Loans" bear interest at the greater of the prime rate or 0.5% plus the Federal
Funds effective rate, plus 2%. "Eurodollar Loans" bear interest at the London
interbank (LIBOR) rate (any one of the 30-, 60- or 90-day rates, at the
discretion of the Company), plus 3%. During the second phase of the Nortel
agreement, ABR Loans bear interest at the greater of the prime rate or 0.5%
plus the Federal Funds effective rate, plus 1.5%; and Eurodollar loans bear
interest at the LIBOR rate plus 2.5%. Interest from the date of each loan
through one year after the last day of the Borrowing Year is added to the
principal amount of each loan. Thereafter, interest is payable quarterly.
Borrowings under the Vendor Financing are secured by the Shared Lien. The
Vendor Financing is jointly and severally guaranteed by WirelessCo, RealtyCo,
and EquipmentCo and is non-recourse to the Parents and the Partners.
Certain amounts included under construction obligations on the combined
balance sheets may be financed under the Vendor Financing agreements.
DUE TO FCC--The Company is obligated to the FCC for $102 million for the
receipt of the commercial PCS license covering the Washington D.C./Baltimore
MTA. In March 1996, the FCC determined that interest on the amount due would
begin to accrue on March 8, 1996, at an interest rate of 7.75%. Beginning with
the first payment due in April 1996, the FCC granted two years of interest-
only payments followed by three years of principal and interest payments.
Based on the interest and payment provisions determined by the FCC and the
Company's incremental borrowing rate for similar debt at the time the debt was
issued, the Company has accrued interest beginning upon receipt of the license
at an effective rate of 13%.
APC SENIOR SECURED CREDIT FACILITIES--As of February 7, 1997, American PCS
Communications, LLC entered into credit facilities of $420 million, consisting
of a term loan facility of $220 million and a reducing revolving credit
facility of $200 million (together, the "Credit Agreement"). The Credit
Agreement is secured by first priority liens on all the equity interests held
by American PCS Communications LLC in its direct subsidiaries, including the
equity interests of the subsidiaries which will hold APC's PCS license and
certain real property interest and equipment and a first priority security
interest in, and mortgages on, substantially all other intangible and tangible
assets of APC and subsidiaries. The Credit Agreement matures February 7, 2005,
with an interest rate of LIBOR plus 2.25%. The interest rate may be stepped
down over the term of the credit agreement based on the ratio of outstanding
debt to earnings before interest, tax, depreciation and amortization. Proceeds
from the Credit Agreement were used to repay the outstanding financing from
Holdings as of the closing date of the credit agreement, capital expenditures
for the communications systems, general working capital requirements, and net
operating losses.
The Credit Agreement contains covenants which require APC to maintain
certain levels of wireless subscribers, as well as other financial and non-
financial requirements.
In January 1998 APC completed negotiations with its lenders to amend the
Credit Agreement. As amended, the Credit Agreement contains certain covenants
which, among other things, contain certain restrictive financial and operating
covenants including, maximum debt ratios (including debt to total
capitalization) and limitations on capital expenditures. The covenants require
American PCS Communications, LLC to enter into interest rate contracts on a
quarterly basis to protect and limit the interest rate on 40% of its aggregate
debt outstanding.
OTHER DEBT--At December 31, 1997, other debt included a note payable to
Lucent for the financing of debt issuance costs, a note payable for certain
leasehold improvements, and capital leases acquired in the purchase of APC.
Maturities on the debt range from 3 to 10 years, at interest rates from 8.32%
to 21%.
II-59
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST RATE CONTRACTS--As of March 31, 1998, APC had entered into ten
interest rate contracts with an aggregate notional value of $134 million. As
of December 31, 1997, APC had entered into nine interest rate contracts (swaps
and a collar), with an aggregate notional amount of $122 million. Under the
agreements APC pays a fixed rate and receives a variable rate such that it
will protect APC against interest rate fluctuations on a portion of its
variable rate debt. The fixed rates paid by APC on the interest rate swap
contracts range from approximately 5.97% to 6.8%. Option features contained in
certain of the swaps operate in a manner such that the interest rate
protection in some cases is effective only when rates are outside a certain
range. Under the collar arrangement, APC will receive 6.19% when LIBOR falls
below 6.19% and pay 8% when LIBOR exceeds 8%. The contracts expire in 2001.
The fair value of the interest rate contracts at March 31, 1998 and December
31, 1997 was an unrealized loss of approximately $1.4 million and $1.3
million, respectively. The notional amounts represent reference balances upon
which payments and receipts are based and consequently are not indicative of
the level of risk or cash requirements under the contracts. APC has exposure
to credit risk to the counterparty to the extent it would have to replace the
interest rate swap contract in the market when and if a counterparty were to
fail to meet its obligations. The counterparties to all contracts are primary
dealers that meet APC's criteria for managing credit exposures.
FAIR VALUE--The estimated fair value of the Company's long-term debt at
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
11% Senior Notes.................... $250,000 $280,650 $250,000 $270,625
12 1/2% Senior Discount Notes....... 322,280 389,300 285,499 337,950
Credit facility--term loans......... 300,000 300,000 150,000 151,343
Credit facility--revolver........... 605,000 605,000 -- --
Vendor facility--Lucent............. 983,299 983,299 -- --
Vendor facility--Nortel............. 629,615 629,615 -- --
APC Senior Secured Term Loan Facili-
ty................................. 220,000 220,000 -- --
APC Senior Secured Reducing Revolv-
ing Credit Facility................ 141,429 141,429 -- --
FCC debt............................ 90,355 98,470 -- --
</TABLE>
At December 31, 1997, scheduled maturities of long-term debt and capital
leases during each of the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM DEBT CAPITAL LEASES
-------------- --------------
<S> <C> <C>
1998........................................... $ 29,800 $5,411
1999........................................... 40,425 3,667
2000........................................... 53,624 591
2001........................................... 395,291 42
2002........................................... 583,113 --
------
9,711
Less interest.................................. (898)
------
Present value of minimum lease payments........ $8,813
======
</TABLE>
II-60
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--Minimum rental commitments as of December 31, 1997, for
all noncancelable operating leases, consisting principally of leases for cell
and switch sites and office space, for the next five years, are as follows (in
thousands):
<TABLE>
<S> <C>
1998............................................................ $139,890
1999............................................................ 135,940
2000............................................................ 109,081
2001............................................................ 66,168
2002............................................................ 21,655
</TABLE>
Gross rental expense for cell and switch sites aggregated approximately
$27.8 million for the three months ended March 31, 1998, and $97.1 million and
$13.6 million for the years ended December 31, 1997 and 1996, respectively.
There was no cell or switch site rental expense for the year ended December
31, 1995. Gross rental expense for office space approximated $8.1 million for
the three months ended March 31, 1998, and $34.1 million, $11.7 million, and
$0.7 million for the years ended December 31, 1997, 1996, and 1995,
respectively. Certain cell and switch site leases contain renewal options
(generally for terms of 5 years) that may be exercised from time to time and
are excluded from the above amounts.
PROCUREMENT CONTRACTS--On January 31, 1996, the Company entered into
procurement and services contracts with AT&T Corp. (subsequently assigned to
Lucent) and Nortel for the engineering and construction of a PCS network. Each
contract provides for an initial term of ten years with renewals for
additional one-year periods. The Vendors must achieve substantial completion
of the PCS network within an established time frame and in accordance with
criteria specified in the procurement contracts. Pricing for the initial
equipment, software and engineering services has been established in the
procurement contracts. The procurement contracts provide for payment terms
based on delivery dates, substantial completion dates, and final acceptance
dates. In the event of delay in the completion of the PCS network, the
procurement contracts provide for certain amounts to be paid to the Company by
the Vendors. The minimum commitments for the initial term are $0.8 billion and
$1.0 billion from Lucent and Nortel, respectively, which include, but are not
limited to, all equipment required for the establishment and installation of
the PCS network.
HANDSET PURCHASE AGREEMENTS--In June, 1996, the Company entered into a
three-year purchase and supply agreement with a vendor for the purchase of
handsets and other equipment totaling approximately $500 million. During 1997
and 1996, the Company purchased $332.7 million and $85 million under the
agreement, respectively. The total purchase commitment must be satisfied
during the second quarter of 1998.
In September, 1996, the Company entered into another three-year purchase and
supply agreement with a second vendor for the purchase of handsets and other
equipment totaling more than $600 million, with purchases that commenced in
April, 1997. During 1997, the Company purchased $147.6 million under the
agreement. The total purchase commitment must be satisfied by April 2000.
SERVICE AGREEMENTS--The Company has entered into an agreement with a vendor
to provide PCS call record and retention services. Monthly rates per
subscriber are variable based on overall subscriber volume. If subscriber fees
are less than specified annual minimum charges, the Company will be obligated
to pay the difference between the amounts paid for processing fees and the
annual minimum. Annual minimums range from $20 million to $60 million through
2001. The agreement extends through December 31, 2001, with two automatic,
two-year renewal periods, unless terminated by the Company. The Company may
terminate the agreement prior to the expiration date, but would be subject to
specified termination penalties.
II-61
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has also entered into an agreement with a vendor to provide
prepaid calling services. Monthly rates per minute of use are based on overall
call volume. If the average minutes of use are less than monthly specified
minimums, the Company is obligated to pay the difference between the average
minutes used at the applicable rates and the monthly minimum. Monthly minimums
range from $40,000 to $50,000 during the initial term. Certain installation
and setup fees for processing and database centers are also included in the
agreement and are dependent upon a need for such centers. The agreement
extends through July 1999, with successive one-year term renewals, unless
terminated by the Company. The Company may terminate the agreement prior to
the expiration date, but would be subject to specified termination penalties.
In January 1997, the Company entered into a four and one-half year contract
for consulting services. Under the terms of the agreement, consulting services
will be provided at specified hourly rates for a minimum number of hours. The
total commitment is approximately $125 million over the term of the agreement.
LITIGATION--The Company is involved in various legal proceedings incidental
to the conduct of its business. While it is not possible to determine the
ultimate disposition of each of these proceedings, the Company believes that
the outcome of such proceedings, individually and in the aggregate, will not
have a material adverse effect on the Company's financial condition or results
of operations.
7. EMPLOYEE BENEFITS
Employees performing services for the Company were employed by Sprint
through December 31, 1995. Amounts paid to Sprint relating to pension expense
and employer contributions to the Sprint Corporation 401(k) plan for these
employees approximated $0.3 million in 1995.
The Company maintains short-term and long-term incentive plans. All salaried
employees of Sprint Spectrum L.P. are eligible for the short-term incentive
plan commencing at date of hire. Employees of APC are covered by the APC
plans. Short-term incentive compensation is based on incentive targets
established for each position based on the Company's overall compensation
strategy. Targets contain both an objective Company component and a personal
objective component. Charges to operations for the short-term plan
approximated $5.4 million for the three months ended March 31, 1998, and $20.3
million, $12.5 million, and $3.5 million for the years ended December 31,
1997, 1996, and 1995, respectively.
LONG-TERM COMPENSATION OBLIGATION--The Company has two long-term incentive
plans, the 1996 Plan and the 1997 Plan. Employees meeting certain eligibility
requirements are considered to be participants in each plan. Participants in
the 1996 Plan will receive 100% of the pre-established targets for the period
from July 1, 1995 to June 30, 1996 (the "Introductory Term"). Participants in
the 1996 Plan elected either a payout of the amount due or converted 50% or
100% of the award to appreciation units. Unless converted to appreciation
units, payment for the Introductory Term of the 1996 Plan will be made in the
third quarter of 1998. Under the 1996 plan, appreciation units vest 25% per
year commencing on the second anniversary of the date of grant and expire
after a term of ten years. The 1997 Plan appreciation units vest 25% per year
commencing on the first anniversary of the date of the grant and also expire
after ten years. For the three months ended March 31, 1998, approximately $4.8
million had been expensed under both plans. For the years ended December 31,
1997, 1996, and 1995, $18.3 million, $9.5 million, and $1.9 million,
respectively, has been expensed under both plans. At December 31, 1997 a total
of approximately 103 million units have been authorized for grant for both
plans. The Company has applied APB Opinion No. 25, "Accounting for Stock
Issued to Employees" for 1997 and 1996. No significant difference would have
resulted if SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied. See Note 10 for further discussion.
SAVINGS PLAN--Effective January, 1996, Holdings established a savings and
retirement program (the "Savings Plan") for certain employees, which qualifies
under Section 401(k) of the Internal Revenue Code.
II-62
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Most permanent full-time, and certain part-time, employees are eligible to
become participants in the plan after one year of service or upon reaching age
35, whichever occurs first. Participants make contributions to a basic before
tax account and supplemental before tax account. The maximum contribution for
any participant for any year is 16% of such participant's compensation. For
each eligible employee who elects to participate in the Savings Plan and makes
a contribution to the basic before tax account, the Company makes a matching
contribution. The matching contributions equal 50% of the amount of the basic
before tax contribution of each participant up to the first 6% that the
employee elects to contribute. Contributions to the Savings Plan are invested,
at the participant's discretion, in several designated investment funds.
Distributions from the Savings Plan generally will be made only upon
retirement or other termination of employment, unless deferred by the
participant. Expense under the Savings Plan approximated $1.4 million for the
three months ended March 31, 1998, and $5.0 million and $1.1 million in 1997
and 1996, respectively.
APC also has an employee savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. All APC employees completing one year of service
are eligible and may contribute up to 15% of their pretax earnings. APC
matches 100% of the first 3% of the employee's contribution. Employees are
immediately fully vested in APC's contributions. In addition, APC makes
discretionary contributions on behalf of eligible participants in the amount
of 2% of employee's compensation. Expenses relating to the employee savings
plan have not been significant since the date of acquisition.
PROFIT SHARING (RETIREMENT) PLAN--Effective January, 1996, the Company
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts
of the Company's retirement plan. Vesting occurs once a participant completes
five years of service. For the years ended December 31, 1997 and 1996, expense
under the profit sharing plan approximated $2.5 million and $0.7 million,
respectively.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES--Effective January, 1997, the
Company established a non-qualified deferred compensation plan which permits
certain eligible executives to defer a portion of their compensation. The plan
allows the participants to defer up to 80% of their base salary and up to 100%
of their annual short-term incentive compensation. The deferred amounts earn
interest at the prime rate. Payments will be made to participants upon
retirement, disability, death or the expiration of the deferral election under
the payment method selected by the participant.
8. RELATED PARTY TRANSACTIONS
BUSINESS SERVICES--The Company reimburses Sprint for certain accounting and
data processing services, for participation in certain advertising contracts,
for certain cash payments made by Sprint on behalf of the Company and other
management services. The Company is allocated the costs of such services based
on direct usage. Allocated expenses of approximately $10.5 million, $11.9
million, and $2.6 million are included in selling, general and administrative
expense in the combined statements of operations for 1997, 1996, and 1995,
respectively. In addition to the miscellaneous services agreement described
above, the Company has entered into agreements with Sprint for invoicing
services, operator services, and switching equipment. The Company is also
using Sprint as its interexchange carrier, with the agreement for such
services covered under the Holdings partnership agreement. Charges are based
on the volume of services provided, and are similar to those that would be
incurred with an unrelated third-party vendor.
APC--Holdings entered into an affiliation agreement with APC in January 1995
which provides for the reimbursement of certain allocable costs and payment of
affiliation fees by APC. For the year ended December 31, 1997, prior to
acquisition, the reimbursement of allocable costs of approximately $14.0
million is included in
II-63
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
selling, general and administrative expenses. There were no reimbursements
recognized in 1996 or 1995. Additionally, affiliation fees are recognized
based on a percentage of APC's net revenues.
COX PCS--Concurrent with the execution of the partnership agreement, the
Company entered into an affiliation agreement with Cox PCS which provides for
the reimbursement of certain allocable costs and payment of affiliate fees by
Cox PCS. For the three months ended March 31, 1998 and the years ended
December 31, 1997 and 1996, allocable costs of approximately $5.9 million,
$20.0 million and $7.3 million, respectively, are netted against selling,
general and administrative expenses in the accompanying combined statements of
operations. Of these total allocated costs, approximately $5.9 million, $1.6
million and $7.3 million were included in receivables from affiliates in the
respective combined balance sheets. In addition, the Company purchases certain
equipment, such as handsets, on behalf of Cox PCS. Receivables from affiliates
for handsets and related equipment were approximately $15.6 million, $31.2
million and $6 million at March 31, 1998, December 31, 1997 and 1996,
respectively.
SPRINTCOM, INC.--The Company provides services to SprintCom, Inc.
("SprintCom"), an affiliate of Sprint. The Company is currently building out
the network infrastructure in certain BTA markets where SprintCom was awarded
licenses. Such services include engineering, management, purchasing,
accounting and other related services. For the three months ended March 31,
1998 and for the year ended December 31, 1997, costs for services provided of
$6.0 million and $29.1 million, respectively were allocated to SprintCom, and
are included as a reduction of selling, general and administrative expenses in
the accompanying combined statements of operations. Of the total allocated
costs, approximately $3.4 million and $14.0 million are included in
receivables from affiliates at March 31, 1998 and December 31, 1997,
respectively. No such costs were incurred in 1996.
PAGING SERVICES--In 1996, the Company commenced paging services pursuant to
agreements with Paging Network Equipment Company and Sprint Communications
Company L.P. ("Sprint Communications"). For the three months ended March 31,
1998 and the years ended December 31, 1997 and 1996, Sprint Communications
received agency fees of approximately $3.8 million, $10.6 million and $4.9
million, respectively.
ADVANCES FROM PARTNERS TO HOLDINGS--In December 1996, the Partners advanced
approximately $168 million to the Holdings, which was contributed to Cox PCS
(Note 4). The advances were repaid in February 1997.
ADVANCES FROM PHILLIECO PARTNERS TO PHILLIECO--At December 31, 1997, the
PhillieCo Partners had advanced $45 million to PhillieCo I, for general
operating purposes. The advances accrue interest at prime and mature in May
1998. Subsequent to December 31, 1997 and through March 31 1998, Sprint
advanced an additional $90 million to PhillieCo I. These advances accrue
interest at rates from prime to prime plus 1 5/8% and also mature in May 1998.
II-64
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 FIRST SECOND THIRD FOURTH
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues....................... $ 9,487 $ 25,813 $ 75,228 $147,501
Operating expenses....................... 202,011 310,958 466,537 658,197
Net loss................................. 217,069 338,719 465,670 611,195
<CAPTION>
1996
----
<S> <C> <C> <C> <C>
Operating revenues....................... $ -- $ -- $ -- $ 4,175
Operating expenses....................... 31,029 47,208 87,568 195,945
Net loss................................. 67,505 91,205 102,035 183,824
</TABLE>
10. SUBSEQUENT EVENTS
PCS RESTRUCTURING--Sprint has entered into a restructuring agreement with
TCI, Comcast, and Cox to restructure Sprint's PCS operations (the "PCS
Restructuring"). If the PCS Restructuring occurs as planned, Sprint will
acquire the joint venture interests of TCI, Comcast and Cox in Sprint PCS and
the joint venture interest of TCI and Cox in PhillieCo I and PhillieCo II. In
exchange for these joint venture interests, Sprint will issue to TCI, Comcast,
and Cox a newly created class of Sprint common stock (the "PCS Stock"). The
PCS Stock will be intended to reflect separately the performance of these
joint ventures and Sprint's other PCS interests. The operations will be
referred to as the PCS Group.
If the PCS Restructuring occurs as planned, the Partners will convert their
advances to the Company as of December 31, 1997 to equity. The Partners have
agreed to loan up to $400 million, based on respective ownership interests, to
fund the capital requirements of Holdings from the date of the signing of the
PCS Restructuring Agreement, May 26, 1998, through the closing date.
Additionally, as part of the PCS Restructuring, certain of Sprint's equity-
based incentive plans are intended to replace the Sprint Spectrum Long-Term
Incentive Plans.
II-65
<PAGE>
PCS GROUP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are presented to give effect to (1) the proposed restructuring of Sprint's
wireless PCS operations whereby Sprint will acquire the joint venture
interests of the Cable Parents in Sprint Spectrum Holdings and the joint
venture interests of TCI and Cox in PhillieCo, in exchange for shares of a
newly created class of Sprint common stock, the PCS Stock, including the sale
of shares to FT and DT to maintain their combined 20% voting interest; (2) the
proposed tax-free recapitalization of Sprint's common stock to be effected by
reclassifying each share of Sprint's existing common stock into 1/2 share of
PCS Stock and one share of FON Stock; and (3) the proposed initial public
offering ("IPO") of the PCS Stock, including the sale of shares to FT and DT
to maintain their combined 20% voting interest. There can be no assurance that
the IPO will occur. The acquisitions of Sprint Spectrum Holdings and PhillieCo
will be accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined statements of operations include
the historical results of the PCS Group and the historical combined results of
Sprint Spectruim Holdings and PhillieCo for the year ended December 31, 1997
and the three months ended March 31, 1998, and include the effect of the
acquisitions, recapitalization and IPO as though such transactions had
occurred on January 1, 1997. The unaudited pro forma condensed combined
balance sheet is based upon the historical balance sheet of the PCS Group and
the historical combined balance sheet of Sprint Spectrum Holdings and
PhillieCo as of March 31, 1998. The historical balance sheet amounts have been
adjusted to reflect the acquisitions, recapitalization and IPO as though such
transactions had occurred on March 31, 1998. The historical PCS Group amounts
include Sprint's investment in Sprint Spectrum Holdings and its investment in
PhillieCo, both of which are reflected on the equity basis, and SprintCom.
The pro forma condensed combined statements of operations are not
necessarily indicative of what actual results of operations would have been
had the transactions occurred at the beginning of the periods presented nor do
they purport to indicate the results of future operations. The unaudited pro
forma condensed combined financial statements should be read in conjunction
with the historical financial statements of the PCS Group and the historical
combined financial statements of Sprint Spectrum Holdings and PhillieCo
included elsewhere in this Proxy Statement.
II-66
<PAGE>
PCS GROUP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(Unaudited, in millions)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
HISTORICAL PRO FORMA
COMBINED SPRINT ADJUSTMENTS
SPRINT SPECTRUM FOR
SPECTRUM HOLDINGS AND INITIAL
HISTORICAL HOLDINGS AND PHILLIECO PUBLIC PRO FORMA
PCS GROUP PHILLIECO ACQUISITIONS RECAPITALIZATION PRO FORMA OFFERING AS ADJUSTED
---------- ------------ ------------ ---------------- --------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets
Cash and equivalents...... $ -- $ 135.3 $ 135.3 $ 135.3
Accounts receivable, net.. -- 140.8 $ (21.9) C 118.9 118.9
Inventories............... -- 91.0 91.0 91.0
Other..................... 18.1 41.6 59.7 59.7
-------- -------- -------- --------- ---------
Total current assets...... 18.1 408.7 (21.9) 404.9 404.9
Property, plant and
equipment, net............. 447.7 3,722.5 4,170.2 4,170.2
Investments in Sprint
Spectrum Holdings and
affiliates................. 792.2 -- (606.8) B -- --
(185.4) B
Investment in unconsolidated
partnership................ -- 258.2 258.2 258.2
Intangibles, net
PCS licenses.............. 544.5 2,452.8 2,997.3 2,997.3
Customer base............. -- -- 313.2 A 313.2 313.2
Goodwill.................. -- -- 3,647.8 A 3,647.8 3,647.8
Other assets................ -- 392.0 185.4 B 575.8 $ (9.3) F 566.5
(1.6) F
-------- -------- -------- ------- --------- ------- ---------
Total....................... $1,802.5 $7,234.2 $3,330.7 $ -- $12,367.4 $ (9.3) $12,358.1
======== ======== ======== ======= ========= ======= =========
<CAPTION>
LIABILITIES AND GROUP EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities
Current maturities of
long-term debt........... $ -- $ 34.7 $ 34.7 $ 34.7
Partner advances.......... -- 135.0 135.0 135.0
Accounts payable.......... 36.9 247.7 284.6 284.6
Advance from the FON
Group.................... 79.9 -- 79.9 79.9
Payable to Sprint Spectrum
Holdings................. 21.9 -- $ (21.9) C -- --
Accrued expenses and other
current liabilities...... 0.9 352.1 353.0 353.0
-------- -------- -------- --------- ---------
Total current liabilities. 139.6 769.5 (21.9) 887.2 887.2
Construction obligations.... 135.0 486.2 621.2 621.2
Long-term debt.............. 80.9 4,411.9 75.4 A 4,456.2 $(471.2) E 3,860.0
(112.0) D (125.0) E
Deferred income taxes and
other liabilities.......... 263.1 63.2 340.2 A 666.5 666.5
Group equity................ 1,183.9 1,503.4 3,545.4 A 5,736.3 471.2 E 6,323.2
(606.8) B 125.0 E
112.0 D (9.3) F
(1.6) F
-------- -------- -------- ------- --------- ------- ---------
Total....................... $1,802.5 $7,234.2 $3,330.7 $ -- $12,367.4 $ (9.3) $12,358.1
======== ======== ======== ======= ========= ======= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
II-67
<PAGE>
PCS GROUP
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------
HISTORICAL PRO FORMA
COMBINED SPRINT SPECTRUM ADJUSTMENTS
SPRINT SPECTRUM HOLDINGS AND FOR INITIAL
HISTORICAL HOLDINGS AND PHILLIECO PRO PUBLIC PRO FORMA
PCS GROUP PHILLIECO ACQUISITIONS RECAPITALIZATION FORMA OFFERING AS ADJUSTED
---------- --------------- --------------- ---------------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.. $ -- $ 184.2 $ 184.2 $ 184.2
OPERATING EXPENSES
Costs of services and
products.............. -- 192.1 192.1 192.1
Selling, general and
administrative........ 18.6 252.4 271.0 271.0
Depreciation and
amortization.......... -- 128.7 $1.7 G 179.3 179.3
22.8 H
26.1 I
------- ------- ------ ------- -------
Total operating ex-
penses................. 18.6 573.2 50.6 642.4 642.4
------- ------- ------ ------- -------
OPERATING LOSS.......... (18.6) (389.0) (50.6) (458.2) (458.2)
Interest expense........ -- (93.8) 2.6 J (76.9) $14.3 J (63.0)
14.3 K (0.4)K
Equity in loss of Sprint
Spectrum Holdings and
affiliates............. (209.7) -- 208.0 G -- --
1.7 G
Equity in loss of uncon-
solidated partnership.. -- (38.4) (38.4) (38.4)
Other income............ -- 6.8 6.8 6.8
------- ------- ------ ------- ----- -------
Loss before income
taxes.................. (228.3) (514.4) 176.0 (566.7) 13.9 (552.8)
Income tax benefit...... 85.6 -- 115.3 L 204.3 (5.2)M 199.1
3.4 M
-----
------- ------- ------ ------- -------
NET LOSS................ $(142.7) $(514.4) $294.7 $(362.4) $ 8.7 $(353.7)
======= ======= ====== ======= ===== =======
BASIC AND DILUTED LOSS
PER COMMON SHARE....... $ $
======= =======
Weighted average common
shares................. N O
======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
II-68
<PAGE>
PCS GROUP
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------
HISTORICAL
COMBINED SPRINT PRO FORMA
SPRINT SPECTRUM ADJUSTMENTS
SPECTRUM HOLDINGS AND FOR INITIAL
HISTORICAL HOLDINGS AND PHILLIECO PUBLIC PRO FORMA
PCS GROUP PHILLIECO ACQUISITIONS RECAPITALIZATION PRO FORMA OFFERING AS ADJUSTED
---------- ------------ ------------ ---------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.. $ -- $ 258.0 $ 258.0 $ 258.0
OPERATING EXPENSES
Costs of services and
products............... -- 574.3 574.3 574.3
Selling, general and
administrative......... 18.5 747.1 765.6 765.6
Depreciation and
amortization........... -- 316.3 $ 3.5 G 515.4 515.4
91.2 H
104.4 I
------- --------- ------ --------- ---------
Total operating ex-
penses................. 18.5 1,637.7 199.1 1,855.3 1,855.3
------- --------- ------ --------- ---------
OPERATING LOSS.......... (18.5) (1,379.7) (199.1) (1,597.3) (1,597.3)
Interest expense........ -- (123.5) 10.7 J (91.8) $57.0 J (35.4)
21.0 K (0.6)K
Equity in loss of Sprint
Spectrum Holdings and
affiliates............. (659.6) -- 656.1 G -- --
3.5 G
Equity in loss of
unconsolidated
partnership............ -- (168.9) (168.9) (168.9)
Other income............ -- 39.4 39.4 39.4
------- --------- ------ --------- ----- ---------
Loss before income tax-
es..................... (678.1) (1,632.7) 492.2 (1,818.6) 56.4 (1,762.2)
Income tax benefit...... 259.0 -- 372.4 L 659.2 (21.5)M 637.7
27.8 M
------- --------- ------ --------- ----- ---------
NET LOSS................ $(419.1) $(1,632.7) $892.4 $(1,159.4) 34.9 $(1,124.5)
======= ========= ====== ========= ===== =========
BASIC AND DILUTED LOSS
PER COMMON SHARE....... $ $
========= =========
Weighted average common
shares................. N O
========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
II-69
<PAGE>
PCS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following adjustments have been made in the preparation of the unaudited
pro forma condensed combined financial statements:
Pro Forma Balance Sheet Adjustments
A To record the purchase of the remaining 60% of Sprint Spectrum Holdings and
52.9% of PhillieCo. The consideration given in connection with the purchase
will be shares of PCS Stock and warrants to purchase additional shares of
PCS Stock representing 47% of the PCS Group common equity following the PCS
Restructuring. The preliminary purchase price is based on the estimated
market value of the PCS Group and will be updated at the time of the PCS
Restructuring. The excess of the purchase price over the fair value of net
assets to be acquired is calculated as follows (in millions):
<TABLE>
<S> <C>
Preliminary purchase price..................................... $4,418.0
Transaction costs.............................................. 24.0
Net assets to be acquired...................................... (896.6)
Customer base.................................................. (313.2)
Step-up in long-term debt to fair value........................ 75.4
Deferred taxes on acquired assets and liabilities.............. 340.2
--------
Goodwill....................................................... $3,647.8
========
</TABLE>
The carrying amounts of the assets to be acquired and liabilities to be
assumed are assumed for purposes of the preliminary purchase price
allocation to approximate fair market value, except for certain long-term
debt of Sprint Spectrum that has been recorded at fair value. A portion of
the purchase price was attributed to the customers acquired in the Sprint
Spectrum Holdings and PhillieCo acquisitions. In addition, deferred taxes
have been recorded for the difference in the book and tax bases of the
assets acquired and liabilities assumed. Cash to fund the transaction costs
will be contributed by the FON Group to the PCS Group.
B To eliminate the PCS Group's historical investment in Sprint Spectrum
Holdings and PhillieCo, accounted for by the PCS Group on the equity method
of accounting ($606.8 million), and to reclassify interest capitalized as
part of that investment to other assets ($185.4 million).
C To eliminate the PCS Group's payable to Sprint Spectrum Holdings.
D To record the sale of shares to FT and DT. As a result of the issuance of
PCS Stock to the Cable Parents in exchange for their interests in Sprint
Spectrum Holdings and PhillieCo, the sale of these additional shares is
required in order for FT and DT to maintain their combined 20% voting
interest in Sprint. The proceeds are assumed to reduce the long-term debt
of Sprint Spectrum Holdings.
E To record the sale of shares in the IPO of the PCS Stock ($471.2 million).
IPO proceeds of $500 million have been assumed, net of estimated offering
costs of $28.8 million, although the actual amount of the IPO may vary
based on market conditions. Also to record the sale of shares to FT and DT
in order for their combined 20% voting interest in Sprint to be maintained
($125 million). The proceeds from both the IPO and the sale of additional
shares to FT and DT are assumed to reduce the long-term debt of Sprint
Spectrum Holdings.
F To write off deferred financing costs associated with the assumed repayment
of Sprint Spectrum Holdings debt with proceeds from the sale of shares to
FT and DT related to shares issued to the Cable Parents in connection with
the PCS Restructuring and proceeds from the IPO and the related sale of
shares to FT and DT.
Pro Forma Statement of Operations Adjustments
G To eliminate Sprint's equity in the losses of Sprint Spectrum Holdings and
PhillieCo, historically accounted for by the PCS Group on the equity method
of accounting ($208.0 million for the three months ended March 31, 1998 and
$656.1 million for the year ended December 31, 1997). The amortization of
interest previously capitalized on the investment in Sprint Spectrum
Holdings and PhillieCo has been reclassified to
II-70
<PAGE>
PCS GROUP
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
depreciation and amortization expense ($1.7 million for the three months
ended March 31, 1998 and $3.5 million for the year ended December 31, 1997).
H To reflect the amortization of the goodwill recorded in connection with the
purchase of the remaining interests in Sprint Spectrum Holdings and
PhillieCo, which is being amortized over 40 years.
I To reflect the amortization of the customer base recorded in connection with
the purchase of the remaining interests in Sprint Spectrum Holdings and
PhillieCo, which is being amortized over three years.
J To record a reduction in interest expense and amortization of deferred
financing costs as a result of the assumed repayment of Sprint Spectrum
Holdings debt with the proceeds from the sale of shares to FT and DT and the
IPO. An average interest rate of 9.0% was used in determining the amount of
this adjustment.
K To record an adjustment to interest expense as a result of the
implementation of the tax sharing agreement between the PCS Group and the
FON Group, whereby the PCS Group receives quarterly payments from the FON
Group for the current tax benefits generated on its losses. The increased
tax benefits are assumed to reduce long-term debt of Sprint Spectrum
Holdings that carries an average interest rate of 9.0%.
L To record the income tax benefit relating to the remaining interests in
Sprint Spectrum Holdings and PhillieCo to be acquired by Sprint using an
effective tax rate of 37.5% and 38.2% for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively.
M To record income taxes on pro forma adjustments I through K using an
effective tax rate of 37.5% and 38.2% for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively.
N The weighted average common shares outstanding reflect (1) the issuance of
PCS Stock to the Cable Parents ( million shares), (2) the recapitalization
of Sprint's existing common stock into 1/2 share of PCS Stock ( million
shares for each period presented), and (3) the sale of shares to FT and DT
( million shares).
O The weighted average common shares outstanding reflect the items in
adjustment "N", as well as the shares assumed to be sold in the IPO (
million shares) and the related sale of shares to FT and DT ( million
shares).
II-71
<PAGE>
ANNEX III--FON GROUP INFORMATION
BUSINESS
The FON Stock, when issued in the Recapitalization, is intended to track the
performance of the FON Group. The following description should be read in
conjunction with the FON Group Financial Statements and the Notes thereto
provided elsewhere in this Annex III.
GENERAL OVERVIEW OF THE FON GROUP
The principal activities of the FON Group include (i) the FON Group's core
businesses, consisting of its long distance service, local service, product
distribution and directory publishing activities, (ii) the FON Group's
emerging businesses, which consist of the development of new integrated
communications services, consumer Internet access services, Sprint Paranet and
Sprint International, (iii) Sprint's interest in the Global One international
strategic alliance and (iv) other telecommunications investments and
alliances.
CORE BUSINESSES--LONG DISTANCE DIVISION
General. The FON Group's long distance division ("LDD") is the nation's
third largest provider of long distance telephone services. LDD operates a
nationwide all-digital long distance telecommunications network that uses
state-of-the-art fiber-optic and electronic technology. LDD provides domestic
and international voice, video and data communications services.
The division's financial performance for the fiscal years ended December 31,
1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net Operating Revenues(1)...................... $8,954.8 $8,302.1 $7,277.4
Operating Cash Flow(3)......................... 1,834.2 1,617.3 1,288.4
Operating Income(2)............................ 1,097.5 924.0 706.8
</TABLE>
- --------
(1) Includes net operating revenues eliminated in consolidation of $3.3,
$30.9, and $38.9 million in 1997, 1996, and 1995, respectively.
(2) Includes nonrecurring items relating to litigation charges of $20 million
and $60 million for 1997 and 1996, respectively.
(3) Operating cash flow represents operating income plus depreciation and
amortization, and excludes nonrecurring items.
Competition. The division competes with AT&T, MCI Communications Corporation
("MCI") and other telecommunications providers in all segments of the long
distance communications market. AT&T continues to have the largest market
share of the domestic long distance communications market. MCI is the nation's
second largest long distance telephone company. Competition in long distance
is based on price and pricing plans, the types of services offered, customer
service, and communications quality, reliability and availability.
Strategy. In order to achieve profitable market share growth in an
increasingly competitive long distance communications environment, LDD intends
to leverage its principal strategic assets: its national brand, innovative
marketing and pricing plans, superior customer service, state-of-the-art
technology, and partnerships with other FON Group operating divisions and the
PCS Group. LDD will focus on expanding its leading presence in the high-growth
data communications markets such as ATM and Frame Relay and intends to become
the provider of choice for delivery of end-to-end service to companies with
complex distributed computing environments. The FON Group continues to deploy
network and systems infrastructure which provides industry-leading
reliability, cost effectiveness and technological improvements. In order to
create integrated product offerings for its customers, the FON Group is
solidifying the linkage of its long distance division with Sprint's
III-1
<PAGE>
other operations such as the Local Telecommunications Division, Sprint
Paranet, the Global One alliance and the PCS Group in the areas of sales
support, marketing, integration of systems and the development of common
products and services.
Marketing and Distribution. The FON Group's long distance services are
marketed to the consumer, business and carrier customer segments under the
Sprint brand name through (i) the Consumer Services Group ("CSG"), (ii) Sprint
Business and (iii) the Wholesale Services Group ("WSG"), respectively.
CSG is focused on marketing its products and services primarily to the
residential marketplace. The Sprint Sense dime-a-minute product continues to
be the cornerstone of the CSG marketing effort. Among other channels, CSG's
marketing reach was significantly expanded in the third quarter of 1997 with
the opening of the "store within a store" concept in over 6,000 RadioShack
locations nationwide. CSG also exploits marketing relationships with well-
known consumer franchises such as the NFL and other widely-recognized
organizations or entities. In addition, CSG benefits from Sprint's superior
customer service recognition, having been rated as the number one long
distance provider in 1997 for customer satisfaction by both the Yankee Group,
for the fourth consecutive year, and J.D. Power and Associates, for the third
consecutive year.
Sprint Business focuses on marketing and distributing LDD's core products
such as advanced global data, voice and video solutions to business customers.
Sprint Business' ATM, Frame Relay and Internet backbone services experienced
annual revenue growth of 70% in 1997. According to International Data
Corporation, Sprint has the leading market share in combined ATM, Frame Relay
and x.25 data services. In addition to leveraging the FON Group's other
operations, such as the Global One alliance and Sprint Paranet, Sprint
Business has introduced innovative marketing products to business customers
such as the Fridays Free program, which has allowed Sprint Business to grow
the number of its small business accounts by more than 15% over the last two
years.
WSG is organized around three distinct customer segments and their needs
including Reseller Services (selling primarily to other long distance
providers), RBOC Services and Emerging Market Services (focusing on non-
traditional providers such as utilities). Reseller Services has been the
principal driver of WSG's volume and revenue growth. WSG was awarded the right
to provide capacity to two RBOCs as they prepare to enter the long distance
business, and is expected to realize significant volume gains when the RBOCs
are allowed to market long distance services within their regions.
Network Technology. LDD's advanced, nationwide, all-digital network
currently covers approximately 29,000 route miles. LDD is the industry leader
in the deployment of DWDM, ATM and SONET technologies, which provide customers
with unprecedented survivability and bandwidth capacity. As of May 31, 1998,
over 87% of LDD's long distance traffic was carried on SONET, and by mid year
1999, this number is expected to reach 100%. DWDM can increase the capacity of
a single fiber pair up to 16 times and was utilized on more than 70% of
Sprint's route miles at year-end 1997 with a target of over 90% by year end
1998. LDD is currently deploying DWDM with an even greater capacity
multiplier. As a result of ATM technology deployment, Sprint is transitioning
its network infrastructure to a packet network capable of handling data, video
and voice traffic over common switching and transport electronics. As of the
end of 1997, LDD had deployed 14 ATM core switches on its network backbone
with the throughput capacity of 10 gigabytes per second expandable to 160
gigabytes per second. LDD expects to have deployed in excess of 100 ATM
switches by the end of 1998. In addition to its packet-based technology, LDD
is also developing broadband solutions in select metropolitan areas nationwide
which involve contracting with local exchange carriers to construct high-
speed, SONET-based fiber rings, bringing the advanced technology of LDD's long
distance network to the local market. At the end of 1997, LDD had broadband
metropolitan area networks in 16 of the top 50 MSAs. All of these efforts
combine to provide Sprint's customers with nationwide, end-to-end connectivity
over LDD's state-of-the-art network.
III-2
<PAGE>
CORE BUSINESSES--LOCAL TELECOMMUNICATIONS DIVISION
General. The local telecommunications division ("LTD") consists primarily of
regulated LECs serving approximately 7.5 million access lines in 19 states.
LTD provides local services, access by telephone customers and other carriers
to LTD's local exchange facilities, sales of telecommunications equipment and
long distance services within specified geographical areas.
LTD's financial performance for the fiscal years ended December 31, 1997,
1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net Operating Revenues(1), (4)................... $5,290.2 $5,126.8 $4,690.0
Operating Cash Flow(3), (4)...................... 2,328.1 2,246.1 1,964.0
Operating Income(2), (4)......................... 1,394.0 1,337.0 1,040.8
</TABLE>
- --------
(1) Includes net operating revenues eliminated in consolidation of $309.0,
$410.5 and $266.4 million in 1997, 1996 and 1995, respectively.
(2) Includes a nonrecurring charge in 1995 of $88 million related to a
restructuring within the local telecommunications division.
(3) Operating cash flow represents operating income plus depreciation and
amortization, and excludes nonrecurring items.
(4) Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between affiliates to more accurately reflect market pricing.
For a further discussion, see "--Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
AT&T is LTD's largest customer for network access services. In 1997 and
1996, 13% of the division's net operating revenues were from services (mainly
network access services) provided to AT&T compared with 15% in 1995. On a
consolidated basis, revenues from AT&T were 5% of Sprint's revenues in 1997
and 1996 and 6% in 1995. While AT&T is a significant customer, LTD does not
believe the division's revenues are dependent on AT&T, since any long distance
provider must pay access charges to LTD related to inter-LATA long distance
telephone service.
Strategy. To continue to build on its successful track record, LTD has
embarked on a growth strategy whereby it will aggressively market Sprint's
entire product portfolio to its local customers as well as its core product
line of advanced network features and data products.
LTD has reorganized around its principal market segments: (i) Consumer and
Small Business Markets ("CSB"), (ii) Business Markets and (iii) Carrier
Markets. This new structure provides a more efficient and focused approach to
sales and service for these market segments. Along with this market focus, LTD
has centralized the management of support organizations to provide significant
operational efficiencies and to ensure superior support of LTD's end-users.
CSB is focused on increasing voice and data product penetration in the
consumer and small business markets, including small office/home office
customers. Consumer initiatives, (including aggressive marketing of advanced
network features such as Caller ID, Caller ID-based telephone sets, and usage-
sensitive features) have been strong contributors to growth in 1997. CSB is
developing as a full-service provider and currently sells the Sprint portfolio
of products and services in 18 of the 19 states in which LTD operates.
Customers who establish new local service with LTD are offered a "bundle" of
products and services including traditional local service, vertical services,
long distance, Internet access, paging and wireless, where available.
III-3
<PAGE>
Business Markets is focused on selling high-capacity data networking
solutions such as ATM and Frame Relay, and marketing the network's SONET
survivability characteristics. Business Markets is partnering with LDD to
provide end-to-end solutions for medium to large business customers.
Carrier Markets sells and markets LTD's network to emerging resellers of
local telephone services as well as wireless and interexchange carriers.
Efforts are under way to leverage existing strengths, including database,
Signaling System 7 ("SS7"), and billing and collection services, to increase
revenues. Added emphasis is also being placed on growing profits in the now
deregulated pay phone business.
Network Technology. LTD will continue to emphasize growth by investing in
advanced network technologies including expanded deployment of SONET ring
technology to enhance network reliability as well as installation of fiber
deeper into the network. Rapidly growing demand for higher-speed data
communications capabilities is being addressed through technologies such as
ADSL and ISDN.
CORE BUSINESSES--PRODUCT DISTRIBUTION AND DIRECTORY PUBLISHING
The product distribution and directory publishing businesses consist of
Sprint North Supply Company ("North Supply") and Sprint Publishing and
Advertising ("SPA").
North Supply is one of the nation's largest distributors of
telecommunications equipment to wireline and wireless service companies, cable
TV operators, and system resellers. Available equipment includes a wide array
of products for voice, data and video communications, cable television,
security alarm systems, complementary accessories, tools and supplies. More
than 30,000 different products are stocked from 1,300 manufacturers.
SPA publishes and markets white and yellow page telephone directories in
certain of LTD's local exchange areas, as well as in the greater metropolitan
areas of Milwaukee, Wisconsin and Chicago, Illinois. SPA's revenues are mainly
derived from selling directory advertisement. SPA is currently the nation's
seventh largest Yellow Pages publisher and produces over 320 directories
across 20 states with an annual circulation of more than 20 million.
The financial performance for the product distribution and directory
publishing businesses for the fiscal years ended December 31, 1997, 1996 and
1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net Operating Revenues(1), (3)................... $1,454.3 $1,225.4 $1,147.6
Operating Cash Flow(2), (3)...................... 188.1 108.8 94.1
Operating Income(3).............................. 179.9 101.6 86.7
</TABLE>
- --------
(1) Includes net operating revenues eliminated in consolidation of $570.5,
$325.9 and $336.8 million in 1997, 1996 and 1995, respectively. Prior to
1996, revenues resulting from transactions with regulated affiliates were
not eliminated in consolidation.
(2) Operating cash flow represents operating income plus depreciation and
amortization.
(3) Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between affiliates to more accurately reflect market pricing.
For a further discussion see "--Management's Discussion and Analysis of
Financial Condition and Results of Operations."
III-4
<PAGE>
EMERGING BUSINESSES
The FON Group's emerging businesses consist of National Integrated Services,
consumer Internet access services, Sprint Paranet and Sprint International.
National Integrated Services ("NIS"). The objective of NIS is to enable the
FON Group to be a national provider of fully integrated services across all
customer segments. Its efforts are directed toward the development and
deployment of an Integrated On-demand Network (ION) which will extend the FON
Group's existing advanced network capabilities to customer premises and will
enable the FON Group to meet two critical business needs, namely (i) to
provide the network infrastructure to meet customers' ever-increasing demands
for data, Internet, and video use and (ii) to provide the foundation for the
FON Group to provide competitive local service. NIS believes that this
integrated services capability will generate increased demand for the FON
Group's products and services, while at the same time, substantially reducing
the costs to provide such services. The incremental capital expenditures
required to develop this advanced functionality is projected to cost
approximately $400 million over the next two years. Sprint will be assisted in
this development effort by Cisco Systems and Bellcore. These companies will be
contributing their expertise and assisting in the funding of this development
effort. Additional infrastructure capital will be required as demand for the
services develops.
Beginning in the third quarter of 1998, ION will initially be offered to
large businesses in metropolitan markets serviced over high capacity fiber
optic/SONET ring networks owned by the FON Group or leased from third party
providers. ION will then be expanded to cover large businesses outside these
areas, followed by small business and residential users, with the expectation
of having ION generally available to the consumer market by late 1999.
ION intends to rely substantially on the transmission infrastructure of the
long distance division and to a lesser extent on the transmission
infrastructure of the local telecommunications division. Where existing
facilities do not exist, ION will evaluate whether facilities should be built
or leased. Because a significant amount of future investment will be
associated with specific customer contracts, the FON Group will be able to
manage its investment in ION to be consistent with customer demand.
Consumer Internet Access Services. In February 1998, Sprint announced a
long-term strategic alliance with EarthLink Network, Inc., ("EarthLink") one
of the highest-rated, fastest-growing Internet service providers in the world.
As part of the transaction, Sprint will purchase an approximate 30% economic
interest in EarthLink.
As part of this investment, Sprint will contribute to EarthLink all of
Sprint's 130,000 Sprint Internet Passport customers and will also provide
EarthLink with the following:
. 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 Internet Protocol network at favorable prices; and
. Agency status to bundle Sprint's telecommunications services with
EarthLink services.
Under the agreement, Sprint will become the exclusive telecommunications
provider promoted in EarthLink's channels.
EarthLink will manage the operations, customer service, technical support
and product development for the unified Internet service. Leveraging the
brands of both companies, EarthLink and Sprint will work together on product
development, sales and marketing.
III-5
<PAGE>
Sprint Paranet. At the end of September 1997, Sprint acquired Paranet, Inc.,
a leading provider of integration, management, and support services for
distributed computing environments. The acquisition strengthens Sprint's
position as one of the world's leading data carriers by augmenting the
company's wide area network data products and services with Paranet's
expertise in local area networks and distributed network systems.
Sprint Paranet focuses on integration, management and support of network and
system components, including network hardware from multiple vendors,
collaborative groupware, multiple operating systems, network protocols, client
server infrastructures, network security facilities and "Year 2000" solutions.
Sprint Paranet provides a complete spectrum of custom-designed solutions,
including design, integration, implementation, and day-to-day management for
WANs, LANs, Internet/intranets and desktops. Sprint Paranet offers business
customers the ability to quickly and cost-effectively use network technologies
to increase their competitiveness and business growth.
Sprint International. Sprint International ("SI") was established in 1996 to
enhance Sprint's position as a global communications company by pursuing
carefully selected business opportunities in key countries and markets around
the world outside the scope of its Global One alliance. Complementing the
strategies of Global One will continue to be an important component in
selecting opportunities.
SI is a 25% owner of Barak, an Israeli joint venture that was awarded an
international long distance license in 1997 and which has since captured 20%
market share of that market. In China, SI has invested in Tianjin Global
Communications, a fixed wireline network operator, and is pursuing other
transactions in major Chinese markets. In the Americas, it is focusing on the
privatization of Telebras, the Brazilian government-owned telephone company
which is expected to be privatized in July 1998. In Europe, SI is
concentrating on developing opportunities with Sprint's Global One partners,
FT and DT, in several markets outside France and Germany.
GLOBAL ONE
Sprint is a partner in Global One, a joint venture with FT and DT, which
provides seamless global telecommunications services to business, consumer and
carrier markets worldwide. Sprint is a one-third partner in Global One's
operating group serving Europe (excluding France and Germany) and a 50%
partner in Global One's operating group for the worldwide activities outside
the United States and Europe.
Global One's strategic objective is to be the premier provider of global
telecommunications services. To achieve this objective, the Global One
business strategy is designed to achieve maximum global coverage and seamless
global connectivity. Under a single global brand and through a single
interface to customers in each country, Global One offers a comprehensive
array of state-of-the-art telecommunications services, delivered through its
advanced global network infrastructure.
Global One currently has a sales presence in 65 countries; more than 1,400
points of presence (switching centers) outside of Germany, France and the
United States; four network management sites monitoring traffic on the global
backbone networks; 29 customer service centers; and 1997 revenues in excess of
$1.1 billion of which Sprint's proportional share of revenues was $474
million.
While focusing on the multinational business user, Global One also serves
carriers seeking cost-effective international solutions and the consumer
market. Global One offers products and services through the respective venture
partners in France, Germany and the United States, and through local business
offices, national affiliates, partnerships and distributor agreements in
virtually all other important markets.
III-6
<PAGE>
OTHER INVESTMENTS AND ALLIANCES
Sprint's other investments and alliances include a 3.7% interest in Iridium
LLC, a satellite-based mobile communications provider. In addition, in August
1993, Sprint acquired a 25% equity interest in Call-Net Enterprises, Inc.
("Call-Net"), a long distance telecommunications company in Canada operating
under the Sprint brand name. At the end of 1997, Call-Net had a 10% share of
the long distance market in Canada. In February 1997, Sprint entered into a
50-50 joint venture with Telefonos de Mexico (Telemex), the dominant
telecommunications provider in Mexico to market international long distance
services between the U.S. and Mexico with products and services tailored to
the Hispanic community.
REGULATION
The Telecommunications Act of 1996 (the "Telecom Act"), which was signed
into law in February 1996, was designed to promote competition in all aspects
of telecommunications. It eliminated legal and regulatory barriers to entry
into local telephone markets. It also required ILECs, among other things, to
allow local resale at wholesale rates, negotiate interconnection agreements,
provide nondiscriminatory access to unbundled network elements and allow
collocation of interconnection equipment by competitors. The Telecom Act also
allows RBOCs to provide in-region long distance service once they obtain state
certification of compliance with a competitive "checklist," have a facilities-
based competitor, and obtain a ruling from the FCC that the provision of in-
region long distance service is in the public interest. The Telecom Act's
impact on Sprint remains unclear because the rules for competition are still
being decided by regulators and the courts.
Sprint has filed for CLEC status in 48 states in anticipation of the local
markets opening to competition; however, currently, Sprint is not actively
marketing CLEC services. See "--Emerging Businesses." In those areas in which
Sprint is the ILEC, local competition is expected to eventually result in some
loss of market share. Because Sprint's ILEC operations are geographically
dispersed and largely in rural markets, local competition is expected to occur
more gradually than in more urban markets.
In accordance with the Telecom Act, the FCC adopted detailed rules in 1996
to govern interconnection to incumbent local networks by new market entrants.
Some LECs and state public utility commissions appealed these rules to the
U.S. Court of Appeals, which prevented most of the pricing rules from taking
effect, pending a full review by the court. In 1997, the U.S. Court of Appeals
for the Eighth Circuit struck down the FCC's pricing rules. It ruled that the
Telecom Act left jurisdiction over pricing matters to the states. The court
also struck down certain other FCC rules on jurisdictional or substantive
grounds. The U.S. Supreme Court has agreed to review the appeals court
decision.
In 1997, the FCC issued important decisions on the structure and level of
access charges and universal service. These decisions will impact the industry
in several ways, including the following:
. An additional subsidy was created to support telecommunications services
for schools, libraries and rural health care providers. All carriers
providing telecommunications services will be required to fund this
program, which is capped at $2.7 billion per year. However, LECs can
pass their portion of these costs on to long distance carriers.
. Per-minute interstate access rates charged by LECs will decline over
time to become cost-based, beginning in July 1997.
. Certain monthly flat-rate charges paid by some local telephone customers
will increase beginning in 1998.
. Certain per-minute access charges paid by long distance companies were
converted to flat monthly charges based on pre-subscribed lines.
. A basis has been established for replacing implicit access subsidies
with an explicit interstate universal service fund beginning in 1999.
III-7
<PAGE>
A number of LECs, long distance companies and others have appealed some or
all of the FCC's orders. The effectiveness of the orders has not been
suspended, and the appeals are expected to take a year or more to conclude.
The impact of these FCC decisions on Sprint is difficult to determine, but is
not expected to be material to the FON Group.
Some RBOCs have also challenged the Telecom Act restrictions on their entry
into long distance markets as unconstitutional. A federal district court in
Wichita Falls, Texas, ruled the restrictions unlawful because they constituted
a legislative act that imposed punishment without a judicial proceeding. The
United States government, along with Sprint and others, filed appeals of this
decision. The federal district court delayed implementing its decision pending
resolution of the appeals. In 1997, several RBOCs claimed they met the
competitive checklist and sought FCC approval to offer in-region long distance
service. These applications were denied by the FCC.
ENVIRONMENT
Sprint's environmental compliance and remediation expenditures mainly result
from the operation of standby power generators for its telecommunications
equipment. The expenditures arise in connection with standards compliance,
permits or occasional remediation, which are usually related to generators,
batteries or fuel storage. Sprint has been identified as a potentially
responsible party at sites relating to either landfill contamination or
discontinued power generation operations. Sprint's environmental compliance
and remediation expenditures have not been material to its financial
statements or to its operations and are not expected to have any future
material adverse effects on the FON Group.
PATENTS, TRADEMARKS AND LICENSES
Sprint owns numerous patents, patent applications, service marks and
trademarks in the United States and other countries. Sprint is also licensed
under domestic and foreign patents and trademarks owned by others. In total,
these patents, patent applications, trademarks, service marks and licenses are
of material importance to the FON Group's business. Generally, Sprint's
trademarks, trademark licenses and service marks have no limitation on
duration; Sprint's patents and licensed patents have lives generally ranging
from one to 17 years.
EMPLOYEE RELATIONS
As of April 30, 1998, the FON Group had approximately 48,000 employees, of
whom 23.5% are represented by unions. During 1997, Sprint had no material work
stoppages caused by labor controversies.
FACILITIES
The FON Group's property, plant and equipment totaled $23.0 billion at year-
end 1997, of which $14.0 billion relates to local communications services and
$8.2 billion relates to long distance communications services. These
properties mainly consist of land, buildings, digital fiber-optic network,
switching equipment, microwave radio and cable and wire facilities. Sprint
leases certain switching equipment and several general office facilities. The
LDD has been granted easements, rights-of-way and rights-of-occupancy, mainly
by railroads and other private landowners, for its fiber-optic network.
The product distribution and directory publishing businesses' properties
mainly consist of office and warehouse facilities to support the business
units in the distribution of telecommunications products and publication of
telephone directories.
Property, plant and equipment totaling $12.9 billion is either pledged as
security for first mortgage bonds and certain notes or is restricted for use
as mortgaged property.
III-8
<PAGE>
LEGAL PROCEEDINGS
Sprint is involved in various legal proceedings arising in the ordinary
course of business of the FON Group. While it is not possible to determine the
ultimate disposition of each of these proceedings, Sprint believes that the
outcome of such proceedings, individually and in the aggregate, will not have
a material adverse effect on the FON Group's financial condition or results of
operations.
MANAGEMENT
For information concerning the executive officers and directors of Sprint,
see "Executive Officers and Directors of Sprint" in this Proxy Statement.
III-9
<PAGE>
FON GROUP
SELECTED FINANCIAL DATA
The following unaudited table sets forth Selected Financial Data of the FON
Group and should be read in conjunction with the FON Group Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
the FON Group Combined Financial Statements and Notes thereto. The Selected
Financial Data at December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, have been derived from the FON Group
Combined Financial Statements, which have been audited by Ernst & Young LLP,
independent auditors. The Selected Financial Data at December 31, 1995, 1994
and 1993 and at March 31, 1998 and for each of the two years in the period
ended December 31, 1994 and for the three months ended March 31, 1998 and
1997, have been derived from the unaudited FON Group Combined Financial
Statements. The unaudited FON Group Combined Financial Statements have been
prepared on the same basis as the audited FON Group Combined Financial
Statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for these
periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net operating revenues.. $ 3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 686.8 605.5 2,469.9 2,267.7 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 359.2 343.0 1,371.6 1,310.6 966.0 899.2 517.1
CASH FLOW DATA
Cash from operating
activities--continuing
operations(3).......... $ 786.0 $ 650.8 $ 2,906.8 $ 2,267.3 $ 2,590.1 $ 2,339.6 $ 2,007.8
Capital expenditures.... 609.3 567.4 2,708.9 2,433.6 1,857.3 1,751.6 1,429.8
BALANCE SHEET DATA
Total assets............ $17,169.2 $16,491.7 $15,566.6 $14,100.6 $14,374.1 $13,781.8
Property, plant and
equipment, net......... 11,466.5 11,316.8 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
short-term borrowings). 4,122.6 3,879.6 3,273.9 5,668.9 4,927.7 5,084.1
Group equity............ 7,972.3 7,639.3 7,332.3 3,676.9 4,473.7 3,918.3
</TABLE>
- --------
(1) During 1997 and 1996, the FON Group recorded nonrecurring charges of $20
and $60 million, respectively, related to litigation within the long
distance division. These charges reduced income from continuing operations
by $13 million in 1997 and $36 million in 1996.
During 1995, the FON Group recorded a nonrecurring charge of $88 million
related to a restructuring within the local telecommunications division,
which reduced income from continuing operations by $55 million.
During 1993, the FON Group recorded nonrecurring charges of $293 million
related to (a) transaction costs from the merger with Centel Corporation
and expenses of integrating and restructuring the operations of the two
companies and (b) a realignment and restructuring within the long distance
division. These charges reduced income from continuing operations by $193
million.
(2) During 1997, the FON Group recognized gains of $45 million on sales of
local exchanges and a $26 million gain on the sale of an equity investment
in an equipment provider. These gains increased income from continuing
operations by $27 million and $17 million, respectively.
During 1994, the FON Group recognized a $35 million gain on the sale of
equity securities, which increased income from continuing operations by $22
million.
During 1993, due to the enactment of the Revenue Reconciliation Act of
1993, the FON Group adjusted its deferred income tax assets and liabilities
to reflect the increased tax rate. This adjustment reduced income from
continuing operations by $11 million.
(3) The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
III-10
<PAGE>
FON GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sprint Corporation (and with its subsidiaries "Sprint") has entered into a
restructuring agreement with the Cable Parents to restructure Sprint's
wireless PCS operations. Sprint will acquire the joint venture interests of
the Cable Parents in Sprint Spectrum Holdings and the joint venture interests
of TCI and Cox in PhillieCo. In exchange for these joint venture interests,
Sprint will issue to the Cable Parents a newly created class of Sprint Common
Stock, the PCS Stock. The PCS Stock is intended to reflect separately the
performance of these joint ventures and the domestic PCS operations of
Sprint's wholly owned subsidiary, SprintCom. These operations will be referred
to as the PCS Group.
Sprint will effect the Recapitalization by reclassifying each share of
Sprint's existing Common Stock into 1/2 share of PCS Stock and one share of
FON Stock. The FON Stock is intended to reflect separately the performance of
all of Sprint's other operations, including its long distance, local
telecommunications and product distribution and directory publishing
divisions, emerging businesses and its interest in Global One. These
operations will be referred to as the FON Group.
The Combined Financial Statements of the FON Group include (i) the combined
historical balance sheets, results of operations and cash flows of the
businesses that comprise the FON Group; (ii) corporate assets and liabilities
of Sprint and the related transactions not specifically identified with the
PCS Group; and (iii) all of the allocable corporate expenses not specifically
identified with the PCS Group. These expenses will be allocated to both groups
in accordance with management established policies, see "Tracking Stock
Policies--Tracking Stock Policies." All significant intragroup financial
transactions have been eliminated; however, transactions between the FON Group
and the PCS Group have not been eliminated.
GENERAL
FORWARD-LOOKING INFORMATION
Sprint includes certain estimates, projections and other forward-looking
statements in its reports, in presentations to analysts and others, and in
other publicly available material. Future performance cannot be ensured.
Actual results may differ materially from those in the forward-looking
statements. Factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include
(i) the effects of vigorous competition in the markets in which the FON Group
operates; (ii) the cost of entering new markets necessary to provide seamless
services; (iii) the risks related to Sprint's investments in Global One and
other joint ventures; (iv) the impact of any unusual items resulting from
ongoing evaluations of the FON Group's business strategies; (v) requirements
imposed on Sprint or latitude allowed its competitors by the FCC or state
regulatory commissions under the Telecommunications Act of 1996; (vi)
unexpected results of litigation filed against Sprint; and (vii) the
possibility of one or more of the markets in which Sprint competes being
impacted by changes in political, economic or other factors such as monetary
policy, legal and regulatory changes or other external factors over which
Sprint or the FON Group have no control.
The words "estimate", "project", "intend", "expect", "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Sprint undertakes no
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Moreover, Sprint, through
senior management, may from time to time make forward-looking statements about
the matters described herein or other matters concerning Sprint.
III-11
<PAGE>
CORE BUSINESSES
Long Distance Division
The long distance division is the nation's third-largest long distance
telephone company. It operates a nationwide, all-digital long distance
communications network using state-of-the-art fiber-optic and electronic
technology. The division mainly provides domestic and international voice,
video and data communications services. It offers its services to the public
subject to varying levels of state and federal regulation.
Local Telecommunications Division
The local telecommunications division consists of regulated local exchange
carriers ("LECs") serving approximately 7.5 million access lines in 19 states.
It provides local exchange services, access by telephone customers and other
carriers to the FON Group's local exchange facilities, sales of
telecommunications equipment and long distance services within specified
geographical areas.
Product Distribution and Directory Publishing Division
The product distribution and directory publishing businesses provide
wholesale distribution services of telecommunications products, and publish
and market white and yellow page telephone directories.
EMERGING BUSINESSES
Emerging businesses consist of CLEC and related activities, consumer
Internet access services, Sprint Paranet, and Sprint International.
STRATEGIC ALLIANCE
Global One
Sprint is a partner in Global One, a joint venture with France Telecom
("FT") and Deutsche Telekom AG ("DT") 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. Global One is accounted for by Sprint in the FON Group Combined
Financial Statements on the equity basis.
FT and DT each own 10% of Sprint's voting equity through Sprint's Class A
common stock. As Class A common stockholders, they have the right in most
cases to proportionate representation on Sprint's Board of Directors.
Following the Recapitalization, the Class A common shares owned by FT and DT
will represent interests in both the FON Group and the PCS Group. FT and DT
each have the right to keep their ownership levels at 10% overall voting power
in Sprint. See "The Tracking Stock Proposal--FT and DT Arrangements."
The FON Group's long distance division contributed certain assets and
related operations of its international business unit to Global One when the
venture was formed in January 1996.
SPINOFF OF CELLULAR DIVISION
In March 1996, Sprint completed the tax-free spinoff of Sprint's cellular
division ("Cellular") to Sprint common stockholders (the "Spinoff"). See
"Liquidity and Capital Resources--Discontinued Operation" for more
information.
III-12
<PAGE>
REGULATION
See "FON Group Information--Business--Regulation" for a complete discussion
of the regulatory developments that could have a future impact on the FON
Group.
RESULTS OF OPERATIONS
COMBINED FON GROUP
Total net operating revenues for the three months ended March 31, 1998 were
$3.9 billion, a 9% increase from $3.6 billion for the same period in 1997.
Income from continuing operations was $359 million in the first quarter of
1998 compared with $343 million for the same period in 1997. Total net
operating revenues for 1997 were $14.9 billion, a 7% increase from $13.9
billion in 1996. Total net operating revenues for 1995 were $12.7 billion.
Income from continuing operations was $1.4 billion in 1997 compared with $1.3
billion in 1996 and $1.0 billion in 1995.
CORE BUSINESSES
Core results exclude the impact from joint ventures and emerging businesses.
The FON Group's core businesses generated improved 1998 first quarter net
operating revenues and operating income compared with the same 1997 period.
First quarter 1998 long distance calling volumes increased 11% from the same
1997 period. Access lines served by the local telecommunications division
increased 3.6% since first quarter 1997. Excluding sales of exchanges in the
1997 fourth quarter, access line growth was 5.6%.
For 1997, the FON Group's core businesses generated record levels of net
operating revenues and improved operating results. Long distance calling
volumes increased 14% in 1997, and access lines served by the local
telecommunications division grew 5.6%, excluding sales of local exchanges
during 1997. Excluding nonrecurring items, income from core operations was
$1.6 billion in 1997 versus $1.4 billion in 1996 and $1.0 billion in 1995.
NONRECURRING ITEMS
Core income from continuing operations for 1997 includes pretax gains on
sales of local exchanges of $45 million and a pretax gain on the sale of an
equity investment in an equipment provider of $26 million. In addition, 1997
and 1996 include pretax litigation charges within the long distance division
for $20 million and $60 million, respectively. The 1995 amounts include a
pretax charge for restructuring the local telecommunications division of $88
million.
SEGMENTAL RESULTS OF OPERATIONS
LONG DISTANCE DIVISION
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net operating revenues....... $2,367.6 $2,172.4 $8,954.8 $8,302.1 $7,277.4
Operating expenses
Interconnection............ 970.6 1,007.4 3,941.1 3,722.7 3,102.7
Operations................. 322.6 275.8 1,236.6 1,051.8 1,046.6
Selling, general and
administrative............ 544.6 471.1 1,962.9 1,970.3 1,839.7
Depreciation and
amortization.............. 202.0 166.6 716.7 633.3 581.6
-------- -------- -------- -------- --------
Total operating expenses..... 2,039.8 1,920.9 7,857.3 7,378.1 6,570.6
-------- -------- -------- -------- --------
Operating income............. $ 327.8 $ 251.5 $1,097.5 $ 924.0 $ 706.8
======== ======== ======== ======== ========
Operating margin............. 13.8% 11.6% 12.3% 11.1% 9.7%
======== ======== ======== ======== ========
</TABLE>
III-13
<PAGE>
Three Months Ended March 31, 1998 and 1997
Net Operating Revenues
First quarter 1998 net operating revenues increased 9% from the same 1997
period. All major market segments--residential, business and wholesale--
contributed to this increase. The increase mainly reflects strong minute
growth and increased data services revenue, partly offset by a more
competitive pricing environment and a change in the mix of products sold.
Residential Market--Residential market revenues reflect growth in 1998
mainly from prepaid phone cards and long distance calling card calls made by
LEC customers. Through various agreements Sprint has with LECs, their
customers use the Sprint network when making long distance calls.
Business Market--Business market revenues reflect increased calling volumes
for toll-free and direct-distance-dialing toll ("WATS") calls made within the
United States. Growth in the small and medium business market was due to the
continuing success of the division's small business product, Fridays Free.
Data services, which includes sales of capacity on Sprint's network to
Internet service providers, showed strong growth because of continued demand
and expanded service offerings.
Wholesale Market--The wholesale market showed strong growth in the domestic
market. This increase mainly reflects increased WATS calling volumes, partly
offset by a decline in rates due to increased competition.
Interconnection Costs
Interconnection costs consist of amounts paid to LECs, other domestic
service providers, and foreign telephone companies to complete calls made by
the division's domestic customers. These costs decreased 4% from the same 1997
period reflecting lower unit costs for both domestic and international access,
partly offset by strong minute growth. The lower domestic costs are generally
due to FCC-mandated access rate reductions while lower international costs
reflect competition in the market. Interconnection costs were 41.0% of net
operating revenues in the 1998 first quarter versus 46.4% for the same period
a year ago.
Operations Expense
Operations expense mainly consists of costs related to operating and
maintaining the long distance network and costs of equipment sales. It also
includes costs of providing operator, public payphone and video
teleconferencing services, as well as telecommunications services for the
hearing impaired. First quarter 1998 operations expense increased 17% from the
same 1997 period. As a percentage of net operating revenues, operations
expense was 13.6% in the 1998 first quarter and 12.7% for the same period a
year ago. These increases were mostly due to increased costs related to data
services growth as well as increases in the volume of operating leases for
network equipment. In addition, costs increased due to FCC-mandated payments
to public payphone providers.
Selling, General and Administrative Expense
First quarter selling, general and administrative ("SG&A") expense increased
16% from the same 1997 period. This increase was mainly due to increased
advertising costs in 1998 to market and promote products and services. SG&A
expense was 23.0% of net operating revenues in the 1998 first quarter and
21.7% for the same period a year ago.
Depreciation and Amortization Expense
First quarter 1998 depreciation and amortization expense increased 21% from
the same 1997 period generally due to an increased asset base. Capital
expenditures were incurred mainly to enhance network reliability, meet
increased demand for data-related services and upgrade capabilities for
providing new products and services. Depreciation and amortization expense was
8.5% of net operating revenues in the 1998 first quarter and 7.7% for the same
period a year ago.
III-14
<PAGE>
Years Ended December 31, 1997, 1996 and 1995
During 1997 and 1996, the long distance division recorded nonrecurring
litigation charges of $20 and $60 million, respectively (see Note 9 of Notes
to FON Group Combined Financial Statements). In January 1996, the division
contributed certain international assets and related operations to Global One.
For comparative purposes, the following discussion of long distance division
operating results excludes the nonrecurring charges and assumes the
contribution occurred at the beginning of 1995. Operating margins would have
been 12.5% in 1997, 12.0% in 1996 and 10.9% in 1995.
Net Operating Revenues
Net operating revenues increased 8% in 1997 and 17% in 1996. All major
market segments--residential, business and wholesale--contributed to these
increases. In general, the increases reflect strong calling volume growth of
14% in 1997 and 20% in 1996 and continued growth in the data services market.
Revenue growth in 1997 was affected by a more competitive pricing environment,
a change in the mix of products sold and an increase in the bad debt
provision. Management continues to monitor Sprint's credit extension policies
to ensure they remain effective. In addition, 1996 includes revenues from
carrying the Internal Revenue Service 800 help line traffic, a service Sprint
no longer provides, while 1997 reflects lower yields on other government
contracts.
Residential Market--Residential market revenues reflect the continuing
success of Sprint Sense,(R) a flat-rate calling plan, as well as growth in
1997 from international calls, prepaid phone cards and casual callers
accessing the Sprint network.
Business Market--Business market revenues reflect increased calling volumes
for WATS calls made within the United States. Growth in the small and medium
business market was due to the continuing success of the division's small
business product, Fridays Free. Data services, which includes sales of
capacity on Sprint's network to Internet service providers, showed strong
growth because of continued demand and expanded service offerings.
Wholesale Market--The wholesale market showed strong growth in both domestic
and international markets. Domestic increases mainly reflect increased WATS
calling volumes, partly offset by a decline in rates due to increased
competition.
Interconnection Costs
Interconnection costs consist of amounts paid to LECs, other domestic
service providers and foreign telephone companies to complete calls made by
the division's domestic customers. These costs increased 6% in 1997 and 20% in
1996, reflecting strong growth in calling volumes, partly offset by lower unit
costs for both domestic and international access. The lower domestic rates are
generally due to FCC-mandated access rate reductions that took effect in July
1997--see "FON Group Information--Business--Regulation" for more information.
Interconnection costs were 44.0% of net operating revenues in 1997, 45.0% in
1996 and 43.9% in 1995.
Operations Expense
Operations expense mainly consists of costs related to operating and
maintaining the long distance network and costs of equipment sales. It also
includes costs of providing operator, public payphone and video
teleconferencing services, as well as telecommunications services for the
hearing-impaired. Operations expense increased 20% in 1997 and 17% in 1996. As
a percentage of net operating revenues, operations expense was 13.8% in 1997,
12.5% in 1996 and 12.4% in 1995. The 1997 increases were mainly due to
increased costs related to FCC-mandated payments to public payphone providers,
network equipment leasing costs, costs related to data services growth and
equipment sales. The 1996 increase in expense reflects overall revenue growth.
III-15
<PAGE>
Selling, General and Administrative Expense
SG&A expense increased 2% in 1997 and 8% in 1996. These increases reflect
the overall growth of the division's operating activities as well as increases
in marketing and promotions to support products and services. The 1997
increase also reflects increased information technology costs to support
network quality, and customer acquisition and customer management. SG&A
expense was 21.7% of net operating revenues in 1997, 22.9% in 1996 and 24.8%
in 1995. These improvements reflect continued cost control and business
process improvement efforts.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 13% in 1997 and 12% in 1996,
generally because of an increased asset base. Capital expenditures were
incurred mainly to enhance network reliability, meet increased demand for
data-related services and upgrade capabilities for providing new products and
services. Depreciation and amortization expense was 8.0% of net operating
revenues in 1997, 7.6% in 1996 and 8.0% in 1995.
LOCAL TELECOMMUNICATIONS DIVISION
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net operating revenues....... $1,322.2 $1,304.3 $5,290.2 $5,126.8 $4,690.0
Operating expenses
Costs of services and
products.................. 459.9 446.4 1,888.1 1,842.5 1,769.5
Selling, general and
administrative............ 277.9 258.2 1,074.0 1,038.2 956.5
Depreciation and
amortization.............. 233.2 231.4 934.1 909.1 835.6
Restructuring costs........ -- -- -- -- 87.6
-------- -------- -------- -------- --------
Total operating expenses..... 971.0 936.0 3,896.2 3,789.8 3,649.2
-------- -------- -------- -------- --------
Operating income............. $ 351.2 $ 368.3 $1,394.0 $1,337.0 $1,040.8
======== ======== ======== ======== ========
Operating margin............. 26.6% 28.2% 26.4% 26.1% 22.2%
======== ======== ======== ======== ========
</TABLE>
Beginning in July 1997, the FON Group changed its transfer pricing for
certain transactions between affiliates to more accurately reflect market
pricing. The main effect of the pricing change was to reduce "Net Operating
Revenues--Other Revenues." For comparative purposes, the following discussion
of local telecommunications division operating results assumes these pricing
changes occurred at the beginning of 1997. The first quarter 1997 operating
margin would have been 26.7%. Operating margins would have been 25.6% in 1997,
24.5% in 1996 and 22.3% in 1995 (excluding the restructuring charge).
Three Months Ended March 31, 1998 and 1997
Net Operating Revenues
Net operating revenues increased 4% in first quarter 1998 from the same 1997
period. This increase mainly reflects customer access line growth, and
increased sales of equipment and network-based services. Excluding sales of
local exchanges in fourth quarter 1997, net operating revenues increased 6%
and access line growth was 5.6%.
Local Service Revenues--Local service revenues, derived from local exchange
services, increased 6% (9% excluding sales of exchanges) in the first quarter
1998 from the same 1997 period. This increase reflects strong economic growth
in the division's service areas and increases in second-line service for
residential customers to meet their lifestyle and data access needs. Local
service revenues also increased because of continued demand for network-based
services such as Caller ID and Call Waiting.
III-16
<PAGE>
Network Access Revenues--Network access revenues, derived from interexchange
long distance carriers' use of the local network to complete calls, increased
1% (3% excluding sales of exchanges) compared with the same 1997 period. The
1998 first quarter revenues reflect a 6% growth (8% excluding sales of
exchanges) in access minutes of use, partly offset by FCC-mandated access rate
reductions.
Toll Service Revenues--Toll service revenues are mainly derived from
providing long distance services within specified regional calling areas or
local access transport areas (LATAs). First quarter toll service revenues
declined 27% compared with the same 1997 period. The decrease reflects
extended local calling area plans and increased competition in the intrastate
long distance market. The decline in toll service revenues was partly offset
by increases in the division's local and network access revenues.
Other Revenues--Other revenues are mainly derived from telecommunications
equipment sales, directory sales and listing services and billing and
collection services. During the 1998 first quarter these revenues increased
22% compared with the same 1997 period mainly due to increased equipment sales
of business systems and data networks, growth in payphone revenues, and
increased sales of Sprint's long distance services.
Costs of Services and Products
Costs of services and products consists of costs related to operating and
maintaining the local network and costs of equipment sales. These expenses
increased 3% (5% excluding sales of exchanges) in first quarter 1998 compared
with the same period a year ago, reflecting customer access line growth and
increased equipment sales. Costs of services and products was 34.8% of net
operating revenues in the 1998 first quarter and 34.9% for the same period a
year ago.
Selling, General and Administrative Expense
SG&A expense increased 8% (10% excluding sales of exchanges) in first
quarter 1998. This increase was mainly due to increased customer service costs
related to access line growth and marketing costs to promote new products and
services. SG&A expense was 21.0% of net operating revenues in first quarter
1998 and 20.3% for the same period a year ago.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 1% (3% excluding sales of
exchanges) in first quarter 1998. This increase was mainly due to plant
additions. Depreciation and amortization expense was 17.6% of net operating
revenues in first quarter 1998 and 18.1% for the same period a year ago.
Years Ended December 31, 1997, 1996 and 1995
Net Operating Revenues
Net operating revenues increased 4% in 1997 and 9% in 1996 mainly because of
customer access line growth. Excluding sales of local exchanges in 1997,
access line growth was 5.6% in both 1997 and 1996. Net operating revenues were
$5.2 billion in 1997, $5.0 billion in 1996 and $4.6 billion in 1995.
Local Service Revenues--Local service revenues, derived from local exchange
services, increased 10% in 1997 and 11% in 1996. These increases reflect
strong economic growth in the division's service areas and increases in
second-line service for existing business and residential customers to meet
their lifestyle and data access needs. Local service revenues also increased
because of extended area calling plans and increased demand for advanced
intelligent network services, such as Caller ID and Call Waiting.
Network Access Revenues--Network access revenues, derived from interexchange
long distance carriers' use of the local network to complete calls, increased
2% in 1997 and 10% in 1996. The increases were largely due to increased
calling volumes of 6% in 1997 and 10% in 1996. The 1997 revenue growth was
partly offset by
III-17
<PAGE>
FCC-mandated access rate reductions effective in July 1997--see "FON Group
Information--Business--Regulation" for more information. In addition, the
FCC's 1995 interim interstate price cap plan increased network access revenues
for 1996 and had a nominal effect on 1995.
Toll Service Revenues--Toll service revenues are mainly derived from
providing long distance services within specified geographical areas, or
LATAs. These revenues decreased 19% in 1997 and 13% in 1996. During 1996 and
1995, the division resold interexchange long distance services in some of its
service areas. This reseller service was phased out through early 1997,
accounting for a large portion of the 1997 decline. Some of those customers,
however, became customers of Sprint's long distance division, which has
reduced the overall impact on Sprint. The decreases in toll service revenues
also reflect extended local area calling plans and increased competition in
the intrastate long distance market since interexchange long distance carriers
now provide intraLATA long distance services in many states. The declines in
toll service revenues were partly offset by related increases in the
division's local and network access revenues.
Other Revenues--Other revenues are mainly derived from telecommunications
equipment sales, directory sales and listing services, and billing and
collection services. These revenues increased 10% in 1997 and 24% in 1996,
mainly because of increased equipment sales. A major factor in the 1996 growth
was the introduction of enhanced telephone instruments, such as Caller ID
units.
Costs of Services and Products
Costs of services and products consists of costs related to operating and
maintaining the local network and costs of equipment sales. These expenses
increased 3% in 1997 and 4% in 1996 because of customer access line growth and
increased equipment sales. Both years also reflect savings from the division's
restructuring of the network function. Costs of services and products were
36.0% of net operating revenues in 1997, 36.7% in 1996 and 38.5% in 1995. The
improvement in 1996 compared with 1995 reflects the capitalization of switch
software costs beginning in 1996, as discussed in "Depreciation and
Amortization Expense."
Selling, General and Administrative Expense
SG&A expense increased 3% in 1997 and 9% in 1996. These increases were
mainly due to increased customer service costs related to access line growth
and marketing costs to promote new products and services. These increases were
partly offset by savings from the division's restructuring of the finance
function and general cost control measures. SG&A expense was 20.6% of net
operating revenues in 1997, 20.7% in 1996 and 21.0% in 1995.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 3% in 1997 and 9% in 1996,
mainly because of plant additions. The 1996 increase also reflects the initial
year of amortizing capitalized switch software costs. At year-end 1995, the
FON Group adopted accounting principles for a competitive marketplace and
discontinued applying Statement of Financial Accounting Standards ("SFAS") No.
71, "Accounting for the Effects of Certain Types of Regulation," to its local
telecommunications division (see Note 12 of Notes to FON Group Combined
Financial Statements). As a result, certain accumulated depreciation balances
were increased; plant asset lives were shortened to reflect their economic
lives; and switch software costs, which were previously expensed as incurred,
are now capitalized and amortized over their estimated economic lives.
Depreciation and amortization expense was 17.8% of net operating revenues in
1997, 18.1% in 1996 and 18.2% in 1995.
Restructuring Costs
In 1995, the FON Group recorded an $88 million charge to restructure the
division (see Note 14 of Notes to FON Group Combined Financial Statements).
III-18
<PAGE>
PRODUCT DISTRIBUTION AND DIRECTORY PUBLISHING DIVISION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, DECEMBER 31,
-------------- ----------------------------
1998 1997 1997 1996 1995
------ ------ -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net operating revenues........... $391.2 $309.7 $1,454.3 $1,225.4 $1,147.6
Operating expenses
Costs of services and products. 303.9 259.3 1,172.9 1,025.7 965.8
Selling, general and
administrative................ 25.9 21.6 93.3 90.9 87.7
Depreciation and amortization.. 2.2 1.8 8.2 7.2 7.4
------ ------ -------- -------- --------
Total operating expenses......... 332.0 282.7 1,274.4 1,123.8 1,060.9
------ ------ -------- -------- --------
Operating income................. $ 59.2 $ 27.0 $ 179.9 $ 101.6 $ 86.7
====== ====== ======== ======== ========
Operating margin................. 15.1% 8.7% 12.4% 8.3% 7.6%
====== ====== ======== ======== ========
</TABLE>
Beginning in July 1997, the FON Group changed its transfer pricing for
certain transactions between affiliates to more accurately reflect market
pricing. For comparative purposes, the following discussion of product
distribution and directory publishing division results assumes these pricing
changes occurred at the beginning of 1995.
Three Months Ended March 31, 1998 and 1997
Adjusting for the above transfer pricing change, net operating revenues
increased 28% to $391 million in first quarter 1998 from $306 million in first
quarter 1997. Costs of services and products increased 32% to $304 million in
first quarter 1998 from $231 million in first quarter 1997. The first quarter
1997 operating margins were 16.8%. The growth in revenues and costs of
services and products reflects increased sales of telecommunications equipment
and distribution services to the local telecommunications division.
Years Ended December 31, 1997, 1996 and 1995
Adjusting for the above transfer pricing change, net operating revenues
increased 19% to $1.4 billion in 1997 from $1.2 billion in 1996. Revenues were
$1.1 billion in 1995. Sales to non-affiliates in 1997 compared with 1996
remained relatively flat because of increased competition. Cost of services
and products increased 22% to $1.1 billion in 1997 from $918 million in 1996.
Costs of services and products were $863 million in 1995. Operating margins
were 15.8% in 1997, 16.3% in 1996 and 15.8% in 1995. The growth in revenues
and costs of services and products reflects increased sales of
telecommunications equipment and distribution services to the local
telecommunications division.
EMERGING BUSINESSES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, DECEMBER 31,
-------------- ---------------
1998 1997 1997 1996
------ ------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net operating revenues......................... $ 47.4 $ 2.8 $ 57.4 $ 0.5
====== ====== ======= ======
Operating loss................................. $(42.3) $(32.0) $(164.5) $(63.3)
====== ====== ======= ======
</TABLE>
Revenues for the three months ended March 31, 1998 and year ended December
31, 1997 increased mainly because of Sprint's September 1997 acquisition of
Paranet, Inc. Operating losses for all periods presented largely reflect
activities to develop or enter newly competitive domestic and international
markets, such as Internet access and competitive local exchange services.
III-19
<PAGE>
During the 1997 third quarter, Sprint stopped actively marketing its CLEC
services until the rules for local competition become clearer, economics
improve, and more effective working arrangements and electronic interfaces
with incumbent LECs can be developed. While Sprint's measured course on
entering the CLEC market has enabled it to avoid significant losses, Sprint
continues to devote significant resources toward developing a distinct
approach. For a discussion of the development of Sprint's new integrated
communications services see "FON Group--Business--Emerging Business--National
Integrated Services."
During 1996, Sprint began offering Internet services to consumers through
Sprint Internet Passport(sm). During 1997, Sprint launched Sprint Internet
Private Passport(sm), which provides customized, private Internet access
services to businesses. In February 1998, Sprint announced it was forming a
broad business relationship with EarthLink Network Inc. (EarthLink), an
Internet service provider. EarthLink will obtain Sprint's Internet Passport
customers and will take over the day-to-day operations of those services. This
will create a combined base of more than 600,000 Internet access customers,
and enable Sprint to build its brand equity and market share. This
relationship requires regulatory approval and is expected to close in the 1998
second quarter.
In September 1997, Sprint acquired Houston-based Paranet, Inc., which will
allow Sprint to capitalize on the accelerating demand for network management
services. Sprint Paranet's design, implementation and consultation expertise
should also enable Sprint to maintain and add to its traditional long distance
revenues. See Note 11 of Notes to FON Group Combined Financial Statements for
more information about the Paranet acquisition.
NON OPERATING ITEMS
INTEREST EXPENSE
Interest costs on borrowings consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Interest expense on
outstanding debt............ $ 54.5 $ 35.7 $ 159.9 $ 161.2 $ 231.0
Interest expense related to
Cellular (1)................ -- -- -- 21.5 124.0
Capitalized interest costs... 18.6 29.0 93.0 104.0 57.0
-------- -------- -------- -------- --------
Total interest costs on
outstanding debt............ $ 73.1 $ 64.7 $ 252.9 $ 286.7 $ 412.0
======== ======== ======== ======== ========
Average debt outstanding..... $3,977.7 $3,226.4 $3,251.3 $3,604.9 $5,505.2
======== ======== ======== ======== ========
Effective interest rate...... 7.4% 8.0% 7.8% 8.0% 7.5%
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Interest expense related to Cellular is included in "Discontinued
operation, net" on the FON Group Combined Statements of Income.
The FON Group capitalizes interest costs related to constructing capital
assets. Through June 1997, Sprint also capitalized interest costs on
borrowings related to its investments in Sprint Spectrum Holdings and
PhillieCo. Sprint stopped capitalizing interest costs on its investments in
Sprint Spectrum Holdings and PhillieCo in July 1997 because Sprint Spectrum
Holdings and PhillieCo no longer qualified as development-stage companies. The
capitalized interest on investments in Sprint Spectrum Holdings and PhillieCo
has been contributed to and is being amortized by the PCS Group.
Average debt outstanding decreased $1.9 billion in 1996, generally because
of repayments funded by a portion of the cash received from FT and DT for
their equity investments in Sprint and from Cellular's repayment of
intercompany debt in connection with the Spinoff.
Sprint's effective interest rate decreased to 7.4% for the three months
ended March 31, 1998 from 8.0% for the three months ended March 31, 1997
mainly because of an increase in short-term borrowings as a percentage of
total borrowings. Sprint's effective interest rate increased to 8.0% in 1996
from 7.5% in 1995, mainly because
III-20
<PAGE>
of a decrease in short-term borrowings as a percentage of total borrowings. At
March 31, 1998 and December 31, 1997, short-term borrowings have been
classified as long-term debt because of Sprint's intent and ability, through
unused credit facilities, to refinance these borrowings.
GLOBAL ONE
Global One's revenues totaled $265 million in first quarter 1998 compared
with $243 million in the same period a year ago. Sprint's share of operating
losses from Global One totaled $45 million in first quarter 1998 compared with
$24 million a year ago. The increased losses in 1998 were due to lower product
margins primarily as a result of higher operating costs. Global One's revenues
totaled $1.1 billion in 1997 compared to $800 million in 1996. Sprint's equity
in losses from Global One totaled $162 million in 1997, $82 million in 1996
and $23 million in 1995. The increased losses in 1997 were due to higher
operating costs within Global One's existing global markets due to the slower-
than-expected integration of the parent companies' networks and start-up
related costs. Global One is continuing to review its operations, is
implementing expense controls, and is focusing on improving the network
infrastructure in an effort to improve efficiencies and reduce operating costs
and expects to begin implementing various components of a plan addresing such
items in the near future, which are expected to result in related non-
recurring charges being incurred as the plan is executed.
OTHER INCOME (EXPENSE), NET
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ----------------------
1998 1997 1997 1996 1995
------- ------- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Dividend and interest income............ $ 15.6 $ 27.1 $ 75.4 $ 99.7 $ 12.6
Net gains on sales of assets............ -- -- 71.5 15.9 --
Loss on sales of accounts receivable.... -- -- -- (4.2) (38.6)
Other, net.............................. 5.6 7.8 (6.4) 3.9 (12.9)
------- ------- ------ ------ ------
Total other income (expense), net... $ 21.2 $ 34.9 $140.5 $115.3 $(38.9)
======= ======= ====== ====== ======
</TABLE>
Dividend and interest income for the three months ended March 31, 1998
reflects interest earned on loans to affiliates. Dividend and interest income
for the three months ended March 31, 1997 and the years ended December 31,
1997 and 1996 reflects income earned on the cash received from FT and DT for
their equity investment in Sprint, as well as Cellular's repayment of
intercompany debt in connection with the Spinoff. Sprint has since invested
these funds in strategic initiatives and has decreased certain borrowings,
reducing the balance held in temporary investments. For the year ended
December 31, 1997, the FON Group recognized pretax gains of $45 million on
sales of local exchanges and sold its equity interest in an equipment
provider, resulting in a $26 million pretax gain.
INCOME TAXES
The FON Group's effective tax rates for the first quarters were 39.7% in
1998 and 40.0% in 1997. The FON Group's effective tax rates for the years
ended December 31 were 39.3% in 1997, 37.7% in 1996 and 36.1% in 1995. See
Note 5 of Notes to FON Group Combined Financial Statements for information
about the differences that cause the effective income tax rate to vary from
the statutory federal rate.
DISCONTINUED OPERATION, NET
The FON Group recognized an after-tax loss of $3 million in 1996 and after-
tax income of $15 million in 1995 related to its investment in Cellular.
Cellular was spun off to Sprint common stockholders in March 1996 (see Note 13
of Notes to FON Group Combined Financial Statements).
III-21
<PAGE>
EXTRAORDINARY ITEMS, NET
In the first quarter of 1998, the FON Group redeemed, prior to maturity,
$115 million of debt with a 9.25% interest rate. This resulted in a $4 million
after-tax loss.
During 1996, the FON Group redeemed, prior to maturity, $190 million of debt
with interest rates ranging from 6.0% to 9.5%. This resulted in a $5 million
after-tax loss.
At year-end 1995, the FON Group adopted accounting principles for a
competitive marketplace and discontinued applying SFAS 71 to its local
telecommunications division (see Note 12 of Notes to FON Group Combined
Financial Statements). This resulted in an after-tax, noncash extraordinary
charge of $565 million in 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The following discussion of the FON Group's financial condition, liquidity
and capital resources should be read in conjunction with Sprint's discussion
of financial condition, liquidity and capital resources. See "Annex I--
Sprint--Management's Discussion and Analysis of Financial Condition and
Results of Operations."
FINANCIAL CONDITION
The FON Group's combined assets totaled $17.2 billion at March 31, 1998
compared to $16.5 billion at year-end 1997 and $15.6 billion at year-end 1996.
Net property, plant and equipment increased $150 million since year-end 1997
and $853 million from 1996 to 1997, mainly because of increased capital
expenditures to support the core long distance and local networks. See
"Liquidity and Capital Resources" for additional discussions of changes in the
FON Group's Combined Balance Sheets.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash flows from continuing operations, which are the FON Group's main source
of liquidity, were $786 million in first quarter 1998 versus $651 million in
first quarter 1997 and were $2.9 billion in 1997, $2.3 billion in 1996 and
$2.6 billion in 1995. The growth in operating cash flows over these periods
reflects improved operating results in the FON Group's core businesses, partly
offset by increased losses from its emerging businesses. During 1996, the FON
Group terminated an accounts receivable sales agreement, which reduced cash
flows by $600 million. Excluding this termination, 1996 cash flows increased
$277 million, mainly because of improved operating results in all divisions.
Investing Activities
The FON Group's investing activities from continuing operations used cash of
$794 million in first quarter 1998 versus $530 million in first quarter 1997
and used cash of $4.0 billion in 1997, $3.0 billion in 1996 and $2.8 billion
in 1995. Capital expenditures, which are the FON Group's largest investing
activity, totaled $609 million in first quarter 1998 and $567 million in first
quarter 1997 and totaled $2.7 billion in 1997, $2.4 billion in 1996 and $1.9
billion in 1995. Within the FON Group, long distance capital expenditures were
incurred mainly to enhance network reliability, meet increased demand for
data-related services and upgrade capabilities for providing new products and
services. The local telecommunications division incurred capital expenditures
to accommodate access line growth and expand capabilities for providing
enhanced services.
The FON Group's net investments in and loans to Sprint Spectrum Holdings and
PhillieCo of $90 million for first quarter 1998, $(42) million for first
quarter 1997, $300 million for year-end 1997, and $264 million for year-end
1996 were used to fund capital and operating requirements. In 1997, Sprint
Spectrum Holdings borrowed $300 million from the FON Group under a vendor
financing facility. In 1996, the FON Group
III-22
<PAGE>
purchased $183 million (face value) of Sprint Spectrum Senior Discount notes
for $100 million which were
recorded on the FON Group Combined Balance Sheets.
The FON Group advanced $79.9 million to the PCS Group in the first quarter
of 1998 to fund Sprintcom buildout activities.
Equity transfers to (from) the PCS Group were $(70) million for the first
quarter of 1998, $(1) million for the first quarter of 1997 and were $548
million in 1997, $245 million in 1996, and $891 million in 1995. These equity
transfers were used to fund the PCS Group's capital and operating
requirements.
Net contributions and advances to Global One of $84 million for first
quarter 1998, $200 million for year-end 1997, and $40 million for year-end
1996 were used mainly to fund operations.
In 1997, Sprint purchased the net assets of Paranet, Inc. for $375 million
(see Note 11 of Notes to FON Group Combined Financial Statements).
Financing Activities
The FON Group's financing activities provided cash of $64 million in first
quarter 1998, while first quarter 1997 activities used cash of $211 million.
Financing activities provided cash of $72 million in 1997, $479 million in
1996 and $423 million in 1995. Financing activities for the first quarter of
1998 reflect long-term borrowings of $290 million, partly offset by payments
on long-term debt of $130 million. Financing activities in the first quarter
of 1997 reflect payments of $100 million on short-term borrowings and $38
million on long-term debt. In 1997, Sprint borrowed $867 million, mainly to
fund investments in and loans to affiliates including the PCS Group. In 1995,
Sprint increased its short-term borrowings by $1.1 billion to fund commitments
related to Sprint Spectrum Holdings and repay long-term debt.
Discontinued Operation
In connection with the March 1996 Spinoff, Cellular repaid $1.4 billion of
intercompany debt owed to Sprint. Prior to the Spinoff, Cellular's investing
activities required net cash of $141 and $325 million in 1996 and 1995,
respectively, mainly to fund capital expenditures and acquire cellular
properties.
Capital Requirements
The FON Group's 1998 investing activities, consisting of capital
expenditures and investments in affiliates, are expected to require cash of
$3.6 billion to $4.0 billion. Dividend payments are expected to total $430
million in 1998. These requirements will be funded with cash from operating
activities and external sources. External borrowings are expected to total
$500 million to $700 million in 1998 for FON Group activities.
The FON Group expects to spend $3.3 billion to $3.5 billion on capital
expenditures in 1998. The long distance division and local telecommunications
division will require the majority of this total.
Sprint expects that significant payments pursuant to the Tax Sharing
Agreement will be made from the FON Group to the PCS Group in light of the
substantial operating losses that the PCS Group is expected to incur in the
near future. Such payments are intended to reflect the PCS Group's incremental
cumulative effect on Sprint's federal and state tax liability and tax credit
position.
Sprint and the Cable Parents have agreed to loan up to $400 million, based
on respective ownership interests, to fund the capital requirements of Sprint
Spectrum Holdings from the date of the signing of the PCS Restructuring
Agreement, May 26, 1998, through the closing date. The PhillieCo Partners have
agreed to lend up to $50 million to PhillieCo to fund operating and working
capital requirements and capital expenditures prior to closing. Sprint has
also agreed to loan up to $110.6 million to fund SprintCom's capital
requirements. Sprint
III-23
<PAGE>
has been financing SprintCom with Sprint's cash from operations, commercial
paper borrowings and leases on specific equipment. Sprint intends to continue
to fund the buildout of the SprintCom markets through the closing of this
transaction. The above mentioned loans, totaling $510.6 million excluding
loans to PhillieCo., may be repaid from the proceeds of an anticipated IPO, as
further discussed below, but only to the extent the net proceeds of the IPO
exceed $500 million. In the event the loans remain outstanding after the IPO,
the remaining balance will be converted into 10-year preferred stock
convertible into PCS Stock. See "The Tracking Stock Proposal--Funding of the
PCS Group Prior to Closing; The PCS Preferred Stock."
Global One is expected to require $300 to $400 from the FON Group to fund
operations and ongoing development activities.
Liquidity
At March 31, 1998, Sprint could borrow $744 million under a revolving credit
agreement with a syndicate of domestic and international banks. In 1997,
Sprint negotiated a separate five-year revolving credit facility with a bank.
At March 31, 1998 and year-end 1997, Sprint's unused capacity under the
committed portion of this facility was $100 million. Sprint may also offer for
sale up to $1.1 billion of debt securities under shelf registration statements
filed with the Securities and Exchange Commission. Any borrowings Sprint may
incur are ultimately limited by certain debt covenants. At March 31, 1998 and
year-end 1997, Sprint could borrow up to $13.5 billion under the most
restrictive of its debt covenants.
The most restrictive covenant related to dividends results from Sprint's
revolving credit agreement. As a result, $2.8 billion of Sprint's $3.8 billion
at March 31, 1998 and $2.7 billion of Sprint's $3.7 billion retained earnings
at year-end 1997 were restricted from the payment of dividends. Among other
restrictions, Sprint must maintain specified levels of consolidated net worth.
Sprint currently uses the commercial paper market to fund its short-term
working capital needs. Sprint uses four commercial paper dealers to place the
paper at the most favorable rates and maturities. Sprint also uses the medium-
term note and long-term bond markets as well as other debt markets to fund its
needs. Sprint intends to borrow funds through the U.S. and international money
and capital markets and bank credit markets to fund capital expenditures,
operating and working capital requirements and to refinance existing debt
obligations of the PCS Group.
Financing activities for the Group's will be managed by Sprint on a
centralized basis. Loans from Sprint or any member of the FON Group to any
member of the PCS Group will be made at interest rates and on other terms and
conditions substantially equivalent to the interest rates and other terms and
conditions that the PCS Group would be able to obtain from third parties
(including the public markets) as a direct or indirect wholly-owned subsidiary
of Sprint, but without the benefit of any guaranty by Sprint or any member of
the FON Group. Such policy contemplates that such loans will be made on the
basis set forth above regardless of the interest rates and other terms and
conditions on which Sprint or members of the FON Group may have acquired the
subject funds. Any difference between Sprint's borrowing rate and the rate
charged to the PCS Group, which rated are expected to be higher than the rates
at which Sprint obtained such financing, will be reflected in the FON Group
Combined Financial Statements. This process will be governed by the Tracking
Stock Policies as overseen by the Capital Stock Committee.
Sprint intends to file a shelf registration to sell up to $8 billion of
fixed income debt securities, subject to market conditions, to replace its
existing $1.1 billion of shelf registrations. Proceeds from the sale of these
securities will be used to repay short-term borrowings, to refinance existing
long-term borrowings, and to provide funds for working capital and new capital
expenditures for both the PCS Group and FON Group.
Sprint is in the process of negotiating revolving credit facilities for
approximately $5 billion which will be used to support commercial paper
operations and replace its existing credit facilities. Sprint believes the
III-24
<PAGE>
agreements will be negotiated on market terms, conditions and covenants and
will not place any undue burden on the business plan or execution thereof.
FINANCIAL STRATEGIES
For information on general hedging policies, interest rate risk management
and foreign exchange risk management, see Sprint's consolidated "Management's
Discussion and Analysis of Financial Condition and Results of Operations" at
Annex I.
YEAR 2000 ISSUE
The "Year 2000" issue affects the FON Group's installed computer systems,
network elements, software applications, and other business systems that have
time-sensitive programs that may not properly reflect or recognize the year
2000. Because many computers and computer applications define dates by the
last two digits of the year, "00" may not be properly identified as the year
2000. This error could result in miscalculations or system failures. The Year
2000 issue may also affect the systems and applications of the FON Group's
customers, vendors or resellers.
The FON Group started a program in 1996 to identify and address the Year
2000 issue. It is taking an inventory of its network and computer systems and
is creating and implementing plans to make them Year 2000 compliant. The FON
Group is using both internal and external sources to identify, correct or
reprogram, and test its systems for Year 2000 compliance. The FON Group is
also contacting others with whom it conducts business to receive the
appropriate warranties and assurances that those third parties are, or will
be, Year 2000 compliant. The total cost of modifications and conversions is
not known at this time; however, it is not expected to be material to the FON
Group's financial position, results of operations or cash flows and is being
expensed as incurred.
If compliance is not achieved in a timely manner, the Year 2000 issue could
have a material effect on the FON Group's operations. However, the FON Group
is focusing on identifying and addressing all aspects of its operations that
may be affected by the Year 2000 issue and is addressing the most critical
applications first. As a result, Sprint management does not believe its
operations will be materially adversely affected.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 15 of Notes to the FON Group Combined Financial Statements for a
discussion of recently issued accounting pronouncements.
III-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sprint Corporation
We have audited the accompanying combined balance sheets of the FON Group
(as described in Note 2) as of December 31, 1997 and 1996, and the related
combined statements of income and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the management of Sprint Corporation ("Sprint"). Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the FON
Group at December 31, 1997 and 1996, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 12 to the combined financial statements, the FON Group
discontinued accounting for the operations of its local telecommunications
division in accordance with Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation," in 1995.
As more fully discussed in Note 2, the combined financial statements of the
FON Group should be read in connection with the audited consolidated financial
statements of Sprint.
Ernst & Young LLP
Kansas City, Missouri
February 3, 1998, except for Note 1,
as to which the date is May 26, 1998
III-26
<PAGE>
FON GROUP
COMBINED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.... $3,910.9 $3,578.5 $14,873.9 $13,887.5 $12,735.3
OPERATING EXPENSES
Costs of services and
products............... 1,884.3 1,794.9 7,451.0 6,912.9 6,504.9
Selling, general and
administrative......... 872.5 767.2 3,226.7 3,115.9 2,842.1
Depreciation and
amortization........... 467.3 410.9 1,726.3 1,591.0 1,466.4
Restructuring costs..... -- -- -- -- 87.6
-------- -------- --------- --------- ---------
Total operating
expenses............. 3,224.1 2,973.0 12,404.0 11,619.8 10,901.0
-------- -------- --------- --------- ---------
OPERATING INCOME.......... 686.8 605.5 2,469.9 2,267.7 1,834.3
Interest expense.......... (66.7) (44.8) (187.2) (196.7) (260.7)
Equity in loss of Global
One...................... (45.2) (23.7) (162.1) (82.1) (22.9)
Other income (expense),
net...................... 21.2 34.9 140.5 115.3 (38.9)
-------- -------- --------- --------- ---------
Income from continuing
operations before income
taxes.................... 596.1 571.9 2,261.1 2,104.2 1,511.8
Income taxes.............. (236.9) (228.9) (889.5) (793.6) (545.8)
-------- -------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS............... 359.2 343.0 1,371.6 1,310.6 966.0
Discontinued operation,
net...................... -- -- -- (2.6) 14.5
Extraordinary items, net.. (4.4) -- -- (4.5) (565.3)
-------- -------- --------- --------- ---------
NET INCOME................ $ 354.8 $ 343.0 $ 1,371.6 $ 1,303.5 $ 415.2
======== ======== ========= ========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-27
<PAGE>
FON GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents....................... $ 158.2 $ 101.7 $ 1,150.6
Accounts receivable, net of allowance for
doubtful accounts of $165.6 (unaudited),
$146.7 and $117.4......................... 2,519.1 2,495.6 2,343.6
Inventories................................ 378.5 352.0 305.3
Notes and other receivables................ 555.2 464.6 101.9
Advance to the PCS Group................... 79.9 -- --
Other...................................... 388.6 355.8 331.5
--------- --------- ---------
Total current assets..................... 4,079.5 3,769.7 4,232.9
Investments in equity securities............. 397.7 303.0 254.5
Property, plant and equipment
Long distance communications services...... 8,403.7 8,245.5 7,467.8
Local communications services.............. 14,241.7 14,011.5 13,368.7
Other...................................... 845.1 776.6 574.3
--------- --------- ---------
Total property, plant and equipment........ 23,490.5 23,033.6 21,410.8
Less accumulated depreciation.............. 12,024.0 11,716.8 10,946.7
--------- --------- ---------
Net property, plant and equipment.......... 11,466.5 11,316.8 10,464.1
Investments in and advances to affiliates.... 499.6 459.1 351.3
Other assets................................. 725.9 643.1 263.8
--------- --------- ---------
Total.................................... $17,169.2 $16,491.7 $15,566.6
========= ========= =========
LIABILITIES AND GROUP EQUITY
Current liabilities
Current maturities of long-term debt....... $ 127.8 $ 131.0 $ 99.1
Short-term borrowings...................... -- -- 200.0
Accounts payable........................... 1,003.2 1,082.3 1,026.7
Accrued interconnection costs.............. 711.9 672.7 709.0
Accrued taxes.............................. 302.2 270.7 189.2
Advance billings........................... 204.9 202.9 199.7
Other...................................... 778.2 659.6 770.6
--------- --------- ---------
Total current liabilities................ 3,128.2 3,019.2 3,194.3
Long-term debt............................... 3,994.8 3,748.6 2,974.8
Deferred credits and other liabilities
Deferred income taxes and investment tax
credits................................... 664.3 767.2 774.7
Postretirement and other benefit
obligations............................... 1,061.2 947.4 919.7
Other...................................... 348.4 370.0 370.8
--------- --------- ---------
Total deferred credits and other
liabilities............................... 2,073.9 2,084.6 2,065.2
Group equity................................. 7,972.3 7,639.3 7,332.3
--------- --------- ---------
Total.................................... $17,169.2 $16,491.7 $15,566.6
========= ========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-28
<PAGE>
FON GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------
1998 1997 1997 1996 1995
------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 354.8 $ 343.0 $ 1,371.6 $ 1,303.5 $ 415.2
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in net losses
of affiliates........ 45.8 21.1 184.1 81.9 7.7
Extraordinary items,
net.................. 1.1 -- -- 4.9 565.3
Depreciation and
amortization......... 467.3 410.9 1,726.3 1,591.0 1,466.4
Deferred income taxes
and investment tax
credits.............. (114.7) 30.4 (10.0) (74.5) (2.2)
Net (gains) losses on
sales of assets...... -- -- (93.2) 7.5 4.2
Changes in assets and
liabilities:
Accounts receivable,
net................ (23.5) (92.6) (127.0) (982.1) (135.4)
Inventories and
other current
assets............. (44.9) 26.0 (91.5) 15.7 (38.6)
Accounts payable and
other current
liabilities........ 109.6 (81.0) (39.6) 362.0 178.1
Noncurrent assets
and liabilities,
net................ (12.0) (6.1) (19.7) (25.5) 123.0
Other, net.......... 2.5 (0.9) 5.8 (17.1) 6.4
------- -------- --------- --------- ---------
Net cash provided by
continuing operations.. 786.0 650.8 2,906.8 2,267.3 2,590.1
Net cash provided (used)
by cellular division... -- -- -- (0.1) 162.5
------- -------- --------- --------- ---------
Net cash provided by
operating activities... 786.0 650.8 2,906.8 2,267.2 2,752.6
------- -------- --------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures.... (609.3) (567.4) (2,708.9) (2,433.6) (1,857.3)
Investments in and loans
to Sprint Spectrum
Holdings and PhillieCo. (90.0) 42.1 (300.4) (263.5) (43.2)
Advance to the PCS
Group.................. (79.9) -- -- -- --
Equity transfer from
(to) the PCS Group..... 70.2 0.6 (547.5) (245.2) (891.4)
Investments in and loans
to other affiliates,
net.................... (89.1) (9.9) (385.5) (81.4) (37.8)
Paranet acquisition..... -- -- (375.0) -- --
Proceeds from sales of
assets................. -- -- 292.3 2.1 6.7
Other, net.............. 4.3 4.4 (2.3) 42.4 (17.1)
------- -------- --------- --------- ---------
Net cash used by
continuing operations.. (793.8) (530.2) (4,027.3) (2,979.2) (2,840.1)
Repayment by cellular
division of
intercompany advances.. -- -- -- 1,400.0 --
Net cash used by
cellular division...... -- -- -- (140.7) (324.6)
------- -------- --------- --------- ---------
Net cash used by
investing activities... (793.8) (530.2) (4,027.3) (1,719.9) (3,164.7)
------- -------- --------- --------- ---------
FINANCING ACTIVITIES
Payments on long-term
debt................... (130.3) (37.5) (135.0) (433.1) (630.0)
Proceeds from long-term
debt................... 289.5 -- 866.5 9.4 260.7
Net change in short-term
borrowings............. -- (100.0) (200.0) (1,986.8) 1,109.5
Dividends............... (97.7) (99.8) (430.0) (419.6) (351.5)
Other net change in
group equity........... (48.8) (22.7) (144.5) 3,254.1 --
Other, net.............. 51.6 49.0 114.6 55.1 33.9
------- -------- --------- --------- ---------
Net cash provided (used)
by financing
activities............. 64.3 (211.0) 71.6 479.1 422.6
------- -------- --------- --------- ---------
INCREASE (DECREASE) IN
CASH AND EQUIVALENTS... 56.5 (90.4) (1,048.9) 1,026.4 10.5
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD.... 101.7 1,150.6 1,150.6 124.2 113.7
------- -------- --------- --------- ---------
CASH AND EQUIVALENTS AT
END OF PERIOD.......... $ 158.2 $1,060.2 $ 101.7 $ 1,150.6 $ 124.2
======= ======== ========= ========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-29
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. RESTRUCTURING AND RECAPITALIZATION PLANS
Sprint Corporation (and with its subsidiaries "Sprint") has entered into a
restructuring agreement with Tele-Communications, Inc. ("TCI"), Comcast
Corporation ("Comcast") and Cox Communications, Inc. ("Cox," and together with
TCI and Comcast the "Cable Parents") to restructure Sprint's wireless personal
communications services ("PCS") operations (the "PCS Restructuring"). Sprint
will acquire the joint venture interests of TCI, Comcast and Cox in Sprint
Spectrum Holding Company, L.P. and MinorCo, L.P. (together, "Sprint Spectrum
Holdings") and the joint venture interests of TCI and Cox in PhillieCo
Partners I, L.P. and PhillieCo Partners II, L.P. (together, "PhillieCo"). In
exchange for these joint venture interests, Sprint will issue to the Cable
Parents a newly created class of Sprint Common Stock (the "PCS Stock"). The
PCS Stock is intended to reflect separately the performance of these joint
ventures and the domestic PCS operations of Sprint's wholly-owned
subsidiaries, SprintCom, Inc. and SprintCom Equipment Company, L.P. (together,
"SprintCom"). These operations will be referred to as the PCS Group.
Subsequent to the PCS Restructuring, Sprint will commence a tax-free
recapitalization of Sprint's Common Stock (the "Recapitalization") to be
effected by reclassifying each share of Sprint's existing Common Stock into
1/2 share of PCS Stock and one share of a newly created class of Sprint Common
Stock (the "FON Stock"). The FON Stock is intended to reflect separately the
performance of all of Sprint's other operations, including its long distance,
local telecommunications and product distribution and directory publishing
divisions, emerging businesses and its interest in Global One. These
operations will be referred to as the FON Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination and Presentation
The Combined Financial Statements of the FON Group together with the
Combined Financial Statements of the PCS Group (the "Groups") comprise all of
the accounts included in the corresponding Consolidated Financial Statements
of Sprint. Investments in entities in which the FON Group exercises
significant influence, but does not control, are accounted for using the
equity method (see Note 3). The separate Group financial statements give
effect to the accounting policies that will be applicable upon implementation
of the PCS Restructuring. The separate Groups' Combined Financial Statements
have been prepared on a basis that management believes to be reasonable and
appropriate and include: (i) the combined historical balance sheets, results
of operations and cash flows of the businesses that comprise each of the
Groups with all significant intragroup amounts and transactions eliminated and
(ii) in the case of the FON Group Combined Financial Statements, corporate
assets and liabilities and related transactions of Sprint.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and stockholders' equity between the FON Group and the
PCS Group for the purpose of preparing the respective financial statements of
such Groups, stockholders of FON Stock and PCS Stock are subject to risks
associated with an investment in a single company and all of Sprint's
businesses, assets and liabilities. Financial effects arising from either
Group that affect Sprint's results of operations or financial condition could
affect the results of operations or financial position of the other Group or
market price of the class of common stock relating to the other Group. Any net
losses of the FON Group or the PCS Group, and dividends or distributions on,
or repurchases of, FON Stock or PCS Stock, will reduce the funds of Sprint
legally available for payment of dividends on both the FON Stock and the PCS
Stock. Accordingly, the FON Group Combined Financial Statements should be
read in conjunction with Sprint's Consolidated Financial Statements and the
PCS Group Combined Financial Statements.
The FON Group Combined Financial Statements are prepared according to
generally accepted accounting principles ("GAAP"). These principles require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.
III-30
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited interim financial information presented has been prepared
according to GAAP and the rules and regulations of the Securities and Exchange
Commission for interim reporting. In management's opinion, the information
presented reflects all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the interim combined financial position,
results of operations and cash flows of the FON Group.
The FON Group applied Statement of Financial Accounting Standards ("SFAS")
No. 71, "Accounting for the Effects of Certain Types of Regulation," to its
financial statements until December 1995. Under SFAS 71, revenues and related
net income resulting from transactions between the FON Group's nonregulated
operations and its regulated local exchange carriers were not eliminated from
the combined financial statements. Revenues from these intragroup transactions
were $262 million in 1995. All other significant intragroup transactions have
been eliminated.
Classification of Operations
The long distance division provides domestic and international voice, video
and data communications services. The division offers its services to the
public subject to varying levels of state and federal regulation, but rates
are generally not subject to rate-base regulation.
The local telecommunications division consists of regulated telephone
companies. These operations provide local exchange services, access by
telephone customers and other carriers to local exchange facilities, sales of
telecommunications equipment and long distance services within specified
geographical areas.
The product distribution and directory publishing division provides
wholesale distribution services of telecommunications products, and publishes
and markets white and yellow page telephone directories.
Emerging businesses consists of the development of new integrated
communications services, consumer Internet access services, Sprint Paranet and
Sprint International.
Revenue Recognition
The FON Group recognizes operating revenues as services are rendered or as
products are delivered to customers. The FON Group records operating revenues
net of an estimate for uncollectible accounts.
Earnings Per Share
Historical earnings per share are omitted from the combined statements of
income because the FON Stock was not part of the capital structure of Sprint
for the periods presented. See the Sprint Consolidated Financial Statements in
Annex I, for information regarding earnings per share based on Sprint's
existing capital structure. Following implementation of the PCS Restructuring
and the Recapitalization, the method of calculating earnings per share for the
FON Group will reflect the terms of the proposed amendments to Sprint's
articles. Earnings per share will be computed by dividing the net income of
the FON Group by the weighted average number of shares of FON Stock and
dilutive securities, such as convertible preferred stock and options,
outstanding during the applicable period.
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which
approximates market value. Sprint uses controlled disbursement banking
arrangements as part of its cash management program. Outstanding checks in
excess of cash balances, which
III-31
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
were included in accounts payable, totaled $225 million at December 31, 1997
and $127 million at December 31, 1996. The FON Group had sufficient funds
available to fund these outstanding checks when they were presented for
payment.
Investments in Debt and Equity Securities
Investments in debt and equity securities are classified as available for
sale and reported at fair value (estimated based on quoted market prices).
Gross unrealized holding gains and losses are reflected as adjustments to
"Group equity," net of related income taxes.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. Repairs and maintenance costs are expensed as
incurred.
Depreciation
The cost of property, plant and equipment is generally depreciated on a
straight-line basis over estimated economic useful lives. Prior to the FON
Group's discontinued use of SFAS 71 at December 31, 1995, the cost of
property, plant and equipment for the local division had been generally
depreciated on a straight-line basis over lives prescribed by regulatory
commissions.
Income Taxes
The operations of the FON Group are included in the consolidated federal
income tax return of Sprint. Federal income tax is calculated by the FON Group
as if it had filed a separate return. The FON Group's state income tax is
computed using methodology consistent with that used to compute federal income
tax.
The FON Group records deferred income taxes based on certain temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for tax purposes.
Investment tax credits related to regulated telephone property, plant and
equipment have been deferred and are being amortized over the estimated useful
lives of the related assets.
Capitalized Interest
The FON Group capitalized interest costs related to constructing capital
assets of $23 million for year-end 1997, $8 million for year-end 1996, and $14
million for year-end 1995.
The FON Group also capitalized interest costs related to Sprint's
investments in Sprint Spectrum Holdings and PhillieCo. The FON Group stopped
capitalizing this interest in July 1997 because Sprint Spectrum Holdings and
PhillieCo no longer qualified as development-stage companies. The capitalized
interest on the investments in Sprint Spectrum Holdings and PhillieCo,
totaling $46 million, $96 million and $43 million for the years ended December
31, 1997, 1996 and 1995, respectively, was contributed to and is being
amortized by the PCS Group.
In addition, Sprint capitalized interest costs related to the buildout of
the SprintCom network. This capitalized interest totaled $24 million in 1997
and was contributed to and will be amortized by the PCS Group.
3. INVESTMENTS
INVESTMENTS IN EQUITY SECURITIES
The cost of investments in equity securities was $105 million at year-end
1997 and 1996. Gross unrealized holding gains were $198 million at December
31, 1997 and $149 million at year-end 1996.
III-32
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INVESTMENTS IN AND ADVANCES TO AFFILIATES
Sprint is a partner in Global One, a joint venture with France Telecom (FT)
and Deutsche Telekom AG (DT) formed 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. At year-end 1997, Sprint's share of underlying equity in Global
One's net assets exceeded the carrying value of Sprint's investment in Global
One by $158 million. This difference is being amortized through January 2001.
Combined, summarized financial information (100% basis) of Global One and
all other entities accounted for using the equity method by the FON Group is
as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED AT OR FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- --------------------------
1998 1997 1997 1996 1995
--------- --------- -------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues....... $ 496.5 $ 422.7 $1,937.6 $1,723.7 $779.5
========= ========= ======== ======== ======
Operating loss............... $ (187.9) $ (125.9) $ (782.5) $ (436.4) $ 8.6
========= ========= ======== ======== ======
Net loss..................... $ (225.3) $ (124.1) $ (826.3) $ (399.7) $ 22.1
========= ========= ======== ======== ======
Financial position
Current assets............... $1,913.6 $ 958.9
Noncurrent assets............ 4,221.0 2,737.5
-------- --------
Total...................... $6,134.6 $3,696.4
======== ========
Current liabilities.......... $1,965.7 $ 714.3
Noncurrent liabilities....... 2,105.8 629.6
Owners' equity............... 2,063.1 2,352.5
-------- --------
Total...................... $6,134.6 $3,696.4
======== ========
</TABLE>
The FON Group's investment in Global One, including advances, totaled $93
and $38 million at year-end 1997 and 1996, respectively.
4. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
Substantially all Sprint employees are covered by a noncontributory defined
benefit pension plan. Benefits for plan participants represented by collective
bargaining units are based on negotiated schedules of defined amounts. For
participants not covered by collective bargaining agreements, the plan
provides pension benefits based on years of service and participants'
compensation.
Sprint's policy is to make annual plan contributions equal to an actuarially
determined amount consistent with applicable federal tax regulations. The
funding objective is to accumulate funds at a relatively stable rate over the
participants' working lives so benefits are fully funded at retirement. At
December 31, 1997, the plan's assets consisted mainly of investments in
corporate equity securities and U.S. government and corporate debt securities.
III-33
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The net pension cost (credit) consists of the following for the FON Group:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits earned during the period..... $ 61.7 $ 65.4 $ 51.8
Interest cost on projected benefit obligation....... 148.9 138.5 129.7
Actual return on plan assets........................ (448.5) (353.0) (472.1)
Net amortization and deferral....................... 240.0 159.4 287.9
------- ------- -------
Net pension cost (credit)........................... $ 2.1 $ 10.3 $ (2.7)
======= ======= =======
Discount rate....................................... 7.75% 7.25% 8.50%
Expected long-term rate of return on plan assets.... 9.50% 9.50% 9.50%
Anticipated composite rate of future compensation
increases.......................................... 4.75% 4.25% 5.00%
</TABLE>
At December 31, the funded status and amounts recognized in the FON Group
Combined Balance Sheets for the plan were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation.............................. $(1,966.7) $(1,713.6)
========= =========
Accumulated benefit obligation......................... $(2,129.6) $(1,864.1)
========= =========
Projected benefit obligation............................. $(2,240.9) $(1,967.0)
Plan assets at fair value................................ 2,929.4 2,584.2
--------- ---------
Plan assets in excess of the projected benefit
obligation.............................................. 688.5 617.2
Unrecognized net gains................................... (585.2) (481.8)
Unrecognized prior service cost.......................... 105.4 100.4
Unamortized transition asset............................. (122.1) (147.1)
--------- ---------
Prepaid pension cost..................................... $ 86.6 $ 88.7
========= =========
Discount rate............................................ 7.25% 7.75%
Anticipated composite rate of future compensation
increases............................................... 4.25% 4.75%
</TABLE>
DEFINED CONTRIBUTION PLANS
Sprint sponsors defined contribution employee savings plans covering
substantially all employees. Participants may contribute portions of their pay
to the plans. For employees represented by collective bargaining units, Sprint
matches contributions based on negotiated amounts. Sprint also matches
contributions of employees not covered by collective bargaining agreements.
For those participants, Sprint matches their contributions in Sprint common
stock. The matching is equal to 50% of participants' contributions up to 6% of
their pay. In addition, Sprint may, at the discretion of the Board of
Directors, provide matching contributions based on the performance of Sprint
common stock compared to other telecommunications companies' stock. The FON
Group's matching contributions were $54 million in 1997, $56 million in 1996
and $51 million in 1995. At December 31, 1997, the plans held 20 million
Sprint common shares.
POSTRETIREMENT BENEFITS
Sprint provides postretirement benefits (principally medical benefits) to
substantially all employees. Employees retiring before certain dates are
eligible for benefits at no cost, or at a reduced cost. Employees retiring
after certain dates are eligible for benefits on a shared-cost basis. The FON
Group funds the accrued costs as benefits are paid.
III-34
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The net postretirement benefits cost consists of the following for the FON
Group:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits earned during the year........... $ 20.8 $ 21.7 $22.2
Interest on accumulated postretirement benefit
obligation............................................. 52.3 49.9 58.7
Net amortization and deferral........................... (19.4) (13.7) (9.4)
------ ------ -----
Net postretirement benefits cost........................ $ 53.7 $ 57.9 $71.5
====== ====== =====
Discount rate........................................... 7.75% 7.25% 8.50%
</TABLE>
For measurement purposes, the assumed 1997 weighted average annual health
care cost trend rate was 9%, gradually decreasing to an ultimate level of 5%
by 2005. A 1% increase in the rate would have increased the 1997 net
postretirement benefits cost by an estimated $12 million.
Amounts included in the FON Group Combined Balance Sheets at year-end are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees...................................................... $328.3 $277.9
Active plan participants--
Fully eligible.............................................. 145.2 127.6
Other....................................................... 269.9 320.7
------ ------
743.4 726.2
Unrecognized prior service benefit.............................. 5.4 5.7
Unrecognized net gains.......................................... 190.0 178.7
------ ------
Accrued postretirement benefits cost............................ $938.8 $910.6
====== ======
Discount rate................................................... 7.25% 7.75%
</TABLE>
The assumed 1998 annual health care cost trend rate was 8.5%, gradually
decreasing to an ultimate level of 5% by 2005. A 1% increase in the rate would
have increased the 1997 accumulated postretirement benefit obligation by an
estimated $61 million.
5. INCOME TAXES
Income tax expense allocated to continuing operations consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Current income tax expense
Federal............................................... $800.0 $778.2 $453.7
State................................................. 99.5 89.9 94.3
------ ------ ------
Total current........................................... 899.5 868.1 548.0
------ ------ ------
Deferred income tax expense (benefit)
Federal............................................... (12.7) (81.6) 40.1
State................................................. 6.5 18.7 (25.8)
Amortization of deferred investment tax credits......... (3.8) (11.6) (16.5)
------ ------ ------
Total deferred.......................................... (10.0) (74.5) (2.2)
------ ------ ------
Total................................................... $889.5 $793.6 $545.8
====== ====== ======
</TABLE>
III-35
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The differences that cause the effective income tax rate to vary from the
statutory federal rate of 35% were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Income tax expense at the statutory rate............ $ 791.4 $ 736.5 $ 529.1
Less investment tax credits included in income...... 3.8 11.6 16.5
------- ------- -------
Expected federal income tax expense after investment
tax credits........................................ 787.6 724.9 512.6
Effect of
State income taxes, net of federal income tax
effect........................................... 68.9 70.6 44.6
Equity in losses of foreign joint ventures........ 36.4 8.6 --
Other, net........................................ (3.4) (10.5) (11.4)
------- ------- -------
Income tax expense, including investment tax
credits............................................ $ 889.5 $ 793.6 $ 545.8
======= ======= =======
Effective income tax rate........................... 39.3% 37.7% 36.1%
======= ======= =======
</TABLE>
Income tax expense (benefit) allocated to other items was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Discontinued operation.. $ -- $ 7.0 $ 31.2
Extraordinary items..... -- (2.9) (437.4)
Unrealized holding gains
on investments(1)...... 4.4 1.7 30.7
Stock ownership,
purchase and options
arrangements(1)........ (26.2) (14.1) (7.5)
</TABLE>
- --------
(1) These amounts have been recorded directly to "Group equity."
The FON Group recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial
statement purposes and their tax bases. The sources of the differences that
give rise to the deferred income tax assets and liabilities at December 31,
1997 and 1996, along with the income tax effect of each, were as follows:
<TABLE>
<CAPTION>
1997 DEFERRED 1996 DEFERRED
INCOME TAX INCOME TAX
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Property, plant and equipment............. $ -- $1,278.0 $ -- $1,275.8
Postretirement and other benefits......... 376.1 -- 360.3 --
Reserves and allowances................... 103.1 -- 113.4 --
Unrealized holding gains on investments... -- 61.7 -- 57.3
Other, net................................ 153.8 -- 152.7 --
------ -------- ------ --------
633.0 1,339.7 626.4 1,333.1
Less valuation allowance.................. 11.8 -- 13.7 --
------ -------- ------ --------
Total................................... $621.2 $1,339.7 $612.7 $1,333.1
====== ======== ====== ========
</TABLE>
The valuation allowance related to deferred income tax assets decreased $2
million in 1997 and $4 million in 1996 and 1995.
Management believes it is more likely than not that these deferred income
tax assets, net of the allowance, will be realized based on current income tax
laws and expectations of future taxable income stemming from the reversal of
existing deferred tax liabilities or ordinary operations. Uncertainties
surrounding income tax law
III-36
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
changes, shifts in operations between state taxing jurisdictions, and future
operating income levels may, however, affect the ultimate realization of all
or some of these deferred income tax assets.
At December 31, 1997, the FON Group had available for income tax purposes $4
million of state alternative minimum tax credit carryforwards to offset state
income tax payable in future years. In addition, the FON Group had tax
benefits of $12 million related to state operating loss carryforwards. The
loss carryforwards expire in varying amounts per year from 1998 through 2012.
6. BORROWINGS
All of Sprint's borrowings have been allocated to the FON Group and are
reflected on the FON Group Combined Balance Sheets.
LONG-TERM DEBT
Sprint's long-term debt at year-end was as follows:
<TABLE>
<CAPTION>
MATURING 1997 1996
------------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Corporate
Senior notes
8.1% to 9.8%............................... 1998 to 2002 $ 475.3 $ 475.3
9.5%....................................... 2003 to 2007 200.0 200.0
Debentures
9.0% to 9.3%............................... 2019 to 2022 350.0 350.0
Notes payable and commercial paper........... -- 866.5 --
Other
5.4% to 8.9%(1)............................ 1998 to 2006 237.5 194.9
Long Distance Division
Vendor financing agreements
7.4% to 8.9%............................... 1997 to 1999 23.8 44.8
Other
6.2% to 8.4%............................... 1997 to 2007 16.5 23.1
Local Telecommunications Division
First mortgage bonds
2.0% to 7.8%............................... 1997 to 2002 452.3 487.0
4.0% to 7.8%............................... 2003 to 2007 346.0 346.8
6.9% to 9.8%............................... 2008 to 2012 116.7 116.7
6.9% to 8.8%............................... 2013 to 2017 169.6 169.8
8.8% to 9.9%............................... 2018 to 2022 244.9 245.7
7.1% to 8.4%............................... 2023 to 2027 145.0 145.0
Debentures and notes
5.8% to 9.6%............................... 1998 to 2020 237.0 275.3
Other
2.0% to 9.8%............................... 1998 to 2006 4.6 6.2
Unamortized debt discount...................... (6.1) (6.7)
-------- --------
3,879.6 3,073.9
Less current maturities........................ 131.0 99.1
-------- --------
Long-term debt................................. $3,748.6 $2,974.8
======== ========
</TABLE>
- --------
(1) Notes may be exchanged at maturity for Southern New England
Telecommunications Corporation (SNET) common shares owned by Sprint, or
for cash. Based on SNET's closing market price, had the notes matured at
December 31, 1997, they could have been exchanged for 3.8 million SNET
shares. At December 31, 1997, Sprint held 4.2 million SNET shares, which
have been included in "Investments in equity securities" on the FON Group
Combined Balance Sheets.
III-37
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Sprint's long-term debt maturities, excluding reclassified short-term
borrowings, during each of the next five years are as follows (in millions):
<TABLE>
<S> <C>
1998.............................. $131.0
1999.............................. 33.4
2000.............................. 693.3
2001.............................. 40.8
2002.............................. 354.5
</TABLE>
Property, plant and equipment with a total cost of $12.9 billion is either
pledged as security for first mortgage bonds and certain notes or is
restricted for use as mortgaged property.
During 1996, Sprint redeemed, prior to scheduled maturities, $190 million of
debt with interest rates ranging from 6.0% to 9.5%. This resulted in a $5
million after-tax extraordinary loss that was reflected on the FON Group
Combined Statements of Income.
SHORT-TERM BORROWINGS
At December 31, 1997, Sprint had borrowed $618 million of bank notes payable
and $249 million of commercial paper. Though these borrowings are renewable at
various dates throughout the year, they have been classified as long-term debt
because of Sprint's intent and ability, through unused credit facilities, to
refinance these borrowings. Commercial paper and certain bank notes payable
are supported by Sprint's revolving credit facility with a syndicate of
domestic and international banks. Other notes payable relate to a separate
revolving credit facility that Sprint executed with a bank in 1997. At
December 31, 1997, Sprint's unused lines of credit totaled $1.1 billion.
Sprint's bank notes outstanding at December 31, 1997 and 1996 had weighted
average interest rates of 6.1% and 5.9%, respectively. At December 31, 1997,
the weighted average interest rate of commercial paper was 6.8%.
OTHER
Sprint was in compliance with all restrictive or financial covenants
relating to its debt arrangements at December 31, 1997.
7. FON GROUP EQUITY
Following is a reconciliation of the FON Group's equity (in millions):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period...................... $7,639.3 $7,332.3 $7,332.3 $3,676.8 $4,473.7
Net income................. 354.8 343.0 1,371.6 1,303.5 415.2
Dividends.................. (107.9) (108.0) (429.5) (421.0) (348.9)
Equity issuances
(repurchases), net........ (12.1) (31.6) (79.5) 3,356.8 21.0
Spinoff of cellular
division (Cellular)....... -- -- -- (260.2) --
Other, net................. 38.9 39.4 61.8 17.9 50.4
Equity transfer (to) from
the PCS Group............. 59.3 (24.4) (617.4) (341.5) (934.6)
-------- -------- -------- -------- --------
Balance at end of period..... $7,972.3 $7,550.7 $7,639.3 $7,332.3 $3,676.8
======== ======== ======== ======== ========
</TABLE>
III-38
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCK-BASED COMPENSATION
Since the FON Stock was not part of the capital structure of Sprint for the
periods presented, there were no stock options outstanding. See the Sprint
Consolidated Financial Statements and Notes thereto set forth in Annex I for
information regarding stock incentive plans.
9. COMMITMENTS AND CONTINGENCIES
LITIGATION, CLAIMS AND ASSESSMENTS
The holders of FON Stock will be shareholders of Sprint and will continue to
be subject to all of the risks associated with an investment in Sprint,
including any legal proceedings and claims affecting the PCS Group.
In December 1996, an arbitration panel entered a $61 million award in favor
of Network 2000 Communications Corporation (Network 2000) on its breach of
contract claim against Sprint. The arbitrators directed Sprint to pay one-half
of this award to Network 2000. The remainder was directed to be paid to the
Missouri state court in which a proposed class action by Network 2000's
independent marketing representatives against Network 2000 and Sprint is
pending.
Sprint filed an action in federal district court seeking to have the
arbitration panel's award struck down, modified, or corrected, and asking the
court to enter an order regarding the distribution of the award. In April
1997, the court denied Sprint's request that the arbitration award be struck
down and granted Network 2000's request that the award be confirmed.
In June 1997, the FON Group recorded an additional $20 million charge in
connection with the settlement of both the class action lawsuit against Sprint
and Network 2000 and the related claims of Network 2000 against Sprint. The
court has preliminarily approved the class action settlement and final
approval is expected; however, a number of potential class members have
decided not to participate in the settlement.
Various other suits arising in the ordinary course of business are pending
against Sprint. Management cannot predict the final outcome of these actions
but believes they will not result in a material effect on the FON Group
Combined Financial Statements.
OPERATING LEASES
Minimum rental commitments at year-end 1997 for all noncancelable operating
leases, consisting mainly of leases for data processing equipment and real
estate, are as follows (in millions):
<TABLE>
<S> <C>
1998.............................. $305.2
1999.............................. 263.1
2000.............................. 160.8
2001.............................. 105.7
2002.............................. 89.1
Thereafter........................ 238.6
</TABLE>
Gross rental expense totaled $406 million in 1997, $401 million in 1996 and
$402 million in 1995. Rental commitments for subleases, contingent rentals and
executory costs were not significant.
10. FINANCIAL INSTRUMENTS
All of Sprint's financial instruments have been allocated to the FON Group,
the carrying amounts of which are reflected on the FON Group Combined Balance
Sheets.
III-39
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The FON Group estimates the fair value of its financial instruments using
available market information and appropriate valuation methodologies. As a
result, the following estimates do not necessarily represent the values the
FON Group could realize in a current market exchange. Although management is
not aware of any factors that would affect the estimated fair values presented
at year-end 1997, those amounts have not been comprehensively revalued for
purposes of these financial statements since that date. Therefore, estimates
of fair value after year-end 1997 may differ significantly from the amounts
presented below. The carrying amounts and estimated fair values of the FON
Group's financial instruments at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets
Cash and equivalents................ $ 101.7 $ 101.7 $1,150.6 $1,150.6
Investment in affiliate debt
securities......................... 142.4 142.4 122.5 122.5
Investments in equity securities.... 303.0 303.0 254.5 254.5
Financial liabilities
Short-term borrowings............... -- -- 200.0 200.0
Long-term debt
Corporate......................... 2,129.3 2,301.8 1,220.2 1,348.9
Long distance division............ 40.3 41.7 67.9 69.0
Local telecommunications division. 1,710.0 1,812.3 1,785.8 1,846.9
Other financial instruments
Interest rate swap agreements....... -- 0.3 -- 0.2
Foreign currency contracts.......... (0.6) (0.6) (0.5) (0.5)
</TABLE>
The carrying values of the FON Group's cash and equivalents approximate fair
value at year-end 1997 and 1996. The estimated fair value of the FON Group's
investments in debt and equity securities is based on quoted market prices.
The estimated fair value of the FON Group's long-term debt is based on quoted
market prices for publicly traded issues. The estimated fair value of all
other issues is based on the present value of estimated future cash flows
using a discount rate based on the risks involved. The estimated fair value of
interest rate swap agreements is the amount the FON Group would receive to
terminate the swap agreements at year-end 1997 and 1996, taking into account
the then-current interest rates. The estimated fair value of foreign currency
contracts is the replacement cost of the contracts at year-end 1997 and 1996,
taking into account the then-current foreign currency exchange rates.
CONCENTRATIONS OF CREDIT RISK
The FON Group's accounts receivable are not subject to any concentration of
credit risk. The FON Group controls credit risk of its interest rate swap
agreements and foreign currency contracts through credit approvals, dollar
exposure limits and internal monitoring procedures. In the event of
nonperformance by the counterparties, the FON Group's accounting loss would be
limited to the net amount it would be entitled to receive under the terms of
the applicable interest rate swap agreement or foreign currency contract.
However, the FON Group does not anticipate nonperformance by any of the
counterparties related to these agreements.
INTEREST RATE SWAP AGREEMENTS
The FON Group uses interest rate swap agreements as part of its interest
rate risk management program. Net interest paid or received related to these
agreements is recorded using the accrual method and is recorded as
III-40
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
an adjustment to interest expense. The FON Group had interest rate swap
agreements with notional amounts of $150 and $350 million outstanding at year-
end 1997 and 1996, respectively. Net interest expense (income) related to
interest rate swap agreements included on the FON Group's Combined Statements
of Income was $(200,000) in 1997, $2 million in 1996 and $(400,000) in 1995.
There were no deferred gains or losses related to any terminated interest rate
swap agreements at year-end 1997, 1996 or 1995.
FOREIGN CURRENCY CONTRACTS
As part of its foreign currency exchange risk management program, the FON
Group purchases and sells over-the-counter forward contracts and options in
various foreign currencies. The FON Group had outstanding $29 and $46 million
of open forward contracts to buy various foreign currencies at year-end 1997
and 1996, respectively. The FON Group had $14 and $3 million of outstanding
open purchase option contracts to call various foreign currencies at year-end
1997 and 1996, respectively. The premium paid for an option is expensed as
incurred. The fair value of an option is recorded as an asset at the end of
each period. The forward contracts and options open at year-end 1997 and 1996
all had original maturities of six months or less. The net gain or loss
recorded to reflect the fair value of these contracts is recorded in the
period incurred. Total net losses of $40,000 in 1997, $400,000 in 1996 and $1
million in 1995 related to foreign currency transactions and contracts were
recorded and included on the FON Group Combined Statements of Income.
11. PARANET ACQUISITION
On September 30, 1997, Sprint paid $375 million to purchase the net assets
of Houston-based Paranet, Inc., a provider of integration, management and
support services for computer networks. Sprint could pay up to an additional
$70 million if Sprint Paranet meets certain financial targets through 1998.
The transaction was accounted for using the purchase method of accounting.
As a result, the FON Group's combined financial statements reflect Sprint
Paranet's results of operations beginning in October 1997.
The excess of the purchase price over the tangible net assets acquired was
$357 million. This excess was allocated to noncompete agreements and goodwill,
and will be amortized on a straight-line basis over four to 10 years.
12. ADOPTION OF ACCOUNTING PRINCIPLES FOR A COMPETITIVE MARKETPLACE
At year-end 1995, the FON Group determined that its local telecommunications
division no longer met the criteria necessary for the continued use of SFAS
71. As a result, 1995 operating results included a noncash, extraordinary
charge of $565 million, net of income tax benefits of $437 million. The
decision to discontinue using SFAS 71 was based on changes in the regulatory
framework and the convergence of competition in the telecommunications
industry.
III-41
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The 1995 extraordinary charge recognized when the FON Group discontinued
using SFAS 71 consisted of the following:
<TABLE>
<CAPTION>
PRETAX AFTER-TAX
-------- ---------
(IN MILLIONS)
<S> <C> <C>
Increase in accumulated depreciation.................. $ 979.1 $607.9
Recognition of switch software asset.................. (99.5) (61.7)
Elimination of other net regulatory asset............. 123.1 76.3
-------- ------
Total............................................... $1,002.7 622.5
========
Tax-related net regulatory liabilities................ (43.9)
Accelerated amortization of investment tax credits.... (13.3)
------
Extraordinary charge................................ $565.3
======
</TABLE>
13. SPINOFF OF CELLULAR DIVISION
In March 1996, Sprint completed the tax-free spinoff of Cellular to Sprint
common stockholders (the "Spinoff"). To complete the Spinoff, Sprint
distributed all Cellular common shares at a rate of one share for every three
Sprint common shares held. In addition, Cellular repaid $1.4 billion of its
intercompany debt owed to Sprint. Sprint also contributed to Cellular's equity
capital $185 million of debt owed by Cellular in excess of the amount repaid.
Cellular's net operating results, as summarized below, were separately
classified as a discontinued operation in the FON Group Combined Statements of
Income. Interest expense was allocated to Cellular based on the assumed
repayment of intercompany debt to Sprint by Cellular. The operating expenses
as presented below do not include Cellular's share of Sprint's general
corporate overhead expenses. These expenses, totaling $2 million in 1996 and
$13 million in 1995, were reallocated to Sprint's other operating segments.
<TABLE>
<CAPTION>
1996(1) 1995
------- ------
(IN MILLIONS)
<S> <C> <C>
Net operating revenues......................................... $190.2 $834.4
Operating expenses............................................. 156.0 675.6
------ ------
Operating income............................................... 34.2 158.8
Interest expense............................................... (21.5) (124.0)
Other income (expense), net.................................... (8.3) 10.9
------ ------
Income before income taxes..................................... 4.4 45.7
Income taxes................................................... (7.0) (31.2)
------ ------
Income (Loss) from cellular division........................... $ (2.6) $ 14.5
====== ======
</TABLE>
- --------
(1) 1996 reflects Cellular's operating results only through the date of the
Spinoff.
14. ADDITIONAL FINANCIAL INFORMATION
SEGMENT INFORMATION
The FON Group operates in four industry segments: the long distance
division, the local telecommunications division, the product distribution and
directory publishing division and emerging businesses. Sprint's corporate
assets mainly include investments and loans to affiliates, cash and temporary
investments and general corporate assets. In 1995, corporate assets also
included the net assets of the discontinued cellular division. The long
distance division provides domestic and international voice, video and data
communications
III-42
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
services. The local telecommunications division provides local exchange
services, access to Sprint's local exchange facilities, sales of
telecommunications equipment and long distance within specified geographical
areas. The product distribution and directory publishing division provides
wholesale distribution services of telecommunications products and publishes
and markets white and yellow page telephone directories. Emerging businesses
consists of the development of new integrated communications services,
consumer Internet access services, Sprint Paranet and Sprint International.
Industry segment financial information follows:
<TABLE>
<CAPTION>
PRODUCT
DISTRIBUTION
LONG LOCAL & DIRECTORY
DISTANCE TELECOMMUNICATIONS PUBLISHING EMERGING INTERSEGMENT TOTAL FON
DIVISION DIVISION DIVISION BUSINESSES CORPORATE ELIMINATIONS GROUP
-------- ------------------ ------------ ---------- --------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Net operating
revenues(1)........... $8,954.8 $5,290.2 $1,454.3 $ 57.4 $ -- $(882.8) $14,873.9
Depreciation and
amortization.......... 716.7 934.1 8.2 23.3 44.0 -- 1,726.3
Operating expenses..... 7,857.3 3,896.2 1,274.4 221.9 -- (845.8) 12,404.0
Operating income
(loss)................ 1,097.5 1,394.0 179.9 (164.5) -- (37.0) 2,469.9
Operating margin....... 12.3% 26.4% 12.4% -- -- -- 16.6%
Capital expenditures... 1,218.1 1,258.4 10.5 79.6 142.3 -- 2,708.9
Identifiable assets.... 6,464.6 7,609.7 519.0 585.9 1,312.5 -- 16,491.7
1996
Net operating
revenues(2)........... $8,302.1 $5,126.8 $1,225.4 $ 0.5 $ -- $(767.3) $13,887.5
Depreciation and
amortization.......... 633.3 909.1 7.2 0.5 40.9 -- 1,591.0
Operating expenses..... 7,378.1 3,789.8 1,123.8 63.8 -- (735.7) 11,619.8
Operating income
(loss)................ 924.0 1,337.0 101.6 (63.3) -- (31.6) 2,267.7
Operating margin....... 11.1% 26.1% 8.3% -- -- -- 16.3%
Capital expenditures... 1,133.7 1,142.6 9.4 49.9 98.0 -- 2,433.6
Identifiable assets.... 5,997.7 7,425.4 446.1 54.3 1,643.1 -- 15,566.6
1995
Net operating
revenues(3)........... $7,277.4 $4,690.0 $1,147.6 $ -- -- $(379.7) $12,735.3
Depreciation and
amortization.......... 581.6 835.6 7.4 -- 41.8 -- 1,466.4
Operating expenses..... 6,570.6 3,649.2 1,060.9 -- -- (379.7) 10,901.0
Operating income....... 706.8 1,040.8 86.7 -- -- -- 1,834.3
Operating margin....... 9.7% 22.2% 7.6% -- -- -- 14.4%
Capital expenditures... 861.7 950.8 7.8 -- 37.0 -- 1,857.3
Identifiable assets.... 4,799.0 6,962.0 395.4 -- 1,944.2 -- 14,100.6
</TABLE>
(1) Includes intercompany revenues eliminated in consolidation in 1997 of $3.3
million, $309.0 million and $570.5 million for the long distance division,
local telecommunications division and product distribution and directory
publishing division, respectively.
(2) Includes intercompany revenues eliminated in consolidation in 1996 of
$30.9 million, $410.5 million and $325.9 million for the long distance
division, local telecommunications division and product distribution and
directory publishing division, respectively.
(3) Includes intercompany revenues eliminated in consolidation in 1995 of
$38.9 million, $266.4 million and $336.8 million for the long distance
division, local telecommunications division and product distribution and
directory publishing division, respectively. Also included in 1995 were
intercompany revenues of $262.4 million not eliminated under SFAS 71.
Operating income (loss) represents sales and other revenues less operating
expenses, and excludes interest expense, equity in losses of unconsolidated
ventures, other income (expense) and income taxes.
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between affiliates to more accurately reflect market pricing. The
main effect of the pricing change was to reduce "net operating revenues" of
the local telecommunications division and reduce "operating expenses" of the
product distribution and directory publishing division. Had this change been
effective as of January 1, 1995, the operating income for the local
telecommunications division would have been $1.3 billion, $1.2 billion and
$1.1 billion in 1997, 1996 and 1995, respectively. The operating income for
the product distribution and directory publishing division would have been
$228 million, $198 million and $180 million in 1997, 1996 and 1995,
respectively.
III-43
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL CASH FLOWS INFORMATION (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER
MARCH 31, 31,
------------ --------------------
1998 1997 1997 1996 1995
------ ----- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest (net of amounts capitalized)
Continuing operations.................... $ 57.4 $40.6 $197.9 $212.1 $263.5
====== ===== ====== ====== ======
Cellular division........................ $ -- $ -- $ -- $ 21.5 $124.0
====== ===== ====== ====== ======
Income taxes............................... $200.3 $18.2 $365.8 $695.3 $532.8
====== ===== ====== ====== ======
Noncash activities:
Capital lease obligations.................. $ -- $ -- $ 30.1 $ -- $ --
====== ===== ====== ====== ======
Noncash activity in Group Equity........... $ -- $ -- $ 31.4 $ 79.3 $ 10.5
====== ===== ====== ====== ======
Net book value of assets and liabilities
contributed to
Global One................................ $ -- $ -- $ -- $ 73.3 $ --
====== ===== ====== ====== ======
</TABLE>
During 1996, Sprint completed the Spinoff (see Note 13) which had no
immediate effect on the FON Group's cash flows other than Cellular's repayment
of $1.4 billion in intercompany debt owed to Sprint.
SUPPLEMENTAL RELATED PARTY TRANSACTIONS
The FON Group has a vendor financing loan to Sprint Spectrum Holdings for
$300 million at December 31, 1997 as well as advances to PhillieCo of $67
million at year-end 1996. The FON Group also has advances to PhillieCo for $21
million at year-end 1997. In 1996, Sprint purchased $183 million (face value)
of Sprint Spectrum Senior Discount notes for $100 million. The bonds mature in
2006. At December 31, 1997 and 1996, the accreted cost of the notes was $118
and $104 million and gross unrealized holding gains totaled $24 and $18
million, respectively. This investment has been included in "Current assets--
Other" on the FON Group Combined Balance Sheets.
The FON Group provided various voice, data and administrative services to
Global One totaling $415 million in 1997 and $361 million in 1996. In
addition, Global One provided data and administrative services to the FON
Group totaling $114 million in 1997 and $130 million in 1996. At year-end 1997
and 1996, the FON Group's receivable from Global One was $154 and $163
million, respectively, and the FON Group's payable to Global One was $104 and
$49 million, respectively.
Certain members of the FON Group also provide management, printing/mailing
and warehousing services to the PCS Group. Charges to the PCS Group for such
activities totaled $17 million, $12 million and $3 million for the years ended
December 31, 1997, 1996 and 1995.
RESTRUCTURING CHARGE
In 1995, the FON Group's local telecommunications division recorded an $88
million restructuring charge, which reduced income from continuing operations
by $55 million. The restructuring plan included the planned elimination over
several years of approximately 1,600 positions, mainly in the network and
finance functions. Through 1997, most of the positions have been eliminated
resulting in termination benefit payments of $42 million, with the remainder
to be paid in 1998 and 1999.
III-44
<PAGE>
FON GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
131, "Disclosures about Segments of an Enterprise and Related Information."
This new standard requires companies to disclose segment data based on how
management makes decisions about allocating resources to segments and how it
measures segment performance. SFAS 131 requires companies to disclose a
measure of segment profit or loss (operating income, for example), segment
assets, and reconciliations to consolidated totals. It also requires entity-
wide disclosures about a company's products and services, its major customers
and the material countries in which it holds assets and reports revenues. The
FON Group will adopt SFAS 131 in its 1998 year-end financial statements. This
statement is not expected to have a significant effect on the FON Group's
reported segments.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements for pensions and postretirement benefits where
practical. It also eliminates certain disclosures and requires additional
information on changes in benefit obligations and fair values of plan assets.
The FON Group will adopt SFAS 132 in its 1998 year-end financial statements.
SFAS 132 is not expected to have a significant effect on the FON Group's
pension and postretirement benefit plan disclosures.
16. SUBSEQUENT EVENTS (UNAUDITED)
In April 1998, Sprint's Board of Directors declared common and Class A
common stock dividends of $0.25 per share payable June 30, 1998.
In April 1998, Sprint signed an agreement to sell approximately 79,000
residential and business access lines of the FON Group in rural Illinois.
Sprint expects to complete the sale of these properties, which is subject to
regulatory approval, in late 1998.
17. COMPREHENSIVE INCOME (UNAUDITED)
As of January 1, 1998 Sprint adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the FON Group's results of operations or group
equity. SFAS 130 requires unrealized holding gains or losses on the FON
Group's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in other group
equity, to be included in other comprehensive income.
Total comprehensive income for the FON Group amounted to $367 million during
the first quarter of 1998 and $343 million during the first quarter of 1997.
III-45
<PAGE>
ANNEX IV--PROPOSED AMENDED AND RESTATED ARTICLES OF INCORPORATION
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF SPRINT CORPORATION
[CHARTER NO. 1 (GIVING EFFECT TO THE PCS STOCK AMENDMENT)]
We, Don A. Jensen, Vice President, and Michael T. Hyde, Assistant Secretary,
of Sprint Corporation (the "Corporation"), a corporation organized and
existing under the laws of the State of Kansas, do hereby certify as follows:
1. That the Corporation was originally incorporated in the State of Kansas
on November 15, 1938 under the name of United Utilities, Inc.
2. That the Board of Directors of the Corporation, at a meeting of the Board
of Directors, adopted resolutions
(i) approving a plan of reclassification for the Corporation whereby (1)
each share of the Corporation's existing Class A Common Stock, par value
$2.50 per share, held by France Telecom SA or any Qualified Subsidiary
thereof would remain outstanding, and (2) each share of the Corporation's
existing Class A Common Stock, par value $2.50 per share, held by Deutsche
Telekom AG or any Qualified Subsidiary thereof would be reclassified and
changed into a share of Class A Common Stock--Series DT, par value $2.50
per share,
(ii) providing for the adoption of these Amended and Restated Articles of
Incorporation of the Corporation, which amend and restate the Corporation's
Articles of Incorporation in their entirety, and
(iii) declaring the advisability of such plan of reclassification and
these Amended and Restated Articles of Incorporation of the Corporation.
The resolutions further directed that the plan of reclassification and these
Amended and Restated Articles of Incorporation be submitted to the
stockholders of the Corporation for their consideration and approval.
3. That thereafter, pursuant to the resolutions and in accordance with the
bylaws of the Corporation and the laws of the State of Kansas, the Board of
Directors called a meeting of stockholders for consideration of the plan of
reclassification and these Amended and Restated Articles of Incorporation, and
thereafter, pursuant to notice and in accordance with the statutes of the
State of Kansas, the stockholders convened and considered the plan of
reclassification and these Amended and Restated Articles of Incorporation.
4. That at the meeting a majority of the outstanding stock entitled to vote
thereon voted in favor of, among other things, the proposed plan of
reclassification effected by these Amended and Restated Articles of
Incorporation, and these Amended and Restated Articles of Incorporation were
duly adopted in accordance with the provisions of Kan. Stat. Ann. (S) 17-6602.
5. That these Amended and Restated Articles of Incorporation shall become
effective on the day of , 1998 (the "Effective Date") pursuant to the
provisions of Kan. Stat. Ann. (S) 17-6003(d).
6. That at the Effective Date, (i) each share of the Corporation's existing
Class A Common Stock, par value $2.50 per share, held by France Telecom SA or
any Qualified Subsidiary thereof will remain outstanding, and (2) each share
of the Corporation's existing Class A Common Stock, par value $2.50 per share,
held by Deutsche Telekom AG or any Qualified Subsidiary thereof will be
automatically reclassified and changed without any action on the part of the
stockholders of the Corporation into a share of Class A Common Stock--Series
DT, par value $2.50 per share.
7. That the text of the Articles of Incorporation of the Corporation, as
previously restated and amended, is hereby amended and restated to read in its
entirety as follows:
FIRST
The name of the Corporation is SPRINT CORPORATION.
IV-1
<PAGE>
SECOND
This Corporation is organized for profit, and the purpose for which it is
formed is to engage in any lawful act or activity for which corporations may
be organized under the Kansas General Corporation Code (the "General
Corporation Code").
THIRD
The Corporation's registered office is located at 2330 Shawnee Mission
Parkway, Westwood, Johnson County, Kansas 66205; Mr. J. Richard Devlin is the
registered agent at said address.
FOURTH
The Corporation shall have perpetual existence.
FIFTH
Section 1. Number of Directors; Increases in Number of Directors. (a) The
number of Directors shall not be less than ten nor more than 20 (unless
increased to more than 20 pursuant to Section 1(b) or Section 6(e) of this
ARTICLE FIFTH) as may be determined from time to time by the affirmative vote
of the majority of the Board of Directors or as provided in Section 1(b) or in
Section 6(e) of this ARTICLE FIFTH.
(b) If at any time the Class A Holders are entitled to elect a number of
Directors pursuant to Section 2(a) of this ARTICLE FIFTH that exceeds the sum
of the number of Directors elected by the Class A Holders then serving on the
Board of Directors and the number of vacancies on the Board of Directors which
the Directors elected by the Class A Holders or the Class A Holders are
entitled to fill, the total number of Directors shall automatically and
without further action be increased by the smallest number necessary to enable
the Class A Holders (and the Directors elected by the Class A Holders in the
case of vacancies) to elect the number of Directors that the Class A Holders
are entitled to elect pursuant to such Section 2(a).
Section 2. Election of Directors. (a) Election of Directors by Class A
Holders. (i) Except as otherwise provided in Sections 8.5(b), 8.5(f) and
8.5(k) of ARTICLE SIXTH, the Class A Holders shall have the right, voting
together as a single class, to elect a number of Directors equal to the
greater of (x) two and (y) the product (rounded to the nearest whole number if
such product is not a whole number) of (i) the aggregate Percentage Ownership
Interests of the Class A Holders and (ii) the total number of Directors,
provided that so long as Section 310 of the Communications Act of 1934, as
amended (or any successor provision of law) ("Section 310"), remains in
effect, under no circumstances shall (A) the Class A Holders have the right to
elect Aliens as Directors such that the total number of Aliens so elected by
them would exceed the maximum percentage of the total number of Directors of
this Corporation permitted under Section 310 to be Aliens or (B) the total
number of Directors elected by the Class A Holders and serving on the Board of
Directors exceed the maximum percentage of the total Directors of this
Corporation permitted under Section 310 to be elected by shareholders that are
Aliens. Such Directors elected by the Class A Holders shall not be divided
into classes.
(ii) Upon the conversion of all outstanding shares of Class A Stock into
Common Stock or Series 1 PCS Stock, as the case may be, pursuant to Section
8.5 of ARTICLE SIXTH, the term of office of all Class A Directors then in
office shall thereupon terminate, the vacancy or vacancies resulting from such
termination shall be filled by the remaining Directors then in office, acting
by majority vote of such remaining Directors, and the Director or Directors so
elected to fill such vacancy or vacancies shall not be treated hereunder or
under the Bylaws of this Corporation as Class A Directors. If at any time the
number of Directors that the Class A Holders have the right to elect pursuant
to this Section 2(a) shall decrease other than as set forth in the preceding
sentence, and the Class A Holders shall not have removed or caused to resign,
in either case effective not later than the
IV-2
<PAGE>
fifteenth day following the event that resulted in such decrease, a number of
Class A Directors so that the total number of Directors elected by the Class A
Holders then in office does not exceed the number provided in the first
sentence of Section 2(a)(i), then the terms of office of all Class A Directors
shall terminate on such fifteenth date. The vacancy or vacancies resulting
from such termination of the terms of the Class A Directors shall be filled as
follows: (A) the vacancy or vacancies equal to the number of Directors that
the Class A Holders then have the right to elect pursuant to this Section 2(a)
(after giving effect to the decrease referred to in the preceding sentence)
shall be filled as provided in Section 4(b) of this ARTICLE FIFTH, and (B) the
remaining vacancy or vacancies shall be filled by the remaining Directors
other than Class A Directors then in office, acting by majority vote of such
remaining Directors, and the Director or Directors so elected to fill such
vacancy or vacancies shall not be treated hereunder or under the Bylaws as
Class A Directors.
(iii) (1) Notwithstanding anything to the contrary in this Section 2, but
subject to paragraphs (2), (3), (4) and (5) of this Section 2(a)(iii) and the
proviso set forth at the end of the first sentence of Section 2(a)(i) of this
ARTICLE FIFTH (the "Section 2(a) Proviso"), if the aggregate Percentage
Ownership Interest of the Class A Holders is 20% or greater, the Class A
Holders at all times shall have the right to elect not less than 20% of the
total number of Directors, provided that, if the Section 2(a) Proviso prevents
the Class A Holders from electing at least 20% of the total number of
Directors under such circumstances, this Corporation shall increase the total
number of Directors to a number not greater than 20 if such increase would
enable the Class A Holders to elect at least 20% of the total number of
Directors as increased.
(2) The provisions of Section 2(a)(iii)(1) of this ARTICLE FIFTH (the
"Section 2(a)(iii)(1) Provisions") shall terminate and be of no force and
effect (a "Nullification") unless reinstated in accordance with
Section 2(a)(iii)(5), if either:
(A) this Corporation delivers an opinion of nationally-recognized U.S.
tax counsel to the effect that the Section 2(a)(iii)(1) Provisions are,
with respect to both FT and DT, either not a Necessary Condition or not a
Sufficient Condition to secure any Treaty Benefit and within 90 days of the
delivery of such opinion by this Corporation there is not delivered to this
Corporation by FT or DT an opinion of nationally-recognized U.S. tax
counsel concluding that such provisions are a Necessary Condition and a
Sufficient Condition for either FT or DT to secure a Treaty Benefit, or
(B) this Corporation provides written notice to FT and DT in which it
agrees to accord FT and DT those Treaty Benefits to which FT and DT would
be entitled if the Section 2(a)(iii)(1) Provisions were in effect (the
"Continuing Treaty Benefits") and to indemnify FT and DT on an after-tax
basis against (a)any liability arising out of according FT and DT
Continuing Treaty Benefits to the extent such liability would not arise if
the Section 2(a)(iii)(1) Provisions were in effect and (b) the loss of
those Continuing Treaty Benefits that this Corporation cannot directly
accord; provided that this Corporation by written notice to FT and DT may
revoke and withdraw such agreement to accord such Treaty Benefits and to
provide such indemnification following the date of such notice and upon
delivery of such notice the Section 2(a)(iii)(1) Provisions shall again
become effective. Notwithstanding any revocation or withdrawal pursuant to
the proviso contained in the immediately preceding sentence, this
Corporation shall continue to indemnify FT and DT on an after-tax basis
against any loss of Treaty Benefits to which FT or DT, as the case may be,
would have been entitled had the Nullification described in this Section
2(a)(iii)(2)(B) not taken place.
If a Nullification occurs under the provisions of paragraph (A) of this
Section 2(a)(iii)(2), then after the date of any such Nullification, and until
such time as a change in facts or Applicable Law requires a different result,
this Corporation shall accord FT and DT Treaty Benefits under the relevant
treaties between the United States and France and the United States and
Germany, but only to the extent FT or DT, as the case may be, would have been
entitled to claim such benefits had such Nullification not occurred.
(3) In addition to its rights under Section 2(a)(iii)(2), this Corporation
shall have the right, from time to time, to deliver to each of FT and DT a
written notice requesting that the chief tax officer of each of FT and DT
certify that FT, in the case of the request furnished to FT, and DT, in the
case of the request furnished to DT, is eligible to claim at least one Treaty
Benefit, and that such chief tax officer provide this Corporation with other
IV-3
<PAGE>
facts and information reasonably requested by this Corporation that are
reasonably necessary for this Corporation to determine whether the Section
2(a)(iii)(1) Provisions are a Sufficient Condition or a Necessary Condition to
secure at least one Treaty Benefit. Unless within 60 days of delivery of any
such request, either FT or DT delivers such requested certificate to this
Corporation, and provides such requested facts or information, the
Section 2(a)(iii)(1) Provisions shall terminate and be of no force or effect,
unless reinstated in accordance with Section 2(a)(iii)(5).
(4) If FT and DT determine that the Section 2(a)(iii)(1) Provisions are,
with respect to both FT and DT, either not a Necessary Condition or not a
Sufficient Condition to secure at least one Treaty Benefit, FT and DT shall
deliver to this Corporation a certification to such effect, and the Section
2(a)(iii)(1) Provisions shall terminate and be of no force or effect, unless
reinstated in accordance with Section 2(a)(iii)(5).
(5) Each of FT and DT shall have the right, at any time after the date the
Section 2(a)(iii)(1) Provisions are nullified pursuant to paragraph (A) (but
not paragraph (B)) of clause (2) or clause (3) or (4) of this
Section 2(a)(iii), to deliver to this Corporation a certificate signed by the
chief tax officer of either FT or DT to the effect that FT or DT, as the case
may be, is eligible to claim a Treaty Benefit and an opinion of nationally-
recognized U.S. tax counsel to the effect that the Section 2(a)(iii)(1)
Provisions are again a Necessary Condition and a Sufficient Condition for any
of FT or DT to secure a Treaty Benefit. Upon the delivery of any such
certificate and opinion, the Section 2(a)(iii)(1) Provisions shall again
become effective unless and until they become ineffective pursuant to the
other provisions of this Section 2(a)(iii).
(6) For purposes of this Section 2(a)(iii), the term "FT" shall include any
Qualified Subsidiary of FT organized under the laws of France and the term
"DT" shall include any Qualified Subsidiary of DT organized under the laws of
Germany.
(7) The Section 2(a)(iii)(1) Provisions shall be a "Necessary Condition"
with respect to any Treaty Benefit if FT or DT would not be entitled to claim
such Treaty Benefit unless such Section 2(a)(iii)(1) Provisions are in effect.
(8) The Section 2(a)(iii)(1) Provisions shall be a "Sufficient Condition"
with respect to any Treaty Benefit if FT and DT will otherwise fulfill all
other relevant conditions to claiming such Treaty Benefit if the
Section 2(a)(iii)(1) Provisions are in effect.
(b) Election of Directors by Other Holders. (i) Subject to clause (ii)
below, the holders of Non-Class A Common Stock shall have the right to elect
that number of Directors equal to the excess of (x) the total number of
Directors over (y) the sum of the number of Directors the Class A Holders are
entitled to elect and the number of Directors, if any, that the holders of
Preferred Stock, voting separately by class or series, are entitled to elect
in accordance with the provisions of ARTICLE SIXTH of these Articles of
Incorporation. The Class A Holders shall have no right to vote for Directors
under this Section 2(b)(i).
(ii) So long as Section 310 remains in effect, under no circumstances shall
an Alien Director elected by the holders of Non-Class A Common Stock be
qualified to serve as a Director if the number of Aliens who would then be
serving as members of the Board of Directors, including such elected Alien,
would constitute more than the maximum number of Aliens permitted by Section
310 on the Board of Directors.
(iii) The Directors (other than the Directors elected by the Class A Holders
and any Directors elected by the holders of any one or more classes or series
of Preferred Stock having the right, voting separately by class or series, to
elect Directors) shall be divided into three classes, designated Class I,
Class II and Class III, with the term of office of one class expiring each
year. The number of Class I, Class II and Class III Directors shall consist,
as nearly as practicable, of one third of the total number of Directors (other
than the Directors elected by the Class A Holders and any Directors elected by
the holders of any one or more classes or series of Preferred Stock having the
right, voting separately by class or series, to elect Directors). At each
annual meeting of stockholders of this Corporation, successors to the class of
Directors whose term expires at that annual meeting shall be elected for a
three-year term.
IV-4
<PAGE>
(iv) Whenever the holders of any one or more classes or series of Preferred
Stock shall have the right, voting separately by class or series, to elect
Directors at an annual or special meeting of stockholders, the election, term
of office, filling of vacancies and other features of such directorships shall
be governed by the terms of these Articles of Incorporation applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this ARTICLE FIFTH unless expressly provided by such terms.
Section 3. Change in Number of Directors. If the number of Directors (other
than Directors elected by Class A Holders and any Directors elected by the
holders of any one or more classes or series of Preferred Stock having the
right, voting separately by class or series, to elect Directors) is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of Directors in each class as nearly equal as possible.
Section 4. Term of Office. (a) Each Director shall be elected for a three-
year term. A Director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and shall
qualify to serve, subject to prior death, resignation, retirement,
disqualification or removal from office.
(b) Any vacancy on the Board of Directors (whether resulting from an
increase in the total number of Directors, the departure of one of the
Directors or otherwise) may be filled by the affirmative vote of a majority of
the Directors elected by the same class or classes of stockholders which would
be entitled to elect the Director who would fill such vacancy if the annual
meeting of stockholders of this Corporation were held on the date on which
such vacancy occurred, provided that at any time when there is only one such
Director so elected and then serving, such Director may fill such vacancy and,
provided further, that at any time when there are no such Directors then
serving, the stockholders of the class or classes entitled to elect the
Director who will fill such vacancy shall have the right to fill such vacancy
and, provided, further, that, so long as any Class A Stock is outstanding, any
vacancy to be filled by the Director or Directors elected by the holders of
Non-Class A Common Stock may not be filled with a Person who, upon his
election, would not be an Independent Director or would be an Alien, as the
case may be, if the effect of such election would be that less than a majority
of the Board of Directors following such election would be Independent
Directors, or that the number of Aliens who would then be serving on the Board
of Directors would constitute more than the maximum number of Aliens permitted
on the Board of Directors under Section 310.
(c) Any additional Director of any class elected to fill a vacancy resulting
from an increase in the number of Directors of such class shall hold office
for a term that shall coincide with the remaining term of the Directors of
that class, but, except as provided in Section 2(a)(ii) of this ARTICLE FIFTH,
in no case will a decrease in the number of Directors shorten the term of any
incumbent Director. Any Director elected to fill a vacancy not resulting from
an increase in the number of Directors shall have the same remaining term as
that of his predecessor.
Section 5. Rights, Powers, Duties, Rules and Procedures; Amendment of
Bylaws. (a) Except to the extent prohibited by law or as set forth in these
Articles of Incorporation or the Bylaws, the Board of Directors shall have the
right (which, to the extent exercised, shall be exclusive) to establish the
rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including, without
limitation, the vote required for any action by the Board of Directors, and
that from time to time shall affect the Directors' power to manage the
business and affairs of this Corporation. Except to the extent required by law
or as set forth in these Articles of Incorporation or the Bylaws, no Bylaw
shall be adopted by stockholders which shall impair or impede the
implementation of the foregoing.
(b) The Board of Directors is expressly authorized and empowered, in the
manner provided in the Bylaws of this Corporation, to adopt, amend and repeal
the Bylaws of this Corporation in any respect to the full extent permitted by
the General Corporation Code not inconsistent with the laws of the General
Corporation Code or with these Articles of Incorporation, provided that
(i) prior to the fourth anniversary of the Restructuring Closing Date,
ARTICLE IV, SECTION 13 of the Bylaws may not be amended, altered, repealed,
superseded or made inoperative or ineffective by
IV-5
<PAGE>
adoption of other provisions to the Bylaws or these Articles of
Incorporation (any such action, a "CP Covered Bylaws Amendment") without
the affirmative vote of the holders of record of (i) a majority of the
shares of PCS Stock then outstanding, voting together as a single class,
and (ii) a majority of the shares of Corporation Common Stock, voting
together as a single class, at any annual or special meeting of
stockholders, the notice of which shall have specified or summarized the
proposed CP Covered Bylaws Amendment; and
(ii) the following provisions of the Bylaws may not be amended, altered,
repealed, superseded or made inoperative or ineffective by adoption of
other provisions to the Bylaws or these Articles of Incorporation (any such
action, a "Class A Covered Bylaws Amendment") without the affirmative vote
of the holders of record of a majority of the shares of Class A Stock then
outstanding, voting together as a single class, at any annual or special
meeting of stockholders, the notice of which shall have specified or
summarized the proposed Class A Covered Bylaws Amendment: ARTICLE III,
SECTIONS 2, 4, 5, 8 AND 9; ARTICLE IV, SECTIONS 5, 6, 10, 11 AND 12;
ARTICLE VI, SECTION 1; AND ARTICLE VII, SECTIONS 1 AND 2.
Section 6. Removal; Changes in Status; Preferred Stock Directors. (a) Except
as provided in paragraphs (c) or (d) of this Section 6, a Director (other than
a Director elected by the Class A Holders or by the holders of any class or
series of Preferred Stock having the right, voting separately by class or
series, to elect Directors) may be removed only for cause. No Director so
removed may be reinstated for so long as the cause for removal continues to
exist. Such removal for cause may be effected only by the affirmative vote of
the holders of a majority of shares of the class or classes of stockholders
which were entitled to elect such Director.
(b) A Director elected by the Class A Holders may be removed with or without
cause. If removed for cause, no Director so removed may be reinstated for so
long as the cause for removal continues to exist. Removal may be effected with
or without cause by the affirmative vote of the holders of a majority of
shares of Class A Stock or with cause by the affirmative vote of the holders
of two-thirds of the shares of the Non-Class A Common Stock, the Class A Stock
and other capital stock of this Corporation entitled to general voting power,
voting together as a single class.
(c) If a Director elected by the holders of Non-Class A Common Stock who was
not, at the time of his election to the Board of Directors, an Alien,
subsequently becomes an Alien, the effect of which would be that the number of
Aliens who would then be serving as members of the Board of Directors,
including the Director who changed status, would constitute more than the
maximum number of Aliens permitted on the Board of Directors under Section
310, such Director shall upon his change in status automatically and without
further action be removed from the Board of Directors.
(d) So long as any Class A Stock is outstanding, if an Independent Director
elected by the holders of Non-Class A Common Stock subsequently ceases to be
an Independent Director, the effect of which would be that the Independent
Directors who would then be serving as members of the Board of Directors would
not constitute a majority of the Board of Directors, such Director shall
automatically and without further action upon his change in status be removed
from the Board of Directors.
(e) (i) So long as any Class A Stock is outstanding, if a Director elected
by the holders of any class or series of Preferred Stock having the right,
voting separately by class or series, to elect Directors (a "Preferred Stock
Director") is an Alien, or after election becomes an Alien, the effect of
which would be that the number of Aliens who would then be serving as members
of the Board of Directors (including such Preferred Stock Director) would
constitute more than the maximum number of Aliens permitted on the Board of
Directors under Section 310, the total number of Directors shall automatically
and without further action be increased by the smallest number necessary to
enable the Class A Holders (and the Directors elected by the Class A Holders
in the case of vacancies) to elect Aliens as Directors to the fullest extent
that the Class A Holders are entitled to elect Directors pursuant to Section
2(a) of this ARTICLE FIFTH without violating the requirements of Section 310.
(ii) So long as any Class A Stock is outstanding, if a Preferred Stock
Director is not an Independent Director, or after election ceases to be an
Independent Director, the effect of which would be that the Independent
IV-6
<PAGE>
Directors who would then be serving as members of the Board of Directors would
not constitute a majority of the Board of Directors, the total number of
Directors shall automatically and without further action be increased by the
smallest number necessary so that the number of Directors then serving who are
not Independent Directors (including such Preferred Stock Director and any
vacancies which the holders of Class A Stock have a right to fill) constitute
less than a majority of the Board of Directors.
Section 7. Definitions. Certain capitalized terms used in this ARTICLE FIFTH
without definition have the meanings set forth in Section 10 of ARTICLE SIXTH.
SIXTH
Section 1. Authorized Shares. The total number of shares of capital stock
which may be issued by this Corporation is , and the designation of
each class or series, the number of shares of each class or series and the par
value of the shares of each class or series, are as follows:
<TABLE>
<CAPTION>
DESIGNATION CLASS SERIES NO. OF SHARES PAR VALUE
----------- ----- ------ ------------- ---------
<S> <C> <C> <C> <C>
The "Common Stock"...... Common Stock 1,000,000,000 $ 2.50 per share
The "Series 2 Common
Stock"................. Common Stock Series 2 500,000,000 $ 2.50 per share
The "Old Class A Common
Stock"................. Class A Common Stock 100,000,000 $ 2.50 per share
The "Class A Common
Stock--Series DT"...... Class A Common Stock Series DT 100,000,000 $ 2.50 per share
The "Series 1 PCS
Stock"................. PCS Common Stock Series 1 1,250,000,000 $[1.00] per share
The "Series 2 PCS
Stock"................. PCS Common Stock Series 2 500,000,000 $[1.00] per share
The "Series 3 PCS
Stock"................. PCS Common Stock Series 3 600,000,000 $[1.00] per share
The "Preferred Stock"... Preferred Stock See Section 13 No par value
below
</TABLE>
Section 2. General Provisions Relating to All Stock.
2.1. Preemptive Rights; Cumulative Voting. No holder of shares of capital
stock of any class or series of this Corporation or holder of any security
or obligation convertible into shares of capital stock of any class or
series of this Corporation shall have any preemptive right whatsoever to
subscribe for, purchase or otherwise acquire shares of capital stock of any
class or series of this Corporation, whether now or hereafter authorized;
provided that this provision shall not (i) prohibit this Corporation from
granting, contractually or otherwise, to any such holder, the right to
purchase additional securities of this Corporation or (ii) otherwise limit
or otherwise modify any rights of any such holder pursuant to any such
contract or other agreement. Stockholders of this Corporation shall not be
entitled to cumulative voting of their shares in elections of Directors.
2.2. Redemption of Shares Held by Aliens. Notwithstanding any other
provision of these Articles of Incorporation to the contrary, outstanding
shares of Non-Class A Common Stock Beneficially Owned by Aliens and Class A
Stock Beneficially Owned by Aliens may be redeemed by this Corporation, by
action duly taken by the Board of Directors (with the approval of a
majority of the Continuing Directors (as defined in ARTICLE SEVENTH) at a
meeting at which at least seven Continuing Directors are present, except
that no such approval of the Continuing Directors shall be required if (i)
the Fair Price Provisions have been deleted in their entirety, (ii) the
Fair Price Provisions have been modified so as explicitly not to apply to
any Class A Holder, or they have been modified in a manner reasonably
satisfactory to FT and DT so as explicitly not to apply to any transactions
with any Class A Holder contemplated under these Articles of Incorporation,
(iii) the transaction in question is not a "Business Combination" within
the meaning of the Fair Price Provisions, or (iv) the Class A Holder that
is a party to the transaction, along with its Affiliates (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as in
effect on October 1, 1982) and Associates (as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as in effect on October 1,
1982), is no longer an "Interested Stockholder" or "Affiliate" of an
"Interested Stockholder" within the meaning of the Fair Price Provisions),
to the extent necessary or advisable, in the
IV-7
<PAGE>
judgment of the Board of Directors, for this Corporation or any of its
Subsidiaries to comply with the requirements of Section 310 (each of (i)
through (iv), a "Fair Price Condition"), provided that shares of Class A
Stock only may be redeemed if, and only to the extent that, the outstanding
shares of Class A Stock represent Votes constituting greater than 20% of
the aggregate Voting Power of this Corporation immediately prior to the
time of such redemption. The terms and conditions of such redemption shall
be as follows, subject in any case to any other rights of a particular
Alien or of this Corporation pursuant to any contract or agreement between
such Alien and this Corporation:
(a) except as provided in Section 2.2(f), the redemption price of the
shares to be redeemed pursuant to this Section 2.2 shall be equal to
the Market Price of such shares on the third Business Day prior to the
date notice of such redemption is given pursuant to Section 2.2(d),
provided that, except as provided in Section 2.2(f), such redemption
price as to any Alien who purchased such shares of Non-Class A Common
Stock after November 21, 1995 and within one year prior to the
Redemption Date shall not (unless otherwise determined by the Board of
Directors) exceed the purchase price paid by such Alien for such
shares;
(b) the redemption price of such shares may be paid in cash,
Redemption Securities or any combination thereof;
(c) if less than all of the shares Beneficially Owned by Aliens are
to be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the Board of Directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot or selection in any other manner determined by the
Board of Directors to be equitable, provided that this Corporation
shall (i) in all cases be entitled to redeem shares of Non-Class A
Common Stock Beneficially Owned by Aliens prior to redeeming any shares
of Class A Stock Beneficially Owned by Aliens and (ii) redeem shares of
Series 3 PCS Stock (if any) prior to redeeming shares of Class A Common
Stock;
(d) this Corporation shall give notice of the Redemption Date at
least 30 days prior to the Redemption Date to the record holders of the
shares selected to be redeemed (unless waived in writing by any such
holder) by delivering a written notice by first class mail, postage
pre-paid, to the holders of record of the shares selected to be
redeemed, addressed to such holders at their last address as shown upon
the stock transfer books of this Corporation (each such notice of
redemption specifying the date fixed for redemption, the redemption
price, the place or places of payment and that payment will be made
upon presentation and surrender of the certificates representing such
shares), provided that the Redemption Date may be the date on which
written notice shall be given to record holders if the cash or
Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and
subject to immediate withdrawal by them upon surrender of the stock
certificates for their shares to be redeemed;
(e) on the Redemption Date, unless this Corporation shall have
defaulted in paying or setting aside for payment the cash or Redemption
Securities payable upon such redemption, any and all rights of Aliens
in respect of shares so redeemed (including without limitation any
rights to vote or participate in dividends), shall cease and terminate,
and from and after such Redemption Date such Aliens shall be entitled
only to receive the cash or Redemption Securities payable upon
redemption of the shares to be redeemed; and
(f) such other terms and conditions as the Board of Directors shall
determine to be equitable, provided that,
(1) if any shares of Class A Common Stock are redeemed pursuant to
this Section 2.2, the redemption price of any such shares redeemed
shall be a per share price equal to the greater of (A) the Market
Price of a share of Common Stock on the Redemption Date and (B) the
Weighted Average Price paid by the Class A Holders for the Class A
Common Stock together with a stock appreciation factor thereon
(calculated on the basis of a 365-day year) at the rate of 3.88%
through and including the Redemption Date, such stock appreciation
factor to be calculated, on an annual
IV-8
<PAGE>
compounding basis, from the date of purchase of such Class A Common
Stock until the Redemption Date, provided, that if this Corporation
redeems any shares of Class A Common Stock after April 26, 1999, the
redemption price of any such shares redeemed shall be the Market
Price of a share of Common Stock on the Redemption Date, and
provided further that shares of Old Class A Common Stock and Class A
Common Stock--Series DT shall be redeemed on a pro rata basis under
this subsection (f)(1);
(2) if any shares of Series 2 PCS Stock (or Series 2 Common Stock,
if applicable) are redeemed pursuant to this Section 2.2, the
redemption price of any such shares redeemed shall be a per share
price equal to the greater of (A) the Market Price of a share of
Series 1 PCS Stock (or Common Stock, if applicable) on the
Redemption Date and (B) the Weighted Average Price paid by the
holders thereof for the Series 2 PCS Stock (or Series 2 Common
Stock, if applicable) together with a stock appreciation factor
thereon (calculated on the basis of a 365-day year) at the rate of
3.88% through and including the Redemption Date, such stock
appreciation factor to be calculated, on an annual compounding
basis, from the date of purchase of such Series 2 PCS Stock (or
Series 2 Common Stock, if applicable) until the Redemption Date,
provided, that if this Corporation redeems any shares of Series 2
PCS Stock (or Series 2 Common Stock, if applicable) after April 26,
1999, the redemption price of any such shares redeemed shall be the
Market Price of a share of Series 1 PCS Stock (or Common Stock, if
applicable) on the Redemption Date; and
(3) if any shares of Series 3 PCS Stock are redeemed pursuant to
this Section 2.2, the redemption price of any such shares redeemed
shall be a per share price equal to the greater of (A) the Market
Price of a share of Series 1 PCS Stock on the Redemption Date and
(B) the Weighted Average Price paid by the holders thereof for the
Series 3 PCS Stock together with a stock appreciation factor thereon
(calculated on the basis of a 365-day year) at the rate of 3.88%
through and including the Redemption Date, such stock appreciation
factor to be calculated, on an annual compounding basis, from the
date of purchase of such Series 3 PCS Stock until the Redemption
Date, provided, that if this Corporation redeems any shares of
Series 3 PCS Stock after April 26, 1999, the redemption price of any
such shares redeemed shall be the Market Price of a share of Series
1 PCS Stock on the Redemption Date.
The redemption price to be paid to the Class A Holders shall be
modified in accordance with Article IX of the Stockholders' Agreement
if either (i) such redemption is effected on or prior to April 26,
1999, or (ii) such redemption is effected within the 120-day period
described in the last sentence of Section 2.11 of the Stockholders'
Agreement (as such period may be extended pursuant thereto) following
an election by this Corporation to redeem shares in accordance with
such Section.
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of shares to be
redeemed received such notice, provided that all notices to be given to the
Class A Holders shall be made and deemed delivered in accordance with
Section 11 of ARTICLE SIXTH and failure to give such notice by mail, or any
defect in such notice, to holders of shares designated for redemption shall
not affect the validity of the proceedings for the redemption of any other
shares.
2.3. Beneficial Ownership Inquiry. (a) This Corporation may by written
notice require a Person that is a holder of record of Non-Class A Common
Stock or Class A Stock or that this Corporation knows to have, or has
reasonable cause to believe has, Beneficial Ownership of Non-Class A Common
Stock or Class A Stock, to certify that, to the knowledge of such Person:
(i) no Non-Class A Common Stock or Class A Stock as to which such
Person has record ownership or Beneficial Ownership is Beneficially
Owned by Aliens; or
(ii) the number and class or series of shares of Non-Class A Common
Stock or Class A Stock owned of record or Beneficially Owned by such
Person that are owned of record or Beneficially Owned by Persons that
are Aliens are as set forth in such certificate.
IV-9
<PAGE>
(b) With respect to any Non-Class A Common Stock or Class A Stock
identified by such Person in response to Section 2.3(a)(ii) above, this
Corporation may require such Person to provide such further information as
this Corporation may reasonably require in order to implement the
provisions of Section 2.2 of ARTICLE SIXTH.
(c) For purposes of applying Section 2.2 of ARTICLE SIXTH with respect to
any Non-Class A Common Stock or Class A Stock, if any Person fails to
provide the certificate or other information to which this Corporation is
entitled pursuant to this Section 2.3, this Corporation in its sole
discretion may presume that the Non-Class A Common Stock or Class A Stock
in question is, or is not, Beneficially Owned by Aliens.
2.4. Factual Determinations. The Board of Directors shall have the power
and duty to construe and apply the provisions of Sections 2.2 and 2.3 of
ARTICLE SIXTH and, with respect to shares of Non-Class A Common Stock, to
make all determinations necessary or desirable to implement such
provisions, including but not limited to: (a) the number of shares of Non-
Class A Common Stock that are Beneficially Owned by any Person; (b) whether
a Person is an Alien; (c) the application of any other definition of these
Articles of Incorporation to the given facts; and (d) any other matter
relating to the applicability or effect of Section 2.2 of ARTICLE SIXTH.
2.5. Loss of Voting Rights. If (a) there is a breach by FT, DT, any
Qualified Subsidiary, any Strategic Investor or any Qualified Stock
Purchaser of any of the provisions of Sections 3.1(a) or 3.2(b) (as it
relates to matters described in Section 3.1(a)) of the Standstill Agreement
or any corresponding provision of any Qualified Subsidiary Standstill
Agreement, Strategic Investor Standstill Agreement or Qualified Stock
Purchaser Standstill Agreement, (b) there is a willful breach in any
material respect by FT, DT, any Qualified Subsidiary, any Strategic
Investor or any Qualified Stock Purchaser of any provision of Section 3.1
(other than Section 3.1(a)) of the Standstill Agreement or any
corresponding provision of any Qualified Subsidiary Standstill Agreement,
Strategic Investor Standstill Agreement or Qualified Stock Purchaser
Standstill Agreement, or (c) a Government Affiliate or Related Company
(each as defined in the Standstill Agreement) takes an action which if
taken by FT or DT would violate Sections 3.1 or 3.2(b) (as it relates to
matters other than those described in Section 3.1(a)) of the Standstill
Agreement, then FT and its Qualified Subsidiaries (except in the case of a
breach arising from the action of a Government Affiliate of Germany, a
Related Company of DT or a Strategic Investor in a Qualified Subsidiary of
DT in which FT is not an investor), DT and its Qualified Subsidiaries
(except in the case of a breach arising from the action of a Government
Affiliate of France, a Related Company of FT or a Strategic Investor in a
Qualified Subsidiary of FT in which DT is not an investor) and each
Qualified Stock Purchaser shall not be entitled to vote any of their shares
of capital stock of this Corporation with respect to any matter or proposal
arising from, relating to or involving, such breach or action, and no such
purported vote by such Class A Holders on such matter shall be effective or
shall be counted.
Section 3. Voting Powers.
Section 3.1. General. Except as otherwise provided by law or as expressly
set forth in ARTICLE FIFTH or in this ARTICLE SIXTH, each share of
Corporation Common Stock shall be entitled to vote, as provided in ARTICLE
SIXTH, Section 3.2 and ARTICLE SIXTH, Section 7.5(d) (with respect to Class
A Stock only), on all matters in respect of which the holders of
Corporation Common Stock are entitled to vote, and, except as otherwise
provided by the terms of any outstanding series of Preferred Stock, the
holders of Corporation Common Stock shall vote together with the holders of
all other classes or series of capital stock which have general voting
power on all such matters as a single class; provided, however, that
(i) holders of Common Group Stock, voting together as a single class,
shall be entitled to vote upon a proposed amendment to these Articles
of Incorporation if such amendment would (A) increase or decrease the
aggregate number of authorized shares of the Common Group Stock, (B)
increase or decrease the par value of the shares of the Common Group
Stock, or (C) alter or change the powers, preferences or special rights
of the shares of the Common Group Stock so as to affect them adversely,
and
IV-10
<PAGE>
(ii) holders of PCS Stock, voting together as a single class, shall
be entitled to vote upon a proposed amendment to these Articles of
Incorporation if such amendment would (A) increase or decrease the
aggregate number of authorized shares of PCS Stock, (B) increase or
decrease the par value of shares of PCS Stock or (C) alter or change
the powers, preferences or special rights of the shares of PCS Stock so
as to affect them adversely.
Section 3.2. Number of Votes. (a) On each matter to be voted on by the
holders of Non-Class A Common Stock and Class A Stock voting together as a
single class,
(i) each outstanding share of Common Stock and Class A Common Stock
is entitled to one vote (subject, in the case of the Class A Common
Stock, to any increase in accordance with ARTICLE SIXTH, Section
7.5(d));
(ii) each outstanding share of Series 1 PCS Stock is entitled to a
number of votes (which, at any time, may be more or less than one whole
vote and may include a fraction of a vote) (the "PCS Per Share Vote")
equal to (x) if the record date for determining the stockholders
entitled to vote is on or before December 31, 1998, the number of votes
determined by multiplying one by the PCS Ratio and (y) if the record
date for determining the stockholders entitled to vote is after
December 31, 1998, the number of votes determined by multiplying one by
the ratio of the Average Trading Price of one share of Series 1 PCS
Stock to the Average Trading Price of one share of Common Stock
computed as of the tenth Trading Day preceding the record date for
determining the stockholders entitled to vote, expressed as a decimal
fraction rounded to the nearest three decimal places;
(iii) each outstanding share of Series 2 PCS Stock is entitled to a
number of votes (which, at any time, may be more or less than one whole
vote and may include a fraction of one vote) equal to ten percent of
the applicable PCS Per Share Vote as determined in accordance with
Section 3.2(a)(ii);
(iv) each outstanding share of Series 3 PCS Stock is entitled to a
number of votes (which, at any time, may be more or less than one whole
vote and may include a fraction of one vote) equal to the applicable
PCS Per Share Vote as determined in accordance with Section 3.2(a)(ii)
(subject to any increase in accordance with ARTICLE SIXTH, Section
7.5(d)); and
(v) each outstanding share of Series 2 Common Stock is entitled to
ten percent of one vote.
(b) On each matter to be voted on by the holders of Non-Class A Common
Stock voting together as a single class,
(i) each outstanding share of Common Stock is entitled to one vote;
(ii) each outstanding share of Series 1 PCS Stock is entitled to the
PCS Per Share Vote determined in accordance with Section 3.2(a)(ii);
(iii) each outstanding share of Series 2 PCS Stock is entitled to a
number of votes determined in accordance with Section 3.2(a)(iii) and
(iv) each outstanding share of Series 2 Common Stock is entitled to
ten percent of one vote.
(c) On each matter to be voted on by the holders of the Common Group
Stock, voting together as a single class, each outstanding share of Common
Stock, Series 2 Common Stock and Class A Common Stock is entitled to one
vote.
(d) On each matter to be voted on by the holders of the PCS Stock voting
together as a single class, each outstanding share of Series 1 PCS Stock,
Series 2 PCS Stock and Series 3 PCS Stock is entitled to one vote.
(e) On each matter to be voted on by the holders of Class A Stock voting
together as a single class, each outstanding share of Class A Common Stock
is entitled to one vote per share and each outstanding share of Series 3
PCS Stock is entitled to the PCS Vote Per Share determined in accordance
with Section 3.2(a)(iv).
IV-11
<PAGE>
(f) In addition to the foregoing provisions of this Section 3, (i) if
shares of only one class or series of Corporation Common Stock are
outstanding on the record date for determining the holders of Corporation
Common Stock entitled to vote on any matter, then each share of that class
or series shall be entitled to one vote, and (ii) if any class or any
series of Corporation Common Stock votes as a separate class with respect
to any matter, each share of that class or series shall, for purposes of
such vote, be entitled to one vote on such matter.
Section 4. Liquidation Rights. If any voluntary or involuntary liquidation,
dissolution or winding up of this Corporation occurs, then after payment or
provision for payment of the debts and other liabilities of this Corporation,
including the liquidation preferences of any series of Preferred Stock, the
holders of Corporation Common Stock shall be entitled to receive the remaining
assets of the Corporation, regardless of the Business Group to which such
assets are attributed in accordance with Section 10 of this ARTICLE SIXTH,
divided among such holders in accordance with the per share "Liquidation
Units" attributable to each such class or series of stock. Each share of
Common Group Stock is hereby attributed one "Liquidation Unit" and each share
of PCS Stock is hereby attributed the number of "Liquidation Units" determined
by multiplying one by the PCS Ratio. The per share "Liquidation Units" of each
such class or series of stock are subject to adjustment as determined by the
Board of Directors to be appropriate to reflect equitably (i) any subdivision
(by stock split or otherwise) or combination (by reverse stock split or
otherwise) of such class or series of stock or (ii) any dividend or other
distribution of shares of such class or series of stock to holders of shares
of such class or series of stock. Neither the merger nor consolidation of this
Corporation, nor the Transfer of all or part of its assets, shall be deemed to
be a voluntary or involuntary liquidation, dissolution or winding up of this
Corporation within the meaning of this Section 4. Notwithstanding the
foregoing, any transaction or series of related transactions which results in
the distribution of all or substantially all of the assets of the PCS Group
(excluding any portion of such assets retained by the Corporation or
distributed to holders of Common Stock and Class A Common Stock in respect of
the Intergroup Interest Fraction) to the holders of the outstanding PCS Stock
by way of the distribution of equity interests in one or more entities that
collectively hold, directly or indirectly, all or substantially all of the
assets of the PCS Group (including, without limitation, the PCS Group
Subsidiary) shall not constitute a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation for purposes of this Section 4
but shall be subject to ARTICLE SIXTH, Section 7.2.
Section 5. Dividends. Dividends shall be declared and paid only out of net
income or surplus of this Corporation and may be declared and paid upon each
class and series of Corporation Common Stock, upon the terms with respect to
each such class and series, and subject to the limitations provided for in
this Section 5 and in Section 13, as the Board of Directors may determine.
5.1. Generally. Dividends on Corporation Common Stock may be declared and
paid only out of the funds of the Corporation legally available therefor.
5.1.1. The holders of the Common Stock shall be entitled to receive,
when and if declared by the Board of Directors in accordance with this
Section 5.1, dividends in respect of the Common Stock equivalent on a
per share basis to those payable on the Series 2 Common Stock.
Dividends on the Common Stock shall be payable on the same date fixed
for the payment of the corresponding dividend on shares of Series 2
Common Stock and shall be in an amount per share equal to the full per
share amount of any cash dividend paid on shares of Series 2 Common
Stock, plus the full per share amount (payable in kind) of any non-cash
dividend paid on shares of Series 2 Common Stock, provided that if this
Corporation shall declare and pay any dividends on shares of Series 2
Common Stock payable in shares of Series 2 Common Stock, or in options,
warrants or rights to acquire shares of Series 2 Common Stock, or in
securities convertible into or exchangeable for shares of Series 2
Common Stock, then in each case, this Corporation shall declare and
pay, at the same time that it declares and pays any such dividend, an
equivalent dividend per share on the Common Stock payable in shares of
Common Stock, or equivalent corresponding options, warrants or rights
to acquire shares of Common Stock, or equivalent corresponding
securities convertible into or exchangeable for shares of Common Stock.
5.1.2. The holders of the Common Stock shall be entitled to receive,
when and if declared by the Board of Directors in accordance with this
Section 5.1, dividends in respect of the Common Stock
IV-12
<PAGE>
equivalent on a per share basis to those payable on the Class A Common
Stock. Dividends on the Common Stock shall be payable on the same date
fixed for the payment of the corresponding dividend on shares of Class
A Common Stock and shall be in an amount per share equal to the full
per share amount of any cash dividend paid on shares of Class A Common
Stock, plus the full per share amount (payable in kind) of any non-cash
dividend paid on shares of Class A Common Stock, provided that if this
Corporation shall declare and pay any dividends on shares of Class A
Common Stock payable in shares of Class A Common Stock, or in options,
warrants or rights to acquire shares of Class A Common Stock, or in
securities convertible into or exchangeable for shares of Class A
Common Stock, then in each case, this Corporation shall declare and
pay, at the same time that it declares and pays any such dividend, an
equivalent dividend per share on the Common Stock payable in shares of
Common Stock, or equivalent corresponding options, warrants or rights
to acquire shares of Common Stock, or equivalent corresponding
securities convertible into or exchangeable for shares of Common Stock.
5.1.3. The holders of shares of Series 2 Common Stock shall be
entitled to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Series 2
Common Stock equivalent on a per share basis to those payable on the
Common Stock. Dividends on the Series 2 Common Stock shall be payable
on the same date fixed for the payment of the corresponding dividend on
shares of Common Stock and shall be in an amount per share equal to the
full per share amount of any cash dividend paid on shares of Common
Stock, plus the full per share amount (payable in kind) of any non-cash
dividend paid on shares of Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Common
Stock payable in shares of Common Stock, or in options, warrants or
rights to acquire shares of Common Stock, or in securities convertible
into or exchangeable for shares of Common Stock, then in each case,
this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share
on the Series 2 Common Stock payable in shares of Series 2 Common
Stock, or equivalent corresponding options, warrants or rights to
acquire shares of Series 2 Common Stock, or equivalent corresponding
securities convertible into or exchangeable for shares of Series 2
Common Stock.
5.1.4. The holders of shares of Series 2 Common Stock shall be
entitled to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Series 2
Common Stock equivalent on a per share basis to those payable on the
Class A Common Stock. Dividends on the Series 2 Common Stock shall be
payable on the same date fixed for the payment of the corresponding
dividend on shares of Class A Common Stock and shall be in an amount
per share equal to the full per share amount of any cash dividend paid
on shares of Class A Common Stock, plus the full per share amount
(payable in kind) of any non-cash dividend paid on shares of Class A
Common Stock, provided that if this Corporation shall declare and pay
any dividend on shares of Class A Common Stock payable in shares of
Class A Common Stock, or in options, warrants or rights to acquire
shares of Class A Common Stock, or in securities convertible into or
exchangeable for shares of Class A Common Stock, then in each case,
this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share
on the Series 2 Common Stock payable in shares of Series 2 Common
Stock, or equivalent corresponding options, warrants or rights to
acquire shares of Series 2 Common Stock, or equivalent corresponding
securities convertible into or exchangeable for shares of Series 2
Common Stock.
5.1.5. The holders of shares of Class A Common Stock shall be
entitled to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a per share basis to those payable on the
Common Stock. Dividends on the Class A Common Stock shall be payable on
the same date fixed for the payment of the corresponding dividend on
shares of Common Stock and shall be in an amount per share equal to the
full per share amount of any cash dividend paid on shares of Common
Stock, plus the full per share amount (payable in kind) of any non-cash
dividend paid on shares of Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Common
Stock payable in shares of Common Stock, or in options, warrants or
rights to acquire shares of Common Stock, or in securities
IV-13
<PAGE>
convertible into or exchangeable for shares of Common Stock, then in
each case, this Corporation shall declare and pay, at the same time
that it declares and pays any such dividend, an equivalent dividend per
share on the Class A Common Stock payable in shares of Class A Common
Stock, or equivalent corresponding options, warrants or rights to
acquire shares of Class A Common Stock, or equivalent corresponding
securities convertible into or exchangeable for shares of Class A
Common Stock.
5.1.6. The holders of shares of Class A Common Stock shall be
entitled to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a per share basis to those payable on the
Series 2 Common Stock. Dividends on the Class A Common Stock shall be
payable on the same date fixed for the payment of the corresponding
dividend on shares of Series 2 Common Stock and shall be in an amount
per share equal to the full per share amount of any cash dividend paid
on shares of Series 2 Common Stock, plus the full per share amount
(payable in kind) of any non-cash dividend paid on shares of Series 2
Common Stock, provided that if this Corporation shall declare and pay
any dividend on shares of Series 2 Common Stock payable in shares of
Series 2 Common Stock, or in options, warrants or rights to acquire
shares of Series 2 Common Stock, or in securities convertible into or
exchangeable for shares of Series 2 Common Stock, then in each case,
this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share
on the Class A Common Stock payable in shares of Class A Common Stock,
or equivalent corresponding options, warrants or rights to acquire
shares of Class A Common Stock, or equivalent corresponding securities
convertible into or exchangeable for shares of Class A Common Stock.
5.1.7. The holders of shares of Old Class A Common Stock shall be
entitled to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Old Class
A Common Stock equivalent on a per share basis to those payable on the
Class A Common Stock--Series DT. Dividends on the Old Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Class A Common Stock--Series DT and
shall be in an amount per share equal to the full per share amount of
any cash dividend paid on shares of Class A Common Stock--Series DT,
plus the full per share amount (payable in kind) of any non-cash
dividend paid on shares of Class A Common Stock--Series DT, provided
that if this Corporation shall declare and pay any dividend on shares
of Class A Common Stock--Series DT payable in shares of Class A Common
Stock--Series DT, or in options, warrants or rights to acquire shares
of Class A Common Stock--Series DT, or in securities convertible into
or exchangeable for shares of Class A Common Stock--Series DT, then in
each case, this Corporation shall declare and pay, at the same time
that it declares and pays any such dividend, an equivalent dividend per
share on the Old Class A Common Stock payable in shares of Old Class A
Common Stock, or equivalent corresponding options, warrants or rights
to acquire shares of Old Class A Common Stock, or equivalent
corresponding securities convertible into or exchangeable for shares of
Old Class A Common Stock.
5.1.8. The holders of shares of Class A Common Stock--Series DT shall
be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class
A Common Stock--Series DT equivalent on a per share basis to those
payable on the Old Class A Common Stock. Dividends on the Class A
Common Stock--Series DT shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common
Stock and shall be in an amount per share equal to the full per share
amount of any cash dividend paid on shares of Old Class A Common Stock,
plus the full per share amount (payable in kind) of any non-cash
dividend paid on shares of Old Class A Common Stock, provided that if
this Corporation shall declare and pay any dividend on shares of Old
Class A Common Stock payable in shares of Old Class A Common Stock, or
in options, warrants or rights to acquire shares of Old Class A Common
Stock, or in securities convertible into or exchangeable for shares of
Old Class A Common Stock, then in each case, this Corporation shall
declare and pay, at the same time that it declares and pays any such
dividend, an equivalent dividend per share on the Class A Common
Stock--Series DT payable in shares of Class A Common Stock--Series DT,
or equivalent corresponding options, warrants or rights
IV-14
<PAGE>
to acquire shares of Class A Common Stock--Series DT, or equivalent
corresponding securities convertible into or exchangeable for shares of
Class A Common Stock--Series DT.
5.1.9. The holders of the Series 1 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance
with this Section 5.1, dividends in respect of the Series 1 PCS Stock
equivalent on a per share basis to those payable on the Series 2 PCS
Stock. Dividends on the Series 1 PCS Stock shall be payable on the same
date fixed for the payment of the corresponding dividend on shares of
Series 2 PCS Stock and shall be in an amount per share equal to the
full per share amount of any cash dividend paid on shares of Series 2
PCS Stock, plus the full per share amount (payable in kind) of any non-
cash dividend paid on shares of Series 2 PCS Stock, provided that if
this Corporation shall declare and pay any dividends on shares of
Series 2 PCS Stock payable in shares of Series 2 PCS Stock, or in
options, warrants or rights to acquire shares of Series 2 PCS Stock, or
in securities convertible into or exchangeable for shares of Series 2
PCS Stock, then in each case, this Corporation shall declare and pay,
at the same time that it declares and pays any such dividend, an
equivalent dividend per share on the Series 1 PCS Stock payable in
shares of Series 1 PCS Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 1 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable
for shares of Series 1 PCS Stock.
5.1.10. The holders of the Series 1 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance
with this Section 5.1, dividends in respect of the Series 1 PCS Stock
equivalent on a per share basis to those payable on the Series 3 PCS
Stock. Dividends on the Series 1 PCS Stock shall be payable on the same
date fixed for the payment of the corresponding dividend on shares of
Series 3 PCS Stock and shall be in an amount per share equal to the
full per share amount of any cash dividend paid on shares of Series 3
PCS Stock, plus the full per share amount (payable in kind) of any non-
cash dividend paid on shares of Series 3 PCS Stock, provided that if
this Corporation shall declare and pay any dividends on shares of
Series 3 PCS Stock payable in shares of Series 3 PCS Stock, or in
options, warrants or rights to acquire shares of Series 3 PCS Stock, or
in securities convertible into or exchangeable for shares of Series 3
PCS Stock, then in each case, this Corporation shall declare and pay,
at the same time that it declares and pays any such dividend, an
equivalent dividend per share on the Series 1 PCS Stock payable in
shares of Series 1 PCS Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 1 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable
for shares of Series 1 PCS Stock.
5.1.11. The holders of shares of Series 2 PCS Stock shall be entitled
to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Series 2
PCS Stock equivalent on a per share basis to those payable on the
Series 1 PCS Stock. Dividends on the Series 2 PCS Stock shall be
payable on the same date fixed for the payment of the corresponding
dividend on shares of Series 1 PCS Stock and shall be in an amount per
share equal to the full per share amount of any cash dividend paid on
shares of Series 1 PCS Stock, plus the full per share amount (payable
in kind) of any non-cash dividend paid on shares of Series 1 PCS Stock,
provided that if this Corporation shall declare and pay any dividend on
shares of Series 1 PCS Stock payable in shares of Series 1 PCS Stock,
or in options, warrants or rights to acquire shares of Series 1 PCS
Stock, or in securities convertible into or exchangeable for shares of
Series 1 PCS Stock, then in each case, this Corporation shall declare
and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend per share on the Series 2 PCS Stock payable in
shares of Series 2 PCS Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 2 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 PCS Stock.
5.1.12. The holders of shares of Series 2 PCS Stock shall be entitled
to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Series 2
PCS Stock equivalent on a per share basis to those payable on the
Series 3 PCS Stock. Dividends on the Series 2 PCS Stock shall be
payable on the same date fixed for the payment of the corresponding
dividend on shares of Series 3 PCS Stock and shall be in an amount per
share equal to
IV-15
<PAGE>
the full per share amount of any cash dividend paid on shares of Series
3 PCS Stock, plus the full per share amount (payable in kind) of any
non-cash dividend paid on shares of Series 3 PCS Stock, provided that
if this Corporation shall declare and pay any dividend on shares of
Series 3 PCS Stock payable in shares of Series 3 PCS Stock, or in
options, warrants or rights to acquire shares of Series 3 PCS Stock, or
in securities convertible into or exchangeable for shares of Series 3
PCS Stock, then in each case, this Corporation shall declare and pay,
at the same time that it declares and pays any such dividend, an
equivalent dividend per share on the Series 2 PCS Stock payable in
shares of Series 2 PCS Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 2 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 PCS Stock.
5.1.13. The holders of shares of Series 3 PCS Stock shall be entitled
to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Series 3
PCS Stock equivalent on a per share basis to those payable on the
Series 1 PCS Stock. Dividends on the Series 3 PCS Stock shall be
payable on the same date fixed for the payment of the corresponding
dividend on shares of Series 1 PCS Stock and shall be in an amount per
share equal to the full per share amount of any cash dividend paid on
shares of Series 1 PCS Stock, plus the full per share amount (payable
in kind) of any non-cash dividend paid on shares of Series 1 PCS Stock,
provided that if this Corporation shall declare and pay any dividend on
shares of Series 1 PCS Stock payable in shares of Series 1 PCS Stock,
or in options, warrants or rights to acquire shares of Series 1 PCS
Stock, or in securities convertible into or exchangeable for shares of
Series 1 PCS Stock, then in each case, this Corporation shall declare
and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend per share on the Series 3 PCS Stock payable in
shares of Series 3 PCS Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 3 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 PCS Stock.
5.1.14. The holders of shares of Series 3 PCS Stock shall be entitled
to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Series 3
PCS Stock equivalent on a per share basis to those payable on the
Series 2 PCS Stock. Dividends on the Series 3 PCS Stock shall be
payable on the same date fixed for the payment of the corresponding
dividend on shares of Series 2 PCS Stock and shall be in an amount per
share equal to the full per share amount of any cash dividend paid on
shares of Series 2 PCS Stock, plus the full per share amount (payable
in kind) of any non-cash dividend paid on shares of Series 2 PCS Stock,
provided that if this Corporation shall declare and pay any dividend on
shares of Series 2 PCS Stock payable in shares of Series 2 PCS Stock,
or in options, warrants or rights to acquire shares of Series 2 PCS
Stock, or in securities convertible into or exchangeable for shares of
Series 2 PCS Stock, then in each case, this Corporation shall declare
and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend per share on the Series 3 PCS Stock payable in
shares of Series 3 PCS Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 3 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 PCS Stock.
5.2. Separate Declaration of Dividends. The Board of Directors, in
accordance with the applicable provisions of Section 5.1, may at any time
declare and pay dividends (i) exclusively on Common Group Stock, (ii)
exclusively on PCS Stock or (iii) on the Common Group Stock, on the one
hand, and the PCS Stock, on the other, in equal or unequal per share
amounts, notwithstanding the amount of dividends previously declared on
each class or series of stock, the respective voting or liquidation rights
of each class or series of stock or any other factor.
5.3. Share Distributions. Subject to ARTICLE SIXTH, Section 5.1 and
except as permitted by ARTICLE SIXTH, Sections 7.1 and 7.2, the Board of
Directors may declare and pay dividends or distributions of shares of
Corporation Common Stock (or Convertible Securities convertible into or
IV-16
<PAGE>
exchangeable or exercisable for shares of Corporation Common Stock) on
shares of Corporation Common Stock or shares of Preferred Stock only as
follows:
(A) dividends or distributions of shares of Common Stock, Series 2
Common Stock and Class A Common Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Common
Stock, Series 2 Common Stock and Class A Common Stock) on shares of
Common Stock, Series 2 Common Stock and Class A Common Stock,
respectively, or shares of Preferred Stock attributed to the Sprint FON
Group exclusively in accordance with ARTICLE SIXTH, Section 13;
(B) dividends or distributions of shares of Series 1 PCS Stock,
Series 2 PCS Stock and Series 3 PCS Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 1
PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock) on shares of
Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock,
respectively, or shares of Preferred Stock attributed to the PCS Group
exclusively in accordance with ARTICLE SIXTH, Section 13; and
(C) dividends or distributions of shares of Series 1 PCS Stock,
Series 2 PCS Stock and Series 3 PCS Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 1
PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock) or PCS Preferred
Stock (or Convertible Securities convertible into or exchangeable or
exercisable for shares of PCS Preferred Stock) on shares of (x) Common
Stock, Series 2 Common Stock and Class A Common Stock, respectively, or
(y) shares of FON Preferred Stock, but in any such case only if the
Number Of Shares Issuable With Respect To The Intergroup Interest
immediately prior to such dividend or distribution is greater than or
equal to the sum of (1) the amount of any decrease in the Number Of
Shares Issuable With Respect To The Intergroup Interest required by
paragraph (B) of the definition of such term in ARTICLE SIXTH, Section
10 as a result of such dividend or distribution, plus (2) the number of
shares of PCS Stock issuable upon conversion, exchange or exercise of
any Convertible Securities to be so issued or any other outstanding
Convertible Securities that have been issued as a dividend or other
distribution (including in connection with any reclassification or
exchange of shares) to holders of Common Group Stock or shares of FON
Preferred Stock. For purposes of this Section 5.3, any outstanding
Convertible Securities that are convertible into or exchangeable or
exercisable for any other Convertible Securities which are themselves
convertible into or exchangeable or exercisable for Common Stock (or
Series 2 Common Stock or Class A Common Stock, as the case may be) or
PCS Stock (or other Convertible Securities that are so convertible,
exchangeable or exercisable) shall be deemed to have been converted,
exchanged or exercised in full for such Convertible Securities.
Section 6. No Dilution or Impairment; Certain Tender Offers.
(a) No reclassification, subdivision or combination of the outstanding
shares of Series 2 Common Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Common Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Common
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 2 Common Stock as were represented by the shares of Common Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Common
Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions
(including liquidating and other distributions) that are equivalent to
those payable per share in respect of shares of Series 2 Common Stock,
subject to the limitations, restrictions and conditions on such rights
contained herein.
(b) No reclassification, subdivision or combination of the outstanding
shares of Class A Common Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Common Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Common
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage
IV-17
<PAGE>
of the Voting Power of this Corporation relative to the Class A Common
Stock as were represented by the shares of Common Stock outstanding
immediately prior to such reclassification, subdivision or combination and
(ii) maintain all of the rights associated with the Common Stock set forth
in these Articlesof Incorporation, including without limitation the right
to receive dividends and other distributions (including liquidating and
other distributions) that are equivalent to those payable per share in
respect of shares of Class A Common Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
(c) No reclassification, subdivision or combination of the outstanding
shares of Common Stock shall be effected directly or indirectly (including
without limitation any reclassification, subdivision or combination
effected pursuant to a consolidation, merger or liquidation) unless at the
same time the Series 2 Common Stock is reclassified, subdivided or combined
on an equal per share basis so that the holders of the Series 2 Common
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Common Stock as were represented by the shares of Series 2 Common Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series
2 Common Stock set forth in these Articlesof Incorporation, including
without limitation the right to receive dividends and other distributions
(including liquidating and other distributions) that are equivalent to
those payable per share in respect of shares of Common Stock, subject to
the limitations, restrictions and conditions on such rights contained
herein.
(d) No reclassification, subdivision or combination of the outstanding
shares of Class A Common Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 2 Common Stock is reclassified,
subdivided or combined on an equal per share basis so that the holders of
the Series 2 Common Stock (i) are entitled, in the aggregate, to a number
of Votes representing the same percentage of the Voting Power of this
Corporation relative to the Class A Common Stock as were represented by the
shares of Series 2 Common Stock outstanding immediately prior to such
reclassification, subdivision or combination and (ii) maintain all of the
rights associated with the Series 2 Common Stock set forth in these
Articlesof Incorporation, including without limitation the right to receive
dividends and other distributions (including liquidating and other
distributions) that are equivalent to those payable per share in respect of
shares of Class A Common Stock, subject to the limitations, restrictions
and conditions on such rights contained herein.
(e) No reclassification, subdivision or combination of the outstanding
shares of Common Stock shall be effected directly or indirectly (including
without limitation any reclassification, subdivision or combination
effected pursuant to a consolidation, merger or liquidation) unless at the
same time the Class A Common Stock is reclassified, subdivided or combined
on an equal per share basis so that the holders of the Class A Common Stock
(i) are entitled, in the aggregate, to a number of Votes representing the
same percentage of the Voting Power of this Corporation relative to the
Common Stock as were represented by the shares of Class A Common Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Class A
Common Stock set forth in these Articlesof Incorporation, including without
limitation the right to receive dividends and other distributions
(including liquidating and other distributions) that are equivalent to
those payable per share in respect of shares of Common Stock, subject to
the limitations, restrictions and conditions on such rights contained
herein.
(f) No reclassification, subdivision or combination of the outstanding
shares of Series 2 Common Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Class A Common Stock is reclassified,
subdivided or combined on an equal per share basis so that the holders of
the Class A Common Stock (i) are entitled, in the aggregate, to a number of
Votes representing the same percentage of the Voting Power of this
Corporation relative to the Series 2 Common Stock as were represented by
the shares of Class A Common Stock outstanding immediately prior to such
reclassification, subdivision or combination and (ii) maintain all of the
rights associated with the Class A Common Stock
IV-18
<PAGE>
set forth in these Articles of Incorporation, including without limitation
the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable
per share in respect of shares of Series 2 Common Stock, subject to the
limitations, restrictions and conditions on such rights contained herein.
(g) No reclassification, subdivision or combination of the outstanding
shares of Class A Common Stock--Series DT shall be effected directly or
indirectly (including without limitation any reclassification, subdivision
or combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Old Class A Common Stock is reclassified,
subdivided or combined on an equal per share basis so that the holders of
the Old Class A Common Stock (i) are entitled, in the aggregate, to a
number of Votes representing the same percentage of the Voting Power of
this Corporation relative to the Class A Common Stock--Series DT as were
represented by the shares of Old Class A Common Stock outstanding
immediately prior to such reclassification, subdivision or combination and
(ii) maintain all of the rights associated with the Old Class A Common
Stock set forth in these Articlesof Incorporation, including without
limitation the right to receive dividends and other distributions
(including liquidating and other distributions) that are equivalent to
those payable per share in respect of shares of Class A Common Stock--
Series DT, subject to the limitations, restrictions and conditions on such
rights contained herein.
(h) No reclassification, subdivision or combination of the outstanding
shares of Old Class A Common Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Class A Common Stock--Series DT is
reclassified, subdivided or combined on an equal per share basis so that
the holders of the Class A Common Stock--Series DT (i) are entitled, in the
aggregate, to a number of Votes representing the same percentage of the
Voting Power of this Corporation relative to the Old Class A Common Stock
as were represented by the shares of Class A Common Stock--Series DT
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Class A
Common Stock--Series DT set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Old Class A
Common Stock, subject to the limitations, restrictions and conditions on
such rights contained herein.
(i) No reclassification, subdivision or combination of the outstanding
shares of Series 2 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 1 PCS Stock is reclassified, subdivided
or combined on an equal per share basis so that the holders of the Series 1
PCS Stock (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Series 2 PCS Stock as were represented by the shares of
Series 1 PCS Stock outstanding immediately prior to such reclassification,
subdivision or combination and (ii) maintain all of the rights associated
with the Series 1 PCS Stock set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 2 PCS
Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
(j) No reclassification, subdivision or combination of the outstanding
shares of Series 3 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 1 PCS Stock is reclassified, subdivided
or combined on an equal per share basis so that the holders of the Series 1
PCS Stock (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Series 3 PCS Stock as were represented by the shares of
Series 1 PCS Stock outstanding immediately prior to such reclassification,
subdivision or combination and (ii) maintain all of the rights associated
with the Series 1 PCS Stock set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 3 PCS
Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
IV-19
<PAGE>
(k) No reclassification, subdivision or combination of the outstanding
shares of Series 1 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 2 PCS Stock is reclassified, subdivided
or combined on an equal per share basis so that the holders of the Series 2
PCS Stock (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Series 1 PCS Stock as were represented by the shares of
Series 2 PCS Stock outstanding immediately prior to such reclassification,
subdivision or combination and (ii) maintain all of the rights associated
with the Series 2 PCS Stock set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 1 PCS
Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
(l) No reclassification, subdivision or combination of the outstanding
shares of Series 3 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 2 PCS Stock is reclassified, subdivided
or combined on an equal per share basis so that the holders of the Series 2
PCS Stock (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Series 3 PCS Stock as were represented by the shares of
Series 2 PCS Stock outstanding immediately prior to such reclassification,
subdivision or combination and (ii) maintain all of the rights associated
with the Series 2 PCS Stock set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 3 PCS
Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
(m) No reclassification, subdivision or combination of the outstanding
shares of Series 1 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 3 PCS Stock is reclassified, subdivided
or combined on an equal per share basis so that the holders of the Series 3
PCS Stock (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Series 1 PCS Stock as were represented by the shares of
Series 3 PCS Stock outstanding immediately prior to such reclassification,
subdivision or combination and (ii) maintain all of the rights associated
with the Series 3 PCS Stock set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 1 PCS
Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
(n) No reclassification, subdivision or combination of the outstanding
shares of Series 2 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 3 PCS Stock is reclassified, subdivided
or combined on an equal per share basis so that the holders of the Series 3
PCS Stock (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Series 2 PCS Stock as were represented by the shares of
Series 3 PCS Stock outstanding immediately prior to such reclassification,
subdivision or combination and (ii) maintain all of the rights associated
with the Series 3 PCS Stock set forth in these Articlesof Incorporation,
including without limitation the right to receive dividends and other
distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 2 PCS
Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
(o) Without limiting the generality of the foregoing, in the case of any
consolidation or merger of this Corporation with or into any other entity
(other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of the Non-Class A Common Stock) or
any reclassification of the Non-Class A Common Stock into any other form of
capital stock of this Corporation, whether in whole or in part, each Class
A Holder shall, after such consolidation, merger or reclassification, have
the right (but not the obligation), by notice delivered to this Corporation
or any successor thereto within 90 days after the
IV-20
<PAGE>
consummation of such consolidation, merger or reclassification, to convert
each share of Class A Common Stock or Series 3 PCS Stock held by it into
the kind and amount of shares of stock and other securities and property
which such Class A Holder would have been entitled to receive upon such
consolidation, merger, or reclassification if such Class A Holder had
converted its shares of Class A Common Stock or Series 3 PCS Stock into
Common Stock or Series 1 PCS Stock, respectively, immediately prior to such
merger, consolidation or reclassification. This Corporation shall not
effect, directly or indirectly, any such reclassification, subdivision or
combination of outstanding shares of Non-Class A Common Stock unless it
delivers to the Class A Holders written notice of its intent to take such
action at least ten Business Days before taking such action.
(p) Without limiting the generality of the foregoing, in the case of any
consolidation or merger of this Corporation with or into any other entity
(other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of the Common Stock and Series 1 PCS
Stock) or any reclassification of the Common Stock and Series 1 PCS Stock
into any other form of capital stock of this Corporation, whether in whole
or in part, each holder of Series 2 Common Stock or Series 2 PCS Stock
shall, after such consolidation, merger or reclassification, have the right
(but not the obligation), by notice delivered to this Corporation or any
successor thereto within 90 days after the consummation of such
consolidation, merger or reclassification, to convert each share of Series
2 Common Stock or Series 2 PCS Stock held by such holder into the kind and
amount of shares of stock and other securities and property which such
holder would have been entitled to receive upon such consolidation, merger,
or reclassification if such holder had converted its shares of Series 2
Common Stock or Series 2 PCS Stock into Common Stock or Series 1 PCS Stock,
respectively, immediately prior to such merger, consolidation or
reclassification. This Corporation shall not effect, directly or
indirectly, any such reclassification, subdivision or combination of
outstanding shares of Common Stock or Series 1 PCS Stock unless it delivers
to the holders of Series 2 Common Stock and Series 2 PCS Stock written
notice of its intent to take such action at least ten Business Days before
taking such action.
(q) Exclusionary Tender Offers. If the Board of Directors shall determine
not to oppose a tender offer by a Person other than a Cable Holder for
Voting Securities of this Corporation representing not less than 35 percent
of the Voting Power of this Corporation, and the terms of such tender offer
do not permit the holders of Series 2 PCS Stock to sell an equal or greater
percentage of their shares as the holders of Series 1 PCS Stock are
permitted to sell taking into account any proration, then each holder of
Series 2 PCS Stock shall have the right (but not the obligation) to deliver
to this Corporation a written notice requesting conversion of certain
shares of Series 2 PCS Stock designated by such holder of Series 2 PCS
Stock into Series 1 PCS Stock, upon which delivery each share of Series 2
PCS Stock so designated in such notice shall automatically convert (without
the payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 PCS Stock, provided that (i) unless the
Series 2 PCS Stock shall have otherwise been converted into Series 1 PCS
Stock pursuant to ARTICLE SIXTH, Section 7.5 upon or prior to the
consummation or abandonment of the transaction contemplated by such tender
offer, immediately following the consummation of such transaction or the
delivery by this Corporation to each holder of Series 2 PCS Stock of a
notice that such transaction has been abandoned, each share of Series 1 PCS
Stock held by a holder of Series 2 PCS Stock shall automatically reconvert
(without the payment of any consideration) into one duly issued, fully paid
and nonassessable share of Series 2 PCS Stock, and (ii) only those shares
of Series 2 PCS Stock related to shares of Series 1 PCS Stock that were not
so reconverted shall be deemed for any purpose under these Articles of
Incorporation to have been converted into Series 1 PCS Stock, pursuant to
this subparagraph (q) and the Series 2 PCS Stock so reconverted shall be
deemed to have been at all times outstanding shares of Series 2 PCS Stock,
provided, that if the Series 2 PCS Stock has been converted into or
redeemed for Series 2 Common Stock pursuant to ARTICLE SIXTH, Section 7,
then the terms "Series 2 Common Stock" and "Common Stock" shall be deemed
to replace the terms "Series 2 PCS Stock" and "Series 1 PCS Stock,"
respectively, in this subparagraph (q).
(r) Issuer Tender Offers. The Corporation shall not conduct an issuer
tender offer (as defined on the Effective Date in Rule 13e-4 under the
Exchange Act) with respect to the Series 1 PCS Stock or the Common Stock
unless (i) such tender offer provides for the participation of the holders
of Series 2 PCS
IV-21
<PAGE>
Stock and Series 3 PCS Stock, on the one hand, or Series 2 Common Stock and
Class A Common Stock, on the other, on an equal basis with the Series 1 PCS
Stock or the Common Stock, respectively, and (ii) the Corporation accepts
for repurchase the number of shares tendered by the holders of Series 1 PCS
Stock, Series 2 PCS Stock and Series 3 PCS Stock, on the one hand, or
Common Stock, Series 2 Common Stock and Class A Common Stock, on the other,
in proportion to the number of shares of each such class and series
tendered; provided that the terms of this subparagraph (r) shall not
prevent the Corporation from administering in good faith an "odd-lot"
program in connection with such issuer tender offer and shall not apply to
customary acquisitions of Corporation Common Stock made by the Corporation
on the open market for purposes of maintaining stock option plans of the
Corporation.
Section 7. Conversion or Redemption of PCS Stock. Except as otherwise
provided in Sections 2.2, 6(q) and 8.5, shares of PCS Stock are (i) subject to
conversion or redemption, as the case may be, upon the terms provided in this
Section 7 with respect to each class and (ii) otherwise not subject to
conversion or redemption.
7.1. Conversion or Redemption of PCS Stock.
(A) If the Corporation and/or its subsidiaries makes a Disposition, in
one transaction or a series of related transactions, of all or
substantially all of the properties and assets attributed to the PCS Group
to one or more persons or entities (other than (w) the Disposition by the
Corporation of all or substantially all of its properties and assets in one
transaction or a series of related transactions in connection with the
dissolution or the liquidation and winding up of the Corporation and the
distribution of assets to stockholders pursuant to Section 4, (x) the
redemption of the PCS Stock for the stock of the PCS Group Subsidiary
pursuant to Section 7.2, (y) to any person or entity controlled (as
determined by the Board of Directors) by the Corporation or (z) pursuant to
a Related Business Transaction), then the Corporation shall, on or prior to
the 85th Trading Day after the date of consummation of such Disposition
(the "PCS Group Disposition Date"), either (I) pay a dividend on the PCS
Stock or (II) redeem some or all of the PCS Stock or convert PCS Stock into
Common Group Stock, as applicable (or another class or series of common
stock of the Corporation), in accordance with the following subparagraphs
(1) and (2) of this paragraph (A) and, to the extent applicable, in
accordance with Section 7.4, as the Board of Directors shall have selected
among such alternatives:
(1) provided that there are funds of the Corporation legally
available therefor:
(a) pay to the holders of the shares of PCS Stock a dividend, as
the Board of Directors shall have declared in accordance with
Section 5 of ARTICLE SIXTH, in cash and/or in securities (other than
a dividend of Corporation Common Stock or other common equity
securities of the Corporation) or other property having a Fair Value
as of the PCS Group Disposition Date in the aggregate equal to the
product of the Outstanding PCS Fraction as of the record date for
determining holders entitled to receive such dividend multiplied by
the Fair Value of the Net Proceeds of such Disposition; or
(b) (i) subject to the last sentence of this paragraph (A), if
such Disposition involves all (not merely substantially all) of the
properties and assets attributed to the PCS Group, redeem as of the
Redemption Date provided by Section 7.4(C) all outstanding shares of
PCS Stock in exchange for cash and/or securities (other than
Corporation Common Stock or other common equity securities of the
Corporation) or other property having a Fair Value as of the PCS
Group Disposition Date in the aggregate equal to the product of the
Outstanding PCS Fraction as of such Redemption Date multiplied by
the Fair Value of the Net Proceeds of such Disposition (such
aggregate amount to be allocated to shares of Series 1 PCS Stock,
Series 2 PCS Stock and Series 3 PCS Stock in the ratio of the number
of shares of each such series outstanding to the other series (so
that the amount of consideration paid for the redemption of each
share of Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS
Stock is the same)); or
(ii) subject to the last sentence of this paragraph (A), if such
Disposition involves substantially all (but not all) of the
properties and assets attributed to the PCS Group, redeem as of the
Redemption Date provided by Section 7.4(D) the number of whole
shares of PCS Stock
IV-22
<PAGE>
(which may be all of such shares outstanding) as have in the
aggregate an average Market Value during the period of ten
consecutive Trading Days beginning on the sixteenth Trading Day
immediately succeeding the PCS Group Disposition Date closest to the
product of the Outstanding PCS Fraction as of the date such shares
are selected for redemption multiplied by the Fair Value as of the
PCS Group Disposition Date of the Net Proceeds of such Disposition,
in exchange for cash and/or securities (other than Corporation
Common Stock or other common equity securities of the Corporation)
or other property having a Fair Value in the aggregate equal to such
product (such aggregate amount to be allocated to shares of Series 1
PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock in the ratio of
the number of shares of each such series outstanding to the other
series (so that the amount of consideration paid for the redemption
of each share of Series 1 PCS Stock, Series 2 PCS Stock and Series 3
PCS Stock is the same)); or
(2) convert each outstanding share of Series1 PCS Stock, Series 2 PCS
Stock and Series 3 PCS Stock as of the Conversion Date provided by
Section 7.4(E) into a number of fully paid and nonassessable shares of
Common Stock, Series 2 Common Stock and Class A Common Stock,
respectively (or, if the Common Stock is not Publicly Traded at such
time and shares of another class or series of common stock of the
Corporation (other than PCS Stock) are then Publicly Traded, of such
other class or series of common stock as has the largest Total Market
Capitalization as of the close of business on the Trading Day
immediately preceding the date of the notice of such conversion
required by Section 7.4(E)) equal to 110% of the ratio, expressed as a
decimal fraction rounded to the nearest five decimal places, of the
average Market Value of one share of PCS Stock over the period of ten
consecutive Trading Days beginning on the sixteenth Trading Day
following the PCS Group Disposition Date to the average Market Value of
one share of Common Stock (or such other class or series of common
stock) over the same ten Trading Day period.
Notwithstanding the foregoing provisions of this paragraph (A), the
Corporation may redeem PCS Stock as provided by subparagraph (1)(b)(i) or
(1)(b)(ii) of this paragraph (A) only if the amount to be paid in
redemption of such stock is less than or equal to the sum of (i) the amount
available for the payment of dividends on such shares to be redeemed in
accordance with Section 5 of ARTICLE SIXTH measured as of the Redemption
Date and (ii) the amount determined to be capital in respect of the shares
to be redeemed in accordance with applicable corporation law as of the
Redemption Date.
(B) For purposes of this Section 7.1:
(1) as of any date, "substantially all of the properties and assets"
attributed to the PCS Group means a portion of such properties and
assets that represents at least 80% of the Fair Value of the properties
and assets attributed to the PCS Group as of such date;
(2) in the case of a Disposition of the properties and assets
attributed to the PCS Group in a series of related transactions, such
Disposition shall not be deemed to have been consummated until the
consummation of the last of such transactions;
(3) the Board of Directors may pay any dividend or redemption price
referred to in Section 7.1(A) in cash, securities (other than
Corporation Common Stock or other common equity securities of the
Corporation) or other property, regardless of the form or nature of the
proceeds of the Disposition; provided that if such payment is made in
Voting Securities (other than Corporation Common Stock or other common
equity securities of the Corporation) of the Corporation or another
entity, holders of Series 2 PCS Stock shall receive Voting Securities
with Voting Power equivalent to such shares received by holders of
Series1 PCS Stock; and
(4) in the case of the conversion of Series 3 PCS Stock into Class A
Common Stock referred to in Section 7.1(A)(2), (i) shares of Series 3
PCS Stock held by FT or its Affiliates shall be converted into shares
of Old Class A Common Stock and (ii) shares of Series 3 PCS Stock held
by DT or its Affiliates shall be converted into shares of Class A
Common Stock--Series DT, in each such case in accordance with such
Section 7.1(A)(2).
IV-23
<PAGE>
(C) If the payment of the dividend or the redemption price with respect
to the PCS Stock provided for by Section 7.1(A)(1) occurs prior to the
third anniversary of the Restructuring Closing Date, then the Board of
Directors may convert each share of Series1 PCS Stock, Series 2 PCS Stock
and Series 3 PCS Stock remaining outstanding, but only as of a Conversion
Date (determined as provided by Section 7.4(E) hereof) prior to the first
anniversary of the payment of such dividend or redemption price, into a
number of fully paid and nonassessable shares of Common Stock, Series 2
Common Stock and Class A Common Stock, respectively (or, if the Common
Stock is not Publicly Traded at such time and shares of any other class or
series of common stock of the Corporation (other than PCS Stock) are then
Publicly Traded, of such other class or series of common stock as has the
largest Total Market Capitalization as of the close of business on the
Trading Day immediately preceding the date of the notice of such conversion
required by Section 7.4(E)) equal to 110% of the Optional Conversion Ratio
as of the fifth Trading Day prior to the date of the notice of such
conversion required by Section 7.4(E);
(D) At any time following the third anniversary of the Restructuring
Closing Date, the Board of Directors may convert each outstanding share of
Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock, as of the
Conversion Date provided by Section 7.4(E), into the number of fully paid
and nonassessable shares of Common Stock, Series 2 Common Stock and Class A
Common Stock, respectively (or, if the Common Stock is not Publicly Traded
at such time and shares of any other class or series of common stock of the
Corporation (other than PCS Stock) are then Publicly Traded, of such other
class or series of common stock as has the largest Total Market
Capitalization as of the close of business on the Trading Day immediately
preceding the date of the notice of conversion required by Section 7.4(E))
equal to, on the Conversion Date, (i) if following the third anniversary
but prior to the fourth anniversary of the Restructuring Closing Date, 110%
of the Optional Conversion Ratio as of the fifth Trading Day prior to the
date of the notice of such conversion required by Section 7.4(E), or (ii)
if on or after the fourth anniversary of the Restructuring Closing Date, at
such conversion ratio (if any) as the Board of Directors determines to be
fair to holders of the PCS Stock, taken as a separate class, and holders of
Common Group Stock, taken as a separate class; provided, in the case of the
conversion of Series 3 PCS Stock into Class A Common Stock pursuant to this
section, (i) shares of Series 3 PCS Stock held by FT or its Affiliates
shall be converted into shares of Old Class A Common Stock and (ii) shares
of Series 3 PCS Stock held by DT or its Affiliates shall be converted into
shares of Class A Common Stock--Series DT.
7.2. Redemption of PCS Stock for Subsidiary Stock. At any time the Board
of Directors may redeem all of the outstanding shares of PCS Stock, on a
Redemption Date of which notice is delivered in accordance with Section
7.4(F), in exchange for the number of shares of common stock of one or more
wholly-owned subsidiaries of the Corporation (collectively, the "PCS Group
Subsidiary") that collectively hold directly or indirectly all of the
assets and liabilities attributed to the PCS Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) equal to the
product of the Outstanding PCS Fraction and the number of shares of common
stock of such PCS Group Subsidiary to be outstanding immediately following
such exchange of shares (including any shares of such PCS Group Subsidiary
which will be retained by the Corporation in respect of the Intergroup
Interest Fraction), such PCS Group Subsidiary shares to be delivered to the
holders of shares of PCS Stock on the Redemption Date and to be divided
among the holders of PCS Stock pro rata in accordance with the number of
shares of PCS Stock held by each on such Redemption Date, each of which
shares of common stock of such PCS Group Subsidiary shall be, upon such
delivery, fully paid and nonassessable; provided, however, that
(i) no such redemption pursuant to this Section 7.2 may occur prior
to the second anniversary of the Restructuring Closing Date unless such
redemption is approved by the affirmative vote of the holders of a
majority of shares of PCS Stock, voting together as a single class, and
(ii) holders of shares of Series 2 PCS Stock and Series 3 PCS Stock
outstanding immediately prior to the Redemption Date shall receive on a
per share basis, pursuant to such redemption, shares of common stock of
such PCS Group Subsidiary with Voting Power equivalent on a per share
basis to such shares received by holders of Series 1 PCS Stock;
and provided further, that no such redemption pursuant to this Section 7.2
may occur unless (i) the redemption is tax-free to the holders of PCS Stock
or (ii) such other arrangement exists for the benefit of
IV-24
<PAGE>
the holders of PCS Stock redeemed such that, net of all taxes related to
such redemption and to such other arrangement itself which are realized by
such stockholders, such stockholders will be in a position that is
substantially equivalent economically to the position such stockholders
would be in after a tax-free distribution described in the immediately
preceding clause (i).
7.3. Treatment of Convertible Securities. After any Conversion Date or
Redemption Date on which all outstanding shares of any class or series of
PCS Stock are converted or redeemed, any share of such class or series of
PCS Stock that is issued on conversion, exchange or exercise of any
Convertible Securities shall, immediately upon issuance pursuant to such
conversion, exchange or exercise and without any notice from or to, or any
other action on the part of, the Corporation or its Board of Directors or
the holder of such Convertible Security:
(A) if the shares of such class or series of PCS Stock outstanding on
such Conversion Date were converted into shares of another class or series
of Corporation Common Stock (or another class or series of common stock of
the Corporation) pursuant to subparagraph (A)(2) or paragraph (C) or (D) of
Section 7.1, be converted into the amount of cash and/or the number of
shares of the kind of capital stock and/or other securities or property of
the Corporation that the number of shares of such class or series of PCS
Stock issued upon such conversion, exchange or exercise would have received
had such shares been outstanding on such Conversion Date; or
(B) if the shares of such class or series of PCS Stock outstanding on
such Redemption Date were redeemed pursuant to Section 7.1(A)(1)(b) or
Section 7.2, be redeemed, to the extent of funds of the Corporation legally
available therefor, for $ .01 per share in cash for each share of such
class or series of PCS Stock issued upon such conversion, exchange or
exercise.
The provisions of this Section 7.3 shall not apply to the extent that
other adjustments in respect of such conversion, exchange or redemption of
a class or series of PCS Stock are otherwise made pursuant to the
provisions of such Convertible Securities.
7.4. Notice and Other Provisions.
(A) Not later than the tenth Trading Day following the consummation of a
Disposition referred to in Section 7.1(A), the Corporation shall announce
publicly by press release (1) the Net Proceeds of such Disposition, (2) the
number of shares outstanding of the PCS Stock, (3) the number of shares of
PCS Stock into or for which Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof and (4) the Outstanding PCS Fraction on the date of such notice.
Not earlier than the 26th Trading Day and not later than the 30th Trading
Day following the consummation of such Disposition, the Corporation shall
announce publicly by press release which of the actions specified in
Section 7.1(A) it has irrevocably determined to take in respect of such
Disposition.
(B) If the Corporation determines to pay a dividend on shares of PCS
Stock pursuant to Section 7.1(A)(1)(a), the Corporation shall, not later
than the 30th Trading Day following the consummation of the Disposition
referred to in such Section, cause notice to be given to each holder of PCS
Stock and to each holder of Convertible Securities that are convertible
into or exchangeable or exercisable for shares of PCS Stock (unless
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities),
setting forth (1) the record date for determining holders entitled to
receive such dividend, which shall be not earlier than the 40th Trading Day
and not later than the 50th Trading Day following the consummation of such
Disposition, (2) the anticipated payment date of such dividend (which shall
not be more than 85 Trading Days following the consummation of such
Disposition), (3) the kind of shares of capital stock, cash and/or other
securities or property to be paid as such dividend in respect of the
outstanding shares of PCS Stock, (4) the Net Proceeds of such Disposition,
(5) the Outstanding PCS Fraction on the date of such notice, (6) the number
of outstanding shares of PCS Stock and the number of shares of PCS Stock
into or for which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof and (7) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of
IV-25
<PAGE>
such Convertible Securities shall be entitled to receive such dividend only
if such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the record date referred to in clause (1) of this
sentence. Such notice shall be sent by first-class mail, postage prepaid,
to each such holder at such holder's address as the same appears on the
transfer books of the Corporation.
(C) If the Corporation determines to redeem PCS Stock pursuant to Section
7.1(A)(1)(b)(i), the Corporation shall, not earlier than the 35th Trading
Day and not later than the 45th Trading Day prior to the Redemption Date,
cause notice to be given to each holder of shares of PCS Stock, and to each
holder of Convertible Securities convertible into or exchangeable or
exercisable for shares of PCS Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to
the terms of such Convertible Securities), setting forth (1) a statement
that all shares of PCS Stock outstanding on the Redemption Date shall be
redeemed, (2) the Redemption Date (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (3) the kind of
shares of capital stock, cash and/or other securities or property in which
the redemption price for the shares to be redeemed is to be paid, (4) the
Net Proceeds of such Disposition, (5) the Outstanding PCS Fraction on the
date of such notice, (6) the place or places where certificates for shares
of PCS Stock, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for delivery of
cash and/or securities or other property, (7) the number of outstanding
shares of PCS Stock and the number of shares of PCS Stock into or for which
such outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof, (8)
in the case of notice to be given to holders of Convertible Securities, a
statement to the effect that a holder of such Convertible Securities shall
be entitled to participate in such selection for redemption only if such
holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the Redemption Date referred to in clause (2) of
this sentence and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible Securities
or, if applicable, this Section 7 if such holder thereafter converts,
exchanges or exercises such Convertible Securities and (9) a statement to
the effect that, except as otherwise provided by paragraph (I) of this
Section 7.4, dividends on such shares of PCS Stock shall cease to be paid
as of such Redemption Date. Such notice shall be sent by first-class mail,
postage prepaid, to each such holder at such holder's address as the same
appears on the transfer books of the Corporation.
(D) If the Corporation determines to redeem PCS Stock pursuant to Section
7.1(A)(1)(b)(ii), the Corporation shall, not later than the 30th Trading
Day following the consummation of the Disposition referred to in such
subparagraph, cause notice to be given to each holder of shares of PCS
Stock and to each holder of Convertible Securities that are convertible
into or exchangeable or exercisable for shares of PCS Stock (unless
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities)
setting forth (1) a date, not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of the
Disposition in respect of which such redemption is to be made, on which
shares of PCS Stock shall be selected for redemption, (2) the anticipated
Redemption Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (3) the kind of shares of capital stock,
cash and/or other securities or property in which the redemption price for
the shares to be redeemed is to be paid, (4) the Net Proceeds of such
Disposition, (5) the Outstanding PCS Fraction on the date of such notice,
(6) the number of shares of PCS Stock outstanding and the number of shares
of PCS Stock into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof, (7) in the case of notice to be given to holders of
Convertible Securities, a statement to the effect that a holder of such
Convertible Securities shall be eligible to participate in such selection
for redemption only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to the record date
referred to in clause (1) of this sentence, and a statement as to what, if
anything, such holder will be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, this Section 7 if such
holder thereafter converts, exchanges or exercises such Convertible
Securities and (8) a statement that the Corporation will not be required to
register a transfer of any shares of PCS Stock for a period of 15 Trading
Days next preceding the date referred to in clause (1) of this sentence.
Promptly following the date referred to in clause (1) of the preceding
sentence, but not earlier than 40 Trading Days nor later than 50
IV-26
<PAGE>
Trading Days following the consummation of such Disposition, the
Corporation shall cause a notice to be given to each holder of record of
shares of PCS Stock to be redeemed setting forth (1) the number of shares
of PCS Stock held by such holder to be redeemed, (2) a statement that such
shares of PCS Stock shall be redeemed, (3) the Redemption Date, (4) the
kind and per share amount of cash and/or securities or other property to be
received by such holder with respect to each share of PCS Stock to be
redeemed, including details as to the calculation thereof, (5) the place or
places where certificates for shares of PCS Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such
requirement), are to be surrendered for delivery of such cash and/or
securities or other property, (6) if applicable, a statement to the effect
that the shares being redeemed may no longer be transferred on the transfer
books of the Corporation after the Redemption Date and (7) a statement to
the effect that, subject to paragraph (I) of this Section 7.4, dividends on
such shares of PCS Stock shall cease to be paid as of the Redemption Date.
Such notices shall be sent by first-class mail, postage prepaid, to each
such holder at such holder's address as the same appears on the transfer
books of the Corporation.
(E) If the Corporation determines to convert the PCS Stock pursuant to
Section 7.1(A)(2), Section 7.1(C) or Section 7.1(D), as the case may be,
the Corporation shall, not earlier than the 35th Trading Day and not later
than the 45th Trading Day prior to the Conversion Date, cause notice to be
given to each holder of shares of PCS Stock and to each holder of
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of PCS Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to
the terms of such Convertible Securities) setting forth (1) a statement
that all outstanding shares of PCS Stock shall be converted, (2) the
Conversion Date (which, in the case of a conversion after a Disposition,
shall not be more than 85 Trading Days following the consummation of such
Disposition), (3) the per share number of shares of Common Stock (or Series
2 Common Stock or Class A Common Stock, if applicable) or another class or
series of common stock of the Corporation, as the case may be, to be
received with respect to each share of PCS Stock, including details as to
the calculation thereof, (4) the place or places where certificates for
shares of PCS Stock, properly endorsed or assigned for transfer (unless the
Corporation shall waive such requirement), are to be surrendered for
delivery of certificates for shares of Common Stock (or Series 2 Common
Stock or Class A Common Stock, if applicable) or another class or series of
common stock of the Corporation, as the case may be, (5) the number of
outstanding shares of PCS Stock and the number of shares of PCS Stock into
or for which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof, (6) a statement to the effect that, subject to paragraph (I) of
this Section 7.4, dividends on such shares of PCS Stock shall cease to be
paid as of such Conversion Date and (7) in the case of notice to holders of
such Convertible Securities, a statement to the effect that a holder of
such Convertible Securities shall be entitled to receive shares of common
stock upon such conversion only if such holder properly converts, exchanges
or exercises such Convertible Securities on or prior to such Conversion
Date and a statement as to what, if anything, such holder will be entitled
to receive pursuant to the terms of such Convertible Securities or, if
applicable, this Section 7.4 if such holder thereafter converts, exchanges
or exercises such Convertible Securities. Such notice shall be sent by
first-class mail, postage prepaid, to each such holder at such holder's
address as the same appears on the transfer books of the Corporation.
(F) If the Corporation determines to redeem shares of PCS Stock pursuant
to Section 7.2, the Corporation shall cause notice to be given to each
holder of shares of PCS Stock to be redeemed, and to each holder of
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such class of PCS Stock (unless alternate
provision for such notice to the holders of such Convertible Securities is
made pursuant to the terms of such Convertible Securities), setting forth
(1) a statement that all shares of PCS Stock outstanding on the Redemption
Date shall be redeemed in exchange for shares of common stock of the PCS
Group Subsidiary, (2) the Redemption Date, (3) the Outstanding PCS Fraction
on the date of such notice, (4) the place or places where certificates for
shares of PCS Stock to be redeemed, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement), are to be
surrendered for delivery of certificates for shares of the PCS Group
Subsidiaries, (5) a statement to the effect that, subject to paragraph (I)
of this Section 7.4, dividends on such shares of PCS Stock shall cease to
be
IV-27
<PAGE>
paid as of such Redemption Date, (6) the number of shares of PCS Stock
outstanding and the number of shares of PCS Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof and (7)
in the case of notice to holders of Convertible Securities, a statement to
the effect that a holder of Convertible Securities shall be entitled to
receive shares of common stock of the PCS Group Subsidiary upon redemption
only if such holder properly converts, exchanges or exercises such
Convertible Securities on or prior to the Redemption Date and a statement
as to what, if anything, such holder will be entitled to receive pursuant
to the terms of such Convertible Securities or, if applicable, this Section
7 if such holder thereafter converts, exchanges or exercises such
Convertible Securities. Such notice shall be sent by first-class mail,
postage prepaid, not less than 30 Trading Days nor more than 45 Trading
Days prior to the Redemption Date to each such holder at such holder's
address as the same appears on the transfer books of the Corporation. If
any shares of Series 2 PCS Stock or Series 3 PCS Stock are outstanding
immediately prior to the Redemption Date, then the notice provided to each
holder of Series 2 PCS Stock or Series 3 PCS Stock, as the case may be,
pursuant to this Section 7.4(F) will also indicate that such holders of
shares of Series 2 PCS Stock and Series 3 PCS Stock outstanding immediately
prior to the Redemption Date shall receive on a per share basis, pursuant
to such redemption, shares of common stock of such PCS Group Subsidiary
with Voting Power equivalent to such shares received by holders of Series1
PCS Stock.
(G) If less than all of the outstanding shares of PCS Stock are to be
redeemed pursuant to Section 7.1(A)(1), then the shares to be redeemed by
the Corporation shall be selected from among the holders of shares of PCS
Stock outstanding at the close of business on the record date for such
redemption on a pro rata basis among each class or series of PCS Stock and
all such holders thereof or, if Series 2 PCS Stock is no longer
outstanding, by lot or such other method as may be determined by the Board
of Directors of the Corporation to be equitable.
(H) The Corporation shall not be required to issue or deliver fractional
shares of any capital stock or of any other securities to any holder of PCS
Stock upon any conversion, redemption, dividend or other distribution
pursuant to this Section 7. If more than one share of PCS Stock shall be
held at the same time by the same holder, the Corporation may aggregate the
number of shares of any capital stock that shall be issuable or any other
securities or property that shall be distributable to such holder upon any
conversion, redemption, dividend or other distribution (including any
fractional shares). If there are fractional shares of any capital stock or
of any other securities remaining to be issued or distributed to the
holders of PCS Stock, the Corporation shall, if such fractional shares are
not issued or distributed to the holder, pay cash in respect of such
fractional shares in an amount equal to the Fair Value thereof on the fifth
Trading Day prior to the date such payment is to be made (without
interest). For purposes of the preceding sentence only, "Fair Value" of any
fractional share means (A) in the case of any fraction of a share of
capital stock of the Corporation, the product of such fraction and the
Market Value of one share of such capital stock and (B) in the case of any
other fractional security, such value as is determined by the Board of
Directors.
(I) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of PCS Stock; provided, however,
that if the Conversion Date or Redemption Date, as the case may be, with
respect to any shares of PCS Stock shall be subsequent to the record date
for the payment of a dividend or other distribution thereon or with respect
thereto, the holders of such shares of PCS Stock at the close of business
on such record date shall be entitled to receive the dividend or other
distribution payable on or with respect to such shares on the date set for
payment of such dividend or other distribution, in each case without
interest, notwithstanding the subsequent conversion or redemption of such
shares.
(J) Before any holder of PCS Stock shall be entitled to receive any cash
payment and/or certificates or instruments representing shares of any
capital stock and/or other securities or property to be distributed to such
holder with respect to such shares of PCS Stock pursuant to this Section 7,
such holder shall surrender at such place as the Corporation shall specify
certificates for such shares of PCS Stock, properly endorsed or assigned
for transfer (unless the Corporation shall waive such requirement). The
Corporation shall as soon as practicable after receipt of certificates
representing such shares of PCS Stock deliver to the person for whose
account such shares of PCS Stock were so surrendered, or to such person's
nominee or nominees,
IV-28
<PAGE>
the cash and/or the certificates or instruments representing the number of
whole shares of the kind of capital stock and/or other securities or
property to which such person shall be entitled as aforesaid, together with
any payment in respect of fractional shares contemplated by Section 7.4(H),
in each case without interest. If less than all of the shares of PCS Stock
represented by any one certificate are to be redeemed or converted, then
the Corporation shall issue and deliver a new certificate for the shares of
PCS Stock not redeemed.
(K) From and after any applicable Conversion Date or Redemption Date, as
the case may be, all rights of a holder of shares of PCS Stock that were
converted or redeemed shall cease except for the right, upon surrender of
the certificates representing such shares of PCS Stock as required by
Section 7.4(J), to receive the cash and/or the certificates or instruments
representing shares of the kind of capital stock and/or other securities or
property for which such shares were converted or redeemed, together with
any payment in respect of fractional shares contemplated by Section 7.4(H)
and rights to dividends as provided in Section 7.4(I), in each case without
interest. Subject to the next sentence, any holder of a certificate that
immediately prior to the applicable Conversion Date or Redemption Date
represented shares of PCS Stock shall not be entitled to receive any
dividend or other distribution or interest payment with respect to shares
of any kind of capital stock or other security or instrument for which PCS
Stock was converted or redeemed until the surrender as required by this
Section 7 of such certificate in exchange for a certificate or certificates
or instrument or instruments representing such capital stock or other
security. Upon such surrender, there shall be paid to the holder the amount
of any dividends or other distributions (without interest) which
theretofore became payable on any class of capital stock of the Corporation
as of a record date after the Conversion Date or Redemption Date, but that
were not paid by reason of the foregoing, with respect to the number of
whole shares of the kind of capital stock represented by the certificate or
certificates issued upon such surrender. From and after a Conversion Date
or Redemption Date, the Corporation shall, however, be entitled to treat
the certificates for PCS Stock that have not yet been surrendered for
conversion or redemption as evidencing the ownership of the number of whole
shares of the kind or kinds of capital stock of the Corporation for which
the shares of PCS Stock represented by such certificates shall have been
converted or redeemed, notwithstanding the failure to surrender such
certificates.
(L) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issuance or
delivery of any shares of capital stock and/or other securities upon
conversion or redemption of shares of PCS Stock pursuant to this Section 7.
The Corporation shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issuance or delivery of
any shares of capital stock and/or other securities in a name other than
that in which the shares of PCS Stock so converted or redeemed were
registered, and no such issuance or delivery shall be made unless and until
the person requesting such issuance or delivery has paid to the Corporation
the amount of any such tax or has established to the satisfaction of the
Corporation that such tax has been paid.
(M) Neither the failure to mail any notice required by this Section 7.4
to any particular holder of PCS Stock or of Convertible Securities nor any
defect therein shall affect the sufficiency of any notice given to any
other holder of outstanding shares of PCS Stock or of Convertible
Securities or the validity of any such conversion or redemption.
(N) The Board of Directors may establish such rules and requirements to
facilitate the effectuation of the transactions contemplated by this
Section 7 as the Board of Directors shall determine to be appropriate.
(O) If notices to Class A Holders are made pursuant to this Section 7,
then the Corporation will make such notices in compliance with the
provisions of Section 11 of ARTICLE SIXTH as well as with the provisions of
this Section 7.
7.5 Automatic Conversion of Series 2 PCS Stock and Series 2 Common Stock.
(a) Below One Percent Voting Power. If the total number of Converted
Votes represented by the aggregate number of issued and outstanding
shares of Series 2 PCS Stock or Series 2 Common Stock, as the case may
be, is below one percent of the outstanding Voting Power of the
Corporation for more than 90 consecutive days, then (i) the Corporation
shall notify FT and DT, in accordance with ARTICLE SIXTH, Section 11,
of the date on which such conversion will occur as soon as practicable
IV-29
<PAGE>
following the date on which such 90-day period ends (the "Conversion
Trigger Date") but in no event later than ten Business Days after the
Conversion Trigger Date and (ii) each outstanding share of Series 2 PCS
Stock or Series 2 Common Stock will automatically convert (without the
payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 PCS Stock or Common Stock,
respectively, such conversion to take place on the 90th day following
the Conversion Trigger Date.
(b) Certain Transfers. Upon any Transfer of shares of Series 2 PCS
Stock or Series 2 Common Stock, as the case may be (other than a
Transfer to a Cable Holder), each such share so Transferred shall
automatically convert (without the payment of any consideration) into
one duly issued, fully paid and nonassessable share of Series 1 PCS
Stock or Common Stock, respectively, as of the date of such Transfer.
(c) Notice of Automatic Conversion; Exchange of Stock Certificates;
Effect of Automatic Conversion of All Series 2 PCS Stock, etc.
(i) In addition to the notice required in Section 7.5(a), as soon
as practicable after a conversion of shares of Series 2 PCS Stock
(or, if applicable, Series 2 Common Stock) into shares of Series 1
PCS Stock (or, if applicable, Common Stock), pursuant to this
Section 7, the Corporation shall notify FT and DT, in accordance
with ARTICLE SIXTH, Section 11, of the number of shares so converted
and the date on which such conversion occurred.
(ii) Immediately upon the conversion of shares of Series 2 PCS
Stock (or, if applicable, Series 2 Common Stock) into shares of
Series 1 PCS Stock (or, if applicable, Common Stock), pursuant to
this Section 7 (such shares so converted hereinafter referred to as
the "Converted Series Shares"), the rights of the holders of such
Converted Series Shares, as such, shall cease and the holders
thereof shall be treated for all purposes as having become the
record owners of the shares of Series 1 PCS Stock or Common Stock,
as the case may be, issuable upon such conversion (the "Newly Issued
Shares"), provided that such Persons shall be entitled to receive
when paid any dividends declared on the Converted Series Shares as
of a record date preceding the time the Converted Series Shares were
converted (the "Series Conversion Time") and unpaid as of the Series
Conversion Time. If the stock transfer books of this Corporation
shall be closed at the Series Conversion Time, such Person or
Persons shall be deemed to have become such holder or holders of
record of the Newly Issued Shares at the opening of business on the
next succeeding day on which such stock transfer books are open.
(iii) As promptly as practicable after the Series Conversion Time,
upon the delivery to this Corporation of the certificates formerly
representing Converted Series Shares, this Corporation shall deliver
or cause to be delivered, to or upon the written order of the record
holder of such certificates, a certificate or certificates
representing the number of duly issued, fully paid and nonassessable
Newly Issued Shares into which the Converted Series Shares formerly
represented by such certificates have been converted in accordance
with the provisions of this Section 7.5.
(iv) This Corporation shall pay all United States federal, state
or local documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of Newly Issued Shares
upon the conversion of Converted Series Shares pursuant to this
Section 7.5, provided that this Corporation shall not be required to
pay any tax which may be payable in respect of any registration of
Transfer involved in the issue or delivery of Newly Issued Shares in
a name other than that of the registered holder of shares converted
or to be converted, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to this
Corporation the amount of any such tax or has established, to the
satisfaction of this Corporation, that such tax has been paid.
(v) This Corporation shall at all times reserve and keep
available, out of the aggregate of its authorized but unissued
Series 1 PCS Stock, authorized but unissued Common Stock, issued
Series 1 PCS Stock held in its treasury and issued Common Stock held
in its treasury, for the
IV-30
<PAGE>
purpose of effecting the conversion of the Series 2 PCS Stock or
Series 2 Common Stock, as the case may be, contemplated hereby, the
full number of shares of Series 1 PCS Stock and Common Stock then
deliverable upon the conversion of all outstanding shares of Series
2 PCS Stock or Series 2 Common Stock, as the case may be, and the
full number of shares of Series 2 PCS Stock the Cable Holders are
permitted to acquire under the Restructuring Agreement and the Cable
Holder Standstill Agreements.
(d) Temporary Voting Power Adjustment for Class A Holders. If any
conversions of shares of Series 2 PCS Stock or Series 2 Common Stock
into shares of Series 1 PCS Stock or Common Stock, respectively,
pursuant to this Section 7.5 or any increases in the per share vote of
other Voting Securities of the Corporation upon a Transfer of such
Voting Securities, occur on or after the tenth Trading Day preceding a
record date for purposes of determining the stockholders entitled to
vote or to receive the payment of a dividend, then the per share vote
of the Class A Stock determined in accordance with ARTICLE SIXTH,
Section 3.2 shall be increased such that the aggregate Percentage
Ownership Interest of each Class A Holder , including with respect to
Class A Common Stock and Series 3 PCS Stock (or stock converting into
Class A Common Stock or Series 3 PCS Stock pursuant to ARTICLE SIXTH,
Section 8.5(i)) acquired prior to such record date, shall not be
diluted as a result of such conversions until 12:01 a.m. on the day
immediately following the date of such stockholder meeting or the
dividend payment date, respectively.
Section 8. Provisions Relating to Class A Stock.
8.1. Rights and Privileges. Except as otherwise set forth in these
Articles of Incorporation, at all times the holders of Class A Common Stock
and Series 3 PCS Stock shall be entitled to all of the rights and
privileges pertaining to the ownership of Common Stock and Series 1 PCS
Stock, respectively, without any limitations, prohibitions, restrictions or
qualifications whatsoever, and shall be entitled to such other rights and
privileges as are expressly set forth in these Articles of Incorporation.
8.2. Special Rights to Disapprove Certain Actions. At least 40 days prior
to the occurrence of a Subject Event (as defined below), this Corporation
shall deliver to each Class A Holder a notice (a "Notice") of such proposed
Subject Event, setting forth in reasonable detail the nature of such
proposed Subject Event. This Corporation shall thereafter be entitled to
effect such proposed Subject Event unless within 30 days of delivery of
such Notice there shall have been a Class A Action exercising the special
rights of the Class A Holders to disapprove such Subject Event, provided
that the Class A Holders shall have no special right to disapprove any
action (x) which this Corporation is required to take to comply with its
obligations or exercise its rights under the FT/DT Restructuring Agreement,
the Stockholders' Agreement, the Standstill Agreement, the Registration
Rights Agreement or the Joint Venture Agreement or any document executed
pursuant to any such agreement or the Class A Provisions, or (y) taken to
comply with Applicable Law or the rules of any exchange or market system on
which securities of this Corporation may be traded, and provided, further,
that any action to be taken by this Corporation in reliance on clause (y)
of the foregoing proviso is the only action commercially reasonably
available to this Corporation to effect such compliance, as certified to
the Class A Holders by resolution of the Independent Directors. For
purposes of these Articles, the term "Subject Event" means only the
following transactions and only if such transactions are consummated within
the respective time periods indicated below:
(a) Until January 31, 1998 or, in the case of clause (iv) below,
April 26, 1998:
(i) any transaction or series of related transactions (other than
Exempt Asset Divestitures or Exempt Long Distance Asset
Divestitures) that results, directly or indirectly, in Transfers of
assets of this Corporation or its Subsidiaries with an aggregate
Fair Market Value (calculated in the case of each Transfer as at the
date this Corporation or any such Subsidiary enters into a
definitive agreement to effect such Transfer) of more than 20
percent of Market Capitalization (calculated (x) in the case of a
single transaction as at the date this Corporation or any such
Subsidiary enters into a definitive agreement to effect such
Transfer and (y) in the case of a series of related transactions, as
at the date this Corporation or any such Subsidiary enters into a
definitive agreement to effect the last of such Transfers);
IV-31
<PAGE>
(ii) any transaction or series of related transactions (including,
without limitation, mergers, purchases of stock or assets, joint
ventures or other acquisitions), but excluding any transaction
constituting an Exempt Asset Divestiture or Exempt Long Distance
Asset Divestiture, resulting, directly or indirectly, in the
acquisition by this Corporation or its Subsidiaries for cash or debt
securities maturing in less than one year from the date of issuance
of (x) assets constituting or predominantly used in Core Businesses
("Core Business Assets") for a purchase price or, in the case of a
series of related transactions, an aggregate purchase price that
exceeds 20 percent of Market Capitalization (calculated as at the
date this Corporation or any such Subsidiary enters into a
definitive agreement to effect such transaction or, in the case of a
series of related transactions, as at the date this Corporation or
any such Subsidiary enters into a definitive agreement to effect the
last of such related transactions) or (y) other assets for a
purchase price or, in the case of a series of related transactions,
for an aggregate purchase price that exceeds five percent of Market
Capitalization (calculated as at the date this Corporation or any
such Subsidiary enters into a definitive agreement to effect such
transaction or, in the case of a series of related transactions, as
at the date this Corporation or any such Subsidiary enters into a
definitive agreement to effect the last of such related
transactions), provided that, if any such other assets are proposed
to be obtained in the course of a proposed transaction in which both
Core Business Assets and other assets are to be acquired and the
ratio of the fair market value of the Core Business Assets to be
acquired to the fair market value of the other assets to be acquired
exceeds 1.75 to 1, then the holders of the Class A Stock shall not
be entitled to disapproval rights with respect to such transaction
except as provided in clause (x) of this Section 8.2(a)(ii);
(iii) issuance by this Corporation of any capital stock or debt
(including, without limitation, direct or indirect issuances such as
pursuant to mergers and other business combinations) with both (x) a
class vote to elect one or more Directors and (y) rights with
respect to dispositions of Long Distance Assets or other assets, or
share issuances, which rights are in scope and duration as extensive
as or more extensive than the comparable related rights granted to
the Class A Holders in these Articles of Incorporation or in the
Stockholders' Agreement, provided that this Section 8.2(a)(iii)
shall not apply to the extent that (a) such rights are required by
Applicable Law, (b) the holders of any series of Preferred Stock
have the right, voting separately as a class, to elect a number of
Directors of this Corporation upon the occurrence of a default in
payment of dividends or redemption price, or (c) such rights
described in clause (y) are granted in connection with borrowings
and are reflected in a loan agreement, credit agreement, trust
indenture or similar agreement or instrument;
(iv) declaration of any Extraordinary Dividends during any one
year that, individually or in the aggregate, exceed five percent of
Market Capitalization as at the Business Day immediately preceding
the declaration of the last such dividend or distribution (other
than in connection with transactions within the meaning of clause
(e) of the definition of Exempt Asset Divestitures or clause (g) of
the definition of Exempt Long Distance Asset Divestitures); or
(v) any merger or other business combination in which this
Corporation is not the surviving parent corporation.
(b) Until the earliest of (i) January 31, 2001, (ii) such time as (A)
legislation has been enacted repealing Section 310, (B) an FCC Order
shall have been issued, or (C) outside counsel to this Corporation with
a nationally recognized expertise in telecommunications regulatory
matters delivers to each of FT and DT a legal opinion, addressed to
each of them, in form and substance reasonably satisfactory to FT and
DT, to the effect that Section 310 does not prohibit FT and DT from
owning the Long Distance Assets proposed to be Transferred by this
Corporation, (iii) the delivery by FT, DT, Atlas or any of their
Affiliates (or a Permitted Designee (as such term is defined in the
Joint Venture Agreement)) of a notice pursuant to Section 17.2(b) of
the Joint Venture Agreement indicating the agreement to purchase all of
the Sprint Venture Interests (as such term is defined in the Joint
Venture Agreement) following an offer by this Corporation or Sprint Sub
pursuant to Section 17.2(a) of the Joint
IV-32
<PAGE>
Venture Agreement, and (iv) the delivery by this Corporation and/or
Sprint Sub of a notice pursuant to Section 17.3 (a) of the Joint
Venture Agreement exercising the put right to sell all of their Sprint
Venture Interests (as such term is defined in the Joint Venture
Agreement) to FT, DT and Atlas (or a Permitted Designee (as such term
is defined in the Joint Venture Agreement)), a direct or indirect
Transfer (other than in connection with an Exempt Long Distance Asset
Divestiture) after January 31, 1996 by this Corporation or its
Subsidiaries of Long Distance Assets with a Fair Market Value
(calculated as at the date this Corporation or any such Subsidiary
enters into a definitive agreement to effect such Transfer) that, when
aggregated with the Fair Market Value of all other Long Distance Assets
Transferred by this Corporation or its Subsidiaries since January 31,
1996 (other than in Exempt Long Distance Asset Divestitures)
(calculated in each case as at the date this Corporation or any such
Subsidiary enters into a definitive agreement to effect each such
respective Transfer) exceeds five percent of the Fair Market Value of
the Long Distance Assets of this Corporation and its Subsidiaries, on a
consolidated basis (calculated as at the date this Corporation or any
such Subsidiary enters into a definitive agreement to effect the last
such Transfer).
(c) Except as otherwise provided in Section 8.5 of ARTICLE SIXTH, for
so long as any shares of Class A Stock are outstanding:
(i) any amendment to these Articles of Incorporation, the Bylaws
or the Rights Agreement that would adversely affect the rights of
the Class A Holders under these Articles of Incorporation or the
Bylaws;
(ii) issuance by this Corporation (including, without limitation,
pursuant to mergers or other business combinations) of any series or
class of capital stock or debt security with Supervoting Powers;
(iii) any merger or other business combination involving this
Corporation that results directly or indirectly in a Change of
Control, unless the surviving corporation expressly (x) assumes all
of this Corporation's obligations in respect of the rights of the
Class A Holders under Section 8.2(b) of ARTICLE SIXTH and the
provisions of Article III of the Stockholders' Agreement (except, in
each case, as they may be otherwise terminated pursuant to these
Articles of Incorporation or the Stockholders' Agreement) and all of
the provisions of the Registration Rights Agreement and (y) agrees
to be bound by any applicable Tie-Breaking Vote in accordance with
Articles 17 and 18 of the Joint Venture Agreement; or
(iv) any merger or other business combination involving this
Corporation that does not result directly or indirectly in a Change
of Control unless:
(x) this Corporation survives as the parent entity; or
(y) the surviving corporation expressly assumes all of this
Corporation's obligations in respect of the rights of the Class
A Holders granted pursuant to these Articles of Incorporation
and under the Bylaws, the Stockholders' Agreement, the FT/DT
Restructuring Agreement and the Registration Rights Agreement.
8.3. Special Rights Regarding Major Issuances. So long as any Class A Stock
is outstanding, prior to effecting any Major Issuance:
(a) occurring on or prior to January 31, 2001, this Corporation shall
obtain the prior approval of two-thirds of the Independent Directors by
resolution, certified to the Class A Holders; and
(b) occurring after January 31, 2001, this Corporation shall obtain
the prior approval of a majority of the Independent Directors.
8.4. Special Rights Regarding Holdings by Major Competitors of FT or DT. (a)
Until January 31, 2006, at least 90 days prior to consummating any transaction
or taking any other action that, directly or indirectly, would result in, or
is taken for the purpose of encouraging or facilitating, a Major Competitor of
FT or DT or of the Joint Venture having, or being granted by this Corporation
any right, permission or approval to acquire (other
IV-33
<PAGE>
than pursuant to a Strategic Merger), a Percentage Ownership Interest of ten
percent or more (a "Major Competitor Transaction"), this Corporation shall
provide each Class A Holder with notice of such Major Competitor Transaction
in the manner set forth in Subsection (c) below and, if there is a Class A
Action exercising the special rights of the Class A Holders to disapprove such
Major Competitor Transaction within 75 days of the delivery of such notice,
this Corporation shall not consummate such Major Competitor Transaction.
(b) Until January 31, 2006, if a Major Competitor of FT or DT or of
the Joint Venture obtains a Percentage Ownership Interest of 20 percent
or more as a result, directly or indirectly, of a Strategic Merger:
(i) if the Class A Holders have not made the commitment described
in Article VI of the Stockholders' Agreement, this Corporation (or
its successor in such Strategic Merger) shall, subject to the
provisos of Sections 2.1(a)(ii) and 2.2(a) of the Standstill
Agreement, nonetheless take all action necessary or advisable to
lift all restrictions, contractual or otherwise, imposed by this
Corporation or such successor on the ability of the Class A Holders,
at any time after April 26, 1996, to purchase shares of Common
Stock, Series 2 Common Stock, Series 1 PCS Stock, Series 2 PCS Stock
or other Voting Securities from third parties sufficient to permit
the Class A Holders to have a Percentage Ownership Interest equal to
that of the Major Competitor of FT or DT or of the Joint Venture;
and
(ii) this Corporation shall ensure that the Class A Holders have
rights with regard to (w) a class vote to elect Directors, (x) class
approval and disapproval rights, (y) any other special rights in
respect of the business or operations of this Corporation and (z)
any rights to receive special dividends, distributions or other
rights from this Corporation, which are in scope and duration at
least as extensive as any rights granted by this Corporation to such
Major Competitor of FT or DT or of the Joint Venture (other than
rights deriving solely from the number of Voting Securities owned),
regardless of whether or not the Class A Holders purchase any
additional Voting Securities.
(c) Until January 31, 2006, this Corporation shall deliver to each
Class A Holder notice of its intent to issue Voting Securities in a
Major Competitor Transaction to any Major Competitor of FT or DT or of
the Joint Venture at least 30 days prior to such issuance, such notice
to contain a complete and correct description in reasonable detail of
the transaction in question, including, without limitation, the
purchase price for such securities, the nature of such securities, the
identity of the Major Competitor of FT or DT or of the Joint Venture
and the rights (contractual and other) this Corporation would grant
such Major Competitor. This Corporation shall also deliver to each
Class A Holder notice of any such issuance within five days after it
occurs, such notice to contain a description of the transaction in
question and be accompanied by complete and correct copies of all
agreements, instruments and written understandings of this Corporation,
its Subsidiaries and Affiliates and such Major Competitor of FT or DT
or of the Joint Venture and the Subsidiaries and Affiliates of such
Major Competitor executed in respect of such transaction.
8.5. Conversion of Shares. (a) Failure to Maintain Ownership. If the
aggregate Committed Percentage of the Class A Holders shall be below ten
percent (i) for more than 180 consecutive days or (ii) immediately following a
Transfer of Class A Stock by a Class A Holder, then each outstanding share of
Class A Common Stock and Series 3 PCS Stock shall automatically convert
(without the payment of any consideration) into one duly issued, fully paid
and nonassessable share of Common Stock and Series 1 PCS Stock, respectively,
such conversion to take place on the next Business Day following the end of
such 180-day period in the case of clause (i) or on the date of such Transfer
in the case of clause (ii), provided that, if the aggregate Committed
Percentage of the Class A Holders shall fall below ten percent for more than
180 consecutive days following the date of a Major Issuance as a result of the
consummation of such Major Issuance, then, unless all of the outstanding
shares of Class A Stock shall have been converted earlier pursuant to this
Section 8.5, (x) the Shares of Class A Stock shall not convert into either
Common Stock or Series 1 PCS Stock, as the case may be, until the third
anniversary of the date of such Major Issuance, and (y) the Class A Holders
shall continue to be entitled to elect Directors
IV-34
<PAGE>
pursuant to ARTICLE FIFTH of these Articlesof Incorporation until the third
anniversary of the date of such Major Issuance, but (z) after the expiration
of 180 days following the date of such Major Issuance, the Class A Holders
shall no longer have their rights under Sections 8.2, 8.3, 8.4, 8.5 and 8.6 of
ARTICLE SIXTH, and provided, further, that such conversion shall not be
considered to be an acquisition of Shares of Common Stock or Series 1 PCS
Stock, as the case may be, for purposes of Section 8.5(i) of ARTICLE SIXTH.
(b) FT/DT Joint Venture Termination; Material Breach of Investment
Documents. (i) Each outstanding share of Class A Common Stock and
Series 3 PCS Stock shall automatically convert (without the payment of
any consideration) into one duly issued, fully paid and nonassessable
share of Common Stock and Series 1 PCS Stock, respectively, if:
(t) the Sprint Parties receive the Tie-Breaking Vote pursuant to
Section 17.5 of the Joint Venture Agreement;
(u) there is an FT/DT Joint Venture Termination;
(v) FT or DT or any Qualified Subsidiary breaches in any material
respect its obligations under Section 2.4 of the Stockholders'
Agreement;
(w) FT or DT or any Qualified Subsidiary breaches in any material
respect its obligations under Article II (other than Section 2.4) of
the Stockholders' Agreement;
(x) FT, DT or any Qualified Subsidiary breaches any of the
provisions of Article 2 (other than Section 2.1(b)) of the
Standstill Agreement or any corresponding provision of any Qualified
Subsidiary Standstill Agreement;
(y) FT, DT or any Qualified Subsidiary breaches any of the
provisions of Sections 3.1 or 3.2 of the Standstill Agreement or any
corresponding provisions of any Qualified Subsidiary Standstill
Agreement, in each case in a Control Context, or otherwise breaches
Sections 3.1(a)(ii), (iii) or (iv) or Section 3.1(g) of the
Standstill Agreement or any corresponding provision of any Qualified
Subsidiary Standstill Agreement; or
(z) FT, DT or any Qualified Subsidiary breaches any of the
provisions of Sections 3.1 (except Section 3.1(a)(ii), (iii) or
(iv), or Section 3.1(g)) or 3.2 of the Standstill Agreement or any
corresponding provisions of any Qualified Subsidiary Standstill
Agreement, in each case other than in a Control Context;
provided that, with respect to an alleged breach of the type described
in clauses (v), (w), (x), (y) or (z) above, the Class A Holders alleged
to have committed such breach (the "Breaching Holders") shall deliver a
notice
(I) except with respect to a breach of the type described in
clause (y) above, in accordance with clauses (ii)(x) or (iii)(x)
below, in which case no conversion of the Class A Stock shall take
place unless such breach fails to be cured within the time provided
for cure in such clause (ii) or (iii), as the case may be;
(II) in accordance with clauses (ii)(y), (iii)(y) or (iv) below,
in which case no conversion of the Class A Stock shall take place
until there is issued a final nonappealable decision or order of a
court of competent jurisdiction finding that such breach has
occurred and, if applicable, was not cured within the time provided
for cure in clauses (ii) or (iii) below, as the case may be; or
(III) admitting that such a breach has occurred, and (if
applicable) cannot be cured within the time periods provided for
cure in clauses (ii) or (iii) below, in which case each outstanding
share of Class A Common Stock and Series 3 PCS Stock, as the case
may be, shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable
share of Common Stock and Series 1 PCS Stock, respectively, upon
delivery of such notice; and
provided, further, that if the Breaching Holders fail to perform the
actions described in clauses (I) or (II) above within the time periods
provided for performing such actions in clauses (ii), (iii) or (iv)
below, they shall be deemed to have taken the action described in
clause (III) above.
IV-35
<PAGE>
(ii) For any alleged breach of the type described in clauses (w), (x) or
(z) of clause (i) above, the Breaching Holders shall have the right, within
five Business Days after the date (for purposes of this clause (ii), the
"Breach Notice Date") that notice of such breach is delivered to each
Breaching Holder by this Corporation, to deliver to this Corporation a
notice either:
(x) committing to effect a cure as soon as practical, in which case
the Breaching Holders shall effect such cure as soon as practical, but
in no event later than the 20th Business Day from the Breach Notice
Date (or, with respect to an alleged breach of clauses (w) or (x), if
such cure cannot be effected within such time period due to the anti-
fraud rules of the U.S. securities laws, such longer period as is
reasonably necessary to cure such breach in a manner consistent with
such rules), provided that
(I) the Breaching Holders shall have no right to cure unless such
breach is susceptible to cure;
(II) such cure period shall continue only for so long as each
Breaching Holder shall be undertaking to effect such a cure in a
diligent manner;
(III) with respect to an alleged breach of clause (i)(x) above,
this Corporation shall have the right at any time after the end of
such 20-day period to purchase such number of shares of Non-Class A
Common Stock or Class A Stock, as the case may be, as is necessary
to return the Class A Holders to the ownership level permitted by
the Standstill Agreement or a Qualified Subsidiary Standstill
Agreement, as the case may be, at a price equal to the lower of (A)
the Market Price for such shares at the time of such redemption and
(B) the price paid by the Breaching Holders for such shares,
provided that this Corporation may only exercise such right if a
majority of the Continuing Directors shall have first approved, at a
meeting at which at least seven Continuing Directors are present,
such a purchase of Shares, unless a Fair Price Condition has been
satisfied; and
(IV) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred, provided that during
such time as the most recent decision or order of a court of competent
jurisdiction is to the effect that such breach has occurred and was not
cured within the time provided for cure in clause (x) of this clause
(ii), the rights provided to the Class A Holders under Sections 8.2
(except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH
and the right to elect members of the Board of Directors of the holders
of the Class A Stock under ARTICLE FIFTH of these Articles of
Incorporation shall be suspended and may not be exercised by the Class
A Holders.
(iii) For any alleged breach of the type described in clause (i)(v)
above, the Breaching Holders shall have the right, within five Business
Days after the date (for purposes of this clause (iii), the "Breach Notice
Date") that notice of such breach is delivered to each Breaching Holder by
this Corporation, to deliver to this Corporation a notice either:
(x) committing to effect a cure as soon as practical, in which case
the Breaching Holders shall effect such cure as soon as practical, but
in no event later than the 20th Business Day from the Breach Notice
Date (or, if such cure cannot be effected within such time period due
to the anti-fraud rules of the U.S. securities laws, such longer period
as is reasonably necessary to cure such breach in a manner consistent
with such rules), provided that
(I) the Breaching Holders shall have no right to cure unless such
breach is susceptible to cure;
(II) such cure period shall continue only for so long as each
Breaching Holder shall be undertaking to effect such a cure in a
diligent manner; and
(III) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred;
IV-36
<PAGE>
provided that, in each case, from the Breach Notice Date until the earlier
to occur of the cure of such breach and the issuance of a decision or order
of a court of competent jurisdiction finding that such breach has not
occurred or was cured within the time provided for cure in clause (x) of
this clause (iii), the rights provided to the Class A Holders under
Sections 8.2 (except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of
ARTICLE SIXTH and the right to elect members of the Board of Directors of
the holders of the Class A Stock under ARTICLE FIFTH of these Articles of
Incorporation shall be suspended and may not be exercised by the Class A
Holders; and provided, further, that following such decision or order, such
rights shall be suspended during such time as the most recent decision or
order of a court of competent jurisdiction is to the effect that such
breach has occurred and was not cured within the time provided for cure in
clause (x) of this clause (iii).
(iv) For any alleged breach of the type described in clause (i)(y) above,
the Breaching Holders shall have the right, within five Business Days after
the date (for purposes of this clause (iv), the "Breach Notice Date") that
notice of such breach is delivered to each Breaching Holder by this
Corporation, to deliver to this Corporation a notice disputing that such a
breach has occurred, provided that from the Breach Notice Date until the
issuance of a decision or order of a court of competent jurisdiction
finding that such breach has not occurred, the rights provided to the Class
A Holders under Sections 8.2 (except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5
and 8.6 of ARTICLE SIXTH and the right to elect members of the Board of
Directors of the holders of the Class A Stock under ARTICLE FIFTH of these
Articles of Incorporation shall be suspended and may not be exercised by
the Class A Holders; and provided, further, that following such decision or
order, such rights shall be suspended during such time as the most recent
decision or order of a court of competent jurisdiction is to the effect
that such breach has occurred.
(v) For purposes of this Section 8.5(b), an alleged breach shall be
deemed to have occurred in a "Control Context" if the action or actions
alleged to have given rise to such breach were taken in the context of
efforts by any Class A Holder or any other Person having the purpose or
effect of changing or influencing the control of this Corporation.
(vi) No conversion pursuant to this Section 8.5(b) shall be considered an
acquisition for purposes of Section 8.5(i) of ARTICLE SIXTH.
(c) Deleted.
(d) Corporation Joint Venture Termination. Unless the Class A Stock shall
have been converted earlier pursuant to this Section 8.5, if there is a
Corporation Joint Venture Termination, each outstanding share of Class A
Common Stock and Series 3 PCS Stock, as the case may be, shall
automatically convert (without the payment of any consideration) into one
duly issued, fully paid and nonassessable share of Common Stock and Series
1 PCS Stock, respectively, on the third anniversary of the date of such
Corporation Joint Venture Termination, provided that any such conversion
shall not be considered to be an acquisition of Common Stock or Series 1
PCS Stock, as the case may be, for purposes of Section 8.5(i) of ARTICLE
SIXTH.
(e) Other Joint Venture Termination. If (i) there is a sale of all the
Venture Interests of the Sprint Parties or the FT/DT Parties pursuant to
Section 17.2, 17.3, 17.4, 19.3, 20.6 or 20.11 of the Joint Venture
Agreement or (ii) the Joint Venture is otherwise terminated, in each case
other than due to (i) an FT/DT Joint Venture Termination or (ii) a
Corporation Joint Venture Termination:
(x) on the date of such termination, the rights provided to the Class
A Holders in Sections 8.2 (except Sections 8.2(c)(i) and 8.2(c)(iii)),
8.3 and 8.4 of ARTICLE SIXTH shall terminate; and
(y) unless the Class A Stock shall have been converted pursuant to
this Section 8.5, each outstanding share of Class A Common Stock and
Series 3 PCS Stock, as the case may be, shall automatically convert
(without the payment of any consideration) into one duly issued, fully
paid and nonassessable share of Common Stock and Series 1 PCS Stock,
respectively, on the third anniversary of the date of such termination,
provided that any such conversion shall not be considered to be an
acquisition of Common Stock or Series 1 PCS Stock, as the case may be,
for purposes of Section 8.5(i) of ARTICLE SIXTH.
IV-37
<PAGE>
(f) Change of Control. If there is a Change of Control within the meaning
of clause (a) of the definition of Change of Control, (i) the rights
provided to the Class A Holders in ARTICLE FIFTH of these Articles of
Incorporation, and Sections 8.2 (except Sections 8.2(b), 8.2(c)(iii) (as to
rights provided under Section 8.2(b)) and 8.2(c)(iv) (as to rights provided
under Section 8.2(b)), 8.3 and 8.4 of ARTICLE SIXTH shall terminate upon
the consummation of the transactions contemplated thereby, provided that,
prior to such consummation, this Corporation shall engage in good faith
negotiations with any potential acquiror of Control to provide the Class A
Holders with rights equivalent to those provided in ARTICLE FIFTH of these
Articles of Incorporation and (ii) all, but not less than all, of the Class
A Holders shall have the right (but not the obligation) to deliver to this
Corporation a written notice upon which delivery each outstanding share of
Class A Common Stock and Series 3 PCS Stock, as the case may be, shall
automatically convert (without the payment of any consideration) into one
duly issued, fully paid and nonassessable share of Common Stock and Series
1 PCS Stock, respectively. Any such conversion of Class A Stock pursuant to
this clause (f) shall not be considered to be an acquisition of Common
Stock or Series 1 PCS Stock, as the case may be for purposes of Section
8.5(i) of ARTICLE SIXTH.
(g) Unequal Ownership. (i) If (A) the ratio of the aggregate Percentage
Ownership Interest of the overall Voting Power of the Corporation of one of
FT or DT (and its Qualified Subsidiaries) to the aggregate Percentage
Ownership Interest of the overall Voting Power of the Corporation of the
other of FT or DT (and its Qualified Subsidiaries) is greater than 3 to 2,
(B) the ratio of the aggregate Percentage Ownership Interest of the Voting
Power represented by Class A Common Stock of one of FT or DT (and its
Qualified Subsidiaries) to the aggregate Percentage Ownership Interest of
the Voting Power represented by Class A Common Stock of the other of FT or
DT (and its Qualified Subsidiaries) is greater than 4 to 1, or (C) the
ratio of the aggregate Percentage Ownership Interest of the Voting Power
represented by Series 3 PCS Stock of one of FT or DT (and its Qualified
Subsidiaries) to the aggregate Percentage Ownership Interest of the Voting
Power represented by Series 3 PCS Stock of the other of FT or DT (and its
Qualified Subsidiaries) is greater than 4 to 1, for 60 consecutive days
following a notice of such event delivered by this Corporation to each of
FT and DT, each share of Class A Common Stock and Series 3 PCS Stock shall
automatically convert (without the payment of any consideration) into one
duly issued, fully paid and nonassessable share of Common Stock and Series
1 PCS Stock, respectively, provided that any such conversion shall not be
considered to be an acquisition of Common Stock or Series 1 PCS Stock,
respectively, for purposes of Section 8.5 (i) of ARTICLE SIXTH.
(ii) For purposes of calculating the ratios in this Section 8.5(g), FT
and DT shall be deemed to own shares of Class A Stock owned by a Qualified
Subsidiary as follows:
(x) if only one of FT or DT owns, directly or indirectly, Votes in
such Qualified Subsidiary, FT or DT, as the case may be, shall be
deemed to own all of the shares of Class A Stock owned by such
Qualified Subsidiary; and
(y) if both FT and DT own, directly or indirectly, Votes in such
Qualified Subsidiary, each of FT and DT shall be deemed to own its
respective Applicable Percentage of the shares of Class A Stock owned
by such Qualified Subsidiary. As used herein, the "Applicable
Percentage" means the percentage of the equity interests of such
Qualified Subsidiary owned, directly or indirectly, by FT or DT, as the
case may be.
(h) Unauthorized Transfers. Unless approved by this Corporation, upon any
Transfer of shares of Class A Stock (other than a Transfer to a Qualified
Subsidiary, a Qualified Stock Purchaser or to FT or DT, in each case which
Transfer is effected in accordance with the provisions of Article II of the
Stockholders' Agreement), each share of Class A Common Stock and Series 3
PCS Stock, as the case may be, so Transferred shall automatically convert
(without the payment of any consideration) into one duly issued, fully paid
and nonassessable share of Common Stock and Series 1 PCS Stock,
respectively, as of the date of such Transfer, provided that no conversion
of Class A Stock pursuant to this Section 8.5(h) shall be considered to be
an acquisition of Common Stock or Series 1 PCS Stock, as the case may be,
for purposes of Section 8.5(i) of ARTICLE SIXTH.
IV-38
<PAGE>
(i) Conversion into Class A Stock. Until the conversion of all of the
shares of Class A Stock pursuant to this Section 8.5, (x) each share of
Common Stock or Series 2 Common Stock, as the case may be, acquired by a
Class A Holder shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Class A Common Stock at the date of such acquisition and (y) each share of
Series 1 PCS Stock or Series 2 PCS Stock, as the case may be, acquired by a
Class A Holder shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 3 PCS Stock at the date of such acquisition.
(j) Notice of Conversion; Exchange of Stock Certificates; Effect of
Conversion of all Class A Stock, etc. (i) Immediately upon the conversion
of shares of Class A Common Stock or Series 3 PCS Stock into shares of
Common Stock or Series 1 PCS Stock, respectively, or upon the conversion of
shares of Common Stock or Series 1 PCS Stock into shares of Class A Common
Stock or Series 3 PCS Stock, respectively, and in each case pursuant to
this Section 8.5 (the shares of Class A Common Stock, Series 3 PCS Stock,
Common Stock or Series 1 PCS Stock so converted hereinafter referred to as
the "Converted Shares"), the rights of the holders of such Converted
Shares, as such, shall cease and the holders thereof shall be treated for
all purposes as having become the record owners of the shares of Class A
Common Stock, Series 3 PCS Stock, Common Stock or Series 1 PCS Stock, as
the case may be, issuable upon such conversion (the "New Shares"), provided
that such Persons shall be entitled to receive when paid any dividends
declared on the Converted Shares as of a record date preceding the time the
Converted Shares were converted (the "Conversion Time") and unpaid as of
the Conversion Time. If the stock transfer books of this Corporation shall
be closed at the Conversion Time, such Person or Persons shall be deemed to
have become such holder or holders of record of the New Shares at the
opening of business on the next succeeding day on which such stock transfer
books are open.
(ii) As promptly as practicable after the Conversion Time, upon the
delivery to this Corporation of the certificates formerly representing
Converted Shares, this Corporation shall deliver or cause to be delivered,
to or upon the written order of the record holder of such certificates, a
certificate or certificates representing the number of duly issued, fully
paid and nonassessable New Shares into which the Converted Shares formerly
represented by such certificates have been converted in accordance with the
provisions of this Section 8.5.
(iii) This Corporation shall pay all United States federal, state or
local documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of New Shares upon the conversion of
Converted Shares pursuant to this Section 8.5, provided that this
Corporation shall not be required to pay any tax which may be payable in
respect of any registration of Transfer involved in the issue or delivery
of New Shares in a name other than that of the registered holder of shares
converted or to be converted, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to this
Corporation the amount of any such tax or has established, to the
satisfaction of this Corporation, that such tax has been paid.
(iv) This Corporation shall at all times reserve and keep available, out
of the aggregate of its authorized but unissued Class A Common Stock,
Series 3 PCS Stock, Series 1 PCS Stock and Common Stock and its issued
Common Stock or Series 1 PCS Stock held in its treasury, for the purpose of
effecting the conversion of the Common Stock, Series 1 PCS Stock, Class A
Common Stock and Series 3 PCS Stock contemplated hereby, the full number of
shares of Common Stock or Series 1 PCS Stock then deliverable upon the
conversion of all outstanding shares of Class A Common Stock or Series 3
PCS Stock, respectively, and the full number of shares of Class A Common
Stock or Series 3 PCS Stock that would be deliverable upon conversion of
all of the shares of Common Stock or Series 1 PCS Stock, respectively, the
Class A Holders are permitted to acquire hereunder and under the FT/DT
Restructuring Agreement, the Stockholders' Agreement and the Standstill
Agreement.
(v) Following conversion of all outstanding shares of Class A Common
Stock or Series 3 PCS Stock into shares of Common Stock or Series 1 PCS
Stock, respectively, pursuant to this Section 8.5, this Corporation shall
not, directly or indirectly, issue, or sell from the treasury, any shares
of Class A Stock.
IV-39
<PAGE>
(k) Class A Stock Held by Qualified Stock Purchasers. (i) If any
Qualified Stock Purchaser shall become a Major Competitor of this
Corporation or of the Joint Venture, on the date the writing referred to in
the definition of Major Competitor in this ARTICLE SIXTH is delivered to
each Class A Holder, each share of Class A Common Stock and Series 3 PCS
Stock, as the case may be, owned by such Qualified Stock Purchaser shall
automatically convert (without the payment of any consideration) into one
duly issued, fully paid and nonassessable share of Common Stock and Series
1 PCS Stock, respectively.
(ii) Each outstanding share of Class A Common Stock and Series 3 PCS
Stock, as the case may be, owned by a Qualified Stock Purchaser shall
automatically convert (without the payment of any consideration) into one
duly issued, fully paid and nonassessable share of Common Stock and Series
1 PCS Stock, respectively, if:
(v) such Qualified Stock Purchaser breaches in any material respect
its obligations under Section 2.4 of the Stockholders' Agreement;
(w) such Qualified Stock Purchaser breaches in any material respect
its obligations under Article II (other than Section 2.4) of the
Stockholders' Agreement;
(x) such Qualified Stock Purchaser breaches any of the provisions of
Article 2 of the Qualified Stock Purchaser Standstill Agreement;
(y) such Qualified Stock Purchaser breaches any of the provisions of
Section 3.1 or 3.2 of the Qualified Stock Purchaser Standstill
Agreement in a Control Context, or such Qualified Stock Purchaser
otherwise breaches Sections 3.1(a)(ii), (iii) or (iv) or Section 3.1(g)
of the Qualified Stock Purchaser Standstill Agreement; or
(z) such Qualified Stock Purchaser breaches any of the provisions of
Sections 3.1 (except Section 3.1(a)(ii), (iii) or (iv), or Section
3.1(g)) or 3.2 of the Qualified Stock Purchaser Standstill Agreement,
in each case other than in a Control Context;
provided, that such Qualified Stock Purchaser shall deliver a notice
(I) except with respect to a breach of the type described in
clause (y) above, in accordance with clauses (iii)(x) or (iv)(x)
below, in which case no conversion of the Class A Stock owned by
such Qualified Stock Purchaser shall take place unless such breach
fails to be cured within the time provided for cure in such clause
(iii) or (iv), as the case may be;
(II) in accordance with clauses (iii)(y), (iv)(y) or (v) below, in
which case no conversion of the Class A Stock owned by such
Qualified Stock Purchaser shall take place until there is issued a
final nonappealable decision or order of a court of competent
jurisdiction finding that such breach has occurred and, if
applicable, was not cured within the time provided for cure in
clauses (iii) or (iv) below, as the case may be; or
(III) admitting that such a breach has occurred, and (if
applicable) cannot be cured within the time periods provided for
cure in clauses (iii) or (iv) below, in which case each outstanding
share of Class A Common Stock and Series 3 PCS Stock, as the case
may be, owned by such Qualified Stock Purchaser shall automatically
convert (without the payment of any consideration) into one duly
issued, fully paid and nonassessable share of Common Stock and
Series 1 PCS Stock, respectively, upon delivery of such notice; and
provided, further, that if such Qualified Stock Purchaser fails to perform
the actions described in clauses (I) or (II) above within the time periods
provided for performing such actions in clauses (iii), (iv) or (v) below,
it shall be deemed to have taken the action described in clause (III)
above.
(iii) For any alleged breach of the type described in clauses (w), (x) or
(z) of clause (ii) above, such Qualified Stock Purchaser shall have the
right, within five Business Days after the date (for purposes of this
clause (iii), the "Breach Notice Date") that notice of such breach is
delivered to such Qualified Stock Purchaser by this Corporation, to deliver
to this Corporation a notice either:
IV-40
<PAGE>
(x) committing to effect a cure as soon as practical, in which case
such Qualified Stock Purchaser shall effect such cure as soon as
practical, but in no event later than the 20th Business Day from the
Breach Notice Date (or, with respect to an alleged breach of clauses
(w) or (x), if such cure cannot be effected within such time period due
to the anti-fraud rules of the U.S. securities laws, such longer period
as is reasonably necessary to cure such breach in a manner consistent
with such rules), provided that
(I) such Qualified Stock Purchaser shall have no right to cure
unless such breach is susceptible to cure;
(II) such cure period shall continue only for so long as such
Qualified Stock Purchaser shall be undertaking to effect such a cure
in a diligent manner;
(III) with respect to an alleged breach of clause (ii)(x) above,
this Corporation shall have the right at any time after the end of
such 20-day period to purchase such number of shares of Class A
Stock as is necessary to return such Qualified Stock Purchaser to
the ownership level permitted by the Qualified Stock Purchaser
Standstill Agreement, at a price equal to the lower of (A) the
Market Price for such Shares at the time of such redemption and (B)
the price paid by such Qualified Stock Purchaser for such Shares,
provided that this Corporation may only exercise such right if a
majority of the Continuing Directors shall have first approved, at a
meeting at which at least seven Continuing Directors are present,
such a purchase of Shares, unless a Fair Price Condition has been
satisfied; and
(IV) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred, provided that during
such time as the most recent decision or order of a court of competent
jurisdiction is to the effect that such breach has occurred and was not
cured within the time provided for cure in clause (x) of this clause
(iii), the rights provided to such Qualified Stock Purchaser under
Sections 8.2 (except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of
ARTICLE SIXTH and the right of such Qualified Stock Purchaser to elect
members of the Board of Directors as a holder of the Class A Stock
under ARTICLE FIFTH of these Articles of Incorporation shall be
suspended and may not be exercised by such Qualified Stock Purchaser.
(iv) For any alleged breach of the type described in clause (ii)(v)
above, such Qualified Stock Purchaser shall have the right, within five
Business Days after the date (for purposes of this clause (iv), the "Breach
Notice Date") that notice of such breach is delivered to such Qualified
Stock Purchaser by this Corporation, to deliver to this Corporation a
notice either:
(x) committing to effect a cure as soon as practical, in which case
such Qualified Stock Purchaser shall effect such cure as soon as
practical, but in no event later than the 20th Business Day from the
Breach Notice Date (or, if such cure cannot be effected within such
time period due to the anti-fraud rules of the U.S. securities laws,
such longer period as is reasonably necessary to cure such breach in a
manner consistent with such rules), provided that
(I) such Qualified Stock Purchaser shall have no right to cure
unless such breach is susceptible to cure;
(II) such cure period shall continue only for so long as such
Qualified Stock Purchaser shall be undertaking to effect such a cure
in a diligent manner; and
(III) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred;
provided that, in each case, from the Breach Notice Date until the earlier
to occur of the cure of such breach and the issuance of a decision or order
of a court of competent jurisdiction finding that such breach has not
occurred or was cured within the time provided for cure in clause (x) of
this clause (iv), the rights provided to such Qualified Stock Purchaser
under Sections 8.2 (except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6
of
IV-41
<PAGE>
ARTICLE SIXTH and the right of such Qualified Stock Purchaser to elect
members of the Board of Directors as a holder of the Class A Stock under
ARTICLE FIFTH of these Articles of Incorporation shall be suspended and may
not be exercised by such Qualified Stock Purchaser; and provided, further,
that following such decision or order, such rights shall be suspended
during such time as the most recent decision or order of a court of
competent jurisdiction is to the effect that such breach has occurred and
was not cured within the time provided for cure in clause (x) of this
clause (iv).
(v) For any alleged breach of the type described in clause (ii)(y) above,
such Qualified Stock Purchaser shall have the right, within five Business
Days after the date (for purposes of this clause (v), the "Breach Notice
Date") that notice of such breach is delivered to such Qualified Stock
Purchaser by this Corporation, to deliver to this Corporation a notice
disputing that such a breach has occurred, provided that from the Breach
Notice Date until the issuance of a decision or order of a court of
competent jurisdiction finding that such breach has not occurred, the
rights provided to such Qualified Stock Purchaser under Sections 8.2
(except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH and
the right of such Qualified Stock Purchaser to elect members of the Board
of Directors as a holder of the Class A Stock under ARTICLE FIFTH of these
Articles of Incorporation shall be suspended and may not be exercised by
such Qualified Stock Purchaser and provided, further, that following such
decision or order, such rights shall be suspended during such time as the
most recent decision or order of a court of competent jurisdiction is to
the effect that such breach has occurred.
(vi) For purposes of this Section 8.5(k), an alleged breach shall be
deemed to have occurred in a Control Context if the action or actions
alleged to have given rise to such breach were taken in the context of
efforts by such Qualified Stock Purchaser or any other Person having the
purpose or effect of changing or influencing the control of this
Corporation.
(vii) No conversion pursuant to this Section 8.5(k) shall be considered
an acquisition for purposes of Section 8.5(i) of ARTICLE SIXTH.
(l) Effect of Conversion. Upon the conversion of all of the shares of
Class A Stock pursuant to this Section 8.5, each share of Class A Common
Stock and Series 3 PCS Stock, as the case may be, issued by this
Corporation pursuant to the Investment Agreement, the FT/DT Restructuring
Agreement, the Stockholders' Agreement or these Articles of Incorporation
shall automatically convert (without the payment of any consideration) into
one duly issued, fully paid and nonassessable share of Common Stock and
Series 1 PCS Stock, respectively, provided that such conversion shall not
be considered an acquisition of Common Stock or Series 1 PCS Stock, as the
case may be, for purposes of Section 8.5(i) of ARTICLE SIXTH.
(m) Exclusionary Tender Offer. If the Board of Directors shall determine
not to oppose a tender offer by a Person other than FT, DT or any of their
respective Affiliates for Voting Securities of this Corporation
representing not less than 35 percent of the Voting Power of this
Corporation, and the terms of such tender offer do not permit the Class A
Holders to sell an equal or greater percentage of:
(i) if the tender offer involves only Common Stock, Class A Common
Stock as the holders of Common Stock are permitted to sell taking into
account any proration,
(ii) if the tender offer involves only Series 1 PCS Stock, Series 3
PCS Stock as the holders of Series 1 PCS Stock are permitted to sell
taking into account any proration, or
(iii) if the tender offer involves both Common Stock and Series 1 PCS
Stock, Class A Common Stock and Series 3 PCS Stock as the holders of
Common Stock and Series 1 PCS Stock, respectively, are permitted to
sell taking into account any proration,
then all, but not less than all, of the Class A Holders shall have the
right (but not the obligation) to deliver to this Corporation a written
notice requesting conversion of certain shares of Class A Common Stock (in
the case of a tender offer described in (i) or (iii) immediately above) or
Series 3 PCS Stock (in the case of a tender offer described in (ii) or
(iii) above) designated by the Class A Holders into Common Stock or Series
1 PCS Stock, respectively, upon which delivery each share of Class A Common
Stock or Series 3 PCS Stock so designated in such notice shall
automatically convert (without the payment of any consideration)
IV-42
<PAGE>
into one duly issued, fully paid and nonassessable share of Common Stock or
Series 1 PCS Stock, respectively, provided that (i) conversion pursuant to
this clause (m) shall not be considered to be an acquisition of Common
Stock or Series 1 PCS Stock for purposes of Section 8.5(i) of ARTICLE
SIXTH, (ii) unless the Class A Common Stock or Series 3 PCS Stock shall
have otherwise been converted into Common Stock or Series 1 PCS Stock,
respectively, pursuant to Section 8.5 of ARTICLE SIXTH upon or prior to the
consummation or abandonment of the transaction contemplated by such tender
offer, immediately following the consummation of such transaction or the
delivery by this Corporation to each Class A Holder of a notice that such
transaction has been abandoned, each share of Common Stock or Series 1 PCS
Stock held by a Class A Holder shall automatically reconvert (without the
payment of any consideration) into one duly issued, fully paid and
nonassessable share of Class A Common Stock or Series 3 PCS Stock,
respectively; and (iii) only those shares of Class A Common Stock or Series
3 PCS Stock related to shares of Common Stock or Series 1 PCS Stock,
respectively, that were not so reconverted shall be deemed for any purpose
under these Articles of Incorporation, the Stockholders' Agreement, the
Investment Agreement, the FT/DT Restructuring Agreement, the Standstill
Agreement, the Registration Rights Agreement, or any agreement or document
related thereto to have been converted into Common Stock or Series 1 PCS
Stock, respectively, pursuant to this Section 8.5(m) and the Class A Common
Stock or Series 3 PCS Stock so reconverted shall be deemed to have been at
all times outstanding shares of Class A Common Stock or Series 3 PCS Stock,
respectively.
8.6. Change of Control Procedures. As long as shares of Class A Stock are
outstanding, but subject to Sections 8.5(a), (b), (f) and (k) of ARTICLE
SIXTH, if this Corporation, directly or indirectly, (a) determines to sell all
or substantially all of the assets of this Corporation, (b) determines not to
oppose a third-party tender, exchange or other purchase offer for Voting
Securities with a number of Votes in excess of 35 percent of the Voting Power
of this Corporation, (c) determines to effect a merger or other business
combination involving this Corporation that would result in a Person (other
than any Class A Holder) holding Voting Securities of the resulting entity
representing 35 percent or more of the Voting Power of such entity or (d)
otherwise determines to sell Control of this Corporation, this Corporation
shall conduct such transaction in accordance with reasonable procedures to be
determined by the Board of Directors, and permit FT and DT to participate in
that process on a basis no less favorable than that granted any other
participant.
8.7. Class Voting. Except as otherwise provided by law, in Section 2(a) of
ARTICLE FIFTH or in the Class A Provisions, the Class A Holders shall not
have, nor be entitled to, a class vote with respect to any matter to be voted
on by the stockholders of this Corporation.
8.8. Amendment of Class A Provisions and ARTICLE FIFTH. The Class A
Provisions and Section 2(a)(iii) of ARTICLE FIFTH of these Articles of
Incorporation may be amended in any manner which would not materially alter or
change the powers, preferences or rights of the holders of shares of the Non-
Class A Common Stock or Preferred Stock so as to affect such powers,
preferences or rights adversely, by the Board of Directors of this Corporation
with the affirmative vote of only the holders of at least two-thirds of the
outstanding shares of Class A Stock, voting together as a single class, and
without the affirmative vote of the holders of shares of the Non-Class A
Common Stock or the Preferred Stock. Upon the retirement of shares of Class A
Common Stock, (i) such shares shall not resume the status of authorized and
unissued shares of that class, (ii) such shares shall not be reissued, and
(iii) upon the execution, acknowledgment and filing of a certificate in
accordance with Kan. Stat. Ann. (S) 17-6003 and (S) 17-6603 (or any successor
provisions) stating that the reissuance of such shares is prohibited,
identifying the shares and reciting their retirement, then the filing of such
certificate shall have the effect of amending these Articles of Incorporation
so as to reduce accordingly the number of authorized shares of Class A Common
Stock, or if such retired shares constitute all of the authorized shares of
such class or series, then the filing of such certificate shall have the
effect of amending these Articles of Incorporation automatically so as to
eliminate all references to such class or series of stock therefrom.
Section 9. Application of the Provisions of ARTICLE SIXTH
9.1. Certain Determinations of the Board of Directors. In addition to the
determinations regarding Preferred Stock to be made by the Board of Directors
as provided by Section 13.6, the Board of Directors shall
IV-43
<PAGE>
make such determinations (i) with respect to the assets and liabilities to be
attributed to the Business Groups (in accordance with the definitions of "PCS
Group" and "Sprint FON Group" set forth in ARTICLE SIXTH, Section 10), (ii)
with respect to the application of the provisions of this ARTICLE SIXTH to
transactions to be engaged in by the Corporation and (iii) as may be or become
necessary or appropriate to the exercise of the powers, preferences and
relative, participating, optional and other special rights of the classes or
series of Corporation Common Stock, including, without limiting the foregoing,
the determinations referred to in the following paragraphs (A), (B), (C) and
(D) of this Section 9.1. A record of any such determination shall be filed
with the Secretary of the Corporation to be kept with the records of the
actions of the Board of Directors.
(A) Upon any acquisition by the Corporation or its subsidiaries of any
assets or business, or any assumption of liabilities, outside of the
ordinary course of business of the Sprint FON Group or the PCS Group, as
the case may be, the Board of Directors shall determine whether such
assets, business and liabilities (or an interest therein) shall be for the
benefit of the Sprint FON Group or the PCS Group or that an interest
therein shall be partly for the benefit of the Sprint FON Group and partly
for the benefit of the PCS Group and, accordingly, shall be attributed to
the Sprint FON Group or the PCS Group, or partly to each, in accordance
with the definitions of "PCS Group," "Sprint FON Group," and "Number Of
Shares Issuable With Respect To The Intergroup Interest" set forth in
Section 10 of ARTICLE SIXTH.
(B) Upon any issuance of any shares of PCS Stock at a time when the
Number Of Shares Issuable With Respect To The Intergroup Interest is more
than zero, the Board of Directors shall determine, based on the use of the
proceeds of such issuance and any other relevant factors, whether all or
any part of the shares of PCS Stock so issued should reduce the Number Of
Shares Issuable With Respect To The Intergroup Interest and the Number Of
Shares Issuable With Respect To The Intergroup Interest shall be adjusted
accordingly.
(C) Upon any issuance by the Corporation or any subsidiary thereof of any
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of PCS Stock, if at the time such Convertible
Securities are issued the Number Of Shares Issuable With Respect To The
Intergroup Interest is greater than zero, the Board of Directors shall
determine whether, upon conversion, exchange or exercise thereof, the
issuance of shares of PCS Stock pursuant thereto shall, in whole or in
part, reduce the Number Of Shares Issuable With Respect To The Intergroup
Interest, taking into consideration the use of the proceeds of such
issuance of Convertible Securities in the business of the Sprint FON Group
or the PCS Group and any other relevant factors.
(D) Upon any redemption or repurchase by the Corporation or any
subsidiary thereof of shares of any Preferred Stock of any class or series
or of other securities or debt obligations of the Corporation, if some of
such shares, other securities or debt obligations were attributed to the
Sprint FON Group and some of such shares, other securities or debt
obligations were attributed to the PCS Group, the Board of Directors shall
determine which, if any, of such shares, other securities or debt
obligations redeemed or repurchased shall be attributed to the Sprint FON
Group and which, if any, of such shares, other securities or debt
obligations shall be attributed to the PCS Group and, accordingly, how many
of the shares of such series of Preferred Stock or of such other
securities, or how much of such debt obligations, that remain outstanding,
if any, continue to be attributed to the Sprint FON Group or to the PCS
Group.
9.2. Sources of Dividends and Distributions; Uses of Proceeds of Share
Issuances. Notwithstanding the attribution of properties or assets of the
Corporation to the Sprint FON Group or the PCS Group as provided in the
definitions of such terms in Section 10 of ARTICLE SIXTH, the Board of
Directors (i) may cause dividends or distributions or other payments to the
holders of any class of Corporation Common Stock or any class or series of
Preferred Stock to be made out of the properties or assets attributed to any
Business Group, subject, however, to any contrary term of any series of
Preferred Stock fixed in accordance with Section 13 of ARTICLE SIXTH, and (ii)
may cause the proceeds of issuance of any shares of Non-Class A Stock or Class
A Stock or any class or series of Preferred Stock, to whichever Business Group
attributed in accordance with Section 13 of ARTICLE SIXTH, to be used in the
business of, and to be attributed to, either the Sprint FON Group or the PCS
Group in accordance with the definitions of "PCS Group," "Sprint FON Group,"
and "Number Of Shares Issuable With Respect To The Intergroup Interest" in
Section 10 of ARTICLE SIXTH.
IV-44
<PAGE>
9.3. Certain Determinations Not Required. Notwithstanding the foregoing
provisions of this Section 9, the provisions of Section 10 of ARTICLE SIXTH or
any other provision of this ARTICLE SIXTH, at any time when there are not
outstanding both (i) one or more shares of Common Stock or Convertible
Securities convertible into or exchangeable or exercisable for Common Stock
and (ii) one or more shares of PCS Stock or Convertible Securities convertible
into or exchangeable or exercisable for PCS Stock, the Board of Directors need
not (A) attribute any of the assets or liabilities of the Corporation or any
of its subsidiaries to the Sprint FON Group or the PCS Group, (B) make any
determination required in connection therewith, or (C) make any of the
determinations otherwise required by this ARTICLE SIXTH, and in such
circumstances the holders of the shares of Common Stock or PCS Stock
outstanding, as the case may be, shall (unless otherwise specifically provided
by the Articles of Incorporation of the Corporation) be entitled to all the
voting powers, preferences, optional or other special rights of such classes
of Corporation Common Stock without differentiation between the Common Stock
and the PCS Stock and any provision of this ARTICLE SIXTH to the contrary
shall no longer be in effect or operative and the Board of Directors may cause
the Articles of Incorporation of the Corporation to be amended as permitted by
law to delete such provisions as are no longer operative or of further effect.
9.4. Emergency Use of Business Group Assets. Notwithstanding the foregoing
provisions of this Section 9 or any other provision of ARTICLE SIXTH, the
Board of Directors may transfer assets or properties from one Business Group
to another on such other basis as the Board of Directors shall determine,
consistent with its fiduciary duties to the Corporation and the holders of all
classes and series of the Corporation's common stock, provided that the Board
of Directors determines (i) that such transfer on such basis should be made to
prevent or mitigate material adverse consequences that would fundamentally
affect the transferee Business Group, (ii) that the benefit of such transfer
on such basis to the transferee Business Group is to materially exceed any
adverse effect of such transfer to the transferor Business Group, and (iii)
that such transfer on such basis is in the best interest of the Corporation as
a whole after giving fair consideration to the potentially divergent interests
of the holders of the separate classes of Corporation Common Stock.
9.5. Board Determinations Binding. Subject to applicable law, any
determinations made in good faith by the Board of Directors of the Corporation
under any provision of this Section 9 or otherwise in furtherance of the
application of this ARTICLE SIXTH shall be final and binding on all
stockholders.
Section 10. Definitions. For purposes of ARTICLE FIFTH and ARTICLE SIXTH of
these Articles of Incorporation, the following terms have the following
meanings (with terms defined in the singular having comparable meaning when
used in the plural and vice versa), unless the context otherwise requires. As
used in this Section 10, a "contribution" or "transfer" of assets or
properties from one Business Group to another refers to the reattribution of
such assets or properties from the contributing or transferring Business Group
to the other Business Group and correlative phrases have correlative meanings.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person, provided that (a)
no JV Entity shall be deemed an Affiliate of any Class A Holder or this
Corporation unless (i) FT, DT and Atlas own a majority of the Voting Power of
such JV Entity and this Corporation does not have the Tie-Breaking Vote (as
defined in Section 18.1 of the Joint Venture Agreement), or (ii) FT, DT or
Atlas has the Tie-Breaking Vote; (b) FT, DT and this Corporation shall not be
deemed Affiliates of each other; (c) Atlas shall be deemed an Affiliate of FT
and DT; and (d) the term "Affiliate" shall not include any Governmental
Authority of France or Germany or any other Person Controlled, directly or
indirectly, by any such Governmental Authority except in each case for FT, DT,
Atlas and any other Person directly, or indirectly through one or more
intermediaries, Controlled by FT, DT or Atlas.
"Alien" means "aliens," "their representatives," "a foreign government or
representatives thereof" or "any corporation organized under the laws of a
foreign country" as such terms are used in Section 310(b)(4) of the
Communications Act of 1934, as amended, or as hereafter may be amended, or any
successor provision of law.
IV-45
<PAGE>
"Applicable Law" has the meaning set forth in the Stockholders' Agreement.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under the
Exchange Act, provided that when used to indicate a relationship with FT or DT
or their respective Subsidiaries or Affiliates, the term "Associate" means (a)
in the case of FT, any Person occupying any of the positions listed on
Schedule A to the Stockholders' Agreement and (b) in the case of DT, any
Person occupying any of the positions listed on Schedule B to the
Stockholders' Agreement, provided, further, that, in each case, no Person
occupying any such position described in clause (a) or (b) hereof shall be
deemed an "Associate" of FT or DT, as the case may be, unless the Persons
occupying all such positions described in clauses (a) and (b) hereof
Beneficially Own, in the aggregate, more than 0.2% of the Voting Power of the
Corporation.
"Atlas" means the company formed as a societe anonyme under the laws of
Belgium pursuant to the Joint Venture Agreement, dated as of December 15,
1994, between FT and DT, as amended.
"Average Trading Price" of a share of any class or series of capital stock
of the Corporation on any day means the average Closing Price of such capital
stock determined over the 20 Trading Days immediately preceding the date of
such determination; provided that for purposes of this definition only, in
determining the "Closing Price" of a share of any class or series of capital
stock for such 20 Trading Day period, (i) the "Closing Price" of a share of
capital stock on any day prior to any "ex-dividend" date or any similar date
occurring during such period for any dividend or distribution (other than any
dividend or distribution contemplated by clause (ii)(B) of this definition)
paid or to be paid with respect to such capital stock shall be reduced by the
Fair Value of the per share amount of such dividend or distribution and (ii)
the "Closing Price" of any share of capital stock on any day prior to (A) the
effective date of any subdivision (by stock split or otherwise) or combination
(by reverse stock split or otherwise) of outstanding shares of such class of
capital stock occurring during such period or (B) any "ex-dividend" date or
any similar date occurring during such period for any dividend or distribution
with respect to such capital stock to be made in shares of such class or
series of capital stock or Convertible Securities that are convertible,
exchangeable or exercisable for such class or series of capital stock, shall
be appropriately adjusted, as determined by the Board of Directors, to reflect
such subdivision, combination, dividend or distribution.
"Beneficial Owner" (including, with its correlative meanings, "Beneficially
Own" and "Beneficial Ownership"), with respect to any securities, means any
Person which:
(a) has, or any of whose Affiliates or Associates has, directly or
indirectly, the right to acquire (whether such right is exercisable
immediately or only after the passage of time) such securities pursuant to
any agreement, arrangement or understanding (whether or not in writing),
including, without limitation, pursuant to the FT/DT Restructuring
Agreement and the Stockholders' Agreement, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
(b) has, or any of whose Affiliates or Associates has, directly or
indirectly, the right to vote or dispose of (whether such right is
exercisable immediately or only after the passage of time) or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 under the
Exchange Act but including all such securities which a Person has the right
to acquire beneficial ownership of whether or not such right is exercisable
within the 60-day period specified therein) such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); or
(c) has, or any of whose Affiliates or Associates has, any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting or disposing of any securities which are
Beneficially Owned, directly or indirectly, by any other Person (or any
Affiliate thereof),
provided that (i) Class A Stock, Non-Class A Common Stock and Preferred Stock
held by one of FT or DT or its Affiliates or Associates shall not also be
deemed to be Beneficially Owned by the other of FT or DT or its Affiliates or
Associates, (ii) Common Stock and PCS Stock shall not be deemed to be
Beneficially Owned by FT, DT or their Affiliates or Associates by virtue of
the top up rights and standby commitments granted under
IV-46
<PAGE>
the Purchase Rights Agreement (as defined in the FT/DT Restructuring
Agreement) except to the extent that FT, DT or their Affiliates or Associates
have (A) acquired shares of Common Stock or PCS Stock pursuant to the Purchase
Rights Agreement, or (B) become irrevocably committed to acquire, and the
Cable Holders have become irrevocably committed to sell, shares of Common
Stock or PCS Stock pursuant to the Purchase Rights Agreement (with such
Beneficial Ownership being determined on a full-voting basis), subject only to
customary closing conditions, if any; (iii) FT, DT and their Affiliates and
Associates shall not be deemed to Beneficially Own any incremental Voting
Power resulting solely from the increase in Voting Power provided for by the
application of ARTICLE SIXTH, Section 7.5(d); and (iv) prior to the conversion
thereof (other than during the 90-day period following the Conversion Trigger
Date set forth in ARTICLE SIXTH, Section 7.5(a), a holder of Series 2 PCS
Stock or Series 2 Common Stock shall not be deemed to beneficially own the
shares of Series 1 PCS Stock or Common Stock issuable upon conversion thereof.
"Board of Directors" means the board of directors of this Corporation.
"Business Day" means any day other than a day on which commercial banks in
The City of New York, Paris, France, or Frankfurt am Main, Germany, are
required or authorized by law to be closed.
"Business Group" means, as of any date, the Sprint FON Group or the PCS
Group, as the case may be.
"Bylaws" means the Bylaws of this Corporation as amended or supplemented
from time to time.
"Cable Holder" means any of
(i) Tele-Communications, Inc., a Delaware corporation, Comcast
Corporation, a Pennsylvania corporation, or Cox Communications, Inc., a
Delaware corporation,
(ii) any Affiliate of an entity identified in clause (i) of this
definition,
(iii) any successor (by operation of law or otherwise) of an entity
identified in clauses (i) or (ii) of this definition so long as such
successor remains an Affiliate of an entity identified in clause (i) or
(ii),
(iv) any entity controlled by two or more entities identified in clauses
(i) through (iii) of this definition or this clause (iv) even if such
entity is not considered an Affiliate of any individual entity so
identified and
(v) for purposes of ARTICLE SIXTH, Section 7.5(b) only, with respect to
any Transfer of shares of Series 2 PCS Stock, the transferee of such shares
if (A) at the time of such Transfer, the transferor was a Cable Holder
under any of clauses (i) through (iv) of this definition, (B) after giving
effect to such Transfer, the transferee was an Associate of the transferor,
(C) immediately prior to such Transfer, the transferee was identified in
writing by the transferor as a "Cable Holder" under this clause (v), and
(D) the transferor and transferee satisfied the conditions set forth in
Section 2.4 of the applicable Cable Holder Standstill Agreements.
"Cable Holder Standstill Agreements" means the Standstill Agreements, dated
as of May 26, 1998, entered into between this Corporation and each of certain
Cable Holders, and any Standstill Agreements in the form thereof entered into
from time to time between this Corporation and certain transferee Affiliates
and Associates of such Cable Holders.
"Cellular and Wireless Division" means the former Cellular and Wireless
Communications Services Division of this Corporation.
"Change of Control" means a:
(a) decision by the Board of Directors to sell Control of this
Corporation or not to oppose a third party tender offer for Voting
Securities of this Corporation representing more than 35% of the Voting
Power of this Corporation; or
(b) change in the identity of a majority of the Directors due to (i) a
proxy contest (or the threat to engage in a proxy contest) or the election
of Directors by the holders of Preferred Stock; or (ii) any unsolicited
tender, exchange or other purchase offer which has not been approved by a
majority of the Independent Directors,
IV-47
<PAGE>
provided that a Strategic Merger shall not be deemed to be a Change of Control
and provided, further, that any transaction between this Corporation and FT
and DT or otherwise involving FT and DT and any of their direct or indirect
Subsidiaries which are party to a Contract therefor shall not be deemed to be
a Change of Control.
"Class A Action" means action by the holders of a majority of the shares of
Class A Stock taken by a vote at either a regular or special meeting of the
stockholders of this Corporation or of the holders of the Class A Stock or by
written consent delivered to the Secretary of this Corporation.
"Class A Common Stock" means the Old Class A Common Stock and the Class A
Common Stock--Series DT.
"Class A Common Stock--Series DT" has the meaning set forth in the
"Designation" column in Section 1 of ARTICLE SIXTH.
"Class A Director" means any Director elected by the Class A Holders
pursuant to Section 2(a) or 4(b) of ARTICLE FIFTH of these Articles of
Incorporation or appointed by Class A Directors pursuant to Section 4(b) of
ARTICLE FIFTH of these Articles of Incorporation.
"Class A Holders" means (a) the holders of the Class A Stock, and (b) any
Qualified Stock Purchaser who has executed with this Corporation a Qualified
Stock Purchaser Assumption Agreement (as such term is defined in the
Stockholders' Agreement), for so long as such Person holds Class A Stock.
"Class A Provisions" means Section 5 (but only with respect to those
provisions addressing the Class A Stock), Section 6 (but only with respect to
those provisions addressing the Class A Stock), Section 8, Section 9, Section
10, Section 11 and Section 12 of ARTICLE SIXTH.
"Class A Stock" means the Class A Common Stock and the Series 3 PCS Stock.
"Closing Price" means, with respect to a security on any day, the last sale
price, regular way, or in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on The New York Stock
Exchange, Inc. or, if such security is not listed or admitted to trading on
such exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the security is listed or admitted to trading or, if the
security is not listed or admitted to trading on any national securities
exchange, the last quoted sale price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use, or, if on any such date such security
is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
the security selected in good faith by the Board of Directors. If the security
is not publicly held or so listed or publicly traded, "Closing Price" means
the Fair Market Value of such security.
"Committed Percentage" means, as to any Class A Holder, the percentage
obtained by dividing the aggregate number of Votes represented or to be
represented by the Voting Securities of this Corporation (a) owned of record
by such Class A Holder or by its nominees; and (b) which such Class A Holder
has committed to this Corporation to purchase pursuant to Articles V and VI or
Sections 7.3 and 7.8 of the Stockholders Agreement (but not pursuant to the
FT/DT Restructuring Agreement until such shares are acquired pursuant to such
agreement), by the sum of (i) the Voting Power of this Corporation, and (ii)
the Votes to be represented by any Voting Securities of this Corporation such
Class A Holder has committed to this Corporation to purchase from this
Corporation pursuant to Articles V or VI or Section 7.3 of the Stockholders'
Agreement (but not pursuant to the FT/DT Restructuring Agreement until such
shares are acquired pursuant to such agreement).
IV-48
<PAGE>
"Common Stock" has the meaning set forth in the "Designation" column in
Section 1 of ARTICLE SIXTH.
"Common Group Stock" means the Common Stock, the Series 2 Common Stock and
the Class A Common Stock.
"Continuing Director" has the meaning set forth in the Fair Price
Provisions.
"Contract" means any loan or credit agreement, note, bond, indenture,
mortgage, deed of trust, lease, franchise, contract, or other agreement,
obligation, instrument or binding commitment of any nature.
"Control" means, with respect to a Person or Group, any of the following:
(a) ownership by such Person or Group of Votes entitling it to exercise
in the aggregate more than 35 percent of the Voting Power of the entity in
question; or
(b) possession by such Person or Group of the power, directly or
indirectly, (i) to elect a majority of the board of directors (or
equivalent governing body) of the entity in question; or (ii) to direct or
cause the direction of the management and policies of or with respect to
the entity in question, whether through ownership of securities, by
contract or otherwise.
"Conversion Date" means the date fixed by the Board of Directors as the
effective date for the conversion of shares of PCS Stock into shares of Common
Group Stock (or another class or series of common stock of the Corporation) as
shall be set forth in the notice to holders of shares of PCS Stock and to
holders of any Convertible Securities that are convertible into or
exchangeable or exercisable for shares of PCS Stock required pursuant to
Section 7.4(E).
"Conversion Time" has the meaning set forth in Section 8.5(j) of ARTICLE
SIXTH.
"Converted Series Shares" has the meaning set forth in Section 7.5(c) of
ARTICLE SIXTH.
"Converted Shares" has the meaning set forth in Section 8.5(j) of ARTICLE
SIXTH.
"Converted Votes" means, on any particular day, (i) in the case of a share of
Series 2 PCS Stock, the applicable PCS Per Share Vote a share of Series 1 PCS
Stock would have had if the computation described in Section 3.2(a)(ii) had
occurred on such day and (ii) in the case of a share of Series 2 Common Stock,
one vote per share.
"Convertible Securities" at any time means any securities of the Corporation
or of any subsidiary thereof (other than shares of Corporation Common Stock),
including warrants and options, outstanding at such time that by their terms
are convertible into or exchangeable or exercisable for or evidence the right
to acquire any shares of any class or series of Corporation Common Stock,
whether convertible, exchangeable or exercisable at such time or a later time
or only upon the occurrence of certain events, pursuant to antidilution
provisions of such securities or otherwise.
"Core Businesses" means all businesses in the fields of telecommunications
and information technology and applications, and equipment, software
applications and consumer and business services related thereto or making use
of the technology thereof, including value-added consumer and business
services generated through or as a result of underlying telecommunications
services using all technology (voice, data and image) and physical transport,
network intelligence, and software applications, and cable television (but not
including any programming or content-related activities with respect thereto).
"Corporation Common Stock" means the Common Stock, the Series 2 Common
Stock, the Class A Common Stock, the Series 1 PCS Stock, the Series 2 PCS
Stock and the Series 3 PCS Stock.
IV-49
<PAGE>
"Corporation Joint Venture Termination" means any of the following:
(a) the sale of Venture Interests by a Sprint Party pursuant to Section
20.5(a) of the Joint Venture Agreement; or
(b) the receipt by the FT/DT Parties of the Tie-Breaking Vote due to a
Funding Default, Material Non-Funding Default or Bankruptcy (as such terms
are defined in the Joint Venture Agreement) on the part of any of the
Sprint Parties.
"Director" means a member of the Board of Directors.
"Disposition" means a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or contribution of assets or stock or
otherwise) of properties or assets.
"DT" means Deutsche Telekom AG, an Aktiengesellschaft formed under the laws
of Germany.
"Effective Date" means the date on which these Amended and Restated Articles
of Incorporation become effective.
"ESMR" means any commercial mobile radio service, and the resale of such
service, of the type authorized under the rules for Specialized Mobile Radio
Services designated under Subpart S of Part 90 of the FCC's rules or similar
Applicable Laws of any other country in effect on the date hereof, including
the networking, marketing, distribution, sales, customer interface and
operations functions relating thereto.
"Europe" means the current geographic area covered by the following
countries and territories located on the European continent, plus, in the case
of France, its territories and possessions located outside the European
continent: Albania, Andorra, Austria, Belgium, Bosnia-Herzegovina, Bulgaria,
Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Gibraltar, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein,
Lithuania, Luxembourg, Macedonia, Malta, Monaco, Montenegro, Netherlands,
Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia,
Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and Vatican City.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the United States Securities and Exchange
Commission promulgated thereunder.
"Exempt Asset Divestitures" means, with respect to this Corporation and its
Subsidiaries:
(a) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) to joint ventures approved by FT and DT prior to
January 31, 1996;
(b) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) to (i) any entity in exchange for equity interests in
such entity if, after such transaction, this Corporation owns at least 51
percent of both the Voting Power and equity interests in such entity or
(ii) any joint venture that is an operating joint venture not controlled by
any of its principals and in which (x) this Corporation has the right,
acting alone, to disapprove (and thereby prohibit) decisions relating to
acquisitions and divestitures involving more than 20 percent of the Fair
Market Value of such entity's assets, mergers, consolidations and
dissolution or liquidation of such entity and the adoption of such entity's
business plan, and (y) Major Competitors of the Joint Venture do not in the
aggregate own more than 20 percent of the equity interests or Voting Power;
(c) transactions in which this Corporation exchanges one or more (i)
local exchange telephone businesses for one or more such businesses or (ii)
public cellular or wireless radio telecommunications service systems for
one or more such systems, provided that this Corporation shall not,
directly or indirectly, receive cash in any such transaction in an amount
greater than 20 percent of the Fair Market Value of the property or
properties Transferred by it;
IV-50
<PAGE>
(d) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) by this Corporation to any of its Subsidiaries, or by
any of its Subsidiaries to this Corporation or any other Subsidiary of this
Corporation;
(e) any Spin-off of equity interests of a wholly-owned Subsidiary that is
not a Subsidiary which, directly or indirectly, owns Long Distance Assets
(for purposes of this definition, the "Spun-off Entity"), provided that the
Class A Holders receive securities in the Spun-off Entity of a separate
class with rights no less favorable to the Class A Holders than those
applicable to the Class A Stock set forth in these Articles of
Incorporation and the Bylaws;
(f) Transfers of assets (other than Long Distance Assets) of this
Corporation or any of its Subsidiaries that are primarily or exclusively
used in connection with providing information technology or data processing
functions or services (collectively, for purposes of this definition, the
"IT Assets") to any Person that regularly provides information technology
or data processing functions or services on a commercial basis, in
connection with a contractual arrangement (for purposes of this definition,
an "IT Service Contract") pursuant to which such Person undertakes to
provide information technology or data processing functions or services to
this Corporation or any of its Subsidiaries of substantially the same
nature as the services associated with the use of such assets prior to such
Transfer and upon commercially reasonable terms to this Corporation as
determined in good faith by this Corporation, provided that (i) the term of
such IT Service Contract shall be for a period at least as long as the
weighted average useful life of such assets, or this Corporation or such
Subsidiary shall have the right to cause such IT Service Contract to be
renewed or extended for a period at least as long as such weighted average
useful life upon commercially reasonable terms to this Corporation as
determined in good faith by this Corporation, and (ii) the Transfer of such
assets will not materially and adversely affect the operation of this
Corporation; or
(g) Transfers of assets (other than Long Distance Assets or IT Assets) of
this Corporation or any of its Subsidiaries to any Person in connection
with any contractual arrangement (for purposes of this definition, a "Non-
IT Service Contract") pursuant to which such Person undertakes to provide
services to this Corporation or any of its Subsidiaries of substantially
the same nature as the services associated with the use of such assets
prior to such Transfer and upon commercially reasonable terms to this
Corporation as determined in good faith by this Corporation, provided, that
(i) the Fair Market Value of such assets, together with the Fair Market
Value of assets of this Corporation Transferred to such Person or other
Persons in related transactions, do not represent more than five percent of
the Fair Market Value of the assets of this Corporation, (ii) the Transfer
of such assets will not materially and adversely affect the operation of
this Corporation, and (iii) the term of such Non-IT Service Contract shall
be for a period at least as long as the weighted average useful life of the
assets so Transferred or this Corporation or such Subsidiary has the right
to cause such Non-IT Service Contract to be renewed or extended for a
period at least as long as such weighted average useful life upon
commercially reasonable terms to this Corporation as determined in good
faith by this Corporation.
"Exempt Long Distance Asset Divestitures" means, with respect to this
Corporation and its Subsidiaries:
(a) Transfers of Long Distance Assets to a Qualified Joint Venture;
(b) Transfers of Long Distance Assets to any entity if this Corporation
and its Subsidiaries after such transaction own at least 70 percent of both
the Voting Power and equity interests of such entity, provided that if a
Major Competitor of FT or DT or of the Joint Venture holds equity interests
in such entity, such Major Competitor's equity interests and Votes in such
entity as a percentage of the Voting Power of such entity shall not,
directly or indirectly, exceed 20 percent;
(c) Transfers of Long Distance Assets pursuant to an underwritten,
widely-distributed public offering at the conclusion of which this
Corporation and its Subsidiaries shall own at least 51 percent of both the
Voting Power and equity interests in the entity that owns such Long
Distance Assets;
(d) Transfers in the ordinary course of business of Long Distance Assets
determined by this Corporation to be unnecessary for the orderly operation
of this Corporation's business, and sale-leasebacks
IV-51
<PAGE>
of Long Distance Assets and similar financing transactions after which this
Corporation and its Subsidiaries continue in possession and control of the
Long Distance Assets involved in such transaction;
(e) Transfers of Long Distance Assets by this Corporation to any of its
Subsidiaries, or by any of its Subsidiaries to this Corporation or any
other Subsidiary of this Corporation;
(f) Transfers of Long Distance Assets to FT or DT or any assignee thereof
pursuant to the Stockholders' Agreement;
(g) any Spin-off of equity interests of a wholly-owned Subsidiary which,
directly or indirectly, owns Long Distance Assets (for purposes of this
definition, the "Spun-off Entity"), provided that the Class A Holders
receive securities in the Spun-off Entity of a separate class with rights
no less favorable to the Class A Holders than those applicable to the Class
A Stock set forth in these Articles of Incorporation and the Bylaws;
(h) Transfers of Long Distance Assets of this Corporation or any of its
Subsidiaries that are primarily or exclusively used in connection with
providing information technology or data processing functions or services
(collectively, for purposes of this definition, the "IT Assets") to any
Person that regularly provides information technology or data processing
functions or services on a commercial basis, in connection with a
contractual arrangement (for purposes of this definition, an "IT Service
Contract") pursuant to which such Person undertakes to provide information
technology or data processing functions or services to this Corporation or
any of its Subsidiaries of substantially the same nature as the services
associated with the use of such Long Distance Assets prior to such Transfer
and upon commercially reasonable terms to this Corporation as determined in
good faith by this Corporation, provided that (i) the term of such IT
Service Contract shall be for a period at least as long as the weighted
average useful life of such Long Distance Assets, or this Corporation or
such Subsidiary shall have the right to cause such IT Service Contract to
be renewed or extended for a period at least as long as such weighted
average useful life upon commercially reasonable terms to this Corporation
as determined in good faith by this Corporation, and (ii) the Transfer of
such Long Distance Assets will not materially and adversely affect the
operation of the Long Distance Business. Any such IT Service Contract
involving Transfers of Long Distance Assets, including any renewal or
extension thereof, shall be deemed to be a Long Distance Asset; or
(i) Transfers of Long Distance Assets (other than IT Assets) of this
Corporation or any of its Subsidiaries to any Person in connection with any
contractual arrangement (for purposes of this definition, a "Non-IT Service
Contract") pursuant to which such Person undertakes to provide services to
this Corporation or any of its Subsidiaries of substantially the same
nature as the services associated with the use of such Long Distance Assets
prior to such Transfer and upon commercially reasonable terms to this
Corporation as determined in good faith by this Corporation, provided, that
(i) the Fair Market Value of such Long Distance Assets, together with the
Fair Market Value of Long Distance Assets Transferred to such Person or
other Persons in related transactions, do not represent more than three
percent of the Fair Market Value of the Long Distance Assets of this
Corporation, (ii) the Transfer of such Long Distance Assets will not
materially and adversely affect the operation of the Long Distance
Business, and (iii) the term of such Non-IT Service Contract shall be for a
period at least as long as the weighted average useful life of the Long
Distance Assets so Transferred or this Corporation or such Subsidiary has
the right to cause such Service Contract to be renewed or extended for a
period at least as long as such weighted average useful life upon
commercially reasonable terms to this Corporation as determined in good
faith by this Corporation. Any such Non-IT Service Contract involving
Transfers of Long Distance Assets, including any renewal or extension
thereof, shall be deemed to be a Long Distance Asset.
"Extraordinary Dividend" means, with respect to capital stock of this
Corporation, a cash dividend or other cash distribution, other than (a) a
regular periodic dividend payable in cash; or (b) a dividend payable in
accordance with the terms of the Preferred Stock.
"Fair Market Value" means, with respect to any asset, shares or other
property, the cash price at which a willing seller would sell and a willing
buyer would buy such asset, shares or other property in an arm's-length
negotiated transaction without undue time restraints, as determined in good
faith by a majority of the Independent Directors as certified in a resolution
delivered to all of the Class A Holders.
IV-52
<PAGE>
"Fair Price Condition" has the meaning set forth in Section 2.2 of ARTICLE
SIXTH.
"Fair Price Provisions" means ARTICLE SEVENTH of these Articles of
Incorporation, and any successor provision thereto.
"Fair Value" means, in the case of equity securities or debt securities of a
class that has previously been Publicly Traded for a period of at least 15
months, the Market Value thereof (if such value, as so defined, can be
determined) or, in the case of an equity security or debt security that has
not been Publicly Traded for at least such period, means the fair value per
share of stock or per other unit of such other security, on a fully
distributed basis, as determined by an independent investment banking firm
experienced in the valuation of securities selected in good faith by the Board
of Directors; provided, however, that in the case of property other than
securities, the "Fair Value" thereof shall be determined in good faith by the
Board of Directors based upon such appraisals or valuation reports of such
independent experts as the Board of Directors shall in good faith determine to
be appropriate in accordance with good business practice. Any such
determination of Fair Value shall be described in a statement filed with the
records of the actions of the Board of Directors.
"FCC" means the Federal Communications Commission.
"FCC Order" means, with respect to any proposed Transfer of Long Distance
Assets by this Corporation, either:
(a) an effective written order or other final action from the FCC (either
in the first instance or upon review or reconsideration) either declaring
that FT and DT are not prohibited by Section 310 from owning such Long
Distance Assets or stating that no such declaration is required, and as to
which no Proceeding shall be pending or threatened that presents a
substantial possibility of resulting in a reversal thereof; or
(b) an effective written order from, or other final action taken by, the
FCC pursuant to delegated authority (either in the first instance or upon
review or reconsideration) either declaring that FT and DT are not
prohibited by Section 310 from owning such Long Distance Assets, or stating
that no such declaration is required, which order or final action shall no
longer be subject to further administrative review, and as to which no
Proceeding shall be pending or threatened that presents a substantial
possibility of resulting in a reversal thereof;
For purposes of clause (b) of this definition, an order from, or other final
action taken by, the FCC pursuant to delegated authority shall be deemed no
longer subject to further administrative review:
(x) if no petition for reconsideration or application for review by
the FCC of such order or final action has been filed within thirty days
after the date of public notice of such order or final action, as such
30-day period is computed and as such date is defined in Sections 1.104
and 1.4 (or any successor provisions), as applicable, of the FCC's
rules, and the FCC has not initiated review of such order or final
action on its own motion within forty days after the date of public
notice of the order or final action, as such 40-day period is computed
and such date is defined in Sections 1.117 and 1.4 (or any successor
provisions) of the FCC's rules; or
(y) if any such petition for reconsideration or application for
review has been filed, or, if the FCC has initiated review of such
order or final action on its own motion, the FCC has issued an
effective written order or taken final action to the effect set forth
in clause (a) above.
"FON Preferred Stock" means Preferred Stock to the extent attributed to the
Sprint FON Group in accordance with ARTICLE SIXTH, Section 13.
"France" means the Republic of France, including French Guiana, Guadeloupe,
Martinique and Reunion, and its territories and possessions.
"FT" means France Telecom SA, a societe anonyme formed under the laws of
France.
IV-53
<PAGE>
"FT/DT Joint Venture Termination" means any of the following:
(a) the sale of Venture Interests by an FT/DT Party pursuant to Section
20.5(b), 20.5(c) or 20.5(d) of the Joint Venture Agreement; or
(b) the receipt by the Sprint Parties of the Tie-Breaking Vote due to a
Funding Default, Material Non-Funding Default or Bankruptcy (as such terms
are defined in the Joint Venture Agreement) on the part of any of the FT/DT
Parties.
"FT/DT Party" has the meaning set forth in the Joint Venture Agreement.
"FT/DT Restructuring Agreement" means the Master Restructuring and
Investment Agreement, dated as of May 26, 1998, among FT, DT and this
Corporation, as amended or supplemented from time to time.
"Germany" means the Federal Republic of Germany.
"Governmental Authority" means any federation, nation, state, sovereign, or
government, any federal, supranational, regional, state or local political
subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission or other similar dispute resolving panel or
body, and any other entity exercising executive, legislative, judicial,
regulatory or administrative functions of a government, provided that the term
"Governmental Authority" shall not include FT, DT, Atlas or any of their
respective Subsidiaries.
"Group" means any group within the meaning of Section 13(d)(3) of the
Exchange Act.
"Independent Director" means any member of the Board of Directors who (a) is
not an officer or employee of this Corporation, or any Class A Holder, or any
of their respective Subsidiaries, (b) is not a former officer of this
Corporation, or any Class A Holder, or any of their respective Subsidiaries,
(c) does not, in addition to such person's role as a Director, act on a
regular basis, either individually or as a member or representative of an
organization, serving as a professional adviser, legal counsel or consultant
to this Corporation, or any Class A Holder, or their respective Subsidiaries,
if, in the opinion of the Nominating Committee of the Board of Directors of
this Corporation (the "Nominating Committee") or the Board of Directors if a
Nominating Committee is not in existence, such relationship is material to
this Corporation, any Class A Holder, or the organization so represented or
such person, and (d) does not represent, and is not a member of the immediate
family of, a person who would not satisfy the requirements of the preceding
clauses (a), (b) and (c) of this sentence. A person who has been or is a
partner, officer or director of an organization that has customary commercial,
industrial, banking or underwriting relationships with this Corporation, any
Class A Holder, or any of their respective Subsidiaries, that are carried on
in the ordinary course of business on an arms-length basis and who otherwise
satisfies the requirements set forth in clauses (a), (b), (c) and (d) of the
first sentence of this definition, may qualify as an Independent Director,
unless, in the opinion of the Nominating Committee or the Board of Directors
if a Nominating Committee is not in existence, such person is not independent
of the management of this Corporation, or any Class A Holder, or any of their
respective Subsidiaries, or the relationship would interfere with the exercise
of independent judgment as a member of the Board of Directors. A person who
otherwise satisfies the requirements set forth in clauses (a), (b), (c) and
(d) of the first sentence of this definition and who, in addition to
fulfilling the customary director's role, also provides additional services
directly for the Board of Directors and is separately compensated therefor,
would nonetheless qualify as an Independent Director. Notwithstanding anything
to the contrary contained in this definition, each Director as of the date of
the execution of the Investment Agreement who is not an executive officer of
this Corporation shall be deemed to be an Independent Director hereunder.
"Intergroup Interest Fraction" as of any date means a fraction the numerator
of which is the Number Of Shares Issuable With Respect To The Intergroup
Interest on such date and the denominator of which is the sum of (A) such
Number Of Shares Issuable With Respect To The Intergroup Interest and (B) the
aggregate number of shares of PCS Stock outstanding on such date. A statement
setting forth the Intergroup Interest Fraction as of
IV-54
<PAGE>
the record date for any dividend or distribution on any class of Corporation
Common Stock, as of the end of each fiscal quarter of the Corporation and as
of any date otherwise required under these Articles of Incorporation or by the
Board of Directors shall be filed by the Secretary of the Corporation in the
records of the Board of Directors of the Corporation not later than fifteen
Business Days after such date.
"Investment Agreement" means the Investment Agreement, dated as of July 31,
1995, among FT, DT and this Corporation (and all exhibits and schedules
thereto), as amended or supplemented from time to time.
"Investment Documents" means the FT/DT Restructuring Agreement and the
Stockholders' Agreement.
"Joint Venture" means the joint venture formed by FT, DT, this Corporation
and Sprint Sub, as provided in the Joint Venture Agreement.
"Joint Venture Agreement" means the Joint Venture Agreement, dated as of
June 22, 1995 among FT, DT, Sprint Sub, and this Corporation, as amended or
supplemented from time to time.
"JV Entity" has the meaning set forth in the Joint Venture Agreement.
"Lien" means any mortgage, pledge, security interest, adverse claim,
encumbrance, lien (statutory or otherwise) or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any lease in the nature thereof, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
or similar Applicable Law of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting
a creditor against loss or securing the payment or performance of an
obligation.
"Lien Transfer" means the granting of any Lien on any Long Distance Asset,
other than:
(a) a Lien securing purchase money indebtedness that does not have a term
longer than the estimated useful life of such Long Distance Asset;
(b) Liens or other comparable arrangements relating to the financing of
accounts receivable; and
(c) Liens securing any other indebtedness for borrowed money, provided
that (i) the amount of such indebtedness, when added to the aggregate
amount of purchase money indebtedness referred to in clause (a) above, does
not exceed 30% of the total book value of the Long Distance Assets as at
the date of the most recently published balance sheet of this Corporation,
(ii) the indebtedness secured by such Liens is secured only by Liens on
Long Distance Assets, (iii) the face amount of such indebtedness does not
exceed the book value of the Long Distance Assets subject to such Liens,
and (iv) such indebtedness is for a term no longer than the estimated
useful life of the Long Distance Assets subject to such Liens.
"Local Exchange Division" means the Local Communications Services Division
of this Corporation.
"Long Distance Assets" means:
(a) the assets reflected in this Corporation's balance sheet for the year
ended December 31, 1994 as included in the Long Distance Division;
(b) any assets acquired by this Corporation or any of its Subsidiaries
following December 31, 1994 that are reflected in this Corporation's
balance sheet as included in the Long Distance Division;
(c) any assets of this Corporation or any of its Subsidiaries that are
not reflected in this Corporation's balance sheet for the year ended
December 31, 1994 as included in the Long Distance Division, which after
December 31, 1994 are transferred by this Corporation or any of its
Subsidiaries to, or reclassified by this Corporation or any of its
Subsidiaries as part of, the Long Distance Division;
(d) any assets acquired by this Corporation after December 31, 1994 that
are used or held for use primarily for the benefit of the Long Distance
Business; and
IV-55
<PAGE>
(e) any assets referred to in clauses (a) through (c) above that are used
or held for use primarily for the benefit of the Long Distance Business
which are transferred or reclassified by this Corporation or any of its
Subsidiaries outside of the Long Distance Division, but which continue to
be owned by this Corporation or any of its Subsidiaries;
provided that the term "Long Distance Assets" shall not include (i) any assets
that are used or held for use primarily for the benefit of any Non-Long
Distance Business, or (ii) any other assets reflected in this Corporation's
balance sheet for the year ended December 31, 1994 as included in the Cellular
and Wireless Division or the Local Exchange Division (other than as such
assets in the Cellular and Wireless Division or the Local Exchange Division
may be transferred or reclassified in accordance with paragraph (c) of this
definition).
"Long Distance Business" means all long distance telecommunications
activities and services of this Corporation and its Subsidiaries at the
relevant time, including (but not limited to) all long distance transport
services, switching and value-added services for voice, data, video and
multimedia transmission, migration paths and intelligent overlapping
architectures, provided that the term "Long Distance Business" shall not
include any activities or services primarily related to any Non-Long Distance
Business.
"Long Distance Division" means the Long Distance Communications Services
Division of this Corporation.
"Major Competitor" means (a) with respect to FT or DT, a Person that
materially competes with a major portion of the telecommunications services
business of FT or DT in Europe or a Person that has taken substantial steps to
become such a Major Competitor and which FT or DT has reasonably concluded, in
its good faith judgment, will be such a competitor in the near future in
France or Germany, provided that FT and/or DT furnish in writing to this
Corporation reasonable evidence of the occurrence of such steps; (b) with
respect to this Corporation, a Person that materially competes with a major
portion of the telecommunications services business of this Corporation in
North America, or a Person that has taken substantial steps to become such a
Major Competitor and which this Corporation has reasonably concluded, in its
good faith judgment, will be such a competitor in the near future in the
United States of America provided that this Corporation furnish in writing to
each Class A Holder reasonable evidence of the occurrence of such steps; and
(c) with respect to the Joint Venture, a Person that materially competes with
a major portion of the telecommunications services business of the Joint
Venture, or a Person that has taken substantial steps to become such a Major
Competitor and which FT, DT or this Corporation has reasonably concluded, in
its good faith judgment, will be such a competitor in the near future,
provided that FT, DT or this Corporation furnish in writing to the other two
of them reasonable evidence of the occurrence of such steps.
"Major Competitor Transaction" has the meaning set forth in ARTICLE SIXTH,
Section 8.4.
"Major Issuance" means any transaction, including, but not limited to, a
merger or business combination, resulting, directly or indirectly, in the
issuance (or sale from treasury) in connection with such transaction of Voting
Securities of this Corporation with a number of Votes equal to or greater than
30 percent of the Voting Power of this Corporation immediately prior to such
issuance.
"Market Capitalization" means, with respect to this Corporation at any date,
the sum of the average Market Price over the immediately preceding 20 Business
Days of each share of outstanding capital stock of this Corporation,
securities convertible into such capital stock and options, warrants or other
rights to acquire such capital stock.
"Market Price" means with respect to a security on any date, the Closing
Price of such security on the Trading Day immediately prior to such date. The
Market Price shall be deemed to be equal to, (i) in the case of a share of
Class A Common Stock or Series 2 Common Stock, as the case may be, the Market
Price of a share of Common Stock and (ii) in the case of a share of Series 3
PCS Stock or Series 2 PCS Stock, as the case may be, the Market Price of a
share of Series 1 PCS Stock. The Market Price of (x) any options, warrants,
rights or
IV-56
<PAGE>
other securities convertible into or exercisable for Class A Common Stock or
Series 2 Common Stock, as the case may be, shall be equal to the Market Price
of options, warrants, rights or other securities convertible into or
exercisable for Common Stock upon the same terms and otherwise containing the
same terms as such options, warrants, rights or other securities convertible
into or exercisable for Class A Common Stock or Series 2 Common Stock, as the
case may be, and (y) any options, warrants, rights or other securities
convertible into or exercisable for Series 3 PCS Stock or Series 2 PCS Stock,
as the case may be, shall be equal to the Market Price of options, warrants,
rights or other securities convertible into or exercisable for Series 1 PCS
Stock upon the same terms and otherwise containing the same terms as such
options, warrants, rights or other securities convertible into or exercisable
for Series 3 PCS Stock or Series 2 PCS Stock, as the case may be.
"Market Value" of a share of any class or series of capital stock of the
Corporation on any day means the average of the high and low reported sales
prices regular way of a share of such class or series on such day (if such day
is a Trading Day, and if such day is not a Trading Day, on the Trading Day
immediately preceding such day) or, in case no such reported sale takes place
on such Trading Day, the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day, in either
case as reported on the New York Stock Exchange Composite Tape or, if the
shares of such class or series are not listed or admitted to trading on such
Exchange on such Trading Day, on the principal national securities exchange in
the United States on which the shares of such class or series are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange on such Trading Day, on the National Market tier of The
Nasdaq Stock Market or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on such
National Market System on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter market
on such Trading Day as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors or, if such closing bid
and asked prices are not made available by any such New York Stock Exchange
member firm on such Trading Day, the Fair Value of a share of such class or
series; provided that, for purposes of determining the Market Value of a share
of any class or series of capital stock for any period,
(i) the "Market Value" of a share of capital stock on any day prior to
any "ex-dividend" date or any similar date occurring during such period for
any dividend or distribution (other than any dividend or distribution
contemplated by clause (ii)(B) of this definition) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and
(ii) the "Market Value" of any share of capital stock on any day prior to
(A) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of
such class of capital stock occurring during such period or (B) any "ex-
dividend" date or any similar date occurring during such period for any
dividend or distribution with respect to such capital stock to be made in
shares of such class or series of capital stock or Convertible Securities
that are convertible, exchangeable or exercisable for such class or series
of capital stock shall be appropriately adjusted, as determined by the
Board of Directors, to reflect such subdivision, combination, dividend or
distribution.
"Net Proceeds" means, as of any date with respect to any Disposition of any
of the properties and assets attributed to the PCS Group, an amount, if any,
equal to what remains of the gross proceeds of such Disposition after payment
of, or reasonable provision is made as determined by the Board of Directors
for, (A) any taxes payable by the Corporation (or which would have been
payable but for the utilization of tax benefits attributable to the Sprint FON
Group) in respect of such Disposition or in respect of any resulting dividend
or redemption pursuant to ARTICLE SIXTH, Section 7.1(A)(1)(a) or (b), (B) any
transaction costs, including, without limitation, any legal, investment
banking and accounting fees and expenses and (C) any liabilities (contingent
or otherwise) of or attributed to the PCS Group, including without limitation,
any liabilities for deferred taxes or any indemnity or guarantee obligations
of the Corporation incurred in connection with the Disposition or otherwise,
and any liabilities for future purchase price adjustments and any preferential
amounts plus any accumulated and unpaid dividends in respect of Preferred
Stock attributed to the PCS Group. For purposes of this definition, any
properties and assets attributed to the PCS Group remaining after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as the Board of Directors
determines can be expected to be supported by such properties and assets.
IV-57
<PAGE>
"Non-Class A Common Stock" means the Common Stock, the Series 2 Common
Stock, the Series 1 PCS Stock and the Series 2 PCS Stock.
"Non-Long Distance Business" means (a) the ownership of any equity or other
interests in the Joint Venture or any of the JV Entities; the enforcement or
performance of any of the rights or obligations of this Corporation or any
Subsidiary of this Corporation pursuant to the Joint Venture Agreement; or any
activities or services of the Joint Venture or any of the JV Entities; (b) the
interests, assets, properties and businesses attributed to the PCS Group in
accordance with this Section 10; (c) any activities or services primarily
related to the provision of subscriber connections to a local exchange or
switch providing access to the public switched telephone network; (d) any
activities or services primarily related to the provision of exchange access
services for the purpose of originating or terminating long distance
telecommunications services; (e) any activities or services primarily related
to the resale by the Local Exchange Division of long distance
telecommunications services of this Corporation or other carriers; (f) any
activities or services primarily related to the provision of inter-LATA long
distance telecommunications services that are incidental to the local exchange
services business of the Local Exchange Division; (g) any activities or
services primarily related to the provision of intra-LATA long distance
telecommunications services; (h) any activities or services (whether local,
intra-LATA or inter-LATA) primarily related to the provision of cellular, PCS,
ESMR or paging services, mobile telecommunications services or any other
voice, data or voice/data wireless services, whether fixed or mobile, or
related to telecommunications services provided through communications
satellite systems (whether low, medium or high orbit systems); and (i) the use
of the "Sprint" brand name or any other brand names, trade names or trademarks
owned or licensed by this Corporation or any of its Subsidiaries.
"North America" means the current geographic area covered by the following
countries: Canada, the United States of Mexico and the United States of
America.
"Number Of Shares Issuable With Respect To The Intergroup Interest" means,
as of the Effective Date, 220,000,000; provided, however, that such number
shall from time to time thereafter be:
(A) adjusted, as determined by the Board of Directors to be appropriate
to reflect equitably any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of the PCS Stock or any
dividend or other distribution of shares of PCS Stock to holders of shares
of PCS Stock or any reclassification of PCS Stock;
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Board of Directors by (1) the
number of shares of PCS Stock issued or sold by the Corporation that,
immediately prior to such issuance or sale, were included (as determined by
the Board of Directors pursuant to paragraph (C) of this definition) in the
Number Of Shares Issuable With Respect To The Intergroup Interest, (2) the
number of shares of PCS Stock issued upon conversion, exchange or exercise
of Convertible Securities that, immediately prior to the issuance or sale
of such Convertible Securities, were included in the Number Of Shares
Issuable With Respect To The Intergroup Interest, (3) the number of shares
of PCS Stock issued by the Corporation as a dividend or other distribution
(including in connection with any reclassification or exchange of shares)
to holders of Common Group Stock or shares of FON Preferred Stock, as the
case may be, (4) the number of shares of PCS Stock issued upon the
conversion, exchange or exercise of any Convertible Securities issued by
the Corporation as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of
Common Group Stock or shares of FON Preferred Stock, as the case may be,
(5) the quotient of (a) the aggregate Fair Value of any PCS Preferred Stock
(or Convertible Securities convertible into or exchangeable or exercisable
for shares of PCS Preferred Stock) issued by the Corporation as a dividend
or other distribution (including in connection with any classification or
exchange of shares) to holders of Common Group Stock or shares of FON
Preferred Stock, as the case may be, divided by (b) the Market Value of one
share of PCS Stock as of the date of issuance of such PCS Preferred Stock
(or Convertible Securities), or (6) the number (rounded, if necessary, to
the nearest whole number) equal to the quotient of (a) the aggregate Fair
Value as of the date of contribution of properties or assets (including
cash) transferred from the PCS Group to the Sprint FON Group in
consideration for a reduction in the Number Of Shares Issuable With Respect
To The
IV-58
<PAGE>
Intergroup Interest divided by (b) the Market Value of one share of PCS
Stock as of the date of such transfer; and
(C) increased by (1) the number of outstanding shares of PCS Stock
repurchased by the Corporation for consideration that had been attributed
to the Sprint FON Group, (2) the number (rounded, if necessary, to the
nearest whole number) equal to the quotient of (a) the Fair Value of
properties or assets (including cash) theretofore attributed to the Sprint
FON Group that are contributed, by action of the Board of Directors, to the
PCS Group in consideration of an increase in the Number Of Shares Issuable
With Respect To The Intergroup Interest, divided by (b) the Market Value of
one share of PCS Stock as of the date of such contribution and (3) the
number of shares of PCS Stock into or for which Convertible Securities are
deemed converted, exchanged or exercised pursuant to the penultimate
sentence of the definition of "Sprint FON Group."
"Old Class A Common Stock" has the meaning set forth in the "Designation"
column in Section 1 of ARTICLE SIXTH.
"Optional Conversion Ratio" as of any date means the ratio of the Average
Trading Price of a share of Series 1 PCS Stock to the Average Trading Price of
a share of Common Stock (or the applicable other class or series of common
stock of the Corporation, if so provided by Section 7.1 because Common Stock
is not then Publicly Traded); provided, that such ratio would be determined
over a 60-Trading Day period if the 20-Trading Day period normally used to
determine the Average Trading Price is less than 90% of such ratio as
determined over a 60-Trading Day period.
"Outstanding PCS Fraction," as of any date, means the fraction (which may
simplify to 1/1) the numerator of which shall be the number of shares of PCS
Stock outstanding on such date and the denominator of which shall be the sum
of the number of shares of PCS Stock outstanding on such date and the Number
Of Shares Issuable With Respect To The Intergroup Interest on such date. A
statement setting forth the Outstanding PCS Fraction as of the record date for
the payment of any dividend or distribution on PCS Stock and as of the end of
each fiscal quarter of the Corporation shall be filed by the Secretary of the
Corporation in the records of the actions of the Board of Directors not later
than fifteen Business Days after such date.
"PCS" means a radio communications system of the type authorized under the
rules for broadband personal communications services designated as Subpart E
of Part 24 of the FCC's rules or similar Applicable Laws of any other country,
including the network, marketing, distribution, sales, customer interface and
operations functions relating thereto.
"PCS Group" means, as of any date from and after the Effective Date:
(A) the interest on such date of the Corporation and any of its
subsidiaries in any of the following Persons or any of their respective
subsidiaries (including any successor thereto by merger, consolidation or
sale of all or substantially all of its assets, whether or not in
connection with a Related Business Transaction) (the "PCS Group Companies")
and the corresponding interests in their respective assets and liabilities
and the businesses conducted by such entities: SWV Six, Inc. (fka TCI
Spectrum Holdings, Inc.); SWV One, Inc. (fka Com Telephony Services, Inc.);
SWV Two, Inc. (fka Comcast Telephony Services, Inc.); SWV Three, Inc. (fka
Cox Telephony Partners, Inc.); SWV Four, Inc. (fka Cox Communications
Wireless, Inc.); Comcast Telephony Services; Cox Telephony Partnership;
Sprint Enterprises, L.P.; MinorCo, L.P.; Sprint Spectrum Holding Company,
L.P.; American PCS, L.P.; Cox Communications PCS, L.P.; NewTelco, L.P.;
Sprint Spectrum L.P.; American Personal Communications Holdings, Inc.;
American PCS Communications, LLC; APC PCS, LLC; APC Realty and Equipment
Company, LLC; Sprint Spectrum Finance Corporation; Sprint Spectrum
Equipment Company, L.P.; Sprint Spectrum Realty Company, L.P.; WirelessCo,
L.P.; SWV Five, Inc. (fka TCI Philadelphia Holdings, Inc.); PhillieCo
Partners I, L.P.; PhillieCo Partners II, L.P.; PhillieCo Sub, L.P.;
PhillieCo, L.P.; PhillieCo Equipment & Realty Company, L.P.; SprintCom,
Inc.; SprintCom Equipment Company L.P.; PCS Leasing Co., L.P.; Cox PCS
Assets, L.L.C.; and Cox PCS License, L.L.C.;
IV-59
<PAGE>
(B) all assets and liabilities of the Corporation and its subsidiaries
attributed by the Board of Directors to the PCS Group, whether or not such
assets or liabilities are or were also assets or liabilities of any of the
PCS Group Companies;
(C) all properties and assets transferred to the PCS Group from the
Sprint FON Group (other than a transaction pursuant to paragraph (D) of
this definition) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Sprint FON Group and the PCS Group
or otherwise as the Board of Directors may have directed as permitted by
this ARTICLE SIXTH;
(D) all properties and assets transferred to the PCS Group from the
Sprint FON Group in connection with an increase in the Number Of Shares
Issuable With Respect To The Intergroup Interest; and
(E) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation
or any of its subsidiaries outside of the ordinary course of business and
attributed to the PCS Group, as determined by the Board of Directors as
contemplated by Section 9.1(A) of ARTICLE SIXTH;
provided that
(1) from and after the payment date of any dividend or other distribution
with respect to shares of PCS Stock (other than a dividend or other
distribution payable in shares of PCS Stock, with respect to which
adjustment shall be made as provided in the definition of "Number Of Shares
Issuable In Respect Of The Intergroup Interest," or in securities of the
Corporation attributed to the PCS Group, for which provision shall be made
as set forth in clause (2) of this proviso), the PCS Group shall no longer
include an amount of assets or properties previously attributed to the PCS
Group of the same kind as so paid in such dividend or other distribution
with respect of shares of PCS Stock as have a Fair Value on the record date
for such dividend or distribution equal to the product of (a) the Fair
Value on such record date of the aggregate of such dividend or distribution
to holders of shares of PCS Stock declared multiplied by (b) a fraction the
numerator of which is equal to the Intergroup Interest Fraction in effect
on the record date for such dividend or distribution and the denominator of
which is equal to the Outstanding PCS Fraction in effect on the record date
for such dividend or distribution (and in such eventuality such assets as
are no longer included in the PCS Group shall be attributed to the Sprint
FON Group in accordance with the definition of "Sprint FON Group"), and
(2) if the Corporation shall pay a dividend or make some other
distribution with respect to shares of PCS Stock payable in securities of
the Corporation that are attributed to the PCS Group for purposes of this
ARTICLE SIXTH (other than PCS Stock), there shall be excluded from the PCS
Group an interest in the PCS Group equivalent to the number or amount of
such securities that is equal to the product of the number or amount of
securities so distributed to holders of PCS Stock multiplied by the
fraction specified in clause 1(b) of this proviso (determined as of the
record date for such distribution) (and such interest in the PCS Group
shall be attributed to the Sprint FON Group) and, to the extent interest is
or dividends are paid on the securities so distributed, the PCS Group shall
no longer include a corresponding ratable amount of the kind of assets paid
as such interest or dividends as would have been paid in respect of the
securities equivalent to such interest in the PCS Group deemed held by the
Sprint FON Group if the securities equivalent to such interest were
outstanding (and in such eventuality such assets as are no longer included
in the PCS Group shall be attributed to the Sprint FON Group in accordance
with the definition of "Sprint FON Group").
The Corporation may also, to the extent a dividend or distribution on the
PCS Stock has been paid in Convertible Securities that are convertible into or
exchangeable or exercisable for PCS Stock, cause such Convertible Securities
as are deemed to be held by the Sprint FON Group in accordance with the third-
to-last sentence of the definition of "Sprint FON Group" and clause (2) of the
proviso to the immediately preceding sentence to be deemed to be converted,
exchanged or exercised as provided in the penultimate sentence of the
definition of "Sprint FON Group," in which case such Convertible Securities
shall no longer be deemed to be held by the Sprint FON Group.
IV-60
<PAGE>
"PCS Group Disposition Date" has the meaning set forth in Section 7.1(A) of
ARTICLE SIXTH.
"PCS Group Subsidiary" has the meaning set forth in Section 7.2 of ARTICLE
SIXTH.
"PCS IPO" means the initial primary underwritten public offering of Series 1
PCS Stock conducted by the Corporation.
"PCS IPO Price" means the initial price per share at which shares of Series
1 PCS Stock are purchased by the public in the PCS IPO.
"PCS IPO Pricing Date" means the date on which the PCS IPO Price is
determined.
"PCS Per Share Vote" has the meaning set forth in Section 3.2 of ARTICLE
SIXTH.
"PCS Preferred Stock" means Preferred Stock to the extent attributed to the
PCS Group in accordance with ARTICLE SIXTH, Section 13.
"PCS Ratio" means (i) if the PCS IPO Pricing Date occurs prior to the
Recapitalization, the ratio of the PCS IPO Price to the Closing Price on the
PCS IPO Pricing Date of one share of Common Stock, or (ii) if the
Recapitalization precedes the PCS IPO Pricing Date, the ratio of the Average
Trading Price of one share of Series 1 PCS Stock to the Average Trading Price
of one share of the class or series of the Corporation's capital stock that
reflects the financial performance of, among other things, the Sprint FON
Group determined, in each such case, as of the 21st Trading Day following the
commencement of regular way trading of both the Series 1 PCS Stock and such
other capital stock of the Corporation, provided that for purposes of any vote
of stockholders of the Corporation for which the record date for determining
the stockholders entitled to vote occurs prior to such 21st Trading Day, such
ratio will be determined by the Board of Directors based on the relative
market values of the Series 1 PCS Stock and the Common Stock.
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock and the
Series 3 PCS Stock.
"Percentage Ownership Interest" means, with respect to any Person, that
percentage of the Voting Power of this Corporation represented by Votes
associated with the Voting Securities of this Corporation owned of record by
such Person or by its nominees.
"Person" means an individual, a partnership, an association, a joint
venture, a corporation, a business, a trust, any entity organized or existing
under Applicable Law, an unincorporated organization or any Governmental
Authority.
"Preferred Stock" has the meaning set forth in Section 1 of ARTICLE SIXTH.
"Preferred Stock Director" has the meaning set forth in ARTICLE FIFTH of
these Articles of Incorporation.
"Proceeding" means any action, litigation, suit, proceeding or formal
investigation or review of any nature, civil, criminal, regulatory or
otherwise, before any Governmental Authority.
"Publicly Traded" with respect to any security means (i) registered under
Section 12 of the Exchange Act and (ii) listed for trading on the New York
Stock Exchange or the American Stock Exchange (or any national securities
exchange registered under Section 7 of the Securities Exchange Act of 1934, as
amended (or any successor provision of law), that is the successor to either
such exchange) or quoted in the National Association of Securities Dealers
Automation Quotation System (or any successor system).
"Qualified Joint Venture" has the meaning set forth in Article I of the
Investment Agreement.
IV-61
<PAGE>
"Qualified Stock Purchaser" means a Person that (a) FT and DT reasonably
believe has the legal and financial ability to purchase shares of Class A
Stock from this Corporation in accordance with Article VI of the Stockholders'
Agreement and (b) would not be a Major Competitor of this Corporation or of
the Joint Venture immediately following such purchase.
"Qualified Stock Purchaser Standstill Agreement" has the meaning set forth
in the Standstill Agreement.
"Qualified Subsidiary" has the meaning set forth in the Investment
Agreement.
"Qualified Subsidiary Standstill Agreement" has the meaning set forth in the
Investment Agreement.
"Recapitalization" means the reclassification of, among other things,
certain outstanding shares of Sprint capital stock to be effected pursuant to
the terms set forth in the Restructuring Agreement and the FT/DT Restructuring
Agreement.
"Redemption Date" means the date fixed by the Board of Directors for the
redemption of (i) any shares of capital stock of this Corporation pursuant to
ARTICLE SIXTH, Section 2.2 or (ii) shares of PCS Stock as shall be set forth
in the notice to holders of shares of PCS Stock and to holders of any
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of PCS Stock required pursuant to ARTICLE SIXTH,
Section 7.4.
"Redemption Securities" means any debt or equity securities of this
Corporation, any of its Subsidiaries, or any combination thereof having such
terms and conditions as shall be approved by the Board of Directors and which,
together with any cash to be paid as part of the redemption price pursuant to
Section 2.2(b) of ARTICLE SIXTH of these Articles of Incorporation, in the
opinion of an investment banking firm of recognized national standing selected
by the Board of Directors (which may be a firm which provides other investment
banking, brokerage or other services to this Corporation), have a Market
Price, at the time notice of redemption is given pursuant to Section 2.2(d) of
ARTICLE SIXTH of these Articles of Incorporation, at least equal to the
redemption price required to be paid by such Section 2.2(a).
"Registration Rights Agreement" means the Amended and Restated Registration
Rights Agreement, dated as of , 1998 among FT, DT and this Corporation,
as amended from time to time.
"Related Business Transaction" means any Disposition of all or substantially
all the properties and assets attributed to the PCS Group in a transaction or
series of related transactions that result in the Corporation receiving in
consideration of such properties and assets primarily equity securities
(including, without limitation, capital stock, debt securities convertible
into or exchangeable for equity securities or interests in a general or
limited partnership or limited liability company, without regard to the voting
power or other management or governance rights associated therewith) of any
entity which (i) acquires such properties or assets or succeeds (by merger,
formation of a joint venture or otherwise) to the business conducted with such
properties or assets or controls such acquiror or successor and (ii) which the
Board of Directors determines is primarily engaged or proposes to engage
primarily in one or more businesses similar or complementary to the businesses
conducted by such Business Group prior to such Disposition.
"Restructuring Agreement" means the Restructuring and Merger Agreement dated
as of May 26, 1998, by and among certain Cable Holders, this Corporation and
the other parties listed therein, as amended or supplemented from time to
time.
"Restructuring Closing Date" means the Closing Date, as such term is defined
in the Restructuring Agreement.
"Rights Agreement" means the Rights Agreement, dated as of , 1998,
between this Corporation and UMB Bank, N.A., as amended or supplemented from
time to time.
IV-62
<PAGE>
"Section 310" has the meaning set forth in Section 2(a) of ARTICLE FIFTH of
these Articles of Incorporation.
"Series 1 PCS Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 2 Common Stock" has the meaning set forth in the "Designation"
column in Section 1 of ARTICLE SIXTH.
"Series 2 PCS Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 3 PCS Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Shares" means (a) shares of Class A Stock, Non-Class A Common Stock,
Preferred Stock or any other Voting Securities of this Corporation, (b)
securities of this Corporation convertible into Voting Securities of this
Corporation and (c) options, warrants or other rights to acquire such Voting
Securities, but in the case of clause (c) excluding any rights of the Class A
Holders or FT and DT to acquire Voting Securities of this Corporation pursuant
to the FT/DT Restructuring Agreement, the Purchase Rights Agreement (as
defined in the FT/DT Restructuring Agreement) and the Stockholders' Agreement
(but not excluding any Voting Securities received upon the exercise of such
rights).
"Spin-off" means any spin-off or other pro rata distribution of equity
interests of a wholly-owned direct or indirect Subsidiary of this Corporation
to the stockholders of this Corporation.
"Sprint FON Group" means, as of any date from and as of the Effective Date:
(A) the interest of the Corporation or any of its subsidiaries on such
date in all of the assets, liabilities and businesses of the Corporation or
any of its subsidiaries (and any successor companies), other than any
assets, liabilities and businesses attributed in accordance with this
Section 10 to the PCS Group;
(B) a proportionate undivided interest in each and every business, asset
and liability attributed to the PCS Group equal to the Intergroup Interest
Fraction as of such date;
(C) all properties and assets transferred to the Sprint FON Group from
the PCS Group (other than pursuant to paragraph (D) or (F) of this
definition) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Sprint FON Group and the PCS Group
or otherwise as the Board of Directors may have directed as permitted by
this ARTICLE SIXTH;
(D) all properties and assets transferred to the Sprint FON Group from
the PCS Group in connection with a reduction of the Number Of Shares
Issuable With Respect To The Intergroup Interest;
(E) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation
or any of its subsidiaries outside the ordinary course of business and
attributed to the Sprint FON Group, as determined by the Board of Directors
as contemplated by Section 9.1(A) of ARTICLE SIXTH; and
(F) from and after the payment date of any dividend or other distribution
with respect to shares of PCS Stock (other than a dividend or other
distribution payable in shares of PCS Stock, with respect to which
adjustment shall be made as provided in the definition of "Number Of Shares
Issuable In Respect Of The Intergroup Interest," or in securities of the
Corporation attributed to the PCS Group, for which provision shall be made
as set forth in the third to last sentence of this definition), an amount
of assets or properties previously attributed to the PCS Group of the same
kind as were paid in such dividend or other distribution with respect to
shares of PCS Stock as have a Fair Value on the record date for such
dividend or distribution equal to the product of (1) the Fair Value on such
record date of the aggregate of such dividend or distribution to holders of
shares of PCS Stock declared multiplied by (2) a fraction the numerator of
which
IV-63
<PAGE>
is equal to the Intergroup Interest Fraction in effect on the record date
for such dividend or distribution and the denominator of which is equal to
the Outstanding PCS Fraction in effect on the record date for such dividend
or distribution; provided that from and after any transfer of any assets or
properties from the Sprint FON Group to the PCS Group, the Sprint FON Group
shall no longer include such assets or properties so transferred (other
than as reflected in respect of such a transfer by the Intergroup Interest
Fraction, as provided by paragraph (B) of this definition).
If the Corporation shall pay a dividend or make some other distribution with
respect to shares of PCS Stock payable in securities of the Corporation that
are attributed to the PCS Group for purposes of this ARTICLE SIXTH (other than
PCS Stock), the Sprint FON Group shall be deemed to hold an interest in the
PCS Group equivalent to the number or amount of such securities that is equal
to the product of the number or amount of securities so distributed to holders
of PCS Stock multiplied by the fraction specified in clause (2) of paragraph
(F) of this definition (determined as of the record date for such
distribution) and, to the extent interest is or dividends are paid on the
securities so distributed, the Sprint FON Group shall include, and there shall
be transferred thereto out of the PCS Group, a corresponding ratable amount of
the kind of assets paid as such interest or dividends as would have been paid
in respect of such securities so deemed to be held by the Sprint FON Group if
such securities were outstanding.
The Corporation may also, to the extent the securities so paid as a dividend
or other distribution to the holders of PCS Stock are Convertible Securities
and at the time are convertible into or exchangeable or exercisable for shares
of PCS Stock, treat such Convertible Securities as are so deemed to be held by
the Sprint FON Group to be deemed to be converted, exchanged or exercised, and
shall do so to the extent such Convertible Securities are mandatorily
converted, exchanged or exercised (and to the extent the terms of such
Convertible Securities require payment of consideration for such conversion,
exchange or exercise, the Sprint FON Group shall then no longer include an
amount of the kind of properties or assets required to be paid as such
consideration for the amount of Convertible Securities deemed converted,
exchanged or exercised (and such properties or assets shall be attributed to
the PCS Group)), in which case, from and after such time, the securities into
or for which such Convertible Securities so deemed to be held by the Sprint
FON Group were so considered converted, exchanged or exercised shall be deemed
held by the Sprint FON Group (as provided in clause (3) of paragraph (C) of
the definition of "Number Of Shares Issuable With Respect To The Intergroup
Interest") and such Convertible Securities shall no longer be deemed to be
held by the Sprint FON Group. A statement setting forth the election to
effectuate any such deemed conversion, exchange or exercise of Convertible
Securities so deemed to be held by the Sprint FON Group and the properties or
assets, if any, to be attributed to the PCS Group in consideration of such
conversion, exchange or exercise (if any) shall be filed in the records of the
actions of the Board of Directors and, upon such filing, such deemed
conversion, exchange or exercise shall be effectuated.
"Sprint Party" has the meaning set forth in the Joint Venture Agreement.
"Sprint Sub" means Sprint Global Venture, Inc.
"Standstill Agreement" means the Amended and Restated Standstill Agreement,
dated as of , 1998, among FT, DT and this Corporation, as amended or
supplemented from time to time.
"Stockholders' Agreement" means the Amended and Restated Stockholders'
Agreement, dated as of , 1998, among FT, DT and this Corporation (and all
exhibits thereto), as amended or supplemented from time to time.
"Strategic Investor" has the meaning set forth in the Investment Agreement.
"Strategic Merger" means a merger or other business combination involving
this Corporation (a) in which the Class A Holders are entitled to retain or
receive, as the case may be, voting equity securities of the surviving parent
entity in exchange for or in respect of (by conversion or otherwise) such
Class A Stock, with an aggregate
IV-64
<PAGE>
Fair Market Value equal to at least 75% of the sum of (i) the Fair Market
Value of all consideration which such Class A Holders have a right to receive
with respect to such merger or other business combination, and (ii) if this
Corporation is the surviving parent entity, the Fair Market Value of the
equity securities of the surviving parent entity which the Class A Holders are
entitled to retain, (b) immediately after which the surviving parent entity is
an entity whose voting equity securities are registered pursuant to Section
12(b) or Section 12(g) of the Exchange Act or which otherwise has any class or
series of its voting equity securities held by at least 500 holders and (c)
immediately after which no Person or Group (other than the Class A Holders)
owns Voting Securities of such surviving parent entity with Votes equal to
more than 35 percent of the Voting Power of such surviving parent entity.
"Subsidiary" means, with respect to any Person (the "Parent"), any other
Person in which the Parent, one or more direct or indirect Subsidiaries of the
Parent, or the Parent and one or more of its direct or indirect Subsidiaries
(a) have the ability, through ownership of securities individually or as a
group, ordinarily, in the absence of contingencies, to elect a majority of the
directors (or individuals performing similar functions) of such other Person,
and (b) own more than 50% of the equity interests, provided that Atlas shall
be deemed to be a Subsidiary of each of FT and DT.
"Supervoting Powers" means, as to the capital stock and debt securities of
this Corporation:
(a) Common Stock or Series 2 Common Stock entitled to more than one Vote
per share (other than pursuant to the Rights Agreement and ARTICLE SIXTH,
Section 7.5(d));
(b) PCS Stock entitled to a number of Votes per share greater than the
PCS Per Share Vote of the Series 3 PCS Stock measured as of the same record
date in accordance with Section 3.2 of ARTICLE SIXTH (other than pursuant
to the Rights Agreement and ARTICLE SIXTH, Section 7.5(d)); or
(c) Voting Securities of this Corporation other than Non-Class A Common
Stock entitled to a number of Votes per share or unit, as the case may be
and measured as of the same record date, greater than both (x) the quotient
of (i) the price per share or unit, as the case may be, at which such
security will be issued by this Corporation divided by (ii) the Market
Price per share of Common Stock on the date of issuance of such Voting
Securities and (y) the quotient of (i) the price per share or unit, as the
case may be, at which such security will be issued by this Corporation
divided by (ii) the Market Price per share of Series 1 PCS Stock on the
date of issuance of such Voting Securities (other than pursuant to the
Rights Agreement and ARTICLE SIXTH, Section 7.5(d)).
"Tie-Breaking Vote" has the meaning set forth in Section 18.1(a) of the
Joint Venture Agreement, and shall include any successor provision thereto.
"Total Market Capitalization" of any class or series of common stock on any
date means the product of (i) the Market Value of one share of such class or
series of common stock on such date and (ii) the number of shares of such
class or series of common stock outstanding on such date.
"Trading Day" means, with respect to any security, any day on which the
principal national securities exchange on which such security is listed or
admitted to trading or The Nasdaq Stock Market, if such security is listed or
admitted to trading thereon, is open for the transaction of business (unless
such trading shall have been suspended for the entire day) or, if such
security is not listed or admitted to trading on any national securities
exchange or The Nasdaq Stock Market, any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Transfer" means any act pursuant to which, directly or indirectly, the
ownership of the assets or securities in question is sold, transferred,
conveyed, delivered or otherwise disposed, but shall not include (a) any grant
of Liens, (b) any conversion or exchange of any security of this Corporation
pursuant to a merger or other business combination involving this Corporation,
(c) any transfer of ownership of assets to the surviving entity in a Strategic
Merger or pursuant to any other merger or other business combination not
prohibited by the Class A Provisions, or (d) any foreclosure or other
execution upon any of the assets of this Corporation or any of its
Subsidiaries other than foreclosures resulting from Lien Transfers.
IV-65
<PAGE>
"Treaty Benefit" means:
(a) the 5% rate of dividend withholding (or any successor rate applicable
to non-portfolio investments);
(b) the exemption from income tax with respect to dividends paid or
profits distributed by this Corporation;
(c) the exemption from income tax with respect to gains or profits
derived from the sale, exchange, or disposal of stock in this Corporation;
or
(d) the exemption from taxes on capital with respect to stock in this
Corporation; under, in the case of (a), (b), (c) and (d) above, either (i)
the relevant income tax treaty between the United States and France, in the
case of FT, and the United States and Germany, in the case of DT, or (ii)
any provisions of French statutory law, in the case of FT, or German
statutory law, in the case of DT, which refers to, or is based on or
derived from, any provision of such treaty, or
(e) any other favorable treaty benefit or statutory benefit, that
specifically requires the ownership of a certain amount of voting power or
voting interest in this Corporation, under a provision of the relevant
income tax treaty between the United States and France or the statutory
laws of France, in the case of FT, or the relevant income tax treaty
between the United States and Germany or the statutory laws of Germany, in
the case DT, provided that the chief tax officer of FT or DT certifies that
such benefit is reasonably expected to provide to FT or DT, as the case may
be, combined tax savings in the year such certification is made and in
future years of at least U.S. $15 million.
"Venture Interests" has the meaning set forth in the Joint Venture
Agreement.
"Vote" means, with respect to any entity, the ability to cast a vote at a
stockholders', members' or comparable meeting of such entity with respect to
the election of directors, managers or other members of such entity's
governing body, or the ability to cast a general partnership or comparable
vote, provided that with respect to this Corporation, the term "Vote" means
the ability to exercise general voting power (as opposed to the exercise of
special voting or disapproval rights such as those set forth in this ARTICLE
SIXTH) with respect to matters other than the election of directors at a
meeting of the stockholders of this Corporation.
"Voting Power" means, with respect to any entity as at any date, the
aggregate number of Votes outstanding as at such date in respect of such
entity.
"Voting Securities" means, with respect to an entity, any capital stock or
debt securities of such entity if the holders thereof are ordinarily, in the
absence of contingencies, entitled to a Vote, even though the right to such
Vote has been suspended by the happening of such a contingency, and in the
case of this Corporation, shall include, without limitation, the Non-Class A
Common Stock and the Class A Stock, but shall not include any shares issued
pursuant to the Rights Agreement to the extent such issuance is caused by
action of a Class A Holder.
"Weighted Average Price" means the weighted average per unit price paid by
the purchasers of any capital stock, debt instrument or security of this
Corporation; provided, that the price paid by the purchasers of Series 2 PCS
Stock and Series 3 PCS Stock acquired on the Restructuring Closing Date will
be the first to be determined of the PCS IPO Price and the Average Trading
Price of a share of Series 1 PCS Stock as of the 21st Trading Day following
the commencement of regular way trading in connection with the
Recapitalization. In determining the price of shares of Non-Class A Common
Stock or Class A Stock issued upon the conversion or exchange of securities or
issued upon the exercise of options, warrants or other rights, the
consideration for such shares shall be deemed to include the price paid to
purchase the convertible security or the warrant, option or other right, plus
any additional consideration paid upon conversion or exercise. If any portion
of the price paid is not cash, the Independent Directors (acting by majority
vote) shall determine in good faith the Fair Market Value of such non-cash
consideration. If any new shares of Non-Class A Common Stock are issued
together with other shares or securities or other assets of this Corporation
for consideration which covers both the new shares and such
IV-66
<PAGE>
other shares, securities or other assets, the portion of such consideration
allocable to such new shares shall be determined in good faith by the
Independent Directors (acting by majority vote), in each case as certified in
a resolution sent to all Class A Holders or holders of Series 2 PCS Stock or
Series 2 Common Stock, as the case may be.
Section 11. Notices. Notwithstanding the provisions of Section 7.4, all
notices to Class A Holders made by this Corporation pursuant to this ARTICLE
SIXTH shall be made in writing and any such notice shall be deemed delivered
when the same has been delivered in person to, or transmitted by telex or
telefacsimile communication to, or seven days after it has been sent by air
mail to the addresses of, all of the Class A Holders as indicated on the stock
transfer books of this Corporation. Communications by telex or telefacsimile
communication also shall be sent concurrently by air mail, but shall in any
event be effective as stated above.
Section 12. No Other Beneficiaries. The Class A Provisions are intended for
the benefit of the Class A Holders only, and nothing in the Class A Provisions
is intended or will be construed to confer upon or to give any third party or
other stockholder of this Corporation any rights or remedies by virtue hereof.
Any term of the Class A Provisions may be waived by the holders of at least
two-thirds of the outstanding shares of Class A Stock, voting together as a
single class.
Section 13. General Provisions Relating to Preferred Stock
13.1. The Preferred Stock may be issued from time to time in one or more
series, each of such series to have such voting powers (full or limited or
without voting powers) designation, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed herein, or in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors as hereinafter provided.
13.2. Authority is hereby granted to the Board of Directors, subject to the
provisions of this ARTICLE SIXTH, to create one or more series of Preferred
Stock and, with respect to each series, to fix or alter as permitted by law,
by resolution or resolutions providing for the issue of such series:
(a) the number of shares to constitute such series and the distinctive
designation thereof;
(b) the dividend rate on the shares of such series, the dividend payment
dates, the periods in respect of which dividends are payable ("dividend
periods") whether such dividends shall be cumulative, and if cumulative,
the date or dates from which dividends shall accumulate;
(c) whether or not the shares of such series shall be redeemable, and, if
redeemable, on what terms, including the redemption prices which the shares
of such series shall be entitled to receive upon the redemption thereof;
(d) whether or not the shares of such series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement and, if such retirement or sinking
fund or funds be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and the conversion price or prices or rate or rates, or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided in such resolution or
resolutions;
(f) the voting power, if any, of the shares of such series; and
(g) such other terms, conditions, special rights and protective
provisions as the Board of Directors may deem advisable.
13.3. No dividend shall be declared and set apart for payment on any series
of Preferred Stock in respect of any dividend period unless there shall
likewise be or have been paid, or declared and set apart for payment,
IV-67
<PAGE>
on all shares of Preferred Stock of each other series entitled to cumulative
dividends at the time outstanding which rank equally as to dividends with the
series in question, dividends ratably in accordance with the sums which would
be payable on the said shares through the end of the last preceding dividend
period if all dividends were declared and paid in full.
13.4. If upon any dissolution of the Corporation, the assets of the
Corporation distributable among the holders of any one or more series of
Preferred Stock which are (i) entitled to a preference over the holders of the
Corporation Common Stock upon such dissolution, and (ii) rank equally in
connection with any such distribution, shall be insufficient to pay in full
the preferential amount to which the holders of such shares shall be entitled,
then such assets, or the proceeds thereof, shall be distributed among the
holders of each such series of the Preferred Stock ratably in accordance with
the sums which would be payable on such distribution if all sums payable were
discharged in full.
13.5. In the event that the Preferred Stock of any series shall be
redeemable, then, at the option of the Board of Directors, the Corporation may
at such time or times as may be specified by the Board of Directors as
provided in Section 13.2(c) of this ARTICLE SIXTH redeem all, or any number
less than all, of the outstanding shares of such series at the redemption
price thereof and on the other terms fixed herein or by the Board of Directors
as provided in said Section 13.2(c) (the sum so payable upon any redemption of
preferred Stock being herein referred to as the "redemption price").
13.6. Attribution of Preferred Stock to Groups. As of the Effective Date,
the outstanding shares of Preferred Stock--First Series, Preferred Stock--
Second Series, and Preferred Stock--Fifth Series shall be attributed entirely
to the Sprint FON Group. [PREFERRED STOCK UNDERLYING THE RIGHTS THAT ATTACH TO
THE COMMON GROUP STOCK UNDER THE RIGHTS PLAN WILL BE ATTRIBUTED TO THE SPRINT
FON GROUP WHILE PREFERRED STOCK UNDERLYING THE RIGHTS THAT ATTACH TO THE PCS
STOCK UNDER THE RIGHTS PLAN WILL BE ATTRIBUTED TO THE PCS GROUP.] Upon any
issuance of any shares of Preferred Stock of any series after the Effective
Date, the Board of Directors shall attribute for purposes of this ARTICLE
SIXTH the shares so issued entirely to the Sprint FON Group or entirely to the
PCS Group or partly to the Sprint FON Group and partly to the PCS Group in
such proportion as the Board of Directors shall determine and, further, in
case of the issuance of shares of Preferred Stock that are exchangeable or
exercisable for PCS Stock, if at the time such shares of Preferred Stock are
issued the Number Of Shares Issuable With Respect To The Intergroup Interest
shall be greater than zero, then the Board of Directors shall also determine
what portion (which may be some, all or none) of such shares of Preferred
Stock shall reduce the Number Of Shares Issuable With Respect To The
Intergroup Interest, taking into consideration the use of the proceeds of such
issuance of shares of Preferred Stock in the business of the Sprint FON Group
or the PCS Group and any other relevant factors. Upon any redemption or
repurchase of shares of Preferred Stock, the Board of Directors shall
determine the proper attribution thereof in accordance with Section 9.1(D) of
ARTICLE SIXTH. Notwithstanding any such attribution of shares of Preferred
Stock to the Sprint FON Group or the PCS Group, any dividends or distributions
or other payments which are made by the Corporation on such shares of
Preferred Stock may be made, and as required by the preferences and relative,
participating, optional or other special rights thereof shall be made, out of
any of the properties or assets of the Corporation, regardless of the Business
Group to which such properties or assets are attributed in accordance with the
definitions of "Sprint FON Group" and "PCS Group" set forth in Section 10,
except as otherwise provided by the resolution of the Board of Directors
fixing the preferences and relative, participating, optional or other special
rights of a series of Preferred Stock.
13.7. Preferred Stock--First Series, Convertible.
13.7.1. Amount. The number of shares to constitute the initial series of
Preferred Stock shall be 1,742,853 and the designation thereof shall be
Preferred Stock--First Series (hereafter "First Series").
13.7.2. Dividends. Holders of shares of the First Series will be entitled to
receive cumulative cash dividends at the quarterly rate of $.22 1/2 per share
for six consecutive quarters commencing in September, 1967 (the specific date
to coincide with the date the Corporation pays its third quarter Common Stock
dividend);
IV-68
<PAGE>
thereafter the cumulative quarterly dividend rate will be $.37 1/2 per share.
All such payments will be made out of funds legally available for the payment
of such dividends, when and as declared, before any distribution shall be made
on the Corporation Common Stock.
13.7.3 Conversion Rights. The holders of shares of the First Series may
convert any or all of said shares into Common Stock at any time after December
7, 1989, on the basis of three (3) shares of the Common Stock of the
Corporation for each share of the First Series. Such ratio is herein referred
to as the "conversion rate."
The conversion rate shall be subject to the following adjustments:
A. In case the Corporation shall (i) pay a dividend in Common Stock or
(ii) subdivide the outstanding shares of Common Stock into a greater number
of shares of Common Stock or combine the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the conversion rate in
effect immediately prior to such stock dividend, subdivision or combination
shall be proportionately increased or decreased as the case may be.
B. No such adjustment shall be required, however, if the aggregate number
of shares of Common Stock issued as dividends on the Common Stock since the
most recent previous adjustment does not exceed 5% of the total number of
shares of Common Stock outstanding; provided, however, that when the
aggregate number of shares of Common Stock issued as dividends since the
most recent previous adjustment shall exceed the foregoing 5%, the
conversion rate shall be increased in proportion to the same percentage or
ratio that the aggregate of all such dividends in shares of Common Stock
since the most recent previous adjustment bears to the total number of
shares of Common Stock outstanding.
C. In the event the Corporation shall fix a record date for the purpose
of determining the holders of shares of Common Stock entitled to receive
any dividend in Common Stock, the conversion rate or any subsequent
conversion rate in effect immediately prior to the record date fixed for
the determination of shareholders entitled to such dividend shall be
proportionately increased (subject to the limitation of subparagraph (B)
above) and such adjustment will become effective immediately after the
opening of business on the day following such record date.
D. The conversion rate shall not be adjusted by reason of: (i) the
issuance of shares pursuant to options and stock purchase agreements
granted or entered into with officers or employees of the Corporation; and
(ii) the issuance of shares for cash or in exchange for assets or stock of
another company.
E. Any adjustment in the conversion rate as herein provided shall be to
the nearest, or if there shall be no nearest, then to the next lower, one-
hundredth of a share of Common Stock, and shall remain in effect until
further adjustment as required hereunder.
F. In case the Corporation shall be recapitalized, or shall be
consolidated with or merged into, or shall sell or transfer its property
and assets as, or substantially as, an entirety to any other corporation,
proper provisions shall be made as a part of the terms of such
recapitalization, consolidation, merger, sale or transfer whereby the
holder of any shares of the First Series at the time outstanding
immediately prior to such event shall thereafter be entitled to such
conversion rights, with respect to securities of the Corporation resulting
from such recapitalization, consolidation or merger, or to which such sale
or transfer shall be made, as shall be substantially equivalent to the
conversion rights herein provided for.
G. No fraction of a share of Common Stock shall be issued upon any
conversion. In lieu of the fraction of a share to which the holder of
shares of the First Series surrendered for conversion would otherwise be
entitled, such holder shall receive, as soon as practicable after the date
of conversion, an amount in cash equal to the same fraction of the market
value of a full share of Common Stock. For the purposes of this
subparagraph, the market value of a share of Common Stock shall be the last
recorded sale price of such a share on the New York Stock Exchange on the
day immediately preceding the date upon which such shares of such series
are surrendered for conversion, or if there be no such recorded sale price
on such date, the last quoted bid price per share of Common Stock on such
Exchange at the close of business on such date.
13.7.4 Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation the holders of the First Series will be entitled
to receive out of the assets of the Corporation available for
IV-69
<PAGE>
distribution to stockholders, before any distribution of the assets shall be
made to the holders of Corporation Common Stock, the sum of $42.50 per share
if such liquidation is voluntary and the sum of $40.00 per share if such
liquidation is involuntary, plus in each case any accumulated unpaid
dividends. If upon any liquidation, dissolution or winding up of the
Corporation the amounts payable with respect to the Preferred Stock are not
paid in full, the holders of the Preferred Stock will share ratably in any
distribution of assets in proportion to the full preferential amounts to which
they are entitled.
13.7.5. Redemption. The First Series may be redeemed by the Corporation
after July 1, 1972, at any time or from time to time, upon at least thirty
days' prior notice, at the redemption price of $42.50 per share, plus any
accumulated unpaid dividends. If less than all the outstanding First Series is
to be redeemed, the shares to be redeemed shall be determined in such manner
as may be prescribed by the Board of Directors. Shares so redeemed shall be
retired and not reissued.
13.7.6. Voting Rights. Each holder of the First Series will be entitled to
one (1) vote for each share held.
If six quarterly dividends on any series of the Preferred Stock are in
arrears, the number of directors of the Corporation shall be increased by two
(2) and the holders of all the Preferred Stock voting as a class will be
entitled to elect two (2) directors until all arrears in dividends have been
paid.
Consent of the holders of at least two-thirds of the then outstanding
Preferred Stock of all classes will be necessary to: (a) authorize any stock
ranking either as to payment of dividend or distribution of assets prior to
the First Series or any other Preferred Stock then outstanding or (b) amend,
alter, or change in any material respect prejudicial to the holders thereof
the preferences of any then outstanding Preferred Stock.
Consent of the holders of a majority of the then outstanding Preferred Stock
of all classes will be necessary to: (a) increase the authorized amount of the
Preferred Stock or (b) create any other class of stock ranking on a parity
with the Preferred Stock.
13.7.7. Preemptive Rights. No holder of Preferred Stock will have any
preemptive rights.
13.7.8. Listing. The Corporation intends to apply for listing on the New
York Stock Exchange, subject to the approval of that Exchange, of its First
Series.
13.8. Preferred Stock-Second Series, Convertible.
13.8.1. Amount, Rank and Designation. The amount of shares to constitute the
Second Series of Preferred Stock shall be 8,758,472 shares plus such an
additional amount, if any, as shall be required under the Agreement and Plan
of Merger between the Company and Carolina Telephone and Telegraph Company
dated as of July 18, 1968. The designation thereof shall be "Preferred Stock-
Second Series, Convertible" (hereinafter "Second Series"). Shares of the
Second Series shall rank on a parity with shares of the First Series of the
Preferred Stock as to dividends and upon liquidation and shall have a
preference over the shares of the Corporation Common Stock and any other class
or series of stock ranking junior to the Second Series as to dividends or upon
liquidation.
13.8.2. Dividends. Holders of shares of the Second Series will be entitled
to receive cumulative cash dividends each calendar quarter payable in March,
June, September and December of each year, at the following rates: $.31 1/4
per share for the eight (8) consecutive quarters beginning with the quarter
ending March 31, 1969 through the quarter ending December 31, 1970; $.34 3/8
per share for eight (8) quarters beginning with the quarter ending March 31,
1971 through the quarter ending December 31, 1972; and $.37 1/2 per share in
each quarter thereafter.
All such payments will be made out of funds legally available for the
payment of such dividends, when and as declared by the Board of Directors of
the Corporation. Before any dividends on the Corporation Common Stock or any
other class or series of stock of the Corporation ranking junior to the Second
Series as to dividends
IV-70
<PAGE>
shall be paid or declared and set apart for payment, the holders of shares of
the Second Series shall be entitled to receive the full accumulated cash
dividends for all quarterly dividend periods ending on or before the date on
which any dividend on any such class or series of stock ranking junior to the
Second Series as to dividends or upon liquidation is declared or is to be
paid.
13.8.3 Conversion Rights. The holders of shares of the Second Series may
convert any or all of said shares into Common Stock at any time after February
27, 1996, on the basis of three and nine-one hundredths (3.09) shares of the
Common Stock of the Corporation for each one share of the Second Series. Such
ratio is herein referred to as the "conversion rate." In case of the
redemption of any shares of the Second Series, such right of conversion shall
cease and terminate as to the shares duly called for redemption, at the close
of business on the date fixed for redemption, unless default shall be made in
the payment of the redemption price. Upon conversion the Corporation shall
make no payment or adjustment on account of dividends accrued or in arrears on
the Second Series surrendered for conversion.
The conversion rate in effect at any time shall be subject to adjustment as
follows:
A. In case the Corporation shall (i) declare a dividend on its Common
Stock in shares of its capital stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into
a smaller number of shares, or (iv) issue any shares by reclassification of
its shares of Common Stock (including any reclassification in connection
with a consolidation or merger in which the Corporation is the continuing
corporation), at the conversion rate in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that
the holder of any shares of the Second Series surrendered for conversion
after such time shall be entitled to receive the number of shares which he
would have owned or have been entitled to receive had such shares of the
Second Series been converted immediately prior to such time. Such
adjustment shall be made successively whenever any event listed above shall
occur.
B. In case the Corporation shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them (for a
period expiring within 45 days after such record date) to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share of Common Stock (as defined in Paragraph D below) on
such record date, the conversion rate after such record date shall be
determined by multiplying the conversion rate in effect immediately prior
to such record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription
or purchase, and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of
Common Stock which the aggregate offering price (without deduction for
expenses or commissions of any kind) of the total number of shares so to be
offered would purchase at such current market price. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event
that such rights or warrants are not so issued, the conversion rate shall
again be adjusted to be the conversion rate which would then be in effect
if such record date had not been fixed.
C. In case the Corporation shall fix a record date for the making of a
distribution to all holders of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing corporation) of evidences of its indebtedness
or assets (excluding dividends paid in, or distributions of, cash) or
subscription rights or warrants (excluding those referred to in Paragraph B
above), the conversion rate after such record date shall be determined by
multiplying the conversion rate in effect immediately prior to such record
date by a fraction, of which the numerator shall be the current market
price per share of Common Stock (as defined in Paragraph D below) on such
record date, and of which the denominator shall be such current market
price per share of Common Capital Stock, less the fair market value (as
determined by the Board of Directors whose determination shall be
conclusive, and described in a statement filed with the transfer agent or
agents for the Second Series and with the principal office of the
Corporation) of the portion of the assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to
one share of Common Stock. Such
IV-71
<PAGE>
adjustment shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the conversion rate
shall again be adjusted to the conversion rate which would then be in
effect if such record date had not been fixed.
D. For the purpose of any computation under Paragraphs B and C above, the
current market price per share of Common Stock on any record date shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days commencing 45 business days before such date. The closing
price for each day shall be the last sale price regular way or, in case no
such sale takes place on such day, the mean between the closing bid and
asked prices regular way, in either case on the New York Stock Exchange.
E. The conversion rate shall not be adjusted by reason of: (i) the
issuance of shares pursuant to options and stock purchase agreements
granted or entered into with officers or employees of the Corporation; and
(ii) the issuance of shares for cash (except as provided in Paragraph B
above) or in exchange for assets or stock of another company.
F. Any adjustment in the conversion rate as herein provided shall be to
the nearest, or if there shall be no nearest, then to the next lower, one-
hundredth of a share of Common Stock, and shall remain in effect until
further adjustment as required hereunder.
G. In case the Corporation shall be recapitalized, or shall be
consolidated with or merged into, or shall sell or transfer its property
and assets as, or substantially as, an entirety to any other corporation,
proper provisions shall be made as a part of the terms of such
recapitalization, consolidation, merger, sale or transfer whereby the
holder of any shares of the Second Series at the time outstanding
immediately prior to such event shall thereafter be entitled to such
conversion rights, with respect to securities of the Corporation resulting
from such recapitalization, consolidation or merger or to which such sale
or transfer shall be made, as shall be substantially equivalent to the
conversion rights herein provided for.
H. No fraction of a share of Common Stock shall be issued upon any
conversion. In lieu of the fraction of a share to which the holder of
shares of the Second Series surrendered for conversion would otherwise be
entitled, such holder shall receive, as soon as practicable after the date
of conversion, an amount in cash equal to the same fraction of the market
value of a full share of Common Stock. For the purposes of this
subparagraph, the market value of a share of Common Stock shall be the last
recorded sale price of such a share on the New York Stock Exchange on the
day immediately preceding the date upon which such shares of such series
are surrendered for conversion, or if there be no such recorded sale price
on such day, the last quoted bid price per share of Common Stock on such
Exchange at the close of business on such date.
I. Whenever there shall be an adjustment in the conversion rate as
provided by the foregoing, the Corporation will file with each transfer
agent for shares of the Second Series a certificate signed by the President
or the chief financial or accounting officer of the Corporation, setting
forth in reasonable detail the calculation of the adjustment, and shall
mail to each holder of record thereof, a notice describing the adjustment
and stating the applicable record or effective date therefor, at least 20
days prior thereto.
13.8.4. Liquidation Rights. In the event of any liquidation, dissolution
or winding up of the Corporation the holders of the Second Series will be
entitled to receive out of the assets of the Corporation available for
distribution to stockholders, before any distribution of the assets shall
be made to the holders of the Corporation Common Stock or any other class
or series of stock ranking junior to the Second Series either as to
dividends or upon liquidation, the sum of $35.42 per share if such
liquidation is voluntary and the sum of $33.33 per share if such
liquidation is involuntary, plus in each case any accumulated unpaid
dividends (whether or not declared), to the end of the current quarterly
dividend period in which the payment is made. If upon any liquidation,
dissolution or winding up of the Corporation the amounts payable with
respect to the Second Series and any other series of Preferred Stock which
ranks on a parity with the Second Series are not paid in full, the holders
of the Second Series and such parity Preferred Stock will share ratably in
any distribution of assets in proportion to the full preferential amounts
to which they are entitled.
IV-72
<PAGE>
13.8.5. Redemption. Subject to the provisions herein and in the charter
contained, the Second Series may be redeemed by the Corporation after
December 31, 1975, at any time or from time to time, upon at least thirty
days' prior notice, at the redemption price of $50.00 per share, plus any
accumulated unpaid dividends (whether or not declared), to the end of the
current quarterly dividend period in which the payment is made. If less
than all the outstanding Second Series is to be redeemed, the shares to be
redeemed shall be selected by lot, in such equitable manner as may be
prescribed by the Board of Directors. Shares so redeemed shall be retired
and not reissued.
13.8.6. Reservation of Shares. The Corporation shall at all times keep
available and reserved the number of shares of its Corporation Common Stock
required for conversion of the outstanding and any reserved shares of the
Second Series.
13.8.7. Certain Protective Provisions. If at any time the full cumulative
dividends on shares of the Second Series have not been paid or declared and
set aside for payment for the current and all past quarterly dividend
periods, the Corporation (a) will not declare, or pay, or set apart for
payment any dividends or make any distribution, on any other class or
series of stock of the Corporation ranking junior to the Second Series
whether as to dividends or upon liquidation; (b) will not redeem, purchase
or otherwise acquire, or permit any subsidiary to purchase or otherwise
acquire, any shares of any junior class or series if the Corporation shall
be in default with respect to any dividend payable on shares of the Second
Series, provided that notwithstanding the foregoing, the Corporation may at
any time redeem, purchase or otherwise acquire shares of stock of any such
junior class in exchange for, or out of the net cash proceeds from the
substantially simultaneous sale of, other shares of stock of any junior
class; and (c) will not redeem pursuant to redemption rights in the terms
of such stock any stock ranking on a parity with the Second Series unless
at the same time it redeems all the shares of the Second Series.
Unless the consent of all or a greater number of such shares is required
by law, the consent of the holders of at least two-thirds ( 2/3) of the
then outstanding shares of the Second Series shall be necessary in order to
liquidate or dissolve the Corporation voluntarily or by any other means
involving the vote or consent of any stockholders of the Corporation.
Unless the consent of all or a greater number of such shares is required
by law, consent of the holders of at least two-thirds ( 2/3) of the then
outstanding aggregate number of shares of the Second Series and each other
series of the Preferred Stock whose terms provide for such consent, taken
together, will be necessary to: (a) authorize (by whatever means) any stock
ranking either as to payment of dividends or distribution of assets prior
to the Second Series or any other Preferred Stock then outstanding; or (b)
authorize any merger or consolidation (or transfer of all or substantially
all of the assets of the Corporation in a transaction contemplating in
substance and effect the exchange of shares of the Preferred Stock for
stock of another corporation) unless the surviving, resulting or other
corporation in such transaction shall have authorized no stock ranking
prior to the Preferred Stock as to dividends or upon liquidation (unless
such stock is a stock substantially the same as, and to be exchanged for,
stock of the Corporation previously authorized pursuant to the preceding
clause (a)); or (c) amend, alter, or change in any material respect adverse
to the holders thereof the preferences of any then outstanding Preferred
Stock; provided that in case of any such action described in the preceding
clauses (a), (b) and (c) which, in any material respect, is adverse to the
Second Series as a series and is not a term generally applicable to and
with the same relative effect upon all series, the consent of the holders
of two-thirds ( 2/3) of the then outstanding shares of the Second Series
will be required.
Unless the consent of all or a greater number of such shares is required
by law, consent of the holders of a majority of the then outstanding
aggregate number of shares of the Second Series and each other series of
the Preferred Stock whose terms provide for such consent, taken together,
will be necessary to: (a) increase the authorized amount of the Preferred
Stock; (b) authorize any merger or consolidation (or transfer of all or
substantially all the assets of the Corporation to another corporation
contemplating in substance and effect the exchange of shares of the
Preferred Stock for stock of another corporation) unless the surviving,
resulting or other corporation in such transaction shall have no greater
authorized amount of stock ranking on a parity with the Preferred Stock as
to payment of dividends or upon liquidation than was
IV-73
<PAGE>
authorized by the Corporation immediately prior to such transaction; or (c)
create any other class of stock ranking on a parity with the Preferred
Stock as to dividends or upon liquidation.
13.8.8. Voting Rights. Each holder of the Second Series will be entitled
to one (1) vote for each share held, and, in addition to the other class
and series voting rights of the shares of the Second Series, shall have
general voting power, share for share, with the Common Stock of the
Corporation and any other shares having general voting power.
If six quarterly dividends on any series of the Preferred Stock are in
arrears, the number of directors of the Corporation shall be increased by
two (2) and the holders of all the Preferred Stock voting as a class will
be entitled to elect two (2) directors until all arrears in dividends have
been paid. The Corporation will promptly take all such action as shall be
necessary to permit such election to occur promptly after such arrearage
occurs.
13.9. Preferred Stock-Fifth Series.
13.9.1. Designation; Number of Shares; Stated Value. The Series shall be
designated as Preferred Stock-Fifth Series (the "Fifth Series") and shall
consist of ninety-five (95) shares. The shares of such series are
hereinafter sometimes called the "Fifth Series Shares." The stated value of
the Fifth Series Shares shall be One Hundred Thousand Dollars ($100,000)
per share.
13.9.2. Dividends. The rate of dividends upon the Fifth Series Shares
(which shall be cumulative from the date of issue) and the time of payment
thereof shall be 6.00% of the stated value per share per annum, payable
quarterly on the last days of January, April, July and October in each
year.
13.9.3. Rank. The Fifth Series Shares shall rank on a parity with shares
of the First Series and Second Series of the Preferred Stock as to
dividends and upon liquidation.
13.9.4. Voting Rights. Holders of Fifth Series Shares will be entitled to
one vote for each share held and will be entitled to exercise such voting
rights together with the holders of Corporation Common Stock of the
Corporation, without distinction as to class. If no dividends or less than
full cumulative dividends on the Fifth Series Shares shall have been paid
for each of four consecutive dividend periods, or if arrearages in the
payment of dividends on the Fifth Series Shares shall have cumulated to an
amount equal to full cumulative dividends on the Fifth Series Shares for
six quarterly dividend periods, the holders of the Fifth Series Shares
shall, at all meetings held for the election of Directors until full
cumulative dividends for all past quarterly dividend periods and the
current quarterly dividend period on the Fifth Series Shares shall have
been paid or declared and set apart for payment, possess voting power,
acting alone, to elect the smallest number constituting a majority of the
Directors then to be elected. The Corporation will promptly take all such
action as shall be necessary to permit such election to occur promptly
after such arrearage occurs.
13.9.5. Non-Convertible. The Fifth Series Shares shall not be convertible
into or exchangeable for stock of any other class or classes of the
Corporation.
13.9.6. Repurchase by the Corporation. Upon six months' prior written
notice, the holders of the Fifth Series Shares may tender all and not less
than all of the Fifth Series Shares to the Corporation for purchase at a
price per share equal to the stated value of One Hundred Thousand Dollars
($100,000) per share plus accrued dividends to the date of repurchase by
the Company (the Purchase Price). Upon such proper tender of all shares of
the Fifth Series Shares by the holders, the Corporation shall purchase the
Fifth Series Shares at the Purchase Price.
13.9.7. Tender Procedures. The Fifth Series Shares will not be deemed
tendered unless and until the certificate or certificates therefor have
been received by the Corporation or the bank or trust company designated
for the purpose and, if payment upon acceptance of tender thereof is to be
made other than to the record holders, such certificate or certificates
have been duly endorsed and are in proper form for transfer, with all
transfer taxes due in respect thereof paid or provided for.
13.9.8. Redemption. If the holders have not theretofore tendered the
Fifth Series Shares to the Corporation for purchase pursuant to paragraphs
6 and 7 hereof by March 14, 2003, then the Corporation
IV-74
<PAGE>
shall redeem all of the outstanding Fifth Series Shares at the Purchase
Price on a date set forth in written notice to the holders as the
redemption date (the Redemption Date). The Corporation shall give notice of
such redemption not less than thirty (30) days prior to the Redemption
Date, by mail to the holders of record of the outstanding shares at their
respective addresses then appearing on the books of the Corporation. At any
time before the Redemption Date, the Corporation may deposit in trust the
funds necessary for such redemption with a bank or trust company to be
designated in the notice of redemption, doing business in the City of
Chicago and State of Illinois or in the City and State of New York, and
having capital, surplus and undivided profits aggregating $25,000,000. In
the event such deposit is made so that the deposited funds shall be
forthwith available to the holders of the shares to be redeemed upon
surrender of the certificates evidencing such shares, then, upon the giving
of the notice of such redemption, as hereinabove provided, or upon the
earlier delivery to such bank or trust company of irrevocable authorization
and direction so to give such notice, all shares with respect to the
redemption of which such deposit shall have been made and the giving of
such notice effected shall, whether or not the certificates for such shares
shall be surrendered for cancellation, be deemed to be no longer
outstanding for any purpose and all rights with respect to such shares
shall thereupon cease and terminate, except only the right of the holders
of the certificates for such shares to receive, out of the funds so
deposited in trust, from and after the time of such deposit, the amount
payable upon the redemption thereof, without interest.
13.9.9. Cancelled Shares. The Fifth Series Shares, purchased upon tender
or redeemed as herein provided, shall be cancelled and upon such
cancellation shall be deemed to be authorized and unissued shares of
Preferred Stock, without par value, of the Corporation but shall not be
reissued as shares of the same or any theretofore outstanding series.
13.9.10. Default. Default by the Corporation in complying with the
provisions of paragraph 6 or 8 hereof shall preclude the declaration or the
payment of dividends or the making of any other distribution whatsoever
upon the Corporation Common Stock (other than a distribution in shares of
its Corporation Common Stock) until the Corporation shall have cured such
default by depositing the funds necessary therefor in the manner and upon
the terms herein provided. The holders of the Fifth Series Shares shall not
be entitled to apply to any court of law or equity for a money judgment or
remedy on account of any such default other than to restrain the
Corporation from the actions specified above upon the Corporation Common
Stock until such default shall have been cured.
13.9.11. Liquidation Rights. In the event of any liquidation, dissolution
or winding up of the Corporation the holders of the Fifth Series will be
entitled to receive out of the assets of the Corporation available for
distribution to stockholders, before any distribution of the assets shall
be made to the holders of Corporation Common Stock, the sum of $100,000 per
share, plus an amount equal to cumulative dividends accrued and unpaid
thereon to the date of distribution to holders of the Fifth Series. If upon
any liquidation, dissolution or winding up of the Corporation the amounts
payable with respect to the Fifth Series and any other series of Preferred
Stock which ranks on a parity with the Fifth Series are not paid in full,
the holders of the Fifth Series and such parity Preferred Stock will share
ratably in any distribution of assets in proportion to the full
preferential amounts to which they are entitled.
13.10.6. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the shares of the Sixth Series shall be
entitled to receive the greater of (a) $1,000.00 per share, plus accrued
dividends to the date of distribution, whether or not earned or declared,
or (b) an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of the Sixth Series were entitled
immediately prior to such event pursuant to clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
IV-75
<PAGE>
13.10.7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
shares of the Sixth Series shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of the Sixth Series shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
13.10.8. Ranking. The shares of the Sixth Series shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such
series shall provide otherwise. Nothing herein shall preclude the Board of
Directors of the Corporation from creating any series of Preferred Stock or
any similar stock ranking on a parity with or prior to the shares of the
Sixth Series as to the payment of dividends or distribution of assets.
13.10.9. Fractional Shares. Shares of the Sixth Series may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of shares of the Sixth Series.
SEVENTH
1. In addition to any affirmative vote required by law or these Articles of
Incorporation, and except as expressly provided in section 2 of this ARTICLE
SEVENTH, the affirmative vote of the holders of eighty (80) percent of the
outstanding shares of the Corporation entitled to vote in an election of
Directors shall be required for the approval or authorization of any Business
Combination (as hereinafter defined).
2. The provisions of Section 1 of this ARTICLE SEVENTH shall not be
applicable if:
A. The Business Combination shall have been approved by a majority of the
Continuing Directors (as hereinafter defined); provided, however, that such
approval shall only be effective if obtained at a meeting of Directors at
which at least seven Continuing Directors are present; or
B. The Business Combination is a merger or consolidation and the cash or
Fair Market Value (as hereinafter defined) of the property, securities or
other consideration to be received per share by the stockholders of each
class of stock of the Corporation in the Business Combination, if
applicable, is not less than the highest per share price paid by the
Interested Stockholder (as hereinafter defined), with appropriate
adjustments for stock splits, stock dividends and like distributions, in
the acquisition by the Interested Stockholder of any of its holdings of
each class of the Corporation's capital stock.
3. For purposes of this ARTICLE SEVENTH:
A. The term "Business Combination" means:
(i) any merger or consolidation of the Corporation or any subsidiary
of the Corporation with (a) any Interested Stockholder or (b) any other
corporation (whether or not itself an Interested Stockholder) which is,
or after such merger or consolidation would be, an Affiliate (as
defined on October 1, 1982 in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of an Interested
Stockholder;
IV-76
<PAGE>
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any subsidiary of the
Corporation that have an aggregate Fair Market Value of $1,000,000 or
more;
(iii) the issuance or transfer by the Corporation or any subsidiary
of the Corporation (in one transaction or a series of transactions) of
any securities of the Corporation or any subsidiary of the Corporation
to any Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of
$1,000,000 or more;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder.
B. The term "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director if the successor is unaffiliated with
the Interested Stockholder and is recommended or elected to succeed a
Continuing Director by a majority of Continuing Directors, provided that
such recommendation or election shall only be effective if made at a
meeting of Directors at which at least seven Continuing Directors are
present.
C. The term "Fair Market Value" means:
(i) in the case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-listed
stocks, or, if such stock is not quoted on the Composite Tape, on the
New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then
in use, or if no such quotations are available, the fair market value
on the date in question of a share of such stock as determined in good
faith by a majority of Continuing Directors, provided that such
determination shall only be effective if made at a meeting of Directors
at which at least seven Continuing Directors are present; or
(ii) in the case of property or securities other than cash or stock,
the fair market value of such property or securities on the date in
question as determined in good faith by a majority of Continuing
Directors, provided that such determination shall only be effective if
made at a meeting of Directors at which at least seven Continuing
Directors are present.
D. The term "Interested Stockholder" means and includes, as of the date
of any proposed Business Combination, any individual, corporation,
partnership or other person or entity which, together with its "Affiliates"
and "Associates" (as defined on October 1, 1982 in Rule 12b-2 under the
Exchange Act), "Beneficially Owns" (as defined on October 1, 1982 in Rule
13d-3 under the Exchange Act) in the aggregate ten percent or more of the
outstanding shares of the Corporation entitled to vote in an election of
Directors, and any Affiliate or Associate of any such individual,
corporation, partnership or other person or entity.
IV-77
<PAGE>
EIGHTH
1. Prevention of "Greenmail." Any direct or indirect purchase or other
acquisition by this Corporation of any Equity Security (as hereinafter
defined) of any class at a price above Market Price (as hereinafter defined)
from any Interested Securityholder (as hereinafter defined) who has
beneficially owned any Equity Security of the class to be purchased for less
than two years prior to the date of such purchase or any agreement in respect
thereof shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of the voting power of
the then outstanding shares of capital stock of this Corporation entitled to
vote generally in the election of directors (the "Voting Stock"), excluding
Voting Stock beneficially owned by such Interested Securityholder, voting
together as a single class (it being understood that for the purposes of this
ARTICLE EIGHTH, each share of the Voting Stock shall have the number of votes
granted to it pursuant to ARTICLE SIXTH of these Articles of Incorporation).
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or any
agreement with any national securities exchange, or otherwise, but (i) no such
affirmative vote shall be required with respect to any purchase, redemption or
other acquisition by this Corporation of capital stock from FT, DT, any
Qualified Subsidiary or any Qualified Stock Purchaser pursuant to the
provisions of the Investment Documents (as such term is defined in Section 10
of ARTICLE SIXTH of these Articles of Incorporation) or these Articles of
Incorporation, (ii) no such affirmative vote shall be required with respect to
any purchase or other acquisition of securities made as part of a tender or
exchange offer by this Corporation to purchase securities of the same class
made on the same terms to all holders of such securities and complying with
the applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions replacing such
Act, rules or regulations), and (iii) no such affirmative vote shall be
required with respect to any purchase, redemption, conversion or other
acquisition by this Corporation of Series 2 Common Stock or PCS Stock (as
defined in ARTICLE SIXTH) from a holder thereof pursuant to the provisions of
these Articles of Incorporation.
2. Certain Definitions. For the purposes of this ARTICLE EIGHTH:
A. A "person" means any individual, firm, corporation or other entity.
B. "Interested Securityholder" means any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation) who or
which:
(i) is the beneficial owner, directly or indirectly, of 5% or more of
the class of securities to be acquired; or
(ii) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 5% or more of the class of
securities to be acquired; or
(iii) is an assignee or has otherwise succeeded to any shares of the
class of securities to be acquired which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by an Interested Securityholder, if such assignment or succession
shall have occurred in the course of a transaction or transactions not
involving a public offering within the meaning of the Securities Act of
1933, as amended.
C. A person shall be a "beneficial owner" of any security of any class of
the Corporation:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) any right to vote
pursuant to any agreement, arrangement or understanding; or
IV-78
<PAGE>
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any security of
any class of the Corporation.
D. For the purposes of determining whether a person is an Interested
Securityholder pursuant to paragraph B of this Section 2, the relevant
class of securities outstanding shall be deemed to comprise all such
securities deemed owned through application of paragraph C of this
Section 2, but shall not include other securities of such class which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
October 1, 1982.
F. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect
on January 1, 1985.
G. "Market Price" means the highest closing sale price during the
thirty-day period immediately preceding the date in question, of a
share of any Equity Security on the Composite Tape for New York Stock
Exchange issues or, if such Equity Security is not quoted on the
Composite Tape or is not listed on such Exchange, on the principal
United States security exchange registered under the Securities
Exchange Act of 1934, as amended, on which such Equity Security is
listed, or, if such Equity Security is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such
Equity Security during the thirty-day period preceding the date in
question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or, if no such
quotations are available, the fair market value on the date in question
of a share of such Equity Security.
3. Compliance. The Board of Directors of the Corporation shall have the
power to determine the application of, or compliance with, this ARTICLE
EIGHTH, including, without limitation: (i) whether a person is an Interested
Securityholder; (ii) whether a person is a beneficial owner of any Equity
Security; and (iii) the Market Price of any Equity Security. Any decision or
action taken by the Board of Directors arising out of or in connection with
the construction, interpretation and effect of this ARTICLE EIGHTH shall lie
within its absolute discretion and shall be conclusive and binding, except in
circumstances involving bad faith.
IV-79
<PAGE>
NINTH
No Director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty by such
Director as a Director; provided, however, that this ARTICLE NINTH shall not
eliminate or limit the liability of a Director to the extent provided by
applicable law (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 51 of the General Corporation Code of the State of Kansas, or
(iv) for any transaction from which the Director derived an improper personal
benefit. No amendment to or repeal of this ARTICLE NINTH shall apply to or
have any effect on the liability or alleged liability of any Director of the
Corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of
said Corporation this day of [JULY], 1998.
Don A. Jensen
By___________________________________
Don A. Jensen
Vice President
Michael T. Hyde
By___________________________________
Michael T. Hyde
Assistant Secretary
STATE OF KANSAS )
)ss.
COUNTY OF JOHNSON )
Be it remembered that before me, a Notary Public in and for the aforesaid
county and state, personally appeared: Don A. Jensen, Vice President, and
Michael T. Hyde, Assistant Secretary, of Sprint Corporation, a corporation,
who are known to me to be the same persons who executed the foregoing Amended
and Restated Articles of Incorporation, and duly acknowledged the execution of
the same this day of [JULY], 1998.
By___________________________________
Notary Public
My appointment expires:
_______________________________
IV-80
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF SPRINT CORPORATION
[CHARTER NO. 2 (GIVING EFFECT TO THE ARTICLES AMENDMENT)]
We, Don A. Jensen, Vice President, and Michael T. Hyde, Assistant Secretary,
of Sprint Corporation (the "Corporation"), a corporation organized and
existing under the laws of the State of Kansas, do hereby certify as follows:
1. That the Corporation was originally incorporated in the State of Kansas
on November 15, 1938 under the name of United Utilities, Inc.
2. That the Board of Directors of the Corporation, at a meeting of the Board
of Directors, adopted resolutions
(i) approving a plan of recapitalization for the Corporation whereby each
share of (1) the Corporation's existing Common Stock, par value $2.50 per
share, may be reclassified and exchanged for (A) one share of FON Common
Stock--Series 1, par value $2.00 per share, of the Corporation and (B) 1/2
of a share of PCS Common Stock--Series 1, par value $1.00 per share of the
Corporation, (2) the Corporation's Common Stock--Series 2, par value $2.50
per share, may be reclassified and changed into FON Common Stock--Series 2,
par value $2.00 per share, of the Corporation, (3) the Corporation's
existing Class A Common Stock, par value $2.50 per share, shall remain
outstanding but may be reclassified and exchanged into an equal number of
shares of Class A Common Stock, par value $2.50 per share, of the
Corporation (in each such case, such stock is designated as "Old Class A
Common Stock"), (4) the Corporation's existing Class A Common Stock--Series
DT, par value $2.50 per share, shall remain outstanding but may be
reclassified and exchanged into an equal number of shares of Class A Common
Stock--Series DT, par value $2.50, of the Corporation (in each such case,
such stock is designated as "Class A Common Stock--Series DT"), and (5) (A)
PCS Common Stock--Series 1, par value $1.00 per share, (B) PCS Common
Stock--Series 2, par value $1.00 per share, and (C) PCS Common Stock--
Series 3, par value $1.00 per share, would each remain outstanding; and
(ii) if there are fractional shares of Series 1 PCS Stock to be issued in
the Recapitalization, the Corporation shall pay cash in respect of such
fractional shares in an amount equal to the Fair Value thereof on the
Effective Date (for purposes of this clause (ii) only, "Fair Value" of any
fractional share means the product of such fraction and the Market Value
(as defined in ARTICLE SIXTH, Section 10) of one share of Series 1 PCS
Stock); and
(iii) providing for the adoption of these Amended and Restated Articles
of Incorporation of the Corporation, which amend and restate the
Corporation's Articles of Incorporation in their entirety, and
(iv) declaring the advisability of such plan of recapitalization and
these Amended and Restated Articles of Incorporation of the Corporation.
The resolutions further directed that the plan of recapitalization and these
Amended and Restated Articles of Incorporation be submitted to the
stockholders of the Corporation for their consideration and approval.
3. That thereafter, pursuant to the resolutions and in accordance with the
bylaws of the Corporation and the laws of the State of Kansas, the Board of
Directors called a meeting of stockholders for consideration of the plan of
recapitalization and these Amended and Restated Articles of Incorporation, and
thereafter, pursuant to notice and in accordance with the statutes of the
State of Kansas, the stockholders convened and considered the plan of
recapitalization and these Amended and Restated Articles of Incorporation.
4. That at the meeting a majority of the outstanding stock entitled to vote
thereon voted in favor of, among other things, the proposed plan of
recapitalization effected by these Amended and Restated Articles of
Incorporation, and these Amended and Restated Articles of Incorporation were
duly adopted in accordance with the provisions of Kan. Stat. Ann. (S) 17-6602.
IV-81
<PAGE>
5. That these Amended and Restated Articles of Incorporation shall become
effective on the day of , 1998 (the "Effective Date") pursuant to the
provisions of Kan. Stat. Ann. (S) 17-6003(d).
6. That at the Effective Date,
(i) each share of Common Stock, par value $2.50 per share, of the
Corporation (the "Old Common Stock") outstanding immediately prior to such
filing of these Amended and Restated Articles of Incorporation is hereby
automatically reclassified and exchanged without any action on the part of
the stockholders of the Corporation so that each share of Old Common Stock
becomes (A) one share of FON Common Stock--Series 1, par value $[2.00] per
share of the Corporation and (B) 1/2 [OF A SHARE] of PCS Common Stock--
Series 1, par value $[1.00] per share of the Corporation,
(ii) the Common Stock--Series 2, par value $2.50 per share, of the
Corporation is hereby automatically reclassified and changed into FON
Common Stock--Series 2, par value $2.00 per share, of the Corporation,
(iii) the Corporation's existing Class A Common Stock, par value $2.50
per share, designated as "Old Class A Common Stock" herein, is hereby
automatically reclassified and exchanged into an equal number of shares of
Class A Common Stock, par value $2.50 per share of the Corporation,
(iv) the Corporation's existing Class A Common Stock--Series DT, par
value $2.50 per share, designated as "Class A Common Stock--Series DT"
herein, is hereby automatically reclassified and exchanged into an equal
number of shares of Class A Common Stock--Series DT, par value $2.50, of
the Corporation,
(v) (A) PCS Common Stock--Series 1, par value $1.00 per share, (B) PCS
Common Stock--Series 2, par value $1.00 per share, and (C) PCS Common
Stock--Series 3, par value $1.00 per share, would each remain unchanged by
these Amended and Restated Articles of Incorporation, and
(vi) if there are fractional shares of Series 1 PCS Stock to be issued in
the Recapitalization, the Corporation shall pay cash in respect of such
fractional shares in accordance with Section 2(ii) above.
7. That the text of the Articles of Incorporation of the Corporation, as
previously restated and amended, is hereby amended and restated to read in its
entirety as follows:
FIRST
The name of the Corporation is SPRINT CORPORATION.
SECOND
This Corporation is organized for profit, and the purpose for which it is
formed is to engage in any lawful act or activity for which corporations may
be organized under the Kansas General Corporation Code (the "General
Corporation Code").
THIRD
The Corporation's registered office is located at 2330 Shawnee Mission
Parkway, Westwood, Johnson County, Kansas 66205; Mr. J. Richard Devlin is the
registered agent at said address.
FOURTH
The Corporation shall have perpetual existence.
IV-82
<PAGE>
FIFTH
Section 1. Number of Directors; Increases in Number of Directors. (a) The
number of Directors shall not be less than ten nor more than 20 (unless
increased to more than 20 pursuant to Section 1(b) or Section 6(e) of this
ARTICLE FIFTH) as may be determined from time to time by the affirmative vote
of the majority of the Board of Directors or as provided in Section 1(b) or in
Section 6(e) of this ARTICLE FIFTH.
(b) If at any time the Class A Holders are entitled to elect a number of
Directors pursuant to Section 2(a) of this ARTICLE FIFTH that exceeds the sum
of the number of Directors elected by the Class A Holders then serving on the
Board of Directors and the number of vacancies on the Board of Directors which
the Directors elected by the Class A Holders or the Class A Holders are
entitled to fill, the total number of Directors shall automatically and
without further action be increased by the smallest number necessary to enable
the Class A Holders (and the Directors elected by the Class A Holders in the
case of vacancies) to elect the number of Directors that the Class A Holders
are entitled to elect pursuant to such Section 2(a).
Section 2. Election of Directors. (a) Election of Directors by Class A
Holders. (i) Except as otherwise provided in Sections 8.5(b), 8.5(f) and
8.5(k) of ARTICLE SIXTH, the Class A Holders shall have the right, voting
together as a single class, to elect a number of Directors equal to the
greater of (x) two and (y) the product (rounded to the nearest whole number if
such product is not a whole number) of (i) the aggregate Percentage Ownership
Interests of the Class A Holders and (ii) the total number of Directors,
provided that so long as Section 310 of the Communications Act of 1934, as
amended (or any successor provision of law) ("Section 310"), remains in
effect, under no circumstances shall (A) the Class A Holders have the right to
elect Aliens as Directors such that the total number of Aliens so elected by
them would exceed the maximum percentage of the total number of Directors of
this Corporation permitted under Section 310 to be Aliens or (B) the total
number of Directors elected by the Class A Holders and serving on the Board of
Directors exceed the maximum percentage of the total Directors of this
Corporation permitted under Section 310 to be elected by shareholders that are
Aliens. Such Directors elected by the Class A Holders shall not be divided
into classes.
(ii) Upon the conversion of all outstanding shares of Class A Stock into
Series 1 FON Stock or Series 1 PCS Stock, as the case may be, pursuant to
Section 8.5 of ARTICLE SIXTH, the term of office of all Class A Directors then
in office shall thereupon terminate, the vacancy or vacancies resulting from
such termination shall be filled by the remaining Directors then in office,
acting by majority vote of such remaining Directors, and the Director or
Directors so elected to fill such vacancy or vacancies shall not be treated
hereunder or under the Bylaws of this Corporation as Class A Directors. If at
any time the number of Directors that the Class A Holders have the right to
elect pursuant to this Section 2(a) shall decrease other than as set forth in
the preceding sentence, and the Class A Holders shall not have removed or
caused to resign, in either case effective not later than the fifteenth day
following the event that resulted in such decrease, a number of Class A
Directors so that the total number of Directors elected by the Class A Holders
then in office does not exceed the number provided in the first sentence of
Section 2(a)(i), then the terms of office of all Class A Directors shall
terminate on such fifteenth date. The vacancy or vacancies resulting from such
termination of the terms of the Class A Directors shall be filled as follows:
(A) the vacancy or vacancies equal to the number of Directors that the Class A
Holders then have the right to elect pursuant to this Section 2(a) (after
giving effect to the decrease referred to in the preceding sentence) shall be
filled as provided in Section 4(b) of this ARTICLE FIFTH, and (B) the
remaining vacancy or vacancies shall be filled by the remaining Directors
other than Class A Directors then in office, acting by majority vote of such
remaining Directors, and the Director or Directors so elected to fill such
vacancy or vacancies shall not be treated hereunder or under the Bylaws as
Class A Directors.
(iii) (1) Notwithstanding anything to the contrary in this Section 2, but
subject to paragraphs (2), (3), (4) and (5) of this Section 2(a)(iii) and the
proviso set forth at the end of the first sentence of Section 2(a)(i) of this
ARTICLE FIFTH (the "Section 2(a) Proviso"), if the aggregate Percentage
Ownership Interest of the Class A Holders is 20% or greater, the Class A
Holders at all times shall have the right to elect not less than 20% of the
total number of Directors, provided that, if the Section 2(a) Proviso prevents
the Class A Holders from electing at least 20% of the total number of
Directors under such circumstances, this Corporation shall increase the total
IV-83
<PAGE>
number of Directors to a number not greater than 20 if such increase would
enable the Class A Holders to elect at least 20% of the total number of
Directors as increased.
(2) The provisions of Section 2(a)(iii)(1) of this ARTICLE FIFTH (the
"Section 2(a)(iii)(1) Provisions") shall terminate and be of no force and
effect (a "Nullification") unless reinstated in accordance with Section
2(a)(iii)(5), if either:
(A) this Corporation delivers an opinion of nationally-recognized U.S.
tax counsel to the effect that the Section 2(a)(iii)(1) Provisions are,
with respect to both FT and DT, either not a Necessary Condition or not a
Sufficient Condition to secure any Treaty Benefit and within 90 days of the
delivery of such opinion by this Corporation there is not delivered to this
Corporation by FT or DT an opinion of nationally-recognized U.S. tax
counsel concluding that such provisions are a Necessary Condition and a
Sufficient Condition for either FT or DT to secure a Treaty Benefit, or
(B) this Corporation provides written notice to FT and DT in which it
agrees to accord FT and DT those Treaty Benefits to which FT and DT would
be entitled if the Section 2(a)(iii)(1) Provisions were in effect (the
"Continuing Treaty Benefits") and to indemnify FT and DT on an after-tax
basis against (a) any liability arising out of according FT and DT
Continuing Treaty Benefits to the extent such liability would not arise if
the Section 2(a)(iii)(1) Provisions were in effect and (b) the loss of
those Continuing Treaty Benefits that this Corporation cannot directly
accord; provided that this Corporation by written notice to FT and DT may
revoke and withdraw such agreement to accord such Treaty Benefits and to
provide such indemnification following the date of such notice and upon
delivery of such notice the Section 2(a)(iii)(1) Provisions shall again
become effective. Notwithstanding any revocation or withdrawal pursuant to
the proviso contained in the immediately preceding sentence, this
Corporation shall continue to indemnify FT and DT on an after-tax basis
against any loss of Treaty Benefits to which FT or DT, as the case may be,
would have been entitled had the Nullification described in this Section
2(a)(iii)(2)(B) not taken place.
If a Nullification occurs under the provisions of paragraph (A) of this
Section 2(a)(iii)(2), then after the date of any such Nullification, and until
such time as a change in facts or Applicable Law requires a different result,
this Corporation shall accord FT and DT Treaty Benefits under the relevant
treaties between the United States and France and the United States and
Germany, but only to the extent FT or DT, as the case may be, would have been
entitled to claim such benefits had such Nullification not occurred.
(3) In addition to its rights under Section 2(a)(iii)(2), this Corporation
shall have the right, from time to time, to deliver to each of FT and DT a
written notice requesting that the chief tax officer of each of FT and DT
certify that FT, in the case of the request furnished to FT, and DT, in the
case of the request furnished to DT, is eligible to claim at least one Treaty
Benefit, and that such chief tax officer provide this Corporation with other
facts and information reasonably requested by this Corporation that are
reasonably necessary for this Corporation to determine whether the Section
2(a)(iii)(1) Provisions are a Sufficient Condition or a Necessary Condition to
secure at least one Treaty Benefit. Unless within 60 days of delivery of any
such request, either FT or DT delivers such requested certificate to this
Corporation, and provides such requested facts or information, the
Section 2(a)(iii)(1) Provisions shall terminate and be of no force or effect,
unless reinstated in accordance with Section 2(a)(iii)(5).
(4) If FT and DT determine that the Section 2(a)(iii)(1) Provisions are,
with respect to both FT and DT, either not a Necessary Condition or not a
Sufficient Condition to secure at least one Treaty Benefit, FT and DT shall
deliver to this Corporation a certification to such effect, and the Section
2(a)(iii)(1) Provisions shall terminate and be of no force or effect, unless
reinstated in accordance with Section 2(a)(iii)(5).
(5) Each of FT and DT shall have the right, at any time after the date the
Section 2(a)(iii)(1) Provisions are nullified pursuant to paragraph (A) (but
not paragraph (B)) of clause (2) or clause (3) or (4) of this
Section 2(a)(iii), to deliver to this Corporation a certificate signed by the
chief tax officer of either FT or DT to
IV-84
<PAGE>
the effect that FT or DT, as the case may be, is eligible to claim a Treaty
Benefit and an opinion of nationally-recognized U.S. tax counsel to the effect
that the Section 2(a)(iii)(1) Provisions are again a Necessary Condition and a
Sufficient Condition for any of FT or DT to secure a Treaty Benefit. Upon the
delivery of any such certificate and opinion, the Section 2(a)(iii)(1)
Provisions shall again become effective unless and until they become
ineffective pursuant to the other provisions of this Section 2(a)(iii).
(6) For purposes of this Section 2(a)(iii), the term "FT" shall include any
Qualified Subsidiary of FT organized under the laws of France and the term
"DT" shall include any Qualified Subsidiary of DT organized under the laws of
Germany.
(7) The Section 2(a)(iii)(1) Provisions shall be a "Necessary Condition"
with respect to any Treaty Benefit if FT or DT would not be entitled to claim
such Treaty Benefit unless such Section 2(a)(iii)(1) Provisions are in effect.
(8) The Section 2(a)(iii)(1) Provisions shall be a "Sufficient Condition"
with respect to any Treaty Benefit if FT and DT will otherwise fulfill all
other relevant conditions to claiming such Treaty Benefit if the
Section 2(a)(iii)(1) Provisions are in effect.
(b) Election of Directors by Other Holders. (i) Subject to clause (ii)
below, the holders of Non-Class A Common Stock shall have the right to elect
that number of Directors equal to the excess of (x) the total number of
Directors over (y) the sum of the number of Directors the Class A Holders are
entitled to elect and the number of Directors, if any, that the holders of
Preferred Stock, voting separately by class or series, are entitled to elect
in accordance with the provisions of ARTICLE SIXTH of these Articles of
Incorporation. The Class A Holders shall have no right to vote for Directors
under this Section 2(b)(i).
(ii) So long as Section 310 remains in effect, under no circumstances shall
an Alien Director elected by the holders of Non-Class A Common Stock be
qualified to serve as a Director if the number of Aliens who would then be
serving as members of the Board of Directors, including such elected Alien,
would constitute more than the maximum number of Aliens permitted by Section
310 on the Board of Directors.
(iii) The Directors (other than the Directors elected by the Class A Holders
and any Directors elected by the holders of any one or more classes or series
of Preferred Stock having the right, voting separately by class or series, to
elect Directors) shall be divided into three classes, designated Class I,
Class II and Class III, with the term of office of one class expiring each
year. The number of Class I, Class II and Class III Directors shall consist,
as nearly as practicable, of one third of the total number of Directors (other
than the Directors elected by the Class A Holders and any Directors elected by
the holders of any one or more classes or series of Preferred Stock having the
right, voting separately by class or series, to elect Directors). At each
annual meeting of stockholders of this Corporation, successors to the class of
Directors whose term expires at that annual meeting shall be elected for a
three-year term.
(iv) Whenever the holders of any one or more classes or series of Preferred
Stock shall have the right, voting separately by class or series, to elect
Directors at an annual or special meeting of stockholders, the election, term
of office, filling of vacancies and other features of such directorships shall
be governed by the terms of these Articles of Incorporation applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this ARTICLE FIFTH unless expressly provided by such terms.
Section 3. Change in Number of Directors. If the number of Directors (other
than Directors elected by Class A Holders and any Directors elected by the
holders of any one or more classes or series of Preferred Stock having the
right, voting separately by class or series, to elect Directors) is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of Directors in each class as nearly equal as possible.
IV-85
<PAGE>
Section 4. Term of Office. (a) Each Director shall be elected for a three-
year term. A Director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and shall
qualify to serve, subject to prior death, resignation, retirement,
disqualification or removal from office.
(b) Any vacancy on the Board of Directors (whether resulting from an
increase in the total number of Directors, the departure of one of the
Directors or otherwise) may be filled by the affirmative vote of a majority of
the Directors elected by the same class or classes of stockholders which would
be entitled to elect the Director who would fill such vacancy if the annual
meeting of stockholders of this Corporation were held on the date on which
such vacancy occurred, provided that at any time when there is only one such
Director so elected and then serving, such Director may fill such vacancy and,
provided further, that at any time when there are no such Directors then
serving, the stockholders of the class or classes entitled to elect the
Director who will fill such vacancy shall have the right to fill such vacancy
and, provided, further, that, so long as any Class A Stock is outstanding, any
vacancy to be filled by the Director or Directors elected by the holders of
Non-Class A Common Stock may not be filled with a Person who, upon his
election, would not be an Independent Director or would be an Alien, as the
case may be, if the effect of such election would be that less than a majority
of the Board of Directors following such election would be Independent
Directors, or that the number of Aliens who would then be serving on the Board
of Directors would constitute more than the maximum number of Aliens permitted
on the Board of Directors under Section 310.
(c) Any additional Director of any class elected to fill a vacancy resulting
from an increase in the number of Directors of such class shall hold office
for a term that shall coincide with the remaining term of the Directors of
that class, but, except as provided in Section 2(a)(ii) of this ARTICLE FIFTH,
in no case will a decrease in the number of Directors shorten the term of any
incumbent Director. Any Director elected to fill a vacancy not resulting from
an increase in the number of Directors shall have the same remaining term as
that of his predecessor.
Section 5. Rights, Powers, Duties, Rules and Procedures; Amendment of
Bylaws. (a) Except to the extent prohibited by law or as set forth in these
Articles of Incorporation or the Bylaws, the Board of Directors shall have the
right (which, to the extent exercised, shall be exclusive) to establish the
rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including, without
limitation, the vote required for any action by the Board of Directors, and
that from time to time shall affect the Directors' power to manage the
business and affairs of this Corporation. Except to the extent required by law
or as set forth in these Articles of Incorporation or the Bylaws, no Bylaw
shall be adopted by stockholders which shall impair or impede the
implementation of the foregoing.
(b) The Board of Directors is expressly authorized and empowered, in the
manner provided in the Bylaws of this Corporation, to adopt, amend and repeal
the Bylaws of this Corporation in any respect to the full extent permitted by
the General Corporation Code not inconsistent with the laws of the General
Corporation Code or with these Articles of Incorporation, provided that
(i) prior to the fourth anniversary of the Restructuring Closing Date,
ARTICLE IV, SECTION 13 of the Bylaws may not be amended, altered, repealed,
superseded or made inoperative or ineffective by adoption of other
provisions to the Bylaws or these Articles of Incorporation (any such
action, a "CP Covered Bylaws Amendment") without the affirmative vote of
the holders of record of (i) a majority of the shares of PCS Stock and
Class A Common Stock then outstanding, voting together as a single class in
accordance with ARTICLE SIXTH, Section 3.2(d), and (ii) a majority of the
shares of Corporation Common Stock, voting together as a single class, at
any annual or special meeting of stockholders, the notice of which shall
have specified or summarized the proposed CP Covered Bylaws Amendment; and
(ii) the following provisions of the Bylaws may not be amended, altered,
repealed, superseded or made inoperative or ineffective by adoption of
other provisions to the Bylaws or these Articles of Incorporation (any such
action, a "Class A Covered Bylaws Amendment") without the affirmative vote
of the holders of record of a majority of the shares of Class A Stock then
outstanding, voting together as a single class, at any annual or special
meeting of stockholders, the notice of which shall have specified or
summarized the
IV-86
<PAGE>
proposed Class A Covered Bylaws Amendment: ARTICLE III, SECTIONS 2, 4, 5, 8
AND 9; ARTICLE IV, SECTIONS 5, 6, 10, 11 AND 12; ARTICLE VI, SECTION 1; AND
ARTICLE VII, SECTIONS 1 AND 2.
Section 6. Removal; Changes in Status; Preferred Stock Directors. (a) Except
as provided in paragraphs (c) or (d) of this Section 6, a Director (other than
a Director elected by the Class A Holders or by the holders of any class or
series of Preferred Stock having the right, voting separately by class or
series, to elect Directors) may be removed only for cause. No Director so
removed may be reinstated for so long as the cause for removal continues to
exist. Such removal for cause may be effected only by the affirmative vote of
the holders of a majority of shares of the class or classes of stockholders
which were entitled to elect such Director.
(b) A Director elected by the Class A Holders may be removed with or without
cause. If removed for cause, no Director so removed may be reinstated for so
long as the cause for removal continues to exist. Removal may be effected with
or without cause by the affirmative vote of the holders of a majority of
shares of Class A Stock or with cause by the affirmative vote of the holders
of two-thirds of the shares of the Non-Class A Common Stock, the Class A Stock
and other capital stock of this Corporation entitled to general voting power,
voting together as a single class.
(c) If a Director elected by the holders of Non-Class A Common Stock who was
not, at the time of his election to the Board of Directors, an Alien,
subsequently becomes an Alien, the effect of which would be that the number of
Aliens who would then be serving as members of the Board of Directors,
including the Director who changed status, would constitute more than the
maximum number of Aliens permitted on the Board of Directors under Section
310, such Director shall upon his change in status automatically and without
further action be removed from the Board of Directors.
(d) So long as any Class A Stock is outstanding, if an Independent Director
elected by the holders of Non-Class A Common Stock subsequently ceases to be
an Independent Director, the effect of which would be that the Independent
Directors who would then be serving as members of the Board of Directors would
not constitute a majority of the Board of Directors, such Director shall
automatically and without further action upon his change in status be removed
from the Board of Directors.
(e) (i) So long as any Class A Stock is outstanding, if a Director elected
by the holders of any class or series of Preferred Stock having the right,
voting separately by class or series, to elect Directors (a "Preferred Stock
Director") is an Alien, or after election becomes an Alien, the effect of
which would be that the number of Aliens who would then be serving as members
of the Board of Directors (including such Preferred Stock Director) would
constitute more than the maximum number of Aliens permitted on the Board of
Directors under Section 310, the total number of Directors shall automatically
and without further action be increased by the smallest number necessary to
enable the Class A Holders (and the Directors elected by the Class A Holders
in the case of vacancies) to elect Aliens as Directors to the fullest extent
that the Class A Holders are entitled to elect Directors pursuant to Section
2(a) of this ARTICLE FIFTH without violating the requirements of Section 310.
(ii) So long as any Class A Stock is outstanding, if a Preferred Stock
Director is not an Independent Director, or after election ceases to be an
Independent Director, the effect of which would be that the Independent
Directors who would then be serving as members of the Board of Directors would
not constitute a majority of the Board of Directors, the total number of
Directors shall automatically and without further action be increased by the
smallest number necessary so that the number of Directors then serving who are
not Independent Directors (including such Preferred Stock Director and any
vacancies which the holders of Class A Stock have a right to fill) constitute
less than a majority of the Board of Directors.
Section 7. Definitions. Certain capitalized terms used in this ARTICLE FIFTH
without definition have the meanings set forth in Section 10 of ARTICLE SIXTH.
IV-87
<PAGE>
SIXTH
Section 1.1. Authorized Shares. The total number of shares of capital stock
which may be issued by this Corporation is , and the designation of each
class or series, the number of shares of each class or series and the par
value of the shares of each class or series, are as follows:
<TABLE>
<CAPTION>
DESIGNATION CLASS SERIES NO. OF SHARES PAR VALUE
----------- -------------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C>
The "Series 1 FON
Stock"................. FON Common Stock Series 1 2,500,000,000 $2.00 per share
The "Series 2 FON
Stock"................. FON Common Stock Series 2 500,000,000 $2.00 per share
The "Series 3 FON
Stock"................. FON Common Stock Series 3 1,200,000,000 $2.00 per share
The "Old Class A Common
Stock"................. Class A Common Stock 100,000,000 $2.50 per share
The "Class A Common
Stock-- Series DT"..... Class A Common Stock Series DT 100,000,000 $2.50 per share
The "Series 1 PCS
Stock"................. PCS Common Stock Series 1 1,250,000,000 $1.00 per share
The "Series 2 PCS
Stock"................. PCS Common Stock Series 2 500,000,000 $1.00 per share
The "Series 3 PCS
Stock"................. PCS Common Stock Series 3 600,000,000,000 $1.00 per share
The "Preferred Stock"... Preferred Stock See Section 13 below No par value
</TABLE>
Section 1.2. Representation of Equity Value; Exchange of Interests in Class
A Common Stock. (a) The aggregate common equity value of the Corporation and
each Business Group shall, at any time, be represented as follows:
(i) The total common equity value of the Corporation shall be represented
by the sum of the outstanding shares of (A) the FON Stock, (B) the PCS
Stock and (C) the Class A Common Stock.
(ii) The total common equity value of the FON Group shall be represented
by the sum of the outstanding shares of (A) the FON Stock and (B) the
outstanding shares of Old Class A Common Stock and Class A Common Stock--
Series DT (but only to the extent such stock represents a Number Of Shares
Issuable With Respect To The Old Class A Equity Interest In The FON Group
and a Number Of Shares Issuable With Respect To The Class A--Series DT
Equity Interest In The FON Group, respectively).
(iii) The total common equity value of the PCS Group shall be represented
by the sum of the outstanding shares of (A) the PCS Stock, (B) the Number
Of Shares Issuable With Respect To The FON Group Intergroup Interest, and
(C) the outstanding shares of Old Class A Common Stock and Class A Common
Stock--Series DT (but only to the extent such stock represents a Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The PCS
Group and a Number Of Shares Issuable With Respect To The Class A--Series
DT Equity Interest In The PCS Group, respectively).
(b) The Old Class A Common Stock and Class A Common Stock--Series DT shall,
at all times, be deemed to represent, respectively, a number of shares of
Series 3 FON Stock and/or Series 3 PCS Stock equal to: (A) the Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The FON
Group plus the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group and (B) the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group plus the
Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group.
(c) Each holder of a share of Old Class A Common Stock shall have the right,
exercisable at any time and from time to time, to cause the Corporation to
issue the following:
(i) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The FON
Group, either a share of Series 3 FON Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 FON Stock to a
designee of such holder, provided a transfer of such share to such designee
is permitted under the Stockholders' Agreement; or
(ii) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The PCS
Group, either a share of Series 3 PCS Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 PCS Stock to a
designee of such holder, provided a transfer of such share to such designee
is permitted under the Stockholders' Agreement.
A holder of Old Class A Common Stock may exercise its right to cause any
such issuance solely with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group,
IV-88
<PAGE>
solely with respect to the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The PCS Group, or any combination thereof;
provided,
(x) when the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The FON Group is reduced to zero, no further shares of
Series 1 FON Stock or Series 3 FON Stock may be issued pursuant to this
Section 1.2(c),
(y) when the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group is reduced to zero, no further shares of
Series 1 PCS Stock or Series 3 PCS Stock may be issued pursuant to this
Section 1.2(c), and
(z) if at any time the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The FON Group and the Number Of Shares Issuable
With Respect To The Old Class A Equity Interest In The PCS Group are both
zero, the Old Class A Common Stock may be redeemed, at the Corporation's
option, at a redemption price of $0.001 per share.
(d) Each holder of a share of Class A Common Stock--Series DT shall have the
right, exercisable at any time and from time to time, to cause the Corporation
to issue the following:
(i) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The Class A--Series DT Equity Interest In
The FON Group, either a share of Series 3 FON Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 FON Stock to a
designee of such holder, provided a transfer of such share to such designee
is permitted under the Stockholders' Agreement; and
(ii) in respect of each share notionally represented in the Number Of
Shares Issuable With Respect To The Class A--Series DT Equity Interest In
The PCS Group, either a share of Series 3 PCS Stock to such holder (or to a
Qualified Subsidiary of such holder) or a share of Series 1 PCS Stock to a
designee of such holder, provided a transfer of such share to such designee
is permitted under the Stockholders' Agreement.
A holder of Class A Common Stock--Series DT may exercise its right to cause
any such issuance solely with respect to the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group, solely
with respect to the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The PCS Group, or any combination thereof;
provided,
(i) when the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The FON Group is reduced to zero, no further
shares of Series 1 FON Stock or Series 3 FON Stock may be issued pursuant
to this Section 1.2(d),
(ii) when the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The PCS Group is reduced to zero, no further
shares of Series 1 PCS Stock or Series 3 PCS Stock may be issued pursuant
to this Section 1.2(d), and
(iii) if at any time the Number Of Shares Issuable With Respect To The
Class A--Series DT Equity Interest In The FON Group and the Number Of
Shares Issuable With Respect To The Class A--Series DT Equity Interest In
The PCS Group are both zero, the Class A Common Stock--Series DT may be
redeemed, at the Corporation's option, at a redemption price of $0.001 per
share.
(e) Automatic Reclassification and Adjustment to Par Value Amount.
(i) Upon each issuance of any shares of Series 1 FON Stock and/or Series
3 FON Stock, on the one hand, and Series 1 PCS Stock and/or Series 3 PCS
Stock, on the other, in accordance with Section 1.2(c), each share of the
Corporation's existing Old Class A Common Stock will be automatically
reclassified into a share of Class A Common Stock with a par value amount
equal to the Reduced Par Value Amount and the Number Of Shares Issuable
With Respect To The Old Class A Equity Interest In The FON Group and the
Number Of Shares Issuable With Respect To The Old Class A Equity Interest
In The PCS Group, respectively, will be reduced in accordance with the
definitions of such terms set forth in ARTICLE SIXTH, Section 10; provided
that after each such reclassification, the sum of (x) the total number of
outstanding
IV-89
<PAGE>
shares of Series 1 FON Stock and/or Series 3 FON Stock, on the one hand, or
Series 1 PCS Stock and/or Series 3 PCS Stock, on the other, so issued in
accordance with Section 1.2(c) times the par value per share of such stock
and (y) the total number of outstanding shares of Old Class A Common Stock
immediately after such issuance times the Reduced Par Value Amount will
always equal (z) the total number of outstanding shares of Old Class A
Common Stock immediately prior to such issuance times the par value per
share of such shares existing immediately prior to such issuance.
(ii) Upon each issuance of any shares of Series 1 FON Stock and/or Series
3 FON Stock, on the one hand, and Series 1 PCS Stock and/or Series 3 PCS
Stock, on the other, in accordance with Section 1.2(d), each share of the
Corporation's existing Class A Common Stock--Series DT will be
automatically reclassified into a share of Class A Common Stock--Series DT
with a par value amount equal to the Reduced Par Value Amount and the
Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The FON Group and the Number Of Shares Issuable With Respect To
The Class A--Series DT Equity Interest In The PCS Group, respectively, will
be reduced in accordance with the definitions of such terms set forth in
ARTICLE SIXTH, Section 10; provided that after each such reclassification,
the sum of (x) the total number of outstanding shares of Series 1 FON Stock
and/or Series 3 FON Stock, on the one hand, or Series 1 PCS Stock and/or
Series 3 PCS Stock, on the other, so issued in accordance with Section
1.2(c) times the par value per share of such stock and (y) the total number
of outstanding shares of Class A Common Stock--Series DT immediately after
such issuance times the Reduced Par Value Amount will always equal (z) the
total number of outstanding shares of Class A Common Stock--Series DT
immediately prior to such issuance times the par value per share of such
shares existing immediately prior to such issuance.
(f) Notice Provisions; Issuance of Stock Certificates, etc.
(i) A Class A Holder shall exercise its rights under this Section 1.2 by
delivering a written notice to the Corporation (an "Issuance Notice")
signed by an authorized officer of the Class A Holder specifying (1) the
class and series of the Shares to be issued by the Corporation, (2) the
number of shares of each to be issued pursuant to such request, and (3) the
name of the Person in whose name the shares are to be issued (such a
Person, a "Designee").
(ii) As promptly as practical after receipt of an Issuance Notice, and in
no event later than 5 Business Days thereafter, the Corporation will
deliver or cause to be delivered a certificate or certificates representing
the number of duly issued, fully paid and nonassessable shares issued
pursuant to the Issuance Notice; provided, however, that the Corporation
shall not be obligated to issue such shares if any material defect exists
with respect to such Issuance Notice.
(iii) Immediately upon the issuance of the shares of Series 1 FON Stock,
Series 3 FON Stock, Series 1 PCS Stock and Series 3 PCS Stock pursuant to
an Issuance Notice, the Designee shall be treated for all purposes as
having become the record holder of the shares of such stock so issued.
(iv) This Corporation shall pay all United States federal, state or local
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares in connection with an Issuance Notice
pursuant to this Section 1.2, provided that this Corporation shall not be
required to pay any tax which may be payable in respect of any registration
of Transfer involved in the issue or delivery of such shares in a name
other than that of the registered holder of the Class A Common Stock that
gave rise to the right to cause the issuance of such Shares, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to this Corporation the amount of any such tax or has
established, to the satisfaction of this Corporation, that such tax has
been paid.
(v) In addition to the obligations of the Corporation contained in these
Articles of Incorporation to reserve and keep available Shares, this
Corporation shall at all times reserve and keep available, out of the
aggregate of its authorized but unissued Series 3 FON Stock, Series 3 PCS
Stock, Series 1 PCS Stock and Series 1 FON Stock and its issued Series 1
FON Stock or Series 1 PCS Stock held in its treasury, for the purpose of
effecting the issuances of the Series 3 FON Stock, Series 1 FON Stock,
Series 3 PCS Stock and Series 1 PCS Stock contemplated hereby.
IV-90
<PAGE>
Section 2. General Provisions Relating to All Stock.
2.1. Preemptive Rights; Cumulative Voting. No holder of shares of capital
stock of any class or series of this Corporation or holder of any security or
obligation convertible into shares of capital stock of any class or series of
this Corporation shall have any preemptive right whatsoever to subscribe for,
purchase or otherwise acquire shares of capital stock of any class or series
of this Corporation, whether now or hereafter authorized; provided that this
provision shall not (i) prohibit this Corporation from granting, contractually
or otherwise, to any such holder, the right to purchase additional securities
of this Corporation or (ii) otherwise limit or otherwise modify any rights of
any such holder pursuant to any such contract or other agreement. Stockholders
of this Corporation shall not be entitled to cumulative voting of their shares
in elections of Directors.
2.2. Redemption of Shares Held by Aliens. Notwithstanding any other
provision of these Articles of Incorporation to the contrary, outstanding
shares of Non-Class A Common Stock Beneficially Owned by Aliens and Class A
Stock Beneficially Owned by Aliens may be redeemed by this Corporation, by
action duly taken by the Board of Directors (with the approval of a majority
of the Continuing Directors (as defined in ARTICLE SEVENTH) at a meeting at
which at least seven Continuing Directors are present, except that no such
approval of the Continuing Directors shall be required if
(i) the Fair Price Provisions have been deleted in their entirety,
(ii) the Fair Price Provisions have been modified so as explicitly not to
apply to any Class A Holder, or they have been modified in a manner
reasonably satisfactory to FT and DT so as explicitly not to apply to any
transactions with any Class A Holder contemplated under these Articles of
Incorporation,
(iii) the transaction in question is not a "Business Combination" within
the meaning of the Fair Price Provisions, or
(iv) the Class A Holder that is a party to the transaction, along with
its Affiliates (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as in effect on October 1, 1982) and Associates (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of
1934, as in effect on October 1, 1982), is no longer an "Interested
Stockholder" or "Affiliate" of an "Interested Stockholder" within the
meaning of the Fair Price Provisions), to the extent necessary or
advisable, in the judgment of the Board of Directors, for this Corporation
or any of its Subsidiaries to comply with the requirements of Section 310
(each of (i) through (iv), a "Fair Price Condition"),
provided that (i) for purposes of these Articles of Incorporation, redemption
of the Class A Common Stock is deemed to occur upon the reduction, in
consideration of payments otherwise made in respect of redemptions under this
Section 2.2, of Shares Issuable With Respect To The Class A Equity Interest In
The FON Group or Shares Issuable With Respect To The Class A Equity Interest
In The PCS Group that are represented by the Class A Common Stock (with any
such redemption of shares of Class A Common Stock being referred to in this
Section 2.2 as a redemption of Shares Issuable With Respect To The Class A
Equity Interest In The FON Group or Shares Issuable With Respect To The Class
A Equity Interest In The PCS Group, as applicable) and (ii) Series 3 FON
Stock, Series 3 PCS Stock, Shares Issuable With Respect To The Class A Equity
Interest In The FON Group and Shares Issuable With Respect To The Class A
Equity Interest In The PCS Group may only be redeemed if, and only to the
extent that, they represent in the aggregate Votes constituting greater than
20% of the aggregate Voting Power of this Corporation immediately prior to the
time of such redemption. The terms and conditions of such redemption shall be
as follows, subject in any case to any other rights of a particular Alien or
of this Corporation pursuant to any contract or agreement between such Alien
and this Corporation:
(a) except as provided in Section 2.2(f), the redemption price of the
shares to be redeemed pursuant to this Section 2.2 shall be equal to the
Market Price of such shares on the third Business Day prior to the date
notice of such redemption is given pursuant to Section 2.2(d), provided
that, except as provided in Section 2.2(f), such redemption price as to any
Alien who purchased such shares of Non-Class A Common Stock after November
21, 1995 and within one year prior to the Redemption Date shall not (unless
otherwise determined by the Board of Directors) exceed the purchase price
paid by such Alien for such shares;
IV-91
<PAGE>
(b) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
(c) if less than all of the shares Beneficially Owned by Aliens are to be
redeemed, the shares to be redeemed shall be selected in such manner as
shall be determined by the Board of Directors, which may include selection
first of the most recently purchased shares thereof, selection by lot or
selection in any other manner determined by the Board of Directors to be
equitable, provided that this Corporation shall
(i) in all cases be entitled to redeem shares of Non-Class A Common
Stock Beneficially Owned by Aliens prior to redeeming any shares of
Series 3 FON Stock, Series 3 PCS Stock, Shares Issuable With Respect To
The Class A Equity Interest In The FON Group or Shares Issuable With
Respect To The Class A Equity Interest In The PCS Group Beneficially
Owned by Aliens,
(ii) redeem Shares Issuable With Respect To The Class A Equity
Interest In The FON Group or Shares Issuable With Respect To The Class
A Equity Interest In The PCS Group of the holders of Old Class A Common
Stock and Class A Common Stock--Series DT on a pro rata basis,
(iii) redeem, on a pro rata basis, Shares Issuable With Respect To
The Class A Equity Interest In The FON Group based on the ratio of the
Number Of Shares Issuable With Respect To The Old Class A Equity
Interest In The FON Group to the Number Of Shares Issuable With Respect
To The Class A--Series DT Equity Interest In The FON Group,
(iv) redeem, on a pro rata basis, Shares Issuable With Respect To The
Class A Equity Interest In The PCS Group based on the ratio of the
Number Of Shares Issuable With Respect To The Old Class A Equity
Interest In The PCS Group to the Number Of Shares Issuable With Respect
To The Class A--Series DT Equity Interest In The PCS Group, and
(v) redeem shares of Series 3 PCS Stock and Series 3 FON Stock prior
to redeeming Shares Issuable With Respect To The Class A Equity
Interest In The FON Group and Shares Issuable With Respect To The Class
A Equity Interest In The PCS Group;
(d) this Corporation shall give notice of the Redemption Date at least 30
days prior to the Redemption Date to the record holders of the shares
selected to be redeemed (unless waived in writing by any such holder) by
delivering a written notice by first class mail, postage pre-paid, to the
holders of record of the shares selected to be redeemed, addressed to such
holders at their last address as shown upon the stock transfer books of
this Corporation (each such notice of redemption specifying the date fixed
for redemption, the redemption price, the place or places of payment and
that payment will be made upon presentation and surrender of the
certificates representing such shares), provided that the Redemption Date
may be the date on which written notice shall be given to record holders if
the cash or Redemption Securities necessary to effect the redemption shall
have been deposited in trust for the benefit of such record holders and
subject to immediate withdrawal by them upon surrender of the stock
certificates for their shares to be redeemed;
(e) on the Redemption Date, unless this Corporation shall have defaulted
in paying or setting aside for payment the cash or Redemption Securities
payable upon such redemption, any and all rights of Aliens in respect of
shares so redeemed (including without limitation any rights to vote or
participate in dividends), shall cease and terminate, and from and after
such Redemption Date such Aliens shall be entitled only to receive the cash
or Redemption Securities payable upon redemption of the shares to be
redeemed; and
(f) such other terms and conditions as the Board of Directors shall
determine to be equitable, provided that,
(1) if any Shares Issuable With Respect To The Class A Equity
Interest In The FON Group or Shares Issuable With Respect To The Class
A Equity Interest In The PCS Group Class are redeemed pursuant to this
Section 2.2, (x) the redemption price, on a per share basis, of Shares
Issuable With Respect To The Class A Equity Interest In The FON Group
shall be an amount equal to the redemption price of a share of Series 3
FON Stock calculated pursuant to subsection (f)(2) of this Section 2.2,
and (y) the redemption price, on a per share basis, of Shares Issuable
With Respect To The Class A Equity Interest In The PCS Group shall be
an amount equal to the redemption price of shares of Series 3 PCS Stock
calculated pursuant to subsection (f)(4) of this Section 2.2;
IV-92
<PAGE>
(2) if any shares of Series 3 FON Stock are redeemed pursuant to this
Section 2.2, the redemption price thereof shall be a per share price
equal to the greater of (A) the Market Price of a share of Series 1 FON
Stock on the Redemption Date and (B) the Weighted Average Price paid by
the Class A Holders for the Series 3 FON Stock together with a stock
appreciation factor thereon (calculated on the basis of a 365-day year)
at the rate of 3.88% through and including the Redemption Date, such
stock appreciation factor to be calculated, on an annual compounding
basis, from (x) the date of purchase of such Series 3 FON Stock or (y)
in the case of either a share of Series 3 FON Stock issued in
connection with ARTICLE SIXTH, Section 1.2 or any Shares Issuable With
Respect To The Class A Equity Interest In The FON Group, the date of
purchase of the Class A Common Stock that represented such shares,
until the Redemption Date, provided, that if this Corporation redeems
any shares hereunder after April 26, 1999, the redemption price thereof
shall be the Market Price of a share of Series 1 FON Stock on the
Redemption Date;
(3) if any shares of Series 2 PCS Stock (or Series 2 FON Stock, if
applicable) are redeemed pursuant to this Section 2.2, the redemption
price of any such shares redeemed shall be a per share price equal to
the greater of (A) the Market Price of a share of Series 1 PCS Stock
(or Series 1 FON Stock, if applicable) on the Redemption Date and (B)
the Weighted Average Price paid by the holders thereof for the Series 2
PCS Stock (or Series 2 FON Stock, if applicable)) together with a stock
appreciation factor thereon (calculated on the basis of a 365-day year)
at the rate of 3.88% through and including the Redemption Date, such
stock appreciation factor to be calculated, on an annual compounding
basis, from the date of purchase of such Series 2 PCS Stock (or Series
2 FON Stock, if applicable) until the Redemption Date, provided, that
if this Corporation redeems any shares of Series 2 PCS Stock (or Series
2 FON Stock, if applicable) after April 26, 1999, the redemption price
of any such shares redeemed shall be the Market Price of a share of
Series 1 PCS Stock (or Series 1 FON Stock, if applicable) on the
Redemption Date; and
(4) if any shares of Series 3 PCS Stock (or Shares Issuable With
Respect To The Class A Equity Interest In The PCS Group) are redeemed
pursuant to this Section 2.2, the redemption price thereof shall be a
per share price equal to the greater of (A) the Market Price of a share
of Series 1 PCS Stock on the Redemption Date and (B) the Weighted
Average Price paid by the holders thereof for the Series 3 PCS Stock
(or Shares Issuable With Respect To The Class A Equity Interest In The
PCS Group) together with a stock appreciation factor thereon
(calculated on the basis of a 365-day year) at the rate of 3.88%
through and including the Redemption Date, such stock appreciation
factor to be calculated, on an annual compounding basis, (x) the date
of purchase of such Series 3 PCS Stock, or (y) in the case of a share
of Series 3 PCS Stock issued in connection with ARTICLE SIXTH,
Section 1.2 or Shares Issuable With Respect To The Class A Equity
Interest In The PCS Group, the date of purchase of the Class A Common
Stock that represented such shares, until the Redemption Date,
provided, that if this Corporation redeems any shares hereunder after
April 26, 1999, the redemption price thereof shall be the Market Price
of a share of Series 1 PCS Stock on the Redemption Date.
The redemption price to be paid to the Class A Holders shall be modified in
accordance with Article IX of the Stockholders' Agreement if either (i)
such redemption is effected on or prior to April 26, 1999, or (ii) such
redemption is effected within the 120-day period described in the last
sentence of Section 2.11 of the Stockholders' Agreement (as such period may
be extended pursuant thereto) following an election by this Corporation to
redeem shares in accordance with such Section.
Any notice that is mailed as herein provided shall be conclusively presumed
to have been duly given, whether or not the holder of shares to be redeemed
received such notice, provided that all notices to be given to the Class A
Holders shall be made and deemed delivered in accordance with Section 11 of
ARTICLE SIXTH and failure to give such notice by mail, or any defect in such
notice, to holders of shares designated for redemption shall not affect the
validity of the proceedings for the redemption of any other shares.
2.3. Beneficial Ownership Inquiry. (a) This Corporation may by written
notice require a Person that is a holder of record of Non-Class A Common Stock
or Class A Stock or that this Corporation knows to have, or has
IV-93
<PAGE>
reasonable cause to believe has, Beneficial Ownership of Non-Class A Common
Stock or Class A Stock, to certify that, to the knowledge of such Person:
(i) no Non-Class A Common Stock or Class A Stock as to which such Person
has record ownership or Beneficial Ownership is Beneficially Owned by
Aliens; or
(ii) the number and class or series of shares of Non-Class A Common Stock
or Class A Stock owned of record or Beneficially Owned by such Person that
are owned of record or Beneficially Owned by Persons that are Aliens are as
set forth in such certificate.
(b) With respect to any Non-Class A Common Stock or Class A Stock identified
by such Person in response to Section 2.3(a)(ii) above, this Corporation may
require such Person to provide such further information as this Corporation
may reasonably require in order to implement the provisions of Section 2.2 of
ARTICLE SIXTH.
(c) For purposes of applying Section 2.2 of ARTICLE SIXTH with respect to
any Non-Class A Common Stock or Class A Stock, if any Person fails to provide
the certificate or other information to which this Corporation is entitled
pursuant to this Section 2.3, this Corporation in its sole discretion may
presume that the Non-Class A Common Stock or Class A Stock in question is, or
is not, Beneficially Owned by Aliens.
2.4. Factual Determinations. The Board of Directors shall have the power and
duty to construe and apply the provisions of Sections 2.2 and 2.3 of ARTICLE
SIXTH and, with respect to shares of Non-Class A Common Stock, to make all
determinations necessary or desirable to implement such provisions, including
but not limited to: (a) the number of shares of Non-Class A Common Stock that
are Beneficially Owned by any Person; (b) whether a Person is an Alien; (c)
the application of any other definition of these Articles of Incorporation to
the given facts; and (d) any other matter relating to the applicability or
effect of Section 2.2 of ARTICLE SIXTH.
2.5. Loss of Voting Rights. If (a) there is a breach by FT, DT, any
Qualified Subsidiary, any Strategic Investor or any Qualified Stock Purchaser
of any of the provisions of Sections 3.1(a) or 3.2(b) (as it relates to
matters described in Section 3.1(a)) of the Standstill Agreement or any
corresponding provision of any Qualified Subsidiary Standstill Agreement,
Strategic Investor Standstill Agreement or Qualified Stock Purchaser
Standstill Agreement, (b) there is a willful breach in any material respect by
FT, DT, any Qualified Subsidiary, any Strategic Investor or any Qualified
Stock Purchaser of any provision of Section 3.1 (other than Section 3.1(a)) of
the Standstill Agreement or any corresponding provision of any Qualified
Subsidiary Standstill Agreement, Strategic Investor Standstill Agreement or
Qualified Stock Purchaser Standstill Agreement, or (c)a Government Affiliate
or Related Company (each as defined in the Standstill Agreement) takes an
action which if taken by FT or DT would violate Sections 3.1 or 3.2(b) (as it
relates to matters other than those described in Section 3.1(a)) of the
Standstill Agreement, then FT and its Qualified Subsidiaries (except in the
case of a breach arising from the action of a Government Affiliate of Germany,
a Related Company of DT or a Strategic Investor in a Qualified Subsidiary of
DT in which FT is not an investor), DT and its Qualified Subsidiaries (except
in the case of a breach arising from the action of a Government Affiliate of
France, a Related Company of FT or a Strategic Investor in a Qualified
Subsidiary of FT in which DT is not an investor) and each Qualified Stock
Purchaser shall not be entitled to vote any of their shares of capital stock
of this Corporation with respect to any matter or proposal arising from,
relating to or involving, such breach or action, and no such purported vote by
such Class A Holders on such matter shall be effective or shall be counted.
Section 3. Voting Powers.
Section 3.1. General. Except as otherwise provided by law or as expressly
set forth in ARTICLE FIFTH or in this ARTICLE SIXTH, each share of Corporation
Common Stock shall be entitled to vote, as provided in ARTICLE SIXTH, Section
3.2 and ARTICLE SIXTH, Section 7.5(d) (with respect to Class A Stock only), on
all matters in respect of which the holders of Corporation Common Stock are
entitled to vote, and, except as otherwise provided by the terms of any
outstanding series of Preferred Stock, the holders of Corporation Common Stock
shall vote together with the holders of all other classes or series of capital
stock which have general voting power on all such matters as a single class;
provided, however, that
IV-94
<PAGE>
(i) holders of FON Stock and Class A Common Stock, voting together as a
single class in accordance with Section 3.2(c), shall be entitled to vote
upon a proposed amendment to these Articles of Incorporation if such
amendment would (A) increase or decrease the aggregate number of authorized
shares of FON Stock, (B) increase or decrease the par value of the shares
of FON Stock or (C) alter or change the powers, preferences or special
rights of the shares of FON Stock so as to affect them adversely, and
(ii) holders of PCS Stock and Class A Common Stock, voting together as a
single class in accordance with Section 3.2(d), shall be entitled to vote
upon a proposed amendment to these Articles of Incorporation if such
amendment would (A) increase or decrease the aggregate number of authorized
shares of PCS Stock, (B) increase or decrease the par value of shares of
PCS Stock or (C) alter or change the powers, preferences or special rights
of the shares of PCS Stock so as to affect them adversely.
Section 3.2. Number of Votes. (a) On each matter to be voted on by the
holders of Non-Class A Common Stock and Class A Stock voting together as a
single class,
(i) each outstanding share of Series 1 FON and Series 3 FON Stock is
entitled to one vote (subject, in the case of the Series 3 FON Stock, to
any increase in accordance with ARTICLE SIXTH, Section 7.5(d));
(ii) subject to any increase resulting from the provisions of ARTICLE
SIXTH, Section 7.5(d), each outstanding share of Old Class A Common Stock
and Class A Common Stock--Series DT is entitled to a number of votes
(which, at any time, may be more but not less than one whole vote and may
include a fraction of a vote) equal to the sum of (A) in the case of the
Old Class A Common Stock, the Old Class A FON Vote Per Share and the Old
Class A PCS Vote Per Share and (B) in the case of the Class A Common
Stock--Series DT, the Class A--Series DT FON Vote Per Share and the Class
A--Series DT PCS Vote Per Share;
(iii) each outstanding share of Series 1 PCS Stock is entitled to a
number of votes (which, at any time, may be more or less than one whole
vote and may include a fraction of a vote) (the "PCS Per Share Vote") equal
to (x) if the record date for determining the stockholders entitled to vote
is on or before December 31, 1998, the number of votes determined by
multiplying one by the PCS Ratio and (y) if the record date for determining
the stockholders entitled to vote is after December 31, 1998, the number of
votes determined by multiplying one by the ratio of the Average Trading
Price of one share of Series 1 PCS Stock to the Average Trading Price of
one share of Series 1 FON Stock computed as of the tenth Trading Day
preceding the record date for determining the stockholders entitled to
vote, expressed as a decimal fraction rounded to the nearest three decimal
places;
(iv) each outstanding share of Series 2 PCS Stock is entitled to a number
of votes (which, at any time, may be more or less than one whole vote and
may include a fraction of one vote) equal to ten percent of the applicable
PCS Per Share Vote as determined in accordance with Section 3.2(a)(iii);
(v) each outstanding share of Series 3 PCS Stock is entitled to a number
of votes (which, at any time, may be more or less than one whole vote and
may include a fraction of one vote) equal to the applicable PCS Per Share
Vote as determined in accordance with Section 3.2(a)(iii) (subject to any
increase in accordance with ARTICLE SIXTH, Section 7.5(d)); and
(vi) each outstanding share of Series 2 FON Stock is entitled to ten
percent of one vote.
(b) On each matter to be voted on by the holders of Non-Class A Common Stock
voting together as a single class,
(i) each outstanding share of Series 1 FON Stock is entitled to one vote;
(ii) each outstanding share of Series 1 PCS Stock is entitled to the PCS
Per Share Vote determined in accordance with Section 3.2(a)(iii);
(iii) each outstanding share of Series 2 PCS Stock is entitled to a
number of votes determined in accordance with Section 3.2(a)(iv); and
(iv) each outstanding share of Series 2 FON Stock is entitled to ten
percent of one vote.
IV-95
<PAGE>
(c) On each matter to be voted on by the holders of FON Stock and Class A
Common Stock, voting together as a single class, each outstanding share of (i)
Series 1 FON Stock, Series 2 FON Stock and Series 3 FON Stock is entitled to
one vote and (ii) Old Class A Common Stock and Class A Common Stock--Series DT
is entitled to the Old Class A FON Vote Per Share and the Class A--Series DT
FON Vote Per Share, respectively.
(d) On each matter to be voted on by the holders of the PCS Stock and Class
A Common Stock voting together as a single class, each outstanding share of
(i) Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock is entitled
to one vote and (ii) Old Class A Common Stock and Class A Common Stock--Series
DT is entitled to the Old Class A PCS Vote Per Share and the Class A--Series
DT PCS Vote Per Share, respectively.
(e) On each matter to be voted on by the holders of the Class A Stock voting
together as a single class, each outstanding share of (i) Series 3 FON Stock
is entitled to one vote, (ii) Series 3 PCS Stock is entitled to the PCS Vote
Per Share determined in accordance with Section 3.2(a)(v), and (iii) Old Class
A Common Stock and Class A Common Stock--Series DT is entitled to their
respective per share vote determined in accordance with Section 3.2(a)(ii).
(f) In addition to the foregoing provisions of this Section 3, (i) if shares
of only one class or series of Corporation Common Stock are outstanding on the
record date for determining the holders of Corporation Common Stock entitled
to vote on any matter, then each share of that class or series shall be
entitled to one vote and (ii) if any class or any series of Corporation Common
Stock votes as a separate class with respect to any matter, each share of that
class or series shall, for purposes of such vote, be entitled to one vote on
such matter.
Section 4. Liquidation Rights. If any voluntary or involuntary liquidation,
dissolution or winding up of this Corporation occurs, then after payment or
provision for payment of the debts and other liabilities of this Corporation,
including the liquidation preferences of any series of Preferred Stock, the
holders of Corporation Common Stock shall be entitled to receive the remaining
assets of the Corporation, regardless of the Business Group to which such
assets are attributed in accordance with Section 10 of this ARTICLE SIXTH,
divided among such holders in accordance with the per share "Liquidation
Units" attributable to each such class or series of stock as follows:
(i) each share of Series 1 FON Stock, Series 2 FON Stock and Series 3 FON
Stock is hereby attributed one "Liquidation Unit,"
(ii) at the time of the liquidation, dissolution or winding up of this
Corporation, each share of Old Class A Common Stock will be attributed a
number of "Liquidation Units" (which may be more or less than one whole
"Liquidation Unit" and may include a fraction of a "Liquidation Unit")
equal to (A) the sum of (I) the Number Of Shares Issuable With Respect To
The Old Class A Equity Interest In The FON Group and (II) the product of
the Number Of Shares Issuable With Respect To The Old Class A Equity
Interest In The PCS Group and the PCS Ratio, divided by (B) the aggregate
number of shares of Old Class A Common Stock outstanding;
(iii) at the time of the liquidation, dissolution or winding up of this
Corporation, each share of Class A Common Stock--Series DT will be
attributed a number of "Liquidation Units" (which may be more or less than
one whole "Liquidation Unit" and may include a fraction of a "Liquidation
Unit") equal to (A) the sum of (I) the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group and (II)
the product of the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The PCS Group and the PCS Ratio, divided by
(B) the aggregate number of shares of Class A Common Stock--Series DT
outstanding; and
(iv) each share of PCS Stock is hereby attributed the number of
"Liquidation Units" determined by multiplying one by the PCS Ratio.
The per share "Liquidation Units" of each such class or series of stock are
subject to adjustment as determined by the Board of Directors to be
appropriate to reflect equitably (i) any subdivision (by stock split or
otherwise)
IV-96
<PAGE>
or combination (by reverse stock split or otherwise) of such class or series
of stock or (ii) any dividend or other distribution of shares of such class or
series of stock to holders of shares of such class or series of stock. Neither
the merger nor consolidation of this Corporation, nor the Transfer of all or
part of its assets, shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of this Corporation within the meaning
of this Section 4. Notwithstanding the foregoing, any transaction or series of
related transactions which results in the distribution of all or substantially
all of the assets of the PCS Group (excluding any portion of such assets
retained by the Corporation or distributed to holders of FON Stock in respect
of the FON Group Intergroup Interest Fraction) to the holders of the
outstanding PCS Stock and Class A Common Stock (to the extent of any Shares
Issuable With Respect To The Class A Equity Interest In The PCS Group) by way
of the distribution of equity interests in one or more entities that
collectively hold, directly or indirectly, all or substantially all of the
assets of the PCS Group (including, without limitation, the PCS Group
Subsidiary) shall not constitute a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation for purposes of this Section 4
but shall be subject to ARTICLE SIXTH, Section 7.2.
Section 5. Dividends. Dividends shall be declared and paid only out of net
income or surplus of this Corporation and may be declared and paid upon each
class and series of Corporation Common Stock, upon the terms with respect to
each such class and series, and subject to the limitations provided for in
this Section 5 and in Section 13, as the Board of Directors may determine.
5.1. Generally. Dividends on Corporation Common Stock may be declared and
paid only out of the funds of the Corporation legally available therefor.
5.1.1. The holders of the Series 1 FON Stock shall be entitled to receive,
when and if declared by the Board of Directors in accordance with this Section
5.1, dividends in respect of the Series 1 FON Stock equivalent on a per share
basis to those payable on the Series 2 FON Stock. Dividends on the Series 1
FON Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 2 FON Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 2 FON Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 2 FON Stock, provided
that if this Corporation shall declare and pay any dividends on shares of
Series 2 FON Stock payable in shares of Series 2 FON Stock, or in options,
warrants or rights to acquire shares of Series 2 FON Stock, or in securities
convertible into or exchangeable for shares of Series 2 FON Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 1 FON Stock payable in shares of Series 1 FON Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 1 FON
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 1 FON Stock.
5.1.2. The holders of the Series 1 FON Stock shall be entitled to receive,
when and if declared by the Board of Directors in accordance with this Section
5.1, dividends in respect of the Series 1 FON Stock equivalent on a per share
basis to those payable on the Series 3 FON Stock. Dividends on the Series 1
FON Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 3 FON Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 3 FON Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 3 FON Stock, provided
that if this Corporation shall declare and pay any dividends on shares of
Series 3 FON Stock payable in shares of Series 3 FON Stock, or in options,
warrants or rights to acquire shares of Series 3 FON Stock, or in securities
convertible into or exchangeable for shares of Series 3 FON Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 1 FON Stock payable in shares of Series 1 FON Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 1 FON
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 1 FON Stock.
5.1.3. The holders of shares of Series 2 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 FON Stock equivalent
IV-97
<PAGE>
on a per share basis to those payable on the Series 1 FON Stock. Dividends on
the Series 2 FON Stock shall be payable on the same date fixed for the payment
of the corresponding dividend on shares of Series 1 FON Stock and shall be in
an amount per share equal to the full per share amount of any cash dividend
paid on shares of Series 1 FON Stock, plus the full per share amount (payable
in kind) of any non-cash dividend paid on shares of Series 1 FON Stock,
provided that if this Corporation shall declare and pay any dividend on shares
of Series 1 FON Stock payable in shares of Series 1 FON Stock, or in options,
warrants or rights to acquire shares of Series 1 FON Stock, or in securities
convertible into or exchangeable for shares of Series 1 FON Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 2 FON Stock payable in shares of Series 2 FON Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 2 FON
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 FON Stock.
5.1.4. The holders of shares of Series 2 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 FON Stock equivalent on
a per share basis to those payable on the Series 3 FON Stock. Dividends on the
Series 2 FON Stock shall be payable on the same date fixed for the payment of
the corresponding dividend on shares of Series 3 FON Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 3 FON Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 3 FON Stock, provided
that if this Corporation shall declare and pay any dividend on shares of
Series 3 FON Stock payable in shares of Series 3 FON Stock, or in options,
warrants or rights to acquire shares of Series 3 FON Stock, or in securities
convertible into or exchangeable for shares of Series 3 FON Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 2 FON Stock payable in shares of Series 2 FON Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 2 FON
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 FON Stock.
5.1.5. The holders of shares of Series 3 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 FON Stock equivalent on
a per share basis to those payable on the Series 1 FON Stock. Dividends on the
Series 3 FON Stock shall be payable on the same date fixed for the payment of
the corresponding dividend on shares of Series 1 FON Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 1 FON Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 1 FON Stock, provided
that if this Corporation shall declare and pay any dividend on shares of
Series 1 FON Stock payable in shares of Series 1 FON Stock, or in options,
warrants or rights to acquire shares of Series 1 FON Stock, or in securities
convertible into or exchangeable for shares of Series 1 FON Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 3 FON Stock payable in shares of Series 3 FON Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 3 FON
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 FON Stock.
5.1.6. The holders of shares of Series 3 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 FON Stock equivalent on
a per share basis to those payable on the Series 2 FON Stock. Dividends on the
Series 3 FON Stock shall be payable on the same date fixed for the payment of
the corresponding dividend on shares of Series 2 FON Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 2 FON Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 2 FON Stock, provided
that if this Corporation shall declare and pay any dividend on shares of
Series 2 FON Stock payable in shares of Series 2 FON Stock, or in options,
warrants or rights to acquire shares of Series 2 FON Stock, or in securities
convertible into or exchangeable for shares of Series 2 FON Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 3 FON Stock payable in shares of Series 3 FON Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 3 FON
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 FON Stock.
IV-98
<PAGE>
5.1.7. In addition to the entitlement with respect to dividends contained in
Sections 5.1.16 through 5.1.18, the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a Per Class A FON Share Basis to those payable on a
per share basis to the Series 1 FON Stock. Dividends on the Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 1 FON Stock and shall be in an
amount, on a Per Class A FON Share Basis, equal to (i) the full per share
amount of any cash dividend paid on shares of Series 1 FON Stock plus (ii) the
full per share amount (payable in kind) of any non-cash dividend paid on
shares of Series 1 FON Stock, provided that if this Corporation shall declare
and pay any dividend on shares of Series 1 FON Stock payable in shares of
Series 1 FON Stock, or in options, warrants or rights to acquire shares of
Series 1 FON Stock, or in securities convertible into or exchangeable for
shares of Series 1 FON Stock, then in each case, this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend on a Per Class A FON Share Basis on the Class A Common
Stock payable in shares of Series 3 FON Stock, or equivalent corresponding
options, warrants or rights to acquire shares of Series 3 FON Stock, or
equivalent corresponding securities convertible into or exchangeable for
shares of Series 3 FON Stock.
5.1.8. In addition to the entitlement with respect to dividends contained in
Sections 5.1.16 through 5.1.18, the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a Per Class A FON Share Basis to those payable on a
per share basis to the Series 2 FON Stock. Dividends on the Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 2 FON Stock and shall be in an
amount, on a Per Class A FON Share Basis, equal to (i) the full per share
amount of any cash dividend paid on shares of Series 2 FON Stock plus (ii) the
full per share amount (payable in kind) of any non-cash dividend paid on
shares of Series 2 FON Stock, provided that if this Corporation shall declare
and pay any dividend on shares of Series 2 FON Stock payable in shares of
Series 2 FON Stock, or in options, warrants or rights to acquire shares of
Series 2 FON Stock, or in securities convertible into or exchangeable for
shares of Series 2 FON Stock, then in each case, this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend on a Per Class A FON Share Basis on the Class A Common
Stock payable in shares of Series 3 FON Stock, or equivalent corresponding
options, warrants or rights to acquire shares of Series 3 FON Stock, or
equivalent corresponding securities convertible into or exchangeable for
shares of Series 3 FON Stock.
5.1.9. In addition to the entitlement with respect to dividends contained in
Sections 5.1.16 through 5.1.18, the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class A
Common Stock, on a Per Class A FON Share Basis, equal to those payable on a
per share basis to the Series 3 FON Stock. Dividends on the Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 3 FON Stock and shall be in an
amount, on a Per Class A FON Share Basis, equal to (i) the full per share
amount of any cash dividend paid on shares of Series 3 FON Stock plus (ii) the
full per share amount (payable in kind) of any non-cash dividend paid on
shares of Series 3 FON Stock, provided that if this Corporation shall declare
and pay any dividend on shares of Series 3 FON Stock payable in shares of
Series 3 FON Stock, or in options, warrants or rights to acquire shares of
Series 3 FON Stock, or in securities convertible into or exchangeable for
shares of Series 3 FON Stock, then in each case, this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend on a Per Class A FON Share Basis on the Class A Common
Stock payable in shares of Series 3 FON Stock, or equivalent corresponding
options, warrants or rights to acquire shares of Series 3 FON Stock, or
equivalent corresponding securities convertible into or exchangeable for
shares of Series 3 FON Stock.
5.1.10. The holders of the Series 1 PCS Stock shall be entitled to receive,
when and if declared by the Board of Directors in accordance with this Section
5.1, dividends in respect of the Series 1 PCS Stock equivalent on a per share
basis to those payable on the Series 2 PCS Stock. Dividends on the Series 1
PCS Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 2 PCS Stock and shall
IV-99
<PAGE>
be in an amount per share equal to the full per share amount of any cash
dividend paid on shares of Series 2 PCS Stock, plus the full per share amount
(payable in kind) of any non-cash dividend paid on shares of Series 2 PCS
Stock, provided that if this Corporation shall declare and pay any dividends
on shares of Series 2 PCS Stock payable in shares of Series 2 PCS Stock, or in
options, warrants or rights to acquire shares of Series 2 PCS Stock, or in
securities convertible into or exchangeable for shares of Series 2 PCS Stock,
then in each case, this Corporation shall declare and pay, at the same time
that it declares and pays any such dividend, an equivalent dividend per share
on the Series 1 PCS Stock payable in shares of Series 1 PCS Stock, or
equivalent corresponding options, warrants or rights to acquire shares of
Series 1 PCS Stock, or equivalent corresponding securities convertible into or
exchangeable for shares of Series 1 PCS Stock.
5.1.11. The holders of the Series 1 PCS Stock shall be entitled to receive,
when and if declared by the Board of Directors in accordance with this Section
5.1, dividends in respect of the Series 1 PCS Stock equivalent on a per share
basis to those payable on the Series 3 PCS Stock. Dividends on the Series 1
PCS Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 3 PCS Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 3 PCS Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 3 PCS Stock, provided
that if this Corporation shall declare and pay any dividends on shares of
Series 3 PCS Stock payable in shares of Series 3 PCS Stock, or in options,
warrants or rights to acquire shares of Series 3 PCS Stock, or in securities
convertible into or exchangeable for shares of Series 3 PCS Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 1 PCS Stock payable in shares of Series 1 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 1 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 1 PCS Stock.
5.1.12. The holders of shares of Series 2 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 PCS Stock equivalent on
a per share basis to those payable on the Series 1 PCS Stock. Dividends on the
Series 2 PCS Stock shall be payable on the same date fixed for the payment of
the corresponding dividend on shares of Series 1 PCS Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 1 PCS Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 1 PCS Stock, provided
that if this Corporation shall declare and pay any dividend on shares of
Series 1 PCS Stock payable in shares of Series 1 PCS Stock, or in options,
warrants or rights to acquire shares of Series 1 PCS Stock, or in securities
convertible into or exchangeable for shares of Series 1 PCS Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 2 PCS Stock payable in shares of Series 2 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 2 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 PCS Stock.
5.1.13. The holders of shares of Series 2 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 PCS Stock equivalent on
a per share basis to those payable on the Series 3 PCS Stock. Dividends on the
Series 2 PCS Stock shall be payable on the same date fixed for the payment of
the corresponding dividend on shares of Series 3 PCS Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 3 PCS Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 3 PCS Stock, provided
that if this Corporation shall declare and pay any dividend on shares of
Series 3 PCS Stock payable in shares of Series 3 PCS Stock, or in options,
warrants or rights to acquire shares of Series 3 PCS Stock, or in securities
convertible into or exchangeable for shares of Series 3 PCS Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 2 PCS Stock payable in shares of Series 2 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 2 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 PCS Stock.
5.1.14. The holders of shares of Series 3 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 PCS Stock
IV-100
<PAGE>
equivalent on a per share basis to those payable on the Series 1 PCS Stock.
Dividends on the Series 3 PCS Stock shall be payable on the same date fixed
for the payment of the corresponding dividend on shares of Series 1 PCS Stock
and shall be in an amount per share equal to the full per share amount of any
cash dividend paid on shares of Series 1 PCS Stock, plus the full per share
amount (payable in kind) of any non-cash dividend paid on shares of Series 1
PCS Stock, provided that if this Corporation shall declare and pay any
dividend on shares of Series 1 PCS Stock payable in shares of Series 1 PCS
Stock, or in options, warrants or rights to acquire shares of Series 1 PCS
Stock, or in securities convertible into or exchangeable for shares of Series
1 PCS Stock, then in each case, this Corporation shall declare and pay, at the
same time that it declares and pays any such dividend, an equivalent dividend
per share on the Series 3 PCS Stock payable in shares of Series 3 PCS Stock,
or equivalent corresponding options, warrants or rights to acquire shares of
Series 3 PCS Stock, or equivalent corresponding securities convertible into or
exchangeable for shares of Series 3 PCS Stock.
5.1.15. The holders of shares of Series 3 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 PCS Stock equivalent on
a per share basis to those payable on the Series 2 PCS Stock. Dividends on the
Series 3 PCS Stock shall be payable on the same date fixed for the payment of
the corresponding dividend on shares of Series 2 PCS Stock and shall be in an
amount per share equal to the full per share amount of any cash dividend paid
on shares of Series 2 PCS Stock, plus the full per share amount (payable in
kind) of any non-cash dividend paid on shares of Series 2 PCS Stock, provided
that if this Corporation shall declare and pay any dividend on shares of
Series 2 PCS Stock payable in shares of Series 2 PCS Stock, or in options,
warrants or rights to acquire shares of Series 2 PCS Stock, or in securities
convertible into or exchangeable for shares of Series 2 PCS Stock, then in
each case, this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, an equivalent dividend per share on the
Series 3 PCS Stock payable in shares of Series 3 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 3 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 PCS Stock.
5.1.16. In addition to the entitlement with respect to dividends contained
in Sections 5.1.7 through 5.1.9, the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a Per Class A PCS Share Basis to those payable on a
per share basis to the Series 1 PCS Stock. Dividends on the Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 1 PCS Stock and shall be in an
amount, on a Per Class A PCS Share Basis, equal to (i) the full per share
amount of any cash dividend paid on shares of Series 1 PCS Stock plus (ii) the
full per share amount (payable in kind) of any non-cash dividend paid on
shares of Series 1 PCS Stock, provided that if this Corporation shall declare
and pay any dividend on shares of Series 1 PCS Stock payable in shares of
Series 1 PCS Stock, or in options, warrants or rights to acquire shares of
Series 1 PCS Stock, or in securities convertible into or exchangeable for
shares of Series 1 PCS Stock, then in each case, this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend on a Per Class A PCS Share Basis on the Class A Common
Stock payable in shares of Series 3 PCS Stock, or equivalent corresponding
options, warrants or rights to acquire shares of Series 3 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable for
shares of Series 3 PCS Stock.
5.1.17. In addition to the entitlement with respect to dividends contained
in Sections 5.1.7 through 5.1.9, the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a Per Class A PCS Share Basis to those payable on a
per share basis to the Series 2 PCS Stock. Dividends on the Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 2 PCS Stock and shall be in an
amount, on a Per Class A PCS Share Basis, equal to (i) the full per share
amount of any cash dividend paid on shares of Series 2 PCS Stock plus (ii) the
full per share amount (payable in kind) of any non-cash dividend paid on
shares of Series 2 PCS Stock, provided that if this Corporation shall declare
and pay any dividend on shares of Series 2 PCS Stock payable in shares of
Series 2 PCS Stock, or in options, warrants or rights to acquire shares of
Series 2 PCS Stock, or in securities convertible
IV-101
<PAGE>
into or exchangeable for shares of Series 2 PCS Stock, then in each case, this
Corporation shall declare and pay, at the same time that it declares and pays
any such dividend, an equivalent dividend on a Per Class A PCS Share Basis on
the Class A Common Stock payable in shares of Series 3 PCS Stock, or
equivalent corresponding options, warrants or rights to acquire shares of
Series 3 PCS Stock, or equivalent corresponding securities convertible into or
exchangeable for shares of Series 3 PCS Stock.
5.1.18. In addition to the entitlement with respect to dividends contained
in Sections 5.1.7 through 5.1.9, the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors
in accordance with this Section 5.1, dividends in respect of the Class A
Common Stock equivalent on a Per Class A PCS Share Basis to those payable on a
per share basis to the Series 3 PCS Stock. Dividends on the Class A Common
Stock shall be payable on the same date fixed for the payment of the
corresponding dividend on shares of Series 3 PCS Stock and shall be in an
amount, on a Per Class A PCS Share Basis, equal to (i) the full per share
amount of any cash dividend paid on shares of Series 3 PCS Stock plus (ii) the
full per share amount (payable in kind) of any non-cash dividend paid on
shares of Series 3 PCS Stock, provided that if this Corporation shall declare
and pay any dividend on shares of Series 3 PCS Stock payable in shares of
Series 3 PCS Stock, or in options, warrants or rights to acquire shares of
Series 3 PCS Stock, or in securities convertible into or exchangeable for
shares of Series 3 PCS Stock, then in each case, this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
an equivalent dividend on a Per Class A PCS Share Basis on the Class A Common
Stock payable in shares of Series 3 PCS Stock, or equivalent corresponding
options, warrants or rights to acquire shares of Series 3 PCS Stock, or
equivalent corresponding securities convertible into or exchangeable for
shares of Series 3 PCS Stock.
5.1.19. The holders of shares of Old Class A Common Stock shall be entitled
to receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Old Class A Common Stock
equivalent, on a Per Class A FON Share Basis and on a Per Class A PCS Share
Basis, to those payable on the Class A Common Stock--Series DT. Dividends on
the Old Class A Common Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Class A Common Stock--
Series DT and shall be in an amount, on a Per Class A FON Share Basis and on a
Per Class A PCS Share Basis, equal to the amount of any cash dividend paid on
shares of Class A Common Stock--Series DT, plus the amount, on a Per Class A
FON Share Basis and on a Per Class A PCS Share Basis, (payable in kind) of any
non-cash dividend paid on shares of Class A Common Stock--Series DT, provided
that if this Corporation shall declare and pay any dividend on shares of Class
A Common Stock--Series DT payable in shares of FON Stock or PCS Stock, or in
options, warrants or rights to acquire shares of FON Stock or PCS Stock, or in
securities convertible into or exchangeable for shares of FON Stock or PCS
Stock, then in each case, this Corporation shall declare and pay, at the same
time that it declares and pays any such dividend, an equivalent dividend, on a
Per Class A FON Share Basis and on a Per Class A PCS Share Basis, on the Old
Class A Common Stock payable in shares of FON Stock or PCS Stock,
respectively, or equivalent corresponding options, warrants or rights to
acquire shares of FON Stock or PCS Stock, respectively, or equivalent
corresponding securities convertible into or exchangeable for shares of FON
Stock or PCS Stock, respectively.
5.1.20. The holders of shares of Class A Common Stock--Series DT shall be
entitled to receive, when and if declared by the Board of Directors in
accordance with this Section 5.1, dividends in respect of the Class A Common
Stock--Series DT equivalent, on a Per Class A FON Share Basis and on a Per
Class A PCS Share Basis, to those payable on the Old Class A Common Stock.
Dividends on the Class A Common Stock--Series DT shall be payable on the same
date fixed for the payment of the corresponding dividend on shares of Old
Class A Common Stock and shall be in an amount, on a Per Class A FON Share
Basis and on a Per Class A PCS Share Basis, equal to the full amount of any
cash dividend paid on shares of Old Class A Common Stock, plus the full
amount, on a Per Class A FON Share Basis and on a Per Class A PCS Share Basis,
(payable in kind) of any non-cash dividend paid on shares of Old Class A
Common Stock, provided that if this Corporation shall declare and pay any
dividend on shares of Old Class A Common Stock payable in shares of FON Stock
or PCS Stock, or in options, warrants or rights to acquire shares of FON Stock
or PCS Stock, or in securities convertible into or exchangeable for shares of
FON Stock or PCS Stock, then in each case, this Corporation
IV-102
<PAGE>
shall declare and pay, at the same time that it declares and pays any such
dividend, an equivalent dividend, on a Per Class A FON Share Basis and on a
Per Class A PCS Share Basis, on the Class A Common Stock--Series DT payable in
shares of FON Stock or PCS Stock, respectively, or equivalent corresponding
options, warrants or rights to acquire shares of FON Stock or PCS Stock,
respectively, or equivalent corresponding securities convertible into or
exchangeable for shares of FON Stock or PCS Stock, respectively.
5.1.21. The holders of shares of Series 1 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 1 FON Stock equivalent on
a per share basis to those payable, on a Per Class A FON Share Basis, on the
Old Class A Common Stock (with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group only). Dividends
on the Series 1 FON Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common Stock
and shall be in an amount per share equal to the full Per Class A FON Share
amount of any cash dividend paid on shares of Old Class A Common Stock, plus
the full Per Class A FON Share amount (payable in kind) of any non-cash
dividend paid on shares of Old Class A Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Old Class A Common
Stock payable in shares of FON Stock or PCS Stock, or in options, warrants or
rights to acquire shares of FON Stock or PCS Stock, or in securities
convertible into or exchangeable for shares of FON Stock or PCS Stock, then in
each case (with respect to the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The FON Group only), this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
a dividend per share on the Series 1 FON (equivalent to that declared and paid
on shares of Old Class A Common Stock on a Per Class A FON Share Basis) Stock
payable in shares of Series 1 FON Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 1 FON Stock, or equivalent
corresponding securities convertible into or exchangeable for shares of Series
1 FON Stock.
5.1.22. The holders of shares of Series 2 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 FON Stock equivalent on
a per share basis to those payable, on a Per Class A FON Share Basis, on the
Old Class A Common Stock (with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group only). Dividends
on the Series 2 FON Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common Stock
and shall be in an amount per share equal to the full Per Class A FON Share
amount of any cash dividend paid on shares of Old Class A Common Stock, plus
the full Per Class A FON Share amount (payable in kind) of any non-cash
dividend paid on shares of Old Class A Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Old Class A Common
Stock payable in shares of FON Stock or PCS Stock, or in options, warrants or
rights to acquire shares of FON Stock or PCS Stock, or in securities
convertible into or exchangeable for shares of FON Stock or PCS Stock, then in
each case (with respect to the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The FON Group only), this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
a dividend per share on the Series 2 FON Stock (equivalent to that declared
and paid on shares of Old Class A Common Stock on a Per Class A FON Share
Basis) payable in shares of Series 2 FON Stock, or equivalent corresponding
options, warrants or rights to acquire shares of Series 2 FON Stock, or
equivalent corresponding securities convertible into or exchangeable for
shares of Series 2 FON Stock.
5.1.23. The holders of shares of Series 3 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 FON Stock equivalent on
a per share basis to those payable, on a Per Class A FON Share Basis, on the
Old Class A Common Stock (with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group only). Dividends
on the Series 3 FON Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common Stock
and shall be in an amount per share equal to the full Per Class A FON Share
amount of any cash dividend paid on shares of Old Class A Common Stock, plus
the full Per Class A FON Share amount (payable in kind) of any non-cash
dividend paid on shares of Old Class A Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Old Class A Common
Stock payable in shares of FON Stock or PCS Stock, or in options, warrants or
rights to
IV-103
<PAGE>
acquire shares of FON Stock or PCS Stock, or in securities convertible into or
exchangeable for shares of FON Stock or PCS Stock, then in each case (with
respect to the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The FON Group only), this Corporation shall declare and
pay, at the same time that it declares and pays any such dividend, a dividend
per share on the Series 3 FON Stock (equivalent to that declared and paid on
shares of Old Class A Common Stock on a Per Class A FON Share Basis) payable
in shares of Series 3 FON Stock, or equivalent corresponding options, warrants
or rights to acquire shares of Series 3 FON Stock, or equivalent corresponding
securities convertible into or exchangeable for shares of Series 3 FON Stock.
5.1.24. The holders of shares of Series 1 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 1 PCS Stock equivalent on
a per share basis to those payable, on a Per Class A PCS Share Basis, on the
Old Class A Common Stock (with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The PCS Group only). Dividends
on the Series 1 PCS Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common Stock
and shall be in an amount per share equal to the full Per Class A PCS Share
amount of any cash dividend paid on shares of Old Class A Common Stock, plus
the full Per Class A PCS Share amount (payable in kind) of any non-cash
dividend paid on shares of Old Class A Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Old Class A Common
Stock payable in shares of PCS Stock, or in options, warrants or rights to
acquire shares of PCS Stock, or in securities convertible into or exchangeable
for shares of PCS Stock, then in each case (with respect to the Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The PCS
Group only), this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, a dividend per share on the Series 1 PCS
Stock (equivalent to that declared and paid on shares of Old Class A Common
Stock on a Per Class A PCS Share Basis) payable in shares of Series 1 PCS
Stock, or equivalent corresponding options, warrants or rights to acquire
shares of Series 1 PCS Stock, or equivalent corresponding securities
convertible into or exchangeable for shares of Series 1 PCS Stock.
5.1.25. The holders of shares of Series 2 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 PCS Stock equivalent on
a per share basis to those payable, on a Per Class A PCS Share Basis, on the
Old Class A Common Stock (with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The PCS Group only). Dividends
on the Series 2 PCS Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common Stock
and shall be in an amount per share equal to the full Per Class A PCS Share
amount of any cash dividend paid on shares of Old Class A Common Stock, plus
the full Per Class A PCS Share amount (payable in kind) of any non-cash
dividend paid on shares of Old Class A Common Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Old Class A Common
Stock payable in shares of PCS Stock, or in options, warrants or rights to
acquire shares of PCS Stock, or in securities convertible into or exchangeable
for shares of PCS Stock, then in each case (with respect to the Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The PCS
Group only), this Corporation shall declare and pay, at the same time that it
declares and pays any such dividend, a dividend per share on the Series 2 PCS
Stock (equivalent to that declared and paid on shares of Old Class A Common
Stock on a Per Class A PCS Share Basis) payable in shares of Series 2 PCS
Stock, or equivalent corresponding options, warrants or rights to acquire
shares of Series 2 PCS Stock, or equivalent corresponding securities
convertible into or exchangeable for shares of Series 2 PCS Stock.
5.1.26. The holders of shares of Series 3 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 PCS Stock equivalent on
a per share basis to those payable, on a Per Class A PCS Share Basis, on the
Old Class A Common Stock (with respect to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The PCS Group only). Dividends
on the Series 3 PCS Stock shall be payable on the same date fixed for the
payment of the corresponding dividend on shares of Old Class A Common Stock
and shall be in an amount per share equal to the full Per Class A PCS Share
amount of any cash dividend paid on shares of Old Class A Common Stock, plus
the full Per Class A PCS Share amount (payable in kind) of any non-cash
dividend paid on shares of
IV-104
<PAGE>
Old Class A Common Stock, provided that if this Corporation shall declare and
pay any dividend on shares of Old Class A Common Stock payable in shares of
PCS Stock, or in options, warrants or rights to acquire shares of PCS Stock,
or in securities convertible into or exchangeable for shares of PCS Stock,
then in each case (with respect to the Number Of Shares Issuable With Respect
To The Old Class A Equity Interest In The PCS Group only), this Corporation
shall declare and pay, at the same time that it declares and pays any such
dividend, a dividend per share on the Series 3 PCS Stock (equivalent to that
declared and paid on shares of Old Class A Common Stock on a Per Class A PCS
Share Basis) payable in shares of Series 3 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 3 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 PCS Stock.
5.1.27. The holders of shares of Series 1 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 1 FON Stock equivalent on
a per share basis to those payable, on a Per Class A FON Share Basis, on the
Class A Common Stock--Series DT Stock (with respect to the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The FON
Group only). Dividends on the Series 1 FON Stock shall be payable on the same
date fixed for the payment of the corresponding dividend on shares of Class A
Common Stock--Series DT Stock and shall be in an amount per share equal to the
full Per Class A FON Share amount of any cash dividend paid on shares of Class
A Common Stock--Series DT Stock, plus the full Per Class A FON Share amount
(payable in kind) of any non-cash dividend paid on shares of Class A Common
Stock--Series DT Stock, provided that if this Corporation shall declare and
pay any dividend on shares of Class A Common Stock--Series DT Stock payable in
shares of FON Stock or PCS Stock, or in options, warrants or rights to acquire
shares of FON Stock or PCS Stock, or in securities convertible into or
exchangeable for shares of FON Stock or PCS Stock, then in each case (with
respect to the Number Of Shares Issuable With Respect To The Class A--Series
DT Equity Interest In The FON Group only), this Corporation shall declare and
pay, at the same time that it declares and pays any such dividend, a dividend
per share on the Series 1 FON Stock (equivalent to that declared and paid on
shares of Class A Common Stock--Series DT on a Per Class A FON Share Basis)
payable in shares of Series 1 FON Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 1 FON Stock, or equivalent
corresponding securities convertible into or exchangeable for shares of Series
1 FON Stock.
5.1.28. The holders of shares of Series 2 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 FON Stock equivalent on
a per share basis to those payable, on a Per Class A FON Share Basis, on the
Class A Common Stock--Series DT Stock (with respect to the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The FON
Group only). Dividends on the Series 2 FON Stock shall be payable on the same
date fixed for the payment of the corresponding dividend on shares of Class A
Common Stock--Series DT Stock and shall be in an amount per share equal to the
full Per Class A FON Share amount of any cash dividend paid on shares of Class
A Common Stock--Series DT Stock, plus the full Per Class A FON Share amount
(payable in kind) of any non-cash dividend paid on shares of Class A Common
Stock--Series DT Stock, provided that if this Corporation shall declare and
pay any dividend on shares of Class A Common Stock--Series DT Stock payable in
shares of FON Stock or PCS Stock, or in options, warrants or rights to acquire
shares of FON Stock or PCS Stock, or in securities convertible into or
exchangeable for shares of FON Stock or PCS Stock, then in each case (with
respect to the Number Of Shares Issuable With Respect To The Class A--Series
DT Equity Interest In The FON Group only), this Corporation shall declare and
pay, at the same time that it declares and pays any such dividend, a dividend
per share on the Series 2 FON Stock (equivalent to that declared and paid on
shares of Class A Common Stock--Series DT on a Per Class A FON Share Basis)
payable in shares of Series 2 FON Stock, or equivalent corresponding options,
warrants or rights to acquire shares of Series 2 FON Stock, or equivalent
corresponding securities convertible into or exchangeable for shares of Series
2 FON Stock.
5.1.29. The holders of shares of Series 3 FON Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 FON Stock equivalent on
a per share basis to those payable, on a Per Class A FON Share Basis, on the
Class A Common Stock--Series DT Stock (with respect to the Number Of Shares
Issuable With Respect To The Class A--Series
IV-105
<PAGE>
DT Equity Interest In The FON Group only). Dividends on the Series 3 FON Stock
shall be payable on the same date fixed for the payment of the corresponding
dividend on shares of Class A Common Stock--Series DT Stock and shall be in an
amount per share equal to the full Per Class A FON Share amount of any cash
dividend paid on shares of Class A Common Stock--Series DT Stock, plus the
full Per Class A FON Share amount (payable in kind) of any non-cash dividend
paid on shares of Class A Common Stock--Series DT Stock, provided that if this
Corporation shall declare and pay any dividend on shares of Class A Common
Stock--Series DT Stock payable in shares of FON Stock or PCS Stock, or in
options, warrants or rights to acquire shares of FON Stock or PCS Stock, or in
securities convertible into or exchangeable for shares of FON Stock or PCS
Stock, then in each case (with respect to the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group only), this
Corporation shall declare and pay, at the same time that it declares and pays
any such dividend, a dividend per share on the Series 3 FON Stock (equivalent
to that declared and paid on shares of Class A Common Stock--Series DT on a
Per Class A FON Share Basis) payable in shares of Series 3 FON Stock, or
equivalent corresponding options, warrants or rights to acquire shares of
Series 3 FON Stock, or equivalent corresponding securities convertible into or
exchangeable for shares of Series 3 FON Stock.
5.1.30. The holders of shares of Series 1 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 1 PCS Stock equivalent on
a per share basis to those payable, on a Per Class A PCS Share Basis, on the
Class A Common Stock--Series DT (with respect to the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group only).
Dividends on the Series 1 PCS Stock shall be payable on the same date fixed
for the payment of the corresponding dividend on shares of Class A Common
Stock--Series DT and shall be in an amount per share equal to the full Per
Class A PCS Share amount of any cash dividend paid on shares of Class A Common
Stock--Series DT, plus the full Per Class A PCS Share amount (payable in kind)
of any non-cash dividend paid on shares of Class A Common Stock--Series DT,
provided that if this Corporation shall declare and pay any dividend on shares
of Class A Common Stock--Series DT payable in shares of PCS Stock, or in
options, warrants or rights to acquire shares of FON Stock or PCS Stock, or in
securities convertible into or exchangeable for shares of PCS Stock, then in
each case (with respect to the Number Of Shares Issuable With Respect To The
Class A--Series DT Equity Interest In The PCS Group only), this Corporation
shall declare and pay, at the same time that it declares and pays any such
dividend, a dividend per share on the Series 1 PCS Stock (equivalent to that
declared and paid on shares of Class A Common Stock--Series DT on a Per Class
A PCS Share Basis) payable in shares of Series 1 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 1 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 1 PCS Stock.
5.1.31. The holders of shares of Series 2 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 2 PCS Stock equivalent on
a per share basis to those payable, on a Per Class A PCS Share Basis, on the
Class A Common Stock--Series DT (with respect to the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group only).
Dividends on the Series 2 PCS Stock shall be payable on the same date fixed
for the payment of the corresponding dividend on shares of Class A Common
Stock--Series DT and shall be in an amount per share equal to the full Per
Class A PCS Share amount of any cash dividend paid on shares of Class A Common
Stock--Series DT, plus the full Per Class A PCS Share amount (payable in kind)
of any non-cash dividend paid on shares of Class A Common Stock--Series DT,
provided that if this Corporation shall declare and pay any dividend on shares
of Class A Common Stock--Series DT payable in shares of PCS Stock, or in
options, warrants or rights to acquire shares of PCS Stock, or in securities
convertible into or exchangeable for shares of PCS Stock, then in each case
(with respect to the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The PCS Group only), this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
a dividend per share on the Series 2 PCS Stock (equivalent to that declared
and paid on shares of Class A Common Stock--Series DT on a Per Class A PCS
Share Basis) payable in shares of Series 2 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 2 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 2 PCS Stock.
IV-106
<PAGE>
5.1.32. The holders of shares of Series 3 PCS Stock shall be entitled to
receive, when and if declared by the Board of Directors in accordance with
this Section 5.1, dividends in respect of the Series 3 PCS Stock equivalent on
a per share basis to those payable, on a Per Class A PCS Share Basis, on the
Class A Common Stock--Series DT (with respect to the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group only).
Dividends on the Series 3 PCS Stock shall be payable on the same date fixed
for the payment of the corresponding dividend on shares of Class A Common
Stock--Series DT and shall be in an amount per share equal to the full Per
Class A PCS Share amount of any cash dividend paid on shares of Class A Common
Stock--Series DT, plus the full Per Class A PCS Share amount (payable in kind)
of any non-cash dividend paid on shares of Class A Common Stock--Series DT,
provided that if this Corporation shall declare and pay any dividend on shares
of Class A Common Stock--Series DT payable in shares of PCS Stock, or in
options, warrants or rights to acquire shares of PCS Stock, or in securities
convertible into or exchangeable for shares of PCS Stock, then in each case
(with respect to the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The PCS Group only), this Corporation shall
declare and pay, at the same time that it declares and pays any such dividend,
a dividend per share on the Series 3 PCS Stock (equivalent to that declared
and paid on shares of Class A Common Stock--Series DT on a Per Class A PCS
Share Basis) payable in shares of Series 3 PCS Stock, or equivalent
corresponding options, warrants or rights to acquire shares of Series 3 PCS
Stock, or equivalent corresponding securities convertible into or exchangeable
for shares of Series 3 PCS Stock.
5.2. Separate Declaration of Dividends. The Board of Directors, in
accordance with the applicable provisions of Section 5.1, may at any time
declare and pay dividends (i) exclusively on the FON Stock and the Class A
Common Stock (on a Per Class A FON Share basis), (ii) exclusively on the PCS
Stock and the Class A Common Stock (on a Per Class A PCS Share basis) or (iii)
on the FON Stock and the Class A Common Stock (on a Per Class A FON Share
basis), on the one hand, and the PCS Stock and the Class A Common Stock (on a
Per Class A PCS Share basis), on the other, in equal or unequal per share
amounts, notwithstanding the amount of dividends previously declared on each
class or series of stock, the respective voting or liquidation rights of each
class or series of stock or any other factor.
5.3 Share Distributions. Subject to ARTICLE SIXTH, Section 5 and except as
permitted by ARTICLE SIXTH, Sections 7.1 and 7.2, the Board of Directors may
declare and pay dividends or distributions of shares of Corporation Common
Stock (or Convertible Securities convertible into or exchangeable or
exercisable for shares of Corporation Common Stock) on shares of Corporation
Common Stock or shares of Preferred Stock only as follows:
(A) dividends or distributions of shares of (i) Series 1 FON Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
Shares of Series 1 FON Stock), (ii) Series 2 FON Stock (or Convertible
Securities convertible into or exchangeable or exercisable for Shares of
Series 2 FON Stock) and (iii) Series 3 FON Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 3 FON
Stock) on shares of (i) Series 1 FON Stock, (ii) Series 2 FON Stock and
(iii) Series 3 FON Stock and shares of Class A Common Stock (but only in
respect of the Shares Issuable With Respect To The Class A Equity Interest
In The FON Group), respectively, as well as on Preferred Stock attributed
to the Sprint FON Group exclusively in accordance with ARTICLE SIXTH,
Section 13;
(B) dividends or distributions of shares of (i) Series 1 PCS Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Series 1 PCS Stock), (ii) Series 2 PCS Stock (or Convertible
Securities convertible into or exchangeable or exercisable for shares of
Series 2 PCS Stock) and (iii) Series 3 PCS Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Series 3 PCS
Stock) on shares of (i) Series 1 PCS Stock, (ii) Series 2 PCS Stock and
(iii) Series 3 PCS Stock and shares of Class A Common Stock (but only in
respect of the Shares Issuable with Respect to the Class A Equity Interest
In The PCS Group), respectively, and Preferred Stock attributed to the PCS
Group exclusively in accordance with ARTICLE SIXTH, Section 13;
(C) dividends or distributions of shares of (i) Series 1 PCS Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Series 1 PCS Stock), (ii) Series 2 PCS Stock (or
IV-107
<PAGE>
Convertible Securities convertible into or exchangeable or exercisable for
shares of Series 2 PCS Stock) and (iii) Series 3 PCS Stock (or Convertible
Securities convertible into or exchangeable or exercisable for shares of
Series 3 PCS Stock) on (x) shares of (i) Series 1 FON Stock, (ii) Series 2
FON Stock and (iii) Series 3 FON Stock and shares of Class A Common Stock
(but only with respect to any Shares Issuable With Respect To The Class A
Equity Interest In The FON Group), respectively, or (y) shares of FON
Preferred Stock, but in any such case only if immediately prior to such
dividend or distribution the Number Of Shares Issuable With Respect To The
FON Group Intergroup Interest is greater than or equal to the sum of (1)
the amount of any decrease in the Number Of Shares Issuable With Respect To
The FON Group Intergroup Interest required by paragraph (B) of the
definition of such term in ARTICLE SIXTH, Section 10 as a result of such
dividend or distribution, plus (2) the number of shares of PCS Stock
issuable upon conversion, exchange or exercise of any Convertible
Securities to be so issued or any other outstanding Convertible Securities
that have been issued as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of
FON Stock or shares of Preferred Stock to the extent attributed to the
Sprint FON Group in accordance with ARTICLE SIXTH, Section 13; and
(D) dividends or distributions of shares of PCS Preferred Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of PCS Preferred Stock) on shares of FON Stock or Class A Common
Stock (but only with respect to any Shares Issuable With Respect To The
Class A Equity Interest In The FON Group) or shares of Preferred Stock to
the extent attributed to the Sprint FON Group in accordance with ARTICLE
SIXTH, Section 13, but in any such case only if immediately prior to such
dividend or distribution the Number Of Shares Issuable With Respect To The
FON Group Intergroup Interest is greater than or equal to the sum of (1)
the amount of any decrease in the Number Of Shares Issuable With Respect To
The FON Group Intergroup Interest required by paragraph (B) of the
definition of such term in ARTICLE SIXTH, Section 10 as a result of such
dividend or distribution plus (2) the number of shares of PCS Stock
issuable upon conversion, exchange or exercise of any Convertible
Securities that have been issued as a dividend or other distribution
(including in connection with any reclassification or exchange of shares)
to holders of FON Stock or shares of Preferred Stock to the extent
attributed to the Sprint FON Group in accordance with ARTICLE SIXTH,
Section 13.
For purposes of this Section 5.3, any outstanding Convertible Securities
that are convertible into or exchangeable or exercisable for any other
Convertible Securities which are themselves convertible into or
exchangeable or exercisable for FON Stock (or other Convertible Securities
that are so convertible, exchangeable or exercisable) or PCS Stock (or
other Convertible Securities that are so convertible, exchangeable or
exercisable) shall be deemed to have been converted, exchanged or exercised
in full for such Convertible Securities.
Section 6. No Dilution or Impairment; Certain Tender Offers.
(a) No reclassification, subdivision or combination of the outstanding
shares of Series 2 FON Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 1 FON Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Series 1 FON
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 2 FON Stock as were represented by the shares of Series 1 FON Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series 1
FON Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable per
share in respect of shares of Series 2 FON Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
(b) No reclassification, subdivision or combination of the outstanding
shares of Series 3 FON Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 1 FON Stock is
IV-108
<PAGE>
reclassified, subdivided or combined on an equal per share basis so that the
holders of the Series 1 FON Stock (i) are entitled, in the aggregate, to a
number of Votes representing the same percentage of the Voting Power of this
Corporation relative to the Series 3 FON Stock as were represented by the
shares of Series 1 FON Stock outstanding immediately prior to such
reclassification, subdivision or combination and (ii) maintain all of the
rights associated with the Series 1 FON Stock set forth in these Articles of
Incorporation, including without limitation the right to receive dividends and
other distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 3 FON
Stock, subject to the limitations, restrictions and conditions on such rights
contained herein.
(c) No reclassification, subdivision or combination of the outstanding
shares of Series 1 FON Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or combination
effected pursuant to a consolidation, merger or liquidation) unless at the
same time the Series 2 FON Stock is reclassified, subdivided or combined on an
equal per share basis so that the holders of the Series 2 FON Stock (i) are
entitled, in the aggregate, to a number of Votes representing the same
percentage of the Voting Power of this Corporation relative to the Series 1
FON Stock as were represented by the shares of Series 2 FON Stock outstanding
immediately prior to such reclassification, subdivision or combination and
(ii) maintain all of the rights associated with the Series 2 FON Stock set
forth in these Articles of Incorporation, including without limitation the
right to receive dividends and other distributions (including liquidating and
other distributions) that are equivalent to those payable per share in respect
of shares of Series 1 FON Stock, subject to the limitations, restrictions and
conditions on such rights contained herein.
(d) No reclassification, subdivision or combination of the outstanding
shares of Series 3 FON Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or combination
effected pursuant to a consolidation, merger or liquidation) unless at the
same time the Series 2 FON Stock is reclassified, subdivided or combined on an
equal per share basis so that the holders of the Series 2 FON Stock (i) are
entitled, in the aggregate, to a number of Votes representing the same
percentage of the Voting Power of this Corporation relative to the Series 3
FON Stock as were represented by the shares of Series 2 FON Stock outstanding
immediately prior to such reclassification, subdivision or combination and
(ii) maintain all of the rights associated with the Series 2 FON Stock set
forth in these Articles of Incorporation, including without limitation the
right to receive dividends and other distributions (including liquidating and
other distributions) that are equivalent to those payable per share in respect
of shares of Series 3 FON Stock, subject to the limitations, restrictions and
conditions on such rights contained herein.
(e) No reclassification, subdivision or combination of the outstanding
shares of Series 1 FON Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or combination
effected pursuant to a consolidation, merger or liquidation) unless at the
same time the Series 3 FON Stock is reclassified, subdivided or combined on an
equal per share basis so that the holders of the Series 3 FON Stock (i) are
entitled, in the aggregate, to a number of Votes representing the same
percentage of the Voting Power of this Corporation relative to the Series 1
FON Stock as were represented by the shares of Series 3 FON Stock outstanding
immediately prior to such reclassification, subdivision or combination and
(ii) maintain all of the rights associated with the Series 3 FON Stock set
forth in these Articles of Incorporation, including without limitation the
right to receive dividends and other distributions (including liquidating and
other distributions) that are equivalent to those payable per share in respect
of shares of Series 1 FON Stock, subject to the limitations, restrictions and
conditions on such rights contained herein.
(f) No reclassification, subdivision or combination of the outstanding
shares of Series 2 FON Stock shall be effected directly or indirectly
(including without limitation any reclassification, subdivision or combination
effected pursuant to a consolidation, merger or liquidation) unless at the
same time the Series 3 FON Stock is reclassified, subdivided or combined on an
equal per share basis so that the holders of the Series 3 FON Stock (i) are
entitled, in the aggregate, to a number of Votes representing the same
percentage of the Voting Power of this Corporation relative to the Series 2
FON Stock as were represented by the shares of Series 3 FON Stock outstanding
immediately prior to such reclassification, subdivision or combination and
(ii) maintain all of the
IV-109
<PAGE>
rights associated with the Series 3 FON Stock set forth in these Articles of
Incorporation, including without limitation the right to receive dividends and
other distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 2 FON
Stock, subject to the limitations, restrictions and conditions on such rights
contained herein.
(g) No adjustment to the Number Of Shares Issuable With Respect To The Class
A--Series DT Equity Interest In The FON Group or the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group (other
than with respect to any adjustments resulting from issuances made in
accordance with ARTICLE SIXTH, Section 1.2) shall be effected directly or
indirectly unless at the same time the Number Of Shares Issuable With Respect
To The Old Class A Equity Interest In The FON Group or the Number Of Shares
Issuable With Respect To The Old Class A Equity Interest In The PCS Group is
adjusted on an equal Per Class A FON Share Basis or Per Class A PCS Share
Basis, as the case may be, so that the holders of the Old Class A Common Stock
(i) are entitled, in the aggregate, to a number of Votes representing the same
percentage of the Voting Power of this Corporation relative to the Class A
Common Stock--Series DT on an equal Per Class A FON Share Basis or Per Class A
PCS Share Basis, as the case may be, as were represented by the shares of
Number Of Shares Issuable With Respect To The Old Class A Equity Interest In
The FON Group or the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group as calculated immediately prior to such
adjustment and (ii) maintain all of the rights associated with the Old Class A
Common Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent, on a Per Class A FON
Share Basis or Per Class A PCS Share Basis, to those payable in respect of
shares of Class A Common Stock--Series DT, subject to the limitations,
restrictions and conditions on such rights contained herein.
(h) No adjustment to the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The FON Group or the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The PCS Group (other than with
respect to any adjustments resulting from issuances made in accordance with
ARTICLE SIXTH, Section 1.2) shall be effected directly or indirectly unless at
the same time the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The FON Group or the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group is
adjusted on an equal Per Class A FON Share Basis or Per Class A PCS Share
Basis, as the case may be, so that the holders of the Class A Common Stock--
Series DT (i) are entitled, in the aggregate, to a number of Votes
representing the same percentage of the Voting Power of this Corporation
relative to the Old Class A Common Stock on an equal Per Class A FON Share
Basis or Per Class A PCS Share Basis, as the case may be, as were represented
by the shares of Number Of Shares Issuable With Respect To The Class A--Series
DT Equity Interest In The FON Group or the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The PCS Group as
calculated immediately prior to such adjustment and (ii) maintain all of the
rights associated with the Class A--Series DT Common Stock set forth in these
Articles of Incorporation, including without limitation the right to receive
dividends and other distributions (including liquidating and other
distributions) that are equivalent, on a Per Class A FON Share Basis or Per
Class A PCS Share Basis, to those payable in respect of shares of Old Class A
Common Stock, subject to the limitations, restrictions and conditions on such
rights contained herein.
(i) No reclassification, subdivision or combination of the outstanding
shares of Series 2 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 1 PCS Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Series 1 PCS
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 2 PCS Stock as were represented by the shares of Series 1 PCS Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series 1
PCS Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable per
share in respect of shares of Series 2 PCS Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
IV-110
<PAGE>
(j) No reclassification, subdivision or combination of the outstanding
shares of Series 3 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 1 PCS Stock is reclassified, subdivided or
combined on a equal per share basis so that the holders of the Series 1 PCS
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 3 PCS Stock as were represented by the shares of Series 1 PCS Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series 1
PCS Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable per
share in respect of shares of Series 3 PCS Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
(k) No reclassification, subdivision or combination of the outstanding
shares of Series 1 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 2 PCS Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Series 2 PCS
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 1 PCS Stock as were represented by the shares of Series 2 PCS Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series 2
PCS Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable per
share in respect of shares of Series 1 PCS Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
(l) No reclassification, subdivision or combination of the outstanding
shares of Series 3 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 2 PCS Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Series 2 PCS
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 3 PCS Stock as were represented by the shares of Series 2 PCS Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series 2
PCS Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable per
share in respect of shares of Series 3 PCS Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
(m) No reclassification, subdivision or combination of the outstanding
shares of Series 1 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 3 PCS Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Series 3 PCS
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of this Corporation relative to the
Series 1 PCS Stock as were represented by the shares of Series 3 PCS Stock
outstanding immediately prior to such reclassification, subdivision or
combination and (ii) maintain all of the rights associated with the Series 3
PCS Stock set forth in these Articles of Incorporation, including without
limitation the right to receive dividends and other distributions (including
liquidating and other distributions) that are equivalent to those payable per
share in respect of shares of Series 1 PCS Stock, subject to the limitations,
restrictions and conditions on such rights contained herein.
(n) No reclassification, subdivision or combination of the outstanding
shares of Series 2 PCS Stock shall be effected directly or indirectly
(including, without limitation, any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or liquidation)
unless at the same time the Series 3 PCS Stock is reclassified, subdivided or
combined on an equal per share basis so that the holders of the Series 3 PCS
Stock (i) are entitled, in the aggregate, to a number of Votes representing
the same percentage of the Voting Power of
IV-111
<PAGE>
this Corporation relative to the Series 2 PCS Stock as were represented by the
shares of Series 3 PCS Stock outstanding immediately prior to such
reclassification, subdivision or combination and (ii) maintain all of the
rights associated with the Series 3 PCS Stock set forth in these Articles of
Incorporation, including without limitation the right to receive dividends and
other distributions (including liquidating and other distributions) that are
equivalent to those payable per share in respect of shares of Series 2 PCS
Stock, subject to the limitations, restrictions and conditions on such rights
contained herein.
(o) Without limiting the generality of the foregoing paragraphs (a) through
(n), in the case of any consolidation or merger of this Corporation with or
into any other entity (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the Non-Class A
Common Stock) or any reclassification of the Non-Class A Common Stock into any
other form of capital stock of this Corporation, whether in whole or in part,
each Class A Holder shall, after such consolidation, merger or
reclassification, have the right (but not the obligation), by notice delivered
to this Corporation or any successor thereto within 90 days after the
consummation of such consolidation, merger or reclassification, to convert
each share of Series 3 FON Stock, Series 3 PCS Stock and Class A Common Stock
held by it into the kind and amount of shares of stock and other securities
and property which such Class A Holder would have been entitled to receive
upon such consolidation, merger, or reclassification if such Class A Holder
had (I) converted its shares of Series 3 FON Stock or Series 3 PCS Stock into
Series 1 FON Stock or Series 1 PCS Stock, respectively, or (II) received
shares of Series 3 FON Stock or Series 3 PCS Stock in respect of the Shares
Issuable With Respect To The Class A Equity Interest In The FON Group or the
Shares Issuable With Respect To The Class A Equity Interest In The PCS Group,
respectively, represented by such Class A Common Stock immediately prior to
such merger, consolidation or reclassification. This Corporation shall not
effect, directly or indirectly, any such reclassification, subdivision or
combination of outstanding shares of Non-Class A Common Stock unless it
delivers to the Class A Holders written notice of its intent to take such
action at least ten Business Days before taking such action.
(p) Without limiting the generality of the foregoing, in the case of any
consolidation or merger of this Corporation with or into any other entity
(other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of the Series 1 FON Stock or Series 1 PCS
Stock) or any reclassification of the Series 1 FON Stock or Series 1 PCS Stock
into any other form of capital stock of this Corporation, whether in whole or
in part, each holder of Series 2 FON Stock or Series 2 PCS Stock, as the case
may be, shall, after such consolidation, merger or reclassification, have the
right (but not the obligation), by notice delivered to this Corporation or any
successor thereto within 90 days after the consummation of such consolidation,
merger or reclassification, to convert each share of Series 2 FON Stock or
Series 2 PCS Stock, as the case may be, held by such holder into the kind and
amount of shares of stock and other securities and property which such holder
would have been entitled to receive upon such consolidation, merger, or
reclassification if such holder had converted its shares of Series 2 FON Stock
or Series 2 PCS Stock into Series 1 FON Stock or Series 1 PCS Stock,
respectively, immediately prior to such merger, consolidation or
reclassification. This Corporation shall not effect, directly or indirectly,
any such reclassification, subdivision or combination of outstanding shares of
Series 1 FON Stock or Series 1 PCS Stock unless it delivers to the holders of
Series 2 FON Stock and Series 2 PCS Stock written notice of its intent to take
such action at least ten Business Days before taking such action.
(q) Exclusionary Tender Offers. If the Board of Directors shall determine
not to oppose a tender offer by a Person other than a Cable Holder for Voting
Securities of this Corporation representing not less than 35 percent of the
Voting Power of this Corporation, and the terms of such tender offer do not
permit the holders of Series 2 PCS Stock to sell an equal or greater
percentage of their shares as the holders of Series 1 PCS Stock are permitted
to sell taking into account any proration, then each holder of Series 2 PCS
Stock shall have the right (but not the obligation) to deliver to this
Corporation a written notice requesting conversion of certain shares of Series
2 PCS Stock designated by such holder of Series 2 PCS Stock into Series 1 PCS
Stock, upon which delivery each share of Series 2 PCS Stock so designated in
such notice shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 1 PCS Stock, provided that (i) unless the Series 2 PCS Stock shall have
otherwise been converted into Series 1 PCS Stock pursuant to ARTICLE SIXTH,
Section 7.5 upon or prior to the consummation or abandonment of the
transaction
IV-112
<PAGE>
contemplated by such tender offer, immediately following the consummation of
such transaction or the delivery by this Corporation to each holder of Series
2 PCS Stock of a notice that such transaction has been abandoned, each share
of Series 1 PCS Stock held by a holder of Series 2 PCS Stock shall
automatically reconvert (without the payment of any consideration) into one
duly issued, fully paid and nonassessable share of Series 2 PCS Stock, and
(ii) only those shares of Series 2 PCS Stock related to shares of Series 1 PCS
Stock that were not so reconverted shall be deemed for any purpose under these
Articles of Incorporation to have been converted into Series 1 PCS Stock,
pursuant to this subparagraph(q) and the Series 2 PCS Stock so reconverted
shall be deemed to have been at all times outstanding shares of Series 2 PCS
Stock, provided, that if the Series 2 PCS Stock has been converted into or
redeemed for Series 2 FON Stock pursuant to ARTICLE SIXTH, Section 7, then the
terms "Series 2 FON Stock" and "Series 1 FON Stock" shall be deemed to replace
the terms "Series 2 PCS Stock" and "Series 1 PCS Stock," respectively, in this
subparagraph (q).
(r) Issuer Tender Offers. The Corporation shall not conduct an issuer tender
offer (as defined on the Effective Date in Rule 13e-4 under the Exchange Act)
with respect to the Series 1 PCS Stock or the Series 1 FON Stock unless (i)
such tender offer provides for the participation of the holders of Series 2
PCS Stock, Series 3 PCS Stock and Class A Common Stock (with respect to the
Shares Issuable With Respect To The Class A Equity Interest In The PCS Group),
on the one hand, or Series 2 FON Stock, Series 3 FON Stock and Class A Common
Stock (with respect to the Shares Issuable With Respect To The Class A Equity
Interest In The FON Group), on the other hand, on an equal basis with the
Series 1 PCS Stock or the Series 1 FON Stock, respectively, and (ii) the
Corporation accepts for repurchase the number of shares tendered by the
holders of Series 1 PCS Stock, Series 2 PCS Stock, Series 3 PCS Stock and
Class A Common Stock (with respect to the Shares Issuable With Respect To The
Class A Equity Interest In The PCS Group), on the one hand, or Series 1 FON
Stock, Series 2 FON Stock, Series 3 FON Stock and Class A Common Stock (with
respect to the Shares Issuable With Respect To The Class A Equity Interest In
The FON Group), on the other, in proportion to the number of shares of each
such class and series tendered; provided that the terms of this subparagraph
(r) shall not prevent the Corporation from administering in good faith an
"odd-lot" program in connection with such issuer tender offer and shall not
apply to customary acquisitions of Corporation Common Stock made by the
Corporation on the open market for purposes of maintaining stock option plans
of the Corporation.
Section 7. Conversion or Redemption of PCS Stock. Except as otherwise
provided in Sections 2.2, 6(q) and 8.5, shares of PCS Stock are (i) subject to
conversion or redemption, as the case may be, upon the terms provided in this
Section 7 with respect to each class and (ii) otherwise not subject to
conversion or redemption.
7.1. Conversion or Redemption of PCS Stock.
(A) If the Corporation and/or its subsidiaries makes a Disposition, in one
transaction or a series of related transactions, of all or substantially all
of the properties and assets attributed to the PCS Group to one or more
persons or entities (other than (w) the Disposition by the Corporation of all
or substantially all of its properties and assets in one transaction or a
series of related transactions in connection with the dissolution or the
liquidation and winding up of the Corporation and the distribution of assets
to stockholders pursuant to Section 4, (x) the redemption of the PCS Stock for
the stock of the PCS Group Subsidiary pursuant to Section 7.2, (y) to any
person or entity controlled (as determined by the Board of Directors) by the
Corporation or (z) pursuant to a Related Business Transaction), then the
Corporation shall, on or prior to the 85th Trading Day after the date of
consummation of such Disposition (the "PCS Group Disposition Date"), either
(I) pay a dividend on the PCS Stock or (II) redeem some or all of the PCS
Stock or convert PCS Stock into Series 1 FON Stock, Series 2 FON Stock and
Series 3 FON Stock, as applicable (or another class or series of common stock
of the Corporation), in accordance with the following subparagraphs (1) and
(2) of this paragraph (A) and, to the extent applicable, in accordance with
Section 7.4, as the Board of Directors shall have selected among such
alternatives:
(1) provided that there are funds of the Corporation legally available
therefor:
(a) pay to the holders of the shares of PCS Stock a dividend, as the
Board of Directors shall have declared in accordance with Section 5.1
of ARTICLE SIXTH, in cash and/or in securities (other than a dividend
of Corporation Common Stock or other common equity securities of the
Corporation) or other
IV-113
<PAGE>
property having a Fair Value as of the PCS Group Disposition Date in
the aggregate equal to the product of the Outstanding PCS Fraction as
of the record date for determining holders entitled to receive such
dividend multiplied by the Fair Value of the Net Proceeds of such
Disposition; or
(b) (i) subject to the last sentence of this paragraph (A), if such
Disposition involves all (not merely substantially all) of the
properties and assets attributed to the PCS Group, redeem as of the
Redemption Date provided by Section 7.4(C) all outstanding shares of
PCS Stock in exchange for cash and/or securities (other than
Corporation Common Stock or other common equity securities of the
Corporation) or other property having a Fair Value as of the PCS Group
Disposition Date in the aggregate equal to the product of the
Outstanding PCS Fraction as of such Redemption Date multiplied by the
Fair Value of the Net Proceeds of such Disposition (such aggregate
amount to be allocated to shares of Series 1 PCS Stock, Series 2 PCS
Stock and Series 3 PCS Stock in the ratio of the number of shares of
each such series outstanding to the other series (so that the amount of
consideration paid for the redemption of each share of Series 1 PCS
Stock, Series 2 PCS Stock and Series 3 PCS Stock is the same)); or
(ii) subject to the last sentence of this paragraph (A), if such
Disposition involves substantially all (but not all) of the properties
and assets attributed to the PCS Group, redeem as of the Redemption
Date provided by Section 7.4(D) the number of whole shares of PCS Stock
(which may be all of such shares outstanding) as have in the aggregate
an average Market Value during the period of ten consecutive Trading
Days beginning on the sixteenth Trading Day immediately succeeding the
PCS Group Disposition Date closest to the product of the Outstanding
PCS Fraction as of the date such shares are selected for redemption
multiplied by the Fair Value as of the PCS Group Disposition Date of
the Net Proceeds of such Disposition, in exchange for cash and/or
securities (other than Corporation Common Stock or other common equity
securities of the Corporation) or other property having a Fair Value in
the aggregate equal to such product (such aggregate amount to be
allocated to shares of Series 1 PCS Stock, Series 2 PCS Stock and
Series 3 PCS Stock in the ratio of the number of shares of each such
series outstanding to the other series (so that the amount of
consideration paid for the redemption of each share of Series 1 PCS
Stock, Series 2 PCS Stock and Series 3 PCS Stock is the same)); or
(2) convert each outstanding share of Series 1 PCS Stock, Series 2 PCS
Stock and Series 3 PCS Stock as of the Conversion Date provided by Section
7.4(E) into a number of fully paid and nonassessable shares of Series 1 FON
Stock, Series 2 FON Stock and Series 3 FON Stock, respectively (or, if the
Series 1 FON Stock is not Publicly Traded at such time and shares of
another class or series of common stock of the Corporation (other than PCS
Stock) are then Publicly Traded, of such other class or series of common
stock as has the largest Total Market Capitalization as of the close of
business on the Trading Day immediately preceding the date of the notice of
such conversion required by Section 7.4(E)) equal to 110% of the ratio,
expressed as a decimal fraction rounded to the nearest five decimal places,
of the average Market Value of one share of PCS Stock over the period of
ten consecutive Trading Days beginning on the sixteenth Trading Day
following the PCS Group Disposition Date to the average Market Value of one
share of Common Stock (or such other class or series of common stock) over
the same ten Trading Day period.
Notwithstanding the foregoing provisions of this paragraph (A), the
Corporation may redeem PCS Stock as provided by subparagraph (1)(b)(i) or
(1)(b)(ii) of this paragraph (A) only if the amount to be paid in
redemption of such stock (and the Shares Issuable With Respect To The Class
A Equity Interest In The PCS Group in accordance with ARTICLE SIXTH,
Section 7.1(B)) is less than or equal to the sum of (i) the amount
available for the payment of dividends on such shares to be redeemed in
accordance with Section 5 of ARTICLE SIXTH measured as of the Redemption
Date and (ii) the amount determined to be capital in respect of the shares
to be redeemed in accordance with applicable corporation law as of the
Redemption Date.
(B) For purposes of this Section 7.1:
(1) as of any date, "substantially all of the properties and assets"
attributed to the PCS Group means a portion of such properties and assets
that represents at least 80% of the Fair Value of the properties and assets
attributed to the PCS Group as of such date;
IV-114
<PAGE>
(2) in the case of a Disposition of the properties and assets attributed
to the PCS Group in a series of related transactions, such Disposition
shall not be deemed to have been consummated until the consummation of the
last of such transactions;
(3) the Board of Directors may pay any dividend or redemption price
referred to in Section 7.1(A) in cash, securities (other than Corporation
Common Stock or other common equity securities of the Corporation) or other
property, regardless of the form or nature of the proceeds of the
Disposition; provided that if such payment is made in Voting Securities
(other than Corporation Common Stock or other common equity securities of
the Corporation) of the Corporation or another entity, holders of Series 2
PCS Stock shall receive Voting Securities with Voting Power equivalent on a
per share basis to such shares received by holders of Series 1 PCS Stock;
(4) if the Corporation pays a dividend to the holders of shares of PCS
Stock in accordance with Section 7.1(A)(1)(a), then the Corporation will
pay a dividend equivalent on a Per Class A PCS Share Basis to the holders
of Class A Common Stock;
(5) if the Corporation redeems all outstanding shares of PCS Stock in
accordance with Section 7.1(A)(1)(b)(i), then the Corporation will pay an
aggregate amount to the holders of Old Class A Common Stock and Class A
Common Stock--Series DT equivalent on a Per Class A PCS Share Basis to the
per share redemption amount paid in accordance with Section 7.1(A)(1)(b)(i)
in respect of the total Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The PCS Group and the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group,
respectively;
(6) if the Corporation redeems shares of PCS Stock in accordance with
Section 7.1(A)(1)(b)(ii), then the Corporation will pay to the holders of
Old Class A Common Stock and Class A Common Stock--Series DT an amount in
accordance with subparagraph (5) immediately above but only in respect of
the same proportion of the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The PCS Group and the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The PCS
Group, respectively, as the PCS Stock redeemed in accordance with Section
7.1(A)(7)(b)(ii); and
(7) if the Corporation converts shares of PCS Stock in accordance with
Section 7.1(A)(2), then (i) the Number Of Shares Issuable With Respect To
The Old Class A Equity Interest In The PCS Group will convert into a Number
Of Shares Issuable With Respect To The Old Class A Equity Interest In The
FON Group and (ii) the Number Of Shares Issuable With Respect To The Class
A--Series DT Equity Interest In The PCS Group will convert into a Number Of
Shares Issuable With Respect To The Class A--Series DT Equity Interest in
the FON Group, each such conversion to be on the same basis as set forth in
Section 7.1(A)(2).
(C) If the payment of the dividend or the redemption price with respect to
the PCS Stock provided for by Section 7.1(A)(1) occurs prior to the third
anniversary of the Restructuring Closing Date, then the Board of Directors may
convert each share of Series 1 PCS Stock, Series 2 PCS Stock and Series 3 PCS
Stock remaining outstanding, but only as of a Conversion Date (determined as
provided by Section 7.4(E) hereof) prior to the first anniversary of the
payment of such dividend or redemption price, into a number of fully paid and
nonassessable shares of Series 1 FON Stock, Series 2 FON Stock and Series 3
FON Stock, respectively (or, if the Series 1 FON Stock is not Publicly Traded
at such time and shares of any other class or series of common stock of the
Corporation (other than PCS Stock) are then Publicly Traded, of such other
class or series of common stock as has the largest Total Market Capitalization
as of the close of business on the Trading Day immediately preceding the date
of the notice of such conversion required by Section 7.4(E)) equal to 110% of
the Optional Conversion Ratio as of the fifth Trading Day prior to the date of
the notice of such conversion required by Section 7.4(E); provided, that upon
such conversion, the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group and the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The PCS Group will
convert, on the same basis, into a Number Of Shares Issuable With Respect To
The Old Class A Equity Interest In The FON Group and a Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The FON
Group, respectively.
IV-115
<PAGE>
(D) At any time following the third anniversary of the Restructuring Closing
Date, the Board of Directors may convert each outstanding share of Series 1
PCS Stock, Series 2 PCS Stock and Series 3 PCS Stock, as of the Conversion
Date provided by Section 7.4(E), into the number of fully paid and
nonassessable shares of Series 1 FON Stock, Series 2 FON Stock and Series 3
FON Stock, respectively (or, if the Series 1 FON Stock is not Publicly Traded
at such time and shares of any other class or series of common stock of the
Corporation (other than PCS Stock) are then Publicly Traded, of such other
class or series of common stock as has the largest Total Market Capitalization
as of the close of business on the Trading Day immediately preceding the date
of the notice of conversion required by Section 7.4(E)) equal to, on the
Conversion Date, (i) if following the third anniversary but prior to the
fourth anniversary of the Restructuring Closing Date, 110% of the Optional
Conversion Ratio as of the fifth Trading Day prior to the date of the notice
of such conversion required by Section 7.4(E), or (ii) if on or after the
fourth anniversary of the Restructuring Closing Date, at such conversion ratio
(if any) as the Board of Directors determines to be fair to holders of the PCS
Stock, taken as a separate class, and holders of FON Stock, taken as a
separate class, provided, that upon such conversion, the Number Of Shares
Issuable With Respect To The Old Class A Equity Interest In The PCS Group and
the Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group will convert, on the same basis, into a Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The FON
Group and a Number Of Shares Issuable With Respect To The Class A--Series DT
Equity Interest In The FON Group, respectively.
7.2. Redemption of PCS Stock for Subsidiary Stock. At any time the Board of
Directors may redeem all of the outstanding shares of PCS Stock, on a
Redemption Date of which notice is delivered in accordance with Section
7.4(F), in exchange for the number of shares of common stock of one or more
wholly-owned subsidiaries of the Corporation (collectively, the "PCS Group
Subsidiary") that collectively hold directly or indirectly all of the assets
and liabilities attributed to the PCS Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) equal to the product
of the Outstanding PCS Fraction and the number of shares of common stock of
such PCS Group Subsidiary to be outstanding immediately following such
exchange of shares (including any shares of such PCS Group Subsidiary which
will be retained by the Corporation in respect of the FON Group Intergroup
Interest Fraction), such PCS Group Subsidiary shares to be delivered to the
holders of shares of PCS Stock on the Redemption Date and to be divided among
the holders of PCS Stock pro rata in accordance with the number of shares of
PCS Stock held by each on such Redemption Date, each of which shares of common
stock of such PCS Group Subsidiary shall be, upon such delivery, fully paid
and nonassessable; provided, however, that
(i) no such redemption pursuant to this Section 7.2 may occur prior to
the second anniversary of the Restructuring Closing Date unless such
redemption is approved by the affirmative vote of the holders of a majority
of shares of PCS Stock and Class A Common Stock, voting together as a
single class in accordance with ARTICLE SIXTH, Section 3.2(d),
(ii) holders of shares of Series 2 PCS Stock and Series 3 PCS Stock
outstanding immediately prior to the Redemption Date shall receive on a per
share basis, pursuant to such redemption, shares of common stock of such
PCS Group Subsidiary with Voting Power equivalent on a per share basis to
such shares received by holders of Series 1 PCS Stock and
(iii) on such Redemption Date, the holders of Old Class A Common Stock
and Class A Common Stock--Series DT will receive the number of shares of
the PCS Group Subsidiary equal to the product of (A) the Old Class A PCS
Interest Fraction, in the case of the holders of the Old Class A Common
Stock, and the Class A--Series DT PCS Interest Fraction, in the case of
holders of Class A Common Stock--Series DT and (B) the number of shares of
common stock of such PCS Group Subsidiary to be outstanding immediately
following such issuance of shares;
and provided further, that no such redemption pursuant to this Section 7.2 may
occur unless (i) the redemption is tax-free to the holders of PCS Stock or
(ii) such other arrangement exists for the benefit of the holders of PCS Stock
redeemed such that, net of all taxes related to such redemption and to such
other arrangement itself which are realized by such stockholders, such
stockholders will be in a position that is substantially equivalent
economically to the position such stockholders would be in after a tax-free
distribution described in the immediately preceding clause (i).
IV-116
<PAGE>
7.3. Treatment of Convertible Securities. After any Conversion Date or
Redemption Date on which all outstanding shares of any class or series of PCS
Stock are converted or redeemed, any share of such class or series of PCS
Stock that is issued on conversion, exchange or exercise of any Convertible
Securities shall, immediately upon issuance pursuant to such conversion,
exchange or exercise and without any notice from or to, or any other action on
the part of, the Corporation or its Board of Directors or the holder of such
Convertible Security:
(A) if the shares of such class or series of PCS Stock outstanding on such
Conversion Date were converted into shares of another class or series of
Corporation Common Stock (or another class or series of common stock of the
Corporation) pursuant to subparagraph (A)(2) or paragraph (C) or (D) of
Section 7.1, be converted into the amount of cash and/or the number of shares
of the kind of capital stock and/or other securities or property of the
Corporation that the number of shares of such class or series of PCS Stock
issued upon such conversion, exchange or exercise would have received had such
shares been outstanding on such Conversion Date; or
(B) if the shares of such class or series of PCS Stock outstanding on such
Redemption Date were redeemed pursuant to Section 7.1(A)(1)(b) or Section 7.2,
be redeemed, to the extent of funds of the Corporation legally available
therefor, for $ .01 per share in cash for each share of such class or series
of PCS Stock issued upon such conversion, exchange or exercise.
The provisions of this Section 7.3 shall not apply to the extent that other
adjustments in respect of such conversion, exchange or redemption of a class
or series of PCS Stock are otherwise made pursuant to the provisions of such
Convertible Securities.
7.4. Notice and Other Provisions.
(A) Not later than the tenth Trading Day following the consummation of a
Disposition referred to in Section 7.1(A), the Corporation shall announce
publicly by press release (1) the Net Proceeds of such Disposition, (2) the
number of shares outstanding of the PCS Stock, (3) the number of shares of PCS
Stock into or for which Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof and (4) the Outstanding PCS Fraction, the Old Class A PCS Interest
Fraction and the Class A--Series DT Interest Fraction on the date of such
notice. Not earlier than the 26th Trading Day and not later than the 30th
Trading Day following the consummation of such Disposition, the Corporation
shall announce publicly by press release which of the actions specified in
Section 7.1(A) it has irrevocably determined to take in respect of such
Disposition.
(B) If the Corporation determines to pay a dividend on shares of PCS Stock
pursuant to Section 7.1(A)(1)(a), the Corporation shall, not later than the
30th Trading Day following the consummation of the Disposition referred to in
such Section, cause notice to be given to each holder of PCS Stock, Class A
Common Stock and to each holder of Convertible Securities that are convertible
into or exchangeable or exercisable for shares of PCS Stock (unless alternate
provision for such notice to the holders of such Convertible Securities is
made pursuant to the terms of such Convertible Securities), setting forth (1)
the record date for determining holders entitled to receive such dividend,
which shall be not earlier than the 40th Trading Day and not later than the
50th Trading Day following the consummation of such Disposition, (2) the
anticipated payment date of such dividend (which shall not be more than 85
Trading Days following the consummation of such Disposition), (3) the kind of
shares of capital stock, cash and/or other securities or property to be paid
as such dividend in respect of the outstanding shares of PCS Stock, (4) the
Net Proceeds of such Disposition, (5) the Outstanding PCS Fraction, the Old
Class A PCS Interest Fraction and the Class A--Series DT Interest Fraction on
the date of such notice, (6) the number of outstanding shares of PCS Stock and
the number of shares of PCS Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof and (7) in the case of notice
to be given to holders of Convertible Securities, a statement to the effect
that a holder of such Convertible Securities shall be entitled to receive such
dividend only if such holder properly converts, exchanges or exercises such
Convertible Securities on or prior to the record date referred to in clause
(1) of this sentence. Such notice shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same appears on
the transfer books of the Corporation.
IV-117
<PAGE>
(C) If the Corporation determines to redeem PCS Stock pursuant to Section
7.1(A)(1)(b)(i), the Corporation shall, not earlier than the 35th Trading Day
and not later than the 45th Trading Day prior to the Redemption Date, cause
notice to be given to each holder of shares of PCS Stock, Class A Common Stock
and to each holder of Convertible Securities convertible into or exchangeable
or exercisable for shares of PCS Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities), setting forth (1) a statement that all
shares of PCS Stock outstanding on the Redemption Date shall be redeemed, (2)
the Redemption Date (which shall not be more than 85 Trading Days following
the consummation of such Disposition), (3) the kind of shares of capital
stock, cash and/or other securities or property in which the redemption price
for the shares to be redeemed is to be paid, (4) the Net Proceeds of such
Disposition, (5) the Outstanding PCS Fraction, the Old Class A PCS Interest
Fraction and the Class A--Series DT Interest Fraction on the date of such
notice, (6) the place or places where certificates for shares of PCS Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of cash and/or securities or
other property, (7) the number of outstanding shares of PCS Stock and the
number of shares of PCS Stock into or for which such outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof, (8) in the case of notice to
be given to holders of Convertible Securities, a statement to the effect that
a holder of such Convertible Securities shall be entitled to participate in
such selection for redemption only if such holder properly converts, exchanges
or exercises such Convertible Securities on or prior to the Redemption Date
referred to in clause (2) of this sentence and a statement as to what, if
anything, such holder will be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, this Section 7 if such holder
thereafter converts, exchanges or exercises such Convertible Securities and
(9) a statement to the effect that, except as otherwise provided by paragraph
(I) of this Section 7.4, dividends on such shares of PCS Stock shall cease to
be paid as of such Redemption Date. Such notice shall be sent by first-class
mail, postage prepaid, to each such holder at such holder's address as the
same appears on the transfer books of the Corporation.
(D) If the Corporation determines to redeem PCS Stock pursuant to Section
7.1(A)(1)(b)(ii), the Corporation shall, not later than the 30th Trading Day
following the consummation of the Disposition referred to in such
subparagraph, cause notice to be given to each holder of shares of PCS Stock,
Class A Common Stock and to each holder of Convertible Securities that are
convertible into or exchangeable or exercisable for shares of PCS Stock
(unless alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities)
setting forth (1) a date, not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of the Disposition in
respect of which such redemption is to be made, on which shares of PCS Stock
shall be selected for redemption, (2) the anticipated Redemption Date (which
shall not be more than 85 Trading Days following the consummation of such
Disposition), (3) the kind of shares of capital stock, cash and/or other
securities or property in which the redemption price for the shares to be
redeemed is to be paid, (4) the Net Proceeds of such Disposition, (5) the
Outstanding PCS Fraction, the Old Class A PCS Interest Fraction and the Class
A--Series DT Interest Fraction on the date of such notice, (6) the number of
shares of PCS Stock outstanding and the number of shares of PCS Stock into or
for which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof, (7) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be eligible to participate in such selection for redemption
only if such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the record date referred to in clause (1) of this
sentence, and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible Securities or,
if applicable, this Section 7 if such holder thereafter converts, exchanges or
exercises such Convertible Securities and (8) a statement that the Corporation
will not be required to register a transfer of any shares of PCS Stock for a
period of 15 Trading Days next preceding the date referred to in clause (1) of
this sentence. Promptly following the date referred to in clause (1) of the
preceding sentence, but not earlier than 40 Trading Days nor later than 50
Trading Days following the consummation of such Disposition, the Corporation
shall cause a notice to be given to each holder of record of shares of PCS
Stock to be redeemed setting forth (1) the number of shares of PCS Stock held
by such holder to be redeemed, (2) a statement that such shares of PCS Stock
shall be redeemed,
IV-118
<PAGE>
(3) the Redemption Date, (4) the kind and per share amount of cash and/or
securities or other property to be received by such holder with respect to
each share of PCS Stock to be redeemed, including details as to the
calculation thereof, (5) the place or places where certificates for shares of
PCS Stock, properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement), are to be surrendered for delivery of such cash
and/or securities or other property, (6) if applicable, a statement to the
effect that the shares being redeemed may no longer be transferred on the
transfer books of the Corporation after the Redemption Date and (7) a
statement to the effect that, subject to paragraph (I) of this Section 7.4,
dividends on such shares of PCS Stock shall cease to be paid as of the
Redemption Date. Such notices shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same appears on
the transfer books of the Corporation.
(E) If the Corporation determines to convert the PCS Stock pursuant to
Section 7.1(A)(2), Section 7.1(C) or Section 7.1(D), as the case may be, the
Corporation shall, not earlier than the 35th Trading Day and not later than
the 45th Trading Day prior to the Conversion Date, cause notice to be given to
each holder of shares of PCS Stock, Class A Common Stock and to each holder of
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of PCS Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities) setting forth (1) a statement that all
outstanding shares of PCS Stock shall be converted, (2) the Conversion Date
(which, in the case of a conversion after a Disposition, shall not be more
than 85 Trading Days following the consummation of such Disposition), (3) the
per share number of shares of Series 1 FON Stock (or Series 2 FON Stock or
Series 3 FON Stock, if applicable) or another class or series of common stock
of the Corporation, as the case may be, to be received with respect to each
share of PCS Stock, including details as to the calculation thereof, (4) the
place or places where certificates for shares of PCS Stock, properly endorsed
or assigned for transfer (unless the Corporation shall waive such
requirement), are to be surrendered for delivery of certificates for shares of
Series 1 FON Stock (or Series 2 FON Stock or Series 3 FON Stock, if
applicable) or another class or series of common stock of the Corporation, as
the case may be, (5) the number of outstanding shares of PCS Stock and the
number of shares of PCS Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof, (6) a statement to the effect
that, subject to paragraph (I) of this Section 7.4, dividends on such shares
of PCS Stock shall cease to be paid as of such Conversion Date and (7) in the
case of notice to holders of such Convertible Securities, a statement to the
effect that a holder of such Convertible Securities shall be entitled to
receive shares of common stock upon such conversion only if such holder
properly converts, exchanges or exercises such Convertible Securities on or
prior to such Conversion Date and a statement as to what, if anything, such
holder will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section 7.4 if such holder thereafter
converts, exchanges or exercises such Convertible Securities. Such notice
shall be sent by first-class mail, postage prepaid, to each such holder at
such holder's address as the same appears on the transfer books of the
Corporation.
(F) If the Corporation determines to redeem shares of PCS Stock pursuant to
Section 7.2, the Corporation shall cause notice to be given to each holder of
shares of PCS Stock to be redeemed, and to each holder of Class A Common Stock
and Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such class of PCS Stock (unless alternate provision
for such notice to the holders of such Convertible Securities is made pursuant
to the terms of such Convertible Securities), setting forth (1) a statement
that all shares of PCS Stock outstanding on the Redemption Date shall be
redeemed in exchange for shares of common stock of the PCS Group Subsidiary,
(2) the Redemption Date, (3) the Outstanding PCS Fraction, the Old Class A PCS
Interest Fraction and the Class A--Series DT Interest Fraction on the date of
such notice, (4) the place or places where certificates for shares of PCS
Stock to be redeemed, properly endorsed or assigned for transfer (unless the
Corporation shall waive such requirement), are to be surrendered for delivery
of certificates for shares of the PCS Group Subsidiaries, (5) a statement to
the effect that, subject to paragraph (I) of this Section 7.4, dividends on
such shares of PCS Stock shall cease to be paid as of such Redemption Date,
(6) the number of shares of PCS Stock outstanding and the number of shares of
PCS Stock into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof and (7) in the case of notice to holders of Convertible
Securities, a statement to the effect that a
IV-119
<PAGE>
holder of Convertible Securities shall be entitled to receive shares of common
stock of the PCS Group Subsidiary upon redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on or prior to
the Redemption Date and a statement as to what, if anything, such holder will
be entitled to receive pursuant to the terms of such Convertible Securities
or, if applicable, this Section 7 if such holder thereafter converts,
exchanges or exercises such Convertible Securities. Such notice shall be sent
by first-class mail, postage prepaid, not less than 30 Trading Days nor more
than 45 Trading Days prior to the Redemption Date to each such holder at such
holder's address as the same appears on the transfer books of the Corporation.
If any shares of Series 2 PCS Stock or Series 3 PCS Stock are outstanding
immediately prior to the Redemption Date, then the notice provided to each
holder of Series 2 PCS Stock or Series 3 PCS Stock, as the case may be,
pursuant to this Section 7.4(F) will also indicate that such holders of shares
of Series 2 PCS Stock and Series 3 PCS Stock outstanding immediately prior to
the Redemption Date shall receive on a per share basis, pursuant to such
redemption, shares of common stock of such PCS Group Subsidiary with Voting
Power equivalent to such shares received by holders of Series 1 PCS Stock.
(G) If less than all of the outstanding shares of PCS Stock are to be
redeemed pursuant to Section 7.1(A)(1), then the shares to be redeemed by the
Corporation shall be selected from among the holders of shares of PCS Stock
outstanding at the close of business on the record date for such redemption on
a pro rata basis among each class or series of PCS Stock and all such holders
thereof or, if Series 2 PCS Stock is no longer outstanding, by lot or such
other method as may be determined by the Board of Directors of the Corporation
to be equitable.
(H) The Corporation shall not be required to issue or deliver fractional
shares of any capital stock or of any other securities to any holder of PCS
Stock upon any conversion, redemption, dividend or other distribution pursuant
to this Section 7. If more than one share of PCS Stock shall be held at the
same time by the same holder, the Corporation may aggregate the number of
shares of any capital stock that shall be issuable or any other securities or
property that shall be distributable to such holder upon any conversion,
redemption, dividend or other distribution (including any fractional shares).
If there are fractional shares of any capital stock or of any other securities
remaining to be issued or distributed to the holders of PCS Stock, the
Corporation shall, if such fractional shares are not issued or distributed to
the holder, pay cash in respect of such fractional shares in an amount equal
to the Fair Value thereof on the fifth Trading Day prior to the date such
payment is to be made (without interest). For purposes of the preceding
sentence only, "Fair Value" of any fractional share means (A) in the case of
any fraction of a share of capital stock of the Corporation, the product of
such fraction and the Market Value of one share of such capital stock and (B)
in the case of any other fractional security, such value as is determined by
the Board of Directors.
(I) No adjustments in respect of dividends shall be made upon the conversion
or redemption of any shares of PCS Stock; provided, however, that if the
Conversion Date or Redemption Date, as the case may be, with respect to any
shares of PCS Stock shall be subsequent to the record date for the payment of
a dividend or other distribution thereon or with respect thereto, the holders
of such shares of PCS Stock at the close of business on such record date shall
be entitled to receive the dividend or other distribution payable on or with
respect to such shares on the date set for payment of such dividend or other
distribution, in each case without interest, notwithstanding the subsequent
conversion or redemption of such shares.
(J) Before any holder of PCS Stock shall be entitled to receive any cash
payment and/or certificates or instruments representing shares of any capital
stock and/or other securities or property to be distributed to such holder
with respect to such shares of PCS Stock pursuant to this Section 7, such
holder shall surrender at such place as the Corporation shall specify
certificates for such shares of PCS Stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement). The
Corporation shall as soon as practicable after receipt of certificates
representing such shares of PCS Stock deliver to the person for whose account
such shares of PCS Stock were so surrendered, or to such person's nominee or
nominees, the cash and/or the certificates or instruments representing the
number of whole shares of the kind of capital stock and/or other securities or
property to which such person shall be entitled as aforesaid, together with
any payment in respect of fractional shares contemplated by Section 7.4(H), in
each case without interest. If less than all of the shares of
IV-120
<PAGE>
PCS Stock represented by any one certificate are to be redeemed or converted,
then the Corporation shall issue and deliver a new certificate for the shares
of PCS Stock not redeemed.
(K) From and after any applicable Conversion Date or Redemption Date, as the
case may be, all rights of a holder of shares of PCS Stock that were converted
or redeemed shall cease except for the right, upon surrender of the
certificates representing such shares of PCS Stock as required by Section
7.4(J), to receive the cash and/or the certificates or instruments
representing shares of the kind of capital stock and/or other securities or
property for which such shares were converted or redeemed, together with any
payment in respect of fractional shares contemplated by Section 7.4(H) and
rights to dividends as provided in Section 7.4(I), in each case without
interest. Subject to the next sentence, any holder of a certificate that
immediately prior to the applicable Conversion Date or Redemption Date
represented shares of PCS Stock shall not be entitled to receive any dividend
or other distribution or interest payment with respect to shares of any kind
of capital stock or other security or instrument for which PCS Stock was
converted or redeemed until the surrender as required by this Section 7 of
such certificate in exchange for a certificate or certificates or instrument
or instruments representing such capital stock or other security. Upon such
surrender, there shall be paid to the holder the amount of any dividends or
other distributions (without interest) which theretofore became payable on any
class of capital stock of the Corporation as of a record date after the
Conversion Date or Redemption Date, but that were not paid by reason of the
foregoing, with respect to the number of whole shares of the kind of capital
stock represented by the certificate or certificates issued upon such
surrender. From and after a Conversion Date or Redemption Date, the
Corporation shall, however, be entitled to treat the certificates for PCS
Stock that have not yet been surrendered for conversion or redemption as
evidencing the ownership of the number of whole shares of the kind or kinds of
capital stock of the Corporation for which the shares of PCS Stock represented
by such certificates shall have been converted or redeemed, notwithstanding
the failure to surrender such certificates.
(L) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issuance or
delivery of any shares of capital stock and/or other securities upon
conversion or redemption of shares of PCS Stock pursuant to this Section 7.
The Corporation shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issuance or delivery of any
shares of capital stock and/or other securities in a name other than that in
which the shares of PCS Stock so converted or redeemed were registered, and no
such issuance or delivery shall be made unless and until the person requesting
such issuance or delivery has paid to the Corporation the amount of any such
tax or has established to the satisfaction of the Corporation that such tax
has been paid.
(M) Neither the failure to mail any notice required by this Section 7.4 to
any particular holder of PCS Stock or of Convertible Securities nor any defect
therein shall affect the sufficiency of any notice given to any other holder
of outstanding shares of PCS Stock or of Convertible Securities or the
validity of any such conversion or redemption.
(N) The Board of Directors may establish such rules and requirements to
facilitate the effectuation of the transactions contemplated by this Section 7
as the Board of Directors shall determine to be appropriate.
(O) If notices to Class A Holders are made pursuant to this Section 7, then
the Corporation will make such notices in compliance with the provisions of
Section 11 of ARTICLE SIXTH as well as with the provisions of this Section 7.
7.5 Automatic Conversion of Series 2 PCS Stock and Series 2 FON Stock.
(a) Below One Percent Voting Power. If the total number of Converted Votes
represented by the aggregate number of issued and outstanding shares of Series
2 PCS Stock or Series 2 FON Stock, as the case may be, is below one percent of
the outstanding Voting Power of the Corporation for more than 90 consecutive
days, then (i) the Corporation shall notify FT and DT, in accordance with
ARTICLE SIXTH, Section 11, of the date on which such conversion will occur as
soon as practicable following the date on which such 90-day period ends (the
"Conversion Trigger Date") but in no event later than ten Business Days after
the Conversion Trigger
IV-121
<PAGE>
Date and (ii) each outstanding share of Series 2 PCS Stock or Series 2 FON
Stock will automatically convert (without the payment of any consideration)
into one duly issued, fully paid and nonassessable share of Series 1 PCS Stock
or Series 1 FON Stock, respectively, such conversion to take place on the 90th
day following the Conversion Trigger Date.
(b) Certain Transfers. Upon any Transfer of shares of Series 2 PCS Stock or
Series 2 FON Stock, as the case may be (other than a Transfer to a Cable
Holder) each such share so Transferred shall automatically convert (without
the payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 PCS Stock or Series 1 FON Stock, respectively,
as of the date of such Transfer.
(c) Notice of Automatic Conversion; Exchange of Stock Certificates; Effect
of Automatic Conversion of All Series 2 PCS Stock, etc.
(i) In addition to the notice required in Section 7.5(a), as soon as
practicable after a conversion of shares of Series 2 PCS Stock (or, if
applicable, Series 2 FON Stock) into shares of Series 1 PCS Stock (or, if
applicable, Series 1 FON Stock), pursuant to this Section 7, the
Corporation shall notify FT and DT, in accordance with ARTICLE SIXTH,
Section 11, of the number of shares so converted and the date on which such
conversion occurred.
(ii) Immediately upon the conversion of shares of Series 2 PCS Stock (or,
if applicable, Series 2 FON Stock) into shares of Series 1 PCS Stock (or,
if applicable, Series 1 FON Stock), pursuant to this Section 7 (such shares
so converted hereinafter referred to as the "Converted Series Shares"), the
rights of the holders of such Converted Series Shares, as such, shall cease
and the holders thereof shall be treated for all purposes as having become
the record owners of the shares of Series 1 PCS Stock or Series 1 FON
Stock, as the case may be, issuable upon such conversion (the "Newly Issued
Shares"), provided that such Persons shall be entitled to receive when paid
any dividends declared on the Converted Series Shares as of a record date
preceding the time the Converted Series Shares were converted (the "Series
Conversion Time") and unpaid as of the Series Conversion Time. If the stock
transfer books of this Corporation shall be closed at the Series Conversion
Time, such Person or Persons shall be deemed to have become such holder or
holders of record of the Newly Issued Shares at the opening of business on
the next succeeding day on which such stock transfer books are open.
(iii) As promptly as practicable after the Series Conversion Time, upon
the delivery to this Corporation of the certificates formerly representing
Converted Series Shares, this Corporation shall deliver or cause to be
delivered, to or upon the written order of the record holder of such
certificates, a certificate or certificates representing the number of duly
issued, fully paid and nonassessable Newly Issued Shares into which the
Converted Series Shares formerly represented by such certificates have been
converted in accordance with the provisions of this Section 7.5.
(iv) This Corporation shall pay all United States federal, state or local
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of Newly Issued Shares upon the conversion of
Converted Series Shares pursuant to this Section 7.5, provided that this
Corporation shall not be required to pay any tax which may be payable in
respect of any registration of Transfer involved in the issue or delivery
of Newly Issued Shares in a name other than that of the registered holder
of shares converted or to be converted, and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to this
Corporation the amount of any such tax or has established, to the
satisfaction of this Corporation, that such tax has been paid.
(v) This Corporation shall at all times reserve and keep available, out
of the aggregate of its authorized but unissued Series 1 PCS Stock,
authorized but unissued Series 1 FON Stock, issued Series 1 PCS Stock held
in its treasury and issued Series 1 FON Stock held in its treasury, for the
purpose of effecting the conversion of the Series 2 PCS Stock or Series 2
FON Stock, as the case may be, contemplated hereby, the full number of
shares of Series 1 PCS Stock and Series 1 FON Stock then deliverable upon
the conversion of all outstanding shares of Series 2 PCS Stock or Series 2
FON Stock, as the case may be, and the full number of shares of Series 2
PCS Stock the Cable Holders are permitted to acquire under the
Restructuring Agreement and the Cable Holder Standstill Agreements.
IV-122
<PAGE>
(d) Temporary Voting Power Adjustment for Class A Holders. If any
conversions of shares of Series 2 PCS Stock or Series 2 FON Stock into
shares of Series 1 PCS Stock or Series 1 FON Stock, respectively, pursuant
to this Section 7.5 or any increases in the per share vote of other Voting
Securities of the Corporation upon a Transfer of such Voting Securities,
occur on or after the tenth Trading Day preceding a record date for
purposes of determining the stockholders entitled to vote or to receive the
payment of a dividend, then the per share vote of the Class A Stock
determined in accordance with ARTICLE SIXTH, Section 3.2 shall be increased
such that the aggregate Percentage Ownership Interest of each Class A
Holder, including with respect to Series 3 FON Stock and Series 3 PCS Stock
(or stock converting into Series 3 FON Stock and Series 3 PCS Stock
pursuant to ARTICLE SIXTH, Section 8.5(i)) acquired prior to such record
date, shall not be diluted as a result of such conversions until 12:01 a.m.
on the day immediately following the date of such stockholder meeting or
the dividend payment date, respectively.
Section 8. Provisions Relating to Class A Stock.
8.1. Rights and Privileges. Except as otherwise set forth in these Articles
of Incorporation, at all times (i) the holders of Series 3 FON Stock shall be
entitled to all of the rights and privileges pertaining to the ownership of
Series 1 FON Stock, (ii) the holders of Series 3 PCS Stock shall be entitled
to all of the rights and privileges pertaining to the ownership of Series 1
PCS Stock, and (iii) the holders of Class A Common Stock shall be entitled to
all of the rights and privileges pertaining to the ownership of Series 1 FON
Stock and Series 1 PCS Stock to the extent such Class A Common Stock
represents, at such time, Shares Issuable With Respect To The Class A Equity
Interest In The FON Group and Shares Issuable With Respect To The Class A
Equity Interest In The PCS Group, in all such cases without any limitations,
prohibitions, restrictions or qualifications whatsoever, and such holders
shall be entitled to such other rights and privileges as are expressly set
forth in these Articles of Incorporation; provided that a holder of shares of
Class A Common Stock shall not have any rights or privileges under these
Articles of Incorporation or the General Corporation Code of Kansas, as
amended, or otherwise (whether in connection with the voluntary or involuntary
liquidation, dissolution or winding up of this Corporation, in connection with
the declaration and/or payment of dividends, with respect to redemptions of
such shares or in connection with any other distributions by the Corporation
of any character on the Corporation Common Stock or otherwise) in respect of
such shares except such rights and privileges that such holder would have had
if all Shares Issuable with Respect To The Class A Equity Interest In The FON
Group and all Shares Issuable with Respect To The Class A Equity Interest In
The PCS Group had been issued and all shares of Class A Common Stock had been
redeemed pursuant to ARTICLE SIXTH, Section 1.2(c) or 1.2(d), as applicable.
8.2. Special Rights to Disapprove Certain Actions. At least 40 days prior to
the occurrence of a Subject Event (as defined below), this Corporation shall
deliver to each Class A Holder a notice (a "Notice") of such proposed Subject
Event, setting forth in reasonable detail the nature of such proposed Subject
Event. This Corporation shall thereafter be entitled to effect such proposed
Subject Event unless within 30 days of delivery of such Notice there shall
have been a Class A Action exercising the special rights of the Class A
Holders to disapprove such Subject Event, provided that the Class A Holders
shall have no special right to disapprove any action (x) which this
Corporation is required to take to comply with its obligations or exercise its
rights under the FT/DT Restructuring Agreement, the Stockholders' Agreement,
the Standstill Agreement, the Registration Rights Agreement or the Joint
Venture Agreement or any document executed pursuant to any such agreement or
the Class A Provisions, or (y) taken to comply with Applicable Law or the
rules of any exchange or market system on which securities of this Corporation
may be traded, and provided, further, that any action to be taken by this
Corporation in reliance on clause (y) of the foregoing proviso is the only
action commercially reasonably available to this Corporation to effect such
compliance, as certified to the Class A Holders by resolution of the
Independent Directors. For purposes of these Articles, the term "Subject
Event" means only the following transactions and only if such transactions are
consummated within the respective time periods indicated below:
(a) Until January 31, 1998 or, in the case of clause (iv)below, April 26,
1998:
(i) any transaction or series of related transactions (other than
Exempt Asset Divestitures or Exempt Long Distance Asset Divestitures)
that results, directly or indirectly, in Transfers of assets of this
Corporation or its Subsidiaries with an aggregate Fair Market Value
(calculated in the case of each
IV-123
<PAGE>
Transfer as at the date this Corporation or any such Subsidiary enters
into a definitive agreement to effect such Transfer) of more than 20
percent of Market Capitalization (calculated (x) in the case of a
single transaction as at the date this Corporation or any such
Subsidiary enters into a definitive agreement to effect such Transfer
and (y) in the case of a series of related transactions, as at the date
this Corporation or any such Subsidiary enters into a definitive
agreement to effect the last of such Transfers);
(ii) any transaction or series of related transactions (including,
without limitation, mergers, purchases of stock or assets, joint
ventures or other acquisitions), but excluding any transaction
constituting an Exempt Asset Divestiture or Exempt Long Distance Asset
Divestiture, resulting, directly or indirectly, in the acquisition by
this Corporation or its Subsidiaries for cash or debt securities
maturing in less than one year from the date of issuance of (x) assets
constituting or predominantly used in Core Businesses ("Core Business
Assets") for a purchase price or, in the case of a series of related
transactions, an aggregate purchase price that exceeds 20 percent of
Market Capitalization (calculated as at the date this Corporation or
any such Subsidiary enters into a definitive agreement to effect such
transaction or, in the case of a series of related transactions, as at
the date this Corporation or any such Subsidiary enters into a
definitive agreement to effect the last of such related transactions)
or (y) other assets for a purchase price or, in the case of a series of
related transactions, for an aggregate purchase price that exceeds five
percent of Market Capitalization (calculated as at the date this
Corporation or any such Subsidiary enters into a definitive agreement
to effect such transaction or, in the case of a series of related
transactions, as at the date this Corporation or any such Subsidiary
enters into a definitive agreement to effect the last of such related
transactions), provided that, if any such other assets are proposed to
be obtained in the course of a proposed transaction in which both Core
Business Assets and other assets are to be acquired and the ratio of
the fair market value of the Core Business Assets to be acquired to the
fair market value of the other assets to be acquired exceeds 1.75 to 1,
then the holders of the Class A Stock shall not be entitled to
disapproval rights with respect to such transaction except as provided
in clause (x) of this Section 8.2(a)(ii);
(iii) issuance by this Corporation of any capital stock or debt
(including, without limitation, direct or indirect issuances such as
pursuant to mergers and other business combinations) with both (x) a
class vote to elect one or more Directors and (y) rights with respect
to dispositions of Long Distance Assets or other assets, or share
issuances, which rights are in scope and duration as extensive as or
more extensive than the comparable related rights granted to the Class
A Holders in these Articles of Incorporation or in the Stockholders'
Agreement, provided that this Section 8.2(a)(iii) shall not apply to
the extent that (a) such rights are required by Applicable Law, (b) the
holders of any series of Preferred Stock have the right, voting
separately as a class, to elect a number of Directors of this
Corporation upon the occurrence of a default in payment of dividends or
redemption price, or (c) such rights described in clause (y) are
granted in connection with borrowings and are reflected in a loan
agreement, credit agreement, trust indenture or similar agreement or
instrument;
(iv) declaration of any Extraordinary Dividends during any one year
that, individually or in the aggregate, exceed five percent of Market
Capitalization as at the Business Day immediately preceding the
declaration of the last such dividend or distribution (other than in
connection with transactions within the meaning of clause (e) of the
definition of Exempt Asset Divestitures or clause (g) of the definition
of Exempt Long Distance Asset Divestitures); or
(v) any merger or other business combination in which this
Corporation is not the surviving parent corporation.
(b) Until the earliest of (i) January 31, 2001, (ii) such time as (A)
legislation has been enacted repealing Section 310, (B) an FCC Order shall
have been issued, or (C) outside counsel to this Corporation with a
nationally recognized expertise in telecommunications regulatory matters
delivers to each of FT and DT a legal opinion, addressed to each of them,
in form and substance reasonably satisfactory to FT and DT, to the effect
that Section 310 does not prohibit FT and DT from owning the Long Distance
Assets proposed to be Transferred by this Corporation, (iii) the delivery
by FT, DT, Atlas or any of their Affiliates (or a
IV-124
<PAGE>
Permitted Designee (as such term is defined in the Joint Venture
Agreement)) of a notice pursuant to Section 17.2(b) of the Joint Venture
Agreement indicating the agreement to purchase all of the Sprint Venture
Interests (as such term is defined in the Joint Venture Agreement)
following an offer by this Corporation or Sprint Sub pursuant to Section
17.2(a) of the Joint Venture Agreement, and (iv) the delivery by this
Corporation and/or Sprint Sub of a notice pursuant to Section 17.3(a) of
the Joint Venture Agreement exercising the put right to sell all of their
Sprint Venture Interests (as such term is defined in the Joint Venture
Agreement) to FT, DT and Atlas (or a Permitted Designee (as such term is
defined in the Joint Venture Agreement)), a direct or indirect Transfer
(other than in connection with an Exempt Long Distance Asset Divestiture)
after January 31, 1996 by this Corporation or its Subsidiaries of Long
Distance Assets with a Fair Market Value (calculated as at the date this
Corporation or any such Subsidiary enters into a definitive agreement to
effect such Transfer) that, when aggregated with the Fair Market Value of
all other Long Distance Assets Transferred by this Corporation or its
Subsidiaries since January 31, 1996 (other than in Exempt Long Distance
Asset Divestitures) (calculated in each case as at the date this
Corporation or any such Subsidiary enters into a definitive agreement to
effect each such respective Transfer) exceeds five percent of the Fair
Market Value of the Long Distance Assets of this Corporation and its
Subsidiaries, on a consolidated basis (calculated as at the date this
Corporation or any such Subsidiary enters into a definitive agreement to
effect the last such Transfer).
(c) Except as otherwise provided in Section 8.5 of ARTICLE SIXTH, for so
long as any shares of Class A Stock are outstanding:
(i) any amendment to these Articlesof Incorporation, the Bylaws or
the Rights Agreement that would adversely affect the rights of the
Class A Holders under these Articlesof Incorporation or the Bylaws;
(ii) issuance by this Corporation (including, without limitation,
pursuant to mergers or other business combinations) of any series or
class of capital stock or debt security with Supervoting Powers;
(iii) any merger or other business combination involving this
Corporation that results directly or indirectly in a Change of Control,
unless the surviving corporation expressly (x) assumes all of this
Corporation's obligations in respect of the rights of the Class A
Holders under Section 8.2(b) of ARTICLE SIXTH and the provisions of
Article III of the Stockholders' Agreement (except, in each case, as
they may be otherwise terminated pursuant to these Articles of
Incorporation or the Stockholders' Agreement) and all of the provisions
of the Registration Rights Agreement and (y) agrees to be bound by any
applicable Tie-Breaking Vote in accordance with Articles 17 and 18 of
the Joint Venture Agreement; or
(iv) any merger or other business combination involving this
Corporation that does not result directly or indirectly in a Change of
Control unless:
(x) this Corporation survives as the parent entity; or
(y) the surviving corporation expressly assumes all of this
Corporation's obligations in respect of the rights of the Class A
Holders granted pursuant to these Articlesof Incorporation and under
the Bylaws, the Stockholders' Agreement, the FT/DT Restructuring
Agreement and the Registration Rights Agreement.
8.3. Special Rights Regarding Major Issuances. So long as any Class A Stock
is outstanding, prior to effecting any Major Issuance:
(a) occurring on or prior to January 31, 2001, this Corporation shall
obtain the prior approval of two-thirds of the Independent Directors by
resolution, certified to the Class A Holders; and
(b) occurring after January 31, 2001, this Corporation shall obtain the
prior approval of a majority of the Independent Directors.
8.4. Special Rights Regarding Holdings by Major Competitors of FT or DT. (a)
Until January 31, 2006, at least 90 days prior to consummating any transaction
or taking any other action that, directly or indirectly,
IV-125
<PAGE>
would result in, or is taken for the purpose of encouraging or facilitating, a
Major Competitor of FT or DT or of the Joint Venture having, or being granted
by this Corporation any right, permission or approval to acquire (other than
pursuant to a Strategic Merger), a Percentage Ownership Interest of ten
percent or more (a "Major Competitor Transaction"), this Corporation shall
provide each Class A Holder with notice of such Major Competitor Transaction
in the manner set forth in Subsection (c) below and, if there is a Class A
Action exercising the special rights of the Class A Holders to disapprove such
Major Competitor Transaction within 75 days of the delivery of such notice,
this Corporation shall not consummate such Major Competitor Transaction.
(b) Until January 31, 2006, if a Major Competitor of FT or DT or of the
Joint Venture obtains a Percentage Ownership Interest of 20 percent or more as
a result, directly or indirectly, of a Strategic Merger:
(i) if the Class A Holders have not made the commitment described in
Article VI of the Stockholders' Agreement, this Corporation (or its
successor in such Strategic Merger) shall, subject to the provisos of
Sections 2.1(a)(ii) and 2.2(a) of the Standstill Agreement, nonetheless
take all action necessary or advisable to lift all restrictions,
contractual or otherwise, imposed by this Corporation or such successor on
the ability of the Class A Holders, at any time after April 26, 1996, to
purchase shares of Series 1 FON Stock, Series 2 FON Stock, Series 1 PCS
Stock, Series 2 PCS Stock or other Voting Securities from third parties
sufficient to permit the Class A Holders to have a Percentage Ownership
Interest equal to that of the Major Competitor of FT or DT or of the Joint
Venture; and
(ii) this Corporation shall ensure that the Class A Holders have rights
with regard to (w) a class vote to elect Directors, (x) class approval and
disapproval rights, (y) any other special rights in respect of the business
or operations of this Corporation and (z) any rights to receive special
dividends, distributions or other rights from this Corporation, which are
in scope and duration at least as extensive as any rights granted by this
Corporation to such Major Competitor of FT or DT or of the Joint Venture
(other than rights deriving solely from the number of Voting Securities
owned), regardless of whether or not the Class A Holders purchase any
additional Voting Securities.
(c) Until January 31, 2006, this Corporation shall deliver to each Class A
Holder notice of its intent to issue Voting Securities in a Major Competitor
Transaction to any Major Competitor of FT or DT or of the Joint Venture at
least 30 days prior to such issuance, such notice to contain a complete and
correct description in reasonable detail of the transaction in question,
including, without limitation, the purchase price for such securities, the
nature of such securities, the identity of the Major Competitor of FT or DT or
of the Joint Venture and the rights (contractual and other) this Corporation
would grant such Major Competitor. This Corporation shall also deliver to each
Class A Holder notice of any such issuance within five days after it occurs,
such notice to contain a description of the transaction in question and be
accompanied by complete and correct copies of all agreements, instruments and
written understandings of this Corporation, its Subsidiaries and Affiliates
and such Major Competitor of FT or DT or of the Joint Venture and the
Subsidiaries and Affiliates of such Major Competitor executed in respect of
such transaction.
8.5. Conversion of Shares. (a) Failure to Maintain Ownership. If the
aggregate Committed Percentage of the Class A Holders shall be below ten
percent (i) for more than 180 consecutive days or (ii) immediately following a
Transfer of Class A Stock by a Class A Holder, then
(A) each outstanding share of Series 3 FON Stock and Series 3 PCS Stock
shall automatically convert (without the payment of any consideration) into
one duly issued, fully paid and nonassessable share of Series 1 FON Stock
and Series 1 PCS Stock, respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group and the Number
Of Shares Issuable With Respect To The Old Class A Equity Interest In The
PCS Group, respectively, represented by such shares of Old Class A Common
Stock, and (ii) outstanding shares of Class A Common Stock--Series DT shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and
IV-126
<PAGE>
nonassessable shares of Series 1 FON Stock and Series 1 PCS Stock equal to
the Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The FON Group and the Number Of Shares Issuable With Respect To
The Class A--Series DT Equity Interest In The PCS Group, respectively,
represented by such shares of Class A Common Stock--Series DT,
such conversion to take place on the next Business Day following the end of
such 180-day period in the case of clause (i) or on the date of such Transfer
in the case of clause (ii), provided that, if the aggregate Committed
Percentage of the Class A Holders shall fall below ten percent for more than
180 consecutive days following the date of a Major Issuance as a result of the
consummation of such Major Issuance, then, unless all of the outstanding
shares of Class A Stock shall have been converted earlier pursuant to this
Section 8.5, (x) the Shares of Class A Stock shall not convert into either
Series 1 FON Stock or Series 1 PCS Stock, as the case may be, until the third
anniversary of the date of such Major Issuance, and (y) the Class A Holders
shall continue to be entitled to elect Directors pursuant to ARTICLE FIFTH of
these Articles of Incorporation until the third anniversary of the date of
such Major Issuance, but (z) after the expiration of 180 days following the
date of such Major Issuance, the Class A Holders shall no longer have their
rights under Sections 8.2, 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH, and
provided, further, that such conversion shall not be considered to be an
acquisition of Shares of Series 1 FON Stock or Series 1 PCS Stock, as the case
may be, for purposes of Section 8.5(i) of ARTICLE SIXTH.
(b) FT/DT Joint Venture Termination; Material Breach of Investment
Documents. (i) (A) Each outstanding share of Series 3 FON Stock and Series 3
PCS Stock shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 1 FON Stock and Series 1 PCS Stock, respectively, and (B) all (i)
outstanding shares of Old Class A Common Stock shall automatically convert
(without the payment of any consideration) into the number of duly issued,
fully paid and nonassessable shares of Series 1 FON Stock and Series 1 PCS
Stock equal to the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The FON Group and the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The PCS Group, respectively,
represented by such shares of Old Class A Common Stock, and (ii) outstanding
shares of Class A Common Stock--Series DT shall automatically convert (without
the payment of any consideration) into the number of duly issued, fully paid
and nonassessable shares of Series 1 FON Stock and Series 1 PCS Stock equal to
the Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The FON Group and the Number Of Shares Issuable With Respect To
The Class A--Series DT Equity Interest In The PCS Group, respectively,
represented by such shares of Class A Common Stock--Series DT, if:
(t) the Sprint Parties receive the Tie-Breaking Vote pursuant to Section
17.5 of the Joint Venture Agreement;
(u) there is an FT/DT Joint Venture Termination;
(v) FT or DT or any Qualified Subsidiary breaches in any material respect
its obligations under Section 2.4 of the Stockholders' Agreement;
(w) FT or DT or any Qualified Subsidiary breaches in any material respect
its obligations under Article II (other than Section 2.4) of the
Stockholders' Agreement;
(x) FT, DT or any Qualified Subsidiary breaches any of the provisions of
Article 2 (other than Section 2.1(b)) of the Standstill Agreement or any
corresponding provision of any Qualified Subsidiary Standstill Agreement;
(y) FT, DT or any Qualified Subsidiary breaches any of the provisions of
Sections 3.1 or 3.2 of the Standstill Agreement or any corresponding
provisions of any Qualified Subsidiary Standstill Agreement, in each case
in a Control Context, or otherwise breaches Sections 3.1(a)(ii), (iii) or
(iv) or Section 3.1(g) of the Standstill Agreement or any corresponding
provision of any Qualified Subsidiary Standstill Agreement; or
(z) FT, DT or any Qualified Subsidiary breaches any of the provisions of
Sections 3.1 (except Section 3.1(a)(ii), (iii) or (iv), or Section 3.1(g))
or 3.2 of the Standstill Agreement or any corresponding provisions of any
Qualified Subsidiary Standstill Agreement, in each case other than in a
Control Context;
IV-127
<PAGE>
provided that, with respect to an alleged breach of the type described in
clauses (v), (w), (x), (y) or (z) above, the Class A Holders alleged to have
committed such breach (the "Breaching Holders") shall deliver a notice
(I) except with respect to a breach of the type described in clause (y)
above, in accordance with clauses (ii)(x) or (iii)(x) below, in which case
no conversion of the Class A Stock shall take place unless such breach
fails to be cured within the time provided for cure in such clause (ii) or
(iii), as the case may be;
(II) in accordance with clauses (ii)(y), (iii)(y) or (iv) below, in which
case no conversion of the Class A Stock shall take place until there is
issued a final nonappealable decision or order of a court of competent
jurisdiction finding that such breach has occurred and, if applicable, was
not cured within the time provided for cure in clauses (ii) or (iii) below,
as the case may be; or
(III) admitting that such a breach has occurred, and (if applicable)
cannot be cured within the time periods provided for cure in clauses (ii)
or (iii) below, in which case
(A) each outstanding share of Series 3 FON Stock and Series 3 PCS
Stock, as the case may be, shall automatically convert (without the
payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 FON Stock and Series 1 PCS Stock,
respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into
the number of duly issued, fully paid and nonassessable shares of
Series 1 FON Stock and Series 1 PCS Stock equal to the Number Of Shares
Issuable With Respect To The Old Class A Equity Interest In The FON
Group and the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group, respectively, represented by such
shares of Old Class A Common Stock, and (ii) outstanding shares of
Class A Common Stock--Series DT shall automatically convert (without
the payment of any consideration) into the number of duly issued, fully
paid and nonassessable shares of Series 1 FON Stock and Series 1 PCS
Stock equal to the Number Of Shares Issuable With Respect To The Class
A--Series DT Equity Interest In The FON Group and the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The
PCS Group, respectively, represented by such shares of Class A Common
Stock--Series DT,
upon delivery of such notice; and
provided, further, that if the Breaching Holders fail to perform the actions
described in clauses (I) or (II) above within the time periods provided for
performing such actions in clauses (ii), (iii) or (iv) below, they shall be
deemed to have taken the action described in clause (III) above.
(ii) For any alleged breach of the type described in clauses (w), (x) or (z)
of clause (i) above, the Breaching Holders shall have the right, within five
Business Days after the date (for purposes of this clause (ii), the "Breach
Notice Date") that notice of such breach is delivered to each Breaching Holder
by this Corporation, to deliver to this Corporation a notice either:
(x) committing to effect a cure as soon as practical, in which case the
Breaching Holders shall effect such cure as soon as practical, but in no
event later than the 20th Business Day from the Breach Notice Date (or,
with respect to an alleged breach of clauses (w) or (x), if such cure
cannot be effected within such time period due to the anti-fraud rules of
the U.S. securities laws, such longer period as is reasonably necessary to
cure such breach in a manner consistent with such rules), provided that
(I) the Breaching Holders shall have no right to cure unless such
breach is susceptible to cure;
(II) such cure period shall continue only for so long as each
Breaching Holder shall be undertaking to effect such a cure in a
diligent manner;
(III) with respect to an alleged breach of clause (i)(x) above, this
Corporation shall have the right at any time after the end of such 20-
day period to purchase such number of shares of Non-Class A Common
Stock or Class A Stock, as the case may be, as is necessary to return
the Class A Holders to the ownership level permitted by the Standstill
Agreement or a Qualified Subsidiary Standstill Agreement, as the case
may be, at a price equal to the lower of (A) the Market Price for such
shares at
IV-128
<PAGE>
the time of such redemption and (B) the price paid by the Breaching
Holders for such shares, provided that this Corporation may only
exercise such right if a majority of the Continuing Directors shall
have first approved, at a meeting at which at least seven Continuing
Directors are present, such a purchase of Shares, unless a Fair Price
Condition has been satisfied; and
(IV) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred, provided that during such
time as the most recent decision or order of a court of competent
jurisdiction is to the effect that such breach has occurred and was not
cured within the time provided for cure in clause (x) of this clause (ii),
the rights provided to the Class A Holders under Sections 8.2 (except
8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH and the
right to elect members of the Board of Directors of the holders of the
Class A Stock under ARTICLE FIFTH of these Articles of Incorporation shall
be suspended and may not be exercised by the Class A Holders.
(iii) For any alleged breach of the type described in clause (i)(v) above,
the Breaching Holders shall have the right, within five Business Days after
the date (for purposes of this clause (iii), the "Breach Notice Date") that
notice of such breach is delivered to each Breaching Holder by this
Corporation, to deliver to this Corporation a notice either:
(x) committing to effect a cure as soon as practical, in which case the
Breaching Holders shall effect such cure as soon as practical, but in no
event later than the 20th Business Day from the Breach Notice Date (or, if
such cure cannot be effected within such time period due to the anti-fraud
rules of the U.S. securities laws, such longer period as is reasonably
necessary to cure such breach in a manner consistent with such rules),
provided that
(I) the Breaching Holders shall have no right to cure unless such
breach is susceptible to cure;
(II) such cure period shall continue only for so long as each
Breaching Holder shall be undertaking to effect such a cure in a
diligent manner; and
(III) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred;
provided that, in each case, from the Breach Notice Date until the earlier to
occur of the cure of such breach and the issuance of a decision or order of a
court of competent jurisdiction finding that such breach has not occurred or
was cured within the time provided for cure in clause (x) of this clause
(iii), the rights provided to the Class A Holders under Sections 8.2 (except
8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH and the right
to elect members of the Board of Directors of the holders of the Class A Stock
under ARTICLE FIFTH of these Articles of Incorporation shall be suspended and
may not be exercised by the Class A Holders; and provided, further, that
following such decision or order, such rights shall be suspended during such
time as the most recent decision or order of a court of competent jurisdiction
is to the effect that such breach has occurred and was not cured within the
time provided for cure in clause (x) of this clause (iii).
(iv) For any alleged breach of the type described in clause (i)(y) above,
the Breaching Holders shall have the right, within five Business Days after
the date (for purposes of this clause (iv), the "Breach Notice Date") that
notice of such breach is delivered to each Breaching Holder by this
Corporation, to deliver to this Corporation a notice disputing that such a
breach has occurred, provided that from the Breach Notice Date until the
issuance of a decision or order of a court of competent jurisdiction finding
that such breach has not occurred, the rights provided to the Class A Holders
under Sections 8.2 (except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of
ARTICLE SIXTH and the right to elect members of the Board of Directors of the
holders of the Class A Stock under ARTICLE FIFTH of these Articles of
Incorporation shall be suspended and may not be exercised by the Class A
Holders; and provided, further, that following such decision or order, such
rights shall be suspended during such time as the most recent decision or
order of a court of competent jurisdiction is to the effect that such breach
has occurred.
IV-129
<PAGE>
(v) For purposes of this Section 8.5(b), an alleged breach shall be deemed
to have occurred in a "Control Context" if the action or actions alleged to
have given rise to such breach were taken in the context of efforts by any
Class A Holder or any other Person having the purpose or effect of changing or
influencing the control of this Corporation.
(vi) No conversion pursuant to this Section 8.5(b) shall be considered an
acquisition for purposes of Section 8.5(i) of ARTICLE SIXTH.
(c) Deleted.
(d) Corporation Joint Venture Termination. Unless the Class A Stock shall
have been converted earlier pursuant to this Section 8.5, if there is a
Corporation Joint Venture Termination,
(A) each outstanding share of Series 3 FON Stock and Series 3 PCS Stock,
as the case may be, shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 1 FON Stock and Series 1 PCS Stock, respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group and the Number
Of Shares Issuable With Respect To The Old Class A Equity Interest In The
PCS Group, respectively, represented by such shares of Old Class A Common
Stock, and (ii) outstanding shares of Class A Common Stock--Series DT shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group and the
Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group, respectively, represented by such shares of
Class A Common Stock--Series DT,
on the third anniversary of the date of such Corporation Joint Venture
Termination, provided that any such conversion shall not be considered to be
an acquisition of Series 1 FON Stock or Series 1 PCS Stock for purposes of
Section 8.5(i) of ARTICLE SIXTH.
(e) Other Joint Venture Termination. If (i) there is a sale of all the
Venture Interests of the Sprint Parties or the FT/DT Parties pursuant to
Section 17.2, 17.3, 17.4, 19.3, 20.6 or 20.11 of the Joint Venture Agreement
or (ii) the Joint Venture is otherwise terminated, in each case other than due
to (i) an FT/DT Joint Venture Termination or (ii) a Corporation Joint Venture
Termination:
(x) on the date of such termination, the rights provided to the Class A
Holders in Sections 8.2 (except Sections 8.2(c)(i) and 8.2(c)(iii)), 8.3
and 8.4 of ARTICLE SIXTH shall terminate; and
(y) unless the Class A Stock shall have been converted pursuant to this
Section 8.5,
(A) each outstanding share of Series 3 FON Stock and Series 3 PCS
Stock, as the case may be, shall automatically convert (without the
payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 FON Stock and Series 1 PCS Stock,
respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into
the number of duly issued, fully paid and nonassessable shares of
Series 1 FON Stock and Series 1 PCS Stock equal to the Number Of Shares
Issuable With Respect To The Old Class A Equity Interest In The FON
Group and the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group, respectively, represented by such
shares of Old Class A Common Stock, and (ii) outstanding shares of
Class A Common Stock--Series DT shall automatically convert (without
the payment of any consideration) into the number of duly issued, fully
paid and nonassessable shares of Series 1 FON Stock and Series 1 PCS
Stock equal to the Number Of Shares Issuable With Respect To The Class
A--Series DT Equity Interest In The FON Group and the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The
PCS Group, respectively, represented by such shares of Class A Common
Stock--Series DT,
IV-130
<PAGE>
on the third anniversary of the date of such termination, provided that any
such conversion shall not be considered to be an acquisition of Series 1
FON Stock or Series 1 PCS Stock for purposes of Section 8.5(i) of ARTICLE
SIXTH.
(f) Change of Control. If there is a Change of Control within the meaning of
clause(a) of the definition of Change of Control, (i) the rights provided to
the Class A Holders in ARTICLE FIFTH of these Articles of Incorporation, and
Sections 8.2 (except Sections 8.2(b), 8.2(c)(iii) (as to rights provided under
Section 8.2(b)) and 8.2(c)(iv) (as to rights provided under Section 8.2(b)),
8.3 and 8.4 of ARTICLE SIXTH shall terminate upon the consummation of the
transactions contemplated thereby, provided that, prior to such consummation,
this Corporation shall engage in good faith negotiations with any potential
acquiror of Control to provide the Class A Holders with rights equivalent to
those provided in ARTICLE FIFTH of these Articles of Incorporation and (ii)
all, but not less than all, of the Class A Holders shall have the right (but
not the obligation) to deliver to this Corporation a written notice upon which
delivery
(A) each outstanding share of Series 3 FON Stock and Series 3 PCS Stock,
as the case may be, shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 1 FON Stock and Series 1 PCS Stock, respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group and the Number
Of Shares Issuable With Respect To The Old Class A Equity Interest In The
PCS Group, respectively, represented by such shares of Old Class A Common
Stock, and (ii) outstanding shares of Class A Common Stock--Series DT shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group and the
Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group, respectively, represented by such shares of
Class A Common Stock--Series DT.
Any such conversion of Class A Stock pursuant to this clause (f) shall not be
considered to be an acquisition of Series 1 FON Stock or Series 1 PCS Stock
for purposes of Section 8.5(i) of ARTICLE SIXTH.
(g) Unequal Ownership. (i) If (A) the ratio of the aggregate Percentage
Ownership Interest of the overall Voting Power of the Corporation of one of FT
or DT (and its Qualified Subsidiaries) to the aggregate Percentage Ownership
Interest of the overall Voting Power of the Corporation of the other of FT or
DT (and its Qualified Subsidiaries) is greater than 3 to 2, (B) the ratio of
the aggregate Percentage Ownership Interest of the Class A FON Shares of one
of FT or DT (and its Qualified Subsidiaries) exceeds 4 to 1; or (C) the ratio
of the aggregate Percentage Ownership Interest of the Class A PCS Shares of
one of FT or DT (and its Qualified Subsidiaries) to the aggregate Percentage
Ownership Interest of the other of FT or DT (and its Qualified Subsidiaries)
exceeds 4 to 1, for 60 consecutive days following a notice of such event
delivered by this Corporation to each of FT and DT, then
(A) each outstanding share of Series 3 FON Stock and Series 3 PCS Stock,
as the case may be, shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 1 FON Stock and Series 1 PCS Stock, respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group and the Number
Of Shares Issuable With Respect To The Old Class A Equity Interest In The
PCS Group, respectively, represented by such shares of Old Class A Common
Stock, and (ii) outstanding shares of Class A Common Stock--Series DT shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable
IV-131
<PAGE>
With Respect To The Class A--Series DT Equity Interest In The FON Group and
the Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group, respectively, represented by such shares of
Class A Common Stock--Series DT;
provided that any such conversion shall not be considered to be an acquisition
of Series 1 FON Stock or Series 1 PCS Stock, respectively, for purposes of
Section 8.5 (i) of ARTICLE SIXTH.
(ii) For purposes of calculating the ratios in this Section 8.5(g), FT
and DT shall be deemed to own shares of Class A Stock owned by a Qualified
Subsidiary as follows:
(x) if only one of FT or DT owns, directly or indirectly, Votes in
such Qualified Subsidiary, FT or DT, as the case may be, shall be
deemed to own all of the shares of Class A Stock owned by such
Qualified Subsidiary; and
(y) if both FT and DT own, directly or indirectly, Votes in such
Qualified Subsidiary, each of FT and DT shall be deemed to own its
respective Applicable Percentage of the shares of Class A Stock owned
by such Qualified Subsidiary. As used herein, the "Applicable
Percentage" means the percentage of the equity interests of such
Qualified Subsidiary owned, directly or indirectly, by FT or DT, as the
case may be.
(h) Unauthorized Transfers. Unless approved by this Corporation, upon any
Transfer of shares of Class A Stock (other than a Transfer to a Qualified
Subsidiary, a Qualified Stock Purchaser or to FT or DT, in each case which
Transfer is effected in accordance with the provisions of Article II of the
Stockholders' Agreement),
(A) each share of Series 3 FON Stock and Series 3 PCS Stock, as the case
may be, so Transferred shall automatically convert (without the payment of
any consideration) into one duly issued, fully paid and nonassessable share
of Series 1 FON Stock and Series 1 PCS Stock, respectively, and
(B) all (i) outstanding shares of Old Class A Common Stock shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The FON Group and the Number
Of Shares Issuable With Respect To The Old Class A Equity Interest In The
PCS Group, respectively, represented by such shares of Old Class A Common
Stock, and (ii) outstanding shares of Class A Common Stock--Series DT shall
automatically convert (without the payment of any consideration) into the
number of duly issued, fully paid and nonassessable shares of Series 1 FON
Stock and Series 1 PCS Stock equal to the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The FON Group and the
Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group, respectively, represented by such shares of
Class A Common Stock--Series DT,
as of the date of such Transfer, provided that no conversion of Class A Stock
pursuant to this Section 8.5(h) shall be considered to be an acquisition of
Series 1 FON Stock or Series 1 PCS Stock for purposes of Section 8.5(i) of
ARTICLE SIXTH.
(i) Conversion into Class A Stock. Until the conversion of all of the shares
of Class A Stock pursuant to this Section 8.5, (x) each share of Series 1 FON
Stock or Series 2 FON Stock, as the case may be, acquired by a Class A Holder
shall automatically convert (without the payment of any consideration) into
one duly issued, fully paid and nonassessable share of Series 3 FON Stock at
the date of such acquisition and (y) each share of Series 1 PCS Stock or
Series 2 PCS Stock, as the case may be, acquired by a Class A Holder shall
automatically convert (without the payment of any consideration) into one duly
issued, fully paid and nonassessable share of Series 3 PCS Stock at the date
of such acquisition.
(j) Notice of Conversion; Exchange of Stock Certificates; Effect of
Conversion of all Class A Stock, etc. (i) Immediately upon the conversion of
shares of Series 3 FON Stock, Series 3 PCS Stock and Class A Common Stock into
shares of Series 1 FON Stock, Series 1 PCS Stock and, as applicable, shares of
both Series 1 FON Stock and Series 1 PCS Stock, respectively, or upon the
conversion of shares of Series 1 FON Stock and Series
IV-132
<PAGE>
2 FON Stock or Series 2 PCS Stock and Series 1 PCS Stock into shares of Series
3 FON Stock or Series 3 PCS Stock, respectively, and in each case pursuant to
this Section 8.5 (the shares of Class A Common Stock, Series 3 FON Stock,
Series 3 PCS Stock, Series 1 FON Stock, Series 2 FON Stock, Series 2 PCS Stock
or Series 1 PCS Stock so converted hereinafter referred to as the "Converted
Shares"), the rights of the holders of such Converted Shares, as such, shall
cease and the holders thereof shall be treated for all purposes as having
become the record owners of the shares of Series 1 FON Stock, Series 3 FON
Stock, Series 1 PCS Stock or Series 3 PCS Stock, as the case may be, issuable
upon such conversion (the "New Shares"), provided that such Persons shall be
entitled to receive when paid any dividends declared on the Converted Shares
as of a record date preceding the time the Converted Shares were converted
(the "Conversion Time") and unpaid as of the Conversion Time. If the stock
transfer books of this Corporation shall be closed at the Conversion Time,
such Person or Persons shall be deemed to have become such holder or holders
of record of the New Shares at the opening of business on the next succeeding
day on which such stock transfer books are open.
(ii) As promptly as practicable after the Conversion Time, upon the delivery
to this Corporation of the certificates formerly representing Converted
Shares, this Corporation shall deliver or cause to be delivered, to or upon
the written order of the record holder of such certificates, a certificate or
certificates representing the number of duly issued, fully paid and
nonassessable New Shares into which the Converted Shares formerly represented
by such certificates have been converted in accordance with the provisions of
this Section 8.5.
(iii) This Corporation shall pay all United States federal, state or local
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of New Shares upon the conversion of Converted Shares
pursuant to this Section 8.5, provided that this Corporation shall not be
required to pay any tax which may be payable in respect of any registration of
Transfer involved in the issue or delivery of New Shares in a name other than
that of the registered holder of shares converted or to be converted, and no
such issue or delivery shall be made unless and until the person requesting
such issue has paid to this Corporation the amount of any such tax or has
established, to the satisfaction of this Corporation, that such tax has been
paid.
(iv) This Corporation shall at all times reserve and keep available, out of
the aggregate of its authorized but unissued Series 3 FON Stock, Series 3 PCS
Stock, Series 1 PCS Stock and Series 1 FON Stock and its issued Series 1 FON
Stock or Series 1 PCS Stock held in its treasury, for the purpose of effecting
the conversion of the Series 3 FON Stock, Series 1 FON Stock, Series 2 FON
Stock, Series 3 PCS Stock, Series 2 PCS Stock, Series 1 PCS Stock and Class A
Common Stock contemplated hereby, the full number of shares of Series 1 FON
Stock or Series 1 PCS Stock then deliverable upon the conversion of all
outstanding shares of Series 3 FON Stock, Series 3 PCS Stock and Class A
Common Stock, and the full number of shares of Series 3 FON Stock and Series 3
PCS Stock that would be deliverable upon conversion of all of the shares of
Series 1 FON Stock, Series 1 PCS Stock, Series 2 FON Stock and Series 2 PCS
Stock the Class A Holders are permitted to acquire hereunder and under the
Investment Agreement, the FT/DT Restructuring Agreement, the Stockholders'
Agreement and the Standstill Agreement.
(v) Following conversion of all outstanding shares of Class A Stock into
shares of Series 1 FON Stock or Series 1 PCS Stock, as the case may be,
pursuant to this Section 8.5, this Corporation shall not, directly or
indirectly, issue, or sell from the treasury, any shares of Class A Stock.
(k) Class A Stock Held by Qualified Stock Purchasers. (i) If any Qualified
Stock Purchaser shall become a Major Competitor of this Corporation or of the
Joint Venture, on the date the writing referred to in the definition of Major
Competitor in this ARTICLE SIXTH is delivered to each Class A Holder, each
share of Series 3 FON Stock and Series 3 PCS Stock, as the case may be, owned
by a Qualified Stock Purchaser shall automatically convert (without the
payment of any consideration) into one duly issued, fully paid and
nonassessable share of Series 1 FON Stock and Series 1 PCS Stock,
respectively.
(ii) (A) Each outstanding share of Series 3 FON Stock and Series 3 PCS
Stock, as the case may be, owned by a Qualified Stock Purchaser shall
automatically convert (without the payment of any consideration) into one duly
issued, fully paid and nonassessable share of Series 1 FON Stock and Series 1
PCS Stock, respectively, if:
IV-133
<PAGE>
(v) such Qualified Stock Purchaser breaches in any material respect its
obligations under Section 2.4 of the Stockholders' Agreement;
(w) such Qualified Stock Purchaser breaches in any material respect its
obligations under Article II (other than Section 2.4) of the Stockholders'
Agreement;
(x) such Qualified Stock Purchaser breaches any of the provisions of
Article 2 of the Qualified Stock Purchaser Standstill Agreement;
(y) such Qualified Stock Purchaser breaches any of the provisions of
Section 3.1 or 3.2 of the Qualified Stock Purchaser Standstill Agreement in
a Control Context, or such Qualified Stock Purchaser otherwise breaches
Sections 3.1(a)(ii), (iii) or (iv) or Section 3.1(g) of the Qualified Stock
Purchaser Standstill Agreement; or
(z) such Qualified Stock Purchaser breaches any of the provisions of
Sections 3.1 (except Section 3.1(a)(ii), (iii) or (iv), or Section 3.1(g))
or 3.2 of the Qualified Stock Purchaser Standstill Agreement, in each case
other than in a Control Context;
provided, that such Qualified Stock Purchaser shall deliver a notice
(I) except with respect to a breach of the type described in clause (y)
above, in accordance with clauses (iii)(x) or (iv)(x) below, in which case
no conversion of the Class A Stock owned by such Qualified Stock Purchaser
shall take place unless such breach fails to be cured within the time
provided for cure in such clause (iii) or (iv), as the case may be;
(II) in accordance with clauses (iii)(y), (iv)(y) or (v) below, in which
case no conversion of the Class A Stock owned by such Qualified Stock
Purchaser shall take place until there is issued a final nonappealable
decision or order of a court of competent jurisdiction finding that such
breach has occurred and, if applicable, was not cured within the time
provided for cure in clauses (iii) or (iv) below, as the case may be; or
(III) admitting that such a breach has occurred, and (if applicable)
cannot be cured within the time periods provided for cure in clauses (iii)
or (iv) below, in which case each outstanding share of Series 3 FON Stock
and Series 3 PCS Stock, as the case may be, owned by such Qualified Stock
Purchaser shall automatically convert (without the payment of any
consideration) into one duly issued, fully paid and nonassessable share of
Series 1 FON Stock and Series 1 PCS Stock, respectively upon delivery of
such notice; and
provided, further, that if such Qualified Stock Purchaser fails to perform the
actions described in clauses (I) or (II) above within the time periods
provided for performing such actions in clauses (iii), (iv) or (v) below, it
shall be deemed to have taken the action described in clause (III) above.
(iii) For any alleged breach of the type described in clauses (w), (x) or
(z) of clause (ii) above, such Qualified Stock Purchaser shall have the right,
within five Business Days after the date (for purposes of this clause (iii),
the "Breach Notice Date") that notice of such breach is delivered to such
Qualified Stock Purchaser by this Corporation, to deliver to this Corporation
a notice either:
(x) committing to effect a cure as soon as practical, in which case such
Qualified Stock Purchaser shall effect such cure as soon as practical, but
in no event later than the 20th Business Day from the Breach Notice Date
(or, with respect to an alleged breach of clauses (w) or (x), if such cure
cannot be effected within such time period due to the anti-fraud rules of
the U.S. securities laws, such longer period as is reasonably necessary to
cure such breach in a manner consistent with such rules), provided that
(I) such Qualified Stock Purchaser shall have no right to cure unless
such breach is susceptible to cure;
(II) such cure period shall continue only for so long as such
Qualified Stock Purchaser shall be undertaking to effect such a cure in
a diligent manner;
IV-134
<PAGE>
(III) with respect to an alleged breach of clause (ii)(x) above, this
Corporation shall have the right at any time after the end of such 20-
day period to purchase such number of shares of Class A Stock as is
necessary to return such Qualified Stock Purchaser to the ownership
level permitted by the Qualified Stock Purchaser Standstill Agreement,
at a price equal to the lower of (A) the Market Price for such Shares
at the time of such redemption and (B) the price paid by such Qualified
Stock Purchaser for such Shares, provided that this Corporation may
only exercise such right if a majority of the Continuing Directors
shall have first approved, at a meeting at which at least seven
Continuing Directors are present, such a purchase of Shares, unless a
Fair Price Condition has been satisfied; and
(IV) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred, provided that during such
time as the most recent decision or order of a court of competent
jurisdiction is to the effect that such breach has occurred and was not
cured within the time provided for cure in clause (x) of this clause (iii),
the rights provided to such Qualified Stock Purchaser under Sections 8.2
(except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH and
the right of such Qualified Stock Purchaser to elect members of the Board
of Directors as a holder of the Class A Stock under ARTICLE FIFTH of these
Articles of Incorporation shall be suspended and may not be exercised by
such Qualified Stock Purchaser.
(iv) For any alleged breach of the type described in clause (ii)(v) above,
such Qualified Stock Purchaser shall have the right, within five Business Days
after the date (for purposes of this clause (iv), the "Breach Notice Date")
that notice of such breach is delivered to such Qualified Stock Purchaser by
this Corporation, to deliver to this Corporation a notice either:
(x) committing to effect a cure as soon as practical, in which case such
Qualified Stock Purchaser shall effect such cure as soon as practical, but
in no event later than the 20th Business Day from the Breach Notice Date
(or, if such cure cannot be effected within such time period due to the
anti-fraud rules of the U.S. securities laws, such longer period as is
reasonably necessary to cure such breach in a manner consistent with such
rules), provided that
(I) such Qualified Stock Purchaser shall have no right to cure unless
such breach is susceptible to cure;
(II) such cure period shall continue only for so long as such
Qualified Stock Purchaser shall be undertaking to effect such a cure in
a diligent manner; and
(III) withdrawal of the action alleged to have caused such breach
shall not, in and of itself, give rise to a presumption that such
breach has been cured; or
(y) disputing that such a breach has occurred;
provided that, in each case, from the Breach Notice Date until the earlier to
occur of the cure of such breach and the issuance of a decision or order of a
court of competent jurisdiction finding that such breach has not occurred or
was cured within the time provided for cure in clause (x) of this clause (iv),
the rights provided to such Qualified Stock Purchaser under Sections 8.2
(except 8.2(a)(iii) and 8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH and
the right of such Qualified Stock Purchaser to elect members of the Board of
Directors as a holder of the Class A Stock under ARTICLE FIFTH of these
Articles of Incorporation shall be suspended and may not be exercised by such
Qualified Stock Purchaser; and provided, further, that following such decision
or order, such rights shall be suspended during such time as the most recent
decision or order of a court of competent jurisdiction is to the effect that
such breach has occurred and was not cured within the time provided for cure
in clause (x) of this clause (iv).
(v) For any alleged breach of the type described in clause (ii)(y) above,
such Qualified Stock Purchaser shall have the right, within five Business Days
after the date (for purposes of this clause (v), the "Breach Notice Date")
that notice of such breach is delivered to such Qualified Stock Purchaser by
this Corporation, to deliver to this Corporation a notice disputing that such
a breach has occurred, provided that from the Breach Notice
IV-135
<PAGE>
Date until the issuance of a decision or order of a court of competent
jurisdiction finding that such breach has not occurred, the rights provided to
such Qualified Stock Purchaser under Sections 8.2 (except 8.2(a)(iii) and
8.2(c)), 8.3, 8.4, 8.5 and 8.6 of ARTICLE SIXTH and the right of such
Qualified Stock Purchaser to elect members of the Board of Directors as a
holder of the Class A Stock under ARTICLE FIFTH of these Articles of
Incorporation shall be suspended and may not be exercised by such Qualified
Stock Purchaser and provided, further, that following such decision or order,
such rights shall be suspended during such time as the most recent decision or
order of a court of competent jurisdiction is to the effect that such breach
has occurred.
(vi) For purposes of this Section 8.5(k), an alleged breach shall be deemed
to have occurred in a Control Context if the action or actions alleged to have
given rise to such breach were taken in the context of efforts by such
Qualified Stock Purchaser or any other Person having the purpose or effect of
changing or influencing the control of this Corporation.
(vii) No conversion pursuant to this Section 8.5(k) shall be considered an
acquisition for purposes of Section 8.5(i) of ARTICLE SIXTH.
(l) Effect of Conversion. Upon the conversion of all of the shares of Class
A Stock pursuant to this Section 8.5, each share of Series 3 FON Stock and
Series 3 PCS Stock, as the case may be, issued by this Corporation pursuant to
the Investment Agreement, the FT/DT Restructuring Agreement, the Stockholders'
Agreement or these Articles of Incorporation shall automatically convert
(without the payment of any consideration) into one duly issued, fully paid
and nonassessable share of Series 1 FON Stock and Series 1 PCS Stock,
respectively, provided that such conversion shall not be considered an
acquisition of Series 1 FON Stock or Series 1 PCS Stock, as the case may be
for purposes of Section 8.5(i) of ARTICLE SIXTH.
(m) Exclusionary Tender Offer. If the Board of Directors shall determine not
to oppose a tender offer by a Person other than FT, DT or any of their
respective Affiliates for Voting Securities of this Corporation representing
not less than 35 percent of the Voting Power of this Corporation, and the
terms of such tender offer do not permit the Class A Holders to sell an equal
or greater percentage of:
(i) if the tender offer involves only Series 1 FON Stock, Series 3 FON
Stock (and Class A Common Stock to the extent it represents Shares Issuable
With Respect To The Class A Equity Interest In The FON Group) as the
holders of Series 1 FON Stock are permitted to sell taking into account any
proration,
(ii) if the tender offer involves only Series 1 PCS Stock, Series 3 PCS
Stock (and Class A Common Stock to the extent it represents Shares Issuable
With Respect To The Class A Equity Interest In The PCS Group) as the
holders of Series 1 PCS Stock are permitted to sell taking into account any
proration, or
(iii) if the tender offer involves both Series 1 FON Stock and Series 1
PCS Stock, Series 3 PCS Stock and Series 3 PCS Stock as the holders of
Series 1 FON Stock and Series 1 PCS Stock, respectively, are permitted to
sell taking into account any proration,
then all, but not less than all, of the Class A Holders shall have the right
(but not the obligation) to deliver to this Corporation a written notice
requesting conversion of certain shares of Series 3 FON Stock or Series 3 PCS
Stock (including shares of Series 3 FON Stock or Series 3 PCS Stock issuable
pursuant to ARTICLE SIXTH, Sections 1.2(c) and 1.2(d)) designated by the Class
A Holders into Series 1 FON Stock or Series 1 PCS Stock, respectively, upon
which delivery each share of Series 3 FON Stock or Series 3 PCS Stock so
designated in such notice shall automatically convert (without the payment of
any consideration) into one duly issued, fully paid and nonassessable share of
Series 1 FON Stock or Series 1 PCS Stock, respectively, provided that (i)
conversion pursuant to this clause (m) shall not be considered to be an
acquisition of Series 1 FON Stock or Series 1 PCS Stock for purposes of
Section 8.5(i) of ARTICLE SIXTH, (ii) unless the Series 3 FON Stock or Series
3 PCS Stock shall have otherwise been converted into Series 1 FON Stock or
Series 1 PCS Stock, respectively, pursuant to Section 8.5 of ARTICLE SIXTH
upon or prior to the consummation or abandonment of the transaction
contemplated by such tender offer, immediately following the consummation of
such transaction or the delivery by this Corporation to each Class A Holder of
a notice that such transaction has been abandoned, each share of Series 1 FON
Stock or Series 1 PCS Stock held by a Class A Holder shall automatically
IV-136
<PAGE>
reconvert (without the payment of any consideration) into one duly issued,
fully paid and nonassessable share of Series 3 Common Stock or Series 3 PCS
Stock, respectively; and (iii) only those shares of Series 1 FON Stock or
Series 3 PCS Stock related to shares of Series 1 FON Stock or Series 1 PCS
Stock, respectively, that were not so reconverted shall be deemed for any
purpose under these Articles of Incorporation, the Stockholders' Agreement,
the Investment Agreement, the FT/DT Restructuring Agreement, the Standstill
Agreement, the Registration Rights Agreement, or any agreement or document
related thereto to have been converted into Series 1 FON Stock or Series 1 PCS
Stock, respectively, pursuant to this Section 8.5(m) and the Series 3 FON
Stock or Series 3 PCS Stock so reconverted shall be deemed to have been at all
times outstanding shares of Series 3 FON Stock or Series 3 PCS Stock,
respectively.
8.6. Change of Control Procedures. As long as shares of Class A Stock are
outstanding, but subject to Sections 8.5(a), (b), (f) and (k) of ARTICLE
SIXTH, if this Corporation, directly or indirectly, (a) determines to sell all
or substantially all of the assets of this Corporation, (b) determines not to
oppose a third-party tender, exchange or other purchase offer for Voting
Securities with a number of Votes in excess of 35 percent of the Voting Power
of this Corporation, (c) determines to effect a merger or other business
combination involving this Corporation that would result in a Person (other
than any Class A Holder) holding Voting Securities of the resulting entity
representing 35 percent or more of the Voting Power of such entity or (d)
otherwise determines to sell Control of this Corporation, this Corporation
shall conduct such transaction in accordance with reasonable procedures to be
determined by the Board of Directors, and permit FT and DT to participate in
that process on a basis no less favorable than that granted any other
participant.
8.7. Class Voting. Except as otherwise provided by law, in Section 2(a) of
ARTICLE FIFTH or in the Class A Provisions, the Class A Holders shall not
have, nor be entitled to, a class vote with respect to any matter to be voted
on by the stockholders of this Corporation.
8.8. Amendment of Class A Provisions and ARTICLE FIFTH. The Class A
Provisions and Section 2(a)(iii) of ARTICLE FIFTH of these Articles of
Incorporation may be amended in any manner which would not materially alter or
change the powers, preferences or rights of the holders of shares of Non-Class
A Common Stock or Preferred Stock so as to affect such powers, preferences or
rights adversely, by the Board of Directors of this Corporation with the
affirmative vote of only the holders of at least two-thirds of the outstanding
shares of Class A Stock, voting together as a single class, and without the
affirmative vote of the holders of shares of the Non-Class A Common Stock or
the Preferred Stock. Upon the retirement of shares of Class A Common Stock,
(i) such shares shall not resume the status of authorized and unissued shares
of that class, (ii) such shares shall not be reissued, and (iii) upon the
execution, acknowledgment and filing of a certificate in accordance with Kan.
Stat. Ann. (S) 17-6003 and (S) 17-6603 (or any successor provisions) stating
that the reissuance of such shares is prohibited, identifying the shares and
reciting their retirement, then the filing of such certificate shall have the
effect of amending these Articles of Incorporation so as to reduce accordingly
the number of authorized shares of Class A Common Stock or if such retired
shares constitute all of the authorized shares of such class or series, then
the filing of such certificate shall have the effect of amending these
Articles of Incorporation automatically so as to eliminate all references to
such class or series of stock therefrom.
Section 9. Application of the Provisions of ARTICLE SIXTH
9.1. Certain Determinations of the Board of Directors. In addition to the
determinations regarding Preferred Stock to be made by the Board of Directors
as provided by Section 13.6, the Board of Directors shall make such
determinations (i) with respect to the assets and liabilities to be attributed
to the Business Groups (in accordance with the definitions of "PCS Group" and
"Sprint FON Group" set forth in ARTICLE SIXTH, Section 10), (ii) with respect
to the application of the provisions of this ARTICLE SIXTH to transactions to
be engaged in by the Corporation and (iii) as may be or become necessary or
appropriate to the exercise of the powers, preferences and relative,
participating, optional and other special rights of the classes or series of
Corporation Common Stock, including, without limiting the foregoing, the
determinations referred to in the following paragraphs (A), (B), (C) and (D)
of this Section 9.1. A record of any such determination shall be filed with
the Secretary of the Corporation to be kept with the records of the actions of
the Board of Directors.
IV-137
<PAGE>
(A) Upon any acquisition by the Corporation or its subsidiaries of any
assets or business, or any assumption of liabilities, outside of the ordinary
course of business of the Sprint FON Group or the PCS Group, as the case may
be, the Board of Directors shall determine whether such assets, business and
liabilities (or an interest therein) shall be for the benefit of the Sprint
FON Group or the PCS Group or that an interest therein shall be partly for the
benefit of the Sprint FON Group and partly for the benefit of the PCS Group
and, accordingly, shall be attributed to the Sprint FON Group or the PCS
Group, or partly to each, in accordance with the definitions of "PCS Group,"
"Sprint FON Group," and "Number Of Shares Issuable With Respect To The FON
Group Intergroup Interest" set forth in Section 10 of ARTICLE SIXTH.
(B) Upon any issuance of any shares of PCS Stock at a time when the Number
Of Shares Issuable With Respect To The FON Group Intergroup Interest is more
than zero, the Board of Directors shall determine, based on the use of the
proceeds of such issuance and any other relevant factors, whether all or any
part of the shares of PCS Stock so issued should reduce the Number Of Shares
Issuable With Respect To The FON Group Intergroup Interest and the Number Of
Shares Issuable With Respect To The FON Group Intergroup Interest shall be
adjusted accordingly.
(C) Upon any issuance by the Corporation or any subsidiary thereof of any
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of PCS Stock, if at the time such Convertible
Securities are issued the Number Of Shares Issuable With Respect To The FON
Group Intergroup Interest is greater than zero, the Board of Directors shall
determine whether, upon conversion, exchange or exercise thereof, the issuance
of shares of PCS Stock pursuant thereto shall, in whole or in part, reduce the
Number Of Shares Issuable With Respect To The FON Group Intergroup Interest,
taking into consideration the use of the proceeds of such issuance of
Convertible Securities in the business of the Sprint FON Group or the PCS
Group and any other relevant factors.
(D) Upon any redemption or repurchase by the Corporation or any subsidiary
thereof of shares of any Preferred Stock of any class or series or of other
securities or debt obligations of the Corporation, if some of such shares,
other securities or debt obligations were attributed to the Sprint FON Group
and some of such shares, other securities or debt obligations were attributed
to the PCS Group, the Board of Directors shall determine which, if any, of
such shares, other securities or debt obligations redeemed or repurchased
shall be attributed to the Sprint FON Group and which, if any, of such shares,
other securities or debt obligations shall be attributed to the PCS Group and,
accordingly, how many of the shares of such series of Preferred Stock or of
such other securities, or how much of such debt obligations, that remain
outstanding, if any, continue to be attributed to the Sprint FON Group or to
the PCS Group.
9.2. Sources of Dividends and Distributions; Uses of Proceeds of Share
Issuances. Notwithstanding the attribution of properties or assets of the
Corporation to the Sprint FON Group or the PCS Group as provided in the
definitions of such terms in Section 10 of ARTICLE SIXTH, the Board of
Directors (i) may cause dividends or distributions or other payments to the
holders of any class of Corporation Common Stock or any class or series of
Preferred Stock to be made out of the properties or assets attributed to any
Business Group, subject, however, to any contrary term of any series of
Preferred Stock fixed in accordance with Section 13 of ARTICLE SIXTH, and (ii)
may cause the proceeds of issuance of any shares of Non-Class A Stock or Class
A Stock or any class or series of Preferred Stock, to whichever Business Group
attributed in accordance with Section 13 of ARTICLE SIXTH, to be used in the
business of, and to be attributed to, either the Sprint FON Group or the PCS
Group in accordance with the definitions of "PCS Group," "Sprint FON Group,"
and "Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest" in Section 10 of ARTICLE SIXTH.
9.3. Certain Determinations Not Required. Notwithstanding the foregoing
provisions of this Section 9, the provisions of Section 10 of ARTICLE SIXTH or
any other provision of this ARTICLE SIXTH, at any time when there are not
outstanding both (i) one or more shares of FON Stock (or Shares Issuable With
Respect To The Class A Equity Interest In The FON Group) or Convertible
Securities convertible into or exchangeable or exercisable for FON Stock and
(ii) one or more shares of PCS Stock (or Shares Issuable With Respect To The
Class A Equity Interest In The PCS Group) or Convertible Securities
convertible into or exchangeable or
IV-138
<PAGE>
exercisable for PCS Stock, the Board of Directors need not (A) attribute any
of the assets or liabilities of the Corporation or any of its subsidiaries to
the Sprint FON Group or the PCS Group, (B) make any determination required in
connection therewith, or (C) make any of the determinations otherwise required
by this ARTICLE SIXTH, and in such circumstances the holders of the shares of
FON Stock or PCS Stock outstanding, as the case may be, shall (unless
otherwise specifically provided by the Articles of Incorporation of the
Corporation) be entitled to all the voting powers, preferences, optional or
other special rights of such classes of Corporation Common Stock without
differentiation between the FON Stock and the PCS Stock and any provision of
this ARTICLE SIXTH to the contrary shall no longer be in effect or operative
and the Board of Directors may cause the Articles of Incorporation of the
Corporation to be amended as permitted by law to delete such provisions as are
no longer operative or of further effect.
9.4. Emergency Use of Business Group Assets. Notwithstanding the foregoing
provisions of this Section 9 or any other provision of ARTICLE SIXTH, the
Board of Directors may transfer assets or properties from one Business Group
to another on such other basis as the Board of Directors shall determine,
consistent with its fiduciary duties to the Corporation and the holders of all
classes and series of the Corporation's common stock, provided that the Board
of Directors determines (i) that such transfer on such basis should be made to
prevent or mitigate material adverse consequences that would fundamentally
affect the transferee Business Group, (ii) that the benefit of such transfer
on such basis to the transferee Business Group is to materially exceed any
adverse effect of such transfer to the transferor Business Group, and (iii)
that such transfer on such basis is in the best interest of the Corporation as
a whole after giving fair consideration to the potentially divergent interests
of the holders of the separate classes of Corporation Common Stock.
9.5. Board Determinations Binding. Subject to applicable law, any
determinations made in good faith by the Board of Directors of the Corporation
under any provision of this Section 9 or otherwise in furtherance of the
application of this ARTICLE SIXTH shall be final and binding on all
stockholders.
Section 10. Definitions. For purposes of ARTICLE FIFTH and ARTICLE SIXTH of
these Articles of Incorporation, the following terms have the following
meanings (with terms defined in the singular having comparable meaning when
used in the plural and vice versa), unless the context otherwise requires. As
used in this Section 10, a "contribution" or "transfer" of assets or
properties from one Business Group to another refers to the reattribution of
such assets or properties from the contributing or transferring Business Group
to the other Business Group and correlative phrases have correlative meanings.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person, provided that (a)
no JV Entity shall be deemed an Affiliate of any Class A Holder or this
Corporation unless (i) FT, DT and Atlas own a majority of the Voting Power of
such JV Entity and this Corporation does not have the Tie-Breaking Vote (as
defined in Section 18.1 of the Joint Venture Agreement), or (ii) FT, DT or
Atlas has the Tie-Breaking Vote; (b) FT, DT and this Corporation shall not be
deemed Affiliates of each other; (c) Atlas shall be deemed an Affiliate of FT
and DT; and (d) the term "Affiliate" shall not include any Governmental
Authority of France or Germany or any other Person Controlled, directly or
indirectly, by any such Governmental Authority except in each case for FT, DT,
Atlas and any other Person directly, or indirectly through one or more
intermediaries, Controlled by FT, DT or Atlas.
"Alien" means "aliens," "their representatives," "a foreign government or
representatives thereof" or "any corporation organized under the laws of a
foreign country" as such terms are used in Section 310(b)(4) of the
Communications Act of 1934, as amended, or as hereafter may be amended, or any
successor provision of law.
"Applicable Law" has the meaning set forth in the Stockholders' Agreement.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under the
Exchange Act, provided that when used to indicate a relationship with FT or DT
or their respective Subsidiaries or Affiliates, the term
IV-139
<PAGE>
"Associate" means (a) in the case of FT, any Person occupying any of the
positions listed on Schedule A to the Stockholders' Agreement and (b) in the
case of DT, any Person occupying any of the positions listed on Schedule B to
the Stockholders' Agreement, provided, further, that, in each case, no Person
occupying any such position described in clause (a) or (b) hereof shall be
deemed an "Associate" of FT or DT, as the case may be, unless the Persons
occupying all such positions described in clauses (a) and (b) hereof
Beneficially Own, in the aggregate, more than 0.2% of the Voting Power of the
Corporation.
"Atlas" means the company formed as a societe anonyme under the laws of
Belgium pursuant to the Joint Venture Agreement, dated as of December 15,
1994, between FT and DT, as amended.
"Average Trading Price" of a share of any class or series of capital stock
of the Corporation on any day means the average Closing Price of such capital
stock determined over the 20 Trading Days immediately preceding the date of
such determination; provided that for purposes of this definition only, in
determining the "Closing Price" of a share of any class or series of capital
stock for such 20 Trading Day period, (i) the "Closing Price" of a share of
capital stock on any day prior to any "ex-dividend" date or any similar date
occurring during such period for any dividend or distribution (other than any
dividend or distribution contemplated by clause (ii)(B) of this definition)
paid or to be paid with respect to such capital stock shall be reduced by the
Fair Value of the per share amount of such dividend or distribution and (ii)
the "Closing Price" of any share of capital stock on any day prior to (A) the
effective date of any subdivision (by stock split or otherwise) or combination
(by reverse stock split or otherwise) of outstanding shares of such class of
capital stock occurring during such period or (B) any "ex-dividend" date or
any similar date occurring during such period for any dividend or distribution
with respect to such capital stock to be made in shares of such class or
series of capital stock or Convertible Securities that are convertible,
exchangeable or exercisable for such class or series of capital stock, shall
be appropriately adjusted, as determined by the Board of Directors, to reflect
such subdivision, combination, dividend or distribution.
"Beneficial Owner" (including, with its correlative meanings, "Beneficially
Own" and "Beneficial Ownership"), with respect to any securities, means any
Person which:
(a) has, or any of whose Affiliates or Associates has, directly or
indirectly, the right to acquire (whether such right is exercisable
immediately or only after the passage of time) such securities pursuant to
any agreement, arrangement or understanding (whether or not in writing),
including, without limitation, pursuant to the FT/DT Restructuring
Agreement and the Stockholders' Agreement, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
(b) has, or any of whose Affiliates or Associates has, directly or
indirectly, the right to vote or dispose of (whether such right is
exercisable immediately or only after the passage of time) or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 under the
Exchange Act but including all such securities which a Person has the right
to acquire beneficial ownership of whether or not such right is exercisable
within the 60-day period specified therein) such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); or
(c) has, or any of whose Affiliates or Associates has, any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting or disposing of any securities which are
Beneficially Owned, directly or indirectly, by any other Person (or any
Affiliate thereof),
provided that (i) Class A Stock, Non-Class A Common Stock and Preferred Stock
held by one of FT or DT or its Affiliates or Associates shall not also be
deemed to be Beneficially Owned by the other of FT or DT or its Affiliates or
Associates, (ii) FON Stock and PCS Stock shall not be deemed to be
Beneficially Owned by FT, DT or their Affiliates or Associates by virtue of
the top up rights and standby commitments granted under the Purchase Rights
Agreement (as defined in the FT/DT Restructuring Agreement) except to the
extent that FT, DT or their Affiliates or Associates have (A) acquired shares
of FON Stock or PCS Stock pursuant to the Purchase Rights Agreement, or (B)
become irrevocably committed to acquire, and the Cable Holders have become
irrevocably committed to sell, shares of FON Stock or PCS Stock pursuant to
the Purchase Rights Agreement
IV-140
<PAGE>
(with such Beneficial Ownership being determined on a full-voting basis),
subject only to customary closing conditions, if any; (iii) FT, DT and their
Affiliates and Associates shall not be deemed to Beneficially Own any
incremental Voting Power resulting solely from the increase in Voting Power
provided for by the application of ARTICLE SIXTH, Section 7.5(d) and (iv)
prior to the conversion thereof (other than during the 90-day period following
the Conversion Trigger Date set forth in ARTICLE SIXTH, Section 7.5(a)), a
holder of Series 2 PCS Stock or Series 2 FON Stock shall not be deemed to
beneficially own the shares of Series 1 PCS Stock or Series 1 FON Stock
issuable upon conversion thereof.
"Board of Directors" means the board of directors of this Corporation.
"Business Day" means any day other than a day on which commercial banks in
The City of New York, Paris, France, or Frankfurt am Main, Germany, are
required or authorized by law to be closed.
"Business Group" means, as of any date, the Sprint FON Group or the PCS
Group, as the case may be.
"Bylaws" means the Bylaws of this Corporation as amended or supplemented
from time to time.
"Cable Holder" means any of
(i) Tele-Communications, Inc., a Delaware corporation, Comcast
Corporation, a Pennsylvania corporation, or Cox Communications, Inc., a
Delaware corporation,
(ii) any Affiliate of an entity identified in clause (i) of this
definition,
(iii) any successor (by operation of law or otherwise) of an entity
identified in clauses (i) or (ii) of this definition so long as such
successor remains an Affiliate of an entity identified in clause (i) or
(ii),
(iv) any entity controlled by two or more entities identified in clauses
(i) through (iii) of this definition or this clause (iv) even if such
entity is not considered an Affiliate of any individual entity so
identified and
(v) for purposes of ARTICLE SIXTH, Section 7.5(b) only, with respect to
any Transfer of shares of Series 2 PCS Stock, the transferee of such shares
if (A) at the time of such Transfer, the transferor was a Cable Holder
under any of the clauses (i) through (iv) of this definition, (B) after
giving effect to such Transfer, the transferee was an Associate of the
transferor, (C) immediately prior to such Transfer, the transferee was
identified in writing by the transferor as a "Cable Holder" under this
clause (v), and (D) the transferor and transferee satisfied the conditions
set forth in Section 2.4 of the applicable Cable Holder Standstill
Agreements.
"Cable Holder Standstill Agreements" means the Standstill Agreements, dated
as of May 26, 1998, entered into between this Corporation and each of certain
Cable Holders, and any Standstill Agreements in the form thereof entered into
from time to time between this Corporation and certain transferee Affiliates
and Associates of such Cable Holders.
"Cellular and Wireless Division" means the former Cellular and Wireless
Communications Services Division of this Corporation.
"Change of Control" means a:
(a) decision by the Board of Directors to sell Control of this
Corporation or not to oppose a third party tender offer for Voting
Securities of this Corporation representing more than 35% of the Voting
Power of this Corporation; or
(b) change in the identity of a majority of the Directors due to (i) a
proxy contest (or the threat to engage in a proxy contest) or the election
of Directors by the holders of Preferred Stock; or (ii) any unsolicited
tender, exchange or other purchase offer which has not been approved by a
majority of the Independent Directors,
provided that a Strategic Merger shall not be deemed to be a Change of Control
and provided, further, that any transaction between this Corporation and FT
and DT or otherwise involving FT and DT and any of their direct or indirect
Subsidiaries which are party to a Contract therefor shall not be deemed to be
a Change of Control.
IV-141
<PAGE>
"Class A Action" means action by the holders of a majority of the shares of
Class A Stock taken by a vote at either a regular or special meeting of the
stockholders of this Corporation or of the holders of the Class A Stock or by
written consent delivered to the Secretary of this Corporation.
"Class A Common Stock" means the Old Class A Common Stock and the Class A
Common Stock--Series DT.
"Class A Common Stock--Series DT" has the meaning set forth in the
"Designation" column in Section 1 of ARTICLE SIXTH.
"Class A Director" means any Director elected by the Class A Holders
pursuant to Sections 2(a) or 4(b) of ARTICLE FIFTH of these Articles of
Incorporation or appointed by Class A Directors pursuant to Section 4(b) of
ARTICLE FIFTH of these Articles of Incorporation.
"Class A FON Shares" means, with respect to FT, shares of Series 3 FON Stock
and the Number Of Shares Issuable With Respect To The Old Class A Equity
Interest In The FON Group, and, with respect to DT, shares of Series 3 FON
Stock and the Number Of Shares Issuable With Respect To The Class A--Series DT
Equity Interest In The FON Group.
"Class A Holders" means (a) the holders of the Class A Stock, and (b) any
Qualified Stock Purchaser who has executed with this Corporation a Qualified
Stock Purchaser Assumption Agreement (as such term is defined in the
Stockholders' Agreement), for so long as such Person holds Class A Stock.
"Class A PCS Shares" means, with respect to FT, shares of Series 3 PCS Stock
and the Number Of Shares Issuable With Respect To The Old Class A Equity
Interest In The PCS Group and, with respect to DT, shares of Series 3 PCS
Stock and the Number Of Shares Issuable With Respect To The Class A--Series DT
Equity Interest In The PCS Group.
"Class A Provisions" means Section 5 (but only with respect to those
provisions addressing the Class A Stock), Section 6 (but only with respect to
those provisions addressing the Class A Stock), Section 8, Section 9 (but only
with respect to those provisions addressing the Class A Stock), Section 10,
Section 11 and Section 12 of ARTICLE SIXTH.
"Class A--Series DT FON Vote Per Share" means, on any date, a number equal
to X Y, where "X" equals the Number Of Shares Issuable With Respect To The
Class A--Series DT Equity Interest In The FON Group and "Y" equals the
aggregate number of outstanding shares of Class A Common Stock--Series DT.
"Class A--Series DT PCS Interest Fraction," as of any date, means the
fraction (which may simplify to 1/1) the numerator of which shall be the
Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group on such date and the denominator of which shall be
the sum of (i) the number of shares of PCS Stock outstanding on such date,
(ii) the Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest on such date, (iii) the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The PCS Group on such date and (iv) the Number
Of Shares Issuable With Respect To The Class A--Series DT Equity Interest In
The PCS Group on such date.
"Class A--Series DT PCS Vote Per Share" means, on any date, a number equal
to (X Y) x Z, where "X" equals the Number Of Shares Issuable With Respect To
The Class A--Series DT Equity Interest In The PCS Group, "Y" equals the
aggregate number of outstanding shares of Class A Common Stock--Series DT and
"Z" equals the applicable PCS Per Share Vote on such date.
"Class A Stock" means the Class A Common Stock, the Series 3 FON Stock and
the Series 3 PCS Stock.
"Closing Price" means, with respect to a security on any day, the last sale
price, regular way, or in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
IV-142
<PAGE>
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on The New York Stock
Exchange, Inc. or, if such security is not listed or admitted to trading on
such exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the security is listed or admitted to trading or, if the
security is not listed or admitted to trading on any national securities
exchange, the last quoted sale price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use, or, if on any such date such security
is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
the security selected in good faith by the Board of Directors. If the security
is not publicly held or so listed or publicly traded, "Closing Price" means
the Fair Market Value of such security.
"Committed Percentage" means, as to any Class A Holder, the percentage
obtained by dividing the aggregate number of Votes represented or to be
represented by the Voting Securities of this Corporation (a) owned of record
by such Class A Holder or by its nominees; and (b) which such Class A Holder
has committed to this Corporation to purchase pursuant to Articles V and VI or
Sections 7.3 and 7.8 of the Stockholders Agreement (but not pursuant to the
FT/DT Restructuring Agreement until such shares are acquired pursuant to such
agreement), by the sum of (i) the Voting Power of this Corporation, and (ii)
the Votes to be represented by any Voting Securities of this Corporation such
Class A Holder has committed to this Corporation to purchase from this
Corporation pursuant to Articles V or VI or Section 7.3 of the Stockholders'
Agreement (but not pursuant to the FT/DT Restructuring Agreement until such
shares are acquired pursuant to such agreement).
"Continuing Director" has the meaning set forth in the Fair Price
Provisions.
"Contract" means any loan or credit agreement, note, bond, indenture,
mortgage, deed of trust, lease, franchise, contract, or other agreement,
obligation, instrument or binding commitment of any nature.
"Control" means, with respect to a Person or Group, any of the following:
(a) ownership by such Person or Group of Votes entitling it to exercise
in the aggregate more than 35 percent of the Voting Power of the entity in
question; or
(b) possession by such Person or Group of the power, directly or
indirectly, (i) to elect a majority of the board of directors (or
equivalent governing body) of the entity in question; or (ii) to direct or
cause the direction of the management and policies of or with respect to
the entity in question, whether through ownership of securities, by
contract or otherwise.
"Conversion Date" means the date fixed by the Board of Directors as the
effective date for the conversion of shares of PCS Stock into shares of FON
Stock (and Shares Issuable With Respect To The Class A Equity Interest In The
PCS Group into Shares Issuable With Respect To The Class A Equity Interest In
The FON Group) as shall be set forth in the notice to holders of shares of PCS
Stock and to holders of any Convertible Securities that are convertible into
or exchangeable or exercisable for shares of PCS Stock required pursuant to
Section 7.4(E).
"Conversion Time" has the meaning set forth in Section 8.5(j) of ARTICLE
SIXTH.
"Converted Series Shares" has the meaning set forth in Section 7.5(c) of
ARTICLE SIXTH.
"Converted Shares" has the meaning set forth in Section 8.5(j) of ARTICLE
SIXTH.
"Converted Votes" means, on any particular day, (i) in the case of a share
of Series 2 PCS Stock, the applicable PCS Per Share Vote a share of Series 1
PCS Stock would have had if the computation described in Section 3.2(a)(iii)
had occurred on such day and (ii) in the case of a share of Series 2 FON
Stock, one vote per share.
IV-143
<PAGE>
"Convertible Securities" at any time means any securities of the Corporation
or of any subsidiary thereof (other than shares of Corporation Common Stock),
including warrants and options, outstanding at such time that by their terms
are convertible into or exchangeable or exercisable for or evidence the right
to acquire any shares of any class or series of Corporation Common Stock,
whether convertible, exchangeable or exercisable at such time or a later time
or only upon the occurrence of certain events, pursuant to antidilution
provisions of such securities or otherwise.
"Core Businesses" means all businesses in the fields of telecommunications
and information technology and applications, and equipment, software
applications and consumer and business services related thereto or making use
of the technology thereof, including value-added consumer and business
services generated through or as a result of underlying telecommunications
services using all technology (voice, data and image) and physical transport,
network intelligence, and software applications, and cable television (but not
including any programming or content-related activities with respect thereto).
"Corporation Common Stock" means the Series 1 FON Stock, the Series 2 FON
Stock, the Series 3 FON Stock, the Class A Common Stock, the Series 1 PCS
Stock, the Series 2 PCS Stock and the Series 3 PCS Stock.
"Corporation Joint Venture Termination" means any of the following:
(a) the sale of Venture Interests by a Sprint Party pursuant to Section
20.5(a) of the Joint Venture Agreement; or
(b) the receipt by the FT/DT Parties of the Tie-Breaking Vote due to a
Funding Default, Material Non-Funding Default or Bankruptcy (as such terms
are defined in the Joint Venture Agreement) on the part of any of the
Sprint Parties.
"Director" means a member of the Board of Directors.
"Disposition" means a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or contribution of assets or stock or
otherwise) of properties or assets.
"DT" means Deutsche Telekom AG, an Aktiengesellschaft formed under the laws
of Germany.
"Effective Date" means the date on which these Amended and Restated Articles
of Incorporation become effective.
"ESMR" means any commercial mobile radio service, and the resale of such
service, of the type authorized under the rules for Specialized Mobile Radio
Services designated under Subpart S of Part 90 of the FCC's rules or similar
Applicable Laws of any other country in effect on the date hereof, including
the networking, marketing, distribution, sales, customer interface and
operations functions relating thereto.
"Europe" means the current geographic area covered by the following
countries and territories located on the European continent, plus, in the case
of France, its territories and possessions located outside the European
continent: Albania, Andorra, Austria, Belgium, Bosnia-Herzegovina, Bulgaria,
Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Gibraltar, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein,
Lithuania, Luxembourg, Macedonia, Malta, Monaco, Montenegro, Netherlands,
Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia,
Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and Vatican City.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the United States Securities and Exchange
Commission promulgated thereunder.
"Exempt Asset Divestitures" means, with respect to this Corporation and its
Subsidiaries:
(a) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) to joint ventures approved by FT and DT prior to
January 31, 1996;
IV-144
<PAGE>
(b) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) to (i) any entity in exchange for equity interests in
such entity if, after such transaction, this Corporation owns at least 51
percent of both the Voting Power and equity interests in such entity or
(ii) any joint venture that is an operating joint venture not controlled by
any of its principals and in which (x) this Corporation has the right,
acting alone, to disapprove (and thereby prohibit) decisions relating to
acquisitions and divestitures involving more than 20 percent of the Fair
Market Value of such entity's assets, mergers, consolidations and
dissolution or liquidation of such entity and the adoption of such entity's
business plan, and (y) Major Competitors of the Joint Venture do not in the
aggregate own more than 20 percent of the equity interests or Voting Power;
(c) transactions in which this Corporation exchanges one or more (i)
local exchange telephone businesses for one or more such businesses or (ii)
public cellular or wireless radio telecommunications service systems for
one or more such systems, provided that this Corporation shall not,
directly or indirectly, receive cash in any such transaction in an amount
greater than 20 percent of the Fair Market Value of the property or
properties Transferred by it;
(d) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) by this Corporation to any of its Subsidiaries, or by
any of its Subsidiaries to this Corporation or any other Subsidiary of this
Corporation;
(e) any Spin-off of equity interests of a wholly-owned Subsidiary that is
not a Subsidiary which, directly or indirectly, owns Long Distance Assets
(for purposes of this definition, the "Spun-off Entity"), provided that the
Class A Holders receive securities in the Spun-off Entity of a separate
class with rights no less favorable to the Class A Holders than those
applicable to the Class A Stock set forth in these Articles of
Incorporation and the Bylaws;
(f) Transfers of assets (other than Long Distance Assets) of this
Corporation or any of its Subsidiaries that are primarily or exclusively
used in connection with providing information technology or data processing
functions or services (collectively, for purposes of this definition, the
"IT Assets") to any Person that regularly provides information technology
or data processing functions or services on a commercial basis, in
connection with a contractual arrangement (for purposes of this definition,
an "IT Service Contract") pursuant to which such Person undertakes to
provide information technology or data processing functions or services to
this Corporation or any of its Subsidiaries of substantially the same
nature as the services associated with the use of such assets prior to such
Transfer and upon commercially reasonable terms to this Corporation as
determined in good faith by this Corporation, provided that (i) the term of
such IT Service Contract shall be for a period at least as long as the
weighted average useful life of such assets, or this Corporation or such
Subsidiary shall have the right to cause such IT Service Contract to be
renewed or extended for a period at least as long as such weighted average
useful life upon commercially reasonable terms to this Corporation as
determined in good faith by this Corporation, and (ii) the Transfer of such
assets will not materially and adversely affect the operation of this
Corporation; or
(g) Transfers of assets (other than Long Distance Assets or IT Assets) of
this Corporation or any of its Subsidiaries to any Person in connection
with any contractual arrangement (for purposes of this definition, a "Non-
IT Service Contract") pursuant to which such Person undertakes to provide
services to this Corporation or any of its Subsidiaries of substantially
the same nature as the services associated with the use of such assets
prior to such Transfer and upon commercially reasonable terms to this
Corporation as determined in good faith by this Corporation, provided, that
(i) the Fair Market Value of such assets, together with the Fair Market
Value of assets of this Corporation Transferred to such Person or other
Persons in related transactions, do not represent more than five percent of
the Fair Market Value of the assets of this Corporation, (ii) the Transfer
of such assets will not materially and adversely affect the operation of
this Corporation, and (iii) the term of such Non-IT Service Contract shall
be for a period at least as long as the weighted average useful life of the
assets so Transferred or this Corporation or such Subsidiary has the right
to cause such Non-IT Service Contract to be renewed or extended for a
period at least as long as such weighted average useful life upon
commercially reasonable terms to this Corporation as determined in good
faith by this Corporation.
IV-145
<PAGE>
"Exempt Long Distance Asset Divestitures" means, with respect to this
Corporation and its Subsidiaries:
(a) Transfers of Long Distance Assets to a Qualified Joint Venture;
(b) Transfers of Long Distance Assets to any entity if this Corporation
and its Subsidiaries after such transaction own at least 70 percent of both
the Voting Power and equity interests of such entity, provided that if a
Major Competitor of FT or DT or of the Joint Venture holds equity interests
in such entity, such Major Competitor's equity interests and Votes in such
entity as a percentage of the Voting Power of such entity shall not,
directly or indirectly, exceed 20 percent;
(c) Transfers of Long Distance Assets pursuant to an underwritten,
widely-distributed public offering at the conclusion of which this
Corporation and its Subsidiaries shall own at least 51 percent of both the
Voting Power and equity interests in the entity that owns such Long
Distance Assets;
(d) Transfers in the ordinary course of business of Long Distance Assets
determined by this Corporation to be unnecessary for the orderly operation
of this Corporation's business, and sale-leasebacks of Long Distance Assets
and similar financing transactions after which this Corporation and its
Subsidiaries continue in possession and control of the Long Distance Assets
involved in such transaction;
(e) Transfers of Long Distance Assets by this Corporation to any of its
Subsidiaries, or by any of its Subsidiaries to this Corporation or any
other Subsidiary of this Corporation;
(f) Transfers of Long Distance Assets to FT or DT or any assignee thereof
pursuant to the Stockholders' Agreement;
(g) any Spin-off of equity interests of a wholly-owned Subsidiary which,
directly or indirectly, owns Long Distance Assets (for purposes of this
definition, the "Spun-off Entity"), provided that the Class A Holders
receive securities in the Spun-off Entity of a separate class with rights
no less favorable to the Class A Holders than those applicable to the Class
A Stock set forth in these Articles of Incorporation and the Bylaws;
(h) Transfers of Long Distance Assets of this Corporation or any of its
Subsidiaries that are primarily or exclusively used in connection with
providing information technology or data processing functions or services
(collectively, for purposes of this definition, the "IT Assets") to any
Person that regularly provides information technology or data processing
functions or services on a commercial basis, in connection with a
contractual arrangement (for purposes of this definition, an "IT Service
Contract") pursuant to which such Person undertakes to provide information
technology or data processing functions or services to this Corporation or
any of its Subsidiaries of substantially the same nature as the services
associated with the use of such Long Distance Assets prior to such Transfer
and upon commercially reasonable terms to this Corporation as determined in
good faith by this Corporation, provided that (i) the term of such IT
Service Contract shall be for a period at least as long as the weighted
average useful life of such Long Distance Assets, or this Corporation or
such Subsidiary shall have the right to cause such IT Service Contract to
be renewed or extended for a period at least as long as such weighted
average useful life upon commercially reasonable terms to this Corporation
as determined in good faith by this Corporation, and (ii) the Transfer of
such Long Distance Assets will not materially and adversely affect the
operation of the Long Distance Business. Any such IT Service Contract
involving Transfers of Long Distance Assets, including any renewal or
extension thereof, shall be deemed to be a Long Distance Asset; or
(i) Transfers of Long Distance Assets (other than IT Assets) of this
Corporation or any of its Subsidiaries to any Person in connection with any
contractual arrangement (for purposes of this definition, a "Non-IT Service
Contract") pursuant to which such Person undertakes to provide services to
this Corporation or any of its Subsidiaries of substantially the same
nature as the services associated with the use of such Long Distance Assets
prior to such Transfer and upon commercially reasonable terms to this
Corporation as determined in good faith by this Corporation, provided, that
(i) the Fair Market Value of such Long Distance Assets, together with the
Fair Market Value of Long Distance Assets Transferred to such Person or
other Persons in related transactions, do not represent more than three
percent of the Fair Market Value of the Long Distance Assets of this
Corporation, (ii) the Transfer of such Long Distance Assets will not
materially and adversely affect the operation of the Long Distance
Business, and (iii) the
IV-146
<PAGE>
term of such Non-IT Service Contract shall be for a period at least as long
as the weighted average useful life of the Long Distance Assets so
Transferred or this Corporation or such Subsidiary has the right to cause
such Service Contract to be renewed or extended for a period at least as
long as such weighted average useful life upon commercially reasonable
terms to this Corporation as determined in good faith by this Corporation.
Any such Non-IT Service Contract involving Transfers of Long Distance
Assets, including any renewal or extension thereof, shall be deemed to be a
Long Distance Asset.
"Extraordinary Dividend" means, with respect to capital stock of this
Corporation, a cash dividend or other cash distribution, other than (a) a
regular periodic dividend payable in cash; or (b) a dividend payable in
accordance with the terms of the Preferred Stock.
"Fair Market Value" means, with respect to any asset, shares or other
property, the cash price at which a willing seller would sell and a willing
buyer would buy such asset, shares or other property in an arm's-length
negotiated transaction without undue time restraints, as determined in good
faith by a majority of the Independent Directors as certified in a resolution
delivered to all of the Class A Holders.
"Fair Price Condition" has the meaning set forth in Section 2.2 of ARTICLE
SIXTH.
"Fair Price Provisions" means ARTICLE SEVENTH of these Articles of
Incorporation, and any successor provision thereto.
"Fair Value" means, in the case of equity securities or debt securities of a
class that has previously been Publicly Traded for a period of at least 15
months, the Market Value thereof (if such value, as so defined, can be
determined) or, in the case of an equity security or debt security that has
not been Publicly Traded for at least such period, means the fair value per
share of stock or per other unit of such other security, on a fully
distributed basis, as determined by an independent investment banking firm
experienced in the valuation of securities selected in good faith by the Board
of Directors; provided, however, that in the case of property other than
securities, the "Fair Value" thereof shall be determined in good faith by the
Board of Directors based upon such appraisals or valuation reports of such
independent experts as the Board of Directors shall in good faith determine to
be appropriate in accordance with good business practice. Any such
determination of Fair Value shall be described in a statement filed with the
records of the actions of the Board of Directors.
"FCC" means the Federal Communications Commission.
"FCC Order" means, with respect to any proposed Transfer of Long Distance
Assets by this Corporation, either:
(a) an effective written order or other final action from the FCC (either
in the first instance or upon review or reconsideration) either declaring
that FT and DT are not prohibited by Section 310 from owning such Long
Distance Assets or stating that no such declaration is required, and as to
which no Proceeding shall be pending or threatened that presents a
substantial possibility of resulting in a reversal thereof; or
(b) an effective written order from, or other final action taken by, the
FCC pursuant to delegated authority (either in the first instance or upon
review or reconsideration) either declaring that FT and DT are not
prohibited by Section 310 from owning such Long Distance Assets, or stating
that no such declaration is required, which order or final action shall no
longer be subject to further administrative review, and as to which no
Proceeding shall be pending or threatened that presents a substantial
possibility of resulting in a reversal thereof; For purposes of clause (b)
of this definition, an order from, or other final action taken by, the FCC
pursuant to delegated authority shall be deemed no longer subject to
further administrative review:
(x) if no petition for reconsideration or application for review by
the FCC of such order or final action has been filed within thirty days
after the date of public notice of such order or final action, as such
30-day period is computed and as such date is defined in Sections 1.104
and 1.4 (or any successor provisions), as applicable, of the FCC's
rules, and the FCC has not initiated review of such order or final
action on its own motion within forty days after the date of public
notice of the order or final
IV-147
<PAGE>
action, as such 40-day period is computed and such date is defined in
Sections 1.117 and 1.4 (or any successor provisions) of the FCC's
rules; or
(y) if any such petition for reconsideration or application for
review has been filed, or, if the FCC has initiated review of such
order or final action on its own motion, the FCC has issued an
effective written order or taken final action to the effect set forth
in clause (a) above.
"FON Group Intergroup Interest Fraction" as of any date means a fraction the
numerator of which is the Number Of Shares Issuable With Respect To The FON
Group Intergroup Interest on such date and the denominator of which is the sum
of (A) such Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest, (B) the aggregate number of shares of PCS Stock outstanding on such
date, (iii) the Number Of Shares Issuable With Respect To The Old Class A
Equity Interest In The PCS Group on such date and (iv) the Number Of Shares
Issuable With Respect To The Class A--Series DT Equity Interest In The PCS
Group on such date. A statement setting forth the FON Group Intergroup
Interest Fraction as of the record date for any dividend or distribution on
any class of Corporation Common Stock, as of the end of each fiscal quarter of
the Corporation and as of any date otherwise required under these Articles of
Incorporation or by the Board of Directors shall be filed by the Secretary of
the Corporation in the records of the Board of Directors of the Corporation
not later than fifteen Business Days after such date.
"FON Preferred Stock" means Preferred Stock to the extent attributed to the
Sprint FON Group in accordance with ARTICLE SIXTH, Section 13.
"FON Stock" means the Series 1 FON Stock, the Series 2 FON Stock and the
Series 3 FON Stock.
"France" means the Republic of France, including French Guiana, Guadeloupe,
Martinique and Reunion, and its territories and possessions.
"FT" means France Telecom SA, a societe anonyme formed under the laws of
France.
"FT/DT Joint Venture Termination" means any of the following:
(a) the sale of Venture Interests by an FT/DT Party pursuant to Section
20.5(b), 20.5(c) or 20.5(d) of the Joint Venture Agreement; or
(b) the receipt by the Sprint Parties of the Tie-Breaking Vote due to a
Funding Default, Material Non-Funding Default or Bankruptcy (as such terms
are defined in the Joint Venture Agreement) on the part of any of the FT/DT
Parties.
"FT/DT Party" has the meaning set forth in the Joint Venture Agreement.
"FT/DT Restructuring Agreement" means the Master Restructuring and
Investment Agreement, dated as of May 26, 1998, among FT, DT and this
Corporation, as amended or supplemented from time to time.
"Germany" means the Federal Republic of Germany.
"Governmental Authority" means any federation, nation, state, sovereign, or
government, any federal, supranational, regional, state or local political
subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission or other similar dispute resolving panel or
body, and any other entity exercising executive, legislative, judicial,
regulatory or administrative functions of a government, provided that the term
"Governmental Authority" shall not include FT, DT, Atlas or any of their
respective Subsidiaries.
"Group" means any group within the meaning of Section 13(d)(3) of the
Exchange Act.
"Independent Director" means any member of the Board of Directors who (a) is
not an officer or employee of this Corporation, or any Class A Holder, or any
of their respective Subsidiaries, (b) is not a former officer of
IV-148
<PAGE>
this Corporation, or any Class A Holder, or any of their respective
Subsidiaries, (c) does not, in addition to such person's role as a Director,
act on a regular basis, either individually or as a member or representative
of an organization, serving as a professional adviser, legal counsel or
consultant to this Corporation, or any Class A Holder, or their respective
Subsidiaries, if, in the opinion of the Nominating Committee of the Board of
Directors of this Corporation (the "Nominating Committee") or the Board of
Directors if a Nominating Committee is not in existence, such relationship is
material to this Corporation, any Class A Holder, or the organization so
represented or such person, and (d) does not represent, and is not a member of
the immediate family of, a person who would not satisfy the requirements of
the preceding clauses (a), (b) and (c) of this sentence. A person who has been
or is a partner, officer or director of an organization that has customary
commercial, industrial, banking or underwriting relationships with this
Corporation, any Class A Holder, or any of their respective Subsidiaries, that
are carried on in the ordinary course of business on an arms-length basis and
who otherwise satisfies the requirements set forth in clauses (a), (b), (c)
and (d) of the first sentence of this definition, may qualify as an
Independent Director, unless, in the opinion of the Nominating Committee or
the Board of Directors if a Nominating Committee is not in existence, such
person is not independent of the management of this Corporation, or any Class
A Holder, or any of their respective Subsidiaries, or the relationship would
interfere with the exercise of independent judgment as a member of the Board
of Directors. A person who otherwise satisfies the requirements set forth in
clauses (a), (b), (c) and (d) of the first sentence of this definition and
who, in addition to fulfilling the customary director's role, also provides
additional services directly for the Board of Directors and is separately
compensated therefor, would nonetheless qualify as an Independent Director.
Notwithstanding anything to the contrary contained in this definition, each
Director as of the date of the execution of the Investment Agreement who is
not an executive officer of this Corporation shall be deemed to be an
Independent Director hereunder.
"Investment Agreement" means the Investment Agreement, dated as of July 31,
1995, among FT, DT and this Corporation (and all exhibits and schedules
thereto), as amended or supplemented from time to time.
"Investment Documents" means the FT/DT Restructuring Agreement and the
Stockholders' Agreement.
"Joint Venture" means the joint venture formed by FT, DT, this Corporation
and Sprint Sub, as provided in the Joint Venture Agreement.
"Joint Venture Agreement" means the Joint Venture Agreement, dated as of
June 22, 1995 among FT, DT, Sprint Sub, and this Corporation, as amended or
supplemented from time to time.
"JV Entity" has the meaning set forth in the Joint Venture Agreement.
"Lien" means any mortgage, pledge, security interest, adverse claim,
encumbrance, lien (statutory or otherwise) or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any lease in the nature thereof, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
or similar Applicable Law of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting
a creditor against loss or securing the payment or performance of an
obligation.
"Lien Transfer" means the granting of any Lien on any Long Distance Asset,
other than:
(a) a Lien securing purchase money indebtedness that does not have a term
longer than the estimated useful life of such Long Distance Asset;
(b) Liens or other comparable arrangements relating to the financing of
accounts receivable; and
(c) Liens securing any other indebtedness for borrowed money, provided
that (i) the amount of such indebtedness, when added to the aggregate
amount of purchase money indebtedness referred to in clause (a) above, does
not exceed 30% of the total book value of the Long Distance Assets as at
the date of the most recently published balance sheet of this Corporation,
(ii) the indebtedness secured by such Liens is secured only by Liens on
Long Distance Assets, (iii) the face amount of such indebtedness does not
exceed the
IV-149
<PAGE>
book value of the Long Distance Assets subject to such Liens, and (iv) such
indebtedness is for a term no longer than the estimated useful life of the
Long Distance Assets subject to such Liens.
"Local Exchange Division" means the Local Communications Services Division
of this Corporation.
"Long Distance Assets" means:
(a) the assets reflected in this Corporation's balance sheet for the year
ended December 31, 1994 as included in the Long Distance Division;
(b) any assets acquired by this Corporation or any of its Subsidiaries
following December 31, 1994 that are reflected in this Corporation's
balance sheet as included in the Long Distance Division;
(c) any assets of this Corporation or any of its Subsidiaries that are
not reflected in this Corporation's balance sheet for the year ended
December 31, 1994 as included in the Long Distance Division, which after
December 31, 1994 are transferred by this Corporation or any of its
Subsidiaries to, or reclassified by this Corporation or any of its
Subsidiaries as part of, the Long Distance Division;
(d) any assets acquired by this Corporation after December 31, 1994 that
are used or held for use primarily for the benefit of the Long Distance
Business; and
(e) any assets referred to in clauses (a) through (c) above that are used
or held for use primarily for the benefit of the Long Distance Business
which are transferred or reclassified by this Corporation or any of its
Subsidiaries outside of the Long Distance Division, but which continue to
be owned by this Corporation or any of its Subsidiaries;
provided that the term "Long Distance Assets" shall not include (i) any assets
that are used or held for use primarily for the benefit of any Non-Long
Distance Business, or (ii) any other assets reflected in this Corporation's
balance sheet for the year ended December 31, 1994 as included in the Cellular
and Wireless Division or the Local Exchange Division (other than as such
assets in the Cellular and Wireless Division or the Local Exchange Division
may be transferred or reclassified in accordance with paragraph (c) of this
definition).
"Long Distance Business" means all long distance telecommunications
activities and services of this Corporation and its Subsidiaries at the
relevant time, including (but not limited to) all long distance transport
services, switching and value-added services for voice, data, video and
multimedia transmission, migration paths and intelligent overlapping
architectures, provided that the term "Long Distance Business" shall not
include any activities or services primarily related to any Non-Long Distance
Business.
"Long Distance Division" means the Long Distance Communications Services
Division of this Corporation.
"Major Competitor" means (a) with respect to FT or DT, a Person that
materially competes with a major portion of the telecommunications services
business of FT or DT in Europe or a Person that has taken substantial steps to
become such a Major Competitor and which FT or DT has reasonably concluded, in
its good faith judgment, will be such a competitor in the near future in
France or Germany, provided that FT and/or DT furnish in writing to this
Corporation reasonable evidence of the occurrence of such steps; (b) with
respect to this Corporation, a Person that materially competes with a major
portion of the telecommunications services business of this Corporation in
North America, or a Person that has taken substantial steps to become such a
Major Competitor and which this Corporation has reasonably concluded, in its
good faith judgment, will be such a competitor in the near future in the
United States of America provided that this Corporation furnish in writing to
each Class A Holder reasonable evidence of the occurrence of such steps; and
(c) with respect to the Joint Venture, a Person that materially competes with
a major portion of the telecommunications services business of the Joint
Venture, or a Person that has taken substantial steps to become such a Major
Competitor and which FT, DT or this Corporation has reasonably concluded, in
its good faith judgment, will be such a competitor in the near future,
provided that FT, DT or this Corporation furnish in writing to the other two
of them reasonable evidence of the occurrence of such steps.
"Major Competitor Transaction" has the meaning set forth in ARTICLE SIXTH,
Section 8.4.
IV-150
<PAGE>
"Major Issuance" means any transaction, including, but not limited to, a
merger or business combination, resulting, directly or indirectly, in the
issuance (or sale from treasury) in connection with such transaction of Voting
Securities of this Corporation with a number of Votes equal to or greater than
30 percent of the Voting Power of this Corporation immediately prior to such
issuance.
"Market Capitalization" means, with respect to this Corporation at any date,
the sum of the average Market Price over the immediately preceding 20 Business
Days of each share of outstanding capital stock of this Corporation,
securities convertible into such capital stock and options, warrants or other
rights to acquire such capital stock.
"Market Price" means with respect to a security on any date, the Closing
Price of such security on the Trading Day immediately prior to such date. The
Market Price shall be deemed to be equal to, (i) in the case of a share of
Series 3 FON Stock or Series 2 FON Stock, as the case may be, the Market Price
of a share of Series 1 FON Stock and (ii) in the case of a share of Series 3
PCS Stock or Series 2 PCS Stock, as the case may be, the Market Price of a
share of Series 1 PCS Stock. The Market Price of (x) any options, warrants,
rights or other securities convertible into or exercisable for Series 3 FON
Stock or Series 2 FON Stock shall be equal to the Market Price of options,
warrants, rights or other securities convertible into or exercisable for
Series 1 FON Stock upon the same terms and otherwise containing the same terms
as such options, warrants, rights or other securities convertible into or
exercisable for Series 3 FON Stock or Series 2 FON Stock, as the case may be,
and (y) any options, warrants, rights or other securities convertible into or
exercisable for Series 3 PCS Stock or Series 2 PCS Stock, as the case may be,
shall be equal to the Market Price of options, warrants, rights or other
securities convertible into or exercisable for Series 1 PCS Stock upon the
same terms and otherwise containing the same terms as such options, warrants,
rights or other securities convertible into or exercisable for Series 3 PCS
Stock or Series 2 PCS Stock, as the case may be.
"Market Value" of a share of any class or series of capital stock of the
Corporation on any day means the average of the high and low reported sales
prices regular way of a share of such class or series on such day (if such day
is a Trading Day, and if such day is not a Trading Day, on the Trading Day
immediately preceding such day) or, in case no such reported sale takes place
on such Trading Day, the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day, in either
case as reported on the New York Stock Exchange Composite Tape or, if the
shares of such class or series are not listed or admitted to trading on such
Exchange on such Trading Day, on the principal national securities exchange in
the United States on which the shares of such class or series are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange on such Trading Day, on the National Market tier of The
Nasdaq Stock Market or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on such
National Market System on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter market
on such Trading Day as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors or, if such closing bid
and asked prices are not made available by any such New York Stock Exchange
member firm on such Trading Day, the Fair Value of a share of such class or
series; provided that, for purposes of determining the Market Value of a share
of any class or series of capital stock for any period,
(i) the "Market Value" of a share of capital stock on any day prior to
any "ex-dividend" date or any similar date occurring during such period for
any dividend or distribution (other than any dividend or distribution
contemplated by clause (ii)(B) of this definition) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and
(ii) the "Market Value" of any share of capital stock on any day prior to
(A) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of
such class of capital stock occurring during such period or (B) any "ex-
dividend" date or any similar date occurring during such period for any
dividend or distribution with respect to such capital stock to be made in
shares of such class or series of capital stock or Convertible Securities
that are convertible, exchangeable or exercisable for such class or series
of capital stock shall be appropriately adjusted, as determined by the
Board of Directors, to reflect such subdivision, combination, dividend or
distribution.
IV-151
<PAGE>
"Net Proceeds" means, as of any date with respect to any Disposition of any
of the properties and assets attributed to the PCS Group, an amount, if any,
equal to what remains of the gross proceeds of such Disposition after payment
of, or reasonable provision is made as determined by the Board of Directors
for, (A) any taxes payable by the Corporation (or which would have been
payable but for the utilization of tax benefits attributable to the Sprint FON
Group) in respect of such Disposition or in respect of any resulting dividend
or redemption pursuant to ARTICLE SIXTH, Section 7.1(A)(1)(a) or (b), (B) any
transaction costs, including, without limitation, any legal, investment
banking and accounting fees and expenses and (C) any liabilities (contingent
or otherwise) of or attributed to the PCS Group, including, without
limitation, any liabilities for deferred taxes or any indemnity or guarantee
obligations of the Corporation incurred in connection with the Disposition or
otherwise, and any liabilities for future purchase price adjustments and any
preferential amounts plus any accumulated and unpaid dividends in respect of
Preferred Stock attributed to the PCS Group. For purposes of this definition,
any properties and assets attributed to the PCS Group remaining after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as the Board of Directors
determines can be expected to be supported by such properties and assets.
"Non-Class A Common Stock" means the Series 1 FON Stock, the Series 2 FON
Stock, the Series 1 PCS Stock and the Series 2 PCS Stock.
"Non-Long Distance Business" means (a) the ownership of any equity or other
interests in the Joint Venture or any of the JV Entities; the enforcement or
performance of any of the rights or obligations of this Corporation or any
Subsidiary of this Corporation pursuant to the Joint Venture Agreement; or any
activities or services of the Joint Venture or any of the JV Entities; (b) the
interests, assets, properties and businesses attributed to the PCS Group in
accordance with this Section 10; (c) any activities or services primarily
related to the provision of subscriber connections to a local exchange or
switch providing access to the public switched telephone network; (d) any
activities or services primarily related to the provision of exchange access
services for the purpose of originating or terminating long distance
telecommunications services; (e) any activities or services primarily related
to the resale by the Local Exchange Division of long distance
telecommunications services of this Corporation or other carriers; (f) any
activities or services primarily related to the provision of inter-LATA long
distance telecommunications services that are incidental to the local exchange
services business of the Local Exchange Division; (g) any activities or
services primarily related to the provision of intra-LATA long distance
telecommunications services; (h) any activities or services (whether local,
intra-LATA or inter-LATA) primarily related to the provision of cellular, PCS,
ESMR or paging services, mobile telecommunications services or any other
voice, data or voice/data wireless services, whether fixed or mobile, or
related to telecommunications services provided through communications
satellite systems (whether low, medium or high orbit systems); and (i) the use
of the "Sprint" brand name or any other brand names, trade names or trademarks
owned or licensed by this Corporation or any of its Subsidiaries.
"North America" means the current geographic area covered by the following
countries: Canada, the United States of Mexico and the United States of
America.
"Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The FON Group" means, as of the Effective Date, a number equal to
the aggregate number of outstanding shares of Class A Common Stock--Series DT
as of the Effective Date; provided, however, that such number shall from time
to time thereafter be:
(A) adjusted, on an equivalent Per Class A FON Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the FON Stock or any reclassification of FON
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by the number of shares of Series 1 FON Stock
or Series 3 FON Stock issued in accordance with ARTICLE SIXTH, Section 1.2
and any reduction required to reflect the redemption of Shares Issuable
With Respect To Class A Equity Interest In The FON Group pursuant to
Section 2.2 to the extent allocated to shares of Class A Common Stock--
Series DT; and
IV-152
<PAGE>
(C) adjusted by the Board of Directors to properly reflect any other
necessary changes on an equivalent Per Class A FON Share Basis.
"Number Of Shares Issuable With Respect To The Class A--Series DT Equity
Interest In The PCS Group" means, as of the Effective Date, a number (rounded
up to the nearest whole share) equal to one-half of the aggregate number of
outstanding shares of Class A Common Stock--Series DT as of the Effective
Date; provided, however, that such number shall from time to time thereafter
be:
(A) adjusted, on an equivalent Per Class A PCS Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the PCS Stock or any reclassification of PCS
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Board of Directors by (1) the
number of shares of Series 1 PCS Stock or Series 3 PCS Stock issued by the
Corporation in accordance with ARTICLE SIXTH, Section 1.2, (2) the amount
of any payment made to the holders of Class A Common Stock--Series DT
pursuant to Section 7.1(B)(5) or Section 7.1(B)(6) divided by the
corresponding redemption price per share of PCS Stock pursuant to Section
7.1(A)(1)(b)(i) or Section 7.1(A)(1)(b)(ii), (3) any reduction required to
reflect the redemption of Shares Issuable With Respect To Class A Equity
Interest In The PCS Group pursuant to Section 2.2 to the extent allocated
to shares of Class A Common Stock--Series DT, (4) the conversion of some or
all of this number into a Number Of Shares Issuable With Respect To The
Class A--Series DT Equity Interest In The FON Group in accordance with
Sections 7.1(B)(7), 7.1(C) and 7.1(D), and (5) the redemption thereof in
exchange for the issuance of shares of common stock of the PCS Group
Subsidiary in accordance with Section 7.2; and
(C) adjusted by the Board of Directors to properly reflect any other
necessary changes on an equivalent Per Class A PCS Share Basis.
"Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest" means, as of the Effective Date, a number equal to 220,000,000 less
the sum of (i) the Number Of Shares Issuable With Respect To The Old Class A
Common Equity Interest In The PCS Group, (ii) the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group (iii)
one-half of the number of shares of Common Stock, par value $2.50 per share,
outstanding immediately prior to the Effective Date, and (iv) one-half of the
number of shares of Common Stock, par value $2.50 per share, held as treasury
shares by the Corporation immediately prior to the Effective Date; provided,
however, that such number shall from time to time thereafter be:
(A) adjusted, as determined by the Board of Directors to be appropriate
to reflect equitably any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of the PCS Stock or any
dividend or other distribution of shares of PCS Stock to holders of shares
of PCS Stock or any reclassification of PCS Stock;
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Board of Directors by (1) the
number of shares of PCS Stock issued or sold by the Corporation that,
immediately prior to such issuance or sale, were included (as determined by
the Board of Directors pursuant to paragraph (C) of this definition) in the
Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest, (2) the number of shares of PCS Stock issued upon conversion,
exchange or exercise of Convertible Securities that, immediately prior to
the issuance or sale of such Convertible Securities, were included in the
Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest, (3) the number of shares of PCS Stock issued by the Corporation
as a dividend or other distribution (including in connection with any
reclassification or exchange of shares) to holders of FON Stock and Class A
Common Stock (but only with respect to any Shares Issuable With Respect To
The Class A Equity Interest In The FON Group) or shares of FON Preferred
Stock, as the case may be, (4) the number of shares of PCS Stock issued
upon the conversion, exchange or exercise of any Convertible Securities
issued by the Corporation as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of
FON Stock or Class A Common Stock (but only with respect to any
IV-153
<PAGE>
Shares Issuable With Respect To The Class A Equity Interest In The FON
Group) or shares of FON Preferred Stock, as the case may be, (5) the
quotient of (a) the aggregate Fair Value of any PCS Preferred Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of PCS Preferred Stock) issued by the Corporation as a dividend or
other distribution (including in connection with any classification or
exchange of shares) to holders of FON Stock, Class A Common Stock (but only
with respect to any Shares Issuable With Respect To The Class A Equity
Interest In The FON Group), or shares of FON Preferred Stock, as the case
may be, divided by (b) the Market Value of one share of PCS Stock as of the
date of issuance of such PCS Preferred Stock (or Convertible Securities),
or (6) the number (rounded, if necessary, to the nearest whole number)
equal to the quotient of (a) the aggregate Fair Value as of the date of
contribution of properties or assets (including cash) transferred from the
PCS Group to the Sprint FON Group in consideration for a reduction in the
Number Of Shares Issuable With Respect To The FON Group Intergroup Interest
divided by (b) the Market Value of one share of PCS Stock as of the date of
such transfer; and
(C) increased by (1) the number of outstanding shares of PCS Stock
repurchased by the Corporation for consideration that had been attributed
to the Sprint FON Group, (2) the number (rounded, if necessary, to the
nearest whole number) equal to the quotient of (a) the Fair Value of
properties or assets (including cash) theretofore attributed to the Sprint
FON Group that are contributed, by action of the Board of Directors, to the
PCS Group in consideration of an increase in the Number Of Shares Issuable
With Respect To The FON Group Intergroup Interest, divided by (b) the
Market Value of one share of PCS Stock as of the date of such contribution
and (3) the number of shares of PCS Stock into or for which Convertible
Securities are deemed converted, exchanged or exercised pursuant to the
penultimate sentence of the definition of "Sprint FON Group."
"Number Of Shares Issuable With Respect To The Old Class A Equity Interest
In The FON Group" means, as of the Effective Date, a number equal to the
aggregate number of outstanding shares of Old Class A Common Stock as of the
Effective Date; provided, however, that such number shall from time to time
thereafter be:
(A) adjusted, on an equivalent Per Class A FON Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the FON Stock or any reclassification of FON
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by the number of Shares of Series 1 FON Stock
or Series 3 FON Stock issued in accordance with ARTICLE SIXTH, Section 1.2
and any reduction required to reflect the redemption of Shares Issuable
With Respect To Class A Equity Interest In The FON Group pursuant to
Section 2.2 to the extent allocated to shares of Old Class A Common Stock;
and
(C) adjusted by the Board of Directors to properly reflect any other
necessary changes on an equivalent Per Class A FON Share Basis.
"Number Of Shares Issuable With Respect To The Old Class A Equity Interest
In The PCS Group" means, as of the Effective Date, a number (rounded up to the
nearest whole share) equal to one-half of the aggregate number of outstanding
shares of Old Class A Common Stock as of the Effective Date; provided,
however, that such number shall from time to time thereafter be:
(A) adjusted, on an equivalent Per Class A PCS Share Basis, to reflect
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of the PCS Stock or any reclassification of PCS
Stock; and
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Board of Directors by (1) the
number of shares of Series 1 PCS Stock or Series 3 PCS Stock issued by the
Corporation in accordance with ARTICLE SIXTH, Section 1.2, (2) the amount
of any payment made to the holders of Old Class A Common Stock pursuant to
Section 7.1(B)(5) or Section 7.1(B)(6) divided by the corresponding
redemption price per share of PCS Stock pursuant to Section 7.1(A)(1)(b)(i)
or Section 7.1(A)(1)(b)(ii), (3) any reduction required to reflect the
redemption of Shares
IV-154
<PAGE>
Issuable With Respect To The Class A Equity Interest In The PCS Group
pursuant to Section 2.2 to the extent allocated to shares of Old Class A
Common Stock, (4) the conversion of some or all of this number into a
Number Of Shares Issuable With Respect To The Old Class A Equity Interest
In The FON Group in accordance with Sections 7.1(B)(7), 7.1(C) and 7.1(D),
and (5) the redemption thereof in exchange for the issuance of shares of
common stock of the PCS Group Subsidiary in accordance with Section 7.2;
and
(C) adjusted by the Board of Directors to properly reflect any other
necessary changes on an equivalent Per Class A PCS Share Basis.
"Old Class A Common Stock" has the meaning set forth in the "Designation"
column in Section 1 of ARTICLE SIXTH.
"Old Class A FON Vote Per Share" means, on any date, a number equal to X /
Y, where "X" equals the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The FON Group and "Y" equals the aggregate number
of outstanding shares of Old Class A Common Stock.
"Old Class A PCS Interest Fraction," as of any date, means the fraction the
numerator of which shall be the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The PCS Group on such date and the denominator
of which shall be the sum of (i) the number of shares of PCS Stock outstanding
on such date, (ii) the Number Of Shares Issuable With Respect To The FON Group
Intergroup Interest on such date, (iii) the Number Of Shares Issuable With
Respect To The Old Class A Equity Interest In The PCS Group on such date and
(iv) the Number Of Shares Issuable With Respect To The Class A--Series DT
Equity Interest In The PCS Group on such date.
"Old Class A PCS Vote Per Share" means, on any date, a number equal to (X /
Y) x Z, where "X" equals the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The PCS Group, "Y" equals the aggregate number of
outstanding shares of Old Class A Common Stock and "Z" equals the applicable
PCS Per Share Vote on such date.
"Optional Conversion Ratio" as of any date means the ratio of the Average
Trading Price of a share of Series 1 PCS Stock to the Average Trading Price of
a share of Series 1 FON Stock; provided, that such ratio would be determined
over a 60-Trading Day period if the 20-Trading Day period normally used to
determine the Average Trading Price is less than 90% of such ratio as
determined over a 60-Trading Day period.
"Outstanding PCS Fraction," as of any date, means the fraction the numerator
of which shall be the number of shares of PCS Stock outstanding on such date
and the denominator of which shall be the sum of (i) the number of shares of
PCS Stock outstanding on such date, (ii) the Number Of Shares Issuable With
Respect To The FON Group Intergroup Interest on such date, (iii) the Number Of
Shares Issuable With Respect To The Old Class A Equity Interest In The PCS
Group on such date and (iv) the Number Of Shares Issuable With Respect To The
Class A--Series DT Equity Interest In The PCS Group on such date. A statement
setting forth the Outstanding PCS Fraction as of the record date for the
payment of any dividend or distribution on PCS Stock and as of the end of each
fiscal quarter of the Corporation shall be filed by the Secretary of the
Corporation in the records of the actions of the Board of Directors not later
than fifteen Business Days after such date.
"PCS" means a radio communications system of the type authorized under the
rules for broadband personal communications services designated as Subpart E
of Part 24 of the FCC's rules or similar Applicable Laws of any other country,
including the network, marketing, distribution, sales, customer interface and
operations functions relating thereto.
"PCS Group" means, as of any date from and after the Effective Date:
(A) the interest on such date of the Corporation and any of its
subsidiaries in any of the following Persons or any of their respective
subsidiaries (including any successor thereto by merger, consolidation or
sale of all or substantially all of its assets, whether or not in
connection with a Related Business Transaction) (the "PCS Group Companies")
and the corresponding interests in their respective assets and liabilities
and the businesses conducted by such entities: SWV Six, Inc. (fka TCI
Spectrum Holdings, Inc.); SWV One, Inc. (fka Com Telephony Services, Inc.);
SWV Two, Inc. (fka Comcast Telephony Services, Inc.); SWV Three, Inc. (fka
Cox Telephony Partners, Inc.); SWV Four, Inc. (fka Cox Communications
Wireless, Inc.);
IV-155
<PAGE>
Comcast Telephony Services; Cox Telephony Partnership; Sprint Enterprises,
L.P.; MinorCo, L.P.; Sprint Spectrum Holding Company, L.P.; American PCS,
L.P.; Cox Communications PCS, L.P.; NewTelco, L.P.; Sprint Spectrum L.P.;
American Personal Communications Holdings, Inc.; American PCS
Communications, LLC; APC PCS, LLC; APC Realty and Equipment Company, LLC;
Sprint Spectrum Finance Corporation; Sprint Spectrum Equipment Company,
L.P.; Sprint Spectrum Realty Company, L.P.; WirelessCo, L.P.; SWV Five,
Inc. (fka TCI Philadelphia Holdings, Inc.); PhillieCo Partners I, L.P.;
PhillieCo Partners II, L.P.; PhillieCo Sub, L.P.; PhillieCo., L.P.;
PhillieCo Equipment & Realty Company, L.P.; SprintCom, Inc.; SprintCom
Equipment Company L.P.; PCS Leasing Co., L.P.; Cox PCS Assets, L.L.C.; and
Cox PCS License, L.L.C.;
(B) all assets and liabilities of the Corporation and its subsidiaries
attributed by the Board of Directors to the PCS Group, whether or not such
assets or liabilities are or were also assets or liabilities of any of the
PCS Group Companies;
(C) all properties and assets transferred to the PCS Group from the
Sprint FON Group (other than a transaction pursuant to paragraph (D) of
this definition) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Sprint FON Group and the PCS Group
or otherwise as the Board of Directors may have directed as permitted by
this ARTICLE SIXTH;
(D) all properties and assets transferred to the PCS Group from the
Sprint FON Group in connection with an increase in the Number Of Shares
Issuable With Respect To The FON Group Intergroup Interest; and
(E) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation
or any of its subsidiaries outside of the ordinary course of business and
attributed to the PCS Group, as determined by the Board of Directors as
contemplated by Section 9.1(A) of ARTICLE SIXTH;
provided that
(1) from and after the payment date of any dividend or other distribution
with respect to shares of PCS Stock (other than a dividend or other
distribution payable in shares of PCS Stock, with respect to which
adjustment shall be made as provided in the definition of "Number Of Shares
Issuable In Respect Of The FON Group Intergroup Interest," or in securities
of the Corporation attributed to the PCS Group, for which provision shall
be made as set forth in clause (2) of this proviso), the PCS Group shall no
longer include an amount of assets or properties previously attributed to
the PCS Group of the same kind as so paid in such dividend or other
distribution with respect of shares of PCS Stock as have a Fair Value on
the record date for such dividend or distribution equal to the product of
(a) the Fair Value on such record date of the aggregate of such dividend or
distribution to holders of shares of PCS Stock declared multiplied by (b) a
fraction the numerator of which is equal to the FON Group Intergroup
Interest Fraction in effect on the record date for such dividend or
distribution and the denominator of which is equal to the Outstanding PCS
Fraction in effect on the record date for such dividend or distribution
(and in such eventuality such assets as are no longer included in the PCS
Group shall be attributed to the Sprint FON Group in accordance with the
definition of "Sprint FON Group"), and
(2) if the Corporation shall pay a dividend or make some other
distribution with respect to shares of PCS Stock payable in securities of
the Corporation that are attributed to the PCS Group for purposes of this
ARTICLE SIXTH (other than PCS Stock), there shall be excluded from the PCS
Group an interest in the PCS Group equivalent to the number or amount of
such securities that is equal to the product of the number or amount of
securities so distributed to holders of PCS Stock multiplied by the
fraction specified in clause 1(b) of this proviso (determined as of the
record date for such distribution) (and such interest in the PCS Group
shall be attributed to the Sprint FON Group) and, to the extent interest is
or dividends are paid on the securities so distributed, the PCS Group shall
no longer include a corresponding ratable amount of the kind of assets paid
as such interest or dividends as would have been paid in respect of the
securities equivalent to such interest in the PCS Group deemed held by the
Sprint FON Group if the securities equivalent to such interest were
outstanding (and in such eventuality such assets as are no longer included
in the PCS Group shall be attributed to the Sprint FON Group in accordance
with the definition of "Sprint FON Group").
IV-156
<PAGE>
The Corporation may also, to the extent a dividend or distribution on the PCS
Stock has been paid in Convertible Securities that are convertible into or
exchangeable or exercisable for PCS Stock, cause such Convertible Securities
as are deemed to be held by the Sprint FON Group in accordance with the third-
to-last sentence of the definition of "Sprint FON Group" and clause (2) of the
proviso to the immediately preceding sentence to be deemed to be converted,
exchanged or exercised as provided in the penultimate sentence of the
definition of "Sprint FON Group," in which case such Convertible Securities
shall no longer be deemed to be held by the Sprint FON Group.
"PCS Group Disposition Date" has the meaning set forth in Section 7.1(A) of
ARTICLE SIXTH.
"PCS Group Subsidiary" has the meaning set forth in Section 7.2 of ARTICLE
SIXTH.
"PCS IPO" means the initial primary underwritten public offering of Series 1
PCS Stock conducted by the Corporation.
"PCS IPO Price" means the initial price per share at which shares of Series
1 PCS Stock are purchased by the public in the PCS IPO.
"PCS IPO Pricing Date" means the date on which the PCS IPO Price is
determined.
"PCS Per Share Vote" has the meaning set forth in Section 3.2 of ARTICLE
SIXTH.
"PCS Preferred Stock" means Preferred Stock to the extent attributed to the
PCS Group in accordance with ARTICLE SIXTH, Section 13.
"PCS Ratio" means the ratio of [THE PCS IPO PRICE TO THE CLOSING PRICE ON
THE PCS IPO PRICING DATE OF ONE SHARE OF SERIES 1 FON STOCK] [THE AVERAGE
TRADING PRICE OF ONE SHARE OF SERIES 1 PCS STOCK TO THE AVERAGE TRADING PRICE
OF ONE SHARE OF SERIES 1 FON STOCK DETERMINED, IN EACH SUCH CASE, AS OF THE
21ST TRADING DAY FOLLOWING THE COMMENCEMENT OF REGULAR WAY TRADING OF BOTH THE
SERIES 1 PCS STOCK AND THE SERIES 1 FON STOCK, PROVIDED THAT FOR PURPOSES OF
ANY VOTE OF STOCKHOLDERS OF THE CORPORATION FOR WHICH THE RECORD DATE FOR
DETERMINING THE STOCKHOLDERS ENTITLED TO VOTE OCCURS PRIOR TO SUCH 21ST
TRADING DAY, SUCH RATIO WILL BE DETERMINED BY THE BOARD OF DIRECTORS BASED ON
THE RELATIVE MARKET VALUES OF THE SERIES 1 FON STOCK AND THE SERIES 1 PCS
STOCK].
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock and the
Series 3 PCS Stock.
"Per Class A FON Share Basis" means, with respect to Old Class A Common
Stock or Class A Common Stock--Series DT, an amount per share equal to (X / Y)
x Z, where "X" equals the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The FON Group or the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The PCS Group,
respectively, "Y" equals the number of shares outstanding of Old Class A
Common Stock or Class A Common Stock--Series DT, respectively, and "Z" equals
the per share dividend amount, redemption amount or other payment paid to the
class or series of FON Stock to which the Old Class A Common Stock or Class A
Common Stock--Series DT is being compared.
"Per Class A PCS Share Basis" means, with respect to Old Class A Common
Stock or Class A Common Stock--Series DT, an amount per share equal to (X / Y)
x Z, where "X" equals the Number Of Shares Issuable With Respect To The Old
Class A Equity Interest In The PCS Group or the Number Of Shares Issuable With
Respect To The Class A--Series DT Equity Interest In The PCS Group,
respectively, "Y" equals the number of shares outstanding of Old Class A
Common Stock or Class A Common Stock--Series DT, respectively, and "Z" equals
the per share dividend amount, redemption amount or other payment paid to the
class or series of PCS Stock to which the Old Class A Common Stock or Class A
Common Stock--Series DT is being compared.
"Percentage Ownership Interest" means, with respect to any Person, that
percentage of the Voting Power of this Corporation represented by Votes
associated with the Voting Securities of this Corporation owned of record by
such Person or by its nominees.
IV-157
<PAGE>
"Person" means an individual, a partnership, an association, a joint
venture, a corporation, a business, a trust, any entity organized or existing
under Applicable Law, an unincorporated organization or any Governmental
Authority.
"Preferred Stock" has the meaning set forth in Section 1 of ARTICLE SIXTH.
"Preferred Stock Director" has the meaning set forth in ARTICLE FIFTH of
these Articles of Incorporation.
"Proceeding" means any action, litigation, suit, proceeding or formal
investigation or review of any nature, civil, criminal, regulatory or
otherwise, before any Governmental Authority.
"Publicly Traded" with respect to any security means (i) registered under
Section 12 of the Securities Exchange Act of 1934, as amended (or any
successor provision of law), and (ii) listed for trading on the New York Stock
Exchange or the American Stock Exchange (or any national securities exchange
registered under Section 7 of the Securities Exchange Act of 1934, as amended
(or any successor provision of law), that is the successor to either such
exchange) or quoted in the National Association of Securities Dealers
Automation Quotation System (or any successor system).
"Qualified Joint Venture" has the meaning set forth in Article I of the
Investment Agreement.
"Qualified Stock Purchaser" means a Person that (a) FT and DT reasonably
believe has the legal and financial ability to purchase shares of Class A
Stock from this Corporation in accordance with Article VI of the Stockholders'
Agreement and (b)would not be a Major Competitor of this Corporation or of the
Joint Venture immediately following such purchase.
"Qualified Stock Purchaser Standstill Agreement" has the meaning set forth
in the Standstill Agreement.
"Qualified Subsidiary" has the meaning set forth in the Investment
Agreement.
"Qualified Subsidiary Standstill Agreement" has the meaning set forth in the
Investment Agreement.
"Recapitalization" means the reclassification of, among other things,
certain outstanding shares of Sprint capital stock to be effected pursuant to
the terms set forth in the Restructuring Agreement and the FT/DT Restructuring
Agreement.
"Redemption Date" means the date fixed by the Board of Directors for the
redemption of (i) any shares of capital stock of this Corporation pursuant to
ARTICLE SIXTH, Section 2.2 or (ii) shares of PCS Stock as shall be set forth
in the notice to holders of shares of PCS Stock and to holders of any
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of PCS Stock required pursuant to ARTICLE SIXTH,
Section 7.4.
"Redemption Securities" means any debt or equity securities of this
Corporation, any of its Subsidiaries, or any combination thereof having such
terms and conditions as shall be approved by the Board of Directors and which,
together with any cash to be paid as part of the redemption price pursuant to
Section 2.2(b) of ARTICLE SIXTH of these Articles of Incorporation, in the
opinion of an investment banking firm of recognized national standing selected
by the Board of Directors (which may be a firm which provides other investment
banking, brokerage or other services to this Corporation), have a Market
Price, at the time notice of redemption is given pursuant to Section 2.2(d) of
ARTICLE SIXTH of these Articles of Incorporation, at least equal to the
redemption price required to be paid by such Section 2.2(a).
"Reduced Par Value Amount" means, at any time and only with respect to
either the Old Class A Common Stock or the Class A Common Stock--Series DT
following an issuance of FON Stock and/or PCS Stock in accordance with ARTICLE
SIXTH, Sections 1(c) and (d), the amount resulting from (X - Y) / Z, where
IV-158
<PAGE>
"X" equals Z times the par value per share of either the Old Class A
Common Stock or the Class A Common Stock--Series DT, as applicable,
immediately prior to an issuance of shares of FON Stock and/or PCS Stock in
accordance with ARTICLE SIXTH, Sections 1(c) and (d),
"Y" equals the number of shares of FON Stock and/or PCS Stock issued in
accordance with ARTICLE SIXTH, Sections 1(c) and (d) times the par value of
such shares so issued, and
"Z" equals the aggregate outstanding shares of Old Class A Common Stock
or the Class A Common Stock--Series DT, as applicable.
"Registration Rights Agreement" means the Amended and Restated Registration
Rights Agreement, dated as of , 1998, among FT, DT and this Corporation,
as amended from time to time.
"Related Business Transaction" means any Disposition of all or substantially
all the properties and assets attributed to the PCS Group in a transaction or
series of related transactions that result in the Corporation receiving in
consideration of such properties and assets primarily equity securities
(including, without limitation, capital stock, debt securities convertible
into or exchangeable for equity securities or interests in a general or
limited partnership or limited liability company, without regard to the voting
power or other management or governance rights associated therewith) of any
entity which (i) acquires such properties or assets or succeeds (by merger,
formation of a joint venture or otherwise) to the business conducted with such
properties or assets or controls such acquiror or successor and (ii) which the
Board of Directors determines is primarily engaged or proposes to engage
primarily in one or more businesses similar or complementary to the businesses
conducted by such Business Group prior to such Disposition.
"Restructuring Agreement" means the Restructuring and Merger Agreement dated
as of May 26, 1998, by and among certain Cable Holders, this Corporation and
the other parties listed therein, as amended or supplemented from time to
time.
"Restructuring Closing Date" means the Closing Date, as such term is defined
in the Restructuring Agreement.
"Rights Agreement" means the Rights Agreement, dated as of , 1998,
between this Corporation and UMB Bank, N.A., as amended or supplemented from
time to time.
"Section 310" has the meaning set forth in Section 2(a) of ARTICLE FIFTH of
these Articles of Incorporation.
"Series 1 FON Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 1 PCS Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 2 FON Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 2 PCS Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 3 FON Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
"Series 3 PCS Stock" has the meaning set forth in the "Designation" column
in Section 1 of ARTICLE SIXTH.
IV-159
<PAGE>
"Shares" means (a) shares of Class A Stock, Non-Class A Common Stock,
Preferred Stock or any other Voting Securities of this Corporation, (b)
securities of this Corporation convertible into Voting Securities of this
Corporation and (c) options, warrants or other rights to acquire such Voting
Securities, but in the case of clause (c) excluding any rights of the Class A
Holders or FT and DT to acquire Voting Securities of this Corporation pursuant
to the FT/DT Restructuring Agreement, the Purchase Rights Agreement (as
defined in the FT/DT Restructuring Agreement) and the Stockholders' Agreement
(but not excluding any Voting Securities received upon the exercise of such
rights).
"Shares Issuable With Respect To The Class A Equity Interest In The FON
Group" means, at any time, the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The FON Group and the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The FON Group.
"Shares Issuable With Respect To The Class A Equity Interest In The PCS
Group" means, at any time, the Number Of Shares Issuable With Respect To The
Old Class A Equity Interest In The PCS Group and the Number Of Shares Issuable
With Respect To The Class A--Series DT Equity Interest In The PCS Group.
"Spin-off" means any spin-off or other pro rata distribution of equity
interests of a wholly-owned direct or indirect Subsidiary of this Corporation
to the stockholders of this Corporation.
"Sprint FON Group" means, as of any date from and as of the Effective Date:
(A) the interest of the Corporation or any of its subsidiaries on such
date in all of the assets, liabilities and businesses of the Corporation or
any of its subsidiaries (and any successor companies), other than any
assets, liabilities and businesses attributed in accordance with this
Section 10 to the PCS Group;
(B) a proportionate undivided interest in each and every business, asset
and liability attributed to the PCS Group equal to the FON Group Intergroup
Interest Fraction as of such date;
(C) all properties and assets transferred to the Sprint FON Group from
the PCS Group (other than pursuant to paragraph (D) or (F) of this
definition) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Sprint FON Group and the PCS Group
or otherwise as the Board of Directors may have directed as permitted by
this ARTICLE SIXTH;
(D) all properties and assets transferred to the Sprint FON Group from
the PCS Group in connection with a reduction of the Number Of Shares
Issuable With Respect To The FON Group Intergroup Interest;
(E) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation
or any of its subsidiaries outside the ordinary course of business and
attributed to the Sprint FON Group, as determined by the Board of Directors
as contemplated by Section 9.1(A) of ARTICLE SIXTH; and
(F) from and after the payment date of any dividend or other distribution
with respect to shares of PCS Stock (other than a dividend or other
distribution payable in shares of PCS Stock, with respect to which
adjustment shall be made as provided in the definition of "Number Of Shares
Issuable In Respect Of The FON Group Intergroup Interest," or in securities
of the Corporation attributed to the PCS Group, for which provision shall
be made as set forth in the third to last sentence of this definition), an
amount of assets or properties previously attributed to the PCS Group of
the same kind as were paid in such dividend or other distribution with
respect to shares of PCS Stock and Class A Common Stock (with respect to
Shares Issuable With Respect To The Class A Equity Interest In The PCS
Group) as have a Fair Value on the record date for such dividend or
distribution equal to the product of (1) the Fair Value on such record date
of such dividend or distribution to holders of shares of PCS Stock declared
on a per share basis multiplied by (2) the Number Of Shares Issuable With
Respect To The FON Group Intergroup Interest (determined as of the record
date for such dividend or distribution);
provided that from and after any transfer of any assets or properties from the
Sprint FON Group to the PCS Group, the Sprint FON Group shall no longer
include such assets or properties so transferred (other than as reflected in
respect of such a transfer by the FON Group Intergroup Interest Fraction, as
provided by paragraph (B) of this definition).
IV-160
<PAGE>
If the Corporation shall pay a dividend or make some other distribution with
respect to shares of PCS Stock payable in securities of the Corporation that
are attributed to the PCS Group for purposes of this ARTICLE SIXTH (other than
PCS Stock), the Sprint FON Group shall be deemed to hold an interest in the
PCS Group equivalent to the number or amount of such securities that is equal
to the product of the number or amount of securities so distributed to holders
of PCS Stock on a per share basis multiplied by the Number Of Shares Issuable
With Respect To The FON Group Intergroup Interest (determined as of the record
date for such distribution) and, to the extent interest is or dividends are
paid on the securities so distributed, the Sprint FON Group shall include, and
there shall be transferred thereto out of the PCS Group, a corresponding
ratable amount of the kind of assets paid as such interest or dividends as
would have been paid in respect of such securities so deemed to be held by the
Sprint FON Group if such securities were outstanding.
The Corporation may also, to the extent the securities so paid as a dividend
or other distribution to the holders of PCS Stock are Convertible Securities
and at the time are convertible into or exchangeable or exercisable for shares
of PCS Stock, treat such Convertible Securities as are so deemed to be held by
the Sprint FON Group to be deemed to be converted, exchanged or exercised, and
shall do so to the extent such Convertible Securities are mandatorily
converted, exchanged or exercised (and to the extent the terms of such
Convertible Securities require payment of consideration for such conversion,
exchange or exercise, the Sprint FON Group shall then no longer include an
amount of the kind of properties or assets required to be paid as such
consideration for the amount of Convertible Securities deemed converted,
exchanged or exercised (and such properties or assets shall be attributed to
the PCS Group)), in which case, from and after such time, the securities into
or for which such Convertible Securities so deemed to be held by the Sprint
FON Group were so considered converted, exchanged or exercised shall be deemed
held by the Sprint FON Group (as provided in clause (3) of paragraph (C) of
the definition of "Number Of Shares Issuable With Respect To The FON Group
Intergroup Interest") and such Convertible Securities shall no longer be
deemed to be held by the Sprint FON Group. A statement setting forth the
election to effectuate any such deemed conversion, exchange or exercise of
Convertible Securities so deemed to be held by the Sprint FON Group and the
properties or assets, if any, to be attributed to the PCS Group in
consideration of such conversion, exchange or exercise (if any) shall be filed
in the records of the actions of the Board of Directors and, upon such filing,
such deemed conversion, exchange or exercise shall be effectuated.
"Sprint Party" has the meaning set forth in the Joint Venture Agreement.
"Sprint Sub" means Sprint Global Venture, Inc.
"Standstill Agreement" means the Amended and Restated Standstill Agreement,
dated as of , 1998, among FT, DT and this Corporation, as amended or
supplemented from time to time.
"Stockholders' Agreement" means the Amended and Restated Stockholders'
Agreement, dated as of , 1998, among FT, DT and this Corporation (and
all exhibits thereto), as amended or supplemented from time to time.
"Strategic Investor" has the meaning set forth in the Investment Agreement.
"Strategic Merger" means a merger or other business combination involving
this Corporation (a) in which the Class A Holders are entitled to retain or
receive, as the case may be, voting equity securities of the surviving parent
entity in exchange for or in respect of (by conversion or otherwise) such
Class A Stock, with an aggregate Fair Market Value equal to at least 75% of
the sum of (i) the Fair Market Value of all consideration which such Class A
Holders have a right to receive with respect to such merger or other business
combination, and (ii) if this Corporation is the surviving parent entity, the
Fair Market Value of the equity securities of the surviving parent entity
which the Class A Holders are entitled to retain, (b) immediately after which
the surviving parent entity is an entity whose voting equity securities are
registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act or
which otherwise has any class or series of its voting equity securities held
by at least 500 holders and (c) immediately after which no Person or Group
(other than the Class A Holders) owns Voting
IV-161
<PAGE>
Securities of such surviving parent entity with Votes equal to more than 35
percent of the Voting Power of such surviving parent entity.
"Subsidiary" means, with respect to any Person (the "Parent"), any other
Person in which the Parent, one or more direct or indirect Subsidiaries of the
Parent, or the Parent and one or more of its direct or indirect Subsidiaries
(a) have the ability, through ownership of securities individually or as a
group, ordinarily, in the absence of contingencies, to elect a majority of the
directors (or individuals performing similar functions) of such other Person,
and (b) own more than 50% of the equity interests, provided that Atlas shall
be deemed to be a Subsidiary of each of FT and DT.
"Supervoting Powers" means, as to the capital stock and debt securities of
this Corporation:
(a) Series 1 FON Stock or Series 2 FON Stock entitled to more than one
Vote per share (other than pursuant to the Rights Agreement) and ARTICLE
SIXTH, Section 7.5(d));
(b) PCS Stock entitled to a number of Votes per share greater than the
PCS Per Share Vote of the Series 3 PCS Stock measured as of the same record
date in accordance with Section 3.2 of ARTICLE SIXTH (other than pursuant
to the Rights Agreement) and ARTICLE SIXTH, Section 7.5(d)); or
(c) Voting Securities of this Corporation other than Non-Class A Common
Stock entitled to a number of Votes per share or unit, as the case may be
and measured as of the same record date, greater than both (x) the quotient
of (i) the price per share or unit, as the case may be, at which such
security will be issued by this Corporation divided by (ii) the Market
Price per share of Series 1 FON Stock on the date of issuance of such
Voting Securities and (y) the quotient of (i) the price per share or unit,
as the case may be, at which such security will be issued by this
Corporation divided by (ii) the Market Price per share of Series 1 PCS
Stock on the date of issuance of such Voting Securities (other than
pursuant to the Rights Agreement) and ARTICLE SIXTH, Section 7.5(d)).
"Tie-Breaking Vote" has the meaning set forth in Section 18.1(a) of the
Joint Venture Agreement, and shall include any successor provision thereto.
"Total Market Capitalization" of any class or series of common stock on any
date means the product of (i) the Market Value of one share of such class or
series of common stock on such date and (ii) the number of shares of such
class or series of common stock outstanding on such date.
"Trading Day" means, with respect to any security, any day on which the
principal national securities exchange on which such security is listed or
admitted to trading or The Nasdaq Stock Market, if such security is listed or
admitted to trading thereon, is open for the transaction of business (unless
such trading shall have been suspended for the entire day) or, if such
security is not listed or admitted to trading on any national securities
exchange or The Nasdaq Stock Market, any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Transfer" means any act pursuant to which, directly or indirectly, the
ownership of the assets or securities in question is sold, transferred,
conveyed, delivered or otherwise disposed, but shall not include (a) any grant
of Liens, (b) any conversion or exchange of any security of this Corporation
pursuant to a merger or other business combination involving this Corporation,
(c) any transfer of ownership of assets to the surviving entity in a Strategic
Merger or pursuant to any other merger or other business combination not
prohibited by the Class A Provisions, or (d) any foreclosure or other
execution upon any of the assets of this Corporation or any of its
Subsidiaries other than foreclosures resulting from Lien Transfers.
"Treaty Benefit" means:
(a) the 5% rate of dividend withholding (or any successor rate applicable
to non-portfolio investments);
(b) the exemption from income tax with respect to dividends paid or
profits distributed by this Corporation;
IV-162
<PAGE>
(c) the exemption from income tax with respect to gains or profits
derived from the sale, exchange, or disposal of stock in this Corporation;
or
(d) the exemption from taxes on capital with respect to stock in this
Corporation; under, in the case of (a), (b), (c) and (d) above, either (i)
the relevant income tax treaty between the United States and France, in the
case of FT, and the United States and Germany, in the case of DT, or (ii)
any provisions of French statutory law, in the case of FT, or German
statutory law, in the case of DT, which refers to, or is based on or
derived from, any provision of such treaty, or
(e) any other favorable treaty benefit or statutory benefit, that
specifically requires the ownership of a certain amount of voting power or
voting interest in this Corporation, under a provision of the relevant
income tax treaty between the United States and France or the statutory
laws of France, in the case of FT, or the relevant income tax treaty
between the United States and Germany or the statutory laws of Germany, in
the case DT, provided that the chief tax officer of FT or DT certifies that
such benefit is reasonably expected to provide to FT or DT, as the case may
be, combined tax savings in the year such certification is made and in
future years of at least U.S. $15 million.
"Venture Interests" has the meaning set forth in the Joint Venture
Agreement.
"Vote" means, with respect to any entity, the ability to cast a vote at a
stockholders', members' or comparable meeting of such entity with respect to
the election of directors, managers or other members of such entity's
governing body, or the ability to cast a general partnership or comparable
vote, provided that with respect to this Corporation, the term "Vote" means
the ability to exercise general voting power (as opposed to the exercise of
special voting or disapproval rights such as those set forth in this ARTICLE
SIXTH) with respect to matters other than the election of directors at a
meeting of the stockholders of this Corporation.
"Voting Power" means, with respect to any entity as at any date, the
aggregate number of Votes outstanding as at such date in respect of such
entity.
"Voting Securities" means, with respect to an entity, any capital stock or
debt securities of such entity if the holders thereof are ordinarily, in the
absence of contingencies, entitled to a Vote, even though the right to such
Vote has been suspended by the happening of such a contingency, and in the
case of this Corporation, shall include, without limitation, the Non-Class A
Common Stock and the Class A Stock, but shall not include any shares issued
pursuant to the Rights Agreement to the extent such issuance is caused by
action of a Class A Holder.
"Weighted Average Price" means the weighted average per unit price paid by
the purchasers of any capital stock, debt instrument or security of this
Corporation; provided, that (i) the price paid by the purchasers of Series 2
PCS Stock and Series 3 PCS Stock acquired on the Restructuring Closing Date
will be the first to be determined of the PCS IPO Price and the Average
Trading Price of a share of Series 1 PCS Stock as of the 21st Trading Day
following the commencement of regular way trading in connection with the
Recapitalization, (ii) the original purchase price paid by the purchasers of
Old Class A Common Stock shall be allocated as of the Effective Date among the
Number Of Shares Issuable With Respect To The Old Class A Equity Interest In
The FON Group and the Number Of Shares Issuable With Respect To The Old Class
A Equity Interest In The PCS Group represented by such Old Class A Common
Stock in the same proportion per share of Old Class A Common Stock as the per
share reclassification and exchange of a share of Old Common Stock into one
share of Series 1 FON Stock and one-half of a share of Series 1 PCS Stock and
(iii) the original purchase price paid by the purchasers of Class A Common
Stock--Series DT shall be allocated as of the Effective Date among the Number
Of Shares Issuable With Respect To The Class A--Series DT Equity Interest In
The FON Group and the Number Of Shares Issuable With Respect To The Class A--
Series DT Equity Interest In The PCS Group represented by such Class A Common
Stock--Series DT in the same proportion per share of Class A Common Stock as
the per share reclassification and exchange of a share of Old Common Stock
into one share of Series 1 FON Stock and a portion of a share of Series 1 PCS
Stock. In determining the price of shares of Non-Class A
IV-163
<PAGE>
Common Stock or Class A Stock issued upon the conversion or exchange of
securities or issued upon the exercise of options, warrants or other rights,
the consideration for such shares shall be deemed to include the price paid to
purchase the convertible security or the warrant, option or other right, plus
any additional consideration paid upon conversion or exercise. If any portion
of the price paid is not cash, the Independent Directors (acting by majority
vote) shall determine in good faith the Fair Market Value of such non-cash
consideration. If any new shares of Non-Class A Common Stock are issued
together with other shares or securities or other assets of this Corporation
for consideration which covers both the new shares and such other shares,
securities or other assets, the portion of such consideration allocable to
such new shares shall be determined in good faith by the Independent Directors
(acting by majority vote), in each case as certified in a resolution sent to
all Class A Holders or holders of Series 2 PCS Stock or Series 2 FON Stock, as
the case may be.
Section 11. Notices. Notwithstanding the provisions of Section 7.4, all
notices to Class A Holders made by this Corporation pursuant to this ARTICLE
SIXTH shall be made in writing and any such notice shall be deemed delivered
when the same has been delivered in person to, or transmitted by telex or
telefacsimile communication to, or seven days after it has been sent by air
mail to the addresses of, all of the Class A Holders as indicated on the stock
transfer books of this Corporation. Communications by telex or telefacsimile
communication also shall be sent concurrently by air mail, but shall in any
event be effective as stated above.
Section 12. No Other Beneficiaries. The Class A Provisions are intended for
the benefit of the Class A Holders only, and nothing in the Class A Provisions
is intended or will be construed to confer upon or to give any third party or
other stockholder of this Corporation any rights or remedies by virtue hereof.
Any term of the Class A Provisions may be waived by the holders of at least
two-thirds of the outstanding shares of Class A Stock, voting together as a
single class.
Section 13. General Provisions Relating to Preferred Stock
13.1. The Preferred Stock may be issued from time to time in one or more
series, each of such series to have such voting powers (full or limited or
without voting powers) designation, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed herein, or in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors as hereinafter provided.
13.2. Authority is hereby granted to the Board of Directors, subject to the
provisions of this ARTICLE SIXTH, to create one or more series of Preferred
Stock and, with respect to each series, to fix or alter as permitted by law,
by resolution or resolutions providing for the issue of such series:
(a) the number of shares to constitute such series and the distinctive
designation thereof;
(b) the dividend rate on the shares of such series, the dividend payment
dates, the periods in respect of which dividends are payable ("dividend
periods") whether such dividends shall be cumulative, and if cumulative,
the date or dates from which dividends shall accumulate;
(c) whether or not the shares of such series shall be redeemable, and, if
redeemable, on what terms, including the redemption prices which the shares
of such series shall be entitled to receive upon the redemption thereof;
(d) whether or not the shares of such series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement and, if such retirement or sinking
fund or funds be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and the conversion price or prices or rate or rates, or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided in such resolution or
resolutions;
IV-164
<PAGE>
(f) the voting power, if any, of the shares of such series; and
(g) such other terms, conditions, special rights and protective
provisions as the Board of Directors may deem advisable.
13.3. No dividend shall be declared and set apart for payment on any series
of Preferred Stock in respect of any dividend period unless there shall
likewise be or have been paid, or declared and set apart for payment, on all
shares of Preferred Stock of each other series entitled to cumulative
dividends at the time outstanding which rank equally as to dividends with the
series in question, dividends ratably in accordance with the sums which would
be payable on the said shares through the end of the last preceding dividend
period if all dividends were declared and paid in full.
13.4. If upon any dissolution of the Corporation, the assets of the
Corporation distributable among the holders of any one or more series of
Preferred Stock which are (i) entitled to a preference over the holders of the
Corporation Common Stock upon such dissolution, and (ii) rank equally in
connection with any such distribution, shall be insufficient to pay in full
the preferential amount to which the holders of such shares shall be entitled,
then such assets, or the proceeds thereof, shall be distributed among the
holders of each such series of the Preferred Stock ratably in accordance with
the sums which would be payable on such distribution if all sums payable were
discharged in full.
13.5. In the event that the Preferred Stock of any series shall be
redeemable, then, at the option of the Board of Directors, the Corporation may
at such time or times as may be specified by the Board of Directors as
provided in Section 13.2(c) of this ARTICLE SIXTH redeem all, or any number
less than all, of the outstanding shares of such series at the redemption
price thereof and on the other terms fixed herein or by the Board of Directors
as provided in said Section 13.2(c) (the sum so payable upon any redemption of
preferred Stock being herein referred to as the "redemption price").
13.6. Attribution of Preferred Stock to Groups. As of the Effective Date,
the outstanding shares of Preferred Stock-First Series, Preferred Stock-Second
Series, and Preferred Stock-Fifth Series shall be attributed entirely to the
Sprint FON Group. [PREFERRED STOCK UNDERLYING THE RIGHTS THAT ATTACH TO THE
FON STOCK UNDER THE RIGHTS PLAN WILL BE ATTRIBUTED TO THE SPRINT FON GROUP
WHILE PREFERRED STOCK UNDERLYING THE RIGHTS THAT ATTACH TO THE PCS STOCK UNDER
THE RIGHTS PLAN WILL BE ATTRIBUTED TO THE PCS GROUP] Upon any issuance of any
shares of Preferred Stock of any series after the Effective Date, the Board of
Directors shall attribute for purposes of this ARTICLE SIXTH the shares so
issued entirely to the Sprint FON Group or entirely to the PCS Group or partly
to the Sprint FON Group and partly to the PCS Group in such proportion as the
Board of Directors shall determine and, further, in case of the issuance of
shares of Preferred Stock that are exchangeable or exercisable for PCS Stock,
if at the time such shares of Preferred Stock are issued the Number Of Shares
Issuable With Respect To The FON Group Intergroup Interest shall be greater
than zero, then the Board of Directors shall also determine what portion
(which may be some, all or none) of such shares of Preferred Stock shall
reduce the Number Of Shares Issuable With Respect To The FON Group Intergroup
Interest, taking into consideration the use of the proceeds of such issuance
of shares of Preferred Stock in the business of the Sprint FON Group or the
PCS Group and any other relevant factors. Upon any redemption or repurchase of
shares of Preferred Stock, the Board of Directors shall determine the proper
attribution thereof in accordance with Section 9.1(D) of ARTICLE SIXTH.
Notwithstanding any such attribution of shares of Preferred Stock to the
Sprint FON Group or the PCS Group, any dividends or distributions or other
payments which are made by the Corporation on such shares of Preferred Stock
may be made, and as required by the preferences and relative, participating,
optional or other special rights thereof shall be made, out of any of the
properties or assets of the Corporation, regardless of the Business Group to
which such properties or assets are attributed in accordance with the
definitions of "Sprint FON Group" and "PCS Group" set forth in Section 10,
except as otherwise provided by the resolution of the Board of Directors
fixing the preferences and relative, participating, optional or other special
rights of a series of Preferred Stock.
13.7. Preferred Stock-First Series, Convertible.
13.7.1. Amount. The number of shares to constitute the initial series of
Preferred Stock shall be 1,742,853 and the designation thereof shall be
Preferred Stock-First Series (hereafter "First Series").
IV-165
<PAGE>
13.7.2. Dividends. Holders of shares of the First Series will be entitled to
receive cumulative cash dividends at the quarterly rate of $.22 1/2 per share
for six consecutive quarters commencing in September, 1967 (the specific date
to coincide with the date the Corporation pays its third quarter Common Stock
dividend); thereafter the cumulative quarterly dividend rate will be $.37 1/2
per share. All such payments will be made out of funds legally available for
the payment of such dividends, when and as declared, before any distribution
shall be made on the Corporation Common Stock.
13.7.3 Conversion Rights. The holders of shares of the First Series may
convert any or all of said shares into Corporation Common Stock at any time
after December 7, 1989, on the basis of three (3) shares of Series 1 FON Stock
and one and fifty one-hundredths (1.50) shares of Series 1 PCS Stock of the
Corporation for each share of the First Series. Such ratio is herein referred
to as the "conversion rate."
The conversion rate shall be subject to the following adjustments:
A. In case the Corporation shall (i) pay a dividend in the FON Stock or
the PCS Stock or (ii) subdivide the outstanding shares of FON Stock or PCS
Stock into a greater number of shares of FON Stock or PCS Stock,
respectively, or combine the outstanding shares of FON Stock or PCS Stock
into a smaller number of shares of FON Stock or PCS Stock, respectively,
the conversion rate in effect immediately prior to such stock dividend,
subdivision or combination shall be proportionately increased or decreased
as the case may be.
B. No such adjustment shall be required, however, if the aggregate number
of shares of FON Stock or PCS Stock issued as dividends on the FON Stock or
PCS Stock, respectively, since the most recent previous adjustment does not
exceed 5% of the total number of shares of FON Stock or PCS Stock,
respectively, outstanding; provided, however, that when the aggregate
number of shares of Corporation Common Stock issued as dividends since the
most recent previous adjustment shall exceed the foregoing 5%, the
conversion rate shall be increased in proportion to the same percentage or
ratio that the aggregate of all such dividends in shares of Corporation
Common Stock since the most recent previous adjustment bears to the total
number of shares of Corporation Common Stock outstanding.
C. In the event the Corporation shall fix a record date for the purpose
of determining the holders of shares of Corporation Common Stock entitled
to receive any dividend in Corporation Common Stock, the conversion rate or
any subsequent conversion rate in effect immediately prior to the record
date fixed for the determination of shareholders entitled to such dividend
shall be proportionately increased (subject to the limitation of
subparagraph (B) above) and such adjustment will become effective
immediately after the opening of business on the day following such record
date.
D. The conversion rate shall not be adjusted by reason of: (i) the
issuance of shares pursuant to options and stock purchase agreements
granted or entered into with officers or employees of the Corporation; and
(ii) the issuance of shares for cash or in exchange for assets or stock of
another company.
E. Any adjustment in the conversion rate as herein provided shall be to
the nearest, or if there shall be no nearest, then to the next lower, one-
hundredth of a share of FON Stock or PCS Stock, as applicable, and shall
remain in effect until further adjustment as required hereunder.
F. In case the Corporation shall be recapitalized, or shall be
consolidated with or merged into, or shall sell or transfer its property
and assets as, or substantially as, an entirety to any other corporation,
proper provisions shall be made as a part of the terms of such
recapitalization, consolidation, merger, sale or transfer whereby the
holder of any shares of the First Series at the time outstanding
immediately prior to such event shall thereafter be entitled to such
conversion rights, with respect to securities of the Corporation resulting
from such recapitalization, consolidation or merger, or to which such sale
or transfer shall be made, as shall be substantially equivalent to the
conversion rights herein provided for.
G. No fraction of a share of FON Stock or PCS Stock shall be issued upon
any conversion. In lieu of the fraction of a share to which the holder of
shares of the First Series surrendered for conversion would otherwise be
entitled, such holder shall receive, as soon as practicable after the date
of conversion, an amount in cash equal to the same fraction of the market
value of a full share of Series 1 FON Stock or
IV-166
<PAGE>
Series 1 PCS Stock, as applicable. For the purposes of this subparagraph,
the market value of a share of Series 1 FON Stock or Series 1 PCS Stock, as
applicable, shall be the last recorded sale price of such a share on the
New York Stock Exchange on the day immediately preceding the date upon
which such shares of such series are surrendered for conversion, or if
there be no such recorded sale price on such date, the last quoted bid
price per share of such Corporation Common Stock on such Exchange at the
close of business on such date.
13.7.4 Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation the holders of the First Series will be entitled
to receive out of the assets of the Corporation available for distribution to
stockholders, before any distribution of the assets shall be made to the
holders of Corporation Common Stock, the sum of $42.50 per share if such
liquidation is voluntary and the sum of $40.00 per share if such liquidation
is involuntary, plus in each case any accumulated unpaid dividends. If upon
any liquidation, dissolution or winding up of the Corporation the amounts
payable with respect to the Preferred Stock are not paid in full, the holders
of the Preferred Stock will share ratably in any distribution of assets in
proportion to the full preferential amounts to which they are entitled.
13.7.5. Redemption. The First Series may be redeemed by the Corporation
after July 1, 1972, at any time or from time to time, upon at least thirty
days' prior notice, at the redemption price of $42.50 per share, plus any
accumulated unpaid dividends. If less than all the outstanding First Series is
to be redeemed, the shares to be redeemed shall be determined in such manner
as may be prescribed by the Board of Directors. Shares so redeemed shall be
retired and not reissued.
13.7.6. Voting Rights. Each holder of the First Series will be entitled to
one (1) vote for each share held.
If six quarterly dividends on any series of the Preferred Stock are in
arrears, the number of directors of the Corporation shall be increased by two
(2) and the holders of all the Preferred Stock voting as a class will be
entitled to elect two (2) directors until all arrears in dividends have been
paid.
Consent of the holders of at least two-thirds of the then outstanding
Preferred Stock of all classes will be necessary to: (a) authorize any stock
ranking either as to payment of dividend or distribution of assets prior to
the First Series or any other Preferred Stock then outstanding or (b) amend,
alter, or change in any material respect prejudicial to the holders thereof
the preferences of any then outstanding Preferred Stock.
Consent of the holders of a majority of the then outstanding Preferred Stock
of all classes will be necessary to: (a) increase the authorized amount of the
Preferred Stock or (b) create any other class of stock ranking on a parity
with the Preferred Stock.
13.7.7. Preemptive Rights. No holder of Preferred Stock will have any
preemptive rights.
13.7.8. Listing. The Corporation intends to apply for listing on the New
York Stock Exchange, subject to the approval of that Exchange, of its First
Series.
13.8. Preferred Stock-Second Series, Convertible.
13.8.1. Amount, Rank and Designation. The amount of shares to constitute the
Second Series of Preferred Stock shall be 8,758,472 shares plus such an
additional amount, if any, as shall be required under the Agreement and Plan
of Merger between the Company and Carolina Telephone and Telegraph Company
dated as of July 18, 1968. The designation thereof shall be "Preferred Stock-
Second Series, Convertible" (hereinafter "Second Series"). Shares of the
Second Series shall rank on a parity with shares of the First Series of the
Preferred Stock as to dividends and upon liquidation and shall have a
preference over the shares of the Corporation Common Stock and any other class
or series of stock ranking junior to the Second Series as to dividends or upon
liquidation.
13.8.2. Dividends. Holders of shares of the Second Series will be entitled
to receive cumulative cash dividends each calendar quarter payable in March,
June, September and December of each year, at the following
IV-167
<PAGE>
rates: $.31 1/4 per share for the eight (8) consecutive quarters beginning
with the quarter ending March 31, 1969 through the quarter ending December 31,
1970; $.34 3/8 per share for eight (8) quarters beginning with the quarter
ending March 31, 1971 through the quarter ending December 31, 1972; and $.37
1/2 per share in each quarter thereafter.
All such payments will be made out of funds legally available for the
payment of such dividends, when and as declared by the Board of Directors of
the Corporation. Before any dividends on the Corporation Common Stock or any
other class or series of stock of the Corporation ranking junior to the Second
Series as to dividends shall be paid or declared and set apart for payment,
the holders of shares of the Second Series shall be entitled to receive the
full accumulated cash dividends for all quarterly dividend periods ending on
or before the date on which any dividend on any such class or series of stock
ranking junior to the Second Series as to dividends or upon liquidation is
declared or is to be paid.
13.8.3 Conversion Rights. The holders of shares of the Second Series may
convert any or all of said shares into Corporation Common Stock at any time
after February 27, 1996, on the basis of three and nine-one hundredths (3.09)
shares of Series 1 FON Stock and one and fifty-four one hundredths (1.54)
shares of Series 1 PCS Stock of the Corporation for each one share of the
Second Series. Such ratio is herein referred to as the "conversion rate." In
case of the redemption of any shares of the Second Series, such right of
conversion shall cease and terminate as to the shares duly called for
redemption, at the close of business on the date fixed for redemption, unless
default shall be made in the payment of the redemption price. Upon conversion
the Corporation shall make no payment or adjustment on account of dividends
accrued or in arrears on the Second Series surrendered for conversion.
The conversion rate in effect at any time shall be subject to adjustment as
follows:
A. In case the Corporation shall (i) declare a dividend on its
Corporation Common Stock in shares of its capital stock, (ii) subdivide its
outstanding shares of Corporation Common Stock, (iii) combine its
outstanding shares of Corporation Common Stock into a smaller number of
shares, or (iv) issue any shares by reclassification of its shares of
Corporation Common Stock (including any reclassification in connection with
a consolidation or merger in which the Corporation is the continuing
corporation), at the conversion rate in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that
the holder of any shares of the Second Series surrendered for conversion
after such time shall be entitled to receive the number of shares which he
would have owned or have been entitled to receive had such shares of the
Second Series been converted immediately prior to such time. Such
adjustment shall be made successively whenever any event listed above shall
occur.
B. In case the Corporation shall fix a record date for the issuance of
rights or warrants to all holders of its Corporation Common Stock entitling
them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Corporation Common Stock at a price per
share less than the current market price per share of Corporation Common
Stock (as defined in Paragraph D below) on such record date, the conversion
rate after such record date shall be determined by multiplying the
conversion rate in effect immediately prior to such record date by a
fraction, of which the numerator shall be the number of shares of
Corporation Common Stock outstanding on such record date plus the number of
additional shares of Corporation Common Stock to be offered for
subscription or purchase, and of which the denominator shall be the number
of shares of Corporation Common Stock outstanding on such record date plus
the number of shares of Corporation Common Stock which the aggregate
offering price (without deduction for expenses or commissions of any kind)
of the total number of shares so to be offered would purchase at such
current market price. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights or warrants
are not so issued, the conversion rate shall again be adjusted to be the
conversion rate which would then be in effect if such record date had not
been fixed.
C. In case the Corporation shall fix a record date for the making of a
distribution to all holders of its Corporation Common Stock (including any
such distribution made in connection with a consolidation or merger in
which the Corporation is the continuing corporation) of evidences of its
indebtedness or assets
IV-168
<PAGE>
(excluding dividends paid in, or distributions of, cash) or subscription
rights or warrants (excluding those referred to in Paragraph B above), the
conversion rate after such record date shall be determined by multiplying
the conversion rate in effect immediately prior to such record date by a
fraction, of which the numerator shall be the current market price per
share of [COMMON STOCK (AS DEFINED IN PARAGRAPH D BELOW) ON SUCH RECORD
DATE, AND OF WHICH THE DENOMINATOR SHALL BE SUCH CURRENT MARKET PRICE PER
SHARE OF COMMON CAPITAL STOCK], less the fair market value (as determined
by the Board of Directors whose determination shall be conclusive, and
described in a statement filed with the transfer agent or agents for the
Second Series and with the principal office of the Corporation) of the
portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one share of Common
Stock. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made, the
conversion rate shall again be adjusted to the conversion rate which would
then be in effect if such record date had not been fixed.
D. [FOR THE PURPOSE OF ANY COMPUTATION UNDER PARAGRAPHS B AND C ABOVE,
THE CURRENT MARKET PRICE PER SHARE OF COMMON STOCK ON ANY RECORD DATE SHALL
BE DEEMED TO BE THE AVERAGE OF THE DAILY CLOSING PRICES FOR THE 30
CONSECUTIVE BUSINESS DAYS COMMENCING 45 BUSINESS DAYS BEFORE SUCH DATE. THE
CLOSING PRICE FOR EACH DAY SHALL BE THE LAST SALE PRICE REGULAR WAY OR, IN
CASE NO SUCH SALE TAKES PLACE ON SUCH DAY, THE MEAN BETWEEN THE CLOSING BID
AND ASKED PRICES REGULAR WAY, IN EITHER CASE ON THE NEW YORK STOCK
EXCHANGE.]
E. The conversion rate shall not be adjusted by reason of: (i) the
issuance of shares pursuant to options and stock purchase agreements
granted or entered into with officers or employees of the Corporation; and
(ii) the issuance of shares for cash (except as provided in Paragraph B
above) or in exchange for assets or stock of another company.
F. Any adjustment in the conversion rate as herein provided shall be to
the nearest, or if there shall be no nearest, then to the next lower, one-
hundredth of a share of Corporation Common Stock, and shall remain in
effect until further adjustment as required hereunder.
G. In case the Corporation shall be recapitalized, or shall be
consolidated with or merged into, or shall sell or transfer its property
and assets as, or substantially as, an entirety to any other corporation,
proper provisions shall be made as a part of the terms of such
recapitalization, consolidation, merger, sale or transfer whereby the
holder of any shares of the Second Series at the time outstanding
immediately prior to such event shall thereafter be entitled to such
conversion rights, with respect to securities of the Corporation resulting
from such recapitalization, consolidation or merger or to which such sale
or transfer shall be made, as shall be substantially equivalent to the
conversion rights herein provided for.
H. No fraction of a share of Corporation Common Stock shall be issued
upon any conversion. In lieu of the fraction of a share to which the holder
of shares of the Second Series surrendered for conversion would otherwise
be entitled, such holder shall receive, as soon as practicable after the
date of conversion, an amount in cash equal to the same fraction of the
market value of a full share of such Corporation Common Stock. For the
purposes of this subparagraph, the market value of a share of the
applicable Corporation Common Stock shall be the last recorded sale price
of such a share on the New York Stock Exchange for such stock on the day
immediately preceding the date upon which such shares of such series are
surrendered for conversion, or if there be no such recorded sale price on
such day, the last quoted bid price per share of the applicable Corporation
Common Stock on such Exchange at the close of business on such date.
I. Whenever there shall be an adjustment in the conversion rate as
provided by the foregoing, the Corporation will file with each transfer
agent for shares of the Second Series a certificate signed by the President
or the chief financial or accounting officer of the Corporation, setting
forth in reasonable detail the calculation of the adjustment, and shall
mail to each holder of record thereof, a notice describing the adjustment
and stating the applicable record or effective date therefor, at least 20
days prior thereto.
13.8.4. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation the holders of the Second Series will be
entitled to receive out of the assets of the Corporation available for
IV-169
<PAGE>
distribution to stockholders, before any distribution of the assets shall be
made to the holders of the Corporation Common Stock or any other class or
series of stock ranking junior to the Second Series either as to dividends or
upon liquidation, the sum of $35.42 per share if such liquidation is voluntary
and the sum of $33.33 per share if such liquidation is involuntary, plus in
each case any accumulated unpaid dividends (whether or not declared), to the
end of the current quarterly dividend period in which the payment is made. If
upon any liquidation, dissolution or winding up of the Corporation the amounts
payable with respect to the Second Series and any other series of Preferred
Stock which ranks on a parity with the Second Series are not paid in full, the
holders of the Second Series and such parity Preferred Stock will share
ratably in any distribution of assets in proportion to the full preferential
amounts to which they are entitled.
13.8.5. Redemption. Subject to the provisions herein and in the charter
contained, the Second Series may be redeemed by the Corporation after December
31, 1975, at any time or from time to time, upon at least thirty days' prior
notice, at the redemption price of $50.00 per share, plus any accumulated
unpaid dividends (whether or not declared), to the end of the current
quarterly dividend period in which the payment is made. If less than all the
outstanding Second Series is to be redeemed, the shares to be redeemed shall
be selected by lot, in such equitable manner as may be prescribed by the Board
of Directors. Shares so redeemed shall be retired and not reissued.
13.8.6. Reservation of Shares. The Corporation shall at all times keep
available and reserved the number of shares of its Corporation Common Stock
required for conversion of the outstanding and any reserved shares of the
Second Series.
13.8.7. Certain Protective Provisions. If at any time the full cumulative
dividends on shares of the Second Series have not been paid or declared and
set aside for payment for the current and all past quarterly dividend periods,
the Corporation (a) will not declare, or pay, or set apart for payment any
dividends or make any distribution, on any other class or series of stock of
the Corporation ranking junior to the Second Series whether as to dividends or
upon liquidation; (b) will not redeem, purchase or otherwise acquire, or
permit any subsidiary to purchase or otherwise acquire, any shares of any
junior class or series if the Corporation shall be in default with respect to
any dividend payable on shares of the Second Series, provided that
notwithstanding the foregoing, the Corporation may at any time redeem,
purchase or otherwise acquire shares of stock of any such junior class in
exchange for, or out of the net cash proceeds from the substantially
simultaneous sale of, other shares of stock of any junior class; and (c) will
not redeem pursuant to redemption rights in the terms of such stock any stock
ranking on a parity with the Second Series unless at the same time it redeems
all the shares of the Second Series.
Unless the consent of all or a greater number of such shares is required by
law, the consent of the holders of at least two-thirds ( 2/3) of the then
outstanding shares of the Second Series shall be necessary in order to
liquidate or dissolve the Corporation voluntarily or by any other means
involving the vote or consent of any stockholders of the Corporation.
Unless the consent of all or a greater number of such shares is required by
law, consent of the holders of at least two-thirds ( 2/3) of the then
outstanding aggregate number of shares of the Second Series and each other
series of the Preferred Stock whose terms provide for such consent, taken
together, will be necessary to: (a) authorize (by whatever means) any stock
ranking either as to payment of dividends or distribution of assets prior to
the Second Series or any other Preferred Stock then outstanding; or (b)
authorize any merger or consolidation (or transfer of all or substantially all
of the assets of the Corporation in a transaction contemplating in substance
and effect the exchange of shares of the Preferred Stock for stock of another
corporation) unless the surviving, resulting or other corporation in such
transaction shall have authorized no stock ranking prior to the Preferred
Stock as to dividends or upon liquidation (unless such stock is a stock
substantially the same as, and to be exchanged for, stock of the Corporation
previously authorized pursuant to the preceding clause (a)); or (c) amend,
alter, or change in any material respect adverse to the holders thereof the
preferences of any then outstanding Preferred Stock; provided that in case of
any such action described in the preceding clauses (a), (b) and (c) which, in
any material respect, is adverse to the Second Series as a series and is not a
term generally applicable to and with the same relative effect upon all
series, the consent of the holders of two-thirds ( 2/3) of the then
outstanding shares of the Second Series will be required.
IV-170
<PAGE>
Unless the consent of all or a greater number of such shares is required by
law, consent of the holders of a majority of the then outstanding aggregate
number of shares of the Second Series and each other series of the Preferred
Stock whose terms provide for such consent, taken together, will be necessary
to: (a) increase the authorized amount of the Preferred Stock; (b) authorize
any merger or consolidation (or transfer of all or substantially all the
assets of the Corporation to another corporation contemplating in substance
and effect the exchange of shares of the Preferred Stock for stock of another
corporation) unless the surviving, resulting or other corporation in such
transaction shall have no greater authorized amount of stock ranking on a
parity with the Preferred Stock as to payment of dividends or upon liquidation
than was authorized by the Corporation immediately prior to such transaction;
or (c) create any other class of stock ranking on a parity with the Preferred
Stock as to dividends or upon liquidation.
13.8.8. Voting Rights. Each holder of the Second Series will be entitled to
one (1) vote for each share held, and, in addition to the other class and
series voting rights of the shares of the Second Series, shall have general
voting power, share for share, with the Common Stock of the Corporation and
any other shares having general voting power.
If six quarterly dividends on any series of the Preferred Stock are in
arrears, the number of directors of the Corporation shall be increased by two
(2) and the holders of all the Preferred Stock voting as a class will be
entitled to elect two (2) directors until all arrears in dividends have been
paid. The Corporation will promptly take all such action as shall be necessary
to permit such election to occur promptly after such arrearage occurs.
13.9. Preferred Stock--Fifth Series.
13.9.1. Designation; Number of Shares; Stated Value. The Series shall be
designated as Preferred Stock--Fifth Series (the "Fifth Series") and shall
consist of ninety-five (95) shares. The shares of such series are hereinafter
sometimes called the "Fifth Series Shares." The stated value of the Fifth
Series Shares shall be One Hundred Thousand Dollars ($100,000) per share.
13.9.2. Dividends. The rate of dividends upon the Fifth Series Shares (which
shall be cumulative from the date of issue) and the time of payment thereof
shall be 6.00% of the stated value per share per annum, payable quarterly on
the last days of January, April, July and October in each year.
13.9.3. Rank. The Fifth Series Shares shall rank on a parity with shares of
the First Series and Second Series of the Preferred Stock as to dividends and
upon liquidation.
13.9.4. Voting Rights. Holders of Fifth Series Shares will be entitled to
one vote for each share held and will be entitled to exercise such voting
rights together with the holders of Corporation Common Stock of the
Corporation, without distinction as to class. If no dividends or less than
full cumulative dividends on the Fifth Series Shares shall have been paid for
each of four consecutive dividend periods, or if arrearages in the payment of
dividends on the Fifth Series Shares shall have cumulated to an amount equal
to full cumulative dividends on the Fifth Series Shares for six quarterly
dividend periods, the holders of the Fifth Series Shares shall, at all
meetings held for the election of Directors until full cumulative dividends
for all past quarterly dividend periods and the current quarterly dividend
period on the Fifth Series Shares shall have been paid or declared and set
apart for payment, possess voting power, acting alone, to elect the smallest
number constituting a majority of the Directors then to be elected. The
Corporation will promptly take all such action as shall be necessary to permit
such election to occur promptly after such arrearage occurs.
13.9.5. Non-Convertible. The Fifth Series Shares shall not be convertible
into or exchangeable for stock of any other class or classes of the
Corporation.
13.9.6. Repurchase by the Corporation. Upon six months' prior written
notice, the holders of the Fifth Series Shares may tender all and not less
than all of the Fifth Series Shares to the Corporation for purchase at a price
per share equal to the stated value of One Hundred Thousand Dollars ($100,000)
per share plus accrued
IV-171
<PAGE>
dividends to the date of repurchase by the Company (the Purchase Price). Upon
such proper tender of all shares of the Fifth Series Shares by the holders,
the Corporation shall purchase the Fifth Series Shares at the Purchase Price.
13.9.7. Tender Procedures. The Fifth Series Shares will not be deemed
tendered unless and until the certificate or certificates therefor have been
received by the Corporation or the bank or trust company designated for the
purpose and, if payment upon acceptance of tender thereof is to be made other
than to the record holders, such certificate or certificates have been duly
endorsed and are in proper form for transfer, with all transfer taxes due in
respect thereof paid or provided for.
13.9.8. Redemption. If the holders have not theretofore tendered the Fifth
Series Shares to the Corporation for purchase pursuant to paragraphs 6 and 7
hereof by March 14, 2003, then the Corporation shall redeem all of the
outstanding Fifth Series Shares at the Purchase Price on a date set forth in
written notice to the holders as the redemption date (the Redemption Date).
The Corporation shall give notice of such redemption not less than thirty (30)
days prior to the Redemption Date, by mail to the holders of record of the
outstanding shares at their respective addresses then appearing on the books
of the Corporation. At any time before the Redemption Date, the Corporation
may deposit in trust the funds necessary for such redemption with a bank or
trust company to be designated in the notice of redemption, doing business in
the City of Chicago and State of Illinois or in the City and State of New
York, and having capital, surplus and undivided profits aggregating
$25,000,000. In the event such deposit is made so that the deposited funds
shall be forthwith available to the holders of the shares to be redeemed upon
surrender of the certificates evidencing such shares, then, upon the giving of
the notice of such redemption, as hereinabove provided, or upon the earlier
delivery to such bank or trust company of irrevocable authorization and
direction so to give such notice, all shares with respect to the redemption of
which such deposit shall have been made and the giving of such notice effected
shall, whether or not the certificates for such shares shall be surrendered
for cancellation, be deemed to be no longer outstanding for any purpose and
all rights with respect to such shares shall thereupon cease and terminate,
except only the right of the holders of the certificates for such shares to
receive, out of the funds so deposited in trust, from and after the time of
such deposit, the amount payable upon the redemption thereof, without
interest.
13.9.9. Cancelled Shares. The Fifth Series Shares, purchased upon tender or
redeemed as herein provided, shall be cancelled and upon such cancellation
shall be deemed to be authorized and unissued shares of Preferred Stock,
without par value, of the Corporation but shall not be reissued as shares of
the same or any theretofore outstanding series.
13.9.10. Default. Default by the Corporation in complying with the
provisions of paragraph 6 or 8 hereof shall preclude the declaration or the
payment of dividends or the making of any other distribution whatsoever upon
the Corporation Common Stock (other than a distribution in shares of its
Corporation Common Stock) until the Corporation shall have cured such default
by depositing the funds necessary therefor in the manner and upon the terms
herein provided. The holders of the Fifth Series Shares shall not be entitled
to apply to any court of law or equity for a money judgment or remedy on
account of any such default other than to restrain the Corporation from the
actions specified above upon the Corporation Common Stock until such default
shall have been cured.
13.9.11. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation the holders of the Fifth Series will be entitled
to receive out of the assets of the Corporation available for distribution to
stockholders, before any distribution of the assets shall be made to the
holders of Corporation Common Stock, the sum of $100,000 per share, plus an
amount equal to cumulative dividends accrued and unpaid thereon to the date of
distribution to holders of the Fifth Series. If upon any liquidation,
dissolution or winding up of the Corporation the amounts payable with respect
to the Fifth Series and any other series of Preferred Stock which ranks on a
parity with the Fifth Series are not paid in full, the holders of the Fifth
Series and such parity Preferred Stock will share ratably in any distribution
of assets in proportion to the full preferential amounts to which they are
entitled.
IV-172
<PAGE>
SEVENTH
1. In addition to any affirmative vote required by law or these Articles of
Incorporation, and except as expressly provided in section 2 of this ARTICLE
SEVENTH, the affirmative vote of the holders of eighty (80) percent of the
outstanding shares of the Corporation entitled to vote in an election of
Directors shall be required for the approval or authorization of any Business
Combination (as hereinafter defined).
2. The provisions of Section 1 of this ARTICLE SEVENTH shall not be
applicable if:
A. The Business Combination shall have been approved by a majority of the
Continuing Directors (as hereinafter defined); provided, however, that such
approval shall only be effective if obtained at a meeting of Directors at
which at least seven Continuing Directors are present; or
B. The Business Combination is a merger or consolidation and the cash or
Fair Market Value (as hereinafter defined) of the property, securities or
other consideration to be received per share by the stockholders of each
class of stock of the Corporation in the Business Combination, if
applicable, is not less than the highest per share price paid by the
Interested Stockholder (as hereinafter defined), with appropriate
adjustments for stock splits, stock dividends and like distributions, in
the acquisition by the Interested Stockholder of any of its holdings of
each class of the Corporation's capital stock.
3. For purposes of this ARTICLE SEVENTH:
A. The term "Business Combination" means:
(i) any merger or consolidation of the Corporation or any subsidiary
of the Corporation with (a) any Interested Stockholder or (b) any other
corporation (whether or not itself an Interested Stockholder) which is,
or after such merger or consolidation would be, an Affiliate (as
defined on October 1, 1982 in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of an Interested
Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any subsidiary of the
Corporation that have an aggregate Fair Market Value of $1,000,000 or
more;
(iii) the issuance or transfer by the Corporation or any subsidiary
of the Corporation (in one transaction or a series of transactions) of
any securities of the Corporation or any subsidiary of the Corporation
to any Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of
$1,000,000 or more;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder.
B. The term "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director if the successor is unaffiliated with
the Interested Stockholder and is recommended or elected to succeed a
Continuing Director by a majority of Continuing Directors, provided that
such recommendation or election shall only be effective if made at a
meeting of Directors at which at least seven Continuing Directors are
present.
IV-173
<PAGE>
C. The term "Fair Market Value" means:
(i) in the case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-listed
stocks, or, if such stock is not quoted on the Composite Tape, on the
New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then
in use, or if no such quotations are available, the fair market value
on the date in question of a share of such stock as determined in good
faith by a majority of Continuing Directors, provided that such
determination shall only be effective if made at a meeting of Directors
at which at least seven Continuing Directors are present; or
(ii) in the case of property or securities other than cash or stock,
the fair market value of such property or securities on the date in
question as determined in good faith by a majority of Continuing
Directors, provided that such determination shall only be effective if
made at a meeting of Directors at which at least seven Continuing
Directors are present.
D. The term "Interested Stockholder" means and includes, as of the date
of any proposed Business Combination, any individual, corporation,
partnership or other person or entity which, together with its "Affiliates"
and "Associates" (as defined on October 1, 1982 in Rule 12b-2 under the
Exchange Act), "Beneficially Owns" (as defined on October 1, 1982 in Rule
13d-3 under the Exchange Act) in the aggregate ten percent or more of the
outstanding shares of the Corporation entitled to vote in an election of
Directors, and any Affiliate or Associate of any such individual,
corporation, partnership or other person or entity.
EIGHTH
1. Prevention of "Greenmail." Any direct or indirect purchase or other
acquisition by this Corporation of any Equity Security (as hereinafter
defined) of any class at a price above Market Price (as hereinafter defined)
from any Interested Securityholder (as hereinafter defined) who has
beneficially owned any Equity Security of the class to be purchased for less
than two years prior to the date of such purchase or any agreement in respect
thereof shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of the voting power of
the then outstanding shares of capital stock of this Corporation entitled to
vote generally in the election of directors (the "Voting Stock"), excluding
Voting Stock beneficially owned by such Interested Securityholder, voting
together as a single class (it being understood that for the purposes of this
ARTICLE EIGHTH, each share of the Voting Stock shall have the number of votes
granted to it pursuant to ARTICLE SIXTH of these Articles of Incorporation).
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or any
agreement with any national securities exchange, or otherwise, but (i) no such
affirmative vote shall be required with respect to any purchase, redemption or
other acquisition by this Corporation of capital stock from FT, DT, any
Qualified Subsidiary or any Qualified Stock Purchaser pursuant to the
provisions of the Investment Documents (as such term is defined in Section 10
of ARTICLE SIXTH of these Articles of Incorporation) or these Articles of
Incorporation, (ii) no such affirmative vote shall be required with respect to
any purchase or other acquisition of securities made as part of a tender or
exchange offer by this Corporation to purchase securities of the same class
made on the same terms to all holders of such securities and complying with
the applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions replacing such
Act, rules or regulations), and (iii) no such affirmative vote shall be
required with respect to any purchase, redemption, conversion or other
acquisition by this Corporation of Series 2 FON Stock or PCS Stock (as defined
in ARTICLE SIXTH) from a holder thereof pursuant to the provisions of these
Articles of Incorporation.
2. Certain Definitions. For the purposes of this ARTICLE EIGHTH:
A. A "person" means any individual, firm, corporation or other entity.
IV-174
<PAGE>
B. "Interested Securityholder" means any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation) who or
which:
(i) is the beneficial owner, directly or indirectly, of 5% or more of
the class of securities to be acquired; or
(ii) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 5% or more of the class of
securities to be acquired; or
(iii) is an assignee or has otherwise succeeded to any shares of the
class of securities to be acquired which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by an Interested Securityholder, if such assignment or succession
shall have occurred in the course of a transaction or transactions not
involving a public offering within the meaning of the Securities Act of
1933, as amended.
C. A person shall be a "beneficial owner" of any security of any class of
the Corporation:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) any right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any security of
any class of the Corporation.
D. For the purposes of determining whether a person is an Interested
Securityholder pursuant to paragraph B of this Section 2, the relevant
class of securities outstanding shall be deemed to comprise all such
securities deemed owned through application of paragraph C of this Section
2, but shall not include other securities of such class which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on October 1, 1982.
F. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
January 1, 1985.
G. "Market Price" means the highest closing sale price during the thirty-
day period immediately preceding the date in question, of a share of any
Equity Security on the Composite Tape for New York Stock Exchange issues
or, if such Equity Security is not quoted on the Composite Tape or is not
listed on such Exchange, on the principal United States security exchange
registered under the Securities Exchange Act of 1934, as amended, on which
such Equity Security is listed, or, if such Equity Security is not listed
on any such exchange, the highest closing bid quotation with respect to a
share of such Equity Security during the thirty-day period preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or, if no such
quotations are available, the fair market value on the date in question of
a share of such Equity Security.
3. Compliance. The Board of Directors of the Corporation shall have the
power to determine the application of, or compliance with, this ARTICLE
EIGHTH, including, without limitation: (i) whether a person is an Interested
Securityholder; (ii) whether a person is a beneficial owner of any Equity
Security; and (iii) the Market Price of any Equity Security. Any decision or
action taken by the Board of Directors arising out of or in connection with
the construction, interpretation and effect of this ARTICLE EIGHTH shall lie
within its absolute discretion and shall be conclusive and binding, except in
circumstances involving bad faith.
IV-175
<PAGE>
NINTH
No Director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty by such
Director as a Director; provided, however, that this ARTICLE NINTH shall not
eliminate or limit the liability of a Director to the extent provided by
applicable law (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 51 of the General Corporation Code of the State of Kansas, or
(iv) for any transaction from which the Director derived an improper personal
benefit. No amendment to or repeal of this ARTICLE NINTH shall apply to or
have any effect on the liability or alleged liability of any Director of the
Corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of
said Corporation this day of [ ], 1998.
-------------------------------------
Don A. Jensen, Vice President
-------------------------------------
Michael T. Hyde, Assistant Secretary
STATE OF KANSAS )
) ss.
COUNTY OF JOHNSON )
Be it remembered that before me, a Notary Public in and for the aforesaid
county and state, personally appeared: Don A. Jensen, Vice President, and
Michael T. Hyde, Assistant Secretary, of Sprint Corporation, a corporation,
who are known to me to be the same persons who executed the foregoing Amended
and Restated Articles of Incorporation, and duly acknowledged the execution of
the same this day of [ ], 1998.
-------------------------------------
Notary Public
My appointment expires:
- ------------------------------------------
IV-176
<PAGE>
ANNEX V--RESTRUCTURING AGREEMENT
THIS RESTRUCTURING AND MERGER AGREEMENT is made as of this 26th day of May,
1998, by and among TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI"),
COMCAST CORPORATION, a Pennsylvania corporation ("Comcast"), COX
COMMUNICATIONS, INC., a Delaware corporation ("Cox", and together with TCI and
Comcast, the "Cable Parents"), SPRINT CORPORATION, a Kansas corporation
("Sprint", and together with the Cable Parents, the "Parents"), TCI SPECTRUM
HOLDINGS, INC., a Colorado corporation ("TCI Partner"), COMCAST TELEPHONY
SERVICES, a Delaware general partnership ("Comcast Partner"), COX TELEPHONY
PARTNERSHIP, a Delaware general partnership ("Cox Partner", and together with
TCI Partner and Comcast Partner, the "Cable Partners"), SPRINT ENTERPRISES,
L.P., a Delaware limited partnership ("Sprint Partner", and together with the
Cable Partners, the "PCS Partners"), TCI PHILADELPHIA HOLDINGS, INC., a
Delaware corporation ("TCI PhillieCo Sub"), COM TELEPHONY SERVICES, INC., a
Delaware corporation ("Comcast HoldCo Sub1"), COMCAST TELEPHONY SERVICES,
INC., a Delaware corporation ("Comcast HoldCo Sub2"), COX TELEPHONY PARTNERS,
INC., a Delaware corporation ("Cox HoldCo Sub1") and COX COMMUNICATIONS
WIRELESS, INC., a Delaware corporation ("Cox HoldCo Sub2", and together with
TCI PhillieCo Sub, Comcast HoldCo Sub1, Comcast HoldCo Sub2 and Cox HoldCo
Sub1, the "HoldCo Entities"), SWV ONE, INC., a Delaware corporation ("Comcast
Merger Sub1"), SWV TWO, INC., a Delaware corporation ("Comcast Merger Sub2"),
SWV THREE, INC., a Delaware corporation ("Cox Merger Sub1"), SWV FOUR, INC., a
Delaware corporation ("Cox Merger Sub2"), SWV FIVE, INC., a Delaware
corporation ("TCI Merger Sub1"), and SWV SIX, INC., a Colorado corporation
("TCI Merger Sub2", and together with Cox Merger Sub1, Cox Merger Sub2,
Comcast Merger Sub1, Comcast Merger Sub2 and TCI Merger Sub1, the "Merger
Subs").
RECITALS:
WHEREAS, each of the PCS Partners is a general partner and a limited partner
of each of Sprint Spectrum Holding Company, L.P., a Delaware limited
partnership ("Sprint PCS GP"), and MinorCo, L.P., a Delaware limited
partnership ("Sprint PCS LP");
WHEREAS, Sprint PCS GP is the sole general partner and Sprint PCS LP is the
sole limited partner of Sprint Spectrum, L.P., a Delaware limited partnership
("Sprint PCS");
WHEREAS, TCI Partner is an indirect Wholly-Owned Subsidiary of TCI, Comcast
Partner is wholly owned by Comcast HoldCo Sub1 and Comcast HoldCo Sub2 (which
in turn are indirect Wholly-Owned Subsidiaries of Comcast), and Cox Partner is
wholly owned by Cox HoldCo Sub1 and Cox HoldCo Sub2 (which in turn are Wholly-
Owned Subsidiaries of Cox);
WHEREAS, TCI PhillieCo Sub, Cox HoldCo Sub2 and Sprint Partner
(collectively, the "PhillieCo Partners") are the sole partners, each holding a
general partnership and a limited partnership interest, in PhillieCo Partners
I, L.P., a Delaware limited partnership ("PhillieCo GP"), and PhillieCo
Partners II, L.P., a Delaware limited partnership ("PhillieCo LP");
WHEREAS, PhillieCo GP is the sole general partner and PhillieCo LP is the
sole limited partner of PhillieCo Sub, L.P., a Delaware limited partnership
("PhillieCo Sub"), which in turn is the sole general partner of PhillieCo,
L.P., a Delaware limited partnership ("PhillieCo1"), and
PhillieCo Equipment & Realty Company, L.P., a Delaware limited partnership
("PhillieCo2") (PhillieCo Sub, PhillieCo1 and PhillieCo2 are collectively
referred to herein as "PhillieCo");
WHEREAS, each of the Merger Subs is a direct Wholly-Owned Subsidiary of
Sprint;
WHEREAS, SprintCom, Inc., a Kansas corporation ("SprintCom"), and SprintCom
Equipment Company, L.P., a Delaware limited partnership ("EquipmentCo"), are
Wholly-Owned Subsidiaries of Sprint;
V-1
<PAGE>
WHEREAS, the Board of Directors of each of the Parents, TCI Partner, the
HoldCo Entities and the Merger Subs has determined that it is in the best
interests of their respective stockholders for (A) TCI Merger Sub1 to merge
with and into TCI PhillieCo Sub, (B) TCI Merger Sub2 to merge with and into
TCI Partner, (C) Comcast Merger Sub1 to merge with and into Comcast HoldCo
Sub1, (D) Comcast Merger Sub2 to merge with and into Comcast HoldCo Sub2, (E)
Cox Merger Sub1 to merge with and into Cox HoldCo Sub1 and (F) Cox Merger Sub2
to merge with and into Cox HoldCo Sub2, all upon the terms and subject to the
conditions of this Agreement (each, a "Merger" and together, the "Mergers");
WHEREAS, the outstanding stock of TCI Partner and the HoldCo Entities will
be converted in the Mergers into (i) shares of a special series of a new class
of common stock of Sprint that will reflect the performance of the PCS Group
(as defined herein), (ii) certain warrants to acquire additional shares of
such special series of common stock and (iii) in certain cases, shares of a
new series of preferred stock of Sprint;
WHEREAS, concurrently with the Closing of the Mergers, Sprint currently
intends to complete the IPO (as defined herein) and, within 120 days
thereafter, to complete the Recapitalization (as defined herein);
WHEREAS, if the IPO is not completed on the Closing Date, Sprint will effect
the Recapitalization concurrently with the Closing and intends to complete the
IPO within 120 days following the Closing;
WHEREAS, immediately following the Mergers, TCI, Comcast and Cox will hold
(directly or indirectly through their respective Subsidiaries) shares of such
special series of common stock and Warrants (as defined herein) representing
Initial PCS Group Percentage Interests (as defined herein) of 23.83074%,
11.42370%, and 11.91537%, respectively, and the Sprint FON Group (as defined
herein) will hold a notional equity "intergroup" interest in the PCS Group
equal to a 52.83019% Initial PCS Group Percentage Interest; and
WHEREAS, in connection with the Mergers, the parties hereto intend to enter
into other agreements and covenants as specified herein;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Other
Agreements (as defined herein), and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the meanings specified below:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as set
forth in Del. Code Ann. tit. 6, (S)(S)17-101 to 17-1111.
"Additional Capital Contribution" has the meaning set forth in Section 1.10
of the PCS Partnership Agreement.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of
this definition, the term "controls" (including its correlative meanings
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the foregoing, (i)
neither Sprint PCS LP, Sprint PCS GP, Sprint PCS or any of its Subsidiaries,
PhillieCo GP, PhillieCo LP, PhillieCo or any of its Subsidiaries nor any
Person controlled by any of such entities, shall be deemed to be an Affiliate
of any Parent or of any Affiliate of any Parent prior to the
V-2
<PAGE>
Closing and (ii) no Parent or any Affiliate thereof shall be deemed to be an
Affiliate of any other Parent or any Affiliate thereof solely by virtue of the
ownership by such Parent or any of its Affiliates of interests in Sprint PCS
LP, Sprint PCS GP, PhillieCo GP or PhillieCo LP.
"Agreement" means this Restructuring and Merger Agreement, including the
Schedules and Exhibits attached hereto.
"Business Day" means a day of the year on which banks are not required or
authorized to be closed in the State of New York.
"Capital Contribution" has the meaning set forth in Section 1.10 of the PCS
Partnership Agreement.
"CBCA" means the Colorado Business Corporation Act.
"Certificate of Designations" means the form of certificate of designations
attached hereto as Exhibit A setting forth the rights, preferences and
limitations of the PCS Preferred Stock, which will be filed with the Kansas
Secretary of State on the Closing Date.
"Certificates of Merger" means, collectively, the Colorado Articles of
Merger and the Delaware Certificates of Merger.
"Class A Stock" means the Class A Common Stock, par value $2.50 per share,
of Sprint, as provided for in the Current Sprint Charter.
"Closing" means the consummation of the Mergers and the other transactions
contemplated by this Agreement (including those set forth in Article 9),
concurrently with either the IPO or the Recapitalization, as contemplated by
this Agreement, held on the date and at the place fixed in accordance with
Article 9.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Colorado Articles of Merger" means the articles of merger in the form of
Exhibit B-2, to be filed with the Colorado Secretary of State to effect the
Merger of TCI Merger Sub2 with and into TCI Partner.
"Colorado Plan of Merger" means the plan of merger in the form of Annex 1 to
Exhibit B-2, to be filed with the Colorado Secretary of State to effect the
Merger of TCI Merger Sub2 with and into TCI Partner.
"Comcast" means Comcast Corporation, a Pennsylvania corporation, and any
successor (by merger, consolidation, Transfer or otherwise) to all or
substantially all of its business or assets.
"Controlled Affiliate" of (i) any Person (other than a Parent or any
Subsidiary of a Parent) means the Parent Entity of such Person as of the date
of this Agreement and each Subsidiary of such Parent Entity as of the date of
determination, and (ii) any Parent or its Subsidiary means such Parent and
each Subsidiary of such Parent as of the date of determination.
"Cox" means Cox Communications, Inc., a Delaware corporation, and any
successor (by merger, consolidation, Transfer or otherwise) to all or
substantially all of its business or assets.
"Cox L.A. Amendments" means (i) the amendment to the Agreement of Limited
Partnership of Cox Communications PCS, L.P. by and between Sprint PCS GP and
Cox Pioneer Partnership dated as of December 31, 1996, as amended, in the form
of Exhibit C-1, to be entered into at the Closing among Sprint,
V-3
<PAGE>
Sprint PCS GP and Cox Pioneer Partnership; and (ii) the amendment to the
Affiliation Agreement by and between Sprint PCS and Cox Communications PCS,
L.P. dated as of December 31, 1996, as amended, in the form of Exhibit C-2, to
be entered into at the Closing by Sprint PCS and Cox Communications PCS, L.P.
"Current Sprint Charter" means the Restated Articles of Incorporation of
Sprint as in effect on the date hereof.
"Delaware Certificates of Merger" means each of the five certificates of
merger in the form of Exhibit B-1 to be filed with the Delaware Secretary of
State to effect the Mergers other than the Merger of TCI Merger Sub2 with and
into TCI Partner.
"DGCL" means the Delaware General Corporation Law.
"DT" means Deutsche Telekom AG, an Aktiengesellschaft formed under the laws
of Germany.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commission.
"FT" means France Telecom, S.A., a societe anonyme formed under the laws of
France.
"FT/DT Agreements" means the following agreements to be entered into among
Sprint, FT and DT in connection with the transactions contemplated by this
Agreement: (i) Master Restructuring Agreement; (ii) Amended and Restated
Stockholders' Agreement; (iii) Amended and Restated Registration Rights
Agreement; (iv) Amended and Restated Standstill Agreement; (v) Amended and
Restated Acquiring Person's Statement; (vi) Amended and Restated Investor
Confidentiality Agreement (DT only); and (vii) Amended and Restated Investor
Confidentiality Agreement (FT only).
"GAAP" means generally accepted accounting principles in effect from time to
time in the United States of America.
"Governmental Authority" means any federation, nation, state, sovereign, or
government, any federal, supranational, regional, state, local or political
subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, administrative hearing body, arbitration
tribunal, commission or other similar dispute resolving panel or body, and any
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of a government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"Initial Charter Amendment" means the Amended and Restated Articles of
Incorporation of Sprint effecting the creation of the PCS Stock and the
creation of the PCS Group and the Sprint FON Group, the form of which is
attached hereto as Exhibit E.
"Initial PCS Group Percentage Interest" means, for any Person, the PCS Group
Percentage Interest owned by such Person at the Effective Time, after giving
effect to the issuance of the Series 2 PCS Stock and the Warrants in the
Mergers and the creation of the Warrant Intergroup Interest, but without
giving effect to (i) the IPO, (ii) the Recapitalization, (iii) the issuance of
the PCS Preferred Stock, (iv) the creation of the Preferred Intergroup
Interest, or (v) the exercise of any Top-Up Rights.
"IPO" means the initial primary underwritten public offering of Series 1 PCS
Stock, proposed to be conducted by Sprint in accordance with Sections 6.2 and
6.3.
"IPO Price" means the initial price per share at which shares of Series 1
PCS Stock are purchased by the public in the IPO.
V-4
<PAGE>
"Knowledge", or any phrase or term of similar meaning, when used with
respect to any of the Parents, means the actual knowledge of the executive
officers of such Parent, without having made any special investigation or
inquiry regarding the applicable subject matter.
"IRS" means the Internal Revenue Service or any successor agency or entity
performing substantially the same functions.
"Law" means any foreign or domestic law, statute, code, ordinance, rule or
regulation promulgated, or any order, judgment, writ, stipulation, award,
injunction or decree entered, by a Governmental Authority.
"Lien" means any lien, pledge, claim, encumbrance, mortgage or security
interest in real or personal property.
"Management and Allocation Policies" means those policies in the form of
Exhibit F (which include the Tax Sharing Agreement) to be adopted by the
Sprint Board of Directors, effective as of the Closing Date, addressing the
relationship between the PCS Group (on the one hand) and the Sprint FON Group
(on the other hand).
"Material Adverse Effect" on any party hereto means (i) with respect to any
party to this Agreement an adverse change in, or an adverse effect on, the
ability of such party to perform its obligations in any material respect under
this Agreement or the Other Agreements and (ii) with respect to PhillieCo GP,
PhillieCo LP, PhillieCo, SprintCom, EquipmentCo, any of the HoldCo Entities,
or the Cable Partners, a material adverse effect on the business, properties,
operations or financial condition of such party and its Subsidiaries taken as
a whole, other than any such effect resulting primarily from (A) general
economic or industry conditions (including any changes in applicable Law), (B)
the announcement or proposed consummation of the transactions contemplated by
this Agreement or (C) any adverse change in the business, properties,
operations or financial condition of Sprint PCS or PhillieCo.
"MinorCo Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of MinorCo, L.P. dated as of January 31, 1996, among
Sprint Partner, TCI Partner, Comcast Partner and Cox Partner.
"Mutual Release and Waiver" means the Mutual Release and Waiver to be
executed at the Closing by Sprint and the Cable Parents, in the form of
Exhibit G.
"Other Agreements" means (i) the Registration Rights Agreement, (ii) the
Standstill Agreements, (iii) the Tax Sharing Agreement, (iv) the Cox L.A.
Amendments, (v) the Warrant Agreements, (vi) the Mutual Release and Waiver,
(vii) the FT/DT Purchase Rights Agreement and (viii) the Voting Agreements,
(ix) the Cable Parent PCS Notes, (x) the Sprint PCS Notes and (xi) the
SprintCom Notes.
"Parent Entity" of any Person means the ultimate parent entity (as
determined in accordance with the HSR Act) of such Person.
"Parent" (i) with respect to Cox (and its Controlled Affiliates) means Cox,
(ii) with respect to Comcast (and its Controlled Affiliates) means Comcast,
(iii) with respect to TCI (and its Controlled Affiliates) means TCI and (iv)
with respect to Sprint (and its Controlled Affiliates) means Sprint.
"Parents Agreements" means the three Parents Agreements, dated January 31,
1996, between Sprint and each Cable Parent.
"PCS Group" has the meaning set forth in the Initial Charter Amendment.
"PCS Group Percentage Interest" means, with respect to any Person at any
given time, the percentage of the notional equity interest in the PCS Group
owned by such Person, taking into account (i) the outstanding
V-5
<PAGE>
shares of PCS Stock, (ii) the shares of PCS Stock that would be outstanding if
the intergroup interest in the PCS Group then held by the Sprint FON Group
were represented by shares of PCS Stock, (iii) after the Recapitalization, the
shares of PCS Stock that would be outstanding if all of the outstanding shares
of Class A Stock were converted into Series 3 PCS Stock and Series 3 FON Stock
pursuant to Article SIXTH, Section 8.5 of the Subsequent Charter Amendment,
and (iv) the maximum number of shares of PCS Stock that are issuable upon the
exercise, conversion or exchange of the PCS Options (or that would be issuable
in the case of a PCS Option represented by an intergroup interest held by the
Sprint FON Group in the PCS Group), excluding from clause (iv) any Pre-Closing
Options to the extent reflected as part of the intergroup interest referred to
in clause (ii).
"PCS Interest" means, as to any PCS Partner, all of the interests of such
PCS Partner in Sprint PCS GP and Sprint PCS LP, including any and all benefits
to which the holder of an interest in Sprint PCS GP and Sprint PCS LP may be
entitled as provided in the PCS Partnership Agreement and the MinorCo
Partnership Agreement and under the Act, together with all obligations of such
PCS Partner to comply with the terms and provisions of the PCS Partnership
Agreement and the MinorCo Partnership Agreement.
"PCS Options" means, at any time of determination, (i) the options, warrants
or other securities of Sprint or any of its Controlled Affiliates outstanding
at such time that are exercisable or exchangeable for or convertible into
shares of PCS Stock, but excluding (A) any rights of Cox Pioneer Partnership
or its Affiliates under the Agreement of Limited Partnership of Cox
Communications, PCS, L.P., dated as of December 31, 1996, as it is to be
amended pursuant to the Cox L.A. Amendments,(B) the outstanding shares of
Class A Common Stock, and (C) any such options, warrants or other securities
that will be satisfied by Sprint without the allocation of any cost or expense
to the PCS Group or otherwise economically diluting the PCS Group Percentage
Interest of any Cable Parent, and (ii) the Preferred Intergroup Interest, the
Warrant Intergroup Interest and any other intergroup interests held by the
Sprint FON Group in the PCS Group that have the same effect as the options,
warrants and other securities referred to in clause (i) above.
"PCS Partner" means Sprint Partner and the Cable Partners in their
capacities as general and/or limited partners of Sprint PCS GP and Sprint PCS
LP.
"PCS Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Sprint Spectrum Holding Company, L.P. dated as of
January 31, 1996, among Sprint Partner, TCI Partner, Comcast Partner and Cox
Partner.
"PCS Percentage Interest" means, with respect to any PCS Partner as of any
relevant date prior to the Closing, the "Percentage Interest" of such PCS
Partner as defined in Section 1.10 of the PCS Partnership Agreement.
"PCS Preferred Stock" means the Seventh Series, Convertible Preferred Stock
of Sprint, no par value, which shall be created by the filing of the
Certificate of Designations.
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock, the Series
3 PCS Stock and any other series of common stock hereafter created by Sprint
that tracks the performance of the PCS Group.
"Permitted Liens" means (i) Liens for Taxes not yet due and payable, (ii)
Liens for Taxes, the validity of which is being contested in good faith in
appropriate proceedings and with respect to which appropriate reserves have
been set aside on the books of the party against which such Liens have been
created and (iii) Liens arising under this Agreement, the Other Agreements,
the PCS Partnership Agreement, the MinorCo Partnership Agreement, the
PhillieCo Partnership Agreement and the PhillieCo LP Partnership Agreement.
"Person" means any individual, corporation, partnership, limited liability
company, trust, unincorporated association or other entity.
V-6
<PAGE>
"PhillieCo Interest" means, as to any PhillieCo Partner, all of the
interests of such partner in PhillieCo GP and PhillieCo LP, including any and
all benefits to which the holder of an interest in PhillieCo GP and PhillieCo
LP may be entitled as provided in the PhillieCo Partnership Agreement, the
PhillieCo LP Partnership Agreement and under the Act, together with all
obligations of such PhillieCo Partner to comply with the terms and provisions
of the PhillieCo Partnership Agreement and the PhillieCo LP Partnership
Agreement.
"PhillieCo LP Partnership Agreement" means the Agreement of Limited
Partnership of PhillieCo Partners II, L.P., dated March 12, 1997, among the
PhillieCo Partners.
"PhillieCo Parents" means Sprint, TCI and Cox.
"PhillieCo Partners" means TCI PhillieCo Sub, Cox HoldCo Sub2 and Sprint
Partner in their capacities as general and/or limited partners of PhillieCo GP
and PhillieCo LP.
"PhillieCo Partnership Agreement" means the Agreement of Limited Partnership
of PhillieCo Partners I, L.P., dated March 12, 1997, by and among the
PhillieCo Partners.
"Pre-Closing Options" means the options, warrants and other securities of
Sprint or any of its Subsidiaries that were issued prior to and are
outstanding as of the Closing and that are exercisable or exchangeable for or
convertible into shares of Sprint Common Stock, which, in connection with the
Recapitalization, will become, in whole or in part, options, warrants or other
securities that are exercisable or exchangeable for or convertible into shares
of Series 1 PCS Stock (but excluding any PCS Options held by FT or DT).
"Preferred Intergroup Interest" means the intergroup interest of the Sprint
FON Group in the PCS Group created by the Sprint Board of Directors in
accordance with Section 6.6 hereof that will have terms equivalent to the PCS
Preferred Stock.
"Recapitalization" means (i) the reclassification of each outstanding share
of Sprint Common Stock into one share of FON Stock and a certain number of
shares of Series 1 PCS Stock and (ii) the amendment of the terms of the Class
A Stock to represent interests in the PCS Group and the Sprint FON Group, in
each case to be effected by the filing of the Subsequent Charter Amendment.
"Registration Rights Agreement" means the Registration Rights Agreement in
the form of Exhibit H to be entered into at the Closing among Sprint, TCI,
Comcast and Cox.
"Registration Rights Commencement Date" has the meaning set forth in the
Registration Rights Agreement.
"Required Approvals" means the events contemplated in Sections 8.1(a),
8.1(b) and 8.1(d).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series 1 FON Stock" means the Series 1 FON Group Common Stock, par value
per share to be determined, of Sprint, which will be created by the filing of
the Subsequent Charter Amendment and which, together with the Series 1 PCS
Stock, will be exchanged for the outstanding Sprint Common Stock upon
completion of the Recapitalization.
"Series 3 FON Stock" means the Series 3 FON Group Common Stock, par value
per share to be determined, of Sprint, which will be created by the filing of
the Subsequent Charter Amendment.
"Series 1 PCS Stock" means the Series 1 PCS Group Common Stock, par value
per share to be determined, of Sprint, which will be created on the Closing
Date by the filing of the Initial Charter Amendment.
V-7
<PAGE>
"Series 2 PCS Stock" means the Series 2 PCS Group Common Stock, par value
per share to be determined, of Sprint, which will be created on the Closing
Date by the filing of the Initial Charter Amendment.
"Series 3 PCS Stock" means the Series 3 PCS Group Common Stock, par value
per share to be determined, of Sprint, which will be created on the Closing
Date by the filing of the Initial Charter Amendment.
"Sprint" means Sprint Corporation, a Kansas corporation, and any successor
(by merger, consolidation, Transfer or otherwise) to all or substantially all
of its business or assets.
"Sprint Common Stock" means the Common Stock, par value $2.50 per share, of
Sprint, as provided for in the Current Sprint Charter.
"Sprint FON Group" has the meaning set forth in the Initial Charter
Amendment.
"Standstill Agreements" means the Standstill Agreements in the form of
Exhibit I entered into on the date hereof between Sprint and each of TCI,
Comcast and Cox.
"Subsequent Charter Amendment" means the Amendment to the Restated Articles
of Incorporation of Sprint effecting the Recapitalization, the form of which
is attached hereto as Exhibit J.
"Subsidiary" of any Person as of any relevant date means a corporation,
company or other entity (i) more than 50% of whose outstanding shares or
equity securities are, as of such date, owned or controlled, directly or
indirectly through one or more Subsidiaries, by such Person, and the shares or
securities so owned entitle such Person and/or its Subsidiaries to elect at
least a majority of the members of the board of directors or other managing
authority of such corporation, company or other entity notwithstanding the
vote of the holders of the remaining shares or equity securities so entitled
to vote or (ii) which does not have outstanding shares or securities, as may
be the case in a partnership, joint venture or unincorporated association, but
more than 50% of whose ownership interest is, as of such date, owned or
controlled, directly or indirectly through one or more Subsidiaries, by such
Person, and in which the ownership interest so owned entitles such Person
and/or Subsidiaries to make the decisions for such corporation, company or
other entity.
"Surviving Corporation" means the surviving corporation in each Merger as
set forth herein.
"Tax" or "Taxes" means all federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts; provided, however, that "Tax" and "Taxes" shall not
include amounts paid to municipalities with respect to operating franchise
arrangements.
"Tax Return" or "Tax Returns" means all returns or reports required to be
filed under any statute, rule or regulation relating to Taxes.
"Tax Sharing Agreement" means the Tax Sharing Agreement in the form of
Exhibit K to be executed at the Closing by Sprint for the benefit of each
entity in the PCS Group and the Sprint FON Group.
"TCI" means Tele-Communications, Inc., a Delaware corporation, and any
successor (by merger, consolidation, Transfer or otherwise) to all or
substantially all of its business or assets.
"Top-Up Rights" means (i) the "Equity Purchase Rights" of FT and DT pursuant
to Article 5 of the Amended and Restated Stockholders Agreement to be entered
into on the Closing Date among Sprint, FT and DT and (ii) the Equity Purchase
Rights of the Cable Parents pursuant to Section 6.8 of this Agreement.
"Transfer" means any act pursuant to which, directly or indirectly, the
ownership of assets or securities in question is sold, exchanged, assigned,
transferred, conveyed, delivered or otherwise disposed of.
V-8
<PAGE>
"Voting Agreements" means the three Irrevocable Proxy and Voting Agreements
in the form of Exhibit M to be entered into at the Closing between Sprint and
each of the Cable Parents.
"Warrant Agreements" means the three Warrant Agreements in the form of
Exhibit N to be entered into at the Closing between Sprint and each initial
holder of the Warrants.
"Warrant Intergroup Interest" means the intergroup interest of the Sprint
FON Group in the PCS Group created by the Sprint Board of Directors in
accordance with Section 4.3 hereof on terms equivalent to the Warrants.
"Warrants" means those warrants to be issued in the Mergers as described in
Section 4.1, which shall be in the form attached to the Warrant Agreement.
"Wholly-Owned Subsidiary" means, as to any Person, a Subsidiary of such
Person in which 100% of the equity and voting interest is owned, directly or
indirectly, by such Person.
"Year 2000 Liability" means, with respect to any Person, any cost, expense,
liability or obligation (actual, potential, contingent or otherwise) of such
Person and its Subsidiaries arising out of the failure or inability of any
software, hardware, or systems (whether owned or used by such Person and its
Subsidiaries or any of their vendors, customers or other third parties) to
correctly (i) process, provide and receive date data within and between the
years 1999 and 2000 and (ii) account for all required leap year calculations
for the year 2000.
Section 1.2 Other Defined Terms.
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN
------------ ----------
<S> <C>
"Acquired PCS Sub" Section 7.10(a)
"Additional Securities" Section 6.8(a)
"Affiliated Group" Section 5.2(g)(i)
"Allocated Cash Proceeds" Section 6.6(d)(v)(D)
"Available Cash Proceeds" Section 6.6(d)(v)(A)
"Available Proceeds" Section 6.6(v)(A)
"Basket Claims" Section 11.2(a)
"Basket Limitation" Section 11.2(a)
"Bylaw Amendment" Section 5.3(c)
"Cable Holder" Section 6.8(a)
"Cable Parent PCS Loan" Section 6.4(b)
"Cable Parent PCS Notes" Section 6.4(b)
"Cable Partners" Recitals
"Cash Request Amount" Section 6.6(d)(ii) and (iii)
"Chairman" Section 6.13
"Claim Notice" Section 11.4(a)
"Colorado Plan of Merger" Section 2.2
"Comcast HoldCo Sub1" Recitals
"Comcast HoldCo Sub2" Recitals
"Comcast Merger Sub1" Recitals
"Comcast Merger Sub2" Recitals
"Comcast Partner" Recitals
"Contractual Liens" Section 5.2(a)
"Contribution Date" Section 6.4(a)
"Cox HoldCo Sub1" Recitals
"Cox HoldCo Sub2" Recitals
"Cox L.A. Amendments" Recitals
"Cox Merger Sub1" Recitals
</TABLE>
V-9
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN
------------ ----------
<S> <C>
"Cox Merger Sub2" Recitals
"Cox Partner" Recitals
"CP Contracts" Section 5.2(f)
"CP Representatives" Section 6.11(b)
"Determination Date" Section 7.10(i)(ii)
"Determination Summary" Section 7.10(f)
"Effective Time" Section 2.2
"Election Period" Section 11.4(a)
"EquipmentCo" Recitals
"Equity Purchase Right" Section 6.8(a)
"Historic Sprint PCS Business" Section 7.10(a)
"HoldCo Entities" Recitals
"Indemnified Loss" Section 11.2(a)
"Indemnified Party" Section 11.2(a)
"Indemnitor" Section 11.2(a)
"Indemnity Notice" Section 11.4(d)
"IPO Prospectus" Section 6.2(a)
"Loss" Section 11.2(a)
"Merger" Recitals
"Merger Subs" Recitals
"Net Equity" Section 10.2(b)
"Non-Basket Claim" Section 11.2(a)(i)
"Non-Controlled Affiliate" Section 6.19(a)
"Overpayment Rate" Section 7.11(a)
"Owned Interests" Section 5.2(b)
"Parent Response" Section 6.6(d)(ii)
"PCS Group Constituents" Section 5.3(f)
"PCS Partners" Recitals
"PhillieCo" Recitals
"PhillieCo1" Recitals
"PhillieCo2" Recitals
"PhillieCo GP" Recitals
"PhillieCo Licenses" Section 5.4(c)
"PhillieCo Loss" Section 11.6
"PhillieCo LP" Recitals
"PhillieCo Sub" Recitals
"Proposed Term" Section 6.4(d)
"Proxy Statement" Section 6.2(a)
"Registration Statement" Section 6.2(a)
"Rights" Section 5.2(a)
"Share Consideration" Section 4.1(b)
"Sprint Contracts" Section 5.3(h)(v)
"Sprint Notice" Section 6.6(d)(i)
"Sprint Partner Recitals
"Sprint PCS" Recitals
"Sprint PCS Loan" Section 6.4(b)
"Sprint PCS Notes" Section 6.4(b)
"Sprint PCS GP" Recitals
"Sprint PCS LP" Recitals
"SprintCom" Recitals
"SprintCom Licenses" Section 5.5(c)
</TABLE>
V-10
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN
------------ ----------
<S> <C>
"SprintCom Loans" Section 6.5
"SprintCom Notes" Section 6.5
"Sprint Representatives" Section 6.11
"Sprint SEC Reports" Section 5.3(i)
"SRLY Entity" Section 7.10(a)
"SRLY Measurement Period" Section 7.10(f)
"SRLY Tax Benefit" Section 7.10(b)
"SRLY Tax Savings" Section 7.10(c)
"Stockholders Meeting" Section 6.2(a)
"Tax Benefit" Section 11.2(c)
"TCI Merger Sub1" Recitals
"TCI Merger Sub2" Recitals
"TCI Partner" Recitals
"TCI PhillieCo Sub" Recitals
"TCI Spectrum" Section 2.2
"Third Party Claim" Section 11.4(a)
"Total Proceeds" Section 6.3(a)
"Trigger Date" Section 6.2(c)
"Underwriters" Section 6.3(a)
</TABLE>
Section 1.3 Terms Generally. The definitions in Article 1 and elsewhere in
this Agreement shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation." The words "herein", "hereof", "hereto" and "hereunder"
and words of similar import refer to this Agreement (including the Schedules
and Exhibits) in its entirety and not to any part hereof unless the context
shall otherwise require. All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any references to any
agreement or other instrument (other than in the Schedules hereto) or statute
or regulation are to it as amended and supplemented from time to time (and, in
the case of a statute or regulation, to any corresponding provisions of
successor statutes or regulations). Any reference in this Agreement to a "day"
or number of "days" (without the explicit qualification of "Business") shall
be interpreted as a reference to a calendar day or number of calendar days. If
any action or notice is to be taken or given on or by a particular calendar
day, and such calendar day is not a Business Day, then such action or notice
shall be deferred until, or may be taken or given on, the next Business Day.
ARTICLE 2
THE MERGERS; EFFECTIVE TIME
Section 2.1 The Mergers. Subject to the terms and conditions of this
Agreement (including the conditions set forth in Article 8), on the Closing
Date, (a) TCI Merger Sub1 will be merged with and into TCI PhillieCo Sub, (b)
Comcast Merger Sub1 will be merged with and into Comcast HoldCo Sub1, (c) Cox
Merger Sub1 will be merged with and into Cox HoldCo Sub1, (d) TCI Merger Sub2
will be merged with and into TCI Partner, (e) Comcast Merger Sub2 will be
merged with and into Comcast HoldCo Sub2, and (f) Cox Merger Sub2 will be
merged with and into Cox HoldCo Sub2, all in accordance with the provisions of
applicable Law. The separate corporate existence of each Merger Sub shall
thereupon cease. Each of TCI PhillieCo Sub, TCI Partner, Comcast HoldCo Sub1,
Comcast HoldCo Sub2, Cox HoldCo Sub1 and Cox HoldCo Sub2 shall be the
Surviving Corporation in the applicable Merger and shall continue its
corporate existence as a Wholly-Owned Subsidiary of Sprint. Each Merger shall
have the effects specified in the DGCL or the CBCA, as applicable.
V-11
<PAGE>
Section 2.2 The Mergers; Adoption and Approval; Effective Time. This
Agreement constitutes an agreement of merger for the purposes of Section
251(b) of the DGCL with respect to each of the Mergers other than the Merger
of TCI Merger Sub1 with and into TCI Partner (the "Colorado Merger"). The plan
of merger attached hereto as Annex 1 to Exhibit B-2 constitutes a plan of
merger for the purposes of Section 7-111-101 of the CBCA with respect to the
Colorado Merger (the "Colorado Plan of Merger"). Also, by executing and
delivering this Agreement, Sprint, as the sole shareholder of TCI Merger Sub2,
hereby approves and adopts, and TCI, as the Parent Entity of TCI Spectrum
Investment, Inc. ("TCI Spectrum"), the sole shareholder of TCI Partner, hereby
agrees to cause TCI Spectrum to approve and adopt, the Colorado Plan of
Merger. Each Merger shall become effective (a) if clause (b) does not apply,
at the time of filing of (i) the Colorado Articles of Merger with the
Secretary of State of the State of Colorado in accordance with the provisions
of the CBCA, in the case of the Colorado Merger, or (ii) the appropriate
Delaware Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the provisions of the DGCL, in the case of the
other Mergers, or (b) at the time specified as the effective time in the
applicable Delaware Certificate of Merger or Colorado Articles of Merger. The
Delaware Certificates of Merger and Colorado Articles of Merger shall be filed
on the Closing Date. The date and time when each Merger shall become effective
is hereinafter referred to as the "Effective Time".
ARTICLE 3
TERMS OF THE MERGERS
Section 3.1 Charters. At the Effective Time, the charter of each of TCI
PhillieCo Sub, TCI Partner, Comcast HoldCo Sub1, Comcast HoldCo Sub2, Cox
HoldCo Sub1 and Cox HoldCo Sub2 shall be amended pursuant to the respective
Certificates of Merger to be identical to the charter of TCI Merger Sub1, TCI
Merger Sub2, Comcast Merger Sub1, Comcast Merger Sub2, Cox Merger Sub1 and Cox
Merger Sub2, respectively, as in effect immediately prior to the Effective
Time. With respect to each Merger, such charter as so amended shall be the
charter of the Surviving Corporation, until duly amended in accordance with
the terms thereof and applicable Law.
Section 3.2 The By-Laws. The By-Laws of each of TCI PhillieCo Sub, TCI
Partner, Comcast HoldCo Sub1, Comcast HoldCo Sub2, Cox HoldCo Sub1 and Cox
HoldCo Sub2 shall be amended at the Effective Time to be identical to the By-
Laws of TCI Merger Sub1, TCI Merger Sub2, Comcast Merger Sub1, Comcast Merger
Sub2, Cox Merger Sub1 and Cox Merger Sub2, respectively, as in effect
immediately prior to the Effective Time. With respect to each Merger, such By-
Laws as so amended shall be the By-Laws of the Surviving Corporation, until
duly amended in accordance with the terms thereof, of the charter of the
Surviving Corporation and applicable Law.
Section 3.3 Directors. The directors of each of TCI Merger Sub1, TCI Merger
Sub2, Comcast Merger Sub1, Comcast Merger Sub2, Cox Merger Sub1 and Cox Merger
Sub2 immediately prior to the Effective Time shall, from and after the
Effective Time, serve as the directors of TCI PhillieCo Sub, TCI Partner,
Comcast HoldCo Sub1, Comcast HoldCo Sub2, Cox HoldCo Sub1 and Cox HoldCo Sub2,
respectively, until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with each such entity's charter and By-Laws.
Section 3.4 Officers. The officers of each of TCI Merger Sub1, TCI Merger
Sub2, Comcast Merger Sub1, Comcast Merger Sub2, Cox Merger Sub1 and Cox Merger
Sub2 immediately prior to the Effective Time shall, from and after the
Effective Time, serve as the officers of TCI PhillieCo Sub, TCI Partner,
Comcast HoldCo Sub1, Comcast HoldCo Sub2, Cox HoldCo Sub1 and Cox HoldCo Sub2,
respectively, until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with each such entity's charter and By-Laws.
V-12
<PAGE>
ARTICLE 4
SHARE CONSIDERATION; CONVERSION ORCANCELLATION OF SHARES IN THE MERGERS
Section 4.1 Share Consideration; Conversion or Cancellation of Shares in the
Mergers.
(a) Subject to the provisions of this Article 4, at the Effective Time,
by virtue of the Mergers and without any action on the part of the holders
thereof, the shares of TCI Partner, TCI PhillieCo Sub, Comcast HoldCo Sub1,
Comcast HoldCo Sub2, Cox HoldCo Sub1 and Cox HoldCo Sub2 shall be converted
into shares of Series 2 PCS Stock, the Warrants and (in certain cases)
shares of the PCS Preferred Stock in the following manner:
(i) Each share of common stock of TCI Partner issued and outstanding
immediately prior to the Effective Time shall be converted into (A) a
number of shares of Series 2 PCS Stock equal to (x) such number of
shares of Series 2 PCS Stock as represents at the Effective Time a
21.47655% Initial PCS Group Percentage Interest divided by (y) the
number of outstanding shares of common stock of TCI Partner at the
Effective Time, (B) a number of Warrants equal to (x) such number of
Warrants as represents at the Effective Time a 1.37085% Initial PCS
Group Percentage Interest divided by (y) the number of outstanding
shares of common stock of TCI Partner at the Effective Time and (C) a
number of shares of PCS Preferred Stock equal to (x) the aggregate
number of shares of PCS Preferred Stock (if any) to be issued in the
Mergers with respect to the common stock of TCI Partner pursuant to
Section 6.6 divided by (y) the number of outstanding shares of common
stock of TCI Partner at the Effective Time.
(ii) Each share of common stock of TCI PhillieCo Sub issued and
outstanding immediately prior to the Effective Time shall be converted
into (A) a number of shares of Series 2 PCS Stock equal to (x) such
number of shares of Series 2 PCS Stock as represents at the Effective
Time a 0.92434% Initial PCS Group Percentage Interest divided by (y)
the number of outstanding shares of common stock of TCI PhillieCo Sub
at the Effective Time and (B) a number of Warrants equal to (x) such
number of Warrants as represents at the Effective Time a 0.05900%
Initial PCS Group Percentage Interest divided by (y) the number of
outstanding shares of common stock of TCI PhillieCo Sub at the
Effective Time.
(iii) Each share of common stock of Comcast HoldCo Sub1 issued and
outstanding immediately prior to the Effective Time shall be converted
into (A) a number of shares of Series 2 PCS Stock equal to (x) such
number of shares of Series 2 PCS Stock as represents at the Effective
Time a 0.10738% Initial PCS Group Percentage Interest divided by (y)
the number of outstanding shares of common stock of Comcast HoldCo Sub1
at the Effective Time, (B) a number of Warrants equal to (x) such
number of Warrants as represents at the Effective Time a 0.00685%
Initial PCS Group Percentage Interest divided by (y) the number of
outstanding shares of common stock of Comcast HoldCo Sub1 at the
Effective Time and (C) a number of shares of PCS Preferred Stock equal
to (x) the aggregate number of shares of PCS Preferred Stock (if any)
to be issued in the Mergers with respect to the common stock of Comcast
HoldCo Sub1 pursuant to Section 6.6 divided by (y) the number of
outstanding shares of common stock of Comcast HoldCo Sub1 at the
Effective Time.
(iv) Each share of common stock of Comcast HoldCo Sub2 issued and
outstanding immediately prior to the Effective Time shall be converted
into (A) a number of shares of Series 2 PCS Stock equal to (x) such
number of shares of Series 2 PCS Stock as represents at the Effective
Time a 10.63090% Initial PCS Group Percentage Interest divided by (y)
the number of outstanding shares of common stock of Comcast HoldCo Sub2
at the Effective Time, (B) a number of Warrants equal to (x) such
number of Warrants as represents at the Effective Time a 0.67857%
Initial PCS Group Percentage Interest divided by (y) the number of
outstanding shares of common stock of Comcast HoldCo Sub2 at the
Effective Time and (C) a number of shares of PCS Preferred Stock equal
to (x) the aggregate number of shares of PCS Preferred Stock (if any)
to be issued in the Mergers with respect to the
V-13
<PAGE>
common stock of Comcast HoldCo Sub2 pursuant to Section 6.6 divided by
(y) the number of outstanding shares of common stock of Comcast HoldCo
Sub2 at the Effective Time.
(v) Each share of common stock of Cox HoldCo Sub1 issued and
outstanding immediately prior to the Effective Time shall be converted
into (A) a number of shares of Series 2 PCS Stock equal to (x) such
number of shares of Series 2 PCS Stock as represents at the Effective
Time a 0.10738% Initial PCS Group Percentage Interest divided by (y)
the number of outstanding shares of common stock of Cox HoldCo Sub1 at
the Effective Time and (B) a number of Warrants equal to (x) such
number of Warrants as represents at the Effective Time a 0.00685%
Initial PCS Group Percentage Interest divided by (y) the number of
outstanding shares of common stock of Cox HoldCo Sub1 at the Effective
Time.
(vi) Each share of common stock of Cox HoldCo Sub2 issued and
outstanding immediately prior to the Effective Time shall be converted
into (A) a number of shares of Series 2 PCS Stock equal to (x) such
number of shares of Series 2 PCS Stock as represents at the Effective
Time a 11.09307% Initial PCS Group Percentage Interest divided by (y)
the number of outstanding shares of common stock of Cox HoldCo Sub2 at
the Effective Time, (B) a number of Warrants equal to (x) such number
of Warrants as represents at the Effective Time a 0.70807% Initial PCS
Group Percentage Interest divided by (y) the number of outstanding
shares of common stock of Cox HoldCo Sub2 at the Effective Time and (C)
a number of shares of PCS Preferred Stock equal to (x) the aggregate
number of shares of PCS Preferred Stock (if any) to be issued in the
Mergers with respect to the Common Stock of Cox HoldCo Sub2 pursuant to
Section 6.6 divided by (y) the number of outstanding shares of common
stock of Cox HoldCo Sub2 at the Effective Time.
(vii) Each share of capital stock other than common stock of each of
the HoldCo Entities and TCI Partner shall be cancelled.
(b) All shares of the HoldCo Entities and TCI Partner to be converted
into Series 2 PCS Stock, Warrants and (if applicable) PCS Preferred Stock
pursuant to this Section 4.1 shall, at the Effective Time, cease to be
outstanding, shall be canceled and retired and shall cease to exist, and
shall thereafter represent only the right to receive for each of such
shares, upon the surrender of such certificate in accordance with Section
4.2, the amount of Series 2 PCS Stock, Warrants and (if applicable) PCS
Preferred Stock specified above (the "Share Consideration"). No fractional
shares of Series 2 PCS Stock or PCS Preferred Stock or fractional Warrants
shall be issued as a result of the Mergers, and the number of shares of
Series 2 PCS Stock and PCS Preferred Stock and Warrants to be received by
any shareholder of the HoldCo Entities or TCI Partner shall be rounded to
the nearest whole number of shares or Warrants.
(c) Each share of common stock of TCI Merger Sub1, TCI Merger Sub2,
Comcast Merger Sub1, Comcast Merger Sub2, Cox Merger Sub1 and Cox Merger
Sub2 issued and outstanding immediately prior to the Effective Time shall
at the Effective Time be converted into one share of common stock of the
applicable Surviving Corporation.
Section 4.2 Payment for Shares in the Mergers. At the Closing, Sprint will
deliver to the holders of shares of the HoldCo Entities and TCI Partner stock
and warrant certificates representing the Share Consideration (together with
the executed Warrant Agreements) in exchange for certificates representing all
of the outstanding shares of the HoldCo Entities and TCI Partner. Such
certificates representing the outstanding shares of the HoldCo Entities and
TCI Partner shall forthwith be canceled.
Section 4.3 Warrant Intergroup Interest. Effective at the Effective Time,
the Sprint Board of Directors will create an intergroup interest of the Sprint
FON Group in the PCS Group that will have terms equivalent to the Warrants and
will represent a 2.83019% Initial PCS Group Percentage Interest.
V-14
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Section 5.1 Mutual Representations. Each Parent hereby represents and
warrants to each other Parent, as to itself and each of its Controlled
Affiliates that is a party to this Agreement, as follows:
(a) Due Incorporation or Formation; Authorization of Agreements. Such
party is duly organized or formed and validly existing under the laws of
the jurisdiction of its organization or formation and has the corporate or
partnership power and authority to own its property and carry on its
business as owned and carried on at the date hereof. Such party is duly
qualified to do business and in good standing (if applicable) in each
jurisdiction in which it conducts business or in which it is otherwise
required to be qualified, except for failures to be so qualified which,
individually or in the aggregate, would not have a Material Adverse Effect
on such party. Such party has the corporate or partnership power and
authority to execute and deliver this Agreement and the Other Agreements to
which it is or will be a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby. This Agreement and the Other Agreements to which it is or will be
a party have been (or at the Closing will be) duly executed and delivered
by such party, and the execution, delivery and performance of this
Agreement and such Other Agreements by such party have been duly authorized
by all necessary corporate or partnership action. This Agreement and the
Other Agreements to which it is or will be a party constitute (or, as to
Other Agreements not executed on or prior to the date hereof and (in the
case of Sprint) the Warrants, will constitute) the legal, valid and binding
obligation of such party, enforceable in accordance with its terms (except
as such enforceability may be limited by bankruptcy, insolvency (including
all laws relating to fraudulent transfers), reorganization, moratorium and
similar laws affecting the rights and remedies of creditors generally and
the application of general principles of equity).
(b) No Conflict; No Default. Except as to clauses (i), (iii), (iv) and
(v) below, as would not have a Material Adverse Effect on such party,
neither the execution or delivery of this Agreement or the Other Agreements
to which it is a party or (in the case of Sprint) the Warrants by such
party nor (assuming the Required Approvals have been obtained) the
performance of this Agreement or the Other Agreements by such party or the
consummation by such party of the transactions contemplated hereby or
thereby in accordance with the terms and conditions hereof and thereof (i)
will conflict with, violate or result in a breach of any of the terms,
conditions or provisions of any Law applicable to such party or any of its
Controlled Affiliates, (ii) will conflict with, violate, result in a breach
of or constitute a default under any of the terms, conditions or provisions
of the certificate or articles of incorporation, bylaws or partnership
agreement (or other governing documents) of such party or any of its
Controlled Affiliates, (iii) will conflict with, violate, result in a
breach of or constitute a default under any of the terms, conditions or
provisions of any material agreement or instrument to which such party or
any of its Controlled Affiliates is a party or by which such party or any
of its Controlled Affiliates is or may be bound or to which any of its
material properties or assets is subject, (iv) will conflict with, violate,
result in a breach of, constitute a default under (whether with notice or
lapse of time or both), accelerate or permit the acceleration of the
performance required by, give to others any interests or rights or require
any consent, authorization or approval under any indenture, mortgage, lease
agreement or similar instrument to which such party or any of its
Controlled Affiliates is a party or by which such party or any of its
Controlled Affiliates is or may be bound, or (v) will result in the
creation or imposition of any Lien upon any of the other material
properties or assets of such party or any of its Controlled Affiliates.
(c) Litigation. Except for the Petition of Sprint Spectrum Partners and
Sprint Spectrum, L.P. d/b/a Sprint PCS for Declaratory Relief filed on
March 13, 1997, with the FCC, there are no actions, suits, proceedings or
investigations pending or, to the knowledge of such Parent, threatened
against such party or any of its properties, assets or businesses (other
than any actions, suits or proceedings pending or threatened against Sprint
PCS, PhillieCo, SprintCom or EquipmentCo or their respective properties,
assets or businesses) before or by any Governmental Authority which would,
individually or in the aggregate, if adversely determined (or, in the case
of an investigation, could lead to any action, suit or proceeding, which
V-15
<PAGE>
if adversely determined would), have a Material Adverse Effect on such
party, and such party has not received any currently effective notice of
any default, and such party is not in default, under any applicable order,
writ, injunction, decree, permit, determination or award of any
Governmental Authority, which default would have a Material Adverse Effect
on such party.
(d) Finders Fees. Other than Merrill Lynch & Co. (whose fees other than
in connection with its role as underwriter (if any) in the IPO shall be
paid by the Cable Parents) and Salomon Smith Barney and SBC Warburg Dillon
Read, Inc. (whose fees shall be paid by Sprint and allocated to the Sprint
FON Group, except as provided in Section 12.4), there is no investment
banker, broker or finder that has been retained by or is authorized to act
on behalf of any Parent or its Controlled Affiliates who would be entitled
to any fee or commission upon consummation of or otherwise in connection
with the transactions contemplated by this Agreement; provided that the
Parents acknowledge that they have previously jointly retained Salomon
Smith Barney with respect to services provided prior to October 10, 1997,
and each Parent will pay its pro rata share (based on the PCS Percentage
Interest of its respective Partner) of the fees and expenses for such
services (which, in the case of Sprint, will be allocated to the Sprint FON
Group).
Section 5.2 Representations and Warranties of the Cable Parents. Each Cable
Parent hereby represents and warrants to each other Parent, as to itself and
each of its Controlled Affiliates that is a party to this Agreement, as
follows:
(a) Interests in Sprint PCS Owned by the Cable Partners. Such Cable
Parent's respective Cable Partner has good legal title to, and beneficial
ownership of, the PCS Interest indicated as owned by it on Schedule 5.2(a),
free and clear of all Liens other than Liens described in clause (iii) of
the definition of Permitted Liens ("Contractual Liens"). Except as provided
in the PCS Partnership Agreement and the MinorCo Partnership Agreement,
such Cable Partner has the sole right to vote and dispose of the PCS
Interest indicated as owned by it on Schedule 5.2(a). Such Cable Partner
has no assets or liabilities or obligations (absolute, accrued, contingent
or otherwise, including any liability for Taxes of itself or any other
Person) except (i) its PCS Interest, (ii) as contemplated by Section 6.4,
(iii) obligations under the CP Contracts, (iv) certain other intercompany
indebtedness that will be extinguished by means of capital contribution
prior to the Effective Time and (v) obligations imposed solely as a matter
of Laws to which such Cable Partner is subject. Such Cable Partner has not
engaged in any business or activities of any type or kind whatsoever except
as relates to its ownership of the PCS Interest. Except as provided in the
CP Contracts and in Section 6.4, there are no subscriptions, options,
warrants, call rights or rights of conversion or other rights, agreements,
arrangements or commitments (collectively, "Rights") obligating such Cable
Partner to issue additional capital stock or interests in such Cable
Partner to any party or to Transfer its PCS Interest or any equity or
voting interest therein in whole or in part, or any voting agreement,
voting trust agreement or similar agreement relating to the voting by such
Cable Partner of any of its PCS Interests.
(b) Partnership Interests in Cable Partners Owned by HoldCo
Entities. Each of such Cable Parent's respective HoldCo Entities has good
legal title to, and record and beneficial ownership of, all capital stock
and all general partnership, limited partnership and any other equity
interests indicated as owned by it on Schedule 5.2(b) (the "Owned
Interests"), free and clear of all Liens (other than Contractual Liens).
Other than the Owned Interests and, in the case of Cox HoldCo Sub 2, its
PhillieCo Interest, such HoldCo Entity has no assets or liabilities or
obligations (absolute, accrued, contingent or otherwise, including any
liability for Taxes of itself or any other Person) except for (i) its
rights and obligations under the CP Contracts and obligations imposed
solely as a matter of Laws to which such HoldCo Entity is subject, (ii) as
provided in Section 6.4 and (iii) certain other intercompany indebtedness
that will be extinguished by means of capital contribution prior to the
Effective Time. Such HoldCo Entity has not engaged in any business or
activities of any type or kind whatsoever except as relates to its
ownership of its respective Owned Interests. The Owned Interests held by
such HoldCo Entity are duly authorized and validly issued and were not
issued in violation of any preemptive rights or any applicable securities
laws. Following the Mergers, such HoldCo Entity will continue to have good
legal title to, and beneficial ownership of, its Owned Interests, free and
clear of any Lien arising as a result of the Mergers. Except as provided in
the CP Contracts and in
V-16
<PAGE>
Section 6.4, there are no Rights obligating such HoldCo Entity to issue
additional capital stock or other securities of such HoldCo Entity,
Transfer any of its Owned Interests or any equity or voting interest
therein in whole or in part, or any voting agreement, voting trust
agreement or similar agreement relating to the voting by such HoldCo Entity
of any such Owned Interests. Solely for the purposes of this Section
5.2(b), TCI PhillieCo Sub will be excluded from the definition of HoldCo
Entities, and TCI Parent shall not make any representation with respect to
this Section.
(c) Capital Stock of the HoldCo Entities and TCI Partner. The number of
authorized and outstanding shares of each series and class of capital stock
of such Cable Parent's HoldCo Entity and TCI Partner, as to TCI, is set
forth on Schedule 5.2(c). All issued shares of such capital stock are duly
authorized, validly issued, fully paid and nonassessable, and were not
issued in violation of any preemptive rights or securities laws. Such Cable
Parent (as to Cox with respect to Cox HoldCo Sub2) or the Subsidiary of
such Cable Parent indicated on Schedule 5.2(c) has good legal title to, and
beneficial ownership of, the shares of capital stock of its respective
HoldCo Entity and TCI Partner, as to TCI, indicated as owned by it on
Schedule 5.2(c), free and clear of all Liens (other than Contractual
Liens). Except as provided in the CP Contracts, such Cable Parent (as to
Cox with respect to Cox HoldCo Sub2) or such Subsidiary of the Cable Parent
has the sole right to vote and dispose of such capital stock. There are no
Rights obligating such Cable Parent (as to Cox with respect to Cox HoldCo
Sub2) or such Subsidiary of the Cable Parent to Transfer any such shares of
capital stock or any equity or voting interest therein in whole or in part,
or any voting agreement, voting trust agreement or similar agreement
relating to the voting by such Subsidiary of the Cable Parent of any of
such shares of capital stock.
(d) Availability. Such Cable Parent has made available to Sprint true and
correct copies of the charter, bylaws, stockholders agreements, partnership
agreement and other constituent documents, as applicable, of each HoldCo
Entity and Cable Partner.
(e) Consents, Approvals and Authorizations. The execution, delivery and
performance of this Agreement and the Other Agreements by such Cable Parent
and its respective Controlled Affiliates do not and will not require any
consent, approval, authorization or other action by, or filing with or
notification to, any Governmental Authority or any other Person on the part
of such Cable Parent or its respective Controlled Affiliates, except (i)
for (to the extent applicable to such Person) the Required Approvals or
(ii) to the extent the failure to obtain or make any of the foregoing,
individually or in the aggregate, would not have a Material Adverse Effect
on such party.
(f) Contracts.
(i) Except as set forth on Schedule 5.2(f)(i) and for promissory
notes representing the loans referred to in Section 6.4, none of such
Cable Parent's respective HoldCo Entities or Cable Partner is a party
to, nor are its properties or assets bound by, any contracts or
agreements except written contracts to which Sprint or its Controlled
Affiliates is a party (the "CP Contracts").
(ii) Neither the Cable Partner of such Cable Parent nor any of its
Controlled Affiliates is in material breach of Section 6.6 of the PCS
Partnership Agreement.
(g) Taxes. For the purposes of this Section, any tax item shown on a
return or report furnished by Sprint, Sprint PCS GP, Sprint PCS LP, Sprint
PCS, PhillieCo GP, PhillieCo LP or PhillieCo (or their respective
predecessors) to any Cable Parent or any member of its Affiliated Group (as
defined herein) shall be deemed correct.
(i) Since its formation, each of such Cable Parent's HoldCo Entities
(and TCI Partner, as to TCI) has been a member of an affiliated group,
as defined in Code section 1504, of which its respective Cable Parent
(or an Affiliate of its Cable Parent) is the common parent, which has
elected to file consolidated federal income tax returns for all taxable
periods ending after the formation of such entity and on or prior to
the last day of the first taxable year of such affiliated group to
close after the Closing Date (each, an "Affiliated Group").
V-17
<PAGE>
(ii) Except as set forth on Schedule 5.2(g)(ii), since its formation,
each of such Cable Parent's HoldCo Entities (and TCI Partner, as to
TCI) has derived no material item of income, loss, deduction or credit
during its existence other than such items which were or are included
in its direct or indirect distributive share of such items of Sprint
PCS GP, Sprint PCS LP, PhillieCo GP and PhillieCo LP. Each of such
Cable Parent's HoldCo Entities (and TCI Partner, as to TCI) has no
subsidiaries other than direct interests or interests in partnerships
which hold direct interests (or indirect interests through other
partnerships) in Sprint PCS GP, Sprint PCS LP, PhillieCo GP and
PhillieCo LP.
(iii) Such Cable Parent's Affiliated Group has filed all federal
income tax returns that it was required to file for each period during
which its respective HoldCo Entities (and TCI Partner, as to TCI) was a
member of the Affiliated Group. All such returns were correct and
complete in all material respects in so far as they relate to such
Cable Parent's HoldCo Entities (and TCI Partner, as to TCI). All
material federal income taxes owed by such Cable Parent's Affiliated
Group with respect to its HoldCo Entities (or TCI Partner, as to TCI)
(whether or not shown on a Tax Return) have been paid for each taxable
period during which such Cable Parent's HoldCo Entities (and TCI
Partner, as to TCI) was a member of its respective Affiliated Group.
(iv) If the income of any of such Cable Parent's HoldCo Entities (or
TCI Partner, as to TCI) is required under state, local, or foreign tax
rules, to be included on a consolidated, unitary, combined or other
such tax returns filed by an entity other than such HoldCo Entities or
TCI Partner, each such group has filed all income tax returns that it
was required to file with respect to such HoldCo Entity (or TCI
Partner, as to TCI) for each period during which its respective HoldCo
Entities or TCI Partner was a member of such group. All such returns
were correct and complete in all material respects in so far as they
relate to such Cable Parent's HoldCo Entities (and TCI Partner, as to
TCI). All material income taxes owed by such group with respect to such
HoldCo Entities (or TCI Partner, as to TCI) (whether or not shown on a
Tax Return) have been paid for each taxable period during which such
Cable Parent's HoldCo Entities (and TCI Partner, as to TCI) was a
member of its respective group.
(v) Except as set forth on Schedule 5.2(g)(v), each of such Cable
Parent's HoldCo Entities (and TCI Partner, as to TCI) and each of its
Subsidiaries (if any) have filed all Tax Returns that it was required
to file through the date hereof. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by each of such Cable
Parent's HoldCo Entities (and TCI Partner, as to TCI) or its
Subsidiaries (if any) (whether or not shown on any Tax Return) have
been paid. Except as provided in Schedule 5.2(g)(v) and except for any
extension relating to the entire Affiliated Group or any consolidated,
unitary, combined or other such group of which such HoldCo Entity or
TCI Partner is a member, none of such Cable Parent's HoldCo Entities
(nor TCI Partner, as to TCI) nor its respective Subsidiaries (if any)
is currently the beneficiary of any extension of time within which to
file a Tax Return. No claim has ever been made by an authority, in a
jurisdiction where such Cable Parent's HoldCo Entities (or TCI Partner,
as to TCI) or its respective Subsidiaries (if any) do not file Tax
Returns, that it or they may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of
such Cable Parent's HoldCo Entities (or TCI Partner, as to TCI) or its
respective Subsidiaries (if any) that arose in connection with any
failure (or alleged failure) to pay any Tax.
(vi) Each of such Cable Parent's HoldCo Entities (and TCI Partner, as
to TCI) and each of the respective Subsidiaries (if any) of such Cable
Parent's HoldCo Entities has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(vii) There is no dispute or claim concerning any Tax Liability of
such Cable Parent's HoldCo Entities (or TCI Partner, as to TCI) or its
respective Subsidiaries (if any) either claimed or raised by any
authority in writing to such HoldCo Entity (or TCI Partner, as to TCI)
(or its respective Cable Parent) or as to which any of such entities
has knowledge based upon direct personal contact with any agent of such
authority.
V-18
<PAGE>
(viii) Schedule 5.2(g)(viii) lists all Tax Returns filed by such
Cable Parent's HoldCo Entities (and TCI Partner, as to TCI) and each of
the respective Subsidiaries (if any) of such Cable Parent's HoldCo
Entities for all taxable periods ending on or before the date hereof
and indicates those Tax Returns that have been audited and those which
are currently under audit, except that such schedule does not include
consolidated, unitary, combined or other such Tax Returns filed by a
Cable Parent (or an Affiliate of a Cable Parent) which includes such
Cable Parent's HoldCo Entities (or TCI Partner, as to TCI). Each Cable
Parent has delivered (or will deliver within 30 days following the date
hereof) to Sprint correct and complete copies of all Tax Returns
(except for those Tax Returns not required to be included in Schedule
5.2(g)(viii)), examination reports, and statements of deficiencies
assessed against or agreed to by its respective HoldCo Entities (or TCI
Partner, as to TCI) and its respective Subsidiaries (if any).
(ix) Except for waivers and extensions that apply to such Cable
Parent's HoldCo Entities (or TCI Partner, as to TCI) or its
Subsidiaries (if any) with respect to consolidated, unitary or combined
Tax Returns that include the income of any such entities and the income
of their respective Cable Parents (or Affiliates of the Cable Parents),
the normal period within which to examine and/or assess Taxes on the
income of any such entity has not been extended with respect to any
such entity by waiver of, or agreement to extend, the applicable
statute of limitations or otherwise.
(x) None of such Cable Parent's HoldCo Entities (nor TCI Partner, as
to TCI) nor any of the respective Subsidiaries (if any) of such Cable
Parent's HoldCo Entities has filed a consent under Code section 341(f)
concerning collapsible corporations, or has made or is required to make
any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payment that will not be
deductible under Code section 280G.
(h) Tax Opinions. On the date hereof, each of the Cable Parents has
received from its respective outside counsel an opinion to the effect that,
although not free from doubt, the Mergers involving such Cable Parent's
respective HoldCo Entities or Cable Partner (as applicable) should
constitute a "reorganization" under Section 368(a) of the Code. In
rendering such opinions, outside counsel for each of the Cable Parents has
received and relied upon representations contained in (A) certificates of
such Cable Parent in form and substance reasonably acceptable to such
counsel and (B) the certificate referred to in Section 6.12(c).
(i) Ownership of Sprint Securities. Except as provided in this Agreement
and the Other Agreements, neither such Cable Parent nor any of its
Subsidiaries owns or has a contractual right or obligation to acquire any
shares of Sprint Common Stock or any other capital stock of Sprint or any
security convertible into or exercisable or exchangeable for Sprint Common
Stock or any other capital stock of Sprint.
Section 5.3 Representations and Warranties of Sprint. Sprint hereby
represents and warrants that:
(a) Merger Subs.
(i) The Merger Subs were formed by Sprint solely for the purpose of
engaging in the transactions contemplated hereby.
(ii) All of the issued and outstanding capital stock of each Merger
Sub is directly owned beneficially and of record by Sprint free and
clear of any Liens (other than Contractual Liens).
(iii) Except for obligations or liabilities arising under this
Agreement, each Merger Sub has not incurred any obligations or
liabilities or engaged in any business or activities of any type or
kind whatsoever or entered into any agreements or arrangements with any
Person.
(b) Consents, Approvals and Notifications. The execution, delivery and
performance of this Agreement and the Other Agreements by Sprint and its
respective Controlled Affiliates do not and will not require any consent,
approval, authorization or other action by, or filing with or notification
to, any Governmental Authority or any other Person on the part of Sprint on
its Controlled Affiliates, except (i) for the Required Approvals or (ii) to
the extent the failure to obtain or make any of the foregoing, individually
or in the aggregate, would not have a Material Adverse Effect on such
party.
V-19
<PAGE>
(c) Sprint Board Action. Prior to the date hereof, the Board of Directors
of Sprint has approved (i) an amendment to Sprint's Bylaws, to be effective
at the Closing, in the form of Exhibit O (the "Bylaw Amendment"), (ii) the
Management and Allocation Policies, to be effective at the Closing, (iii)
the Initial Charter Amendment and the Subsequent Charter Amendment and (iv)
this Agreement and the transactions contemplated hereby. This Agreement and
the transactions contemplated hereby (including the future exercise by the
Cable Holders of their respective Equity Purchase Rights) have been
approved by the Board of Directors of Sprint (including by a majority of
the "Continuing Directors" of Sprint at a meeting at which at least seven
of such Continuing Directors were present, as contemplated by Article
Seventh of the Current Sprint Charter). With respect to those matters
described in clauses (i), (iii) and (iv) above, the Board of Directors of
Sprint has directed that such matters be submitted for the approval of the
stockholders of Sprint at the Stockholders Meeting and has recommended to
the stockholders of Sprint that such matters be approved.
(d) FT/DT Agreements. Attached hereto as Exhibit P are true and correct
copies of the FT/DT Agreements. The execution and delivery of this
Agreement and the Other Agreements (including the Registration Rights
Agreement), and the consummation and performance of the transactions
contemplated hereby and thereby, by Sprint and its Controlled Affiliates
will not violate or conflict with the FT/DT Agreements (including the
Amended and Restated Registration Rights Agreement included therein) or any
other agreement between Sprint or any of its Controlled Affiliates (on the
one hand) and FT or DT or any of their respective Controlled Affiliates (on
the other hand), or conflict with the consummation and performance by
Sprint and its Controlled Affiliates of the transactions contemplated
thereby.
(e) PCS Percentage Group Interests; Intergroup Interests. At the
Effective Time, the number of shares of Series 2 PCS Stock and Warrants
held by each of the Cable Parents and its Subsidiaries will represent the
following Initial PCS Group Percentage Interests: TCI Parent--23.83074%;
Comcast Parent--11.42370%; and Cox Parent--11.91537%. Immediately following
the Recapitalization, the Sprint FON Group will not hold an intergroup
interest in the PCS Group except for (i) the Preferred Intergroup Interest,
(ii) the Warrant Intergroup Interest, and (iii) any intergroup interest
retained by Sprint relating to Pre-Closing Options (which, in the case of
clause (iii), will represent a PCS Group Percentage Interest of less than
5.0%). Sprint covenants that all Pre-Closing Options shall be satisfied out
of the Sprint FON Group's intergroup interest in the PCS Group or otherwise
satisfied by Sprint without the allocation of any cost or expense to the
PCS Group and without otherwise economically diluting the PCS Group
Percentage Interest of any Cable Parent.
(f) PCS Group Constituents. Assuming the accuracy of the representations
and warranties of the Cable Parents contained in this Agreement,
immediately following the Closing, the PCS Group shall consist of the
entities and ownership interests therein shown on Schedule 5.3(f) (other
than Sprint, UCOM, Inc., US Telecom, Inc., UC PhoneCo, Inc. and UST
PhoneCo, Inc.) and the corresponding interests in their respective assets
and liabilities and the businesses conducted by such entities ("PCS Group
Constituents").
(g) King & Spalding Opinion. On the date hereof, Sprint has received from
King & Spalding its opinion to the effect that (i) the Recapitalization
will constitute a recapitalization within the meaning of Section
368(a)(1)(E) of the Code, (ii) any outstanding stock which is designated as
common stock of Sprint in Sprint's Articles of Incorporation will
constitute voting stock of Sprint for federal income tax purposes, and
(iii) except with respect to cash paid in lieu of fractional shares, if
any, the holders of such stock of Sprint will not recognize income, gain or
loss in and as a result of the Recapitalization. In rendering such opinion,
King & Spalding has received and relied upon representations contained in
certificates of Sprint in form and substance reasonably acceptable to King
& Spalding.
(h) Representations and Warranties Regarding Sprint Partner. With respect
to Sprint Partner, Sprint hereby represents and warrants to each other
Parent as follows:
(i) Sprint Partner has good legal title to, and beneficial ownership
of, a 40% PCS Interest (consisting of a 40% interest in Sprint PCS GP
and a 40% interest in Sprint PCS LP), free and clear of all Liens
(other than Contractual Liens). Except as provided in the PCS
Partnership Agreement and the
V-20
<PAGE>
MinorCo Partnership Agreement, Sprint Partner has the sole right to
vote and dispose of such PCS Interest. Other than such PCS Interest and
its PhillieCo Interest, Sprint Partner has no assets or liabilities or
obligations (absolute, accrued, contingent or otherwise, including any
liability for Taxes of itself or any other Person) except for
obligations under the Sprint Contracts, obligations imposed solely as a
matter of Laws to which Sprint Partner is subject and liabilities and
obligations attributable to its PCS Interest and PhillieCo Interest.
Sprint Partner has not engaged in any business or activities of any
type or kind whatsoever except as relates to its ownership of the PCS
Interest and its PhillieCo Interest. There are no Rights obligating
Sprint Partner to issue additional interests in Sprint Partner to any
party or (except as provided in the PCS Partnership Agreement and the
MinorCo Partnership Agreement) to Transfer its PCS Interest or any
equity or voting interest therein in whole or in part, or (except for
the Sprint Contracts) any voting agreement, voting trust agreement or
similar agreement relating to the voting by Sprint Partner of any of
its PCS Interests.
(ii) Interests in Sprint Partner. The subsidiaries of Sprint holding
direct interests in Sprint Partner have good legal title to all of the
general partnership and limited partnership interests in Sprint Partner
indicated as owned by them on Schedule 5.3(h)(ii), free and clear of
all Liens (other than Contractual Liens). Such interests are duly
authorized and validly issued and were not issued in violation of any
preemptive rights or any applicable securities laws. There are no
Rights obligating such subsidiaries to issue additional interests in,
or capital stock of, such subsidiaries, Transfer any of their interests
in Sprint Partner or any equity or voting interest therein in whole or
in part, or (except for the Sprint Contracts) any voting agreement,
voting trust agreement or similar agreement relating to the voting by
such subsidiaries of any of the general or limited partnership
interests of Sprint Partner.
(iii) Availability. Sprint has made available to each Cable Parent
true and correct copies of the charter, bylaws, stockholders
agreements, partnership agreement and other constituent documents, as
applicable, of Sprint Partner.
(iv) Consents, Approvals and Authorizations. The execution, delivery
and performance of this Agreement and the Other Agreements by Sprint
Partner do not and will not require any consent, approval,
authorization or other action by, or filing with or notification to,
any Governmental Authority or any other Person on the part of Sprint
Partner, except (i) for the Required Approvals or (ii) to the extent
the failure to obtain or make any of the foregoing, individually or in
the aggregate, would not have a Material Adverse Effect on Sprint
Partner.
(v) Contracts.
(A) Sprint Partner is not a party to, nor are its properties or
assets bound by, any contracts or agreements except those to which
one or more of the Cable Partners or their Affiliates are a party
(the "Sprint Contracts").
(B) Neither Sprint Partner nor any of its Controlled Affiliates is
in material breach of Section 6.6 of the PCS Partnership Agreement.
(vi) Taxes.
(A) Since its formation, SprintCom has been a member of an
Affiliated Group of which Sprint is the common parent, which has
elected to file consolidated federal income tax returns.
(B) Since its formation, Sprint Partner has not derived any
material item of income, loss, deduction or credit during its
existence other than such items which were or are included in its
direct or indirect distributive share of such items of Sprint PCS
GP, Sprint PCS LP, PhillieCo GP and PhillieCo LP. Neither SprintCom
nor Sprint Partner has Subsidiaries other than interests in
partnerships which hold direct interests (or indirect interests
through other partnerships) in Sprint PCS GP, Sprint PCS LP,
PhillieCo GP and PhillieCo LP.
V-21
<PAGE>
(C) Sprint's Affiliated Group has filed all federal income tax
returns that it was required to file for each period during which
SprintCom was a member of the Affiliated Group. All such returns
were correct and complete in all material respects insofar as they
relate to SprintCom.
(D) If the income of SprintCom or Sprint Partner is required under
state, local, or foreign tax rules, to be included on a
consolidated, unitary, combined or other tax return filed by an
entity other than itself, each such group has filed all income tax
returns that it was required to file with respect to SprintCom or
Sprint Partner for each period during which SprintCom or Sprint
Partner was a member of such group. All such returns were correct
and complete in all material respects insofar as they relate to
SprintCom or Sprint Partner. All material income taxes owed by such
group with respect to SprintCom or Sprint Partner (whether or not
shown on a Tax Return) have been paid for each taxable period during
which SprintCom or Sprint Partner was a member of its respective
group.
(E) Each of SprintCom and Sprint Partner (and each of their
Subsidiaries (if any)) has filed all Tax Returns that it was
required to file through the date hereof. All such Tax Returns were
correct and complete in all material respects. All Taxes owed by
each of such entities (or its Subsidiaries (if any)) (whether or not
shown on any Tax Return) have been paid. No claim has ever been made
by an authority, in a jurisdiction where SprintCom or Sprint Partner
(or their respective Subsidiaries (if any)) do not file Tax Returns,
that it or they may be subject to taxation by that jurisdiction.
There are no security interests on any of the assets of SprintCom or
Sprint Partner (or their respective Subsidiaries (if any)) that
arose in connection with any failure (or alleged failure) to pay any
Tax.
(F) Each of Sprint Com and Sprint Partner (and each of their
respective Subsidiaries (if any)) has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(G) There is no dispute or claim concerning any Tax Liability of
SprintCom or Sprint Partner (or their respective Subsidiaries (if
any)) either claimed or raised by any authority in writing to such
entity as to which any of such entities has knowledge based upon
direct personal contact with any agent of such authority.
(H) Neither SprintCom nor Sprint Partner (nor any of their
respective Subsidiaries (if any)) has filed a consent under Code
section 341(f) concerning collapsible corporations, or has made or
is required to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any
payment, that will not be deductible under Code section 280G.
(i) Reports and Financial Statements. Sprint has filed all reports
(including proxy statements) and registration statements required to be
filed with the SEC since January 1, 1996 (collectively, the "Sprint SEC
Reports"). None of the Sprint SEC Reports (including the financial
statements contained therein), as of their respective dates, contained any
untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
All of the Sprint SEC Reports, as of their respective dates, complied in
all material respects with the requirements of the Exchange Act, the
Securities Act and the applicable rules and regulations thereunder. Except
(i) as and to the extent disclosed or reserved against on the balance sheet
of Sprint as of December 31, 1997 included in the Sprint SEC Reports, (ii)
as incurred after the date thereof in the ordinary course of business
consistent with prior practice and not prohibited by this Agreement and
(iii) as may result from any Year 2000 Liability, Sprint does not have any
liabilities or obligations of any nature, absolute, accrued, contingent or
otherwise and whether due or to become due, that, individually or in the
aggregate, have or would have a Material Adverse Effect on Sprint. During
the period since December 31, 1997, except as disclosed in the Sprint SEC
Reports filed prior to the date hereof, there has not been, and nothing has
occurred that has had, a Material Adverse Effect on Sprint.
V-22
<PAGE>
(j) Capitalization of Sprint. The certificate delivered to the Cable
Parents at the Closing as contemplated by Section 9.1(xvi) will be true and
correct. All such issued and outstanding shares of Sprint capital stock
immediately following the Effective Time will have been duly authorized and
validly issued, and will be fully paid and nonassessable, and issued in
compliance with all applicable state and federal securities laws. All PCS
Options outstanding immediately following the Effective Time will have been
duly authorized and validly issued, and will be fully paid and
nonassessable (except as to the payment of any exercise price for the
underlying securities) and issued in compliance with all applicable state
and federal securities laws.
Section 5.4 Representations and Warranties Concerning PhillieCo. Each
PhillieCo Parent hereby represents and warrants to each other Parent (in the
case of Sections 5.4(a) and (b)) and to Comcast only (in the case of Sections
5.4(c)-(l)), as to itself and its respective PhillieCo Partner, as follows:
(a) Due Organization. Such PhillieCo Partner is duly formed and validly
existing under the laws of the State of Delaware and has the corporate or
partnership power (as applicable) and authority to own its property and
carry on its business as owned and carried on at the date hereof. Such
PhillieCo Partner is duly qualified to do business in each jurisdiction in
which it conducts business or in which it is otherwise required to be
qualified, except for failures to be so qualified which, individually or in
the aggregate, would not have a Material Adverse Effect on such PhillieCo
Partner.
(b) Interests in PhillieCo Owned by the PhillieCo Partners. Such
PhillieCo Partner has good legal title to, and beneficial ownership of, the
PhillieCo Interest indicated as owned by it on Schedule 5.4(b), free and
clear of all Liens (other than Contractual Liens). Except as provided in
the PhillieCo Partnership Agreement and the PhillieCo LP Partnership
Agreement, such PhillieCo Partner has the sole right to vote and dispose of
the PhillieCo Interest indicated as owned by it on Schedule 5.4(b). Other
than (i) its PhillieCo Interest, (ii) notes receivable from PhillieCo GP,
(iii) in the case of Sprint Partner, its PCS Interest, (iv) in the case of
Cox HoldCo Sub2, its interest in Cox Partner (and liabilities and
obligations attributable to Cox Partner's PCS Interest) and the note
receivable from Cox HoldCo Sub1 that will be contributed to Cox HoldCo Sub2
prior to Closing pursuant to Section 6.6, and (v) as contemplated by
Section 6.4 and (in the case of Cox HoldCo Sub2) as contemplated by Section
6.6(a)(i)(A), such PhillieCo Partner has no assets or liabilities or
obligations (absolute, accrued, contingent or otherwise, including any
liability for Taxes of itself or any other Person) other than obligations
imposed solely as a matter of Laws to which such PhillieCo Partner is
subject. Such PhillieCo Partner has not engaged in any business or
activities of any type or kind whatsoever except as relates to its
ownership of the PhillieCo Interest (and, in the case of Cox HoldCo Sub2
and Sprint Partner, its PCS Interest). Except as set forth in the CP
Contracts and Section 6.4, there are no Rights obligating such PhillieCo
Partner to issue additional capital stock or interests in such PhillieCo
Partner to any party or to Transfer its PhillieCo Interest or any equity or
voting interest therein in whole or in part, or any voting agreement,
voting trust agreement or similar agreement relating to the voting by such
PhillieCo Partner of any of its PhillieCo Interests.
(c) Licenses. PhillieCo1 holds the licenses issued by the FCC that are
listed on Schedule 5.4(c) (the "PhillieCo Licenses") and has satisfied all
terms and conditions required to be satisfied on or before the date hereof
imposed by the FCC, by any other Governmental Authority, or by federal law
as a condition of the award of the PhillieCo Licenses, the failure to
satisfy of which could reasonably be expected to cause PhillieCo1 to
forfeit its right to hold or use the PhillieCo Licenses, including: the
payment of all lump sums due the FCC under 47 C.F.R. (S) 24.708 in payment
for award of the PhillieCo Licenses; the payment of all withdrawal,
disqualification or default penalties associated with participation in
competitive bidding for the PhillieCo Licenses; and the satisfaction of all
FCC technical requirements for construction and operation of the PhillieCo
Licenses, including frequency coordination, microwave relocation, antenna
height and power limitations.
(d) Compliance with Laws. PhillieCo GP and its Controlled Affiliates have
not made any untrue statement of fact, or omitted to disclose any facts, to
the FCC or any other Governmental Authority or taken or failed to take any
action, which misstatements, omissions, actions or failures to act,
individually or in the
V-23
<PAGE>
aggregate, could reasonably be expected to cause PhillieCo1 to forfeit its
right to hold or use the PhillieCo Licenses or that, insofar as can
reasonably be foreseen, could have a material adverse effect on the ability
of Sprint to allocate the business of PhillieCo and the PhillieCo Licenses
to the PCS Group or otherwise have the PhillieCo Licenses attributed to the
PCS Group.
(e) Litigation. Except for the Petition of Sprint Spectrum Partners and
Sprint Spectrum, L.P. d/b/a Sprint PCS for Declaratory Relief filed on
March 13, 1997 with the FCC, there are no actions, suits, proceedings or
investigations pending or, to the knowledge of the PhillieCo Parents,
threatened against PhillieCo in, before or by any Governmental Authority or
any arbitrator that could, if adversely determined (or, in the case of an
investigation could lead to any action, suit or proceeding, that, if
adversely determined, could), reasonably be expected to have a material
adverse effect on the right of PhillieCo1 to hold or use the PhillieCo
Licenses or for PhillieCo1 to allocate the PhillieCo Licenses to the PCS
Group, or impose any material adverse restrictions or limitations on the
operation of the business attributed to the PCS Group; PhillieCo1 has not
received any currently effective notice of any default, and PhillieCo is
not in default, under any applicable order, writ, injunction, decree,
permit, determination or award of any Governmental Authority or any
arbitrator that could reasonably be expected to have a material adverse
effect on the right of PhillieCo1 to hold or use the PhillieCo Licenses or
for PhillieCo1 to allocate the PhillieCo Licenses to the PCS Group or a
material adverse effect on PhillieCo.
(f) Title to Licenses. On the Closing Date, the PhillieCo Licenses will
be owned by PhillieCo1 free and clear of all Liens, except for any
Permitted Liens and Liens that, individually or in the aggregate, are not
material to the PhillieCo Licenses (taken as a whole).
(g) No Breach. As of the date of this Agreement, (i) each material
permit, license, contract, agreement, lease and insurance policy held by
PhillieCo or to which PhillieCo is a party (whether evidenced by a written
document or otherwise), is in full force and effect in accordance with its
terms, and (ii) there does not exist under any such permit, license,
contract, agreement, lease or insurance policy any default, or event which,
with the giving of notice or the lapse of time or both, would become a
breach or default, the consequences of which (in the case of either (i) or
(ii) above) would result in a Material Adverse Effect on PhillieCo.
(h) Environmental Protection. The PhillieCo Partners do not have
knowledge of, nor has PhillieCo received notice of, any events, conditions,
circumstances, activities, practices, incidents, actions or plans that
PhillieCo Partners reasonably expect would result in claims or liabilities,
(A) based on or related to alleged on-site or off-site contamination with
respect to or affecting the assets of PhillieCo or (B) arising out of or
related to the assets of PhillieCo under any law, statute, rule,
regulation, order, decree or judgment related to public or occupational
safety and health, pollution and/or protection of the environment,
including the Resource Conservation and Recovery Act of 1976 and the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of
1986 (collectively, "Environmental Laws"), in each case that, individually
or in the aggregate, would have a Material Adverse Effect on PhillieCo. As
of the date of this Agreement, PhillieCo has owned and operated its assets
in compliance with all Environmental Laws except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on PhillieCo.
(i) Intellectual Property. To the knowledge of the PhillieCo Partners,
PhillieCo is not using any copyright, patent, proprietary information,
technical information or other similar intangible property right that is
owned by any Person in a manner that is not in compliance in all material
respects with the applicable license of such intangible property right to
PhillieCo, except where such noncompliance would not result in a Material
Adverse Effect on PhillieCo.
(j) Financial Information. Incorporated by reference into this Agreement
are (i) the unaudited combined balance sheets of PhillieCo GP and PhillieCo
LP as of December 31, 1997, and the related unaudited combined statements
of operations and cash flows for the year then ended, including the notes
thereto and (ii) the unaudited combined balance sheets of PhillieCo GP and
PhillieCo LP as of March 31, 1998, and the related unaudited combined
statement of operations for the three months then ended (the
V-24
<PAGE>
documents referred to in (i) and (ii) being collectively, the "PhillieCo
Financial Statements"). The PhillieCo Financial Statements present fairly
in all material respects the financial position and results of operations
of PhillieCo GP and PhillieCo LP at the dates and for the periods to which
they relate and have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods
involved. Except (i) as and to the extent disclosed or reserved against on
the combined balance sheets of PhillieCo GP and PhillieCo LP as of December
31, 1997, (ii) as incurred after the date thereof in the ordinary course of
business consistent with prior practice and not prohibited by this
Agreement and (iii) as may result from any Year 2000 Liability, PhillieCo
GP and PhillieCo LP and their Subsidiaries (taken as a whole) do not have
any liabilities or obligations of any nature, absolute, accrued, contingent
or otherwise and whether due or to become due, that, individually or in the
aggregate, would have a Material Adverse Effect on PhillieCo GP and
PhillieCo LP and their Subsidiaries (taken as a whole). During the period
since December 31, 1997, there has not been, and nothing has occurred that
has had, a Material Adverse Effect on PhillieCo GP and PhillieCo LP and
their Subsidiaries (taken as a whole).
(k) Sole Line of Business. PhillieCo conducts no material businesses or
activities other than those relating to the provision of wireless telephony
services pursuant to the PhillieCo Licenses.
(l) Liabilities. Except as shown on the PhillieCo Financial Statements,
to the knowledge of the PhillieCo Partners, PhillieCo is not subject to any
liabilities arising outside the ordinary course of business that might
reasonably be expected to have a Material Adverse Effect on PhillieCo.
Section 5.5 Representations and Warranties Concerning SprintCom and
EquipmentCo. Sprint hereby represents and warrants to the Cable Parents as
follows:
(a) Due Organization; Title. Each of SprintCom and EquipmentCo is a
corporation and limited partnership, respectively, duly organized and
validly existing under the laws of the State of Kansas, and Delaware,
respectively, and has the corporate and partnership, respectively, power
and authority to own its property and carry on its business as owned and
carried on at the date hereof. Each of SprintCom and EquipmentCo is duly
qualified to do business in each jurisdiction in which it conducts business
or in which it is otherwise required to be qualified, except for failures
to be so qualified which, individually or in the aggregate, would not have
a Material Adverse Effect on SprintCom and EquipmentCo (taken as a whole).
Sprint (through its Wholly Owned Subsidiaries) has good legal title to, and
record and beneficial ownership of, all the outstanding capital stock of
SprintCom free and clear of all Liens. There are no Rights obligating
Sprint to issue additional capital stock or other securities of SprintCom.
Sprint has good legal title to, and beneficial ownership of, the general
partnership and limited partnership interests in EquipmentCo, free and
clear of all Liens. There are no Rights obligating Sprint or its
Subsidiaries to Transfer any of its interests in EquipmentCo.
(b) Licenses. SprintCom holds the licenses issued by the FCC that are
listed on Schedule 5.5(b) (the "SprintCom Licenses") and has satisfied all
terms and conditions required to be satisfied on or before the date hereof
imposed by the FCC, by any other Governmental Authority, or by federal law
as a condition of the award of the SprintCom Licenses, the failure to
satisfy of which could reasonably be expected to cause SprintCom to forfeit
its right to hold or use the SprintCom Licenses, including: the payment of
all lump sums due the FCC under 47 C.F.R. (S) 24.708 in payment for award
of the SprintCom Licenses; the payment of all withdrawal, disqualification
or default penalties associated with participation in competitive bidding
for the SprintCom Licenses; and the satisfaction of all FCC technical
requirements for construction and operation of the SprintCom Licenses,
including frequency coordination, microwave relocation, antenna height and
power limitations.
(c) Compliance with Laws. SprintCom and its Controlled Affiliates have
not made any untrue statement of fact, or omitted to disclose any facts, to
the FCC or any other Governmental Authority or taken or failed to take any
action, which misstatements, omissions, actions or failures to act,
individually or in the aggregate, could reasonably be expected to cause
SprintCom to forfeit its right to hold or use the SprintCom Licenses or
that, insofar as can reasonably be foreseen, could have a material adverse
effect on the ability
V-25
<PAGE>
of Sprint to allocate the business of SprintCom and the SprintCom Licenses
to the PCS Group or otherwise have the SprintCom Licenses attributed to the
PCS Group.
(d) Litigation. Except as set forth on Schedule 5.5(d), there are no
actions, suits, proceedings or investigations pending or, to the knowledge
of Sprint, threatened against SprintCom or EquipmentCo in, before or by any
Governmental Authority or any arbitrator that could, if adversely
determined (or, in the case of an investigation could lead to any action,
suit or proceeding, that, if adversely determined, could), reasonably be
expected to have a material adverse effect on the right of SprintCom to
hold or use the SprintCom Licenses or for Sprint to allocate the SprintCom
Licenses to the PCS Group, or impose any material adverse restrictions or
limitations on the operation of the business attributed to the PCS Group;
and none of Sprint, SprintCom or EquipmentCo have received any currently
effective notice of any default, and SprintCom and EquipmentCo are not in
default, under any applicable order, writ, injunction, decree, permit,
determination or award of any Governmental Authority or any arbitrator that
could reasonably be expected to have a material adverse effect on the right
of SprintCom to hold or use the SprintCom Licenses or for Sprint to
allocate the SprintCom Licenses to the PCS Group or a material adverse
effect on SprintCom and Equipment Co (taken as a whole).
(e) Title to Licenses. On the Closing Date, the SprintCom Licenses will
be owned by SprintCom free and clear of all Liens, except for any Permitted
Liens and Liens that, individually or in the aggregate, are not material to
the SprintCom Licenses (taken as a whole).
(f) No Breach. As of the date of this Agreement, (i) each material
permit, license, contract, agreement, lease and insurance policy held by
SprintCom or EquipmentCo or to which either of them is a party (whether
evidenced by a written document or otherwise), is in full force and effect
in accordance with its terms, and (ii) there does not exist under any such
permit, license, contract, agreement, lease or insurance policy any
default, or event which, with the giving of notice or the lapse of time or
both, would become a breach or default, the consequences of which (in the
case of either (i) or (ii) above) would result in a Material Adverse Effect
on SprintCom and EquipmentCo (taken as a whole).
(g) Environmental Protection. Sprint does not have knowledge of, nor has
Sprint or any of its Controlled Affiliates received notice of, any events,
conditions, circumstances, activities, practices, incidents, actions or
plans that Sprint reasonably expects would result in claims or liabilities,
(A) based on or related to alleged on-site or off-site contamination with
respect to or affecting the assets of SprintCom or EquipmentCo or (B)
arising out of or related to the assets of SprintCom and EquipmentCo under
any Environmental Laws, in each case that, individually or in the
aggregate, would have a Material Adverse Effect on SprintCom and
EquipmentCo (taken as a whole). As of the date of this Agreement, SprintCom
and EquipmentCo have owned and operated their assets in compliance with all
Environmental Laws except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect on SprintCom and
EquipmentCo (taken as a whole).
(h) Intellectual Property. To the knowledge of Sprint, neither SprintCom
nor EquipmentCo is using any copyright, patent, proprietary information,
technical information or other similar intangible property right that is
owned by any Person in a manner that is not in compliance in all material
respects with the applicable license of such intangible property right to
Sprint or its Controlled Affiliate, except where such noncompliance would
not result in a Material Adverse Effect on SprintCom and EquipmentCo (taken
as a whole).
(i) Financial Information. Sprint has delivered to the Cable Parents
copies of (i) the combined balance sheet of SprintCom and EquipmentCo as of
December 31, 1997, and the related combined statements of operations,
changes in equity (deficit) and cash flows for the year then ended,
certified by independent auditors, including the notes thereto and (ii) the
unaudited combined balance sheet of SprintCom and EquipmentCo as of March
31, 1998, and the related combined statement of operations for the three
months then ended (the documents referred to in (i) and (ii) being
collectively, the "SprintCom and EquipmentCo Financial Statements"). The
SprintCom and EquipmentCo Financial Statements present fairly in all
material respects the combined financial position and combined results of
operations of
V-26
<PAGE>
SprintCom and EquipmentCo at the dates and for the periods to which they
relate and have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods
involved. Except (i) as and to the extent disclosed or reserved against on
the combined balance sheet of SprintCom and EquipmentCo as of December 31,
1997, (ii) as incurred after the date thereof in the ordinary course of
business consistent with prior practice (including leveraged lease
transactions that have heretofore been disclosed to the Cable Partners) and
not prohibited by this Agreement and (iii) as may result from any Year 2000
Liability, SprintCom and EquipmentCo do not have any liabilities or
obligations of any nature, absolute, accrued, contingent or otherwise and
whether due or to become due, that, individually in the aggregate, would
have a Material Adverse Effect on SprintCom and EquipmentCo taken as a
whole. During the period since December 31, 1997, there has not been, and
nothing has occurred that has had, a Material Adverse Effect on SprintCom
and EquipmentCo taken as a whole.
(j) Sole Line of Business. Neither SprintCom nor EquipmentCo conducts any
material businesses or activities other than those relating to the
provision of wireless telephony services pursuant to the SprintCom Licenses
(including any acquisitions of PCS licenses and related assets and
leveraged lease financing programs that have heretofore been disclosed to
the Cable Parents).
(k) Liabilities. Except as shown on the SprintCom and EquipmentCo
Financial Statements, to the knowledge of Sprint, neither SprintCom nor
EquipmentCo is subject to any liabilities arising outside the ordinary
course of business that might reasonably be expected to have a Material
Adverse Effect on SprintCom and EquipmentCo, taken as a whole, other than
any acquisitions of PCS licenses and related assets and leveraged lease
transactions that have heretofore been disclosed to the Cable Parents.
ARTICLE 6
COVENANTS OF THE PARTIES
Section 6.1 Cooperation.
(a) Between the date hereof and the earlier of the Closing or the
termination of this Agreement, subject to the terms and conditions of this
Agreement, the parties shall cooperate with each other and use all
commercially reasonable efforts to obtain all necessary consents and
approvals for the consummation of the transactions contemplated hereby and
otherwise to satisfy the conditions to closing set forth in Article 8.
Without limiting the generality of the foregoing, (A) each PCS Partner
shall vote its PCS Interest at any meeting of the PCS Partners and shall
cause its representatives to vote at any meeting of the Partnership Board
of Sprint PCS GP, and each PhillieCo Partner shall vote its PhillieCo
Interest at any meeting of the PhillieCo Partners and shall cause its
representatives to vote at any meeting of the Partnership Board of
PhillieCo GP, so as to facilitate the completion of the transactions
contemplated by this Agreement, (B) each party hereto shall use its
commercially reasonable efforts, and shall cause each of Sprint PCS and
PhillieCo to use its commercially reasonable efforts, to obtain all
consents and authorizations of third parties and Governmental Authorities
and to make all filings with and give all notices to third parties and
Governmental Authorities which may be necessary or reasonably required in
order to effect the transactions contemplated hereby, and (C) the Cable
Parents shall, and the PCS Partners shall cause Sprint PCS to, and the
PhillieCo Partners shall cause PhillieCo to, make qualified personnel
available to Sprint for (i) supplying all information reasonably requested
by Sprint for inclusion in the Proxy Statement and the other filings
contemplated by Section 6.2, (ii) meetings or correspondence with counsel
for Sprint and the underwriters for purposes of conducting customary due
diligence in connection with the IPO and (iii) with respect to Sprint PCS
and PhillieCo only, meetings with underwriters and potential investors. In
addition, subject to the other provisions of this Section 6.1, none of the
parties shall take any action that such party knows would cause any of such
party's representations and warranties in this Agreement to be inaccurate
or that such party knows would prevent or materially delay the satisfaction
of the conditions to closing set forth in Article 8 of this Agreement or
the receipt of any required approvals or consents; provided that no party
will
V-27
<PAGE>
be required to conduct itself in a manner that is not commercially
reasonable. "Commercially reasonable efforts" as used in this Agreement
shall not require any party to undertake extraordinary or unreasonable
measures to obtain any consents or other authorizations, including
requiring such party to make any material expenditures (other than normal
filing fees or the like) or to accept any material changes in the terms of
the contract, license or other instrument for which a consent is sought.
(b) Notwithstanding the foregoing, in connection with any filing or
submission required or action to be taken by either Sprint or a Cable
Parent or its respective Controlled Affiliates to effect the Mergers and to
consummate the other transactions contemplated hereby no Parent nor any of
its Affiliates shall be required to divest or hold separate or otherwise
take (or refrain from taking) or commit to take (or refrain from taking)
any action that limits its freedom of action with respect to, or its
ability to retain, any of the businesses, product lines or assets of such
Parent or any of its Affiliates (including, in the case of Sprint, TCI
Partner and the HoldCo Entities and their respective Subsidiaries.)
Section 6.2 Certain Actions by Sprint.
(a) SEC Filings. As soon as is reasonably practicable after the execution
of this Agreement, Sprint shall prepare and file with the SEC (i) a proxy
statement (the "Proxy Statement") to be mailed to Sprint stockholders in
connection with a special meeting (the "Stockholders Meeting") to be held
for the purpose of approving this Agreement and the transactions
contemplated hereby, the Initial Charter Amendment, the Subsequent Charter
Amendment, the Bylaw Amendment and amendments to certain of Sprint's
equity-based incentive plans in connection with the creation of the PCS
Stock, among other things, and (ii) a registration statement on Form S-3
(the "Registration Statement") containing a prospectus (the "IPO
Prospectus") covering the shares of Series 1 PCS Stock to be sold in the
IPO. Sprint shall use its commercially reasonable efforts to cause the
Proxy Statement to be approved for mailing and the Registration Statement
to become effective under the Securities Act, each as promptly as
practicable after such filing, and shall take all commercially reasonable
actions required to be taken under any applicable state blue sky or
securities laws in connection with the IPO and the Recapitalization. Sprint
shall use its commercially reasonable efforts to cause the Series 1 PCS
Stock required to be issued in the IPO and the Recapitalization to be
approved for listing or quotation in satisfaction of the condition to
Closing set forth in Section 8.1(d).
Sprint will provide the Cable Parents with a reasonable opportunity to
review and comment upon drafts of the Proxy Statement and the Registration
Statement and any amendments thereto prior to filing any such documents
with the SEC. Sprint shall not make any changes to the Proxy Statement from
the draft dated May 18, 1998 (which has been reviewed by the Cable Parents)
or include any statements in the Registration Statement that are
inconsistent with the provisions of this Agreement, the Other Agreements,
the Management and Allocation Policies and the Bylaw Amendment. Attached
hereto as Exhibit Q are certain provisions that Sprint will include in the
Proxy Statement (in any form filed with the SEC) relating to the Management
and Allocation Policies, the Tax Sharing Agreement and related matters.
Sprint will not include in the Proxy Statement or the Registration
Statement any language reasonably objected to by any Cable Parent that
changes, limits or qualifies, or is otherwise inconsistent with, such
provisions on Exhibit Q or the "Risk Factors" section of the May 18 draft
of the Proxy Statement. Also included as part of Exhibit Q is language that
reflects Sprint's current expectation for disclosure in the Proxy Statement
regarding SprintCom's rollout schedule.
Each of the Cable Parents covenants that none of the information supplied
or to be supplied by such Cable Parent or its Subsidiaries in writing at
the request of Sprint for inclusion or incorporation by reference in the
Registration Statement or the Proxy Statement will, at the respective times
such documents are filed and (in the case of the Registration Statement) at
the time such document becomes effective or at the time any amendment or
supplement thereto becomes effective and (in the case of the Proxy
Statement) at the time it is mailed to the stockholders of Sprint, contain
any untrue statement of a material fact, or omit to state any material fact
required or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. However, a
Cable Parent will not be deemed
V-28
<PAGE>
in breach of this covenant due to any misstatement or omission that is
attributable to information supplied to such Cable Parent or any of its
Subsidiaries by Sprint PCS GP, PhillieCo GP or any of their Subsidiaries.
Sprint covenants that (i) the Registration Statement, when it becomes
effective and at the time any amendment or supplement thereto becomes
effective, will not contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; (ii) the Proxy
Statement, when first mailed to the stockholders of Sprint, will not
contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and (iii) the Proxy Statement and the Registration
Statement will comply as to form in all material respects with the
provisions of applicable law and any applicable rules or regulations
thereunder, except that no representation is made by Sprint with respect to
statements made therein based on information supplied by any Cable Parent
or its Subsidiary in writing at the request of Sprint for inclusion in the
Registration Statement or the Proxy Statement. Sprint acknowledges that the
Cable Parents, in entering into this Agreement and agreeing to consummate
the transactions contemplated hereby, are relying on the covenant contained
in this paragraph and the information to be contained in the Proxy
Statement and the Registration Statement as if the forms of final Proxy
Statement and Registration Statement were delivered in connection herewith.
(b) Stockholders Meeting. Sprint shall cause the Stockholders' Meeting to
be held as soon as practicable after the date hereof (without regard to the
condition of the equity markets, including the market for initial public
offerings, wireless communications companies or tracking stocks). The Board
of Directors of Sprint shall recommend that its stockholders approve this
Agreement, the Initial Charter Amendment, the Subsequent Charter Amendment,
and the other matters related thereto presented for a vote in the Proxy
Statement, and Sprint shall use commercially reasonable efforts to obtain
such stockholder approval. Sprint shall not be deemed to have breached any
obligation under this Agreement by reason of the disclosure of information
in the Proxy Statement or any public announcement or other communication
with Sprint's stockholders if such disclosure is required by Law, so long
as the Board of Directors of Sprint shall not have withdrawn, limited,
conditioned or qualified the recommendation referred to above. Sprint's
conclusion that any such disclosure is required by Law will be final and
binding on all the parties hereto if Sprint has received a written opinion
of counsel that such disclosure or communication is required by Law.
"Commercially reasonable" efforts shall not be deemed to require any action
that would prevent Sprint's compliance with Section 3(a)(9) of the
Securities Act in connection with the Recapitalization.
(c) Concurrent IPO. Sprint intends to close the IPO as soon as
practicable following the date that the conditions to Closing set forth in
Sections 8.1(a), 8.1(b) and 8.1(d) have been satisfied (subject to Section
6.2(e), the "Trigger Date"), assuming that the other conditions to Closing
have been satisfied or are capable of being satisfied at or prior to the
Closing; provided that the determination to proceed with the IPO at any
time shall remain in Sprint's sole discretion. If the IPO occurs prior to
the Recapitalization, the Closing shall occur simultaneously with the
closing of the IPO. If Sprint causes the IPO to be completed simultaneously
with the Closing, (i) Sprint shall complete the Recapitalization by filing
the Subsequent Charter Amendment with the Kansas Secretary of State within
120 days following the Closing, and (ii) each Cable Parent will, and will
cause its Controlled Affiliates to, for a period of one hundred eighty
(180) days following the Closing Date, refrain from engaging in any public
sale or distribution of any PCS Stock or securities convertible into, or
exchangeable or exercisable for, or the value of which relates to or is
based upon, PCS Stock.
(d) Concurrent Recapitalization. Subject to Section 6.2(e), if the IPO is
not completed on or prior to the 30th day following the Trigger Date, then
Sprint shall, on the earlier of (i) the date which is 10 days following
such date subsequent to the Trigger Date that Sprint reasonably determines
that the IPO is not capable of being completed on or prior to the 30th day
following the Trigger Date or (ii) the 40th day following the Trigger Date,
effect the Recapitalization by filing the Initial Charter Amendment, the
Subsequent Charter Amendment and the Certificate of Designations with the
Kansas Secretary of State, assuming that the other conditions to Closing
have been satisfied or are capable of being satisfied at the
V-29
<PAGE>
Closing. If Sprint causes the Recapitalization to be completed as provided
in this Section 6.2(d), the Closing shall occur simultaneously with the
completion of the Recapitalization. In such event, Sprint currently intends
to complete the IPO within 120 days after the Closing Date. If Sprint
completes the Recapitalization simultaneously with the Closing and the IPO
is completed within such 120-day period, each Cable Parent will, and will
cause its Controlled Affiliates to, for a period commencing at the time of
Closing and ending on the later of (i) 90 days following the closing of the
IPO and (ii) 180 days following the Closing Date, refrain from engaging in
any public sale or distribution of any PCS Stock or securities convertible
into, or exchangeable or exercisable for, or the value of which relates to
or is based upon, PCS Stock. If the IPO is not completed within 120 days
following the Closing, Sprint will not engage in any public sale or
distribution of any PCS Stock or securities convertible into, or
exchangeable or exercisable for, or the value of which relates to or is
based upon, PCS Stock until after the Registration Rights Commencement
Date, and then, only after (i) providing notices to the Cable Parents (and
any required Affiliates) as required by Section 3(a) of the Registration
Rights Agreement, (ii) providing the Cable Parents with priority in such
sale or distribution in accordance with Section 3 thereof, and (iii)
amending the Registration Statement (and amending or supplementing the
related preliminary prospectus if preliminary prospectuses have been
distributed) if necessary to register and offer the shares that the Cable
Parents have elected to sell in such sale or distribution in accordance
with the Registration Rights Agreement.
(e) Extension of Trigger Date. If the Trigger Date would occur (but for
this Section 6.2(e)) after August 1, 1998, and before September 1, 1998,
the Trigger Date will be deemed to occur on the earlier of (i) September 1,
1998 or (ii) such date after August 1, 1998, that Sprint reasonably
determines that the IPO is not capable of being completed on or prior to
October 1, 1998.
Section 6.3 IPO Matters.
(a) All of the net proceeds of the shares of Series 1 PCS Stock sold in
the IPO will be allocated to the PCS Group. Sprint will select the lead
(book-running) managing underwriter(s) for the IPO, and the Cable Partners
shall select a co-lead managing underwriter (who shall be reasonably
acceptable to Sprint) (such underwriters as selected by Sprint and the
Cable Partners being the "Underwriters"). Except as provided in Section 6.2
and this Section 6.3, Sprint will have sole discretion to determine the
pricing and other terms of the IPO. The total proceeds raised in the IPO
(net of underwriting commissions and discounts and excluding the proceeds
from any exercise of the Top-Up Rights) are referred to herein as the
"Total Proceeds".
(b) Prior to the filing of the Registration Statement, the Underwriters
will advise the Parents as to the expected range of the IPO Price. Sprint
will be entitled to sell in the IPO without any further approval of the
Cable Parents a number of shares of Series 1 PCS Stock up to the greater of
(i) $500 million divided by the midpoint of the price range indicated on
the cover of the "red herring" prospectus used to market such shares,
regardless of the Total Proceeds that would result from the sale of such
shares and (ii) such number of shares as is required to be sold in the IPO
to achieve Total Proceeds of between $500 million and $525 million (in
Sprint's discretion).
(c) In addition, prior to filing of the Registration Statement, the
Underwriters will advise the Parents as to the aggregate proceeds that, in
the opinion of the Underwriters, could be raised in the IPO without
adversely affecting the IPO Price or the after-market trading price of the
Series 1 PCS Stock. If such recommendation is for Total Proceeds of more
than $525 million and any of the Parents notifies the other Parents within
ten days following the receipt of such advice from the Underwriters that
such Parent is unwilling to proceed with an IPO of the size recommended by
the Underwriters, then the Total Proceeds of the IPO shall not exceed $525
million unless a larger amount is permitted by clause (i) of Section 6.3(b)
or a larger amount of Total Proceeds is thereafter unanimously agreed to by
the Parents.
(d) The dollar amounts set forth above in this Section 6.3 do not include
a 15% over-allotment option on the shares sold to the public in the IPO or
any amounts paid by FT, DT or the Cable Partners on exercise of their Top-
Up Rights in connection with the IPO, which will be incremental to the
amounts specified above and may be effected by Sprint without the approval
of any of the Cable Parents.
V-30
<PAGE>
Section 6.4 Capital Requirements of Sprint PCS Prior to Closing.
(a) The capital requirements of Sprint PCS GP and its Subsidiaries during
the period from the date of this Agreement through the Closing Date will be
satisfied by capital contributions from the PCS Partners to Sprint PCS GP
to be made from time to time pursuant to this Section 6.4(a) up to an
aggregate amount of $400 million (the "PCS Contributions"). The chief
executive officer of Sprint PCS GP may call all or a portion of the PCS
Contributions at any time prior to the Closing Date by giving written
notice to each of the PCS Partners specifying (i) the aggregate amount
required to be contributed to Sprint PCS GP and (ii) the date (the
"Contribution Date") that such amount is required to be contributed to
Sprint PCS GP, which shall be at least 20 Business Days following the date
of such notice. On each Contribution Date, each PCS Partner will contribute
(by wire transfer of immediately available funds to an account designated
by Sprint PCS GP) its pro rata portion of any PCS Contribution based on its
PCS Interest on the date of such contribution.
(b) The PCS Contributions will be funded by loans from the Parents as
follows: (i) Sprint (directly or through its Subsidiaries) will lend Sprint
Partner's portion of any PCS Contribution to Sprint Partner (the "Sprint
PCS Loan"); (ii) TCI will lend TCI Partner's portion of any PCS
Contribution to TCI Partner; (iii) Comcast agrees that Comcast Telephony
Communications, Inc. will lend Comcast Partner's portion of any PCS
Contribution to either or both of its respective HoldCo Entities; and (iv)
Cox will lend Cox Partner's portion of any PCS Contribution to Cox HoldCo
Sub1 (each such loan described in clauses (ii), (iii), and (iv) is referred
to herein as a "Cable Parent PCS Loan"). Notwithstanding the foregoing, in
no event will the Cable Parent PCS Loans be made to a direct Subsidiary of
the lending entity. The HoldCo Entity or Entities of Comcast that receive a
Cable Parent PCS Loan will in turn loan the proceeds of Comcast's Cable
Parent PCS Loan to Comcast Partner, and Cox HoldCo Sub1 will in turn loan
the proceeds of Cox's Cable Parent PCS Loan to Cox Partner. Each entity
receiving a Cable Parent PCS Loan will issue to the lender in consideration
for such loans promissory notes in the form of Exhibit R (the "Cable Parent
PCS Notes"). Sprint Partner will issue similar promissory notes to Sprint
for the Sprint PCS Loans (the "Sprint PCS Notes").
(c) The PCS Partners hereby agree that, notwithstanding any requirements
of the PCS Partnership Agreement, except as provided in this Section 6.4,
or otherwise agreed in writing by all the PCS Partners simultaneously with
or subsequent to the execution of this Agreement, no further Additional
Capital Contributions under the PCS Partnership Agreement shall be required
prior to the Closing; provided that if this Agreement is terminated prior
to Closing, the provisions of the PCS Partnership Agreement with respect to
Additional Capital Contributions will be fully restored. Any failure of a
PCS Partner to fund its pro rata share of the PCS Contributions (which
obligation shall be deemed a material covenant for all purposes hereunder)
will give rise to a remedy of the other parties for breach of this
Agreement, but will not trigger an "Adverse Act" or other remedies under
the PCS Partnership Agreement.
(d) If the PCS Contributions are not adequate to meet the capital
requirements of Sprint PCS GP and its Subsidiaries pending the Closing, the
PCS Partners will cause Sprint PCS GP to obtain a financing proposal from a
financial institution or an opinion from an investment banking firm as to
the terms on which such additional required capital would be available in a
placement of debt securities by Sprint PCS GP. Any such financing proposal
must contemplate debt with a maturity of at least three years, except that
such debt must be payable in full at the closing of the buy-sell
arrangements set forth in Section 14.7 of the PCS Partnership Agreement
(but shall not otherwise mature or accelerate as a result of a termination
of this Agreement) (the "Proposed Term"). Upon its receipt of written
notice from the Sprint PCS chief executive officer or the Sprint PCS
Partnership Board specifying the terms of third party financing proposed to
be obtained by Sprint PCS GP, Sprint Partner will have the right to provide
debt financing to Sprint PCS GP (directly or through an Affiliate) on terms
that result in substantially the same net economic cost to Sprint PCS GP as
the terms contemplated by such proposed financing (including any expenses
that would be incurred by Sprint PCS GP in effecting financing through a
third party). Sprint Partner or its Affiliate may elect to provide such
financing for a term equivalent to the Proposed Term. At the Effective
Time, any such
V-31
<PAGE>
debt financing provided by Sprint Partner or its Affiliate would become
debt of the PCS Group owed to the Sprint FON Group.
Section 6.5 Capital Requirements of SprintCom Prior to Closing. Subject to
the next sentence, the capital requirements of SprintCom and EquipmentCo
during the period from the date of this Agreement through the Closing Date
will be provided by loans from Sprint or its Affiliate or third party
financing. The minimum aggregate amount of loans from Sprint or its Affiliates
will be (i) $110.6 million times (ii) a fraction, the numerator of which
equals the total amount of PCS Contributions between the date of this
Agreement and the Closing Date and the denominator of which equals $400
million. Such minimum aggregate amount (determined in accordance with the
formula set forth above) of the loans made by Sprint or its Affiliates
pursuant to this Section 6.5 is referred to herein as the "SprintCom Loans."
The SprintCom Loans shall be evidenced by promissory notes (the "SprintCom
Notes") in the form of Exhibit S hereto. Any indebtedness of SprintCom or
EquipmentCo to Sprint or its Affiliates that was advanced or otherwise existed
prior to January 1, 1998, shall be contributed to the equity of SprintCom or
EquipmentCo on the Closing Date, and any such indebtedness advanced on or
after January 1, 1998 and through the Closing Date (other than the SprintCom
Loans), shall on the Closing Date become intergroup debt of the PCS Group on
terms consistent with the Management and Allocation Policies.
Section 6.6 Capitalization or Purchase of PCS Notes and SprintCom Loans.
(a) Each Cable Parent may elect to capitalize all or any portion of its
Cable Parent PCS Loans, subject to and in accordance with the following
terms and conditions:
(i) Such capitalization shall be effected no later than immediately
prior to Closing in the following manner:
(A) to the extent Cox elects to capitalize any portion of its
Cable Parent PCS Loans, Cox shall contribute such portion of its
Cable Parent PCS Loans to Cox HoldCo Sub2, and
(B) to the extent either Comcast or TCI elects to capitalize any
portion of its Cable Parent PCS Loans, Comcast or TCI, as
applicable, shall contribute such portion of its Cable Parent PCS
Loans as sequential capital contributions through all intermediate
corporations from the creditor to the obligor of such Cable Parent
PCS Loans, including a capital contribution by the owner of the
stock of such obligor to such obligor.
(ii) In the Mergers, pursuant to Section 4.1, the holder of the
common stock of any entity to which any Cable Parent PCS Loans have
been contributed pursuant to this Section 6.6(a) will receive, as
consideration in the Merger of such entity, for the equity representing
the Cable Parent PCS Loans contributed to such entity, a number of
shares of PCS Preferred Stock equal to the aggregate principal amount
of the Cable Parent PCS Loans and accrued and unpaid interest thereon
contributed to such entity, divided by $1,000.
(iii) If the IPO is to be completed concurrently with the Closing and
a Cable Parent has elected pursuant to Section 6.6(d)(ii) to receive
any Available Cash Proceeds, then such Cable Parent may not capitalize
that portion of its Cable Parent PCS Loans at the Closing.
(b) At the Closing, Sprint will purchase any Cable Parent PCS Loans that
(i) have not been capitalized pursuant to Section 6.6(a) and (ii) are not
required to be purchased by Sprint for cash at the Closing pursuant to
Section 6.6(d)(vi)(A). Sprint shall pay the purchase price for any Cable
Parent PCS Loans that it is required to purchase pursuant to this Section
6.6(b) by delivering to the holder of such Cable Parent PCS Loans a number
of shares of PCS Preferred Stock equal to the aggregate principal amount of
such Cable Parent PCS Loans, plus all accrued and unpaid interest thereon,
divided by $1,000.
(c) At the Closing, any portion of the Sprint PCS Notes and SprintCom
Loans that is not required to be repaid at the Closing pursuant to Section
6.6(d)(vii)(A), will be repaid by the creation of the Preferred Intergroup
Interest, which shall be the economic equivalent of a number of shares of
PCS Preferred Stock
V-32
<PAGE>
equal to the outstanding principal amount of such Sprint PCS Notes and
SprintCom Loans, plus all accrued unpaid interest thereon, divided by
$1,000.
(d) In connection with the consummation of the IPO (which term, for
purposes of this Section 6.6, includes any initial primary offering of
shares of Series 1 PCS Stock prior to the Registration Rights Commencement
Date), each Cable Parent may elect to require that Sprint purchase for cash
all or any portion of its Cable Parent PCS Loans, or all or any portion of
the shares of PCS Preferred Stock issued to such Cable Parent or any
Subsidiary of such Cable Parent at the Closing pursuant to Section 6.6(b),
but not any shares of PCS Preferred Stock issued as consideration in any of
the Mergers in accordance with Section 6.6(a)(ii), subject to and in
accordance with the following terms and conditions:
(i) Not later than twelve Business Days prior to the scheduled
commencement of the road show for the IPO, Sprint will notify each
Cable Parent in writing (the "Sprint Notice") of Sprint's good faith,
reasonable estimate of the net proceeds of the IPO (not including the
proceeds of any exercise by FT, DT or any Cable Parent of its Top-Up
Rights).
(ii) Each Cable Parent will, at least seven Business Days prior to
the scheduled commencement of the road show for the IPO (but in any
event within two Business Days following the date that Sprint notifies
the Cable Parents that Sprint is prepared to print the "red herring"
prospectus to be used in connection with the IPO roadshow (but for
inclusion of the information contained in the Parent Responses)),
deliver a binding written response (each, a "Parent Response") to
Sprint indicating the total cash that such Cable Parent desires to have
paid to it and its Subsidiaries in consideration for the purchase of
its Cable Parent PCS Loans or PCS Preferred Stock issued at Closing
pursuant to Section 6.6(b), as applicable (such Cable Parent's "Cash
Request Amount"). If Sprint proposes to consummate the IPO concurrently
with the Closing and, after receiving each Cable Parent's Parent
Response, (A) Sprint elects to postpone commencing the road show or
printing the "red herring" prospectus by more than 10 Business Days
from the schedule contemplated at the time of the giving of the Sprint
Notice or (B) delays in consummating the IPO require that Sprint
reprint the "red herring" prospectus, then, in either such case, any
Cable Parent may amend its Parent Response by written notice to Sprint
given prior to the printing or reprinting, respectively, of the "red
herring" prospectus, as applicable, to reduce its Cash Request Amount.
If the IPO is proposed to be consummated after the Closing, a Cable
Parent's Cash Request Amount may not exceed the product of $1,000 times
the number of shares of PCS Preferred Stock issued to such Cable Parent
and its Subsidiaries at Closing pursuant to Section 6.6(b).
(iii) Within five Business Days after giving the Sprint Notice,
Sprint will notify each of the Cable Parents of the total cash that
Sprint desires to receive in repayment of its Sprint PCS Notes and
SprintCom Loans or for the reduction of the Preferred Intergroup
Interest created pursuant to Section 6.6(c), as applicable (Sprint's
"Cash Request Amount").
(iv) If the IPO is proposed to be consummated simultaneously with the
Closing, neither Sprint's nor a Cable Parent's Cash Request Amount may
exceed the balance of principal and unpaid and accrued interest on its
Cable Parent PCS Loans (in the case of the Cable Parents) or its Sprint
PCS Loans and SprintCom Loans (in the case of Sprint).
(v) The Available Cash Proceeds shall be allocated among the Parents
for purposes of this Section 6.6(d) in accordance with the following:
(A) "Available Cash Proceeds" means the amount by which the net
proceeds of the IPO (not including the proceeds of any exercise by
FT or DT of its Top-Up Rights but including the proceeds of any
exercise by any Cable Parent of its Top-Up Rights ) exceed $500
million.
(B) The Available Cash Proceeds shall first be allocated (1) to
Sprint, to the extent of the lesser of 53% of the Available Cash
Proceeds or Sprint's Cash Request Amount, (2) to TCI, to the extent
of the lesser of 23.5% of the Available Cash Proceeds or TCI's Cash
Request Amount, (3) to Comcast, to the extent of the lesser of
11.75% of the Available Cash Proceeds or Comcast's
V-33
<PAGE>
Cash Request Amount, and (4) to Cox, to the extent of the lesser of
11.75% of the Available Cash Proceeds or Cox's Cash Request Amount.
(C) After the allocations pursuant to Section 6.6(d)(v)(B), if all
of the Available Cash Proceeds have not been allocated and any
Parent has not been allocated a portion of the Available Cash
Proceeds equal to its Cash Request Amount, then the portion of the
Available Cash Proceeds that was not allocated pursuant to the
preceding paragraph shall be allocated among those Parents that have
not been allocated all of their respective Cash Request Amounts, in
proportion to their Cash Request Amounts, until (1) each Parent has
been allocated its Cash Request Amount or (2) all of the Available
Cash Proceeds have been allocated among the Parents.
(D) The sum of the portion of the Available Cash Amount allocated
to a Parent pursuant to 6.6(d)(v)(B) plus the portion of the
Available Cash Amount allocated to a Parent pursuant to 6.6(d)(v)(C)
is such Parent's "Allocated Cash Proceeds."
(vi) Upon the consummation of the IPO, Sprint shall pay to each Cable
Parent in cash the amount of such Cable Parent's Allocated Cash
Proceeds as consideration for the purchase from such Cable Parent or
any Subsidiary of such Cable Parent of:
(A) in the case of an IPO consummated concurrently with the
Closing, a portion of such Cable Parent's Cable Parent PCS Loans
having a principal amount, together with all accrued and unpaid
interest thereon, equal to such Cable Parent's Allocated Cash
Proceeds, and
(B) in the case of an IPO consummated after the Closing, that
number of shares of the PCS Preferred Stock issued to such Cable
Parent or any Subsidiary of such Cable Parent at the Closing
pursuant to Section 6.6(b) having a Liquidation Preference (as
defined in the Certificate of Designations), plus accumulated unpaid
dividends, equal to such Cable Parent's Allocated Cash Proceeds.
(vii) Upon the consummation of the IPO,
(A) in the case of an IPO consummated concurrently with the
Closing, an amount equal to Sprint's Allocated Cash Proceeds shall
be used to repay any outstanding Sprint PCS Loans and SprintCom
Loans and to pay accrued interest thereon (which payment shall be
allocated to the Sprint FON Group), and
(B) in the case of an IPO consummated after the Closing, an amount
equal to Sprint's Allocated Cash Proceeds shall be used to reduce
the Preferred Intergroup Interest created pursuant to Section
6.6(c), in a manner comparable to a redemption of PCS Preferred
Stock pursuant to Section 6.6(d)(vi)(B).
(e) Notwithstanding any other provision of this Section 6.6, Sprint will
in no event issue any fractional shares of PCS Preferred Stock. Any
fractional share of PCS Preferred Stock otherwise required to be issued
pursuant to this Section 6.6 shall be rounded to the nearest whole share.
Section 6.7 Loans to PhillieCo. The Parents of the PhillieCo Partners have
loaned to PhillieCo GP in proportion to the respective PhillieCo Interests of
the PhillieCo Partners $50 million in the aggregate pursuant to promissory
notes dated as of April 13, 1998. Sprint will arrange for or provide any
additional financing required by PhillieCo GP on the same basis as
contemplated with respect to Sprint PCS GP in Section 6.4(d). The parties
hereto agree that Sprint shall cause all loans advanced by the Parents of the
PhillieCo Partners or their respective Affiliates to PhillieCo GP prior to the
Closing (whether included in the $50 million or otherwise) to be repaid by
PhillieCo GP (together with accrued interest) on the 90th day following the
Closing Date, and the PhillieCo Parents will cause PhillieCo GP and their
respective Affiliates to enter into agreements prior to May 31, 1998,
extending the maturity of the notes representing such loans to such date. Such
agreements will provide that, if this Agreement is terminated prior to
Closing, such financing (and all secured interest thereon) will be repayable
to the applicable PhillieCo Partner or its Affiliate at the closing of the
buy/sell arrangements set forth in Section 14.7 of the PhillieCo Partnership
Agreement.
V-34
<PAGE>
Section 6.8 Equity Purchase Rights.
(a) From and including the Closing Date, each Cable Parent and any
Subsidiary of a Cable Parent that holds shares of PCS Stock (a "Cable
Holder"), shall have the right (an "Equity Purchase Right") to purchase
from Sprint:
(i) if on or after the Closing Date (including in connection with the
IPO), Sprint shall issue shares of PCS Stock for cash, that number of
additional shares of Series 2 PCS Stock sufficient for such Cable
Holder to avoid any reduction in its PCS Group Percentage Interest as
in effect immediately prior to the issuance of such shares (which, for
the purposes of the IPO, shall be determined as if the Mergers occurred
immediately prior to the consummation of the IPO) solely as a result of
such issuance; such shares of Series 2 PCS Stock to be purchased from
Sprint at a per share purchase price equal to the purchase price paid
for such shares of PCS Stock whose issuance gave rise to such Equity
Purchase Right, which purchase price shall be net of any underwriting
discounts in connection with a public offering of shares of PCS Stock;
(ii) if after the Closing, Sprint shall issue for cash options,
warrants or other securities of Sprint or any of its Controlled
Affiliates that are exercisable or exchangeable for or convertible into
shares of PCS Stock, that number of such options, warrants or other
securities sufficient for such Cable Holder to avoid any reduction in
its PCS Group Percentage Interest as in effect immediately prior to
such issuance solely as a result of such issuance; such options,
warrants or other securities to be purchased from Sprint at a price per
unit equal to the per unit purchase price paid for such options,
warrants or other securities whose issuance gave rise to such Equity
Purchase Right, which purchase price shall be net of any underwriting
discounts in connection with a public offering of such options,
warrants or other securities;
(iii) if after the Closing, the Sprint FON Group contributes to the
PCS Group cash or other assets in exchange for an increase in the
Sprint FON Group common intergroup interest in the PCS Group, that
number of additional shares of Series 2 PCS Stock sufficient for such
Cable Holder to avoid any reduction in its PCS Group Percentage
Interest as in effect immediately prior to such contribution solely as
a result of such contribution, such Series 2 PCS Stock to be purchased
at a price per share based on the corresponding per unit price used by
the Sprint Board of Directors or its Capital Stock Committee in
determining the appropriate adjustment to the Sprint FON Group common
intergroup interest as a result of such contribution of cash or assets;
and
(iv) if after the Closing, the Sprint FON Group contributes to the
PCS Group cash or other assets in exchange for a preferred or other
intergroup interest that is convertible into or exchangeable for a
common intergroup interest in the PCS Group, that number of securities
having substantially the same terms as such preferred or other
intergroup interest sufficient for such Cable Holder to avoid any
reduction in its PCS Group Percentage Interest as in effect immediately
prior to such contribution solely as a result of such contribution;
such securities to be purchased at a price per share based on the
corresponding per unit price used by the Sprint Board of Directors or
its Capital Stock Committee in determining the amount of the Sprint FON
Group intergroup interest as a result of such contribution of cash or
assets.
The additional shares, options, warrants or other securities to be
purchased pursuant to paragraphs (i), (ii), (iii) and (iv) above are
referred to herein as the "Additional Securities."
(b) Sprint shall deliver to each Cable Parent written notice of any
proposed action that would give rise to Equity Purchase Rights not less
than fifteen days prior to such action, such notice to describe in
reasonable detail the price per share of PCS Stock (or price per warrant,
option or security exercisable or exchangeable for or convertible into
shares of PCS Stock) reflected in such transaction and contain the
calculation thereof (or, in the case of a public offering, the anticipated
price per share or other unit); provided, that no such notices need be
given (and the Cable Holders shall not have any rights under this Section
6.8) with respect to shares of PCS Stock issued pursuant to (i) the
Recapitalization, (ii) exercises of
V-35
<PAGE>
the Warrants, (iii) conversion of the PCS Preferred Stock, (iv) qualified
or non-qualified employee and director benefit plans, arrangements or
contracts (including stock purchase plans), (v) dividend reinvestment
plans, (vi) conversion rights under capital stock of Sprint outstanding as
of the date hereof or (vii) purchase rights that are exercised by FT and/or
DT as a result of the issuance of PCS Stock in connection with any of the
matters described in clauses (ii)-(vi) above. In addition, a Cable Holder
shall have no rights under this Section 6.8 with respect to the exercise of
purchase rights by FT or DT that are triggered by sales of Series 2 PCS
Stock by such Cable Holder or any of its Affiliates.
(c) The Cable Holders may exercise their Equity Purchase Rights pursuant
to Section 6.8(a) by binding written notice (subject to consummation of the
underlying transaction) to Sprint delivered prior to the fifteenth day
after the date of the related notice provided for in Section 6.8(b)
specifying the number of Additional Securities to be purchased.
(i) Notwithstanding the foregoing, in connection with a public
offering of PCS Stock by Sprint to which this Section 6.8 is
applicable, at least twelve (12) Business Days prior to the printing of
the "red herring" prospectus for such offering, Sprint shall give
written notice to the Cable Parents setting forth Sprint's then-current
estimate of the number of shares of PCS Stock Sprint intends to offer
and the anticipated per share range for the offering price (the "Price
Range"). If the midpoint of the Price Range is $15 or less, the Price
Range shall extend not more than $1 above the midpoint nor more than $1
below the midpoint. At least seven (7) Business Days prior to the
printing of the "red herring" prospectus for such offering, each Cable
Parent shall be required to deliver a binding notice to Sprint (the
"EPR Notice") stating whether and as to how many shares the Cable
Parent and its Subsidiaries will exercise their Equity Purchase Rights
as follows:
(A) for the IPO, whether Equity Purchase Rights will be exercised
if the actual price per share at which shares are sold in the IPO is
in a range (the "Decision Range") as follows: (x) if the midpoint of
the Price Range is $15 or less, the Price Range; (y) if the midpoint
of the Price Range is $15 or more, then from a price per share 10%
above the midpoint of the Price Range (but in no event more than $1
above the high point) to a price per share 10% below the midpoint of
the Price Range (but in no event lower than $1 below the low point);
(B) for other primary offerings, whether and as to how many shares
the Cable Parent and its Subsidiaries will exercise Equity Purchase
Rights without regard to a price range (subject to Section
6.8(c)(iii)).
(ii) In the case of (i)(A): (I) if the actual price per share in the
IPO is greater than the high point of the Decision Range, (1) a
decision to not exercise Equity Purchase Rights shall nevertheless be
binding and (2) any Cable Holder that originally exercised its Equity
Purchase Rights with respect to the IPO, in whole or in part, shall be
entitled to rescind such exercise, in whole or in part, at the time of
pricing of the IPO; and (II) if the actual price per share in the IPO
is less than the low point of the Decision Range, (1) an exercise of
Equity Purchase Rights shall nevertheless be binding and (2) any Cable
Holder that originally declined to exercise its Equity Purchase Rights
with respect to the IPO, or originally exercised its Equity Purchase
Rights with respect to the IPO only in part, will be entitled to
exercise its Equity Purchase Rights with respect to the IPO, in whole
or in part (or in greater part, if its Equity Purchase Rights were
previously exercised), at the time of pricing of the IPO.
(iii) In the case of (i)(B): (I) if the actual price per share in
such offering is less than 95% of the closing price of the Series 1 PCS
Stock on the date of pricing of such offering, (1) an exercise of
Equity Purchase Rights shall nevertheless be binding and (2) any Cable
Holder that originally declined to exercise its Equity Purchase Rights
with respect to such public offering, or originally exercised its
Equity Purchase Rights with respect to such public offering only in
part, will be entitled to exercise its Equity Purchase Rights with
respect to such public offering, in whole or in part (or in greater
part, if its Equity Purchase Rights were previously exercised), at the
time of pricing of such public offering.
V-36
<PAGE>
(iv) With respect to any decision to be made by a Cable Holder at the
time of pricing pursuant to paragraph (ii) or (iii) above or with
respect to any primary public offerings by Sprint of securities that
are exercisable or exchangeable for or convertible into shares of PCS
Stock, Sprint and each affected Cable Holder will cooperate to develop
procedures that will permit such Cable Holder to exercise its rights
under paragraph (ii) or (iii) or with respect to such offerings
concurrently with the applicable pricing decision without any
disruption or delay to the public offering.
(v) Payment for any Additional Securities purchased by the Cable
Holders that exercise their Equity Purchase Rights shall be made as
provided in Section 6.8(e) hereof. The total number of Additional
Securities specified by each exercising Cable Holder shall be issued
and delivered to such Cable Holder against delivery to Sprint of the
purchase price therefor as provided in Section 6.8(e) hereof.
(d) If Sprint issues to the Cable Holders upon exercise of their Equity
Purchase Rights Additional Securities on a date after the date the related
PCS Stock is issued, then (i) the per share purchase price paid by the
Cable Holders shall be reduced to reflect the fair market value (as
determined by the Board of Directors of Sprint) of any dividend or
distribution made in respect of the PCS Stock after the date the related
PCS Stock is issued and prior to such issuance and (ii) such purchase price
and the number of shares of Additional Securities purchased shall be
appropriately adjusted to reflect any stock split, stock dividend or other
combination or reclassification of the PCS Stock.
(e) The closing of purchases of Additional Securities pursuant to the
exercise of Equity Purchase Rights by the exercising Cable Holders shall
take place on a date specified by the exercising Cable Holders, which date
shall be within 30 days after the exercise of such Equity Purchase Rights
or (if later) within 10 days after the receipt of all required regulatory
approvals (in each case assuming the action giving rise to such Equity
Purchase Rights has occurred), at the executive offices of Sprint, at 10:00
a.m., Kansas City time, or at such other date, time or place as Sprint and
such exercising Cable Holder may otherwise agree. At such closing:
(i) Sprint shall deliver, or cause to be delivered, to such
exercising Cable Holder, certificates representing the shares of
Additional Securities to be purchased by such exercising Cable Holder,
in the name of such holder, against payment of the purchase price
therefor, as provided below; and
(ii) such exercising Cable Holder shall deliver to Sprint an amount
in cash by wire transfer in immediately available funds equal to the
product of (i) the applicable price per share determined pursuant to
Section 6.8(a) (as adjusted pursuant to Section 6.8(d)) and (ii) the
number of shares of Additional Securities to be acquired by such
exercising Cable Holder.
(f) In connection with the occurrence of any issuance or contribution
that gives rise to Equity Purchase Rights and to purchase rights of FT and
DT, Sprint shall use its reasonable efforts to coordinate the exercise of
purchase rights by the Cable Holders and FT and DT to avoid a series of
successive exercises of purchase rights triggered by a single issuance or
contribution.
(g) The Equity Purchase Rights of a Cable Parent and its Subsidiaries
shall terminate simultaneously with the termination of the Standstill
Agreement between Sprint and such Cable Parent.
(h) Notwithstanding the provisions of the Standstill Agreement, with
respect to each action giving rise to Equity Purchase Rights, if a Cable
Holder elects not to purchase all of the Additional Securities that it is
entitled to purchase after such action, such Cable Holder will thereafter
be entitled to purchase, in open market purchases on the New York Stock
Exchange or other applicable exchange or otherwise from a third party:
(i) as to Sections 6.8(a)(i) and (iii), a number of shares of Series
1 PCS Stock equal to the number of shares of Series 2 PCS Stock that
such Cable Holder was entitled to purchase from Sprint and elected not
to so purchase; or
V-37
<PAGE>
(ii) as to Sections 6.8(a)(ii) and (iv), either (A) a number of
shares of Series 1 PCS Stock equal to the number of shares of PCS Stock
into which the options, warrants or other securities that such Cable
Holder elected not to purchase would have been convertible, exercisable
or exchangeable on the date of the action giving rise to such Equity
Purchase Rights (disregarding for such purpose any time or other
limitations on the holder's right to convert, exercise, or exchange) or
(B) that number of such securities (other than PCS Stock) that such
Cable Holder was entitled to purchase and elected not to so purchase;
in each case as adjusted to reflect any stock split, stock dividend or
other combination or reclassification of the PCS Stock or other security.
(i) Notwithstanding the provisions of the Standstill Agreement, if after
the Closing Date Sprint shall issue shares of PCS Stock (or options,
warrants or other securities of Sprint or any of its Controlled Affiliates
that are exercisable or exchangeable for or convertible into shares of PCS
Stock) other than for cash (including pursuant to a merger, acquisition,
share exchange or similar transaction), each Cable Holder shall thereafter
have the right to acquire, in open market purchases on the New York Stock
Exchange or other applicable exchange or otherwise, that number of
additional shares of Series 1 PCS Stock sufficient for such Cable Holder to
avoid any reduction in its PCS Group Percentage Interest as in effect
immediately prior to the issuance of such shares solely as a result of such
issuance, assuming that any such options, warrants or other securities were
converted into shares of PCS Stock as of the date of issuance of such
options, warrants or other securities, and appropriately adjusted to
reflect any stock split, stock dividend or other combination or
reclassification of the PCS Stock.
(j) Any shares of Series 1 PCS Stock acquired by any Cable Holder will be
subject to the applicable Voting Agreement.
Section 6.9 Conduct of Business of the HoldCo Entities and Cable
Partners. From and including the date hereof to the Effective Time (or the
earlier termination of this Agreement), except as expressly contemplated by
this Agreement and the Other Agreements, none of the HoldCo Entities or Cable
Partners will, and none of the Cable Parents will permit any of its respective
HoldCo Entities or its respective Cable Partner to:
(a) transfer, issue, deliver, sell, dispose of, pledge or otherwise
encumber, or authorize or propose the Transfer, issuance, sale, disposition
or pledge or other encumbrance of (i) any additional shares of capital
stock of any class, or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of
capital stock, or any rights, warrants, options, calls, commitments or any
other agreements of any character to purchase or acquire any shares of
capital stock or any securities or rights convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of capital stock
of such HoldCo Entity or Cable Partner (as the case may be), or (ii) any
other securities in respect of, in lieu of, or in substitution for, shares
of capital stock of such HoldCo Entity or Cable Partner (as the case may
be) outstanding on the date hereof;
(b) acquire or dispose of any property or assets of such HoldCo Entity or
Cable Partner (as the case may be) or enter into any contracts,
arrangements or understandings;
(c) adopt any amendments to the charter or By-Laws of such HoldCo Entity
or Cable Partner (as the case may be) or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of such HoldCo Entity or Cable Partner;
(d) incur any indebtedness, liabilities or obligations of any kind,
except those imposed solely as a matter of Law without any action of such
HoldCo Entity or Cable Partner (as the case may be); provided that the
HoldCo Entities and the Cable Partners may incur intercompany indebtedness
that will be extinguished by means of capital contribution prior to the
Effective Time;
(e) engage in any conduct or business other than holding the general and
limited partnership interests in the respective Cable Partner, Sprint PCS
GP, Sprint PCS LP, PhillieCo GP or PhillieCo LP (as applicable); or
V-38
<PAGE>
(f) enter into any contract, agreement, commitment or arrangement to do
any of the foregoing.
Section 6.10 Conduct of Business of SprintCom and EquipmentCo. From and
including the date hereof to the earlier to occur of the Closing Date or the
termination of this Agreement pursuant to Section 10.1, except as expressly
contemplated by this Agreement or the Other Agreements and excluding third
party affiliation arrangements that will be entered into by SprintCom, Sprint
shall cause SprintCom and EquipmentCo:
(a) to operate the business of SprintCom and EquipmentCo in the ordinary
course of business;
(b) not to transfer, issue, deliver, sell, dispose of, pledge or
otherwise encumber, or authorize the transfer, issuance, sale, disposition
or pledge or other encumbrance of (i) any additional shares of capital
stock of any class or other equity interests (including limited or general
partnership interests in the case of EquipmentCo), or any securities or
rights convertible into, exchangeable for, or evidencing the right to
subscribe for any shares of capital stock or other equity interests
(including limited or general partnership interests in the case of
EquipmentCo), or any rights, warrants, options, calls, commitments or any
other agreements of any character to purchase or acquire any shares of
capital stock or other equity interests (including limited or general
partnership interests in the case of EquipmentCo) or any securities or
rights convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock or other equity interests
(including limited or general partnership interests in the case of
EquipmentCo), or (ii) any other securities in respect of, in lieu of, or in
substitution for, shares of capital stock or other equity interests
(including limited or general partnership interests in the case of
EquipmentCo) outstanding on the date hereof;
(c) not to acquire or dispose of any property or assets or enter into any
contracts, arrangements or understandings other than in the ordinary course
of business (which shall include any acquisitions of PCS licenses and
related assets and leveraged lease transactions that have heretofore been
disclosed to Cable Parents);
(d) not to adopt any amendments to the charter or By-Laws or
organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of SprintCom or EquipmentCo;
(e) not to incur any indebtedness other than in the ordinary course of
business (which shall include any acquisitions of PCS licenses and related
assets and leveraged lease transactions that have heretofore been disclosed
to the Cable Parents);
(f) not to enter in any contract, agreement, commitment or arrangement to
do any of the foregoing;
(g) not to take any other action that could be reasonably expected to
have a Material Adverse Effect on SprintCom or EquipmentCo, whether
individually or taken as a whole; and
(h) not to take any action or knowingly fail to take any action
(including actions relating to the buildout of PCS systems) within its
control that would result in the revocation of Sprint's or SprintCom's
right to hold or use the SprintCom licenses.
Section 6.11 Access to Information.
(a) Upon reasonable notice, each Cable Partner and HoldCo Entity will
afford to officers, employees, counsel, accountants and other authorized
representatives of Sprint ("Sprint Representatives") reasonable access,
during normal business hours throughout the period prior to the Effective
Time, to its properties, books and records (including, subject to execution
of appropriate access letters, the work papers of independent accountants),
and, during such period, shall (and shall cause each of its Subsidiaries
to) furnish promptly to such Sprint Representatives all information
concerning its business, properties and personnel as may reasonably be
requested, provided that no investigation pursuant to this Section 6.11(a)
shall affect or be deemed to modify any of the respective representations
or warranties made herein by such Cable Parents, HoldCo Entities or Cable
Partners thereof. Sprint agrees that it will not, and will cause the Sprint
Representatives not to, use any information obtained pursuant to this
Section 6.11(a) for any purpose
V-39
<PAGE>
unrelated to the consummation of the transactions contemplated by this
Agreement. Sprint will keep confidential, and will cause the Sprint
Representatives to keep confidential, all information and documents
obtained pursuant to this Section 6.11(a) except as otherwise consented to
by the applicable Cable Parent; provided, however, that Sprint shall not be
precluded from making any disclosure which it deems required by Law in
connection with the Mergers, the IPO or the Recapitalization. In the event
Sprint is required to disclose any information or documents pursuant to the
immediately preceding sentence, Sprint shall promptly give prior written
notice of such disclosure that is proposed to be made to the applicable
Cable Parent so that Sprint and such Cable Parent can work together to
limit the disclosure to the greatest extent possible and, in the event that
Sprint is legally compelled to disclose any information, to seek a
protective order or other appropriate remedy or both. Upon any termination
of this Agreement, as and when requested by the applicable Cable Parent,
Sprint will collect and deliver to such Cable Parent all documents obtained
pursuant to this Section 6.11(a) by Sprint or the Sprint Representatives
then in their possession and any copies thereof.
(b) Upon reasonable notice, Sprint will afford to officers, employees,
counsel, accountants and other authorized representatives of any of the
Cable Parents ("CP Representatives") reasonable access, during normal
business hours throughout the period prior to the Effective Time, to the
properties, books and records of SprintCom and EquipmentCo (including,
subject to execution of appropriate access letters, the work papers of
independent accountants), and, during such period, shall furnish promptly
to such CP Representatives all information concerning the business,
properties and personnel of SprintCom and EquipmentCo as may reasonably be
requested, provided that no investigation pursuant to this Section 6.11(b)
shall affect or be deemed to modify any of the respective representations
or warranties made herein by Sprint. Each of the Cable Parents agrees that
it will not, and will cause its respective CP Representatives not to, use
any information obtained pursuant to this Section 6.11(b) for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. The Cable Parents will keep confidential, and will cause its
respective CP Representatives to keep confidential, all information and
documents obtained pursuant to this Section 6.11(b) except as otherwise
consented to by Sprint; provided, however, that any Cable Parent shall not
be precluded from making any disclosure which it deems required by Law in
connection with the Mergers. In the event a Cable Parent is required to
disclose any information or documents pursuant to the immediately preceding
sentence, such Cable Parent shall promptly give prior written notice of
such disclosure that is proposed to be made to Sprint so that Sprint and
such Cable Parent can work together to limit the disclosure to the greatest
extent possible and, in the event that such Cable Parent is legally
compelled to disclose any information, to seek a protective order or other
appropriate remedy or both. Upon any termination of this Agreement, as and
when requested by Sprint, each Cable Parent will collect and deliver to
Sprint all documents obtained pursuant to this Section 6.11(b) by any Cable
Parent or its CP Representatives then in their possession and any copies
thereof.
Section 6.12 Tax Matters.
(a) Each of the parties shall use all reasonable efforts to cause each of
the Mergers to constitute a "reorganization" under Section 368(a) of the
Code. Each party agrees that it will not take any action, and will not
permit any of its Subsidiaries or Affiliates to take any action, that such
party knows would cause the Mergers to fail to qualify as a reorganization
under Section 368(a) of the Code. Each party agrees to report the Mergers
on all tax returns and other filings as a reorganization under Section
368(a) of the Code.
(b) Sprint shall use all reasonable efforts to cause the Recapitalization
to constitute a recapitalization as defined in Code section 368(a)(1)(E).
Sprint agrees that it will not take any action, and will not permit any of
its Subsidiaries or Affiliates to take any action, that Sprint knows would
cause the Recapitalization to fail to qualify as a recapitalization under
Code section 368(a)(1)(E).
(c) On the date hereof Sprint has, and on the Closing Date Sprint will,
execute and deliver to counsel to each Cable Parent a certificate
substantially in the form attached as Exhibit T, signed by an officer of
Sprint, setting forth factual representations and covenants (stated in such
Exhibit) that will serve as the basis of the tax opinions required pursuant
to Section 5.2(h).
V-40
<PAGE>
Section 6.13 Chairman of Sprint PCS. Concurrently with the execution of this
Agreement, the PCS Partners will appoint Ronald T. LeMay as Chairman of the
Partnership Board of Sprint PCS GP (the "Chairman").
Section 6.14 Agreement Not to Trigger Buy/Sell. Until the termination of
this Agreement, (i) each of the PCS Partners agrees that the provisions of
Section 5.8 of the PCS Partnership Agreement shall be suspended and (ii) none
of the PCS Partners will take any action to implement the determination of Net
Equity (as defined in the Partnership Agreement) of each PCS Partner pursuant
to Section 14.7 of the Partnership Agreement, or take any other action that
would cause a Liquidating Event (as defined in the Partnership Agreement).
Section 6.15 Management and Allocation Policies. Sprint will not make any
change in or amendment to the Management and Allocation Policies or the Bylaw
Amendment (or waive or otherwise disregard any provision thereof) prior to the
Recapitalization without the consent of each of the Cable Parents.
Section 6.16 Informational Rights.
(a) Until the later to occur of (i) the termination of the Standstill
Agreement between Sprint and the applicable Cable Parent and (ii) the
earliest time that such Cable Parent and its Subsidiaries beneficially own
securities of Sprint representing a number of Votes (as defined in the
Standstill Agreement) that is less than 1.5% of the number of Votes (as
defined in the Standstill Agreement) represented by all outstanding capital
stock of Sprint (assuming for this purpose that each share of Series 2 PCS
Stock had the same voting right as a share of Series 1 PCS Stock and that
each share of Series 2 FON Stock had the same voting rights as a share of
Series 1 FON Stock), Sprint will provide such Cable Parent with
substantially the same informational rights that Sprint provides to its
major institutional stockholders. In addition, Sprint will provide such
Cable Parent with any information regarding the PCS Group as may be
reasonably requested by such Cable Parent to permit it to comply with
disclosure and financial reporting requirements under applicable securities
laws.
(b) If Sprint is required to include audited financial statements of the
HoldCo Entities and their Subsidiaries and TCI Partner in the Proxy
Statement or the Registration Statement, each Cable Parent shall provide
such financial statements in the necessary form at such Cable Parent's
expense, promptly following the request of Sprint.
Section 6.17 Transfer of Series 2 PCS Stock. Each of the Cable Parents
agrees that it will not (nor will it permit any of its Subsidiaries to)
Transfer any Series 2 PCS Stock, the Warrants or any other securities of
Sprint acquired by such Cable Parent and its Subsidiaries pursuant to this
Agreement unless such Transfer complies with applicable federal and state
securities laws.
Section 6.18 Spin-off. In the event of a Spin-off (as defined in the Initial
Charter Amendment) of all or substantially all of the PCS Group or in case of
a redemption of PCS Stock in exchange for stock of the PCS Group Subsidiary of
the type set forth in Section 7.2 of the Initial Charter Amendment, Sprint or
its Subsidiary will enter into a trademark license agreement with the PCS
Group on substantially the same terms as the Amended and Restated Sprint
Trademark License, dated as of January 31, 1996, between Sprint Communications
Company L.P. and Sprint PCS GP, except that, notwithstanding the termination
provisions of such agreement, such trademark license (i) will be non-exclusive
and (ii) will terminate in its entirety on the date that is six months
following the effective date of the Spin-off.
Section 6.19 Parents Agreements: Non-Competition.
(a) The parties agree that for purposes of the Parents Agreements, the
terms "Subsidiary" and "Controlled Affiliate" and (with respect to the
Cable Parents) "Cable Subsidiary" shall not include any Person in which a
Cable Parent or Sprint, directly or indirectly, holds an equity interest of
not more than 50% so long as such Cable Parent or Sprint, respectively,
does not have direct or indirect control over the management of the day-to-
day operations of such Person (each, a "Non-Controlled Affiliate"). In
addition,
V-41
<PAGE>
the parties agree that the release or waiver by a party of any obligations
of a Non-Controlled Affiliate of such party comparable to the obligations
of a Controlled Affiliate, Subsidiary or Cable Subsidiary under the Parents
Agreement (and the engaging in activities by such Non-Controlled Affiliate
that would otherwise have been inconsistent with such obligations) shall
not be deemed to be inconsistent with the obligations of such party under
the applicable Parents Agreement. The parties further agree that each of
the Parents Agreements and the rights and obligations of the parties
thereunder shall terminate at the Effective Time pursuant to clause (ii) of
Section 13 of the Parents Agreements.
(b) The parties agree that, for the purposes of Section 6.3(c) of the PCS
Partnership Agreement, no PCS Partner (nor any of its Controlled
Affiliates) is required in connection with the acquisition of an equity
interest in any Person that does not represent a majority of the
outstanding equity or voting interests in such Person to require such
Person not to engage in Competitive Activities (as defined in the PCS
Partnership Agreement) so long as (i) such person is not engaged in any
Competitive Activities as of the date of the acquisition of such equity
interest and (ii) neither such PCS Partner nor any of its Controlled
Affiliates allows its name to be used in connection with any Competitive
Activities engaged in by such Person. The applicable parties agree that the
prior sentences shall also be applied with respect to the noncompetition
restrictions contained in the PhillieCo Partnership Agreement and the
partnership agreement of Cox Communications PCS, L.P.
(c) The provisions of Sections 6.19(a) and 6.19(b) shall survive any
termination of this Agreement, but only with respect to any equity interest
acquired (or subject to a binding agreement to be acquired) by a Cable
Parent or its Subsidiaries or Sprint or its Subsidiaries prior to such
termination, whether or not such equity interest was acquired prior to the
date of this Agreement.
Section 6.20 Confidentiality. Each Cable Parent and its Subsidiaries shall
be bound by the provisions of Sections 6.6(a), (b), (d) and (g) of the PCS
Partnership Agreement, as if references to the "Partners" therein referred to
the Cable Parents. The provisions of Section 6.6(c) and (e) of the PCS
Partnership Agreement shall not apply to any Cable Parent. Section 6.6(f) of
the PCS Partnership Agreement shall also apply to each Cable Parent and its
Subsidiaries, except that the two (2) year period referred to therein shall be
deemed to commence on the Closing Date.
Section 6.21 Conduct of Business of PhillieCo. From and including the date
hereof to the earlier to occur of the Closing Date or the termination of this
Agreement pursuant to Section 10.1, each PhillieCo Parent through its
respective PhillieCo Partner shall cause PhillieCo:
(a) to operate the business of PhillieCo in the ordinary course of
business;
(b) not to transfer, issue, deliver, sell, dispose of, pledge or
otherwise encumber, or authorize the transfer, issuance, sale, disposition
or pledge or other encumbrance of (i) any additional limited or general
partnership interests or other equity interests or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe
for any limited or general partnership interests or other equity interests
or any commitments or other agreements of any character to purchase or
acquire any limited or general partnership interests or other equity
interests, or (ii) any other securities in respect of, in lieu of, or in
substitution for, limited or general partnership interests or other equity
interests outstanding on the date hereof;
(c) not to acquire or dispose of any property or assets or enter into any
contracts, arrangements or understandings other than in the ordinary course
of business;
(d) not to adopt any amendments to the PhillieCo LP Partnership Agreement
or PhillieCo Partnership Agreement or organizational documents or alter
through merger, liquidation, reorganization, restructuring or alter in any
other fashion the partnership structure or ownership of PhillieCo;
(e) not to incur any indebtedness other than in the ordinary course of
business;
(f) not to enter in any contract, agreement, commitment or arrangement to
do any of the foregoing;
V-42
<PAGE>
(g) not to engage in any other activities, except the provisions of
wireless telephone service pursuant to the PhillieCo Licenses; and
(h) not to take any action or knowingly fail to take any action
(including actions relating to the buildout of PCS systems) within its
control that would result in the revocation of PhillieCo's right to hold or
use the PhillieCo Licenses.
Section 6.22 Intergroup Interests. Sprint agrees that it will effect such
changes from time-to-time to the Preferred Intergroup Interest and the Warrant
Intergroup Interest as may be necessary to reflect any changes to the terms,
rights, powers or privileges of the PCS Preferred Stock and the Warrants,
respectively, including as a result of the redemption of the PCS Preferred
Stock.
Section 6.23 Rights Plan. Sprint agrees that under the applicable governing
documents for any stockholder rights plan in effect for stockholders of Sprint
following the Closing:
(1) a holder of Series 2 PCS Stock (or Series 2 FON Stock) shall not be
deemed to "beneficially own" the shares of Series 1 PCS Stock (or Series 1
FON Stock) issuable upon conversion thereof prior to the time of such
conversion (including for purposes of calculating the voting power of the
shares held by such holder);
(2) the beneficial ownership by a Cable Parent or its Affiliates of the
shares of common stock of Sprint acquired by such Cable Parent or its
Affiliates pursuant to this Restructuring Agreement (including Article 4,
Section 6.8 and Section 7.10 and including any other shares of common stock
of Sprint acquired upon conversion or reclassification thereof, or upon
payment of any dividend or other distribution thereon), or acquired upon
the conversion of any such shares, shall not in and of itself constitute
beneficial ownership of shares sufficient so as to result in such Cable
Parent or its Affiliates being an "acquiring person" or the like
thereunder; and
(3) in the event any transferee of shares of common stock of Sprint from
a Cable Parent or any of its Affiliates (whose beneficial ownership of
common stock of Sprint (and the voting power thereof) did not exceed the
applicable threshold as of the time of the acquisition of such shares
(including following any conversion of shares of Series 2 PCS Stock or
Series 2 FON Stock into Series 1 PCS Stock or Series 1 FON Stock in
connection therewith) so as to make such an "acquiring person" or the like
thereunder) subsequently exceeds such threshold as a result of the
operation of the provisions of Section 3.2 (or any successor provisions) of
the Amended and Restated Articles of Incorporation of Sprint, Sprint shall
provide such holder with a period of 30 days in which to divest itself of a
sufficient number of shares (or to make other appropriate arrangements
reasonably acceptable to Sprint) to decrease its beneficial ownership to
below the applicable threshold prior to such holder's becoming an
"acquiring person" or the like thereunder.
ARTICLE 7
TAX MATTERS
Section 7.1 Tax Returns. Each Cable Parent has made available (or, in the
case of Tax Returns filed after the Closing Date, will make available) to
Sprint all Tax Returns, and any amendments thereto, filed by or on behalf of
the HoldCo Entities, TCI Partner and their Subsidiaries (if any) (or with
respect to their assets or businesses) for all taxable years or applicable
periods ending on or prior to the Closing Date, in each case, to the extent
such Tax Returns are relevant in the preparation by or on behalf of the HoldCo
Entities, TCI Partner and their Subsidiaries (if any) of Tax Returns
subsequent to the Closing Date.
Section 7.2 Termination of Prior Tax Settlement Agreements. Except with
respect to the Tax Sharing Agreement, all tax settlement and tax-sharing
agreements, arrangements, policies and guidelines, formal or informal, express
or implied, that may exist between the HoldCo Entities, TCI Partner and their
Subsidiaries (if any) and any person or between any entity that will be part
of the PCS Group and any person ("Settlement
V-43
<PAGE>
Agreements") and all obligations thereunder shall terminate prior to the
Closing, and after the Closing Date, none of the HoldCo Entities, TCI Partner
and their Subsidiaries (if any) on any such entities in the PCS Group shall be
bound by such Settlement Agreements or have any liability thereunder.
Section 7.3 Pre-Closing Taxes.
(1) Each of the HoldCo Entities, TCI Partner and their Subsidiaries (if
any) shall continue to be included for all taxable periods (or portions
thereof) ending on or before the Closing Date in the consolidated Federal
income Tax Return and any required state or local consolidated or combined
income or franchise Tax Returns of any affiliated group of which any of
them is or was a member (each of which is herein referred to as a "Selling
Affiliated Group") which Tax Returns include any of the HoldCo Entities,
TCI Partner and their Subsidiaries (if any) (all such Tax Returns including
taxable periods (or portions thereof) of the HoldCo Entities, TCI Partner
and their Subsidiaries (if any) ending on or before the Closing Date are
hereinafter referred to, collectively, as "Pre-Closing Consolidated
Returns"). Each Cable Parent or Cox Partner shall cause its Selling
Affiliated Group to timely prepare and file (or cause to be prepared and
filed) all Pre-Closing Consolidated Returns and shall timely pay all Taxes
shown as due and payable on Pre-Closing Consolidated Returns (including any
Taxes with respect to any deferred income triggered into income by Treasury
Regulations (S)(S)1.1502-13, -14 and any excess loss accounts taken into
income under Treasury Regulation (S)1.1502-19). Without limiting the
generality of the foregoing, Sprint and the Cable Parents acknowledge that,
pursuant to Treasury Regulation (S)1.1502-76(b)(2)(v), (i) Sprint shall
include on its consolidated federal income tax return for the first year
ending after the Closing Date that portion of the distributive share of
each HoldCo Entity and TCI Partner for the current taxable year of each
partnership in which any HoldCo Entity or TCI Partner is a partner that
relates to the portion of such taxable year beginning on the day after the
Closing Date, and (ii) each Cable Parent, with respect to any HoldCo Entity
or TCI Partner of which it is the former Parent following the Closing,
shall include on its consolidated federal income tax return for the first
year ending after the Closing Date that portion of the distributive share
of such HoldCo Entity or TCI Partner for the current taxable year of each
partnership in which such HoldCo Entity or TCI Partner is a partner that
relates to the portion of such taxable year ending on the Closing Date.
Sprint, the Cable Parents, and Cox Partner agree that any such distributive
share shall be allocated between the portion of the applicable taxable year
ending on the Closing Date and the portion of the applicable taxable year
beginning on the day after the Closing Date by hypothetically closing the
books of all relevant entities as of the Closing Date.
(b) Each Cable Parent shall timely prepare (or cause to be so prepared)
all other Tax Returns of the HoldCo Entities, TCI Partner and their
Subsidiaries (if any) which such Cable Parent formerly owned or controlled
that are required by Law for all taxable periods ending on or before the
Closing Date ("Pre-Closing Non-Consolidated Returns"). All Pre-Closing Non-
Consolidated Returns shall be prepared in a manner consistent with prior
practice and shall properly include and reflect the income, activities,
operations and transactions of the HoldCo Entities, TCI Partner and their
Subsidiaries (if any), as applicable. No Pre-Closing Non-Consolidated
return shall be amended in a manner inconsistent with prior practice except
as required by applicable Law. Each Cable Parent shall timely file (or
cause to be so filed) all Pre-Closing Non-Consolidated Returns which are
due on or before the Closing Date and shall pay (or cause the HoldCo
Entities, TCI Partner and their Subsidiaries (if any) to pay as each may be
liable) all Taxes due thereon. Each Cable Parent shall also pay (or cause
the HoldCo Entities, TCI Partner and their Subsidiaries (if any) to pay as
each may be liable) the full amount of any Tax which is payable by the
HoldCo Entities, TCI Partner and their Subsidiaries (if any) without the
filing of a Tax Return ("Non-Return Taxes"), payment of which is due on or
before the Closing Date.
(c) With respect to each Pre-Closing Non-Consolidated Return due after
the Closing Date, each Cable Parent shall deliver (or cause to be so
delivered) each such Pre-Closing Non-Consolidated Return to Sprint at least
15 days prior to the due date of such Tax Return, together with a payment
in an amount equal to the amount of Tax shown as due and payable on such
Pre-Closing Non-Consolidated Return (after giving effect to any credits for
the amount of Tax, if any, previously paid as shown on such Tax Return).
Subject to the
V-44
<PAGE>
foregoing, Sprint shall cause the HoldCo Entities, TCI Partner and their
Subsidiaries (if any) to file all such Pre-Closing Non-Consolidated Returns
that are due after the Closing Date and to pay the amount of Tax shown as
due and payable thereon to the extent each is liable for such payment
(after giving effect to any credits for the amount of Tax, if any,
previously paid as shown on such Tax Return).
(d) In the event that after the Closing Date, any HoldCo Entity, TCI
Partner or their Subsidiaries (if any) is required to pay any Taxes for any
period ending on before the Closing Date, the former Cable Parent of such
entity shall promptly pay to the applicable taxing authority the amount of
such Taxes, or indemnify any other person required to pay such Taxes for
the amount so paid pursuant to Section 7.11. For purposes of the preceding
sentence, the portion of the taxable year of any partnership described in
clause (ii) of the penultimate sentence of Section 7.3(a) shall be treated
as a period ending on the Closing Date.
(e) Except as provided in Section 7.3(d), all Taxes required to be paid
by Sprint and its Subsidiaries with respect to all periods ending on or
before the Closing Date and that portion of any period which includes but
does not end on such Closing Date shall be charged to the Sprint FON Group.
Section 7.4 Transfer Taxes. All sales, use, transfer, stamp, value added,
duty, excise, stock transfer, real property transfer, recording and other
similar taxes and fees arising out of or in connection with the transactions
contemplated by this Agreement shall be paid by each Cable Parent to the
extent such taxes or fees directly result from the transfer of the stock of
such Cable Parent's HoldCo Entities or (in the case of TCI) TCI Partner.
Section 7.5 Post-Closing Taxes. Sprint shall timely prepare and file (or
cause to be so prepared and filed) all Tax Returns required by Law for all
Taxes, covering solely the HoldCo Entities, TCI Partner and their Subsidiaries
(if any), for taxable periods ending after the Closing Date ("Post-Closing
Returns"). Sprint shall timely pay or cause to be paid all Taxes relating to
Post-Closing Returns ("Post-Closing Taxes"). Each Cable Parent shall reimburse
Sprint for (i) the amount of Post-Closing Taxes reported as payable on each
Post-Closing Return that is attributable to the portion of the period covered
by such Tax Return ending on the close of business on the Closing Date (the
"Pre-Closing Tax Period"), determined by treating the close of business on the
Closing Date as the last date of the taxable period and (ii) the amount of any
Non-Return Tax payable after the Closing Date that is attributable to the
portion of the period covered by such payment which ends on or before the
close of business on the Closing Date (pro rata based upon the number of days
covered by such payment), in each case after giving effect to any credits for
the amount of such Post-Closing Tax or such Non-Return Tax, if any, previously
paid by such Cable Parent, the HoldCo Entities, TCI Partner or their
Subsidiaries (if any) or any of their predecessors or affiliates. Such
reimbursements shall be made on or before the later of the date on which such
return is filed or 15 days after receipt of a copy of such return or evidence
of such payment, and Sprint shall provide Cable Parent with copies of
workpapers which will permit Cable Parent to review and substantiate the
accuracy of such return or such payment.
Section 7.6 Carrybacks. If any HoldCo Entity, or TCI Partner or any of their
Subsidiaries (if any) incurs a net operating loss, net capital loss, or other
tax benefit with respect to any taxable period beginning on or after the
Closing Date which tax benefit may be carried back to a period ending on or
before such date and a refund of Taxes attributable to such benefit is
required to be requested by the former Cable Parent owning or controlling such
HoldCo Entity or TCI Partner or would be paid to such Cable Parent, then, upon
request by Sprint, such former Cable Parent will cooperate fully with Sprint
to file, process and pursue such refund and will immediately pay over to such
HoldCo Entity or TCI Partner any refund resulting therefrom.
Section 7.7 Tax Cooperation.
(a) Sprint, the HoldCo Entities, TCI Partner and their Subsidiaries (if
any) and the Cable Parents shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of
Tax Returns and any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include providing information necessary or
appropriate to the filing of such Tax Returns, the retention and (upon the
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient
V-45
<PAGE>
basis to provide additional information and explanation of any material
provided hereunder. The HoldCo Entities, TCI Partner and their Subsidiaries
(if any) and Cable Partners agree (A) to retain all books and records with
respect to Tax matters pertinent to the HoldCo Entities, TCI Partner and
their respective Subsidiaries (if any) relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Sprint or the Cable Parents,
any extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing authority, and
(B) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if
the other party so requests, the HoldCo Entities, TCI Partner and their
Subsidiaries (if any) or the Cable Partners, as the case may be, shall
allow the other party to take possession of such books and records.
(b) Sprint and the Cable Parents further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
Governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed.
(c) Sprint and the Cable Parents further agree, upon request, to provide
the other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
Section 7.8 Notification of Proceedings. In the event that Sprint or any of
the HoldCo Entities, TCI Partner, or their Subsidiaries (if any) receive
notice, whether orally or in writing, of any pending or threatened United
States federal, state, local, municipal or foreign tax examinations, claims
settlements, proposed adjustments, assessments or reassessments or related
matters with respect to Taxes that could affect any of the Cable Parents or
their Subsidiaries, or if any of the Cable Parents or any of their
Subsidiaries receive notice of any matter that could affect Sprint or any of
the HoldCo Entities, TCI Partner or their Subsidiaries (if any), the party
receiving notice shall notify in writing the potentially affected party within
10 calendar days thereof. The failure of any party to give the notice required
by this Section 7.8 shall not impair that party's rights under this Agreement
except to the extent that the other party demonstrates that it has been
damaged thereby.
Section 7.9 Audits.
(a) Except as provided in Section 7.9(b), each of Cable Parents and
Sprint shall have the right to control any audit or examination by any
taxing authority, initiate any claim for refund, file any amended return,
contest, resolve and defend against any assessment, notice of deficiency or
other adjustment or proposed adjustment relating or with respect to any
Taxes, the ultimate liability for which is the responsibility of that party
or its Affiliates under this Agreement, and each of Cable Parents and
Sprint shall be entitled to, and to the extent received by the other shall
be promptly paid by the other, all refunds with respect to any such Taxes.
(b) With respect to any examination of Sprint PCS GP, PhillieCo GP or
their respective Subsidiaries for periods before the Closing Date, Sprint
shall act as the "tax matters partner." Sprint shall take reasonable action
to cause each other Parent to be treated as a "notice partner" within the
meaning of Section 6231(a)(9) of the Code. All reasonable expenses incurred
by Sprint while acting in its capacity as tax matters partner of Sprint PCS
GP and its Subsidiaries shall be paid or reimbursed by each Parent pro rata
based on the PCS Percentage Interest of its PCS Partner immediately prior
to Closing, and in its capacity as tax matters partner of PhillieCo GP
shall be paid or reimbursed by Sprint, TCI and Cox based on the respective
percentage interests of the PhillieCo Partners in PhillieCo GP immediately
prior to Closing. Each Parent (except, with respect to PhillieCo GP,
Comcast) shall be given at least five (5) Business Days advance notice from
Sprint of the time and place of, and shall have the right to participate in
(i) any material aspect of any administrative proceeding relating to the
determination of partnership items at the Sprint PCS GP level or PhillieCo
GP level (or at the level of any Subsidiary thereof) and (ii) any material
discussions with the Internal Revenue Service relating to the allocations
pursuant to Section 3 of the PCS Partnership Agreement or the PhillieCo
Partnership Agreement or pursuant to the partnership agreement of any
Subsidiary. Sprint shall not, and neither Sprint PCS GP nor PhillieCo GP
shall permit the
V-46
<PAGE>
tax matters partner of any Subsidiary to, initiate any action or proceeding
in any court, extend any statute of limitations, or take any other action
contemplated by Sections 6222 through 6232 of the Code that would legally
bind any other Parent, Sprint PCS GP, PhillieCo GP or any Subsidiary
without approval (in the case of Sprint PCS GP and its Subsidiaries) of TCI
and either of Cox or Comcast and (in the case of PhillieCo GP and its
Subsidiaries), TCI and Cox. Sprint shall from time to time upon reasonable
request of any other Parent confer, and cause Sprint PCS GP's and PhillieCo
GP's and any Subsidiary's tax attorneys and accountants to confer, with
such other Parent and its attorneys and accountants on any matters relating
to a Sprint PCS GP or PhillieCo GP or Subsidiary tax return or any tax
election.
Section 7.10 SRLY Losses.
(a) As a result of the transactions contemplated hereby, certain assets
and businesses of Sprint and its Subsidiaries will be allocated to the PCS
Group (all of such assets and businesses being referred to in this Section
7.10 collectively as the "Historic Sprint PCS Business"). Further, TCI
Partner and each of the HoldCo Entities will become direct Wholly-Owned
Subsidiaries of Sprint and will be allocated to the PCS Group (each of such
acquired corporations being referred to in this Section 7.10 as an
"Acquired PCS Sub"). The Historic Sprint PCS Business and the Acquired PCS
Subs are each referred to in this Section 7.10 as a "SRLY Entity."
(b) For purposes of this Section 7.10, a "SRLY Tax Benefit" is any item
of federal or state income Tax or state franchise Tax benefit which (1) was
realized by a SRLY Entity on or before the Closing Date, but which Tax
benefit was not utilized on or before the Closing Date, (2) is available
for use by Sprint or a Subsidiary of Sprint after the Closing Date, and (3)
if utilized on the day after the Closing Date, would (but for this Section
7.10) be allocated to the PCS Group. Without limitation, a Tax benefit
includes any realized but unused item of Tax loss, deduction or credit that
may be applied to offset income, gain or Tax (or any item thereof) under
any applicable federal or state Tax regime. Unrealized losses or deductions
shall not be treated as SRLY Tax Benefits. In the event that the Historic
Sprint PCS Business has previously realized Tax benefits that, for Tax
purposes, are attributable to Subsidiaries of Sprint that will not be
allocated to the PCS Group, Sprint agrees that any such benefits that have
not been utilized, but exist as carryovers, on the day after the Closing
Date shall be allocated to the PCS Group to the same extent as if they were
attributed for Tax purposes to an entity that was allocated to the PCS
Group as of such date, and that such benefits shall be treated as SRLY Tax
Benefits. For purposes of the preceding sentence, whether a previously
realized Tax benefit of the Historic Sprint PCS Business exists as a
carryover on the day after the Closing Date shall be determined as if the
entity to which such benefit is attributed for Tax purposes ceased on the
Closing Date to be a member of the affiliated group (as defined by Section
1504 of the Code) of which Sprint is the common parent. Accordingly, except
as otherwise provided in this Section 7.10, any Tax savings resulting from
any SRLY Tax Benefit attributable to the Historic Sprint PCS Business will
be allocated to the PCS Group.
(c) For purposes of this Section 7.10, a "SRLY Tax Savings" means, for
any SRLY Measurement Period, the amount by which (i) the aggregate amount
of Taxes required to be paid by Sprint and all Subsidiaries of Sprint that,
during the SRLY Measurement Period, are members of the affiliated group (as
defined in Section 1504 of the Code) (or any consolidated, unitary or
combined group under corresponding provisions of state tax laws) of which
Sprint (or a Subsidiary of Sprint) is the common parent, for such SRLY
Measurement Period, is less than (ii) the amount of Taxes that would have
been required to be paid by Sprint and all such Subsidiaries for such SRLY
Measurement Period if no SRLY Tax Benefits existed.
(d) The parties hereto hereby agree that, if SRLY Tax Savings exist for
any SRLY Measurement Period, the following shall occur:
(i) To the extent that the SRLY Tax Savings result from a SRLY Tax
Benefit attributable to an Acquired PCS Sub, Sprint shall issue to the
Cable Parent or Subsidiary of a Cable Parent that owned such Acquired
PCS Sub before the Merger (or its successor-in-interest) a number of
fully paid and nonassessable shares of Sprint common stock (or other
voting common stock permitted by Section 7.10(j)(i)) having a value
equal to sixty percent (60%) of such SRLY Tax Savings. The remaining
forty
V-47
<PAGE>
percent (40%) of such SRLY Tax Savings shall be retained by Sprint and
allocated to the PCS Group or such other business group of Sprint to
which the Acquired PCS Sub from which such SRLY Tax Benefit was derived
or its successor was allocated on the last day of the SRLY Measurement
Period in which such SRLY Tax Savings arose.
(ii) To the extent that the SRLY Tax Savings results from a SRLY Tax
Benefit attributable to the Historic Sprint PCS Business, sixty percent
(60%) of such SRLY Tax Savings shall be allocated to the Sprint FON
Group (or any successor thereto). The remaining forty percent (40%) of
such SRLY Tax Savings shall be allocated to the PCS Group or such other
business group of Sprint to which the Historic Sprint PCS Business or
relevant part thereof is allocated on the last day of the SRLY
Measurement Period in which such SRLY Tax Savings arose.
(e) Whether a SRLY Tax Benefit has resulted in a SRLY Tax Savings shall
be determined by Sprint, taking into account all of the relevant facts and
circumstances, including (for example, but without limitation), whether
such SRLY Tax Benefit has been utilized on a nominal or prima facie basis
to reduce the amount of Taxes that Sprint (or any of its Subsidiaries) is
required to pay; whether, but for such use, other Tax benefits realized
during or prior to such SRLY Measurement Period would be available to
offset the Taxes nominally offset by such SRLY Tax Benefit; and whether the
nominal savings from the utilization of a SRLY Tax Benefit in computing
Taxes due to one jurisdiction is offset by a corresponding Tax detriment in
the same or another jurisdiction. Time value considerations and any Tax
benefits that have not been realized as of the end of the SRLY Measurement
Period (even if then projected to be realized in future periods from which
such Tax benefits could be carried back to the SRLY Measurement Period)
shall not be taken into account in making the determinations required by
the preceding sentence.
(f) Sprint shall make the determination required by Section 7.10(e)
within ninety days after the filing of each Sprint consolidated federal
income Tax Return and each such determination shall relate to the federal
Tax period covered by such Tax Return and to any state Tax periods ending
simultaneously with or before such federal Tax period that were not
included in a prior SRLY Measurement Period (such federal and state Tax
periods, collectively, the "SRLY Measurement Period"). A written overview
summary of each such determination (a "Determination Summary") shall be
provided within the ninety day period described in the preceding sentence
to each Cable Parent, which summary shall be accompanied by a statement by
the incumbent senior financial officer of Sprint that he or she has
reviewed and is familiar such determination and the bases therefor and
believes that such determination applies the requirements of this Section
7.10. If such determination is that a SRLY Tax Savings has resulted from a
SRLY Tax Benefit attributable to an Acquired PCS Sub, the Determination
Summary shall also state the number of shares and class of voting common
stock in which payment will be made and shall set forth the calculation of
the value of such shares.
(g) The obligations imposed hereby apply only to Sprint and shall not be
binding on any other party, except that, if Sprint distributes to some or
all of its shareholders, with respect to or in redemption of, some or all
of the outstanding shares of capital stock of Sprint, stock of a
corporation that owns, directly or indirectly, substantially all of the
assets and businesses constituting the Historic Sprint PCS Business and the
outstanding capital stock of the Acquired PCS Subs, then Sprint shall cause
such corporation to assume the obligations of Sprint hereunder and such
obligations shall be binding upon such corporation as if it were "Sprint"
hereunder.
(h) The parties hereto agree and acknowledge that Sprint is not required
or expected to take any action, or refrain from taking any action, in order
to preserve or accelerate or enhance the use of any SRLY Tax Benefit, and
that Sprint may take, or refrain from taking, any action without
considering any adverse effect thereof on its ability to realize a SRLY Tax
Savings from a SRLY Tax Benefit. Sprint agrees to use its reasonable
efforts to account for both federal and non-federal SRLY Tax Benefits and
SRLY Tax Savings; provided that Sprint may, in its sole discretion, cease
to track and account for non-federal SRLY Tax Benefits and non-federal SRLY
Tax Savings at such time as the aggregate amount of potential remaining
non-federal SRLY Tax Savings is reasonably estimated to be less than
$1,000,000.
V-48
<PAGE>
(i) Readjustments.
(i) If, as a result of any post-filing adjustment to any Tax Return
taken into account in computing the SRLY Tax Savings for any SRLY
Measurement Period, the amount of such SRLY Tax Savings, as originally
determined for such SRLY Measurement Period, differs from the amount of
such SRLY Tax Savings that would have been determined if the
adjustments had been included on such original Tax Return, then
payments required by this Section 7.10 for such SRLY Measurement Period
shall also be adjusted as provided in this Section 7.10(i). If such
adjustment results in or is associated with adjustments to other Tax
Returns taken into account with respect to other SRLY Tax Measurement
Periods (or is made at the same time as adjustments are made to returns
taken into account with respect to other SRLY Measurement Periods), the
cumulative differences in SRLY Tax Savings for all affected SRLY
Measurement Periods shall be recomputed for each SRLY Entity; provided
that, in making such all such computations, tax benefits realized after
a SRLY Measurement Period, such as a later operating loss that can be
carried back to a prior period, shall be ignored.
(ii) If for all the Acquired PCS Subs that were previously
Subsidiaries of a single Cable Parent (such Acquired PCS Subs being
referred to in this Section 7.10(i) as such Cable Parent's Acquired PCS
Subs), taken in the aggregate, as a result of such recomputations, the
SRLY Tax Savings for such SRLY Measurement Period (or the cumulative
SRLY Tax Savings attributable to all SRLY Measurement Periods involved
in such related adjustments) exceeds the SRLY Tax Savings for such SRLY
Measurement Period (or the cumulative SRLY Tax Savings for all such
periods) as originally computed for such SRLY Measurement Period or
SRLY Measurement Periods, as applicable, then Sprint, within ninety
days after such adjustment or adjustments become final, shall make an
incremental payment to such Cable Parent (for itself or on behalf of
any Subsidiary of such Cable Parent that owned the relevant Acquired
PCS Sub before the Merger), in the form described in Section
7.10(d)(i), in an amount equal to 60 percent of such increase (or
cumulative increase).
(iii) If for the Historic Sprint PCS Business, as a result of such
recomputations, the SRLY Tax Savings for such SRLY Measurement Period
(or the cumulative SRLY Tax Savings attributable to all SRLY
Measurement Periods involved in such related adjustments) exceeds the
SRLY Tax Savings for such SRLY Measurement Period (or the cumulative
SRLY Tax Savings for all such periods) as originally computed for such
SRLY Measurement Period or SRLY Measurement Periods, as applicable,
then sixty percent of such net increase (or cumulative increase) shall
be allocated to the Sprint FON Group (or any successor thereto),
effective no earlier than the date that payments, if any, are made to
the Cable Parents with respect to any adjustments for such SRLY
Measurement Period or SRLY Measurement Periods pursuant to Section
7.10(i)(ii).
(iv) If, for any Cable Parent's Acquired PCS Subs, as a result of
such recomputations, the SRLY Tax Savings for such SRLY Measurement
Period (or the cumulative SRLY Tax Savings attributable to all SRLY
Measurement Periods involved in such related adjustments) is exceeded
by the SRLY Tax Savings for such SRLY Measurement Period (or the
cumulative SRLY Tax Savings for all such periods) as originally
computed for such periods, then such Cable Parent (for itself or on
behalf of any Subsidiary of such Cable Parent that owned the relevant
Acquired PCS Sub before the Merger), shall promptly pay to Sprint for
the benefit of the PCS Group (or any successor) an amount in either
cash or shares of the voting common stock issued pursuant to Section
7.10(j) equal in value to 60 percent of the amount of such excess
(without interest). For these purposes, the voting common stock will be
valued as contemplated by the last sentence of Section 7.10(j)(ii),
with the "Determination Date" being five Business Days prior to the
delivery of such shares to Sprint.
(v) If, for the Historic PCS Business, as a result of such
recomputations, the SRLY Tax Savings for such SRLY Measurement Period
(or the cumulative SRLY Tax Savings attributable to all SRLY
Measurement Periods involved in such related adjustments) is exceeded
by the SRLY Tax Savings for such SRLY Measurement Period (or the
cumulative SRLY Tax Savings for all such periods) as
V-49
<PAGE>
originally computed for such periods, then an amount in cash equal to
60 percent of the amount of such excess (without interest) shall be
reallocated from the FON Group to the PCS Group.
(j) Any issuances of common stock required by Section 7.10(d) and Section
7.10(i) to be made to a Cable Parent or Subsidiary of a Cable Parent shall
be made as follows:
(i) If the SRLY Tax Savings with respect to which such stock is being
issued resulted from a SRLY Tax Benefit that is attributable to a
business as to which, at the time such issuance is to be made, Sprint
has outstanding a class of publicly traded voting common stock that is
intended to track the performance of a business group to which such
business is attributed, then payment shall be made in shares of such
voting common stock, and such shares shall be deemed to have been
issued for the benefit of such business group. If such SRLY Tax Benefit
is attributable to a business as to which, at the time such issuance is
to be made, Sprint does not have outstanding a class of publicly traded
voting common stock that is intended to track the performance of a
business group to which such business is attributed, then payment shall
be made in shares of any class of outstanding publicly traded Sprint
voting common stock or, if Sprint does not have any such outstanding
class of common stock, in shares of the publicly traded voting common
stock of the Parent Entity of Sprint or of any Subsidiary of such
Parent Entity.
(ii) The value of the shares of voting common stock issued to a Cable
Parent or Subsidiary of a Cable Parent shall be established as of (A)
the last Trading Day (as defined in the Initial Charter Amendment) of
the SRLY Measurement Period with respect to the relevant SRLY Tax
Benefit or (B) in the case of shares of voting common stock issued
pursuant to Section 7.10(i), the date on which the relevant adjustments
described in Section 7.10(i) become final (the "Determination Date").
Such value will equal the average of the Closing Prices (as defined in
the Initial Charter Amendment) for the relevant stock for the period of
30 consecutive Trading Days ending on the Determination Date.
(iii) Sprint shall issue any shares of voting common stock required
to be issued by it under this Section 7.10 within 60 days after the
delivery of a Determination Summary which includes a determination that
a Cable Parent or Subsidiary of a Cable Parent is entitled to receive
shares of voting common stock under this Section 7.10.
(iv) The shares of voting common stock issued by Sprint under this
Section 7.10 shall not reduce the Number of Shares Issuable With
Respect to the Intergroup Interest as defined in the Initial Charter
Amendment.
(v) Notwithstanding anything in this Section 7.10 to the contrary, no
rights or obligations regarding the issuance of voting common stock
under this Section 7.10 shall accrue or become fixed with respect to
any Cable Parent, and the applicable Determination Date for purposes of
clause (ii) above which would otherwise cause the same to occur shall
automatically be delayed with respect to such Cable Parent, for a
period up to six months from the otherwise applicable Determination
Date if the accrual or fixing of such rights would cause such Cable
Parent or Subsidiary of a Cable Parent to be subject to liability under
Section 16(b) of the Exchange Act; provided that such period shall not
exceed the minimum period necessary for any such Cable Parent to be
exempt from such liability.
Section 7.11 Tax Indemnification
(a) After the Closing Date, each Cable Parent, with respect only to its
formerly owned or controlled HoldCo Entities and their respective
Subsidiaries and (in the case of TCI) TCI Partner, shall indemnify and hold
harmless Sprint, the HoldCo Entities, TCI Partner, their Subsidiaries (if
any) and each of their respective affiliates, successors and assigns from
and against any Tax liability with respect to any Pre-Closing Non-
Consolidated Return and with respect to any Tax liability for the Pre-
Closing Tax Period on a Post-Closing Return (determined by treating the
Closing Date as the last date of the taxable period) and with respect to
any Non-Return Taxes attributable to the portion of the period covered by
any payment of such Taxes which ends on or before the Closing Date
(determined on a pro rata basis based upon the number of days covered by
such payment which are on or before the Closing Date and the total number
of days
V-50
<PAGE>
covered by such payment), in each case, to the extent such amount exceeds
any amount previously paid to Sprint, the HoldCo Entities, TCI Partner, or
their Subsidiaries (if any) with respect to such Tax pursuant to Section
7.3 or 7.5, as applicable. Each Cable Parent shall pay such amounts as it
is obligated to pay to Sprint or the HoldCo Entities, TCI Partner or their
Subsidiaries (if any) within 10 calendar days after payment of any
applicable Tax liability by Sprint or the HoldCo Entities, TCI Partner, or
their Subsidiaries (if any) and to the extent not paid by each Cable Parent
within such 10-day period, the amount due shall thereafter include interest
thereon at a rate per annum equal to the "overpayment rate" under Section
6621(a) of the Code (the "Overpayment Rate"), adjusted as and when changes
to such Overpayment Rate shall occur, compounded semi-annually. Each Cable
Parent shall indemnify and hold harmless Sprint and the HoldCo Entities,
TCI Partner and their Subsidiaries (if any) and each of their respective
affiliates, successors and assigns, from and against (i) any Tax liability
for periods prior to and including the Closing Date resulting from the
HoldCo Entities, TCI Partner, or their Subsidiaries (if any) which such
Cable Parent formerly owned or controlled being severally liable for any
Taxes of any consolidated group of which any of the HoldCo Entities, TCI
Partner, or their Subsidiaries (if any) are or were members pursuant to
Treasury Regulations (S) 1.1502-6 or any analogous state or local tax
provision (including, without limitation, any Tax liability with respect to
any Pre-Closing Consolidated Return), and (ii) any Tax liability resulting
from the HoldCo Entities, TCI Partner, or their Subsidiaries (if any) which
such Cable Parent formerly owned or controlled ceasing to be a member of
any Selling Affiliated Group filing consolidated or combined Tax Returns.
Any indemnification payments made by a Cable Parent under this Section
7.11(a) shall be allocated to the PCS Group.
(b) After the Closing Date, Sprint and each of the HoldCo Entities and
their Subsidiaries and TCI Partner, jointly and severally shall indemnify
and hold harmless each Cable Parent and its Affiliates, successors and
assigns from and against any Tax liability with respect to Post-Closing
Taxes, other than Post-Closing Taxes for which a Cable Parent is
responsible pursuant to Section 7.11(a). Sprint shall cause the appropriate
HoldCo Entity, TCI Partner, or their Subsidiaries (if any) to pay such
amounts within 10 calendar days after payment of any such Tax liability by
each Cable Parent and, to the extent not paid by such HoldCo Entity, TCI
Partner, or their Subsidiaries (if any) within such 10-day period, the
amount due shall thereafter include interest thereon at the Overpayment
Rate, compounded semi-annually. Any indemnification payments made by
Sprint, any of the HoldCo Entities, TCI Partner or their Subsidiaries under
this Section 7.11(b) shall be charged to the PCS Group.
(c) All claims for indemnification under this Section 7.11 (i) will be
asserted and resolved as provided in Section 11.4 and (ii) shall be subject
to the limitations set forth in Sections 11.2(b) and 11.2(c). The right of
the parties to commence a claim for indemnification under this Section 7.11
shall survive until the 30th day following the expiration of the applicable
statute of limitations period with respect to the subject matter of such
claim.
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.1 Conditions of All Parties to Closing. The respective obligations
of each party to consummate the transactions contemplated by this Agreement
are subject to the fulfillment at or prior to the Effective Time of each of
the following conditions, any or all of which may be waived in whole or in
part by the party being benefitted thereby, to the extent permitted by
applicable Law:
(a) Sprint Stockholder Approval. The following matters presented for a
vote of the stockholders of Sprint at the Stockholders Meeting shall have
been duly approved by the requisite holders of capital stock in accordance
with applicable Law and the Articles of Incorporation and By-Laws of
Sprint: (i) the Initial Charter Amendment; (ii) the Subsequent Charter
Amendment; (iii) this Agreement and the transactions contemplated hereby
and (iv) the Bylaw Amendment.
V-51
<PAGE>
(b) HSR Act; FCC. Any waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or
termination thereof shall have been granted, and all consents required from
the Federal Communications Commission shall have been granted, in each case
without any material limitation, restriction, requirement or condition on
Sprint PCS, any HoldCo Entity, any PCS Partner or on any Parent or any of
its Subsidiaries.
(c) No Injunction. No preliminary or permanent injunction or other order,
decree or ruling issued by a Governmental Authority, nor any statute, rule,
regulation or executive order promulgated or enacted by any Governmental
Authority, shall be in effect that enjoins the consummation of the
transactions to be effected at the Closing and which would result in
material adverse consequences to any Parent or any of its Subsidiaries if
the Closing occurred in violation thereof or imposes any material
restrictions or requirements thereon or on any of the parties in connection
therewith.
(d) Listing of Series 1 PCS Stock. The Series 1 PCS Stock required to be
issued in the IPO or in the Recapitalization (whichever Sprint has elected
to complete simultaneously with the Closing) hereunder shall have been
approved for listing on the New York Stock Exchange, or if not so approved,
shall have been approved for listing on the American Stock Exchange or
approved for quotation on the National Market Tier of The Nasdaq Stock
Market, subject only to official notice of issuance.
(e) IPO or Recapitalization. The IPO or the Recapitalization (whichever
Sprint has elected to complete simultaneously with the Closing) shall be
consummated simultaneously with the Closing.
(f) Initial Charter Amendment; Certificate of Designations. The Initial
Charter Amendment and the Certificate of Designations (and, if the
Recapitalization occurs on the Closing Date, the Subsequent Charter
Amendment) shall have been filed with the Kansas Secretary of State.
(g) Certificates of Merger. Each of the Certificates of Merger shall have
been filed with the Delaware Secretary of State or the Colorado Secretary
of State, as applicable.
Section 8.2 Sprint's Conditions Precedent to Closing. The obligations of
Sprint and its Subsidiaries to effect the transactions contemplated by this
Agreement are subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, compliance with which or the occurrence of
which may be waived in whole or in part by Sprint:
(a) Correctness of Representations and Warranties.
(i) The representations and warranties of each Cable Parent contained
in this Agreement shall be accurate in all material respects on the
Closing Date with the same effect as if made on the Closing Date
(except that any such statements which are expressly made as of a
particular date shall have been accurate as of such particular date);
provided that with respect to the representations and warranties
contained in Section 5.2(g), any inaccuracies, individually or in the
aggregate, shall not be considered material unless such inaccuracies
have a material adverse effect on the ability of a Cable Parent to
perform its obligations under Section 7.3(d) or 7.11(a). For purposes
of the last clause of the preceding sentence, in determining whether an
inaccuracy is material, it is presumed that any tax item shown on a
return or report furnished by Sprint, Sprint PCS GP, Sprint PCS LP,
PhillieCo GP or PhillieCo LP is correct.
(ii) At the Closing, Sprint shall be provided with a certificate to
such effect from each of the Cable Parents, signed by a duly authorized
officer thereof.
(b) Performance of Agreements. All covenants and agreements of each Cable
Parent and its respective Subsidiaries contained in this Agreement and
required to be performed on or before the Closing Date shall have been
performed in all material respects on or prior to the Closing Date. At the
Closing, Sprint shall be provided with a certificate to such effect from
each of the Cable Parents, signed by a duly authorized officer thereof.
V-52
<PAGE>
(c) Tax Opinion. There shall not have occurred any change in applicable
Law or any change in facts beyond Sprint's reasonable control, in either
case occurring after the date hereof, that would prevent King & Spalding
from reaffirming to Sprint at the Closing its opinion described in Section
5.3(g). For purposes of this Section 8.2(c), Law also includes any Revenue
Ruling, proposed regulations or official notice of intent to propose
regulations issued by the Internal Revenue Service, or a bill introduced in
the House of Representatives or Senate of the United States, or legislation
proposed by the United States Treasury Department.
Section 8.3 Cable Parents' Conditions Precedent to Closing. The obligations
of each Cable Parent and its Subsidiaries to effect the transactions
contemplated by this Agreement are subject to the satisfaction, on or prior to
the Closing Date, of the following conditions, compliance with which or the
occurrence of which may be waived in whole or in part by unanimous action of
the Cable Parents.
(a) Correctness of Representations and Warranties. All representations
and warranties of Sprint and the other Cable Parents shall be accurate in
all material respects on the Closing Date with the same effect as if made
on the Closing Date (except that any such statements which are expressly
made as of a particular date shall have been accurate as of such particular
date). At the Closing, the Cable Parents shall be provided with a
certificate to such effect from Sprint with respect to its representations
and warranties, signed by a duly authorized officer thereof.
(b) Performance of Agreements. All covenants and agreements of Sprint and
its Subsidiaries contained in this Agreement and required to be performed
on or before the Closing Date shall have been performed in all material
respects on or prior to the Closing Date. At the Closing, the Cable Parents
shall be provided with a certificate to such effect from Sprint, signed by
a duly authorized officer thereof.
(c) Tax Opinions. There shall not have occurred any change in applicable
Law or any change in facts beyond the respective Cable Parent's reasonable
control, in either case occurring after the date hereof, that would prevent
outside counsel for such Cable Parent from reaffirming to such Cable Parent
at the Closing its opinion described in Section 5.2(h). For purposes of
this Section 8.3(c), Law also includes any Revenue Ruling, proposed
regulations or official notice of intent to propose regulations issued by
the Internal Revenue Service, or a bill introduced in the House of
Representatives or Senate of the United States, or legislation proposed by
the United States Treasury Department.
ARTICLE 9
CLOSING
Section 9.1 Closing. The Closing shall take place at the offices of King &
Spalding, 1185 Avenue of the Americas, New York, New York, at 10:00 a.m.
(local time at the place of Closing) on the date determined by Sprint in
accordance with Sections 6.2(c), 6.2(d) and 6.2(e) or at such other location
or on such other date or time as the parties hereto shall agree. At the
Closing, the IPO or Recapitalization shall be consummated, and the parties
shall take such actions and execute and deliver such documents and agreements
as are contemplated herein or as may be reasonably requested by any other
party hereto, including the following actions:
(i) The Initial Charter Amendment and the Certificate of Designations
and (if the Recapitalization is to occur simultaneously with the
Closing) the Subsequent Charter Amendment shall be filed with the
Kansas Secretary of State.
(ii) (A) Sprint shall deliver to each of the Cable Partners copies of
the resolutions adopted by the Sprint Board of Directors in connection
with the transactions contemplated by this Agreement, which resolutions
shall (among other things) (v) appoint the Capital Stock Committee and
delegate to it the powers described on Exhibit Q, (w) adopt the
Management and Allocation Policies, (x) approve the Bylaw Amendment,
(y) approve the formation of the PCS Group and the Sprint FON Group and
(z) create the Preferred Intergroup Interest and the Warrant Intergroup
Interest, certified by the Secretary or an Assistant Secretary of
Sprint, and (B) each of the Cable Parents shall deliver to Sprint
copies of
V-53
<PAGE>
the resolutions adopted by such Cable Parent's Board of Directors in
connection with the transactions contemplated by this Agreement,
certified by the Secretary or Assistant Secretary of such Cable Parent.
(iii) Each of the Parents shall deliver to each of the other Parents
a certification that such Parent's representations and warranties set
forth herein are true and accurate as of the Closing Date, as though
such representations and warranties were made on and as of the Closing
Date.
(iv) Each of the Parents shall deliver to each of the other Parents a
certification that the covenants contained herein that are required to
be performed by such Parent or its Subsidiaries prior to the Closing
have been performed in all material respects.
(v) (A) Certificates representing the shares of Series 2 PCS Stock
and the Warrants and (if applicable) PCS Preferred Stock to be issued
in the Mergers (and, if applicable, pursuant to Equity Purchase Rights
exercised by the Cable Partners in connection with the IPO) shall be
delivered by Sprint to each of the Cable Partners, (B) the cash and/or
certificates representing PCS Preferred Stock consisting of the
purchase price for the Cable Parent PCS Notes pursuant to Section 6.6
shall be paid or delivered by Sprint to the Cable Parents or their
Subsidiaries and (C) the cash and/or Preferred Intergroup Interest
consisting of the purchase price for the Sprint PCS Loans and the
SprintCom Loans shall be paid to Sprint or its Subsidiaries and/or
created for the benefit of the Sprint FON Group.
(vi) The Warrant Agreements shall be duly executed and delivered by
the parties thereto.
(vii) The Voting Agreements shall be duly executed and delivered by
the parties thereto.
(viii) The Cox L.A. Amendments shall be duly executed and delivered
by the parties thereto.
(ix) The Certificates of Merger shall be duly executed and delivered
by the parties thereto for filing with the Delaware and Colorado
Secretaries of State.
(x) The Tax Sharing Agreement shall be duly executed and delivered by
Sprint.
(xi) The Registration Rights Agreement shall be duly executed and
delivered by the parties thereto.
(xii) The Mutual Release and Waiver shall be duly executed and
delivered by the parties thereto.
(xiii) The PCS Partners and the PhillieCo Partners shall enter into
amended restated partnership agreements for Sprint PCS GP and PhillieCo
GP in form reasonably satisfactory to the Cable Parents.
(xiv) Sprint shall deliver to the Cable Parents a certificate signed
by an executive officer of Sprint setting forth (i) the number of
shares of each class and series of capital stock of Sprint that will be
authorized and outstanding immediately following the Effective Time,
(ii) a list of all PCS Options that will be outstanding immediately
following the Effective Time, (iii) a list of all shares of each class
and series of capital stock of Sprint that will be held in treasury by
Sprint immediately following the Effective Time and (iv) the number of
shares of each class and series of PCS Stock that will have been
reserved for issuance by the Board of Directors of Sprint immediately
following the Effective Time. Such certificate shall further certify
that, other than (i) the PCS Options, (ii) the rights of Cox Pioneer
Partnership and its Affiliates under the Agreement of Limited
Partnership of Cox Communications PCS, L.P., dated as of December 31,
1996, as amended, (iii) the rights of FT and DT under the FT/DT
Agreements and (iv) the rights of the Cable Parents and their
Affiliates under this Agreement and the Other Agreements, there are no
preemptive rights, rights of first refusal, participation rights or
other similar rights outstanding at the Effective Time to purchase any
of the authorized but unissued PCS Stock or any PCS Stock held in
treasury.
All of the actions contemplated to occur at the Closing (including each of the
Mergers) shall be deemed to have occurred simultaneously, and none of such
actions shall be effective unless all of such actions have occurred or are
waived by the necessary parties (or, in the case of any of the Mergers, by
unanimous written consent of each party hereto).
V-54
<PAGE>
ARTICLE 10
TERMINATION
Section 10.1 Events of Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing:
(a) by mutual written consent of the Parents;
(b) by any Parent, by notice to the other Parents, if the Closing shall
be prohibited by any final, nonappealable order, decree or injunction of a
Governmental Authority, which would result in material adverse consequences
to any Parent or any of its Subsidiaries if the Closing occurred in
violation of such order, decree or injunction;
(c) by any Parent that is not in material breach of any material covenant
contained in this Agreement, by notice to the other Parents if the Closing
has not occurred on or before December 31, 1998;
(d) by any Parent that is not in material breach of any material covenant
contained in this Agreement, by notice to the other Parents following the
time that any condition to closing set forth in Article 8 has become
incapable of being satisfied on or prior to December 31, 1998; or
(e) by any Parent that is not in material breach of any material covenant
contained in this Agreement, by notice to the other Parents following a
material breach of any material covenant contained in this Agreement by any
other Parent or its Subsidiary if such breach remains uncured in any
material respect for thirty (30) days following the giving of notice of the
breach of such material covenant from the Parent seeking to terminate this
Agreement to each other party; provided, that the Parent seeking to
terminate this Agreement gives written notice of such termination to each
other Parent within thirty (30) days following the end of such thirty (30)
day cure period.
Section 10.2 Effect of Termination.
(a) If this Agreement is terminated in accordance with Section 10.1, then
this Agreement shall become null and void and have no further effect,
without any liability of any party to any other party, except that the
obligations of the parties pursuant to Article 12 and under any provision
of this Agreement that expressly provides for certain actions to occur
simultaneously with or following the termination of this Agreement shall
survive the termination of this Agreement indefinitely; provided, that no
such termination shall release or relieve any party hereto from liability
for any willful material breach of any material provision of this Agreement
occurring prior to such termination.
(b) If this Agreement is terminated in accordance with Section 10.1, the
PCS Partnership Agreement, the PhillieCo Partnership Agreement and the
Parents Agreements shall continue in full force and effect until terminated
in accordance with their respective terms, without any amendment to the
rights and obligations of the parties thereto, except (i) the PCS Partners
agree that an event described in Section 14.1(a)(iii) of the PCS
Partnership Agreement shall be deemed to have occurred simultaneously with
such termination such that the PCS Partners proceed immediately to the
determination of "Net Equity" under Section 14.7 of the PCS Partnership
Agreement, thus bypassing the escalation procedures of Section 5.8 of the
PCS Partnership Agreement and (ii) the PhillieCo Partners agree that an
event described in Section 14.1(a)(iii) of the PhillieCo Partnership
Agreement shall be deemed to have occurred simultaneously with such
termination such that the PhillieCo Partners proceed immediately to the
determination of "Net Equity" under Section 14.7 of the PhillieCo
Partnership Agreement, thus bypassing the escalation procedures of Section
5.8 of the PhillieCo Partnership Agreement.
V-55
<PAGE>
ARTICLE 11
EXTENT AND SURVIVAL OF REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION
Section 11.1 Scope of Representations of the Parties. Except as and to the
extent set forth in this Agreement, none of the parties makes any
representation, warranty, covenant or agreement whatsoever, and each party
disclaims all liability and responsibility for any representation, warranty,
covenant, agreement or statement made or information communicated (orally or
in writing) to any other party (including any opinion, information or advice
which may have been provided to any other party or any Affiliate thereof by
any stockholder, partner, director, officer, employee, accounting firm, legal
counsel or any other agent, consultant or representative of a party). Each of
the parties expressly agrees and acknowledges that, in consummating the
transactions contemplated hereby, it is only relying on the representations
and warranties of the other parties made in this Agreement, the Other
Agreements and any other agreements or certificates expressly contemplated by
this Agreement, and is not relying on any representation or warranty of any
present, former or future stockholder or partner, director, officer, employee,
accounting firm, legal counsel or any other agent, consultant or
representative of any of the parties or any of their respective Affiliates.
Each of the parties further acknowledges and agrees that it has access to all
available information about Sprint PCS and its Subsidiaries and that such
party is not relying on any representation or warranty whatsoever, except as
expressly provided in this Agreement, or any other party hereto or any of
their Affiliates with respect to Sprint PCS and its Subsidiaries.
Section 11.2 Indemnification of Parties.
(a) Following the Closing and subject to the other terms and conditions
of this Agreement, each party (as applicable with respect to any specific
party, the "Indemnitor") agrees to indemnify, defend and hold harmless each
other party hereto that is not an Affiliate of the Indemnitor and their
respective successors and assigns (each an "Indemnified Party" and
collectively, the "Indemnified Parties") from and against any and all
losses, claims, costs, fines, damages (excluding consequential and special
damages other than amounts paid as consequential or special damages to a
third party pursuant to a Third Party Claim), Taxes (other than those for
which indemnity is provided under Section 7.11), liabilities and
deficiencies, including (subject to Section 11.4) reasonable legal and
other fees and expenses incurred in the investigation and defense of claims
and actions, and amounts paid as indemnification to directors, officers,
employees or agents, whether such claims and actions are brought by third
parties or parties hereto (each a "Loss" and collectively, "Losses"),
incurred by an Indemnified Party and arising out of or resulting from (A)
any inaccuracy in the representations and warranties of the Indemnitor set
forth in this Agreement or in any Other Agreement or (B) any failure to
perform by the Indemnitor of any of its covenants or agreements contained
in this Agreement or any Other Agreement (any such Loss or Losses being
referred to herein as an "Indemnified Loss" or "Indemnified Losses").
Notwithstanding the foregoing, no Indemnitor shall be required to indemnify
the Indemnified Parties with respect to any Indemnified Loss arising under
clause (A) above unless and until the aggregate amount of the Indemnified
Losses incurred by all Indemnified Parties with respect to the
representations and warranties made by such Indemnitor and its Affiliates,
if any, as finally determined pursuant to Section 11.4 (other than Losses
with respect to Non-Basket Claims) exceeds $50 million; provided, however,
that at such time as the aggregate amount of Indemnified Losses from such
claims other than Non-Basket Claims ("Basket Claims") exceeds $50 million,
the Indemnified Parties shall be entitled to indemnification for the full
amount of the Indemnified Losses, if any, as finally determined pursuant to
Section 11.4 from Basket Claims in excess of $10 million (the limitation
contained in this sentence referred to herein as the "Basket Limitation").
As used herein the term "Non-Basket Claim" means any claim arising out of
an inaccuracy of any of the representations and warranties set forth in
Sections 5.1(a), 5.1(b), 5.2(a), 5.2(b), 5.2(c), 5.3(a), the second
sentence of 5.3(c), 5.3(d), 5.3(e), 5.3(f), 5.3(h)(i), 5.3(h)(ii), 5.4(b),
5.5(a) and 5.5(b). The Basket Limitation shall not apply to any Indemnified
Losses from claims that are Non-Basket Claims.
(b) The amount of any Indemnified Loss shall be reduced by any insurance
proceeds and any indemnity, contribution or other similar payment recovered
by the Indemnified Parties from any third party
V-56
<PAGE>
with respect to the facts or circumstances which gave rise to the
Indemnified Loss (net of any Taxes thereon). If any indemnification payment
is payable by an Indemnitor pursuant to Section 11.4 prior to the date of
the receipt of any payment referred to in this paragraph by an Indemnified
Party, the Indemnified Party will be required to reimburse an appropriate
portion thereof to the Indemnitor upon its receipt of such payment.
(c) If any Indemnitor's obligation under this Section 11.2 arises in
respect to an adjustment that makes allowable to any Indemnified Party, or
any Affiliate of an Indemnified Party, any present or future deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit")
that would not, but for such adjustment, have been allowable, then any
payment by the Indemnitor to the relevant Indemnified Party or Indemnified
Parties shall be an amount equal to the Indemnified Loss minus the sum of
the present values (calculated using a 5.77% discount rate) of all Tax
Benefits that arise as a consequence of the relevant adjustment multiplied,
in each case, by (i) the maximum federal, state, local or foreign, as the
case may be, corporate tax rate in effect at the time of the payment of
such Indemnified Loss or (ii) in the case of a credit, 100%.
Section 11.3 Survival. The representations and warranties set forth in this
Agreement will terminate and expire on the first anniversary of the Closing
Date, after which time no party may institute any action or present any claim
for an inaccuracy of such statements; provided that the representations and
warranties set forth in Sections 5.1(a), 5.1(b), 5.2(a), 5.2(b), 5.2(c),
5.2(g), 5.3(a), the second sentence of 5.3(c), 5.3(d), 5.3(e), 5.3(f),
5.3(h)(i), 5.3(h)(ii), 5.4(b), 5.5(a) and 5.5(b) will survive until the
expiration of the applicable statute of limitations period with respect to
claims made thereunder for any inaccuracy thereof. Any action or claim for the
breach of any covenant or agreement contained herein must be instituted or
presented prior to the expiration of the applicable statute of limitations
period with respect to such claim or action.
Section 11.4 Indemnification Procedures. Except to the extent otherwise
provided herein, all claims for indemnification under this Agreement will be
asserted and resolved as follows:
(a) An Indemnified Party claiming indemnification under this Agreement
will promptly (i) notify the Indemnitor from whom indemnification is sought
of any third party claim or claims ("Third Party Claim") asserted against
the Indemnified Party which could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnitor a written notice
("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if
any), an estimate of the amount of damages attributable to the Third Party
Claim, if reasonably possible, and the basis of the Indemnified Party's
request for indemnification under this Agreement. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnitor
will notify the Indemnified Party (i) whether the Indemnitor disputes its
potential liability to the Indemnified Party under this Agreement with
respect to such Third Party Claim and (ii) whether the Indemnitor desires
to defend the Indemnified Party against such Third Party Claim.
(b) If the Indemnitor notifies the Indemnified Party within the Election
Period that the Indemnitor does not dispute its potential liability to the
Indemnified Party under this Agreement and that the Indemnitor elects to
assume the defense of the Third Party Claim, then the Indemnitor will have
the right to defend, at its sole cost and expense, such Third Party Claim
by all appropriate proceedings, which proceedings will be prosecuted
promptly and diligently by the Indemnitor to a final conclusion or settled
at the discretion of the Indemnitor in accordance with this Section
11.4(b). Subject to the last sentence of this Section 11.4(b), the
Indemnitor will have full control of such defense and proceedings,
including any compromise or settlement thereof. The Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnitor (but only
if the Indemnified Party is ultimately determined to be actually entitled
to indemnification hereunder with respect to such Third Party Claim or if
the Indemnitor assumes the defense with respect to the Third Party Claim),
to file, during the Election Period, any motion, answer or other pleadings
which the Indemnified Party deems necessary or appropriate to protect its
interests or those of the Indemnitor and which are not unnecessarily
prejudicial to the Indemnitor. If requested by the Indemnitor, the
Indemnified Party will, at the sole cost and expense of the Indemnitor,
cooperate with the Indemnitor and its counsel in
V-57
<PAGE>
contesting any Third Party Claim which the Indemnitor elects to contest,
including the making of any bona fide directly related counterclaim against
the person asserting the Third Party Claim or any cross-complaint against
any Person. The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the Indemnitor
pursuant to this Section 11.4(b) and, except as permitted above or pursuant
to Section 11.4(c), will bear its own costs and expenses with respect to
such participation; provided, however, that if the Indemnified Party
asserts that there exists a conflict of interest that would make it
inappropriate for the same counsel to represent the Indemnitor, then the
Indemnitor shall reimburse the Indemnified Party for the reasonable fees
and expenses of separate counsel, to the extent such fees and expenses are
incurred solely in connection with the matters with respect to which there
is a conflict of interest. Notwithstanding anything in this Section 11.4 to
the contrary, the Indemnitor will not, without the written consent of the
Indemnified Party, (i) settle or compromise any action, suit or proceeding
or consent to the entry of any judgment which does not include as an
unconditional term thereof the delivery by the claimant or plaintiff to the
Indemnified Party of a written release from all liability in respect of
such action, suit or proceeding or (ii) settle or compromise any action,
suit or proceeding in any manner that (A) involves the sale, forfeiture or
loss of, or the creation of any Lien on, any property of such Indemnified
Party, (B) involves an award which together with previous awards would
exceed the available amount of the indemnity hereunder, or (C) involves
equitable remedies against the Indemnified Party or any of its Affiliates.
(c) If the Indemnitor fails to notify the Indemnified Party within the
Election Period that the Indemnitor elects to assume the defense of a Third
Party Claim pursuant to Section 11.4(b), or if the Indemnitor elects to
assume such defense pursuant to Section 11.4(b) but fails to diligently and
promptly defend the Third Party Claim, then the Indemnified Party will have
the right to defend, at the sole cost and expense of the Indemnitor, the
Third Party Claim by all appropriate proceedings, which proceedings will be
promptly and diligently prosecuted by the Indemnified Party to a final
conclusion or settled. The Indemnified Party will have full control of such
defense and proceedings; provided, however, that the Indemnified Party will
not, without the Indemnitor's written consent, settle or compromise any
action, suit or proceeding in any manner that (A) involves the sale,
forfeiture or loss of, or the creation of any Lien on, any property of such
Indemnitor or (B) involves equitable remedies against the Indemnitor or any
of its Affiliates. Notwithstanding the foregoing, if the Indemnitor has
delivered a written notice to the Indemnified Party to the effect that the
Indemnitor disputes its potential liability to the Indemnified Party under
this Agreement with respect to such Third Party Claim and if such dispute
is resolved in favor of the Indemnitor, the Indemnitor will not be required
to bear the costs and expenses of the Indemnified Party's defense pursuant
to this Section 11.4(c) or of the Indemnitor's participation therein at the
Indemnified Party's request, and the Indemnified Party will reimburse the
Indemnitor in full for all costs and expenses of such litigation. The
Indemnitor may participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this Section 11.4(c), and
the Indemnitor will bear its own costs and expenses with respect to such
participation.
(d) If an Indemnified Party has a claim against an Indemnitor hereunder
which does not involve a Third Party Claim, the Indemnified Party will
transmit to the Indemnitor a written notice (the "Indemnity Notice")
describing in reasonable detail the nature of the claim, an estimate of the
amount of damages attributable to such claim, and the basis of the
Indemnified Party's request for indemnification under this Agreement. If
the Indemnitor does not notify the Indemnified Party within sixty (60) days
from its receipt of the Indemnity Notice that the Indemnitor disputes such
claim, the claim specified by the Indemnified Party in the Indemnity Notice
will be deemed a liability of the Indemnitor hereunder. If the Indemnitor
has timely disputed such claim, as provided above, such dispute will be
resolved by litigation in an appropriate court of competent jurisdiction.
(e) No Indemnitor will be obligated to make any payment of indemnity
under this Agreement except pursuant to the procedures set forth in this
Article 11. Payments of all amounts owing by the Indemnitor pursuant to
Sections 11.4(b) and (c) will be made within ten (10) days after (A) if the
Indemnitor gives the notice contemplated by Section 11.4(a) stating that it
does not dispute its liability hereunder or fails to give the notice
contemplated by Section 11.4(a) within the Election Period, (i) the
effective date of a settlement
V-58
<PAGE>
of the Third Party Claim or (ii) the date an adjudication of such Third
Party Claim becomes final and nonappealable, as the case may be, or (B) if
the Indemnitor does give the notice contemplated by Section 11.4(a) that it
disputes its liability hereunder, (i) the date an adjudication of the
Indemnitor's liability to the Indemnified Party under this Agreement
becomes final and nonappealable or (ii) the effective date of a settlement
between the Indemnitor and the Indemnified Party as to such liability, as
the case may be. Payments of all amounts owing by the Indemnitor pursuant
to Section 11.4(d) will be made within ten (10) days after (X) if the
Indemnitor has disputed the relevant claim, (i) the date an adjudication of
the Indemnitor's liability to the Indemnified Party under this Agreement
becomes final and nonappealable or (ii) the effective date of a settlement
between the Indemnitor and the Indemnified Party as to the Indemnitor's
liability under this Agreement, as the case may be, or (Y) if the relevant
claim has not been disputed by the Indemnitor, the expiration of the sixty
(60) day Indemnity Notice period.
(f) The failure by a party to give a notice required pursuant to this
Section 11.4 shall not relieve the other party or parties of its
obligations under this Section 11.4 or result in the loss of any rights of
such party under this Section 11.4, except to the extent that such failure
results in the failure of such other party or parties to receive actual
notice of the events or circumstances giving rise to such notice
requirement and such other party or parties are damaged solely as a result
of the failure of such party to give such notice, and then only to the
extent of such damage.
Section 11.5 Acknowledgment of the Parties. Each of the parties hereto
expressly agrees and acknowledges that after the Closing, such party's sole
and exclusive remedies with respect to any and all claims under this Agreement
shall be pursuant to Section 7.11 and this Article 11, except that specific
performance with respect to breaches of covenants may be sought as provided in
Section 12.13(d).
Section 11.6 Limitation on Obligation to Indemnify. Notwithstanding any
other provision of this Agreement, none of the PhillieCo Partners shall be
liable or bear responsibility for any portion of an Indemnified Loss
attributable to any breach of the representations and warranties set forth in
Section 5.4 with respect to PhillieCo (a "PhillieCo Loss") for more than a
percentage of the total amount of any such Indemnified Loss equal to such
PhillieCo Partner's PhillieCo Percentage Interest. In the event that any
PhillieCo Partner shall be required, other than by reason of such PhillieCo
Partner's gross negligence, fraud or willful misconduct, to pay, discharge or
otherwise bear responsibility for any amount of any PhillieCo Loss pursuant to
this Article 11 in excess of such PhillieCo Partner's proportionate share
thereof, the other PhillieCo Partners hereby agree to indemnify, hold harmless
and reimburse such PhillieCo Partner against and for such other PhillieCo
Partners' share of such excess. It is the intention of the PhillieCo Partners
that, following the operation of this Section, each PhillieCo Partner will
have borne exactly its proportionate share (determined as provided in the
first sentence of this Section) of the PhillieCo Loss at issue.
Section 11.7 Allocation of Losses. Any payment made by Sprint or any of its
Subsidiaries under this Article 11 shall be charged to the Sprint FON Group.
Any payments received by Sprint or any of its Subsidiaries under this Section
11 shall be allocated to the PCS Group. If any claim for Loss by a Cable
Parent or any of its Subsidiaries against Sprint under this Article 11 derived
in whole or in part from any Loss sustained by the PCS Group the derivative
portion of such claim will be satisfied to the extent that Sprint allocates
from the Sprint FON Group to the PCS Group an amount of cash equal to the Loss
suffered by the PCS Group.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Notices. Except as expressly provided herein, all notices,
consents, waivers and other communications required or permitted to be given
by any provision of this Agreement shall be in writing and mailed (certified
or registered mail, postage prepaid, return receipt requested) or sent by hand
or overnight courier, or by facsimile transmission (with acknowledgment
received and confirmation sent as provided below),
V-59
<PAGE>
charges prepaid and addressed to the intended recipient as follows, or to such
other address or number as such Person may from time to time specify by like
notice to the parties:
(a) If to TCI or any of its Subsidiaries:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Telecopy: (303) 488-3200
Attention: President
with copies to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Telecopy: (303) 488-3245
Attention: General Counsel
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Te1ecopy: (212) 705-5125
Attention: John L. Graham
(b) If to Cox or any of its Subsidiaries:
Cox Communications, Inc.
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Telecopy: (404) 847-6336
Attention: Dallas Clement
with a copy to:
Dow, Lohnes & Albertson
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Telecopy: (202) 776-2222
Attention: David D. Wild
(c) If to Comcast or any of its Subsidiaries:
Comcast Corporation
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Telecopy: (215) 981-7794
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
V-60
<PAGE>
(d) If to Sprint or any of its Subsidiaries:
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Telecopy: (913) 624-8426
Attention: Chief Financial Officer
with copies to:
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Telecopy: (913) 624-2256
Attention: Corporate Secretary
King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1763
Telecopy: (404) 572-5146
Attention: Bruce N. Hawthorne
Any party may from time to time specify a different address for notices by
like notice to the other parties. All notices and other communications given
in accordance with the provisions of this Agreement shall be deemed to have
been given and received (i) four (4) Business Days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment
received and, in the case of a facsimile only, a copy of such notice is sent
no later than the next Business Day by a reliable overnight courier service,
with acknowledgment of receipt) or (iii) one (1) Business Day after the same
are sent by a reliable overnight courier service, with acknowledgment of
receipt.
Section 12.2 Binding Effect. Except as otherwise provided in this Agreement,
this Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors, permitted transferees, and permitted assigns.
Section 12.3 Construction. This Agreement shall be construed simply
according to its fair meaning and not strictly for or against any party.
Section 12.4 Expenses. Whether or not the transactions contemplated hereby
are consummated, each of the parties shall bear the fees and expenses relating
to its compliance with the various provisions of this Agreement, and each of
the parties agrees to pay all of its own expenses (including all legal and
accounting fees) incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the preparation
made for carrying the same into effect. Notwithstanding the foregoing and
Section 5.1(d), if and only to the extent that Sprint makes a cash capital
contribution prior to Closing to a Subsidiary of Sprint that will be a member
of the PCS Group after the Closing, the fees and expenses will be paid by such
Subsidiary of Sprint in connection with the transactions contemplated by this
Agreement and will be allocated to the PCS Group. Neither this Section nor
Section 5.1(d) limits in any way the discretion of Sprint to allocate expenses
relating to the IPO to the PCS Group in accordance with the Management and
Allocation Policies.
Section 12.5 Table of Contents; Headings. The table of contents and section
and other headings contained in this Agreement are for reference purposes only
and are not intended to describe, interpret, define or limit the scope, extent
or intent of this Agreement.
V-61
<PAGE>
Section 12.6 Governing Law. The validity of this Agreement, the construction
of its terms and the interpretation of the rights and duties of the parties
shall be governed by the internal laws of the State of Delaware without regard
to principles of conflict of laws.
Section 12.7 Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be
enforced to the maximum extent permissible so as to effect the intent of the
parties, and such illegality, invalidity or unenforceability shall not affect
the validity, legality or enforceability of the remainder of this Agreement.
If necessary to effect the intent of the parties hereto, the parties hereto
will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language which as closely as possible
reflects such intent.
Section 12.8 Amendments. This Agreement may be modified or amended only by a
written amendment signed by Persons authorized to so bind each party hereto.
Section 12.9 Entire Agreement. The provisions of this Agreement and any
other agreements executed by the parties concurrently herewith set forth the
entire agreement and understanding between the parties hereto as to the
subject matter hereof and supersede all prior agreements, oral or written, and
other communications between the parties hereto relating to the subject matter
hereof.
Section 12.10 Confidentiality. Each party hereto agrees that, with respect
to any non-public information obtained in connection with this Agreement or
the transactions contemplated hereunder, the use or treatment of such
information shall be fully subject to the terms and provisions of Section 6.6
of the PCS Partnership Agreement.
Section 12.11 Assignment. No party shall assign any of its rights under this
Agreement or delegate its duties hereunder unless it obtains the prior written
consent of the other parties hereto, which consent may be withheld at such
party's absolute discretion. Notwithstanding the immediately preceding
sentence, any party may assign its rights (but not its obligations) under this
Agreement to any Controlled Affiliate of such party.
Section 12.12 Waivers; Remedies. The observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party or parties entitled to
enforce such term, but any such waiver shall be effective only if in a writing
signed by the party or parties against which such waiver is to be asserted.
Except as otherwise provided herein, no failure or delay of any party hereto
in exercising any power or right under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power.
Section 12.13 Consent to Jurisdiction; Specific Performance.
(a) Each party hereto irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any New York State
court sitting in the County of New York or any Federal court of the United
States of America sitting in the Southern District of New York, and any
appellate court from any such court, in any suit, action or proceeding
arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each party hereto irrevocably and
unconditionally agrees that all claims in respect of any such suit, action
or proceeding may be heard and determined in such New York State court or,
to the extent permitted by law, in such Federal court.
(b) Each party hereto irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any New York State court
sitting in the County of New York or any Federal court sitting in the
Southern District of New York. Each party hereto irrevocably waives, to
V-62
<PAGE>
the fullest extent permitted by law, the defense of an inconvenient forum
to the maintenance of such suit, action or proceeding in any such court and
further waives the right to object, with respect to such suit, action or
proceeding, that such court does not have jurisdiction over such party.
(c) Each party hereto irrevocably consents to service of process in the
manner provided for the giving of notices pursuant to this Agreement;
provided, that such service shall be deemed to have been given only when
actually received by such party. Nothing in this Agreement shall affect the
right of a party to serve process in any other manner permitted by law.
(d) Each party hereto agrees with the other parties that the other
parties would be irreparably damaged if any of the provisions of this
Agreement are not performed in accordance with their specific terms and
that monetary damages would not provide an adequate remedy in such event.
Accordingly, in addition to any other remedy to which the non-breaching
parties may be entitled, at law or in equity, the non-breaching parties
shall be entitled to injunctive relief to prevent breaches of this
Agreement and specifically to enforce the terms and provisions hereof.
Section 12.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
Section 12.15 Further Assurances. Upon reasonable request from time to time,
each party hereto shall execute, acknowledge and deliver any documents and
perform all further acts that may be reasonably necessary, appropriate or
desirable to carry out the intent and purposes of this Agreement.
Section 12.16 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts shall be construed together and shall constitute
one agreement.
Section 12.17 Limitation on Rights of Others. Nothing in this Agreement,
whether express or implied, shall be construed to give any Person other than
the parties hereto any legal or equitable right, remedy or claim under or in
respect of this Agreement.
Section 12.18 Restrictive Legends.
(a) Upon original issuance of any certificate issued pursuant to this
Agreement representing the Series 2 PCS Stock, PCS Preferred Stock, the
Warrants or any other securities of Sprint issued in connection with this
Agreement, such certificate shall bear the following restrictive legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED OR SOLD EXCEPT
AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
(b) After such time as the above legend is no longer required to appear
on any certificate representing a security of Sprint issued in connection
with this Agreement, at the request of the holder of such certificate,
Sprint shall cause such certificate to be exchanged for a certificate that
does not bear such legend.
(c) Sprint may make a notation on its records or give instructions to any
transfer agents or registrars for the securities of Sprint issued in
connection with this Agreement that bear the above legend reflecting the
restrictions set forth in such legend.
V-63
<PAGE>
(d) Sprint shall not incur any liability for any delay in recognizing any
transfer of any certificate bearing the above legend and representing a
security of Sprint issued in connection with this Agreement if Sprint
reasonably believes in good faith that such transfer may have been or would
be in violation of the provisions of applicable securities law or this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Restructuring
and Merger Agreement as of the day and year first above written.
TELE-COMMUNICATIONS, INC.
By: _________________________________
Title:
COMCAST CORPORATION
By: _________________________________
Title:
COX COMMUNICATIONS, INC.
By: _________________________________
Title:
SPRINT CORPORATION
By: _________________________________
Title:
TCI SPECTRUM HOLDINGS, INC.
By: _________________________________
Title:
V-64
<PAGE>
COMCAST TELEPHONY SERVICES
By: Comcast Telephony Services,
Inc.,
Its General Partner
By: _________________________________
Title:
COX TELEPHONY PARTNERSHIP
By: Cox Communications Wireless,
Inc.
Its Managing General Partner
By: _________________________________
Title:
SPRINT ENTERPRISES, L.P.
By: US Telecom, Inc.,
Its Managing General Partner
By: _________________________________
Title:
TCI PHILADELPHIA HOLDINGS, INC.
By: _________________________________
Title:
COM TELEPHONY SERVICES, INC.
By: _________________________________
Title:
V-65
<PAGE>
COMCAST TELEPHONY SERVICES, INC.
By: _________________________________
Title:
COX TELEPHONY PARTNERS, INC.
By: _________________________________
Title:
COX COMMUNICATIONS WIRELESS, INC.
By: _________________________________
Title:
SWV ONE, INC.
By: _________________________________
Title:
SWV TWO, INC.
By: _________________________________
Title:
SWV THREE, INC.
By: _________________________________
Title:
V-66
<PAGE>
SWV FOUR, INC.
By: _________________________________
Title:
SWV FIVE, INC.
By: _________________________________
Title:
SWV SIX, INC.
By: _________________________________
Title:
V-67
<PAGE>
ANNEX VI--THE TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT (the "Agreement"), dated as of the Closing Date,
is entered into and undertaken by Sprint Corporation, a Kansas corporation
("Sprint"), for the benefit of those entities and businesses that are now or
hereafter allocated to the PCS Group (the "PCS Group Entities") on the
Closing Date and thereafter and those entities that are allocated on the
Closing Date and thereafter to the FON Group and any Other Group.
IN CONSIDERATION of the mutual covenants and agreements contained herein,
Sprint agrees and undertakes as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1 Certain Definitions. Capitalized terms used but not otherwise
defined herein have the meanings as set forth in Sprint's Amended and Restated
Articles of Incorporation, as in effect on the date hereof (the "Charter").
For purposes of this Agreement, the following terms shall have the meanings
specified below:
"Agreement" has the meaning set forth in the Preamble.
"Business Day" means a day of the year on which banks are not required or
authorized to be closed in the State of New York.
"Calculation Date" means any date, after the Closing Date, on which (i) a
payment (or refund) of Taxes (including estimated Taxes) is made by (or to)
Sprint or any affiliate of Sprint having assets which are included in
either the FON Group or the PCS Group (including any date on which a
payment of Taxes (including estimated Taxes) would be required to be made
by the FON Group if the FON Group filed a separate return without the PCS
Group or any PCS Group Entities) or (ii) an adjustment in respect of such
Taxes (e.g., as a result of a carryback or a Final Determination by any
Governmental Authority) is made or determined. The term Calculation Date
shall include any date a federal, state, or local estimated tax payment is
required to be made (or, if no tax is due, would be required if tax were
due), and the date a Tax Return for any Calculation Period is filed.
"Calculation Period" means any taxable period for which Sprint must
calculate its Taxes (including estimated Taxes) in respect of a Tax Return
which takes into account one or more items of income, deduction, loss,
credit or any other item.
"Capital Stock Committee" means the committee established pursuant to
Article IV, Section 13 of the Bylaws of Sprint.
"Closing Date" has the meaning set forth in the Restructuring Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Cumulative FON/PCS Tax Liability" has the meaning set forth in Section
3.1.2.
"Cumulative FON Group Tax Liability" has the meaning set forth in Section
3.1.4.
"Cumulative Other Group Core Business Income (or Loss)" has the meaning
set forth in Section 3.2.1.
"Cumulative Stacked FON Group Income (or Loss)" has the meaning set forth
in Section 3.2.2.
"Current PCS Tax Benefit" has the meaning set forth in Section 3.3.
"Current PCS Tax Burden" has the meaning set forth in Section 3.3.
VI-1
<PAGE>
"Effective Time" means the time of the Closing on the Closing Date as
defined in the Restructuring Agreement.
"Final Determination" means the final resolution of liability for any Tax
for a taxable period, (i) pursuant to any binding agreement with the IRS
(e.g. Form 870-AD), or by a comparable agreement form under the laws of any
state, local or foreign government or the rules or regulations of any
state, local or foreign taxing authority, except that a Form 870-AD or
comparable form that reserves the right of the taxpayer to file a claim for
refund and/or the right of the taxing authority to assert a further
deficiency shall not constitute a Final Determination with respect to the
items so reserved; (ii) by a decision, judgment, decree or other order by a
court of competent jurisdiction, which has become final and nonappealable;
(iii) by a closing agreement or offer in compromise under Section 7121 or
7122 of the Code, or comparable agreements under the laws of any state,
local or foreign government or the rules or regulations of any state, local
or foreign taxing authority; (iv) by any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all
periods during which such refund may be recovered by the jurisdiction
imposing the Tax (including a refund or credit allowed as a result of the
filing of an amended return); or (v) by any other final disposition by
reason of the expiration of the applicable statute of limitations.
"FON Group" has the meaning given for Sprint FON Group in the Charter, as
amended from time to time.
"FON Group Tax Liability" has the meaning set forth in Section 3.1.3.
"FON/PCS Group Tax Liability" has the meaning set forth in Section 3.1.1.
"Governmental Authority" means the IRS or any U.S. state or local or
foreign taxing authority or jurisdiction.
"IRS" means the Internal Revenue Service or any successor agency or
entity performing substantially the same functions.
"Other Group" has the meaning given for Other Group in the Policy
Statement Regarding Tracking Stock Matters, adopted by the Sprint Board of
Directors as of the Signing Date and effective on the Closing Date.
"Other Group Core Business" has the meaning set forth in Section 3.2.1.
"PCS Group" has the meaning given for PCS Group in the Charter. For
purposes of this Agreement, the PCS Group shall be treated as existing no
earlier than the Closing Date.
"PCS Group Entities" has the meaning set forth in the Preamble.
"PCS Tax Benefit" shall be the amount calculated under Section 3.1.
"PCS Tax Burden" shall be the amount calculated under Section 3.1.
"Person" means any individual, corporation, partnership, trust,
unincorporated association or other entity.
"Prior PCS Tax Benefit" has the meaning set forth in Section 3.3.
"Prior PCS Tax Burden" has the meaning set forth in Section 3.3.
"Restructuring Agreement" means the Restructuring and Merger Agreement
dated May , 1998, by and among Sprint, Tele-Communications, Inc.,
Comcast Corporation, Cox Communications, Inc., Sprint Enterprises, L.P.,
TCI Spectrum Holdings, Inc., Comcast Telephony Services, Cox Telephony
Partnership, TCI Philadelphia Holdings, Inc., Comcast Telephony Services,
Inc., Com Telephony Services, Inc., Cox Telephony Partners, Inc., Cox
Communications Wireless, Inc., SWV One, Inc., SWV Two, Inc., SWV Three.
Inc., SWV Four, Inc., SWV Five, Inc., and SWV Six, Inc.
VI-2
<PAGE>
"Signing Date" means the date as of which the Restructuring Agreement is
executed.
"Stacked FON Business" has the meaning set forth in Section 2.1.
"Tax" or "Taxes" means all U.S. federal, state, or local or foreign
income, profits, or other net income taxes, together with all interest,
penalties, and additions imposed with respect to such amounts.
"Tax Return" or "Tax Returns" means all returns or reports required to be
filed under any statute, rule or regulation relating to Taxes, including
year end returns or quarterly estimated payments.
"Tax Sharing Payment" has the meaning set forth in Section 3.3.
"Unencumbered Value" means the net purchase price of the business or
entity acquired, plus the amount of any liabilities assumed as part of such
acquisition (whether directly or indirectly as part of the acquisition of
the outstanding equity interests in any entity). If the Unencumbered Value
is not readily ascertainable from the terms of the acquisition, then the
Unencumbered Value shall be determined by a method selected by the Capital
Stock Committee.
Section 1.2 Terms Generally. The definitions in Section 1.1 and elsewhere in
this Agreement shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". The words "herein", "hereof", "hereto" and "hereunder"
and words of similar import refer to this Agreement (including any Schedules
and Exhibits) in its entirety and not to any part hereof unless the context
shall otherwise require. All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any references to any
agreement or other instrument (other than in the Schedules hereto) or statute
or regulation are to it as amended and supplemented from time to time (and, in
the case of a statute or regulation, to any corresponding provisions of
successor statutes or regulations). Any reference in this Agreement to a "day"
or number of "days" (without the explicit qualification of "Business") shall
be interpreted as a reference to a calendar day or number of calendar days. If
any action or notice is to be taken or given on or by a particular calendar
day, and such calendar day is not a Business Day, then such action or notice
shall be deferred until, or may be taken or given on, the next Business Day.
ARTICLE 2.
STACKING RULE
Section 2.1 Stacked FON Business: For purposes of this Agreement, a Stacked
FON Business shall mean (i) any business or entity otherwise included in the
FON Group (but for the application of this Agreement), which is acquired
directly or indirectly after the Signing Date in one transaction or in a
series of related transactions and having an Unencumbered Value at the time of
acquisition in excess of $500,000,000, and (ii) any business or entity
attributed to an Other Group (other than any Other Group Core Business that as
of the applicable Calculation Date has Cumulative Other Group Core Business
Income, as provided by the penultimate sentence of Section 3.2.1)
Section 2.2 Business Expansion: For the purposes of Section 2.1, any assets
acquired that do not constitute an operating business or an interest in an
operating business shall not constitute a Stacked FON Business. Whether any
acquired assets constitute an operating business shall be determined by
reference to the status of such assets in the hands of the seller thereof,
based on all the facts and circumstances, including, without limitation,
whether goodwill is attributable to such assets, whether such assets generated
revenues, whether significant employees were associated with such assets,
whether significant customers were associated with such assets or such assets
consist in part of customers, and whether such assets had other
characteristics associated with a business operating as a business unit or
subunit.
VI-3
<PAGE>
ARTICLE 3.
TAX SHARING PAYMENTS
Section 3.1 Calculation of PCS Tax Benefit or Burden: For every Calculation
Date, a PCS Tax Benefit or a PCS Tax Burden shall be determined as follows:
3.1.1 First, the tax liability of the Sprint federal consolidated group
for the current and each prior Calculation Period shall be calculated in
accordance with the tax elections it actually used in calculating its tax
payments on the Calculation Dates (the " FON/PCS Group Tax Liability").
3.1.2 Second, the Cumulative FON/PCS Group Tax Liability shall be
determined by totaling the FON/PCS Group Tax Liability for each Calculation
Period as determined in Section 3.1.1.
3.1.3 Third, the calculation required in Section 3.1.1 shall be
recomputed after excluding from such computation any income, deduction,
loss, credit or any other item attributable to the PCS Group and taken into
account after the Effective Time (the "FON Group Tax Liability").
3.1.4 Fourth, the Cumulative FON Group Tax Liability shall be determined
by totaling the FON Group Tax Liability for each Calculation Period as
determined in Section 3.1.3.
3.1.5 Except as required by Section 3.2 the income, deduction, loss and
other items of Stacked FON Businesses shall not be taken into account in
making calculations under this Section 3.1 or the calculation of Tax
Sharing Payments under Section 3.3.
3.1.6 If the Cumulative FON Group Tax Liability exceeds the Cumulative
FON/PCS Group Tax Liability, the dollar amount of the excess shall be a PCS
Tax Benefit. If the Cumulative FON/PCS Group Tax Liability exceeds the
Cumulative FON Group Tax Liability, the dollar amount of the excess shall
be a PCS Tax Burden.
Section 3.2 Adjustments for Other Group Core Businesses and Stacked FON
Businesses:
3.2.1 Profitable FON Core Businesses. If any core business(es) included,
on the Closing Date, in the FON Group is hereafter allocated to an Other
Group (each such business an "Other Group Core Business"), then, as of each
Calculation Date, all income, deductions, loss and other items attributable
to each such Other Group Core Business shall be separately calculated on a
cumulative basis (from the date such business became an Other Group Core
Business) to determine the Cumulative Other Group Core Business Income (or
Loss) of such Other Group Core Business through such Calculation Date. If,
as of a Calculation Date, there is Cumulative Other Group Core Income with
respect to any such Other Group Core Business, then all items of income,
deduction, loss and other items of such Other Group Core Business shall be
taken into account for purposes of making all calculations required by
Section 3.1 as of such Calculation Date. If, as of a Calculation Date,
there is Cumulative Other Group Core Loss with respect to any such Other
Group Core Business, then all items of income, deduction, loss and other
items of such Other Group Core Business shall be taken into account for
purposes of making all calculations required by Section 3.2.2 as of such
Calculation Date as if such Other Group Core Business were a Stacked FON
Business.
3.2.2 Cumulative Stacked FON Group Income (or Loss). As of each
Calculation Date, all income, deductions, losses and other items of each
Stacked FON Group Business shall be separately calculated on a cumulative
basis (from the date such business became a Stacked FON Group Business) and
combined, on such Calculation Date, with the cumulative income, deductions,
loss and other items of all Stacked FON Group Businesses as of such date to
determine Cumulative Stacked FON Group Income (or Loss) as of such
Calculation Date. If, as of a Calculation Date, there is Cumulative Stacked
FON Group Income, then all items of income, deduction, loss and other items
of such Stacked FON Group Businesses shall be taken into account for
purposes of making all calculations required by Section 3.1 as of such
Calculation Date. If, as of a Calculation Date, there is Cumulative Stacked
FON Group Loss, then (except as provided in Section 3.2.1) no items
attributable to Stacked FON Group Businesses shall be taken into account in
making calculations required by Section 3.1. and the calculation of the
amount of Tax Sharing Payments under Section 3.3.
VI-4
<PAGE>
Section 3.3 Tax Sharing Payment: For the first Calculation Date, Sprint
shall cause the FON Group to pay the PCS Group the amount of any PCS Tax
Benefit or Sprint shall cause the PCS Group to pay the FON Group the amount of
any PCS Tax Burden (either payment being a "Tax Sharing Payment"). Thereafter,
for each Calculation Date, the PCS Tax Benefit or the PCS Tax Burden
determined on such date (the "Current PCS Tax Benefit" or "Current PCS Tax
Burden") shall be compared to the PCS Tax Benefit or the PCS Tax Burden as
determined for the most recent preceding Calculation Date (the "Prior PCS Tax
Benefit" or "Prior PCS Tax Burden") and shall result in the following Tax
Sharing Payments:
3.3.1 If there is a Current PCS Tax Benefit,
3.3.1.1 Sprint shall cause the FON Group to pay the PCS Group (i) if
there is a Prior PCS Tax Benefit the amount, if any, by which the
Current PCS Tax Benefit exceeds the Prior PCS Tax Benefit, or (ii) if
there is a Prior PCS Tax Burden, an amount equal to the sum of the
Current PCS Tax Benefit and the amount of the Prior PCS Tax Burden.
3.3.1.2 Sprint shall cause the PCS Group to pay the FON Group the
amount, if any, by which the Prior PCS Tax Benefit exceeds the Current
PCS Tax Benefit.
3.3.2 If there is a Current PCS Tax Burden,
3.3.2.1 Sprint shall cause the FON Group to pay the PCS Group the
amount, if any, by which the Prior PCS Tax Burden exceeds the Current
PCS Tax Burden.
3.3.2.2 Sprint shall cause the PCS Group to pay the FON Group (i) if
there is a Prior PCS Tax Burden, the amount, if any, by which the
Current PCS Tax Burden exceeds the Prior PCS Tax Burden, or (ii) if
there is a Prior PCS Tax Benefit an amount equal to the sum of the
Current PCS Tax Burden and the amount of the Prior PCS Tax Benefit.
Section 3.4 State, Local, or Foreign Tax Sharing Payments: In order to
determine the Tax Sharing Payment for state, local or foreign Taxes, all
calculations under this Article 3 shall, subject to any appropriate
adjustments necessary to take into account the nature of the Tax Return, be
repeated for the relevant taxing jurisdiction.
ARTICLE 4.
MODIFICATION, ALTERATION, OR TERMINATION OF THE AGREEMENT
Section 4.1 Modification or Alteration of the Agreement: The principles of
Article 2 and 3 of this Agreement shall not be modified or rescinded, nor
shall any exception be made to such principles, with respect to any tax year
ending on or before December 31, 2001.
Section 4.2 Termination of the Agreement: This Agreement shall terminate as
to all tax years ending after December 31, 2001.
ARTICLE 5.
ADMINISTRATIVE PROVISIONS
Section 5.1 Administration: All calculations and determinations under this
Agreement shall be made by Sprint as soon as reasonably practical following
the Calculation Date and shall be subject to review and approval by the
Capital Stock Committee. In resolving all tax matters with respect to all
calculation periods, Sprint shall inform the Capital Stock Committee of the
status of any material tax matters under this Agreement and all resolutions
shall be subject to the review and approval or ratification by the Capital
Stock Committee.
Section 5.2 Payments: All payments due under this Agreement shall be accrued
as of the relevant Calculation Date.
VI-5
<PAGE>
ARTICLE 6
BINDING EFFECT OF MEMBERS ON PCS GROUP, FON GROUP AND OTHER GROUPS
This Agreement is binding on Sprint and Sprint shall cause it to be legally
binding on each legal entity which on the Closing Date or thereafter is
allocated in whole or in part to the PCS Group, the FON Group or any Other
Group. Sprint further agrees to take such steps as may be necessary or
appropriate to assure that each such entity is legally bound to, and does,
take all actions and make all payments that may be necessary to assure that
payments required to be made hereunder are appropriately paid or allocated to
or for the benefit of the PCS Group, or FON Group as required by this
Agreement.
Sprint Corporation
___________________________________
By:
Title:
VI-6
<PAGE>
ANNEX VII--AMENDED INCENTIVE PLANS
MANAGEMENT INCENTIVE STOCK OPTION PLAN
(AS AMENDED APRIL 18, 1995, AUGUST 8, 1995, AUGUST 12, 1996, FEBRUARY 11, 1997
AND APRIL 15, 1997, BY SHAREHOLDER PICASSO PROPOSAL AND BY DIRECTORS
FOR RECAPITALIZATION PURSUANT TO SECTION 5(K))
1. Establishment and Purpose. Sprint Corporation, a Kansas corporation (the
"Company"), hereby establishes a stock option plan to be named the Management
Incentive Stock Option Plan (the "Plan"). The purpose of the Plan is to permit
employees of the Company and its subsidiaries who are eligible to receive
annual incentive compensation to receive nonqualified stock options in lieu of
a portion of the target incentive under the Company's management incentive
plans ("MIPs"), thereby encouraging the employees to focus on the growth and
profitability of the Company and the performance of its common stock. Subject
to approval of the Company's stockholders, the Plan provides for options to be
granted beginning March 15, 1995, and ending April 18, 2005. Stock options
granted prior to or as of April 18, 2005, may extend beyond that date.
2. Administration. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors (the "Committee"). The
Company shall grant options under the Plan in accordance with determinations
made by the Committee pursuant to the provisions of the Plan. The Committee
from time to time may adopt (and thereafter amend and rescind) such rules and
regulations for carrying out the Plan and take such action in the
administration of the Plan, not inconsistent with the provisions of the Plan,
as it shall deem proper. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan, or in any option or
restricted shares of common stock granted or issued pursuant to the Plan, in
the manner and to the extent it shall deem desirable to effect the terms of
the Plan. The interpretation and construction of any provisions of the Plan by
the Committee shall, unless otherwise determined by the Board of Directors of
the Company, be final and conclusive. No member of the Board of Directors or
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under it. The Corporate
Secretary shall act as Plan Administrator carrying out the day-to-day
administration of the Plan unless the Committee appoints another officer or
employee of the Company as Plan Administrator.
3. Eligibility. The Committee will determine each year whether options will
be granted in such year, whether participation will be elective or automatic,
which class or classes of common stock will be subject to purchase by
participants (which may different for different groups of employees) and the
amount of incentive compensation to be given up for each stock option. Any
salaried employee of the Company and its subsidiaries shall be eligible to be
selected for participation in the MIPs. The Committee will, in its discretion,
determine the employees who participate in the MIPs and, therefore, who will
be eligible for options, the dates on which options shall be granted, and any
conditions on the exercise of the options.
No option may be granted to any individual who immediately after the option
grant owns directly or indirectly stock possessing more than five percent (5%)
of the total combined voting power or value of all classes of stock of the
Company or any subsidiary.
4. Common Stock Subject to the Plan. The shares of any class of publicly
traded common stock of the Company to be issued upon the exercise of a
nonqualified option to purchase such common stock granted in lieu of MIP
payout may be made available from the authorized but unissued common stock of
the Company, shares of common stock held in the treasury, or common stock
purchased on the open market or otherwise.
Approval of the Plan by the Stockholders of the Company shall constitute
authorization to use such shares for the Plan subject to the discretion of the
Board or as such discretion may be delegated to the Committee.
Subject to the provisions of the following paragraph, the total number of
shares for which options may be granted under the Plan each year shall be 0.9%
of the total outstanding shares of each class of common stock of the Company
(including, with respect to the PCS Stock, both Series 1 and Series 2 PCS
Stock) as of the first day
VII-1
<PAGE>
of such year; provided, however, that such number shall be increased in any
year by the number of shares available in previous years for which options
have not been granted. If and when an option granted under the Plan is
terminated without having been exercised in full, the unpurchased or forfeited
shares shall become available for grant to other employees.
The number and kind of shares subject to the Plan may be appropriately
adjusted by the Committee in the circumstances outlined in Section 5(k).
5. Stock Options; Terms and Conditions. Each option will represent the right
to purchase a specific class and number of shares of common stock of the
Company and shall be subject to the following terms and conditions and to such
additional terms and conditions, not inconsistent with the terms of the Plan,
as the Committee shall deem desirable:
a. Consideration for and Class and Number of Options. Each option shall
be granted in lieu of a portion of the optionee's cash payout under the
MIPs. The Committee shall determine class and the number of shares or the
manner of determining the class and number of shares available for each
option each year, subject to the total number of shares available under the
Plan for such year, and the amount or the method of determining the amount
of annual incentive compensation to be given up by each participant in
return for an option, taking into consideration appropriate factors in
making such determinations, such as interest rates, volatility of the
market price of the class of common stock of the Company and the term of
the option, provided, however that shares subject to options granted to any
individual employee during any calendar year shall not exceed a total of
500,000 shares of FON Stock (as defined in the Company's articles of
incorporation) or 250,000 shares of Series 1 PCS Stock (as defined in the
Company's articles of incorporation).
b. Participation in the Plan. Participation in the Plan may be voluntary
or automatic, as determined by the Committee. The rules and procedures for
voluntary participation, when applicable, shall be established and
implemented by the Plan Administrator.
c. Exercise Price. The price at which each share covered by an option may
be purchased shall be one hundred percent (100%) of the fair market value
of the Company's common stock on the date the option is granted. Fair
market value shall be deemed to be the average of the high and low prices
of the Company's common stock for composite transactions as published by
major newspapers for the date the option is granted or, if no sale of the
Company's common stock shall have been made on that day, the next preceding
day on which there was a sale of such stock.
d. Vesting. Unless the Committee determines otherwise, stock option
grants shall provide that the total number of shares subject to an option
shall become exercisable December 31 in the year of the date of grant.
e. Term of Option. Options shall not be exercisable after the expiration
of ten (10) years from the date of grant.
f. Payment of Exercise Price. Options shall be exercisable only upon
payment to the Company of the full purchase price of the shares with
respect to which options are exercised. Payment for the shares shall be
either in United States dollars, payable in cash or by check, or by
surrender of stock certificates representing the same class of common stock
of the Company having an aggregate fair market value, determined as of the
date of exercise, equal to the number of shares with respect to which such
options are exercised multiplied by the exercise price per share. The fair
market value of common stock on the date of exercise of options shall be
determined in the same manner as the fair market value of common stock on
the date of grant of options is determined. Certain optionees may use
restricted stock as payment for the exercise price in accordance with
Section 6 hereof. In that event, fair market value of the shares of
restricted stock will be determined as if the shares were not restricted.
In lieu of the delivery of physical certificates,
VII-2
<PAGE>
the optionee may deliver shares in payment of the exercise price by
attesting, on a form established for such purpose by the Secretary, to the
ownership, either outright or through ownership of a broker account, of a
sufficient number of shares held for a period of at least six months to pay
the exercise price. The attestation must be notarized and signed by the
optionee's spouse if the spouse is a joint owner of the shares with respect
to which such attestation is made and must be accompanied by such
documentation as the Corporate Secretary may consider necessary to evidence
actual ownership of such shares.
g. Manner of Exercise. A completed exercise form and the exercise price,
whether in the form of cash or stock, must be delivered to the Plan
Administrator in order to exercise an option. An option shall be deemed
exercised on the date such exercise form and payment are received by the
Plan Administrator.
h. Time for Exercise. Each option expires if it has not been exercised
within its term. Once an option has expired for any reason, it can no
longer be exercised. If the grantee's employment with the Company or a
subsidiary of the Company is terminated, the optionee may exercise options
that are exercisable on the date of termination of employment until the
earlier of (1) the date on which the option expires and (2) the end of the
applicable period below, beginning on the grantee's:
(i) retirement: five years after the grantee's retirement date.
(ii) disability (qualifying for long-term disability benefits under
the Company's Basic Long-Term Disability Plan): five years after the
grantee's qualification date.
(iii) death: one year after the grantee's death for the estate or
designated beneficiary to exercise the decedent's options.
(iv) involuntary termination other than for cause: the date on which
the option expires.
(v) voluntary termination: three months from the grantee's date of
termination of employment.
If a grantee's employment is terminated for a reason constituting good
cause, any outstanding options granted under the Plan shall automatically
terminate. For this purpose, "good cause" means conduct by the grantee that
reflects adversely on the grantee's honesty, trustworthiness or fitness as
an employee, or the grantee's willful engagement in conduct which is
demonstrably and materially injurious to the Company.
If a grantee becomes associated with, becomes employed by, renders
services to, or owns any interest in (other than an insubstantial interest,
as determined by the Committee) any business in competition with the
Company, all outstanding options granted to the grantee whether vested or
unvested shall automatically terminate and shares of restricted stock
received upon the exercise of an option pursuant to Section 6 hereof that
continue to be restricted shall be forfeited. For purposes of this Plan, an
employee who becomes employed by certain non-subsidiary affiliates
designated by the Committee (each, together with their subsidiaries, an
"Affiliated Entity"), shall not, except with respect to incentive stock
options, be considered to have terminated employment with the Company or a
subsidiary of the Company until his employment is terminated with all
Affiliated Entities without becoming re-employed by the Company or
its subsidiaries.
i. Restricted Stock. Certain grantees may elect to deliver restricted
shares or receive restricted shares in connection with an exercise of an
option by the grantee, as provided in Section 6 hereof.
j. Beneficiary Designations. The grantee of an option may designate a
beneficiary or beneficiaries to exercise unexpired options held by the
grantee and to own shares issued upon any such exercise after the grantee's
death without order of any probate court or otherwise. A beneficiary so
designated may exercise an option upon presentation to the Company of
evidence satisfactory to the Corporate Secretary of (1) the beneficiary's
identity and (2) the death of the grantee. A grantee may change any
beneficiary designation of options held by the grantee at anytime before
his death but may not do so by testamentary designation in his will or
otherwise. Beneficiary designations must be made in writing on a form
provided by the Corporate Secretary. Beneficiary designations shall become
effective on the date that the form, properly completed, signed and
notarized, is received by the Secretary. Any designation of a beneficiary
with respect to any
VII-3
<PAGE>
option shall be deemed canceled upon the transfer of such option to a trust
in accordance with the terms of the Plan.
k. Change in Stock, Adjustments. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, spin-off,
or other change in the corporate structure affecting the shares, such
adjustment shall be made in the aggregate number and class of shares that
may be delivered under the Plan, in the number and class of shares that may
be subject to an option granted to any individual in any year under the
Plan, and in the number, class, and option price of shares subject to
outstanding options granted under the Plan, as may be determined to be
appropriate by the Committee, in its sole discretion, provided that the
number of shares subject to any option shall always be a whole number.
l. Limitations on Transfer. Options may not be transferred, levied,
garnished, executed upon, subjected to a security interest, or assigned to
any person other than the grantee, except that the grantee may transfer an
option to a trust of the kind described in Section 6(b). Any such trust as
transferee of an option may not (1) dispose of shares received in an
exercise of such options until such shares are validly registered or exempt
from registration under any applicable exemption from registration under
the Securities Act of 1933, as amended, in the opinion of the Corporate
Secretary or (2) while continuing to hold options issued under this plan,
be amended to change beneficiaries to persons other than those permissible
under Section 6(b). Documents evidencing the transfer of any option and the
identity of the transferee shall be in such form as may be required by the
Corporate Secretary.
6. Restricted Stock. Certain grantees, as determined by the Committee, may
elect to receive restricted shares upon payment for the exercise of an option
in the form of unrestricted common stock. The grantee will receive the same
number of unrestricted shares as the number of shares surrendered to pay the
exercise price, while the shares received in excess of the number surrendered
to pay the exercise price may be restricted. Such grantees may also elect to
deliver restricted shares of the Company's common stock in payment of the
exercise price notwithstanding restrictions on transferability to which such
shares are subject. The Company shall be authorized to issue restricted shares
of common stock upon such exercises of stock options, subject to the following
conditions:
a. The grantee shall elect a vesting period for the restricted common
stock to be received upon exercise of the option of between 6 months and 10
years, subject to rules and procedures established by the Plan
Administrator, but in no event may a grantee elect a vesting period shorter
than the period provided in paragraph (d) of this Section 6. At any time on
or before the 13th calendar month preceding the date on which restrictions
on shares of restricted stock would otherwise lapse, the grantee may elect
to extend the vesting period on all but not a portion of such shares by six
months or any multiple of six months.
b. The grantee who receives restricted stock may not sell, transfer,
assign, pledge or otherwise encumber or dispose of shares of restricted
stock until such time as all restrictions on such stock have lapsed except:
(i) to the Company in payment of the exercise price of a stock option
issued by the Company under any employee stock option plan adopted by the
Company that provides for payment of the exercise price in the form of
restricted stock, provided that such payment is made in accordance with the
terms of such plan; or (ii) to a trust of which the grantee, the grantee's
spouse, or descendants (by blood, adoption, or marriage) of the grantee are
the primary beneficiaries and which is a grantor trust treated as owned by
the grantee under Subchapter J of the Internal Revenue Code, upon the
following terms:
(A) the Company receives, prior to such transfer, a true copy of the
trust agreement and an opinion from grantee's counsel (1) that the
trust will be treated as a grantor trust owned by the grantee under
Subchapter J of the Internal Revenue Code at all times until the
restrictions on such stock lapse or the stock is forfeited under the
terms of its grant, (2) that the terms of the trust provide that upon
the forfeiture of the restricted stock under the terms of its grant or
the earlier termination of the trust for whatever reason, ownership of
the restricted stock shall revert to the grantee or to the Company,
(3) that the trustee of such trust may not, prior to the lapsing of
restrictions on such stock, sell, transfer, assign, pledge, or
otherwise encumber or dispose of shares of restricted stock except to
the Company
VII-4
<PAGE>
or to the grantee, subject to the restrictions provided for in this
Plan, and (4) that, until the restrictions lapse, the trustee is not
authorized to incur liabilities on behalf of the trust, other than to
the beneficiaries of the trust; and
(B) the grantee and the trustee of the trust shall execute stock
powers in blank to be held in the custody of the Company; and
(C) the Corporate Secretary of the Company may, in his discretion,
enforce the foregoing transfer restrictions by maintaining physical
custody of the certificate or certificates representing such shares of
restricted stock, by placing a restrictive legend on such certificates,
by requiring the grantee and the trustee to execute other documents as
a pre-condition to such transfer, or otherwise.
c. A grantee who elects to receive restricted common stock upon an
exercise shall have the right to satisfy tax withholding obligations in the
manner provided in Section 8 hereof.
d. Restricted common stock received in such an exercise or from an
election to receive a Long-Term Incentive Plan payout in restricted stock,
or any Restricted Stock Award granted pursuant to the Long-Term Stock
Incentive Program, shall be eligible for use in payment of the exercise
price of a stock option to purchase shares of the same class, so long as
all the shares received as a result of such an exercise are restricted for
a period at least as long as, and with terms at least as restrictive as the
terms of, the restricted common stock used in payment.
e. The shares of restricted common stock received in an exercise of a
stock option that continue to be restricted shall be forfeited in the event
that vesting conditions are not satisfied, subject to the discretion of the
Committee, except in the case of death, disability, normal retirement, or
involuntary termination for reasons other than cause, in which case all
restrictions lapse; provided, however, that in no event shall restrictions
lapse if the restrictions on shares used to pay for the exercise have not
lapsed under the same conditions. If restricted shares are forfeited, the
grantee or his representative shall sign any document and take any other
action required to assign said restricted shares back to the Company.
f. The grantee will have all the rights of a stockholder with respect to
shares of restricted stock received upon the exercise of an option,
including the right to vote the shares of stock and the right to dividends
on the stock. Unless the Plan Administrator establishes alternative
procedures, the shares of restricted stock will be registered in the name
of the grantee and the certificates evidencing such shares shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to the award and shall be held in escrow by the Company. The
grantee shall execute a stock power or powers assigning the shares of
restricted stock back to the Company, which stock powers shall be held in
escrow by the Company and used only in the event of the forfeiture of any
of the shares of restricted stock. A certificate evidencing unrestricted
shares of common stock shall be issued to the grantee promptly after the
restrictions lapse on any restricted shares.
g. The Plan Administrator shall have the discretion and authority to
establish any rules in connection with the use of restricted stock,
including but not limited to regulating the timing of the lapse of
restrictions within the six-month to ten-year period and prescribing
election forms as the Plan Administrator deems necessary or desirable for
the orderly administration of such exercises.
7. Reload Options. The Committee may provide that optionees have the right
to a reload option, which shall be subject to the following terms and
conditions:
a. Grant of the Reload Option; Number of Shares; Price. Subject to
subsections (b) and (c) of this Section 7 and to the availability of shares
to be optioned under the Plan, if an optionee has an option to purchase
shares of any class of common stock (the "original option") with reload
rights and pays for the exercise of the original option by surrendering
common stock of the same class, the optionee shall receive a new option
("reload option") to purchase the number and class of shares so surrendered
(or, if applicable, the number of shares provided for in paragraph (h) of
this Section 7) at an exercise price equal to the fair market value of the
stock on the date of the exercise of the original option.
VII-5
<PAGE>
b. Minimum Purchase Required. A reload option will be granted only if the
exercise of the original option is an exercise of at least 25% of the total
number of shares granted under the original option (or an exercise of all
the shares remaining under the original option if less than 25% of the
shares remain to be exercised).
c. Other Requirements. A reload option: (1) will not be granted if the
market value of the common stock of the Company on the date of exercise of
the original option is less than the exercise price of the original option;
(2) will not be granted if the grantee is not, on the exercise date, an
employee of Sprint or a Sprint subsidiary; (3) will not be granted if the
original option is exercised less than one year before the expiration of
the original option; and (4) with respect to options transferred by the
grantee to another person in accordance with this Plan, reload options
shall be granted to the grantee upon a stock-for-stock exercise by the
optionee to the same extent as if the grantee had exercised the option in a
similar manner.
d. Term of Option. The reload option shall expire on the same date as the
original option.
e. Type of Option. The reload option shall be a nonqualified option to
purchase shares of the same class of shares as the original option.
f. No Additional Reload Options. The reload options shall not include any
right to a second reload option.
g. Date of Grant, Vesting. The date of grant of the reload option shall
be the date of the exercise of the original option. The reload options
shall be exercisable in full beginning one year from date of grant;
provided, however, that all shares purchased upon the exercise of the
original option (except for any shares withheld for tax withholding
obligations) shall not be sold, transferred or pledged within six months
from the date of exercise of the original option. In no event shall a
reload option be exercised after the original option expires as provided in
subsection (d) of this Section 7.
h. Stock Withholding; Grants of Reload Options. If the other requirements
of this Section 7 are satisfied, and if shares are withheld or shares
surrendered for tax withholding, a reload option will be granted for the
number of shares surrendered as payment for the exercise of the original
option plus the number of shares surrendered or withheld to satisfy tax
withholding. In connection with reload options for officers who are subject
to Section 16 of the Securities Exchange Act of 1934, the Committee may at
any time impose any limitations which, in the Committee's sole discretion,
are necessary or desirable in order to comply with Section 16(b) of the
Securities Exchange Act of 1934 and the rules and regulations thereunder,
or in order to obtain any exemption therefrom.
i. Other Terms and Conditions. Except as otherwise provided in this
Section 7, all the provisions of the Plan shall apply to reload options.
8. Such election is irrevocable after the Tax Date. Any fractional share
amount and any additional withholding not paid by the withholding or surrender
of shares must be paid in cash. If no timely election is made, cash must be
delivered to satisfy all tax withholding requirements.
If the exercise of an option by an optionee other than the grantee after
transfer of the option pursuant to this plan from the grantee to the optionee
results in a withholding obligation on the part of the grantee, the grantee
may elect to satisfy his withholding obligation by delivery of shares to the
Company as permitted in clause (i) above.
9. Miscellaneous.
a. Amendment. The Company reserves the right to amend the Plan at any time
by action of the Board of Directors provided that no such amendment may
materially and adversely affect any outstanding stock options without the
consent of the optionee, and provided that, without the approval of the
stockholders, no such amendment may increase the total number of shares
reserved for the purposes of the Plan.
VII-6
<PAGE>
b. Effectiveness of Plan. This Plan shall be effective as of February 18,
1995, subject to approval of Stockholders of the Company prior to February 18,
1996.
c. Rights in Securities. All certificates for shares delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the shares are then listed, and any applicable federal or state
securities law, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions. No
optionee or optionee's beneficiary, executor or administrator, legatees or
distributees, as the case may be, will be, or will be deemed to be, a holder
of any shares subject to an option unless and until a stock certificate or
certificates for such shares are issued to such person or persons under the
terms of the Plan. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 5(k) hereof.
d. Date of Grant. The grant of an option shall be effective no earlier than
the date the Committee decides to grant the option, except that grants of
reload options shall be effective as provided in Section 7(g) hereof.
e. Application of Funds. The proceeds received by the Company from the sale
of stock subject to option are to be added to the general funds of the Company
and used for its corporate purposes.
f. No Obligation to Exercise Option. Granting of an option shall impose no
obligation on the optionee to exercise such option.
1997 LONG-TERM STOCK INCENTIVE PROGRAM
Section 1. Purpose. The purposes of the Sprint 1997 Long-Term Stock
Incentive Program (the "Plan") are to encourage Directors of Sprint
Corporation (the "Company") and officers and selected key employees of the
Company and its Affiliates to acquire a proprietary and vested interest in the
growth and performance of the Company, to generate an increased incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of stockholders, and to enhance the
ability of the Company and its Affiliates to attract and retain individuals of
exceptional talent upon whom, in large measure, the sustained progress, growth
and profitability of the Company depends.
Section 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Restricted Stock Award, Performance
Share, Performance Unit, Dividend Equivalent, Other Stock Unit Award, or
any other right, interest, or option relating to Shares granted pursuant to
the provisions of the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Award granted hereunder and
signed by both the Company and the Participant or by both the Company and
an Outside Director.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the Organization, Compensation, and Nominating
Committee of the Board, composed of not less than two directors each of
whom is a Non-Employee Director.
(g) "Company" shall mean Sprint Corporation.
VII-7
<PAGE>
(h) "Non-Employee Director" shall have the meaning provided for in Rule
16b-3(b)(3) under the Securities Exchange Act of 1934, 17 CFR (S) 240.16b-
3(b)(3), as amended.
(i) "Dividend Equivalent" shall mean any right granted pursuant to
Section 14(h) hereof.
(j) "Employee" shall mean any employee of the Company or of any
Affiliate.
(k) "Fair Market Value" shall mean, with respect to any property, the
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee; except that the
"Fair Market Value" of a share of common stock of the Company for purposes
of Section 10 and Section 11 shall mean the average of the high and low
prices of the common stock for composite transactions, as published by
major newspapers, for the date in question or, if no trade of the common
stock shall have been made on that date, the next preceding date on which
there was a trade of common stock.
(l) "Incentive Stock Option" shall mean an Option granted under Section 6
hereof that is intended to meet the requirements of Section 422 of the Code
or any successor provision thereto.
(m) "Nonstatutory Stock Option" shall mean an Option granted to a
Participant under Section 6 hereof, and an Option granted to an Outside
Director pursuant to Section 10 hereof, that is not intended to be an
Incentive Stock Option.
(n) "Option" shall mean any right granted to a Participant under the Plan
allowing such Participant to purchase Shares at such price or prices and
during such period or periods as the Committee shall determine. "Option"
shall also mean the right granted to an Outside Director under Section 10
hereof allowing such Outside Director to purchase shares of the common
stock of the Company on the terms set forth in Section 10.
(o) "Other Stock Unit Award" shall mean any right granted to a
Participant by the Committee pursuant to Section 9 hereof.
(p) "Outside Director" shall mean a member of the Board who is not an
Employee of the Company or of any Affiliate.
(q) "Participant" shall mean an Employee or Outside Director who is
selected to receive an Award under the Plan.
(r) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 8 hereof.
(s) "Performance Period" shall mean that period established by the
Committee at the time any Performance Award is granted or at any time
thereafter during which any performance goals specified by the Committee
with respect to such Award are to be measured.
(t) "Performance Share" shall mean any grant pursuant to Section 8 hereof
of a unit valued by reference to a designated number of Shares, which value
may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or
any combination thereof, upon achievement of such performance goals during
the Performance Period as the Committee shall establish at the time of such
grant or thereafter.
(u) "Performance Unit" shall mean any grant pursuant to Section 8 hereof
of a unit valued by reference to a designated amount of property other than
Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including, without limitation,
cash, Shares, or any combination thereof, upon achievement of such
performance goals during the Performance Period as the Committee shall
establish at the time of such grant or thereafter.
(v) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
VII-8
<PAGE>
(w) "Restricted Stock" shall mean any Share issued with restrictions on
the holder's right to sell, transfer, pledge, or assign such Share and with
such other restrictions as the Committee, in its sole discretion, may
impose (including, without limitation, any restriction on the right to vote
such Share, and the right to receive any cash dividends), which
restrictions may lapse separately or in combination at such time or times,
in installments or otherwise, as the Committee may deem appropriate.
(x) "Restricted Stock Award" shall mean an award of Restricted Stock
under Section 7 hereof.
(y) "Senior Officer" shall mean any employee of the Company holding the
office of Vice President or higher.
(z) "Shares" shall mean shares of any class of common stock of the
Company publicly traded on an established securities market, including but
not limited to FON Stock and Series 1 PCS Stock (the "PCS Stock") and such
other securities of the Company as the Committee may from time to time
determine.
(aa) "Stockholders Meeting" shall mean the annual meeting of stockholders
of the Company in each year.
(bb) "1989 Plan" shall mean the Long-Term Stock Incentive Program adopted
by the Company's stockholders in 1989, as amended.
(cc) "total outstanding Shares" means, with respect to the FON Stock the
total shares outstanding of FON Stock and, with respect to the PCS Stock,
the total outstanding shares of Series 1 PCS Stock and Series 2 PCS Stock.
Section 3. Administration. The Plan shall be administered by the Committee.
The Committee shall have full power and authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time
to time be adopted by the Board, to: (i) select the Participants to whom
Awards may from time to time be granted hereunder; (ii) determine the type or
types of Awards to be granted to each Participant hereunder; (iii) determine
the number of Shares to be covered by each Award granted hereunder; provided,
however, that Shares subject to Options granted to any individual Participant
during any calendar year shall not exceed a total of 3,000,000 shares of FON
Stock nor 1,500,000 shares of PCS Stock; (iv) determine the terms and
conditions, not inconsistent with the provisions of the Plan, of any Award
granted hereunder; (v) determine whether, to what extent and under what
circumstances Awards may be settled in cash, Shares or other property, or
canceled or suspended; (vi) determine whether, to what extent and under what
circumstances cash, Shares and other property and other amounts payable with
respect to an Award under this Plan shall be deferred either automatically or
at the election of the Participant; (vii) interpret and administer the Plan
and any instrument or agreement entered into under the Plan; (viii) establish
such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (ix) make any other
determination and take any other action that the Committee deems necessary or
desirable for administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding upon all persons, including the Company, any
Participant, any stockholder, and any employee of the Company or of any
Affiliate.
The Committee shall appoint an administrator of the Plan for purposes of
interpreting and administering the provisions of Section 11 of the Plan.
Section 4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(b), the total number of
Shares available for grant under the Plan in a calendar year shall be nine
tenths of one percent (0.9%) of the total outstanding Shares as of the first
day of calendar year 1997, plus a number of Shares equal to the number of
Shares available for grant under the 1989 Plan as of the close of business on
the date of the 1997 Stockholders Meeting, for calendar year 1997, and one and
one-half percent (1.5%) of the total outstanding Shares as of the first day of
each such year for
VII-9
<PAGE>
which the Plan is in effect beginning with calendar year 1998 plus 10,000,000
shares of PCS Stock; provided that such number shall be increased in any year
by the number of Shares available for grant hereunder in previous years but
not covered by Awards granted hereunder in such years; and provided further,
that no more than four million (4,000,000) shares of FON Stock and no more
than two million shares of PCS Stock (2,000,000) shall be cumulatively
available for the grant of Incentive Stock Options under the Plan. In
addition, any Shares issued by the Company through the assumption or
substitution of outstanding grants from an acquired company shall not reduce
the shares available for grants under the Plan. Any Shares issued hereunder
may consist, in whole or in part, of authorized and unissued shares or
treasury shares. If any Shares subject to any Award granted hereunder are
forfeited or such Award otherwise terminates without the issuance of such
Shares or of other consideration in lieu of such Shares, the Shares subject to
such Award, to the extent of any such forfeiture or termination, shall again
be available for grant under the Plan.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, spin-off, or other change in the corporate
structure affecting the Shares, such adjustment shall be made in the aggregate
number and class of Shares which may be delivered under the Plan, in the
number and class of shares that may be subject to an option granted to any
individual in any year under the Plan, in the number, class and option price
of Shares subject to outstanding Options granted under the Plan, and in the
value of, or number or class of Shares subject to, Awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of Shares subject to any Award shall
always be a whole number.
Section 5. Eligibility. Any Employee or Outside Director shall be eligible
to be selected as a Participant.
Section 6. Stock Options. Options may be granted hereunder to Participants
either alone or in addition to other Awards granted under the Plan. Any Option
granted to a Participant under the Plan shall be evidenced by an Award
Agreement in such form as the Committee may from time to time approve. Any
such Option shall be subject to the following terms and conditions and to such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall deem desirable:
(a) Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee in its sole discretion;
provided that such exercise price shall not be less than the Fair Market
Value of the Share on the date of the grant of the Option.
(b) Option Period. The term of each Option shall be fixed by the
Committee in its sole discretion; provided that no Incentive Stock Option
shall be exercisable after the expiration of ten years from the date the
Option is granted.
(c) Exercisability. Options shall be exercisable at such time or times as
determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock
Option shall be exercisable until the first anniversary date of the
granting of the Incentive Stock Option.
(d) Method of Exercise. Subject to the other provisions of the Plan and
any applicable Award Agreement, any Option may be exercised by the
Participant in whole or in part at such time or times, and the Participant
may pay the exercise price in such form or forms, including, without
limitation, payment by delivery of cash, Shares or other consideration
(including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total exercise price, or by
any combination of cash, Shares and other consideration, as the Committee
may permit.
(e) Incentive Stock Options. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined
as of the time of grant) of the Shares with respect to which Incentive
Stock Options held by any Participant that are exercisable for the first
time by such Participant during any calendar year under the Plan (and under
any other benefit plans of the Company or of any parent
VII-10
<PAGE>
or subsidiary corporation of the Company) shall not exceed $100,000 or, if
different, the maximum limitation in effect at the time of grant under
Section 422 of the Code, or any successor provision, and any regulations
promulgated thereunder. The terms of any Incentive Stock Option granted
hereunder shall comply in all respects with the provisions of Section 422
of the Code, or any successor provision, and any regulations promulgated
thereunder.
(f) Form of Settlement. In its sole discretion, the Committee may
provide, at the time of grant, that the shares to be issued upon an
Option's exercise shall be in the form of Restricted Stock or other similar
securities, or may reserve the right so to provide after the time of grant,
or the Committee may provide that the Participant may elect to receive
Restricted Stock upon an Option's exercise.
Section 7. Restricted Stock.
(a) Issuance. Restricted Stock Awards may be issued hereunder to
Participants, for such consideration as the Committee may determine, not less
than the minimum consideration required by applicable law, either alone or in
addition to other Awards granted under the Plan. The provisions of Restricted
Stock Awards need not be the same with respect to each recipient.
(b) Registration. Any Restricted Stock issued hereunder may be evidenced in
such manner as the Committee in its sole discretion shall deem appropriate,
including, without limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock certificate is issued in
respect of shares of Restricted Stock awarded under the Plan, such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award or shall be held in escrow by the Company until all
restrictions on the Restricted Stock have lapsed.
(c) Forfeiture. Except as otherwise determined by the Committee at the time
of grant, upon termination of employment for any reason during the restriction
period, all shares of Restricted Stock still subject to restriction shall be
forfeited by the Participant and reacquired by the Company; provided that in
the event of a Participant's retirement, permanent disability, other
termination of employment or death, or in cases of special circumstances, the
Committee may, in its sole discretion, when it finds that a waiver would be in
the best interests of the Company, waive in whole or in part any or all
remaining restrictions with respect to such Participant's shares of Restricted
Stock.
Section 8. Performance Awards.
Performance Awards may be issued hereunder to Participants, for such
consideration as the Committee may determine, not less than the minimum
consideration required by applicable law, either alone or in addition to other
Awards granted under the Plan. The performance criteria to be achieved during
any Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Award. Except
as provided in Section 12, Performance Awards will be paid only after the end
of the relevant Performance Period. Performance Awards may be paid in cash,
Shares, other property or any combination thereof, in the sole discretion of
the Committee at the time of payment. The performance levels to be achieved
for each Performance Period and the amount of the Award to be distributed
shall be conclusively determined by the Committee. Performance Awards may be
paid in a lump sum or in installments following the close of the Performance
Period or, in accordance with procedures established by the Committee, on a
deferred basis.
Section 9. Other Stock Unit Awards.
(a) Stock and Administration. Other Awards of Shares and other Awards that
are valued in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be granted hereunder
to Participants, either alone or in addition to other Awards granted under the
Plan. Other Stock Unit Awards may be paid in Shares, cash or any other form of
property as the Committee shall determine. Subject to the provisions of the
Plan, the Committee shall, subject to Section 3, have sole and complete
authority
VII-11
<PAGE>
to determine the Employees or Outside Directors to whom and the time or times
at which such Awards shall be made, the number of Shares to be granted
pursuant to such Awards, and all other conditions of the Awards. The
provisions of Other Stock Unit Awards need not be the same with respect to
each recipient.
(b) Terms and Conditions. Subject to the provisions of this Plan and any
applicable Award Agreement, Shares subject to Awards made under this Section 9
may not be sold, assigned, transferred, pledged or otherwise encumbered prior
to the date on which the Shares are issued, or, if later, the date on which
any applicable restriction, performance or deferral period lapses. Shares
granted under this Section 9 may be issued for such consideration as the
Committee may determine, not less than the minimum consideration required by
applicable law. Shares purchased pursuant to a purchase right awarded under
this Section 9 shall be purchased for such consideration as the Committee
shall in its sole discretion determine, which shall not be less than the Fair
Market Value of such Shares as of the date such purchase right is awarded.
Section 10. [Deleted]
Section 11. Outside Directors' Shares.
Outside Directors may elect, on an annual basis, to purchase shares of any
class of common stock of the Company from the Company in lieu of receiving all
or part (in 10% increments) of their annual retainer, meeting fees and
committee meeting fees in cash. The purchase price of such shares shall be the
Fair Market Value of the stock for the last trading day of the month in which
the retainer, meeting fees, and committee meeting fees are earned.
Commencing May 1, 1997, the annual retainer, meeting fees and committee
meeting fees payable to each Outside Director for service on the Board may, at
the election of the Outside Director (the "Annual Election"), be payable to a
trust in shares of any class of common stock of the Company. The Annual
Election: (i) shall be irrevocable in respect of the one-year period to which
it pertains (the "Plan Year") and shall specify the applicable percentage (in
increments of 10%) of such annual retainer and meeting fees that such Outside
Director wishes to direct to the trust; (ii) must be received in writing by
the administrator of the Plan by the established enrollment deadline of any
year in which this Plan is in effect in order to cause the next succeeding
Plan Year's annual retainer and fees to be subject to the provisions of this
Plan; and (iii) must specify whether the ultimate distribution of the shares
of common stock to the Outside Directors will be paid, following the Outside
Director's death or termination of Board service, in a lump sum or in equal
annual payments over a period of two to twenty years.
The shares shall be purchased from the Company at the Fair Market Value of
the stock for the last trading day of the month in which the fees are earned
and shall be credited by the trustee to the account of the Outside Director.
The certificates for common stock shall be issued in the name of the trustee
of the trust and shall be held by such trustee in trust for the benefit of the
Outside Directors; provided, however, that each Outside Director shall be
entitled to vote the shares. The trustee shall retain all dividends (which
shall be reinvested in shares of the same class of common stock) and other
distributions paid or made with respect thereto in the trust. The shares
credited to the account of an Outside Director shall remain subject to the
claims of the Company's creditors, and the interests of the Outside Director
in the trust may not be sold, hypothecated or transferred (including, without
limitation, transferred by gift or donation) while such shares are held in the
trust.
If the Outside Director elects to receive a lump sum distribution, the
trustee of the trust shall distribute such shares of common stock free of
restrictions within 60 days after the Outside Director's termination date or a
later date elected by the Outside Director (no later than the mandatory
retirement age of the Outside Director). If the Outside Director elects to
receive a lump sum distribution, the Outside Director may, by delivering
notice in writing to the administrator of the Plan no later than December 31
of the year prior to the year in which the Outside Director terminates service
as a Director, elect to receive any portion or all of the common stock in the
form of cash determined by reference to the Fair Market Value of the common
stock as of the termination date. Any such notice to the administrator must
specify whether the distribution will be entirely in cash or whether the
VII-12
<PAGE>
distribution will be in a combination of common stock and cash (in which case
the applicable percentage must be specified). In the case of termination of
the Outside Director's service as a result of his death, payment of the
Outside Director's account shall be in shares of common stock and not in cash.
If an Outside Director elects to receive payments in installments, the
distribution will commence within 60 days after the Outside Director's
termination date and will be made in shares of common stock and not in cash.
Notwithstanding anything to the contrary contained herein, any fractional
shares of common stock shall be distributed in cash to the Outside Director.
Section 12. Change in Control.
(a) In order to maintain the Participants' rights in the event of any Change
in Control of the Company, as hereinafter defined, the Committee may, in its
sole discretion, as to any Award, either at the time an Award is made
hereunder or any time thereafter, take any one or more of the following
actions: (i) provide for the acceleration of any time periods relating to the
exercise or realization of any such Award so that such Award may be exercised
or realized in full on or before a date fixed by the Committee; (ii) provide
for the purchase of any such Award, upon the Participant's request, for an
amount of cash equal to the excess of the Fair Market Value of the property
that could have been received upon the exercise of such Award or realization
of the Participant's rights had such Award been currently exercisable or
payable over the amount which would have been paid, if any, by the Participant
for such property; (iii) make such adjustment to any such Award then
outstanding as the Committee deems appropriate to reflect such Change in
Control; or (iv) cause any such Award then outstanding to be assumed, or new
rights substituted therefor, by the acquiring or surviving corporation after
such Change in Control. The Committee may, in its discretion, include such
further provisions and limitations in any agreement documenting such Awards as
it deems equitable and in the best interests of the Company.
(b) Unless the Committee determines otherwise with respect to any Award, a
"Change in Control" shall be deemed to have occurred if (i) any person (as
defined in Section 13(d) of the Securities Exchange Act of 1934 and the rules
thereunder) other than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, and other than the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board and any new Director (other than a Director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in (i) above) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds (
2/3) of the Directors then still in office who either were Directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof.
Section 13. Amendments and Termination. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall
be made that would impair the rights of a Participant under an Award
theretofore granted, without the Participant's consent, or that without the
approval of the Stockholders would, except as is provided in Section 4(b) of
the Plan, increase the total number of Shares reserved for the purposes of the
Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights
of any Participant without his consent. The Committee may also substitute new
Awards for Awards previously granted to Participants, including without
limitation previously granted Options having higher option prices.
Section 14. General Provisions.
(a) No Award shall be assignable or transferable by a Participant otherwise
than by will or by the laws of descent and distribution, except that
Restricted Stock may be used in payment of the exercise price of a stock
VII-13
<PAGE>
option issued by the Company and may be otherwise transferred in a manner that
protects the interests of the Company as the Committee may determine; provided
that, if so determined by the Committee, each Participant or Outside Director
may, in the manner established by the Committee, designate a beneficiary to
exercise the rights of the Participant or Outside Director with respect to any
Award upon the death of the Participant or Outside Director and to receive the
Shares or other property issued upon such exercise.
(b) The term of each Award shall be for such period from the date of its
grant as may be determined by the Committee; provided that in no event shall
the term of any Incentive Stock Option exceed a period of ten (10) years from
the date of its grant.
(c) No Participant shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Participants
under the Plan.
(d) The prospective recipient of any Award under the Plan shall not, with
respect to such Award, be deemed to have become a Participant, or to have any
rights with respect to such Award, until and unless such recipient shall have
executed an agreement or other instrument evidencing the Award and delivered a
fully executed copy thereof to the Company, and otherwise complied with the
then applicable terms and conditions.
(e) The Committee shall be authorized to make adjustments in performance
award criteria or in the terms and conditions of other Awards in recognition
of unusual or nonrecurring events affecting the Company or its financial
statements or changes in applicable laws, regulations or accounting
principles. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem desirable to carry it into effect. In the event the
Company shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
(f) The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances any Award shall be canceled or
suspended. In particular, but without limitation, all outstanding Awards to
any Participant shall be canceled if the Participant, without the consent of
the Committee, while employed by the Company or after termination of such
employment, becomes associated with, employed by, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined by the
Committee), any business that is in competition with the Company or with any
business in which the Company has a substantial interest as determined by the
Committee or any one or more Senior Officers or committee of Senior Officers
to whom the authority to make such determination is delegated by the
Committee.
(g) All certificates for Shares delivered under the Plan pursuant to any
Award shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Shares are then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
(h) Subject to the provisions of this Plan and any Award Agreement, the
recipient of an Award may, if so determined by the Committee, be entitled to
receive, currently or on a deferred basis, interest or dividends, or interest
or dividend equivalents, with respect to the number of shares covered by the
Award, as determined by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
(i) Except as otherwise required in any applicable Award Agreement or by the
terms of the Plan, recipients of Awards under the Plan shall not be required
to make any payment or provide consideration other than the rendering of
services.
(j) The Committee may delegate to one or more Senior Officers or a committee
of Senior Officers the right to grant Awards to Employees who are not officers
or Directors of the Company and to cancel or suspend Awards to Employees who
are not officers or Directors of the Company.
VII-14
<PAGE>
(k) The Company shall be authorized to withhold from any Award granted or
payment due under the Plan the amount of withholding taxes due with respect to
an Award or payment hereunder and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Company shall also be authorized to accept the
delivery of Shares by a Participant in payment for the withholding of taxes.
(l) Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(m) The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
laws of the State of Kansas and applicable Federal law.
(n) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to applicable laws or if it
cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan, it shall be stricken
and the remainder of the Plan shall remain in full force and effect.
Section 15. Effective Date of Plan. The Plan shall be effective as of April
15, 1997.
Section 16. Term of Plan. No Award shall be granted pursuant to the Plan
after April 15, 2007, but any Award granted on or before such date may extend
beyond that date.
VII-15
<PAGE>
[Letterhead of SBC Warburg Dillion Read Inc.]
May 26, 1998
Board of Directors
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to Sprint Corporation ("the Company"), of the consideration to be paid
by the Company in connection with the proposed mergers (the "Mergers") of: (1)
SWV One, Inc. with and into COM Telephony Services, Inc., (ii) SWV Two, Inc.
with and into Comcast Telephony Services, Inc., (iii) SWV Three, Inc. with and
into Cox Telephony Partners, Inc., (iv) SWV Four, Inc. with and into Cox
Communications Wireless, Inc., (v) SWV Five, Inc. with and into TCI
Philadelphia Holdings, Inc., and (vi) SWV Six, Inc. with and into TCI Spectrum
Holdings, Inc., in each case pursuant to the Restructuring and Merger
Agreement dated as of May 26, 1998 (the "Merger Agreement"), by and among the
Cable Parents, the PCS Partners, the Holdco Entities, the Merger Subs (each,
as defined in the Merger Agreement) and the Company. In connection with the
Mergers, all shares of the common stock of TCl Spectrum Holdings, Inc. and the
Holdco Entities (together, the "Acquired Entities") outstanding immediately
prior to the effectiveness of the Mergers will be converted into the right to
receive: (i) an aggregate number of shares of the Series 2 PCS Group Common
Stock, par value $1.00 per share, of the Company (the "Series 2 PCS Stock"),
which class of stock will reflect the performance of the PCS Group (as defined
in the Merger Agreement) and will be authorized by amendments to the articles
of incorporation of the Company to be effective prior to the effectiveness of
the Mergers, and (ii) warrants to acquire an aggregate number of shares of the
Series 2 PCS Stock determined at the time and exercise price specified in
Section 4.1 of the Merger Agreement, which will be issued pursuant to warrant
agreements to be entered into between the Company and each of the Cable
Partners (as defined in the Merger Agreement). Upon consummation of the
Mergers, each of the Acquired Entities will become wholly owned, indirect
subsidiaries of the Company.
In arriving at our opinion, we have reviewed and analyzed, among other
things, the following: (i) the Merger Agreement and its related exhibits and
schedules; (ii) certain business and financial information, including
projections, concerning the business and operations of the Company and the
Acquired Entities that was provided to us by the Company and the Acquired
Entities; (iii) certain publicly available information with respect to certain
other companies that we believe to be comparable to the Company and the
Acquired Entities; and (iv) certain publicly available information concerning
the nature and terms of certain other transactions that we consider relevant
to our inquiry. We have discussed the foregoing, as well as the past and
current operations and financial condition and prospects of the Company and
the Acquired Entities, with members of senior management of such companies. We
have also considered such other information, financial studies, analyses,
investigations and financial, economic, market and trading criteria which we
deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of the Company or
the Acquired Entities. With respect to the Company's and the Acquired
Entities' financial projections, we have been informed by the managements of
the Company and the Acquired Entities that they have been reasonably prepared
on bases
viii-1
<PAGE>
reflecting the best currently available estimates and judgments of the
Company's and the Acquired Entities' management and we express no opinion with
respect to such projections or the assumptions on which they are based. We
have not made or obtained, and we have not assumed any responsibility for
making or obtaining, any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of the Company or
the Acquired Entities.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter. Our opinion as expressed below does not imply any conclusion as to the
likely trading range for the Company's common stock following the consummation
of the Mergers, which range may vary depending on, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Our opinion does not address the Company's underlying business decision to
effect the Mergers or the strategic and operational benefits of the Mergers.
Our opinion is directed only to the fairness, from a financial point of view,
of the consideration to be paid by the Company in connection with the Mergers
and does not constitute a recommendation to any holder of the common stock of
the Company as to how such holder should vote with respect to the Initial
Charter Amendment (as defined in the Merger Agreement), the Merger Agreement
or the Mergers.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Mergers and will receive a fee for our services, a
substantial part of which is contingent upon consummation of the Mergers. We
have from time to time acted as financial advisor to the Cable Parents for
which we have received customary compensation. In the ordinary course of our
business, we actively trade the debt and equity securities of the Company and
of each of the Cable Parents and the debt securities of Sprint Spectrum L.P.,
a subsidiary of the Company, in each case for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates may maintain
business relationships with the Company and the Cable Parents.
Our advice and the opinion expressed herein are provided solely for the use
of the Board of Directors of the Company in its evaluation of the proposed
Mergers, and may not be published or otherwise used or referred to, nor shall
any public reference to SBC Warburg Dillon Read Inc. be made, without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by the Company in connection with
the Mergers is fair to the Company from a financial point of view.
Very truly yours,
SBC WARBURG DILLON READ INC.
/s/ F. Davis Terry, Jr.
By: _________________________________
F. Davis Terry, Jr.
Managing Director
/s/ Dominic B.E. Lester
By: _________________________________
Dominic B.E. Lester
Director
viii-2
<PAGE>
[Letterhead of Salomon Smith Barney]
May 26, 1998
Board of Directors
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to Sprint Corporation ("the Company"), of the consideration to be paid
by the Company in connection with the proposed mergers (the "Mergers") of: (i)
SWV One, Inc. with and into COM Telephony Services, Inc., (ii) SWV Two, Inc.
with and into Comcast Telephony Services, Inc., (iii) SWV Three, Inc. with and
into Cox Telephony Partners, Inc., (iv) SWV Four, Inc. with and into Cox
Communications Wireless, Inc., (v) SWV Five, Inc. with and into TCI
Philadelphia Holdings, Inc., and (vi) SWV Six, Inc. with and into TCI Spectrum
Holdings, Inc., in each case pursuant to the Restructuring and Merger
Agreement dated as of May 26, 1998 (the "Merger Agreement"), by and among the
Cable Parents, the PCS Partners, the Holdco Entities, the Merger Subs (each,
as defined in the Merger Agreement) and the Company. In connection with the
Mergers, all shares of the common stock of TCl Spectrum Holdings, Inc. and the
Holdco Entities (together, the "Acquired Entities") outstanding immediately
prior to the effectiveness of the Mergers will be converted into the right to
receive: (i) an aggregate number of shares of the Series 2 PCS Group Common
Stock of the Company (the "Series 2 PCS Stock"), which class of stock will
reflect the performance of the PCS Group (as defined in the Merger Agreement)
and will be authorized by amendments to the articles of incorporation of the
Company to be effective prior to the effectiveness of the Mergers, and (ii)
warrants to acquire an aggregate number of shares of the Series 2 PCS Stock
determined at the time and exercise price specified in Section 4.1 of the
Merger Agreement, which will be issued pursuant to warrant agreements to be
entered into between the Company and each of the Cable Partners (as defined in
the Merger Agreement). Upon consummation of the Mergers, each of the Acquired
Entities will become wholly owned, indirect subsidiaries of the Company.
In arriving at our opinion, we have reviewed and analyzed, among other
things, the following: (i) the Merger Agreement and its related exhibits and
schedules; (ii) certain business and financial information, including
projections, concerning the business and operations of the Company and the
Acquired Entities that was provided to us by the Company and the Acquired
Entities; (iii) certain publicly available information with respect to certain
other companies that we believe to be comparable to the Company and the
Acquired Entities; and (iv) certain publicly available information concerning
the nature and terms of certain other transactions that we consider relevant
to our inquiry. We have discussed the foregoing, as well as the past and
current operations and financial condition and prospects of the Company and
the Acquired Entities, with members of senior management of such companies. We
have also considered such other information, financial studies, analyses,
investigations and financial, economic, market and trading criteria which we
deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of the Company or
the Acquired Entities. With respect to the Company's and the Acquired
Entities' financial projections, we have been informed by the managements of
the Company and the Acquired Entities that they have been reasonably prepared
on bases
viii-3
<PAGE>
reflecting the best currently available estimates and judgments of the
Company's and the Acquired Entities' management and we express no opinion with
respect to such projections or the assumptions on which they are based. We
have not made or obtained, and we have not assumed any responsibility for
making or obtaining, any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of the Company or
the Acquired Entities.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter. Our opinion as expressed below does not imply any conclusion as to the
likely trading range for the Company's common stock following the consummation
of the Mergers, which range may vary depending on, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Our opinion does not address the Company's underlying business decision to
effect the Mergers or the strategic and operational benefits of the Mergers.
Our opinion is directed only to the fairness, from a financial point of view,
of the consideration to be paid by the Company in connection with the Mergers
and does not constitute a recommendation to any holder of the common stock of
the Company as to how such holder should vote with respect to the Initial
Charter Amendment (as defined in the Merger Agreement), the Merger Agreement
or the Mergers.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Mergers and will receive a fee for our services, a
substantial part of which is contingent upon consummation of the Mergers. We
have from time to time acted as financial advisor to the Cable Parents for
which we have received customary compensation. In the ordinary course of our
business, we actively trade the debt and equity securities of the Company and
of each of the Cable Parents and the debt securities of Sprint Spectrum L.P.,
a subsidiary of the Company, in each case for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Travelers Group Inc. and its affiliates) may maintain business relationships
with the Company and the Cable Parents.
Our advice and the opinion expressed herein are provided solely for the use
of the Board of Directors of the Company in its evaluation of the proposed
Mergers, and may not be published or otherwise used or referred to, nor shall
any public reference to Salomon Smith Barney be made, without our prior
written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by the Company in connection with
the Mergers is fair to the Company from a financial point of view.
Salomon Smith Barney
viii-4
<PAGE>
- --------------------------------------------------------------------------------
SPRINT CORPORATION
P.O. BOX 11315, KANSAS CITY, MISSOURI 64112
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR A SPECIAL
MEETING ON JULY , 1998
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
The undersigned hereby appoints W.T. Esrey, J.R. Devlin and A.B. Krause, and
each of them, with full power of substitution as proxies, to vote all the
shares of Common and Preferred Stock of Sprint Corporation (Sprint) which the
undersigned is entitled to vote at a Special Meeting of Stockholders to be
held July , 1998, and any adjournment thereof, upon the matters set forth on
the reverse side, AND IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
THIS PROXY, IF SIGNED AND RETURNED, WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE. IF THIS CARD IS SIGNED AND RETURNED WITHOUT SPECIFICATIONS, YOUR SHARES
WILL BE VOTED FOR ITEMS 1 AND 2. A majority of said proxies, or any substitute
or substitutes, who shall be present and act at the meeting (or if only one
shall be present and act, then that one) shall have all the powers of said
proxies hereunder.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign exactly as name appears. If shares are held jointly, any one of the
joint owners may sign. Attorneys-in-fact, executors, administrators, trustees,
guardians or corporation officers should indicate the capacity in which they
are signing. PLEASE SIGN, DATE, AND MAIL THIS PROXY PROMPTLY whether or not you
expect to attend the meeting. You may nevertheless vote in person if you do
attend.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
- -------------------------------
- -------------------------------
- -------------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
SPRINT CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
, JULY , 1998 AT 10:00 a.m.
SPRINT WORLD HEADQUARTERS
2330 SHAWNEE MISSION PARKWAY
WESTWOOD, KANSAS 66205
<PAGE>
SPRINT CORPORATION
1. To approve and adopt the Tracking Stock Proposal (as more fully described
in the accompanying proxy statement) which includes:
(a) an amendment to the Restated Articles of Incorporation of Sprint
which will, among other things: (i) allocate the business of Sprint between
the FON Group and the PCS Group; (ii) establish a new class of stock, the
PCS Common Stock, consisting of three series; (iii) establish a new class
of stock, the Preferred Stock--Seventh Series, Convertible; (iv) reclassify
each outstanding share of Class A Common Stock of Sprint that is held by
Deutsche Telekom AG into one share of Class A Common Stock--Series DT; and
(v) establish a new class of stock, the Series 2 Common Stock;
(b) an additional amendment to the Restated Articles of Incorporation of
Sprint which will, among other things: (i) reclassify each outstanding
share of Common Stock of Sprint into 1/2 share of PCS Common Stock--Series
1 and one share of Sprint FON Group Common Stock; (ii) redesignate the
authorized shares of Series 2 Common Stock as "Series 2 Sprint FON Group
Common Stock;" and (iii) reclassify each outstanding share of Class A
Common Stock and each share of Class A Common Stock--Series DT so that each
such share, will, among other things, represent an issuable number of
shares of Sprint FON Group Common Stock and PCS Common Stock;
(c) the Restructuring Agreement and the performance by Sprint of all
obligations thereunder, including, among other things, Sprint's acquisition
of the interests in Sprint Spectrum Holding Company, L.P., MinorCo, L.P.,
PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P. that it does not
currently own;
(d) (i) the issuance of shares of PCS Common Stock--Series 2 and the
Warrants as consideration for the above acquisitions; (ii) the issuance of
PCS Stock--Series 1 in an underwritten initial public offering; (iii) the
issuance of PCS Preferred Stock for the purchase of certain indebtedness of
Sprint Spectrum Holding Company, L.P. or as consideration for the above
acquisitions; (iv) the issuance of PCS Stock pursuant to equity purchase
rights granted in connection with the foregoing; and (v) the creation of
inter-group interests of the FON Group in the PCS Group that will have
terms equivalent to the Warrants and the PCS Preferred Stock.
[_] For [_] Against [_] Abstain
2. To approve the Incentive Plans Proposal (as more fully described in the
accompanying proxy statement).
[_] For [_] Against [_] Abstain
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
PC2
