<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SPRINT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
KANSAS 48-0457967
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
P.O. BOX 11315
KANSAS CITY, MISSOURI 64112
(913) 624-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
DON A. JENSEN, ESQ.
VICE PRESIDENT AND SECRETARY
SPRINT CORPORATION
P.O. BOX 11315
KANSAS CITY, MISSOURI 64112
(913) 624-3326
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
WITH COPIES TO:
BRUCE N. HAWTHORNE, ESQ. MARC S. ROSENBERG, ESQ.
E. WILLIAM BATES II, ESQ. CRAVATH, SWAINE & MOORE
KING & SPALDING WORLDWIDE PLAZA, 825 EIGHTH AVENUE
1185 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019
NEW YORK, NEW YORK 10036 (212) 474-1000
(212) 556-2100
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SHARES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
PCS Common Stock--Series 1................. $603,750,000 $178,107
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes shares of PCS Common Stock--Series 1 that may be sold pursuant to
the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o) under the Securities Act.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The two
prospectuses are identical except for the front and back cover pages. Each of
these pages of the U.S. Prospectus included herein is followed by the
alternate page to be used in the International Prospectus. Each of the
alternate pages for the International Prospectus included herein is labeled
"Alternate Page for International Prospectus." Final forms of each prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b).
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1998
U.S. PROSPECTUS
SHARES
[LOGO]
SPRINT CORPORATION
PCS COMMON STOCK--SERIES 1
Of the shares of PCS Common Stock--Series 1 ("Series 1 PCS Stock") being
offered by Sprint Corporation ("Sprint"), shares are being offered in the
United States and Canada (the "U.S. Offering") and shares are being offered
in a concurrent international offering outside the United States and Canada
(the "International Offering"). Such offerings are collectively referred to
herein as the "Offerings." The net proceeds of the Offerings will be attributed
to the PCS Group (as defined herein). Prior to the Offerings, there has been no
public market for the Series 1 PCS Stock. It is currently estimated that the
initial public offering price will be between $ and $ per share. The
initial public offering price and the aggregate underwriting discount per share
are identical for both Offerings. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
Sprint has applied for listing of the Series 1 PCS Stock on the New York
Stock Exchange under the symbol "PCS."
(continued on next page)
SEE "RISK FACTORS--THE PCS GROUP" AND "RISK FACTORS--THE TRACKING STOCKS"
BEGINNING ON PAGES 23 AND 29, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) SPRINT(2)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Sprint has agreed to indemnify the U.S. Underwriters and the International
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by Sprint, estimated at $ .
(3) Sprint has granted to the U.S. Underwriters and the International
Underwriters a 30-day option to purchase up to an additional shares of
Series 1 PCS Stock at the initial public offering price (less underwriting
discounts and commissions) solely to cover over-allotments, if any. If the
option is exercised in full, the Price to Public, the Underwriting
Discounts and Commissions and the Proceeds to Sprint will total $ , $ ,
and $ , respectively. See "Underwriting."
JOINT GLOBAL COORDINATORS AND BOOK RUNNERS:
WARBURG DILLON READ LLC SALOMON SMITH BARNEY
The shares of Series 1 PCS Stock offered by this Prospectus are offered by
the several U.S. Underwriters named herein, subject to prior sale, when, as and
if delivered to and accepted by the U.S. Underwriters and subject to such U.S.
Underwriters' right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice. It is expected that the shares of
Series 1 PCS Stock offered hereby will be available for delivery on or about
,1998 through the facilities of the Depository Trust Company, against
payment in immediately available funds.
-----------
SALOMON SMITH BARNEY WARBURG DILLON READ LLC
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS J.P. MORGAN & CO.
, 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1998
INTERNATIONAL PROSPECTUS
SHARES
[LOGO]
SPRINT CORPORATION
PCS COMMON STOCK--SERIES 1
Of the shares of PCS Common Stock--Series 1 ("Series 1 PCS Stock") being
offered by Sprint Corporation ("Sprint"), shares are being offered outside
the United States and Canada (the "International Offering") and shares are
being offered in a concurrent offering in the United States and Canada (the
"U.S. Offering"). Such offerings are collectively referred to herein as the
"Offerings." The net proceeds of the Offerings will be attributed to the PCS
Group (as defined herein). Prior to the Offerings, there has been no public
market for the Series 1 PCS Stock. It is currently estimated that the initial
public offering price will be between $ and $ per share. The initial public
offering price and the aggregate underwriting discount per share are identical
for both Offerings. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
Sprint has applied for listing of the Series 1 PCS Stock on the New York
Stock Exchange under the symbol "PCS."
(continued on next page)
SEE "RISK FACTORS--THE PCS GROUP" AND "RISK FACTORS--THE TRACKING STOCKS"
BEGINNING ON PAGES 23 AND 29, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) SPRINT(2)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Sprint has agreed to indemnify the International Underwriters and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by Sprint, estimated at $ .
(3) Sprint has granted to the International Underwriters and the U.S.
Underwriters a 30-day option to purchase up to an additional shares of
Series 1 PCS Stock at the initial public offering price (less underwriting
discounts and commissions) solely to cover over-allotments, if any. If the
option is exercised in full, the Price to Public, the Underwriting
Discounts and Commissions and the Proceeds to Sprint will total $ , $ ,
and $ , respectively. See "Underwriting."
JOINT GLOBAL COORDINATORS AND BOOK RUNNERS:
WARBURG DILLON READ SALOMON SMITH BARNEY INTERNATIONAL
The shares of Series 1 PCS Stock offered by this Prospectus are offered by
the several International Underwriters named herein, subject to prior sale,
when, as and if delivered to and accepted by the International Underwriters and
subject to such International Underwriters' right to reject any order in whole
or in part and to withdraw, cancel or modify the offer without notice. It is
expected that the shares of Series 1 PCS Stock offered hereby will be available
for delivery on or about , 1998 through the facilities of the
Depository Trust Company, against payment in immediately available funds.
-----------
SALOMON SMITH BARNEY INTERNATIONAL WARBURG DILLON READ
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS J.P. MORGAN SECURITIES LTD.
, 1998
<PAGE>
(continued from previous page)
The Series 1 PCS Stock is one of three series of the PCS Common Stock of
Sprint (the "PCS Stock"), which is a class of common stock of Sprint intended
to reflect separately the performance of the PCS Group. The PCS Group 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 (other than any activities of the FON Group (defined below)
pursuant to sales agency, resale or other arrangements with the PCS Group,
which would be implemented pursuant to policies of Sprint's Board of
Directors), as well as all acquisitions of domestic PCS licenses. The PCS
Group will include the operations of Sprint Spectrum Holdings, PhillieCo and
SprintCom, each as defined herein. In addition to the Series 1 PCS Stock, the
PCS Stock consists of two other series. France Telecom S.A. ("FT") and
Deutsche Telekom AG ("DT") have agreed to purchase an aggregate of shares
of PCS Common Stock--Series 3 ("Series 3 PCS Stock"), or an aggregate of
shares if the Underwriters' over-allotment option is exercised in full, and
Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc.
(the "Cable Parents") have agreed to purchase an aggregate of shares of PCS
Common Stock--Series 2 ("Series 2 PCS Stock"), or an aggregate of shares
if the Underwriters' over-allotment option is exercised in full, concurrently
with the closing of the Offerings. See "Description of Capital Stock" for a
description of the dividend policy, liquidation and other terms of the PCS
Stock.
The PCS Stock will be created in connection with the closing of the
Offerings and certain related transactions described herein. Sprint is also
conducting an offering (the "Notes Offering") of up to $3.0 billion aggregate
principal amount of debt securities which is expected to close at
approximately the same time as the Offerings. The Offerings are not
conditioned upon the completion of the Notes Offering. See "Use of Proceeds."
Holders of PCS Stock are holders of common stock of Sprint and are subject
to all the risks of an equity investment in Sprint and all of Sprint's
businesses, assets and liabilities. The other classes of common stock of
Sprint are the existing Common Stock, listed on the New York Stock Exchange
under the symbol "FON" (the "Existing Common Stock"), and the existing Class A
Common Stock, held by FT and DT ("Existing Class A Common Stock"). At the
closing of the Offerings and related transactions described herein, each share
of Existing Class A Common Stock held by DT will be reclassified as one share
of Class A Common Stock--Series DT, which will be substantially identical to a
share of Existing Class A Common Stock. Sprint intends to complete a
recapitalization within 90 to 120 days after the closing of the Offerings (the
"Recapitalization") in which each share of Existing Common Stock will be
reclassified into 1/2 share of Series 1 PCS Stock and one share of FON Common
Stock--Series 1 ("Series 1 FON Stock"), and each share of Existing Class A
Common Stock held by FT and each share of Class A Common Stock--Series DT held
by DT will be reclassified so that each share represents an equity interest in
the FON Group and an equity interest in the PCS Group, together with a right
to cause Sprint to issue initially one share of FON Common Stock--Series 3
("Series 3 FON Stock") and 1/2 share of Series 3 PCS Stock. The Series 1 FON
Stock and the Series 3 FON Stock will be series of Sprint's FON Common Stock
(the "FON Stock"). The FON Stock will be a new class of common stock of Sprint
created at the time of the Recapitalization which is intended to reflect the
performance of Sprint's operations other than the operations of the PCS Group
(the "FON Group"). Until the Recapitalization, the Existing Common Stock will
be intended to reflect separately the performance of the FON Group, as well as
the FON Group's Inter-Group Interest (as defined herein) in the PCS Group. In
the Recapitalization, the Inter-Group Interest will be substantially
eliminated. The various series of PCS Stock and FON Stock are collectively
referred to herein as the "Tracking Stocks."
Except as required by applicable law or as otherwise described herein, the
holders of PCS Stock and FON Stock will vote together as a single class. In
matters on which the holders of PCS Stock and FON Stock vote together as a
single class, each outstanding share of FON Stock is entitled to one vote per
share, each outstanding share of Series 1 PCS Stock and Series 3 PCS Stock is
entitled to a number of votes based on the market value of a share of PCS
Stock relative to the market value of a share of FON Stock and each share of
Series 2 PCS Stock will be entitled to 1/10 of the vote per share of the
Series 1 PCS Stock and Series 3 PCS Stock. After the Recapitalization, each
share of Class A Common Stock will entitle 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 antidilution
protections). In matters on which the holders of PCS Stock vote as a separate
class, each share of PCS Stock, including each share of Series 1 PCS Stock,
will receive one vote per share. Dividends are not currently contemplated to
be paid on shares of any series of PCS Stock. See "Description of Capital
Stock."
<PAGE>
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES 1 PCS
STOCK, INCLUDING OVER-ALLOTMENT, BIDDING FOR OR PURCHASING SUCH SECURITIES TO
STABILIZE THEIR MARKET PRICE, PURCHASING SUCH SECURITIES TO COVER SOME OR ALL
OF A SHORT POSITION IN SUCH SECURITIES MAINTAINED BY THE UNDERWRITERS, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, contained or incorporated by reference in this
Prospectus. See "Available Information." Unless otherwise indicated, the
information contained in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Capitalized terms not defined herein have
the meanings ascribed to such terms in the Glossary. The term "PCS Group" as
used herein, unless otherwise stated, refers to the entities, businesses and
interests that will comprise the PCS Group immediately after the completion of
the PCS Restructuring (as defined herein). The entities, businesses and
interests comprising the PCS Group may be modified from time to time. See the
definition of "PCS Group" included in the Glossary. Unless the context
otherwise indicates, references herein to the "Series 1 FON Stock" also refer
to Sprint's existing Common Stock, par value $2.50 per share (the "Existing
Common Stock"), before the creation of the Series 1 FON Stock pursuant to the
Recapitalization (as defined herein).
THE PCS GROUP
GENERAL
The PCS Group, which markets its wireless telephony products and services
under the Sprint(R) and Sprint PCS(R) brand names, operates the only 100%
digital personal communications services ("PCS") wireless network in the United
States with licenses to provide service nationwide utilizing a single frequency
band 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 161 metropolitan
markets within the United States, including 38 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 in the United States. The PCS Group currently
provides nationwide service through a combination of (i) operating its own
digital network in major metropolitan areas, (ii) affiliating with other
companies, primarily in and around smaller metropolitan areas, (iii) roaming on
analog cellular networks of other providers using Dual-Band/Dual-Mode Handsets
and (iv) roaming on digital PCS networks of other CDMA-based providers. 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
more than 1.3 million customers as of June 30, 1998.
Management believes that there are significant growth opportunities in the
wireless industry. According to the Cellular Telecommunications Industry
Association, as of December 31, 1997 there were 55.3 million wireless telephone
subscribers in the United States, representing an overall wireless penetration
rate of 20.6% and a subscriber growth rate of 25.6% from December 31, 1996.
Paul Kagan Associates estimates that the number of cellular and PCS wireless
service subscribers will reach 89.2 million by the year 2000. Management
believes that a significant portion of the 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. Management 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 growing
demand for wireless service.
The PCS Group utilizes a state-of-the-art PCS network using CDMA digital
technology, a code division multiple access system. Management believes, based
on studies by CDMA manufacturers, that its implementation of CDMA digital
technology will result in significant operating and cost efficiencies relative
to analog and other digital technologies which can be passed on to customers.
Additionally, management believes that CDMA technology provides call quality
that is superior to that of other wireless technologies.
3
<PAGE>
The PCS Group uses multiple distribution channels to market its products and
services, including its own retail sales and direct sales forces, third-party
retail stores, telemarketing and cross-marketing. The PCS Group launched its
third-party retail distribution channel in 1995 with RadioShack, which as of
August 31, 1998 sold Sprint PCS products in approximately 2,750 locations and
had approximately 25,500 of its employees trained in PCS sales. 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. As of August 31,
1998, the PCS Group had opened 125 Sprint PCS retail locations and had its
products for sale in over 5,000 third-party retail locations. Management plans
to operate approximately 200 Sprint PCS retail locations and approximately
8,000 third-party retail locations by the end of the first half of 1999.
The PCS Group consists of the following entities: (i) Sprint Spectrum Holding
Company, L.P. and MinorCo, L.P., together with their subsidiaries
(collectively, "Sprint Spectrum Holdings"), including Sprint Spectrum, L.P. and
its subsidiaries ("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"); (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"). Sprint Spectrum Holding Company, L.P. and MinorCo,
L.P. have no independent operations other than through their subsidiaries and
are the general partner and limited partner, respectively, of Sprint Spectrum
and APC. See "Business of the PCS Group--Members of the PCS Group."
Certain information concerning the PCS Group (after giving effect to the
Related Transactions, as defined herein), including the number of Pops covered
by licenses held by the PCS Group, is set forth in the chart below:
<TABLE>
<CAPTION>
POPS (1) SPRINT
ENTITY (IN MILLIONS) OWNERSHIP (2) LICENSES
------ ------------- ------------- --------
<S> <C> <C> <C>
Sprint Spectrum Holdings
Sprint Spectrum........ 155.9 100.0% 30 MTAs
Cox PCS(3)............. 21.0 59.2 Los Angeles-San Diego-Las Vegas MTA
APC.................... 8.3 100.0 Washington D.C.-Baltimore MTA
PhillieCo............... 9.2 100.0 Philadelphia MTA
SprintCom............... 74.9 100.0 139 BTAs
-----
Total................... 269.3
=====
</TABLE>
- --------
(1) Based upon 1997 population data supplied by Equifax Inc.
(2) Assumes that the Related Transactions are completed. See "--The Related
Transactions."
(3) Pops data for Cox PCS includes 100% of its Pops, not the PCS Group's
proportional interest. Sprint Spectrum Holdings' current 59.2% interest in
Cox PCS will not be affected by the Related Transactions. Sprint Spectrum
Holdings and Cox, the holder of the remaining 40.8% partnership interest in
Cox PCS, have entered into an arrangement whereby Cox may require Sprint
Spectrum Holdings to purchase Cox's partnership interests in Cox PCS.
Commencing in 2001, Sprint Spectrum Holdings will have the right to require
that Cox sell all of its remaining partnership interests in Cox PCS to
Sprint Spectrum Holdings. See "The Related Transactions--Amendments to the
Cox PCS Agreements."
STRATEGY OF THE PCS GROUP
The business objective of the PCS Group is to expand network coverage and
increase market penetration by aggressively marketing competitively priced PCS
services and products under the Sprint PCS and Sprint brand names, offering
enhanced services and seeking to provide superior customer service. The
principal elements of the PCS Group's strategy for achieving these goals are:
Operate a Nationwide Digital Wireless Network. The PCS Group is the only PCS
provider in the United States with a 100% digital PCS wireless network with
licenses to provide services nationwide utilizing a single frequency band and a
single technology. Management believes that the PCS Group's all-digital network
provides
4
<PAGE>
its customers with consistency of service and features in all of its markets.
The 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 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. Management believes that using the
established Sprint brand contributes significantly to consumer confidence in,
and acceptance of, the PCS Group's products and services. As competition in the
wireless industry intensifies, management 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. Management believes, based on studies by CDMA
manufacturers, 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 approximately 3 times greater than that of
GSM and TDMA systems, resulting in significant operating and cost efficiencies
which can be passed on to customers. Additionally, management believes that
CDMA technology provides call quality that is superior to that of other
wireless technologies.
Deliver Superior Value to its Customers. In marketing its services, the PCS
Group emphasizes the superior voice quality and functional capabilities of its
wireless service compared 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, none of which requires customers
to sign a long-term service contract. Management believes that its ability to
provide wireless service at competitive prices without 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. As of August 31, 1998, the PCS Group had its products for sale in
over 5,000 third-party retail locations nationwide, including retailers such as
RadioShack, Circuit City and Best Buy. Management expects to have approximately
8,000 third-party retail locations by the end of the first half of 1999. The
PCS Group also seeks innovative distribution channels through which to market
its products, such as the Sprint Store-Within-A-Store at RadioShack, which
includes an exclusive arrangement pursuant to which the only PCS products
offered by RadioShack-owned stores in the markets in which the PCS Group has
launched operations are the PCS Group's products. In addition, as of August 31,
1998, the PCS Group had opened 125 Sprint PCS retail locations. Management
plans to operate approximately 200 Sprint PCS retail locations by the end of
the first half of 1999. The PCS Group also uses telemarketing, direct sales and
cross-marketing and continually evaluates other alternative distribution
channels, including sales agency, resale and other arrangements.
Continue Network Expansion. The PCS Group plans to continue the expansion of
its existing network. In addition, the PCS Group is expanding its wireless
coverage, primarily in and around smaller metropolitan areas where it does not
intend to serve customers with its own network, by pursuing affiliation
arrangements with other companies to build networks in portions of the PCS
Group's licensed coverage area at such companies' own expense. Such networks
are expected to be built using the same technological standards as those of the
PCS Group network. These companies will sell PCS Group services under the
Sprint PCS brand name in exchange for a fee and will be required to maintain
certain quality standards to be established by the PCS Group. As of August 31,
1998, the PCS Group had entered into agreements with 10 companies covering an
aggregate of approximately 24 million Pops in 16 states.
5
<PAGE>
SPRINT CORPORATION
Sprint Corporation ("Sprint") is a diversified telecommunications service
provider whose principal activities (other than those conducted through the PCS
Group) include long distance service, local service, product distribution and
directory publishing activities, and other telecommunications activities,
investments and alliances. Such activities will comprise the operations of the
FON Group (as defined herein) after the PCS Restructuring.
Sprint'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. 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, access by telephone customers and other carriers to LTD's local
exchange facilities, sales of telecommunications equipment and long distance
services within specified geographic areas. Sprint's product distribution and
directory publishing businesses ("PDDP") consist of wholesale distribution of
telecommunications equipment and publishing and marketing white and yellow page
telephone directories.
Sprint's other telecommunications activities include (i) emerging businesses,
which consist of the development of new integrated communications services,
integration management and support services for computer networks ("Sprint
Paranet") and international development activities outside the scope of Global
One ("Sprint International"), (ii) Sprint's interest in the Global One
international strategic alliance, a joint venture with France Telecom S.A.
("FT") and Deutsche Telekom AG ("DT"), and (iii) Sprint's other
telecommunications investments and alliances, such as its investment in
EarthLink Network, Inc., an internet service provider. FT and DT are European
telephone companies with a combined 20% strategic equity investment in Sprint.
THE RELATED TRANSACTIONS
At a special meeting of stockholders to be held November , 1998, Sprint is
asking its stockholders to vote upon and approve a proposal providing for,
among other things, (i) the creation of the PCS Stock, (ii) Sprint's
acquisition of 100% of the ownership and control of the businesses currently
operating under the Sprint PCS brand name, other than Cox PCS which is 59.2%
owned by Sprint Spectrum Holdings (the "PCS Restructuring"), (iii) the
recapitalization of the Existing Common Stock into PCS Stock and FON Stock
(each as defined below) (the PCS Stock and the FON Stock are hereafter
collectively referred to as the "Tracking Stocks"), together with a similar
recapitalization of the Existing Class A Common Stock and the DT Class A Stock
(each as defined herein) held by FT and DT, respectively (together with the
recapitalization of Existing Common Stock, the "Recapitalization"), (iv) the
issuance of preferred stock to the Cable Parents (as defined below), and (v)
issuances of PCS Stock to the Cable Parents and issuances of PCS Stock to FT
and DT from time to time pursuant to Equity Purchase Rights granted to the
Cable Parents and amendments to FT and DT's existing Equity Purchase Rights
(each described below). The creation of the Tracking Stocks, the PCS
Restructuring, the Recapitalization and such issuances of stock are
collectively referred to as the "Related Transactions."
STRATEGIC OBJECTIVES OF THE RELATED TRANSACTIONS
The Related Transactions are intended to allow Sprint to achieve certain
strategic objectives, including the following:
Management Control of the PCS Group. Upon consummation of the PCS
Restructuring, Sprint will obtain 100% ownership and control of the operations
comprising the PCS Group (subject to the 40.8% equity interest of Cox in Cox
PCS).
6
<PAGE>
Greater Market Recognition of the Value of Sprint. The Tracking Stocks will
be listed securities that are intended to track the performance of the PCS
Group and FON Group separately and are intended to 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 (collectively, the "Groups").
Financial Flexibility. The creation of the Tracking Stocks 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 and can be
issued in connection with acquisitions and investments.
Synergies. The creation of the Tracking Stocks will retain for Sprint the
advantages of doing business under common ownership. Each Group will 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 the PCS Group were not under common ownership. In addition, operating under
a single consolidated structure will provide certain advantages of tax
consolidation.
CREATION OF THE TRACKING STOCKS
Sprint intends to create two new classes of common stock, the PCS Stock and
the FON Stock. The PCS Stock, the PCS Group and the FON Group will be created
in connection with the Offerings and the PCS Restructuring by the filing of an
amendment (the "PCS Stock Amendment") to Sprint's Restated Articles of
Incorporation (the "Existing Articles").
The PCS Common Stock of Sprint, $1.00 par value per share (the "PCS Stock"),
is intended to reflect separately the performance of the PCS Group. The FON
Common Stock of Sprint, $2.00 par value per share (the "FON Stock"), is
intended to reflect the performance of Sprint's operations other than the
operations of the PCS Group (the "FON Group"), including (i) Sprint's core
businesses, which consist of LDD, LTD and PDDP, (ii) its emerging businesses,
which consist of the development of new integrated communications services,
Sprint Paranet and Sprint International, (iii) Sprint's interest in the Global
One international strategic alliance and (iv) other telecommunications
investments and alliances. The FON Stock will be created as part of the
Recapitalization. See "--The Recapitalization." Both the PCS Stock and the FON
Stock are classes of common stock of Sprint and are subject to all of the risks
of an equity investment in Sprint and all of Sprint's businesses, assets and
liabilities. See "Risk Factors--The Tracking Stocks."
In addition to the PCS Common Stock--Series 1 ("Series 1 PCS Stock"), Sprint
also intends to create and issue two other series of PCS Stock in connection
with the closing of the PCS Restructuring (together with the closing of the
Offerings, the "Closing"): PCS Common Stock--Series 2 ("Series 2 PCS Stock"),
to be issued to the Cable Parents, and PCS Common Stock--Series 3 ("Series 3
PCS Stock"), to be issued to FT and DT. In addition, Sprint intends to create
three series of FON Stock: FON Common Stock--Series 1 ("Series 1 FON Stock"),
to be issued to holders of Existing Common Stock in the Recapitalization; FON
Common Stock--Series 2 ("Series 2 FON Stock"), to be issued only if Sprint
converts the outstanding shares of PCS Stock into shares of FON Stock at a time
when shares of Series 2 PCS Stock remain outstanding; and FON Common Stock--
Series 3 ("Series 3 FON Stock"), to be issued to FT and DT upon exercise of
their Equity Purchase Rights following the Recapitalization. See "--Equity
Purchase Rights;" "--The PCS Restructuring;" "--The Recapitalization" and
"Description of Capital Stock."
THE PCS RESTRUCTURING
Sprint currently conducts a substantial portion of its PCS operations through
its 40% interest in Sprint Spectrum Holdings and its approximately 47% interest
in PhillieCo. On May 26, 1998, Sprint entered into a Restructuring and Merger
Agreement (the "Restructuring Agreement") with Tele-Communications, Inc.
("TCI"), Comcast Corporation ("Comcast"), Cox Communications, Inc. ("Cox," and
together with TCI and Comcast, the "Cable Parents") and various of their
subsidiaries, pursuant to which Sprint agreed to purchase from the Cable
Parents all of their respective interests in Sprint Spectrum Holdings and all
of the respective interests of TCI and Cox in PhillieCo in exchange for (i)
shares of Series 2 PCS Stock representing an aggregate
7
<PAGE>
PCS Group Percentage Interest of approximately 47% (before issuances in the
Offerings and upon exercise of Equity Purchase Rights in connection with the
PCS Restructuring and the Offerings), (ii) warrants (the "Warrants") to acquire
shares of Series 2 PCS Stock, representing an aggregate PCS Group Percentage
Interest of approximately 2.9% and (iii) under certain circumstances described
below, shares of a new class of preferred stock of Sprint designated "Preferred
Stock--Seventh Series, Convertible" (the "PCS Preferred Stock"). Sprint will
acquire such interests in Sprint Spectrum Holdings and PhillieCo 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 these entities. Subject to
adjustment as described under "Description of Capital Stock--Description of
Warrants; Warrant Inter-Group Interest," each Warrant will be exercisable for a
share of PCS Stock at any time before the fifth anniversary of the PCS
Restructuring at an exercise price equal to the per-share sale price in the
Offerings. At the Closing, the FON Group will receive a right, with an exercise
price and other terms equivalent to the Warrants, to acquire an additional
Inter-Group Interest (as defined below) aggregating an approximately 2.9% PCS
Group Percentage Interest (the "Warrant Inter-Group Interest").
Pursuant to the Restructuring Agreement, Sprint and the Cable Parents have
made loans between the date of the Restructuring Agreement and the date of the
Closing (the "Closing Date") to finance the operations of Sprint Spectrum
Holdings. To the extent that a Cable Parent elects to contribute its portion of
such loans to its subsidiary holding an interest in Sprint Spectrum Holdings
prior to the PCS Restructuring, it will receive shares of PCS Preferred Stock
as consideration for its corresponding interest in Sprint Spectrum Holdings at
the Closing. If its portion of such loans remains outstanding, then at the
Closing, such Cable Parent may elect to receive either a proportionate share of
cash from the proceeds of the Offerings (but only to the extent that net
proceeds from the Offerings exceed $500 million) or shares of PCS Preferred
Stock in repayment of such loans made by such Cable Parent. The FON Group may
also, depending upon an election to be made by Sprint, receive a preferred
inter-Group interest with terms similar to those of the PCS Preferred Stock,
also convertible into an additional Inter-Group Interest (the "Preferred Inter-
Group Interest") in repayment of similar loans made by Sprint. See "The Related
Transactions." Sprint intends to complete the PCS Restructuring concurrently
with the closings of the Offerings.
INTER-GROUP INTEREST
Sprint has determined the total number of shares of PCS Stock intended to
track the performance of the PCS Group (excluding the shares to be issued in
the Offerings and upon the exercise of Equity Purchase Rights in connection
with the Offerings). At the Closing, Sprint will issue 46.5% of those shares to
the Cable Parents and 1.2% of those shares to FT and DT. In exchange for the
shares issued to the Cable Parents, Sprint will become the sole owner of each
entity in the PCS Group (subject to Cox's minority ownership interest in Cox
PCS). The remaining unissued 52.3% will be represented on the FON Group
financial statements as an ownership interest of the FON Group in the PCS
Group. This interest will be similar to the FON Group holding Tracking Stock of
the PCS Group. Because Sprint cannot own stock in itself, Sprint will account
for this remaining interest in the PCS Group as an "Inter-Group Interest."
Until the Recapitalization occurs, the value of this Inter-Group Interest
should be reflected in Sprint's Existing Common Stock and in the Class A Common
Stock held by FT and DT. The shares of PCS Stock that are issued to holders of
Sprint's Existing Common Stock in the Recapitalization or issuable in respect
of the Class A Common Stock held by FT and DT will represent substantially all
of this Inter-Group Interest. The FON Group will continue to hold the Warrant
Inter-Group Interest and the Preferred Inter-Group Interest, if any,
immediately after the Recapitalization.
THE RECAPITALIZATION
Within 90 to 120 days after the consummation of the Offerings and the PCS
Restructuring, Sprint will file an amendment to its Articles of Incorporation
(the "Recapitalization Amendment" and, together with the PCS Stock Amendment,
the "Articles Amendment") that will result in the tax-free recapitalization of
its Existing Common Stock and Class A Common Stock. In the Recapitalization,
Sprint will, among other things: (i) reclassify each outstanding share of its
Existing Common Stock to represent one share of Series 1 FON Stock
8
<PAGE>
and 1/2 share of Series 1 PCS Stock and (ii) reclassify each share of Existing
Class A Common Stock held by FT and each share of DT Class A Stock (defined
below) held by DT as described below under "--Arrangements with Holders of
Existing Class A Common Stock."
Before the Recapitalization, the Existing Common Stock and Class A Common
Stock is intended to reflect the performance of the FON Group, as well as the
FON Group's Inter-Group Interest in the PCS Group. After the Recapitalization,
it is intended that the FON Stock will reflect the performance of the FON
Group, and the FON Group's Inter-Group Interest will be substantially
eliminated. The FON Group will continue to hold the Warrant Inter-Group
Interest and the Preferred Inter-Group Interest, if any, immediately after the
Recapitalization.
ARRANGEMENTS WITH HOLDERS OF EXISTING CLASS A COMMON STOCK
On May 26, 1998, Sprint entered into a Master Restructuring and Investment
Agreement (the "Master Agreement") with FT and DT which provides, among other
things, that FT and DT will purchase from Sprint a sufficient number of shares
of Series 3 PCS Stock in connection with the PCS Restructuring and the
Offerings to maintain their aggregate voting power of approximately 20% of all
Sprint Voting Stock, taking into account issuances in the Offerings, the PCS
Restructuring and the exercise by the Cable Parents of their Equity Purchase
Rights. FT and DT have agreed to purchase an aggregate of 4,877,358 shares of
Series 3 PCS Stock in connection with the PCS Restructuring and an aggregate of
shares of Series 3 PCS Stock, or an aggregate of shares if the
Underwriters' over-allotment option is exercised in full, in connection with
the Offerings. See "--The Offerings." 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 Related
Transactions.
Currently FT and DT hold shares of Sprint's Class A Common Stock, par value
$2.50 per share (the "Existing Class A Common Stock"). Pursuant to the PCS
Stock Amendment to be filed in connection with the PCS Restructuring, all
shares of Existing Class A Common Stock held by DT will be reclassified into
the same number of shares of Class A Common Stock--Series DT, par value $2.50
per share ("DT Class A Stock"). Pursuant to the Recapitalization Amendment,
each share of Existing Class A Common Stock held by FT and each share of DT
Class A Stock held by DT will be reclassified so that each share will, among
other things, represent an equity interest in the FON Group and an equity
interest in the PCS Group, together with a right to cause Sprint to issue
initially one share of Series 3 FON Stock and 1/2 share of Series 3 PCS Stock.
Thus, after the PCS Restructuring, the Recapitalization and the Offerings, FT
and DT will hold shares of Class A Common Stock (representing interests in the
FON Group and the PCS Group) and they will hold shares of Series 3 PCS Stock
purchased in connection with the PCS Restructuring and the Offerings.
As used in this Prospectus, the term "Class A Common Stock" refers
collectively to the Existing Class A Common Stock held by FT before and after
the PCS Restructuring, the Existing Class A Common Stock held by DT before the
PCS Restructuring and the DT Class A Stock held by DT after the PCS
Restructuring.
EQUITY PURCHASE RIGHTS
Cable Parents. Beginning on the Closing Date, each Cable Parent will have
the right ("Equity Purchase Rights") to purchase shares of Series 2 PCS Stock
upon certain issuances of PCS Stock by Sprint so that such Cable Parent may
maintain its PCS Group Percentage Interest. These rights will also apply if the
FON Group increases its Inter-Group Interest in the PCS Group. The
Recapitalization and certain other events will not give rise to Equity Purchase
Rights. See "The Related Transactions--Equity Purchase Rights--Cable Parents."
The Cable Parents have agreed to purchase an aggregate of shares of Series
2 PCS Stock, or an aggregate of shares if the Underwriters' over-allotment
option is exercised in full, concurrently with the closing of the Offerings.
See "--The Offerings." Each Cable Parent's Equity Purchase Rights will
terminate upon termination of its Standstill Agreement, defined herein. See
"The Related Transactions--Standstill Agreements."
9
<PAGE>
FT and DT. FT's and DT's existing Equity Purchase Rights are being amended as
part of the Related Transactions to provide that FT and DT will have the right
to purchase either shares of Series 3 FON Stock or Series 3 PCS Stock upon
issuances of voting stock by Sprint so that FT and DT may maintain their 20%
voting interest in Sprint. See "The Related Transactions--Equity Purchase
Rights--FT and DT."
TRACKING STOCK POLICIES; CAPITAL STOCK COMMITTEE
The Board of Directors of Sprint (the "Sprint Board") has adopted policies
(the "Tracking Stock Policies") with respect to the relationships between the
PCS Group and the FON Group, which provide, among other things, that any
business conducted by Sprint for offering or providing Domestic Wireless Mobile
Telephony Services and any other Domestic PCS Services (other than any
activities of the FON Group pursuant to sales agency, resale or other
arrangements with the PCS Group, which would be implemented pursuant to the
Tracking Stock Policies), 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 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.
The Sprint Board has adopted an amendment to the bylaws of Sprint (the
"Sprint Bylaws"), 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. 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.
The Tracking Stock Policies provide that all material matters as to which the
holders of FON Stock and the holders of PCS Stock may have potentially
divergent interests will be resolved in a manner that the Sprint Board (or the
Capital Stock Committee of the Sprint Board acting on its behalf) 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. The Tracking Stock Policies also contain provisions that (i) govern the
determination of dividends for each Group and the allocation of tax benefits or
burdens between the Groups, (ii) set general parameters for loans, asset
transfers and commercial transactions between the Groups and (iii) limit
certain repurchases of PCS Stock and certain extraordinary transactions by
Sprint.
Certain provisions of the Tracking Stock Policies relating to tax matters
(including the Tax Sharing Agreement, defined herein) 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 "Risk Factors--The Tracking Stocks--Tracking
Stock Policies Subject to Change."
10
<PAGE>
THE OFFERINGS
Series 1 PCS Stock Offered Hereby:
U.S. Offering............. shares
International Offering.... shares
Total................... shares
PCS STOCK OUTSTANDING AND INTER-GROUP INTEREST IMMEDIATELY FOLLOWING OFFERINGS
<TABLE>
<S> <C>
As a Result of the PCS Restructuring.. 415,094,340(/1/)
To be Issued to FT and DT Upon
Exercise of Equity Purchase
Rights in Connection with the PCS
Restructuring........................ 4,877,358
To be Issued in the Offerings.........
To be Issued to Cable Parents and FT
and DT Upon Exercise of Equity Pur-
chase Rights in Connection with the
Offerings............................
Total After PCS Restructuring, Offer-
ings and Equity Purchase Rights..... (/1/)
===========
</TABLE>
- --------
(1) Includes 195,094,340 shares to be issued to the Cable Parents and an Inter-
Group Interest equivalent to 220,000,000 shares of PCS Stock. Substantially
all of such 220,000,000 share equivalents will be issued to Sprint's existing
stockholders in the Recapitalization. Does not reflect PCS Preferred Stock,
Preferred Inter-Group Interest, Warrants or Warrant Inter-Group Interest, or
shares of PCS Stock or Inter-Group Interest issuable upon conversion or
exercise thereof. Does not include certain other shares which may be issued
by Sprint. See Notes 8, 10 and 12 under "--PCS Stock Outstanding and Inter-
Group Interest Assuming Completion of the PCS Restructuring and the
Offerings."
11
<PAGE>
<TABLE>
<CAPTION>
PCS STOCK OUTSTANDING AND INTER-GROUP INTEREST ASSUMING COMPLETION OF THE PCS
RESTRUCTURING AND THE OFFERINGS(/1/)
---------------------------------------------------------------------------------------------------------
BEFORE RECAPITALIZATION AFTER RECAPITALIZATION
--------------------------------------------------- -----------------------------------------------------
PERCENTAGE PERCENTAGE
SERIES OF SPRINT SERIES OF SPRINT
OF NUMBER OF PCS GROUP VOTING OF NUMBER OF PCS GROUP VOTING
PCS SHARES PERCENTAGE POWER PCS SHARES PERCENTAGE POWER
STOCKHOLDER(S) STOCK OWNED INTEREST (2)(3) STOCK OWNED INTEREST (2)(3)
-------------- -------- ----------- ---------- ---------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCI............... Series 2 98,563,924(6)(7) % % Series 2 98,563,924(6)(7) % %
Cox............... Series 2 49,281,981(6)(7)(8) % % Series 2 49,281,981(6)(7)(8) % %
Comcast........... Series 2 47,248,435(6)(7) % % Series 2 47,248,435(6)(7) % %
----------- ------ --- ----------- ------ ---
Cable Parents
Totals........... 195,094,340 % % 195,094,340 % %
Existing Sprint
Stockholders(4).. -- -- -- -- Series 1 171,920,269 % %
Inter-Group
Interest N/A 220,000,000(6) % % N/A 4,961,714(6)(9) % %
FT(5)............. Series 3 % % Series 3 (7)(10)(11) % %
DT(5)............. Series 3 % % Series 3 (7)(10)(11) % %
New Public
Stockholders..... Series 1 % % Series 1 % %
----------- ------ --- ----------- ------ ---
Total--PCS Group.. (12) 100.0% % (12) 100.0% %
=========== ====== === =========== ====== ===
</TABLE>
- --------
(1) Assumes the number of shares of Existing Common Stock and Class A Common
Stock is equal to the number outstanding on June 30, 1998. Percentages may
not total due to rounding.
(2) Each outstanding share of Series 1 FON Stock and Series 3 FON Stock is
entitled to one vote per share. For a description of the PCS Per Share
Vote, see "--Selected Rights and Terms of PCS Stock--Voting Rights." The
PCS Per Share Vote may fluctuate substantially. The tables assume, solely
for purposes of illustration, that each share of Series 1 PCS Stock and
Series 3 PCS Stock will have votes per share, and each share of Series 2
PCS Stock will have votes per share (using an assumed price for the
Series 1 PCS Stock of $ per share (the midpoint of the price range set
forth on the cover page of this Prospectus) and an assumed price for the
FON Stock of $ per share). The assumed price for the FON Stock is based
on the closing price for the Existing Common Stock on , 1998 ($ per
share) and on the assumed price for the Series 1 PCS Stock, giving effect
to the Recapitalization. There can be no assurance that actual voting
power will approximate that utilized in this illustration.
(3) Does not include shares of Preferred Stock, of which, as of June 30, 1998,
there were outstanding: (i) 40,576 shares of Preferred Stock--First
Series, Convertible; (ii) 252,110 shares of Preferred Stock--Second
Series, Convertible; and (iii) 95 shares of Preferred Stock-- Fifth
Series. In addition, the table does not include the PCS Preferred Stock or
any shares of PCS Stock that may be issued to the Cable Parents upon
conversion of PCS Preferred Stock or any Inter-Group Interest that may be
held by the FON Group upon conversion of the Preferred Inter-Group
Interest. See "The Related Transactions--Funding of the PCS Group Prior to
Closing; The PCS Preferred Stock."
(4) Excludes FT and DT.
(5) Reflects 43,118,018 shares of Series 3 FON Stock or 21,559,009 shares of
Series 3 PCS Stock, as the case may be, that each of FT and DT have a
right to cause Sprint to issue to them (which, with respect to certain
transferees of such holders, would be reflected as Series 1 FON Stock or
Series 1 PCS Stock, respectively). Such shares are represented by
43,118,018 shares of Existing Class A Common Stock and DT Class A Stock
held by FT and DT, respectively.
(6) Does not reflect Warrants to purchase 6,291,315, 3,015,856, and 3,145,658
shares of PCS Stock held by TCI, Comcast and Cox, respectively, or the FON
Group's Warrant Inter-Group Interest to acquire an Inter-Group Interest
equivalent to 12,452,829 shares of PCS Stock, or shares issuable upon
exercise of FT and DT's Equity Purchase Rights in connection with the
exercise thereof.
(7) Reflects shares of Series 2 PCS Stock to be purchased by TCI, Cox and
Comcast in connection with the exercise of their Equity Purchase Rights in
connection with the Offerings and shares of Series 3 PCS Stock to be
purchased by FT and DT in connection therewith. The Cable Parents have the
right to exercise their Equity Purchase Rights to maintain their
approximately 46.5% PCS Group Percentage Interest in light of the shares
issued in the Offerings. See "The Related Transactions--Equity Purchase
Rights."
(8) Does not include shares of Series 2 PCS Stock that may be issued in
connection with the exercise of the call and put rights relating to Cox
PCS. The number of shares so issuable will depend on when the call or put
is exercised, the value of Cox PCS at that time, and the market price of
Series 1 PCS Stock at that time.
(9) Sprint expects that any Inter-Group Interest remaining after the
Recapitalization will be eliminated over time as currently outstanding
employee stock options that are converted in part into options to purchase
PCS Stock are exercised and as shares of PCS Stock are issued upon
conversion by holders of Sprint's existing convertible preferred stock.
(10) Does not include Series 3 PCS Stock that FT and DT are obligated to
purchase in connection with the issuance of the PCS Preferred Stock.
(11) Includes 2,438,679 shares of Series 3 PCS Stock to be acquired by each of
FT and DT in connection with the PCS Restructuring.
(12) Does not include up to 10 million shares of Series 1 PCS Stock that will
be used to replace the Sprint Spectrum Long-Term Incentive Compensation
Plan. It is anticipated that options will be issued for many of these
shares and therefore the shares would not be outstanding until the options
are exercised.
12
<PAGE>
Equity Purchase Rights...... FT and DT have agreed, and the Cable Parents
have the right, to purchase shares of Series
3 PCS Stock and Series 2 PCS Stock,
respectively, concurrently with the Closing.
Assuming a public offering price of $ per
share in the Offerings, the proceeds to
Sprint from the exercise of such rights by FT
and DT are estimated to be $ ($ if
the Underwriters' over-allotment option is
exercised in full), and the proceeds to
Sprint from the exercise of such rights by
the Cable Parents, assuming such rights are
exercised in full, are estimated to be $
($ if the Underwriters' over-allotment
option is exercised in full).
Use of Proceeds............. The net proceeds to Sprint from the Offerings
are expected to be $ ($ if the
Underwriters' over-allotment option is
exercised in full) at an assumed public
offering price of $ per share after
deducting estimated underwriting discounts
and commissions and estimated offering
expenses payable by Sprint. All of the net
proceeds from the Offerings and the exercise
of Equity Purchase Rights in connection
therewith will be attributed to the PCS Group
and used for working capital needs, including
the further buildout of the PCS network.
Pending such use, such net proceeds will be
invested in short-term investments. See "Use
of Proceeds."
Proposed New York Stock
Exchange Symbol.............
PCS
NOTES OFFERING
Sprint intends to file a "shelf" registration statement for $8.0 billion
aggregate principal amount of debt securities. Sprint currently expects to
complete an underwritten public offering (the "Notes Offering") under that
shelf registration statement of up to $3.0 billion aggregate principal amount
of debt securities at approximately the same time as the Offerings. There can
be no assurance that the Notes Offering will occur. The Offerings are not
conditioned upon completion of the Notes Offering. See "Use of Proceeds."
13
<PAGE>
SELECTED RIGHTS AND TERMS OF PCS STOCK
Voting Rights............... Each outstanding share of Series 1 PCS Stock
and Series 3 PCS Stock is entitled to a
number of votes (the "PCS Per Share Vote")
equal to: (1) if the record date for
determining the stockholders entitled to vote
is on or before December 31, 1998, the PCS
Ratio, and (2) if the record date for
determining the stockholders entitled to vote
is after December 31, 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 entitled to
vote, expressed as a decimal fraction rounded
to the nearest three 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 matters 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 receive one vote per share. Except as
otherwise provided under the Amended Articles
or required by the Kansas General Corporation
Code, the holders of the FON Stock and the
PCS Stock will vote together as a single
class.
Because the PCS Per Share Vote will vary from
time to time, the relative voting power per
share of PCS Stock and FON Stock will
fluctuate. It is expected that initially the
FON Stock will have a substantial majority of
the voting power of Sprint. See "Description
of Capital Stock--Voting Rights of Common
Stock."
Dividends................... Sprint does not intend to pay dividends on
the PCS Stock in the foreseeable future.
Although such dividends, if any, would be
subject to declaration and payment at the
discretion of the Sprint Board based
primarily upon the financial condition,
results of operations and business
requirements of the PCS Group and Sprint as a
whole, the Tracking Stock Policies provide
that dividends on the PCS Stock and on the
Class A Common Stock (to the extent it
represents any unissued PCS Stock) on an
equivalent per share basis will be payable
only out of the lesser of (i) the funds of
Sprint legally available therefor and (ii)
the PCS Group Available Dividend Amount. The
PCS Group Available Dividend Amount is
similar to the amount of assets that would be
available for payment of dividends on the PCS
Stock under the Kansas General Corporation
Code if the PCS Group were a separate
company. At June 30, 1998, the PCS Group
Available Dividend Amount (after giving
effect to (A) the Recapitalization, (B) the
PCS Restructuring, (C) the exercise of Equity
Purchase Rights by FT and DT in connection
with the PCS Restructuring, (D) the Offerings
and (E) the exercise of Equity Purchase
Rights by FT, DT and the Cable Parents in
connection with the Offerings) would have
been approximately $ billion. See
"Description of Capital Stock--Dividends on
Common Stock--Dividend Policy."
Rights on Disposition of
All or Substantially All
Assets of a Group...........
If Sprint disposes of all or substantially
all (defined in the Articles Amendment to
mean at least 80% on a then-current market
value
14
<PAGE>
basis) of the assets of the PCS Group, other
than in a transaction, among others, in which
Sprint receives primarily equity securities
of an entity engaged or proposing to engage
primarily in a business similar or
complementary to the 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
proceeds of the disposition 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
represented 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 outstanding
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 Series 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 consummation of the
disposition transaction (and effect 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).
In determining whether to select either
option (1) or option (2), the Sprint Board
will act in accordance with its good faith
business judgment that the selected option is
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. The specific
circumstances under which the Sprint Board
would select option (2) and the factors that
it would consider in making such
determination cannot be specified at this
time. See "Risk Factors--The Tracking
Stocks--Potential Diverging Interests," "--
Tracking Stock Policies Subject To Change,"
and "Tracking Stock Policies."
Sales of Less Than
Substantially All Assets of
a Group.....................
The proceeds from any disposition of assets
that does not comprise all or substantially
all of the assets attributed to the PCS Group
will be allocated to the PCS Group as an
asset of the PCS Group.
Sprint may at any time after the third
Conversion at the Option of anniversary of the Closing Date convert each
Sprint...................... 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 Conversion Ratio computed as of
the fifth trading 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 independent
15
<PAGE>
determinations 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 of unissued shares, 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 basis.
Redemption in Exchange for
Stock
of a Subsidiary............. Sprint may redeem all of the outstanding
shares of PCS Stock in exchange for the
outstanding shares of common stock of one or
more wholly-owned subsidiaries of Sprint that
hold directly or indirectly all of the assets
and liabilities attributed to the PCS Group
(a "spin-off" of the PCS Group), provided
that (i) prior to the second 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 redemption, such
redemption 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 itself realized by such holders,
are in a position substantially equivalent
economically to the position such
stockholders would be in after a tax-free
distribution.
Liquidation................. Upon the liquidation of Sprint, 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 those assets are attributed,
divided among those holders in accordance
with per share units ("Liquidation Units")
attributable to each class or series of
stock. Each share of PCS Stock will have a
certain number of Liquidation Units. The
number of Liquidation Units for one share of
PCS Stock will equal the initial offering
price of one share of Series 1 PCS Stock
divided by the price of one share of Existing
Common Stock, both prices determined at the
time of the closing of the Offerings. The
number of Liquidation Units for each share of
PCS Stock will be adjusted for stock splits,
reverse stock splits and certain other
corporate events. Otherwise, the number of
Liquidation Units for a share of PCS Stock
will not change unless the Articles of
Incorporation of Sprint are amended. It is
expected that the FON Stock will be
attributed a majority of the Liquidation
Units of Sprint. See "Description of Capital
Stock--Liquidation."
Prior to the Recapitalization, each
outstanding share of Class A Common Stock is
attributed one Liquidation Unit. Once the
Recapitalization occurs, each outstanding
share of Existing Class A Common Stock and DT
Class A Stock is entitled to a number of
Liquidation Units equal to (i) the sum of the
Liquidation Units associated with the
unissued shares of FON Stock and PCS Stock
represented by the Existing Class A Common
Stock or DT Class A Stock, respectively, at
the time of the liquidation divided by (ii)
the aggregate number of outstanding shares of
Existing Class A Common Stock or DT Class A
Stock, respectively.
16
<PAGE>
RISK FACTORS
See "Risk Factors--The PCS Group" and "Risk Factors--The Tracking Stocks"
beginning on pages 23 and 29, respectively, for a discussion of certain factors
to be considered by investors relating to Sprint and the PCS Group, the
business of the PCS Group and an investment in the PCS Stock offered hereby.
HOLDERS OF 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 THAT AFFECT SPRINT'S RESULTS OF OPERATIONS
OR FINANCIAL CONDITION COULD AFFECT THE RESULTS OF OPERATIONS OR FINANCIAL
POSITION OF THE PCS GROUP OR THE MARKET PRICE OF THE 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 PCS STOCK.
OWNERSHIP OF PCS STOCK WILL NOT REPRESENT A DIRECT LEGAL INTEREST IN THE ASSETS
AND LIABILITIES OF THE PCS GROUP. RATHER, THE PCS STOCK WILL BE COMMON STOCK OF
SPRINT REPRESENTING AN OWNERSHIP INTEREST IN SPRINT. HOWEVER, THE PCS STOCK
WILL BE INTENDED TO TRACK THE PERFORMANCE OF ONLY THE PCS GROUP.
17
<PAGE>
HISTORICAL PCS GROUP
SUMMARY FINANCIAL DATA
The following unaudited table sets forth historical Summary 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 a consolidated basis in the PCS Group Combined Financial
Statements. The Summary Financial Data set forth below should be read in
conjunction with "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")
included elsewhere in this Prospectus. The Summary 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 Summary
Financial Data at December 31, 1995 and 1994, at June 30, 1998, for the year
ended December 31, 1994 and for the six months ended June 30, 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. Results for the six months ended
June 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------
1998 1997 1997 1996 1995 1994(1)
-------- ------- -------- -------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA
Operating loss.......... $ (39.5) $ (3.6) $ (18.5) $ (0.5) $ -- $ --
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (436.0) (221.9) (659.6) (191.8) (31.4) --
Net loss................ (295.6) (139.7) (419.1) (119.7) (19.9) --
CASH FLOW DATA
Net cash provided (used)
by operating
activities............. $ (114.9) $ 15.4 $ 37.5 $ (0.5) $ -- $ --
Capital expenditures.... 552.3 31.8 153.7 -- -- --
Purchase of PCS
licenses............... -- 433.7 460.1 84.0 -- --
Investments in Sprint
Spectrum Holdings and
PhillieCo.............. 65.7 86.7 405.9 297.5 910.9 51.1
BALANCE SHEET DATA
Total assets............ $2,244.0 $1,693.1 $1,259.8 $973.7 $51.1
Property, plant and
equipment.............. 1,009.5 177.3 -- -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo.............. 598.1 968.4 1,175.8 973.7 51.1
Construction and capital
lease obligations
(including short-term
borrowings)............ 729.4 -- -- -- --
Group equity............ 949.0 1,385.9 1,187.6 965.7 51.1
</TABLE>
- --------
(1) The PCS Group had no operations prior to 1994.
HOLDERS OF 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 THAT AFFECT SPRINT'S
RESULTS OF OPERATIONS OR FINANCIAL CONDITION COULD AFFECT THE RESULTS OF
OPERATIONS OR FINANCIAL POSITION OF THE PCS GROUP OR THE MARKET PRICE OF THE
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 PCS STOCK.
18
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
SUMMARY FINANCIAL DATA
The following unaudited table sets forth Summary Financial Data of Sprint
Spectrum Holding Company, MinorCo and PhillieCo. The following should be read
in conjunction with "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 Combined with
MinorCo and PhillieCo Financial Statements and Notes thereto included elsewhere
in this Prospectus. The Summary 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 Combined with MinorCo and
PhillieCo Financial Statements, which have been audited by Deloitte & Touche
LLP, independent auditors. The Summary Financial Data at December 31, 1995 and
1994, at June 30, 1998, for the year ended December 31, 1994 and for the six
months ended June 30, 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. Results for the six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------
1998 1997 1997 1996 1995 1994(/1/)
--------- -------- --------- -------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA
Net operating revenues.. $ 468.0 $ 35.3 $ 258.0 $ 4.2 $ -- $ --
Operating loss.......... (933.2) (477.7) (1,379.7) (357.6) (66.9) (3.3)
Net loss................ (1,073.6) (555.8) (1,632.7) (444.6) (112.7) (3.3)
CASH FLOW DATA
Net cash used in
operating activities... $ 892.7 $ 368.8 $ 848.2 $ 172.4 $ 16.9 $ 0.5
Capital expenditures.... 662.6 1,260.9 2,124.6 1,419.2 31.8 0.5
Purchase of PCS
licenses............... -- -- -- -- 2,085.8 118.4
BALANCE SHEET DATA
Total assets............ $ 8,151.4 $ 7,057.9 $4,443.6 $2,329.3 $123.9
Property, plant and
equipment.............. 4,277.4 3,538.2 1,441.6 32.0 0.4
Long-term debt and
construction
obligations (including
short-term borrowings). 6,049.1 4,273.8 1,401.2 -- --
</TABLE>
- --------
(1) Sprint Spectrum Holding Company, MinorCo and PhillieCo had no operations
prior to 1994.
19
<PAGE>
PCS GROUP
SUMMARY PRO FORMA FINANCIAL DATA
The following unaudited table sets forth summary pro forma and pro forma as
adjusted statement of operations data of the PCS Group for the year ended
December 31, 1997 and the six months ended June 30, 1998 and summary pro forma
and pro forma as adjusted balance sheet data at June 30, 1998. The pro forma
data have been derived from, and are qualified by reference to, the Unaudited
Pro Forma Condensed Combined Financial Statements and related notes thereto of
the PCS Group included elsewhere in this Prospectus. The pro forma data give
effect to the PCS Restructuring and the Recapitalization and the pro forma as
adjusted data give effect to the PCS Restructuring, the Recapitalization and
the Offerings. The pro forma statement of operations data give effect to such
transactions as though they had occurred on January 1, 1997. The pro forma
balance sheet data give effect to such transactions as though they had occurred
on June 30, 1998. The actual amount of any proceeds raised in the Offerings
could vary from the amount assumed to be received. The pro forma data set forth
below do not give effect to the Notes Offering. The information set forth below
should be read in conjunction with "PCS Group Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Unaudited
Pro Forma Condensed Combined Financial Statements and related notes thereto of
the PCS Group included elsewhere in this Prospectus. The following pro forma
information is not necessarily indicative of the results that would have been
reported had such events actually occurred on the dates specified, nor is such
information necessarily indicative of the financial results of the PCS Group
after the PCS Restructuring. Further, pro forma results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA AS ADJUSTED
------------------------------------- -------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED JUNE 30, 1998 DECEMBER 31, 1997 ENDED JUNE 30, 1998 DECEMBER 31, 1997
------------------- ----------------- ------------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net operating revenues.. $ 468.0 $ 258.0 $ 468.0 $ 258.0
Operating loss.......... (1,089.0) (1,627.3) (1,089.0) (1,627.3)
Net loss................ (747.8) (1,169.8) (747.8) (1,169.8)
Basic and diluted loss
per common share....... $ (1.81) $ (2.83) $ $
Weighted average common
shares................. 415.1 415.1
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
AT JUNE 30, 1998 AT JUNE 30, 1998
------------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.................................................. $14,280.0 $
Property, plant and equipment, net............................ 5,286.9 5,286.9
Total debt (including construction obligations and short-term
borrowings).................................................. 6,851.7 6,851.7
Group equity.................................................. 5,455.4
</TABLE>
20
<PAGE>
SPRINT CORPORATION
SUMMARY FINANCIAL DATA
The following unaudited table sets forth Summary Financial Data of Sprint
Corporation and should be read in conjunction with "Sprint Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Sprint Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Summary 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 Summary Financial Data at June 30, 1998, and for the
six months ended June 30, 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. Results for the six months ended
June 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, 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
DATA
Net operating revenues.. $ 7,878.1 $7,246.0 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 1,343.8 1,200.2 2,451.4 2,267.2 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 430.0 545.9 952.5 1,190.9 946.1 899.2 517.1
Earnings per common
share from continuing
operations(1), (2)
Basic.................. 1.00 1.27 2.21 2.82 2.71 2.59 1.51
Diluted................ 0.98 1.25 2.18 2.79 2.69 2.56 1.49
Dividends per common
share.................. 0.50 0.50 1.00 1.00 1.00 1.00 1.00
Basic weighted average
common shares.......... 430.3 430.5 430.2 421.7 348.7 346.1 341.0
CASH FLOW DATA
Net cash from operating
activities--continuing
operations(3).......... $ 1,933.1 $1,544.4 $ 3,379.0 $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8
Capital expenditures.... 2,040.7 1,268.1 2,862.6 2,433.6 1,857.3 1,751.6 1,429.8
BALANCE SHEET DATA
Total assets............ $19,790.7 $18,184.8 $16,826.4 $15,074.3 $14,425.2 $13,781.8
Property, plant and
equipment, net......... 12,887.7 11,494.1 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
construction
obligations and short-
term borrowings)....... 4,996.8 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... 9,223.2 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 the six months ended June 30, 1997 and year ended December 31, 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)
for the six months ended June 30, 1997 and year ended December 31, 1997 and
$36 million ($0.09 per share) for the year ended December 31, 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.
21
<PAGE>
SPRINT CORPORATION
SUMMARY PRO FORMA FINANCIAL DATA
The following unaudited table sets forth summary pro forma and pro forma as
adjusted statement of income data of Sprint for the year ended December 31,
1997 and the six months ended June 30, 1998 and summary pro forma and pro forma
as adjusted balance sheet data at June 30, 1998. The pro forma data have been
derived from, and are qualified by reference to, the Unaudited Pro Forma
Condensed Combined Financial Statements and related notes thereto of Sprint
included elsewhere in this Prospectus. The pro forma data give effect to the
PCS Restructuring and the Recapitalization and the pro forma as adjusted data
give effect to the PCS Restructuring, the Recapitalization and the Offerings.
The pro forma statement of income data give effect to such transactions as
though they had occurred on January 1, 1997. The pro forma balance sheet data
give effect to such transactions as though they had occurred on June 30, 1998.
The actual amount of any proceeds raised in the Offerings could vary from the
amount assumed to be received. The pro forma data set forth below do not give
effect to the Notes Offering. The information set forth below should be read in
conjunction with "Sprint Corporation Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Unaudited Pro Forma
Condensed Combined Financial Statements and related notes thereto of Sprint
included elsewhere in this Prospectus. The following pro forma information is
not necessarily indicative of the results that would have been reported had
such events actually occurred on the dates specified, nor is such information
necessarily indicative of the financial results of Sprint after the PCS
Restructuring. Further, pro forma results for the six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
entire year.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA AS ADJUSTED
----------------------- -----------------------
SIX MONTHS YEAR- SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ---------- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net operating revenues........ $8,346.1 $15,131.9 $8,346.1 $15,131.9
Operating income.............. 294.3 842.6 294.3 842.6
Earnings (loss) from continu-
ing operations applicable to
Common Stock:
FON Group................... $ 718.8 $ 1,369.3 $ 718.8 $ 1,369.3
PCS Group................... (750.4) (1,175.1) (750.4) (1,175.1)
-------- --------- -------- ---------
Total Sprint................ $ (31.6) $ 194.2 $ (31.6) $ 194.2
======== ========= ======== =========
Basic earnings (loss) per
common share from continuing
operations
FON Group................... $ 1.67 $ 3.18 $ 1.67 $ 3.18
PCS Group................... $ (1.81) $ (2.83) $ $
Basic weighted average common
shares
FON Group................... 430.3 430.2 430.3 430.2
PCS Group................... 415.1 415.1
Diluted earnings (loss) per
common share from continuing
operations
FON Group................... $ 1.64 $ 3.14 $ 1.64 $ 3.14
PCS Group................... $ (1.81) $ (2.83) $ $
Diluted weighted average
common shares
FON Group................... 439.0 436.5 439.0 436.5
PCS Group................... 415.1 415.1
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
AT JUNE AT JUNE 30,
30, 1998 1998
--------- -----------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA
Total assets............................................. $31,509.6 $
Property, plant and equipment, net....................... 17,165.1 17,165.1
Total debt (including construction obligations and short-
term borrowings)........................................ 10,993.8 10,993.8
Common stock and other stockholders' equity.............. 13,576.7
</TABLE>
22
<PAGE>
RISK FACTORS--THE PCS GROUP
An investment in the PCS Stock involves certain risks. In addition to the
other information in this Prospectus, the following risk factors should be
considered carefully in evaluating the PCS Stock, the PCS Group and its
business before purchasing any of the shares offered hereby. See "Special Note
Regarding Forward-Looking Statements."
OPERATING LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
As of June 30, 1998, the entities that comprise the PCS Group had incurred
pre-tax cumulative losses in excess of $3.3 billion. 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 "PCS Group Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
NETWORK BUILDOUT
The PCS Group has significant buildout activities remaining to be completed,
including completion of buildout activities in each of the SprintCom markets.
The SprintCom markets include, among others, Chicago, Houston and Atlanta. 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 the time basis assumed by the PCS Group or required by
the Federal Communications Commission (the "FCC") and on the cost basis
assumed by the PCS Group, or at all. 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. Failure or delay to
complete the buildout of the network and launch operations, or increased costs
of such buildout and launch of operations, could have a material adverse
effect on the operations and financial condition of the PCS Group.
SUBSTANTIAL CAPITAL REQUIREMENTS AND EXPENDITURES
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. Sprint currently estimates that the PCS Group's capital
expenditures during the period July 1, 1998 through December 31, 1999 will
total approximately $3.2 to $4.0 billion. Actual amounts of the funds required
to finance the PCS Group's network buildout may vary materially from these
estimates and additional funds could be required in the event of significant
departures from the PCS Group's current business plan, unforeseen delays, cost
overruns, unanticipated expenses, regulatory changes, engineering design
changes and technological and other risks. The PCS Group may require
substantial additional capital for, among other uses, license or system
acquisitions, system development and volume-driven network capacity, and
technological developments or issues may require additional capital
expenditures. In addition, Cox has "put" rights with respect to its remaining
interest in Cox PCS pursuant to which 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
"The Related Transactions--Amendments to the Cox PCS Agreements." 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
23
<PAGE>
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 "PCS Group
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MAINTENANCE, EXPANSION AND INTEGRATION OF INTERNAL SUPPORT SYSTEMS
The successful expansion of the PCS Group's network is dependent on its
ability to expand and maintain customer care, network management, billing and
other financial and management systems (collectively referred to as "Internal
Support Systems") among companies comprising the PCS Group and external
affiliates. Given the scale and scope of the PCS Group's operations and its
centralized systems, vendors often have not had systems available to fully
meet the PCS Group's requirements, and as a result, on-going development work
associated with these systems is necessary. Although management believes it
has anticipated this need and has devoted significant resources to these
Internal Support Systems, it is a significant challenge to add systems
capacity, make software enhancements, ensure uniformity of deployment of
features and functions, provide necessary information systems and controls and
integrate various systems used by the companies comprising the PCS Group. The
failure to maintain, expand, integrate or deploy these Internal Support
Systems in a timely manner could have a material adverse effect on the PCS
Group's competitive position and its ability to grow, retain and service its
customer base, collect revenues from its customers, and provide critical
management and financial information on a timely and accurate basis.
For example, increases in the capacity of the PCS Group's billing system are
dependent upon the timely development and deployment of future software
releases. Assuming that a fourth quarter 1998 software release, which is
currently in testing, meets expectations, management estimates that the PCS
Group's billing system will have sufficient capacity for anticipated customer
growth through mid-year 1999. Additional software releases are scheduled to be
delivered and installed by mid-year 1999 which are expected to meet estimated
billing capacity requirements through mid-year 2000. Contingency plans exist
in the event that these releases are late, do not perform as planned or are
delayed due to other business priorities. Ensuring adequate billing system
capacity is dependent on a number of factors including forecasts of customer
growth, customer usage patterns and adequate software releases from third-
party vendors. There can be no assurance that the PCS Group's assumptions with
respect to customer additions or customer usage patterns are correct, that
software enhancements will be available on a timely basis, that the
enhancements will be installed or will operate as planned, or that the
contingency plans will be adequate.
In addition, the rapid expansion of the PCS Group's operations has placed
increasing demands on the PCS Group's customer care systems and processes as
well as management information and financial systems and controls. For
example, APC was experiencing certain internal control problems prior to the
time that management control of APC was acquired by the PCS Group. There can
be no assurance that the PCS Group will be able to maintain, develop or expand
adequate customer care, management information and financial systems and
controls.
The rapid expansion of the PCS Group's business is expected to continue to
pose a significant challenge to the Internal Support Systems. Additionally,
the PCS Group has relied on third-party vendors for a significant number of
important functions and components of its Internal Support Systems and expects
to continue to rely on these vendors in the future. The inability of the PCS
Group to achieve or manage any future expansion of its business or to develop,
expand or maintain adequate Internal Support Systems and the continued
reliance on the third-party vendors to meet the PCS Group's requirements 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 and the Offerings (including the effects of the exercise of
Equity Purchase Rights by FT, DT and the Cable Parents in connection with the
Offerings and the PCS
24
<PAGE>
Restructuring), the PCS Group's aggregate indebtedness, as of June 30, 1998 on
a pro forma basis, would have totaled $6.9 billion, with $ billion of PCS
Group equity as of June 30, 1998 on a pro forma basis. In addition, Sprint
proposes to issue, subject to market conditions, up to $3.0 billion aggregate
principal amount of debt securities in the Notes Offering, which is expected
to be completed at approximately the same time as the Offerings. It is
expected that Sprint will lend a substantial portion of the proceeds of the
Notes Offering to the PCS Group primarily for working capital purposes and to
refinance existing indebtedness of the PCS Group. Such loans will be
indebtedness of the PCS Group reflected on its financial statements. To the
extent that such loans are not used by the PCS Group to repay indebtedness,
the issuance of debt securities by Sprint and the lending of the proceeds to
the PCS Group would increase the indebtedness of the PCS Group. Such loans
will be made at rates 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 rates are expected to be higher than the
interest rates applicable to the debt securities offered by Sprint. The PCS
Group intends to incur significant additional indebtedness in the future as it
implements its business plan. A substantial portion of the PCS Group's future
cash flow from operations will be required for the payment of principal and
interest on its indebtedness, thereby reducing the funds available to the PCS
Group for its operations, including acquisitions, capital investments and
business expenses, which could hinder its ability to adjust to changing market
and economic conditions.
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 in a given license area could cause revocation or
forfeiture of the PCS Group's PCS license for that license area or the
imposition of fines on the PCS Group by the FCC. See "Business of the PCS
Group--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 is 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
other 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
25
<PAGE>
resources than those available to the PCS Group and offer attractive pricing
options for service and a wider variety of handset options. A major competitor
recently introduced a nationwide flat-rate pricing plan that may be viewed as
more attractive than the PCS Group plans. 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 network features not offered by
the PCS Group.
The PCS Group is relying on agreements to provide automatic roaming
capability to PCS Group customers in many of the areas of the United States
not served by the PCS Group's network, which primarily serves metropolitan
areas. Certain competitors may be able to offer coverage in areas not served
by the PCS network or, because of their call volumes or their affiliations
with, or ownership of, wireless providers, may be able to offer roaming rates
that are lower than those offered by the PCS Group. For a discussion of the
technology risks associated with roaming and handsets, see "--Technology
Risks."
The PCS Group also expects that existing cellular providers, some of which
have an infrastructure in place and have been operating 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
significant competition among wireless providers, including from new entrants,
is expected to continue to drive service and equipment prices lower. 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.
26
<PAGE>
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 customers to access automatically
another provider's analog cellular or digital system, that provider must agree
to allow the PCS Group's customers to roam on its network, and customers
roaming on analog systems are required to utilize Dual-Band/Dual-Mode Handsets
compatible with that system to take advantage of roaming agreements.
Generally, Dual-Band/Dual-Mode Handsets are more costly than single-
band/single-mode handsets because of the need for two radios rather than one
radio, and currently the smallest Dual-Band/Dual-Mode Handset is larger and
heavier than the smallest single-band/single-mode handset. There can be no
assurance that roaming agreements with other providers can be obtained or
maintained on terms acceptable to the PCS Group. The PCS Group's network does
not allow for call hand-off between the PCS Group's network and another
wireless network, thus requiring a customer to end a call in progress and
initiate a new call when leaving the PCS Group's network and entering another
wireless network. In addition, the quality of the service provided by a
network provider during a roaming call may not approximate the quality of the
service provided by the PCS Group and its affiliated companies, the price of a
roaming call may not be competitive with prices of other wireless companies
for such call and the PCS Group customer may not be able to use any of the
advanced features (e.g., voicemail notification) the customer enjoys when
making calls from within the PCS Group network.
RATE OF CUSTOMER CHURN
The PCS Group has experienced a higher rate of customer churn as compared to
cellular industry averages. Management believes its rate of customer churn is
the result of several factors, including network coverage and reliability
issues (e.g. blocked calls, dropped calls, handset problems), non-use of
phones, change of employment, affordability, customer care concerns and other
competitive factors.
The PCS Group has implemented and plans to implement additional strategies
to address customer churn, including expanding network coverage, improving
network reliability, marketing customized service and pricing plans to meet
customers' specific calling needs and increasing the number of customer care
representatives. There can be no assurance, however, that such strategies will
be successful or that the rate of customer churn will decline. Price
competition, including for roaming, and other competitive factors could also
cause increased customer churn for the PCS Group. A high rate of customer
churn could have a material adverse effect on the PCS Group's competitive
position and results of operations.
DEPENDENCE ON FOURTH QUARTER RESULTS
The wireless industry, including the PCS Group, has experienced a trend of
generating a significantly higher number of customer additions and handset
sales in the fourth quarter of each year as compared to the other three fiscal
quarters. A number of factors contribute to this trend, including the
increasing use of retail distribution which is dependent upon the year-end
holiday shopping season, the timing of new product and service announcements
and introductions, competitive pricing pressures and aggressive marketing and
promotions. There can be no assurance that strong fourth quarter results for
customer additions and handset sales will continue for the wireless industry
or the PCS Group. The number of customer additions and handset sales for the
PCS Group could be adversely impacted for the fourth quarter for a variety of
reasons, including the PCS Group's inability to match or beat pricing plans
offered by competitors, the failure to adequately promote the PCS Group's
products, services and pricing plans, or the failure to have an adequate
supply or selection of handsets. If fourth quarter results of the PCS Group
fail to significantly improve upon customer additions and handset sales for
the year's previous quarters, the PCS Group's results for the year could be
adversely impacted.
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that certain 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. Although management does not believe RF emissions raise health
concerns, concerns over
27
<PAGE>
RF emissions may have the effect of discouraging the use of wireless handsets
or exposing Sprint to potential litigation, which could have a material
adverse effect on the PCS Group's results of operations.
YEAR 2000 RISK
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 inventory of its computer systems, network
elements, software applications, products and other business systems. Once an
item is identified through the inventory process, its Year 2000 impact is
assessed and a plan is developed to address any required renovation. The PCS
Group is using both internal and external resources to identify, correct or
reprogram, and test its systems for Year 2000 compliance. The PCS Group is
planning that Year 2000 compliance for these critical systems will be achieved
in 1999. The PCS Group is also contacting third parties with whom it conducts
business to receive the appropriate warranties and assurances that those third
parties are or will be Year 2000 compliant. There is no assurance, however,
that full compliance will be achieved as planned by the PCS Group and such
third parties or that the PCS Group will receive warranties and assurances
from such third parties. The PCS Group relies on third-party vendors for a
significant number of its important operating and computer system functions
and therefore is highly dependent on such third-party vendors for the
remediation of network elements, computer systems, software applications, and
other business systems. 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 management
believes these systems will be Year 2000 compliant, the PCS Group has no
contractual or other right to compel compliance. Based upon management's
evaluations to date, it believes that the total cost of modifications and
conversions of the PCS Group's systems will not be material, but there is no
assurance that such cost could not become material. If compliance is not
achieved in a timely manner by the PCS Group, such third parties or such
publicly-available services, the Year 2000 issue could have a material adverse
effect on the PCS Group's operations.
28
<PAGE>
RISK FACTORS--THE TRACKING STOCKS
STOCKHOLDERS OF ONE CORPORATION; FINANCIAL EFFECTS OF THE FON GROUP COULD
ADVERSELY AFFECT THE PCS GROUP; SPRINT WILL BECOME 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 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 Related Transactions.
Financial effects arising from the FON Group that affect Sprint's results of
operations or financial condition could affect the results of operations or
financial position of the PCS Group or the market price of the PCS Stock. In
addition, the incurrence of significant indebtedness by Sprint or one of its
subsidiaries on behalf of the FON 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 PCS 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
(subject to Cox's 40.8% minority interest in Cox PCS), Sprint will become a
more leveraged entity. As of June 30, 1998, Sprint's aggregate indebtedness
totaled approximately $5.0 billion. Upon completion of the PCS Restructuring,
Sprint's aggregate indebtedness as of June 30, 1998 on a pro forma basis would
have totalled approximately $11.0 billion, an increase of $6.0 billion. In
addition, Sprint proposes to issue debt securities in an aggregate principal
amount of up to $3.0 billion in the Notes Offering, which is expected to be
completed at approximately the same time as the Offerings, subject to market
conditions. Sprint's aggregate indebtedness will increase to the extent such
proceeds are not utilized to refinance existing indebtedness. 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, if any, on 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 PCS Stock
based on the reported financial results and prospects of the PCS Group or the
dividend policies established by the Sprint Board with respect to the PCS
Group. Events attributable to the FON Group that affect Sprint's consolidated
results of operations or financial condition could affect the results of
operations or financial condition of the PCS Group as well as the market price
of shares of the PCS Stock. In addition, Sprint cannot predict the market
impact of certain terms of 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 PCS Stock, there can be no
assurance as to its market price following the Offerings. The market price of
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 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
PCS GROUP; EFFECTS ON VOTING POWER
Holders of PCS Stock will have only the rights customarily held by common
stockholders of any corporation and will not have any rights specifically
related to the assets or business of the PCS Group, except for (i) the
requirement that a dividend, redemption or conversion occur upon the
disposition of all or substantially
29
<PAGE>
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 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, and as to any spin-off by Sprint of
the PCS Group prior to the second anniversary of the Closing Date.
Accordingly, if a separate vote on a matter by the holders of 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, including PCS 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 Related Transactions,"
"Description of Capital Stock--Voting Rights of Common Stock" and "--Potential
Diverging Interests--Allocation of Proceeds from 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, and each share of 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
30
<PAGE>
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, in resolving any
given conflict the Sprint Board may benefit, or appear to benefit, the
interests of the FON Group at the expense of the PCS Group. See "--Tracking
Stock Policies Subject to Change." Each of the foregoing potential diverging
or conflicting interests is discussed below:
No Assurance of Payment of Dividends. 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 PCS Stock and the
Class A Common Stock (to the extent it represents any unissued shares of PCS
Stock), would be based primarily upon the financial condition, results of
operations and business requirements of the PCS 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 PCS Stock and the Class A Common Stock
(to the extent it represents any unissued shares of 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 PCS Group Available Dividend Amount. Future
dividends will not necessarily bear a direct relationship to earnings and
retained earnings as expressed on the PCS Group's financial 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 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. Subject to certain exceptions, 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). See "--Tracking Stock
Policies Subject to Change." Any determination to modify, suspend or rescind
any of the Tracking Stock Policies, or to make exceptions thereto or adopt
additional policies, including any such decision that would have disparate
impacts upon holders of 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. 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
31
<PAGE>
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 "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 of 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 requirements imposed by the
Related Transactions 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. 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 PCS Group; Effects on Voting Power" and "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 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 a number of shares of
FON Stock equal to 110% of the ratio 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
into a number of shares of FON Stock 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 preclude holders of PCS Stock from retaining their investment in
a security that is intended to reflect separately the performance of the PCS
Group. See "The Related Transactions" and "Description of Capital Stock--
Conversion and Redemption."
Dispositions of PCS Group Assets. Assuming the assets attributed to the PCS
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 the PCS 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 the PCS Group
and used for its benefit, subject to the Tracking Stock Policies described
under "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
32
<PAGE>
proceeds of such disposition (after payment of transaction costs, taxes on
such disposition, liabilities of the PCS Group and any amount corresponding to
any Inter-Group Interest in the PCS Group held by the FON Group), 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 Related Transactions" 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 the FON Group may
not advance the interests of the PCS 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. See "--Fiduciary Duties of the Sprint Board;
Potential Conflicts of Interest," "--Inter-Group Transactions" and "Tracking
Stock Policies." Nevertheless, the Sprint Board could take steps that may
benefit the FON Group at the expense of the PCS Group.
Operational and Financial Decisions. In the future, the Sprint Board could,
subject to the provisions of the Tracking Stock Policies, 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
(including sales agency, resale and other arrangements), 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 the FON Group may adversely affect the ability of the PCS Group to obtain
funds sufficient to implement its growth strategies or may increase 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 "Tracking Stock Policies."
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 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. Thus, holders
of PCS Stock who believe that a determination by the Sprint Board has
disparate impacts upon the PCS Stock may not necessarily be able to obtain a
judicial remedy for such claim. 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.
33
<PAGE>
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. See "The Related
Transactions--The Recapitalization." 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, and any such transfer may result in (i) a corresponding change
in the size of the FON Group's Inter-Group Interest in the PCS Group or (ii) a
loan from one Group to the other Group (or the repayment of a prior loan from
such other Group), subject to the Tracking Stock Policies. 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.
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.
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 Related
Transactions" and "Future Inter-Group Interest."
PAYMENTS PURSUANT TO THE TAX SHARING AGREEMENT SUBJECT TO CHANGE
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 (the "Tax Sharing Agreement"). 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. Tax sharing payments between
the Groups will be accrued as of the end of the tax period to which they
relate. 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 assurance that the FON Group
will continue to generate taxable income in amounts necessary to generate
substantial benefits to the PCS Group or that changes 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.
34
<PAGE>
The Tax Sharing Agreement includes a procedure pursuant to which tax sharing
payments to or from the PCS Group will 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
exist(s) on the date of creation of the FON Group (the "Stacking Procedure").
Generally, the effect of the Stacking Procedure is to allow PCS Group losses
to be used against cumulative net income of certain newly acquired businesses
or certain Other Groups for purposes of calculating tax sharing payments,
while excluding from the calculation any cumulative net loss of such
businesses and Other Groups.
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 "--
Fiduciary Duties of the Sprint Board; Potential Conflicts of Interest," "The
Related Transactions--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 THE PCS GROUP
If the PCS Group were a stand-alone entity, any person interested in
acquiring the PCS Group without negotiation with management could seek control
of the outstanding stock of such entity by means of a tender
35
<PAGE>
offer or proxy contest. Although the PCS Stock is intended to reflect the
separate performance of the PCS Group, a person interested in acquiring the
PCS 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 PCS
Group; Effects on Voting Power."
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 Related Transactions" and
"Description of Capital Stock--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of PCS Stock."
FUTURE SALES OF PCS STOCK BY THE CABLE PARENTS, FT AND DT; SUBSTANTIAL SHARE
ISSUANCE IN THE RECAPITALIZATION
Sales of substantial amounts of PCS Stock in the public market following the
Offerings could adversely affect the prevailing market price of the Series 1
PCS Stock and Sprint's ability to raise capital in the future. Upon completion
of the Offerings, Sprint will have a total of approximately shares of PCS
Stock outstanding, consisting of: (i) shares of Series 1 PCS Stock sold in
the Offerings, (ii) 195,094,340 shares of Series 2 PCS Stock issued to the
Cable Parents in the PCS Restructuring, (iii) shares of Series 2 PCS Stock
which the Cable Parents have agreed to purchase concurrently with the closing
of the Offerings, (iv) 4,877,358 shares of Series 3 PCS Stock which FT and DT
have agreed to purchase at the time of the PCS Restructuring, and (v)
shares of Series 3 PCS Stock which FT and DT have agreed to purchase
concurrently with the closing of the Offerings. Of these shares, only those
sold in the Offerings will be freely tradable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), by persons other
than "affiliates" of Sprint as defined under the Securities Act. The shares
that will be held by the Cable Parents, FT and DT will be subject to
significant registration rights held by the Cable Parents, FT and DT,
respectively, as described below and under "Registration Rights."
Sprint has entered into 180-day "lock-up" agreements with the Cable Parents,
FT and DT. Sprint has agreed with the Underwriters not to waive any of its
rights under such lock-up agreements without the consent of either Warburg
Dillon Read LLC or Salomon Smith Barney Inc. See "The Related Transactions--
Lock-Up Agreements" and "Underwriting."
Sprint has granted the Cable Parents, FT and DT significant registration
rights with respect to their PCS Stock. If any of the Cable Parents, FT or DT
sell a substantial number of shares of PCS Stock at one time or over a limited
time in the public market, such sales could have a material adverse effect on
the market price of the PCS Stock and on Sprint's ability to raise needed
capital through sales of PCS Stock. TCI has the right to require Sprint to
register its shares of PCS Stock for sale in a public offering ("demand
registration rights") on
36
<PAGE>
six occasions, and each of Comcast and Cox have the right to require
registration on three occasions. Cox has one additional demand registration
right with respect to any shares of PCS Stock that it receives in exchange for
its interest in Cox PCS. See "Registration Rights" and "The Related
Transactions--Amendments to the Cox PCS Agreements." In addition, each Cable
Parent has an additional demand registration right in connection with the sale
of "derivative securities," the value of which is dependent upon the value of
the PCS Stock. Following the expiration or waiver of the lock-up agreements
with respect to the Offerings, the Cable Parents are permitted to exercise
their demand registration rights in three month intervals until they have sold
an aggregate of $2 billion in PCS Stock. Thereafter, the Cable Parents may
exercise demand registration rights in six month intervals. FT and DT have
been granted a total of ten demand registration rights, exercisable in 12-
month intervals. The Cable Parents, FT and DT also have been granted unlimited
incidental or "piggyback" registration rights. In the case of the Cable
Parents, the incidental registration rights terminate when all Cable Parent
demand registration rights have been exercised, and in the case of FT and DT,
the incidental registration rights are subject to certain priority
limitations. The demand and incidental registration rights are assignable to
third parties. Any sale of Series 2 PCS Stock by the Cable Parents to the
public or other unaffiliated parties will result in conversion of such shares
to Series 1 PCS Stock. Each share of Series 1 PCS Stock possesses ten times
the vote of each share of Series 2 PCS Stock. Thus, any such sales will dilute
the voting power of the shares of Series 1 PCS Stock that are outstanding
immediately prior to such sale.
Until the Cable Parents have sold securities covered by the Registration
Rights Agreement (as defined herein) 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.
See "Registration Rights."
In addition, TCI has entered into a merger agreement with AT&T Corp.
pursuant to which TCI has agreed that, in connection with obtaining any
regulatory approvals required in connection with the merger, it will sell its
shares of PCS Stock and otherwise comply with requirements that may be imposed
by applicable governmental authorities in connection with such sale. These
provisions could have a material adverse effect on the market price of the PCS
Stock.
Upon the completion of the Recapitalization (which will occur 90 to 120 days
after the Closing Date), (i) additional shares of Series 1 PCS Stock will
be outstanding and held by the holders of Existing Common Stock (based on the
number of shares of Existing Common Stock outstanding as of June 30, 1998) and
(ii) additional unissued shares of Series 3 PCS Stock will be represented
by the shares of Class A Common Stock held by FT and DT. Of the additional
shares of Series 1 PCS Stock issued in the Recapitalization, shares will
be freely tradable without restriction under the Securities Act by persons
other than affiliates of Sprint. Sprint is unable to predict whether
substantial amounts of Series 1 PCS Stock will be sold in the public market in
anticipation of, or following, the Recapitalization. Any sales of substantial
amounts of Series 1 PCS Stock in the public market, or the perception that
such sales might occur, whether as a result of the Recapitalization or
otherwise, could materially adversely affect the market price of the Series 1
PCS Stock. See "The Related Transactions--The Recapitalization."
37
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus 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 Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"). Such forward-
looking statements, including, without limitation, those relating to the
future business prospects, revenues, working capital, liquidity, capital
needs, PCS network buildout, 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 Prospectus, 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 Prospectus. 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 costs and business
risks associated with entering new markets necessary to provide nationwide
services and providing new 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 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; (viii) the impact of the Year 2000 issue and any related non-
compliance; (ix) 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 and (x) those
factors listed herein under "Risk Factors--The PCS Group" and "Risk Factors--
The Tracking Stocks." See "Risk Factors--The PCS Group" and "Risk Factors--The
Tracking Stocks."
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
Prospectus 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). Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date thereof.
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>
USE OF PROCEEDS
The net proceeds to Sprint from the Offerings are expected to be $ ($ if
the Underwriters' over-allotment option is exercised in full) at an assumed
public offering price of $ per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by Sprint.
The proceeds to Sprint from the exercise of Equity Purchase Rights by FT and
DT and the Cable Parents in connection with the Offerings are expected to be
$ ($ if the Underwriters' over-allotment option is exercised in full).
All of the net proceeds from the Offerings and the exercise of Equity
Purchase Rights will be attributed to the PCS Group and used for working
capital needs, including the further buildout of the PCS network. Pending such
use, such net proceeds will be invested in short-term investments.
It is expected that Sprint will loan a substantial portion of the net
proceeds from the Notes Offering to the PCS Group to be used for working
capital needs, including the further buildout of the PCS network, and to repay
certain indebtedness of the PCS Group. Any such loan to the PCS Group will be
made at an interest rate substantially equivalent to the rate that the PCS
Group would be able to obtain from third parties as a wholly-owned subsidiary
of Sprint, but without the benefit of any guaranty by Sprint or any member of
the FON Group. Such rate is expected to be higher than the interest rates
applicable to the debt securities offered by Sprint in the Notes Offering. The
Offerings are not conditioned upon completion of the Notes Offering. There can
be no assurance that the Notes Offering will be completed.
DIVIDEND POLICY
The Sprint Board will periodically consider appropriate dividend policies
and practices relating to future dividends on 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 the 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.
The PCS Group Available Dividend Amount is similar to the amount of assets
that would be available for payment of dividends on the PCS Stock under the
Kansas General Corporation Code if the PCS Group were a separate company. 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 Amended Articles, declare dividends on the PCS
Stock or on the FON Stock in excess of the respective Available Dividend
Amount for each class (although not in any case in excess of the funds of
Sprint legally available for the payment of dividends). See "Risk Factors--The
Tracking Stocks--Potential Diverging Interests--No Assurance of Payment of
Dividends" and "Description of Capital Stock--Dividends on Common Stock."
39
<PAGE>
CAPITALIZATION OF THE PCS GROUP
The following table sets forth as of June 30, 1998 (i) the actual
capitalization of the PCS Group; (ii) the capitalization of the PCS Group on a
pro forma basis to give effect to the PCS Restructuring, including the sale of
shares of PCS Stock to FT and DT upon exercise of their respective Equity
Purchase Rights in connection with the PCS Restructuring; and (iii) the
capitalization of the PCS Group on a pro forma basis, as adjusted to give
effect to the Offerings and the sale of shares of PCS Stock to FT, DT and the
Cable Parents upon the exercise of their respective Equity Purchase Rights in
connection with the Offerings. See "Use of Proceeds" and the PCS Group
Unaudited Pro Forma Condensed Combined Financial Statements and related Notes
thereto included elsewhere in this Prospectus. The pro forma data do not give
effect to the Notes Offering.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Cash and equivalents............................ $ -- $ 346.0 $
======== ========= =======
Short-term debt (includes current maturities of
long-term debt)................................ $ 19.9 $ 142.6 $ 142.6
Long-term debt.................................. 234.7 5,751.6 5,751.6
Construction obligations........................ 474.8 957.5 957.5
Group equity.................................... 949.0 5,455.4
-------- --------- -------
Total capitalization.......................... $1,678.4 $12,307.1 $
======== ========= =======
</TABLE>
40
<PAGE>
CAPITALIZATION OF SPRINT CORPORATION
The following table sets forth as of June 30, 1998 (i) the actual
consolidated capitalization of Sprint; (ii) the consolidated capitalization of
Sprint on a pro forma basis to give effect to (a) the PCS Restructuring,
including the sale of shares of PCS Stock to FT and DT upon exercise of their
respective Equity Purchase Rights in connection with the PCS Restructuring and
(b) the Recapitalization; and (iii) the consolidated capitalization of Sprint
on a pro forma basis, as adjusted to give effect to the Offerings and the sale
of shares of PCS Stock to FT, DT and the Cable Parents upon the exercise of
their respective Equity Purchase Rights in connection with the Offerings. See
"Use of Proceeds" and the Sprint Corporation Unaudited Pro Forma Condensed
Combined Financial Statements and related Notes thereto included elsewhere in
this Prospectus. The pro forma data do not give effect to the Notes Offering.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
(IN MILLIONS)
Cash and equivalents......................... $ 93.3 $ 412.8 $
========= ========= ========
Short-term debt (includes current maturities
of long-term debt).......................... $ 115.8 $ 238.5 $ 238.5
Long-term debt............................... 4,406.2 9,797.8 9,797.8
Construction obligations..................... 474.8 957.5 957.5
Redeemable preferred stock................... 9.5 9.5 9.5
Existing Common Stock, $2.50 par value, 1.0
billion shares authorized, 343.9 million
shares outstanding (Actual), 0 shares
outstanding (Pro Forma and Pro Forma As
Adjusted)................................... 875.7 -- --
Class A Common Stock, $2.50 par value, 500.0
million shares authorized, 86.2 million
shares outstanding (Actual, Pro Forma and
Pro Forma As Adjusted) ..................... 215.6 215.6 215.6
FON Stock, $2.00 par value, 2.5 billion
shares authorized, 0 shares outstanding
(Actual), 343.9 million shares outstanding
(Pro Forma and Pro Forma As Adjusted)....... -- 700.6 700.6
PCS Stock, $1.00 par value, 2.35 billion
shares authorized, 0 shares outstanding
(Actual), 375.1 million shares outstanding
(Pro Forma), million shares
outstanding (Pro Forma As Adjusted)......... -- 375.1
PCS Preferred Stock.......................... -- 48.4 48.4
Capital in excess of par or stated value..... 4,479.0 8,614.7
Retained earnings............................ 3,899.0 3,899.0 3,899.0
Treasury stock, at cost...................... (343.0) (343.0) (343.0)
Other........................................ 96.9 66.3 66.3
--------- --------- --------
Total capitalization........................ $14,229.5 $24,580.0 $
========= ========= ========
</TABLE>
Sprint's indebtedness will increase to the extent that the net proceeds from
the Notes Offering are not utilized to refinance existing indebtedness. There
can be no assurance that the Notes Offering will be completed.
41
<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. After the PCS
Restructuring, the results of Sprint Spectrum Holdings and PhillieCo will be
accounted for on a consolidated basis in the PCS Group Combined Financial
Statements. The Selected Financial Data set forth below should be read in
conjunction with "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")
included elsewhere in this Prospectus. 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, at June 30, 1998, for
the year ended December 31, 1994 and for the six months ended June 30, 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. Results for the six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------
1998 1997 1997 1996 1995 1994(1)
-------- ------- -------- -------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA
Operating loss.......... $ (39.5) $ (3.6) $ (18.5) $ (0.5) $ -- $ --
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (436.0) (221.9) (659.6) (191.8) (31.4) --
Net loss................ (295.6) (139.7) (419.1) (119.7) (19.9) --
CASH FLOW DATA
Net cash provided (used)
by operating
activities............. $ (114.9) $ 15.4 $ 37.5 $ (0.5) $ -- $ --
Capital expenditures.... 552.3 31.8 153.7 -- -- --
Purchase of PCS
licenses............... -- 433.7 460.1 84.0 -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo.............. 65.7 86.7 405.9 297.5 910.9 51.1
BALANCE SHEET DATA
Total assets............ $2,244.0 $1,693.1 $1,259.8 $973.7 $51.1
Property, plant and
equipment.............. 1,009.5 177.3 -- -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo.............. 598.1 968.4 1,175.8 973.7 51.1
Construction and capital
lease obligations
(including short-term
borrowings)............ 729.4 -- -- -- --
Group equity............ 949.0 1,385.9 1,187.6 965.7 51.1
</TABLE>
- --------
(1) The PCS Group had no operations prior to 1994.
Holders of 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 that affect Sprint's results
of operations or financial condition could affect the results of operations or
financial position of the PCS Group or the market price of the 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 PCS Stock.
42
<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 PCS Restructuring, 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 Series 2 PCS Stock, and the exercise of Equity Purchase
Rights by FT and DT in connection with the PCS Restructuring; (2) the 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 Series 1 PCS Stock
and one share of Series 1 FON Stock and by reclassifying each share of DT
Class A Stock held by DT and each share of Existing Class A Common Stock held
by FT so that each share represents an equity interest in the FON Group and an
equity interest in the PCS Group, together with a right to cause Sprint to
issue initially one share of Series 3 FON Stock and 1/2 share of Series 3 PCS
Stock; and (3) the Offerings and the exercise of Equity Purchase Rights by FT,
DT and the Cable Parents in connection with the Offerings. The actual net
proceeds from the Offerings could vary from the amount assumed to be received.
The acquisitions of the Cable Parents' interests in Sprint Spectrum Holdings
and PhillieCo will be accounted for using the purchase method of accounting.
Sprint intends to issue up to $3.0 billion aggregate principal amount of
debt securities, subject to market conditions, in the Notes Offering, which is
expected to be completed at approximately the same time as the Offerings.
Sprint also intends that a substantial portion of the proceeds from the Notes
Offering will be loaned to the PCS Group at an interest rate substantially
equivalent to the rate that the PCS Group would be able to obtain from third
parties as a wholly-owned subsidiary of Sprint, but without the benefit of any
guaranty by Sprint or any member of the FON Group. Sprint currently expects
that the proceeds loaned to the PCS Group from the Notes Offering will be used
for working capital needs, including the further buildout of the PCS network,
and to repay certain indebtedness of the PCS Group. The pro forma condensed
combined financial statements included herein do not give effect to the Notes
Offering and there can be no assurance that such offering will occur.
The unaudited pro forma condensed combined statements of operations include
the historical results of the PCS Group and the historical combined results of
Sprint Spectrum Holdings and PhillieCo for the year ended December 31, 1997
and the six months ended June 30, 1998, and include the effect of the PCS
Restructuring, Recapitalization, Offerings and exercise of Equity Purchase
Rights by FT, DT and the Cable Parents 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 June 30, 1998. The historical balance sheet amounts have been
adjusted to reflect the PCS Restructuring, Recapitalization, Offerings and
exercise of Equity Purchase Rights by FT, DT and the Cable Parents as though
such transactions had occurred on June 30, 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 Prospectus.
43
<PAGE>
PCS GROUP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(Unaudited, in millions)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
HISTORICAL
COMBINED
SPRINT PRO FORMA
SPECTRUM ADJUSTMENTS
HISTORICAL HOLDINGS AND PCS FOR PRO FORMA
PCS GROUP PHILLIECO RESTRUCTURING RECAPITALIZATION PRO FORMA OFFERINGS AS ADJUSTED
---------- ------------ ------------- ---------------- --------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets
Cash and equivalents...... $ -- $ 240.3 $ 105.7 D $ 346.0 $
Accounts receivable, net.. -- 191.9 (31.6) C 160.3 160.3
Inventories............... -- 130.8 130.8 130.8
Other..................... 22.6 48.6 71.2 71.2
-------- -------- -------- --------- --------
Total current assets...... 22.6 611.6 74.1 708.3
Property, plant and
equipment, net............ 1,009.5 4,277.4 5,286.9 5,286.9
Investments in Sprint
Spectrum Holdings and
PhillieCo ................ 598.1 -- (414.4) B -- --
(183.7) B
Intangibles, net
PCS licenses.............. 544.5 2,849.0 3,393.5 3,393.5
Customer base............. -- -- 389.1 A 389.1 389.1
Goodwill.................. -- -- 3,835.8 A 3,835.8 3,835.8
Other assets............... 69.3 413.4 183.7 B 666.4 666.4
-------- -------- -------- ------- --------- ----- --------
Total...................... $2,244.0 $8,151.4 $3,884.6 $ -- $14,280.0 $ $
======== ======== ======== ======= ========= ===== ========
<CAPTION>
LIABILITIES AND
GROUP EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities
Current maturities of
long-term debt........... $ 19.9 $ 122.7 $ 142.6 $ 142.6
Partner advances.......... -- 185.0 185.0 185.0
Accounts payable.......... 31.6 277.6 309.2 309.2
Advance from the FON
Group.................... 186.3 -- $ (95.8) E 90.5 90.5
Payable to Sprint Spectrum
Holdings................. 31.6 -- (31.6) C -- --
Accrued expenses and other
current liabilities...... 1.9 448.9 450.8 450.8
-------- -------- -------- --------- --------
Total current liabilities. 271.3 1,034.2 (127.4) 1,178.1 1,178.1
Construction obligations... 474.8 482.7 957.5 957.5
Long-term debt............. 234.7 5,443.7 73.2 A 5,751.6 5,751.6
Deferred income taxes and
other liabilities......... 314.2 73.7 457.2 A 845.1 845.1
Limited partner interest in
consolidated subsidiary .. -- 92.3 92.3 92.3
Group equity............... 949.0 1,024.8 3,694.5 A 5,455.4
(414.4) B
105.7 D
176.4 E
(80.6) E
-------- -------- -------- ------- --------- ----- --------
Total...................... $2,244.0 $8,151.4 $3,884.6 $ -- $14,280.0 $ $
======== ======== ======== ======= ========= ===== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
44
<PAGE>
PCS GROUP
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
HISTORICAL
COMBINED PRO FORMA
SPRINT SPECTRUM ADJUSTMENTS
HISTORICAL HOLDINGS AND PCS PRO FOR PRO FORMA
PCS GROUP PHILLIECO RESTRUCTURING RECAPITALIZATION FORMA OFFERINGS AS ADJUSTED
---------- --------------- ------------- ---------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.. $ -- $ 468.0 $ 468.0 $ 468.0
OPERATING EXPENSES
Costs of services and
products............... -- 488.2 488.2 488.2
Selling, general and
administrative......... 39.5 593.1 632.6 632.6
Depreciation and
amortization........... -- 319.9 $ 3.5 G 436.2 436.2
47.9 H
64.9 I
------- --------- ------- -------- ---------
Total operating ex-
penses................. 39.5 1401.2 116.3 1,557.0 1,557.0
------- --------- ------- -------- ---------
OPERATING LOSS.......... (39.5) (933.2) (116.3) (1,089.0) (1,089.0)
Interest expense........ -- (223.4) 34.2 J (185.3) (185.3)
3.9 K
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (436.0) -- 432.5 G -- --
3.5 G
Other income............ -- 11.5 11.5 11.5
Minority interest ...... -- 71.5 71.5 71.5
------- --------- ------- -------- ---------
Loss before income
taxes.................. (475.5) (1,073.6) 357.8 (1,191.3) (1,191.3)
Income tax benefit...... 179.9 -- 253.1 L 443.5 443.5
10.5 M
------- --------- ------- -------- ---------
NET LOSS................ (295.6) (1,073.6) 621.4 (747.8) (747.8)
Preferred stock divi-
dends.................. -- -- (2.6)N (2.6) (2.6)
------- --------- ------- -------- ---------
Loss applicable to com-
mon stock.............. $(295.6) $(1,073.6) $ 618.8 $ (750.4) $ (750.4)
======= ========= ======= ======== =========
BASIC AND DILUTED LOSS
PER COMMON SHARE....... $ (1.81) $
======== =========
Weighted average common
shares................. 415.1 O P
======== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
45
<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
SPECTRUM ADJUSTMENTS
HISTORICAL HOLDINGS AND PCS FOR PRO FORMA
PCS GROUP PHILLIECO RESTRUCTURING RECAPITALIZATION PRO FORMA OFFERINGS 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 545.4 545.4
95.9 H
129.7 I
------- --------- ------- ---------- ----------
Total operating ex-
penses................. 18.5 1,637.7 229.1 1,885.3 1,885.3
------- --------- ------- ---------- ----------
OPERATING LOSS.......... (18.5) (1,379.7) (229.1) (1,627.3) (1,627.3)
Interest expense........ -- (123.5) 21.0 J (94.8) (94.8)
7.7 K
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (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) 459.2 (1,851.6) (1,851.6)
Income tax benefit...... 259.0 -- 383.1 L 681.8 681.8
39.7 M
------- --------- ------- ---------- ----------
NET LOSS................ (419.1) (1,632.7) 882.0 (1,169.8) (1,169.8)
Preferred stock divi-
dends.................. -- -- (5.3)N (5.3) (5.3)
------- --------- ------- --- ---------- ----------
Loss applicable to com-
mon stock.............. $(419.1) $(1,632.7) $ 876.7 $ (1,175.1) $ (1,175.1)
======= ========= ======= === ========== ==========
BASIC AND DILUTED LOSS
PER COMMON SHARE....... $ (2.83) $
========== ==========
Weighted average common
shares................. 415.1 O P
========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
46
<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 Series 2 PCS Stock and warrants to purchase additional
shares of Series 2 PCS Stock. 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 market value of the PCS Group will be
determined based on the market value of the securities issued in the
Offerings. The excess of the purchase price over the fair value of net
assets to be acquired has been preliminarily calculated as follows (in
millions):
<TABLE>
<S> <C>
Preliminary purchase price..................................... $4,230.0
Transaction costs.............................................. 26.5
Net assets to be acquired...................................... (562.0)
Customer base.................................................. (389.1)
Step-up in long-term debt to fair value........................ 73.2
Deferred taxes on acquired assets and liabilities.............. 457.2
--------
Goodwill....................................................... $3,835.8
========
</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. The above
assumptions as to the fair value of the net assets acquired are based upon
information available at the time of the preparation of these pro forma
condensed combined financial statements.
A final allocation of the purchase price to the assets acquired and
liabilities assumed is dependent on a study and analysis of the fair value
of such assets and liabilities, including such items as the PCS licenses
and in-process research and development projects, as well as the size of
the customer base at the closing date. Management expects the only
assumptions that could potentially be subject to material change are those
regarding customer base and in-process research and development. The amount
of the purchase price allocated to the customer base in the pro forma
condensed combined financial statements is based on the size of the
customer base at June 30, 1998. To the extent the customer base at the
closing date exceeds the size of the customer base at June 30, 1998, the
purchase price allocated to the customer base will likely increase along
with a corresponding increase in the amortization of the customer base.
Based on current projections of an increase in the customer base at
September 30, 1998, pro forma and pro forma as adjusted net loss for the
six months ended June 30, 1998 and the year ended December 31, 1997 would
be $758.9 million and $1,192.0 million, respectively. Pro forma loss per
share for the six months ended June 30, 1998 and the year ended December
31, 1997 would be $1.83 and $2.87, respectively, and pro forma as adjusted
loss per share for the six months ended June 30, 1998 and the year ended
December 31, 1997 would be $ and $ , respectively. Sprint is
undertaking an analysis to determine whether in-process research and
development projects acquired in the PCS Restructuring should be
capitalized or expensed. This analysis is expected to be finalized prior to
the completion of the final purchase price allocation. To the extent that
it is determined through this analysis that some of the in-process research
and development projects should be expensed, a portion of the purchase
price will be allocated to these in-process research
47
<PAGE>
PCS GROUP
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and development projects and a nonrecurring, noncash charge will be
recognized in the period in which the charge occurs. Sprint is unable to
determine the potential amount of such a charge at this time. However, such
a charge could be material to the PCS Group's results of operations for the
period in which the charge occurs. Such a write-off would reduce the amount
of purchase price allocated to goodwill, which would result in lower
amortization expense being recognized over the life assigned to the
goodwill. Such a write-off would not impact future cash flows. At the
present time, Sprint anticipates completing its final purchase price
allocation prior to year-end 1998.
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 ($414.4 million), and to reclassify interest capitalized as
part of that investment to other assets ($183.7 million).
C To eliminate the PCS Group's payable to Sprint Spectrum Holdings.
D To record the exercise of Equity Purchase Rights by FT and DT. As a result
of the issuance of Series 2 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.
E To reflect PCS Preferred Stock ($48.4 million) and Preferred Inter-Group
Interest ($128.0 million) issued to the Cable Parents and the FON Group,
respectively, in exchange for funding provided between the date of the
Restructuring Agreement (May 26, 1998) and June 30, 1998. Additional
funding of $334.2 million has been provided subsequent to June 30, 1998
which could result in the issuance of additional PCS Preferred Stock and
Preferred Inter-Group Interest. See "The Related Transactions--Funding of
the PCS Group Prior to Closing; The PCS Preferred Stock."
F To record the sale of shares in the Offerings ($ million). Proceeds from
the Offerings of $ million have been assumed, net of estimated offering
costs of $ million, although the actual amount of the Offerings may vary
based on market conditions. Also to record the exercise of Equity Purchase
Rights by FT and DT ($ million) and the Cable Parents ($ million) in
connection with the Offerings.
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 ($432.5 million for the six months ended June 30, 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 depreciation and
amortization expense ($3.5 million for the six months ended June 30, 1998
and 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. The goodwill associated
with the acquisition of the remaining interests in Sprint Spectrum Holdings
and PhillieCo is directly related to both the acquisition of the PCS
licenses and the ongoing ability of the businesses to provide wireless
telecommunications services using these licenses. The 40-year life for
goodwill is consistent with the 40-year amortization period being used for
the PCS licenses.
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.
48
<PAGE>
PCS GROUP
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
J To reduce interest expense resulting from the tax sharing agreement between
the PCS Group and the FON Group. Under this agreement, the FON Group will
"pay" the PCS Group for the use of its current tax benefits that the FON
Group is able to utilize, thereby providing funds to the PCS Group and
reducing the PCS Group's required borrowings. The computation of the
current tax benefit is performed on a quarterly basis and the resulting
amount is applied to reduce the debt balance and, therefore, interest
expense, from that date forward. Interest expense is computed using the
weighted-average interest rate on the debt assumed to be repaid, or not
incurred, as appropriate. Such debt would have amounted to $1,086.3 million
and $727.3 million as of June 30, 1998 and December 31, 1997, respectively.
K To reflect the amortization of the purchase price adjustment related to
long-term debt (see Note A).
L To record the income tax benefit, using the statutory income tax rate,
relating to the consolidation of the remaining interests in Sprint Spectrum
Holdings and PhillieCo.
M To record the impact on income taxes of pro forma adjustments I through K
using the statutory income tax rate.
N To reflect dividends at an assumed annual rate of 3% on PCS Preferred Stock
and Preferred Inter-Group Interest issued to the Cable Parents and the FON
Group, respectively. As of June 30, 1998, $176.4 million of funding by the
Cable Parents and the FON Group between the date of the Restructuring
Agreement (May 26, 1998) and June 30, 1998 was assumed to be exchanged for
shares of PCS Preferred Stock or Preferred Inter-Group Interest. Additional
funding of $334.2 million has been provided subsequent to June 30, 1998
which could result in the additional issuance of PCS Preferred Stock and
Preferred Inter-Group Interest, resulting in additional dividends of up to
$10.0 million on an annual basis. For a discussion of how the actual
dividend rate will be determined, see "Description of Capital Stock--
Description of PCS Preferred Stock; Preferred Inter-Group Interest."
O The weighted average common shares outstanding reflect (1) the issuance of
Series 2 PCS Stock to the Cable Parents in the PCS Restructuring (195.1
million shares), (2) the Recapitalization of Sprint's Existing Common Stock
into 1/2 share of Series 1 PCS Stock, including the PCS Stock attributes of
the Class A Common Stock (215.1 million shares for each period presented),
and (3) the exercise of Equity Purchase Rights by FT and DT in connection
with the PCS Restructuring (4.9 million shares).
P The weighted average common shares outstanding reflect the items in
adjustment "O", as well as the shares assumed to be sold in the Offerings
( million shares) and the related exercise of Equity Purchase Rights by
FT and DT ( million shares) and the Cable Parents ( million shares).
The actual number of shares sold in the Offerings may vary based on market
conditions.
49
<PAGE>
PCS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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 PCS
operations of Sprint's wholly owned subsidiary, SprintCom. These operations,
which after the PCS Restructuring will be 100% owned by Sprint (subject to a
40.8% minority interest in Cox PCS, the entity holding the PCS license for and
conducting operations in the Los Angeles/San Diego/Las Vegas MTA), will be
referred to as the PCS Group.
The excess of the purchase price to be paid to the Cable Parents in
connection with the PCS Restructuring over the fair value of the PCS assets to
be acquired will be allocated to goodwill and amortized over 40 years. The
portion of the purchase price allocated to the PCS Group's customer base asset
will be amortized over three years. For a preliminary allocation of the
purchase price to the assets acquired and liabilities assumed, see the
unaudited pro forma condensed combined financial statements of the PCS Group
and notes thereto included elsewhere in this Prospectus. A final allocation is
dependent on a study and analysis of the fair value of such assets and
liabilities, including such items as the PCS licenses and in-process research
and development projects, as well as the size of the customer base at the
Closing Date. To the extent the customer base exceeds the size currently
reflected in the pro forma financial statements, the purchase price allocated
to the customer base will likely increase along with a corresponding increase
in the amortization of the customer base. Sprint is undertaking an analysis to
determine whether in-process research and development projects acquired in the
PCS Restructuring should be capitalized or expensed. This analysis is expected
to be finalized prior to the completion of the final purchase price
allocation. To the extent that it is determined through this analysis that
some of the in-process research and development projects should be expensed, a
portion of the purchase price will be allocated to these in-process research
and development projects and a nonrecurring, noncash charge will be recognized
in the period in which the charge occurs. Sprint is unable to determine the
potential amount of such a charge at this time. However, such a charge could
be material to the PCS Group's results of operations for the period in which
the charge occurs. At the present time, Sprint anticipates completing its
final purchase price allocation prior to year-end 1998.
The FON Stock, which will be created in the Recapitalization, is intended to
reflect 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.
Holders of 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 that affect Sprint's results
of operations or financial condition could affect the results of operations or
financial position of the PCS Group or the market price of the 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 PCS Stock.
The PCS Group Historical Financial Statements include the combined
historical balance sheets, results of operations and cash flows of SprintCom
and Sprint's investment in Sprint Spectrum Holdings and PhillieCo. All
significant intragroup financial transactions have been eliminated; however,
transactions between the FON Group and the PCS Group have not been eliminated.
50
<PAGE>
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 costs and business risks associated with entering new
markets necessary to provide seamless service and to provide new services;
(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; (vii) the impact of the Year 2000 issue and any related
noncompliance; (viii) 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 and (ix)
those factors listed herein under "Risk Factors--The PCS Group" and "Risk
Factors--The Tracking Stocks."
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 services
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, which is reflected on a consolidated basis in
the PCS Group Historical Financial Statements. 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 along with
SprintCom.
The PCS Group, which markets its wireless telephony products and services
under the Sprint and Sprint PCS brand names, operates the only 100% digital
PCS wireless network in the United States with licenses to provide service
nationwide utilizing a single frequency band 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 161 metropolitan markets within the United States,
including 38 of the 50 largest metropolitan areas. The PCS Group currently
provides nationwide service through a combination of (i) operating its own
digital network in major metropolitan areas, (ii) affiliating with other
companies, primarily in and around smaller metropolitan areas, (iii) roaming
on analog cellular networks of other providers using Dual-Band/Dual-Mode
Handsets and (iv) roaming on digital PCS networks of other CDMA-based
providers.
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. PhillieCo commenced commercial operations in April 1997
and SprintCom commenced initial operations in the third quarter of 1998.
REGULATORY DEVELOPMENTS
See "Business of the PCS Group--Regulation" for a discussion of regulatory
developments that could have a future impact on the PCS Group.
51
<PAGE>
SEASONALITY
The wireless industry, including the PCS Group, has experienced a trend of
generating a significantly higher number of subscriber additions and handset
sales in the fourth quarter of each year as compared to the other three fiscal
quarters. A number of factors contribute to this trend, including the
increasing use of retail distribution, which is dependent on the year-end
holiday shopping season, the timing of new product and service announcements
and introductions, competitive pricing pressures and aggressive marketing and
sales promotions. There can be no assurance that strong fourth quarter results
for subscriber additions and handset sales will continue for the wireless
industry or the PCS Group. The PCS Group's fourth quarter subscriber additions
and handset sales could be adversely impacted by a variety of reasons,
including the PCS Group's inability to match or beat pricing plans offered by
competitors, the failure to adequately promote the PCS Group's products,
services and pricing plans or the failure to have an adequate supply or
selection of handsets. If fourth quarter results of the PCS Group fail to
significantly improve upon subscriber additions and handset sales from the
year's previous quarters, the PCS Group's results for the year could be
materially adversely affected.
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. The information included
herein should be read in conjunction with the PCS Group Combined Financial
Statements and the Sprint Spectrum Holding Company Combined with MinorCo and
PhillieCo Financial Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------- -------------------------
1998 1997 1997 1996 1995
------- -------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Total operating expenses.......... $ 39.5 $ 3.6 $ 18.5 $ 0.5 $ --
------- -------- ------- ------- -------
Operating loss.................... $ (39.5) $ (3.6) $ (18.5) $ (0.5) $ --
======= ======== ======= ======= =======
Equity in loss of Sprint Spectrum
Holdings and PhillieCo........... $(436.0) $ (221.9) $(659.6) $(191.8) $(31.4)
======= ======== ======= ======= =======
</TABLE>
Six Months Ended June 30, 1998 and 1997
Operating Expenses
Operating expenses were $40 million for the first six months of 1998 and $4
million for the same 1997 period. These expenses consist of selling, general
and administrative expenses associated with the network buildout for the PCS
licenses in the SprintCom markets, which are directly owned by Sprint. The
increase in these expenses from 1997 to 1998 is a result of significant
additional network buildout activities during the 1998 period.
Equity in Loss of Sprint Spectrum Holdings and PhillieCo
Sprint's share of combined losses from Sprint Spectrum Holdings and
PhillieCo was $436 million for the first six months of 1998 compared with $222
million for the same period in 1997. The increase in 1998 losses reflects
marketing and promotional costs, including losses on handset sales, to support
a growing customer base and the launching of service in additional markets.
Pro Forma PCS Group
In order to provide a more meaningful discussion and analysis of the
underlying operating results of the PCS Group businesses, the preceding
discussion of the PCS Group Historical Financial Statements is supplemented
with a discussion of the pro forma results of operations and financial
condition of the PCS Group as such information is deemed necessary to
facilitate an understanding of the operating results and financial condition
of Sprint's equity investments.
52
<PAGE>
Net operating revenues for the PCS Group on a pro forma basis were $468
million for the first six months of 1998. Revenues include subscriber revenues
(including monthly recurring charges and usage charges), roaming revenues and
sales of handsets and accessory equipment. Revenues have increased as a direct
result of the growth in the number of subscribers. As part of the PCS Group's
marketing plans, handsets are normally sold at prices substantially below the
PCS Group's cost.
Cost of revenues for the PCS Group on a pro forma basis totaled $488 million
for the first six months of 1998. 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 PCS Group's average monthly service revenue per subscriber for the six-
month period ended June 30, 1998 was approximately $60. 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 PCS Group has adopted marketing plans that both
target and encourage higher usage and higher average monthly revenue per
subscriber. The PCS Group's customer churn rates and customer marketing costs
have been higher than cellular industry averages, but are within the range
management expected at this stage of development. As the PCS markets mature
and the PCS Group gains additional scale, management expects both of these
measures to trend downward toward cellular industry levels. Customer churn can
be attributed to several factors, including but not limited to, network
coverage and reliability issues (e.g. blocked calls, dropped calls, handset
problems), non-use of phones, change of employment, affordability, customer
care concerns and other competitive factors.
The PCS Group is currently operating in 38 of the largest 50 metropolitan
areas in the United States. Subscribers totaled more than 1.3 million at June
30, 1998, an increase of approximately 1.0 million subscribers from June 30,
1997. The PCS Group plans to continue to aggressively obtain new customers,
which will likely continue to result in higher losses.
Years Ended December 31, 1997, 1996 and 1995
Operating Expenses
Operating expenses were $19 million for 1997 and $1 million for 1996. These
expenses consist of selling, general and administrative expenses related to
the network buildout for the PCS licenses in the SprintCom markets, which are
directly owned by Sprint. The increase in these expenses from 1996 to 1997 is
a result of the commencement of the network buildout in the second half of
1997.
Equity in Loss of Sprint Spectrum Holdings and PhillieCo
Sprint's share of combined losses from Sprint Spectrum Holdings and
PhillieCo was $660 million for 1997 compared with $192 million for 1996 and
$31 million for 1995. The increased losses reflect marketing and promotional
costs, including losses on handset sales, to support a growing customer base
and the launching of service in additional markets. The PCS Group plans to
continue to aggressively obtain new customers, which will likely continue to
result in higher losses in 1998 compared to 1997.
Pro Forma PCS Group
In order to provide a more meaningful discussion and analysis of the
underlying operating results of the PCS Group businesses, the preceding
discussion of the PCS Group Historical Financial Statements is supplemented
with a discussion of the pro forma results of operations and financial
condition of the PCS Group as such information is deemed necessary to
facilitate an understanding of the operating results and financial condition
of Sprint's equity investments.
Net operating revenues for the PCS Group on a pro forma basis totaled $258
million in 1997. The majority of the PCS Group's revenues in 1997 was
generated in the third and fourth quarters and include both service revenues
and the sales of handsets and accessory equipment. Revenues include subscriber
revenues (including
53
<PAGE>
monthly recurring charges and usage charges), roaming revenues and sales of
handsets and accessory equipment. As part of the PCS Group's marketing plans,
handsets are normally sold at prices substantially below the PCS Group's cost.
Cost of revenues for the PCS Group on a pro forma basis totaled $574 million
in 1997. Cost of revenues consists principally of handset and accessory costs,
interconnection costs, and switch and cell site expenses, including
maintenance, site rental and utilities. Increases in the volume of handsets
sold and increases in interconnection costs related to increased customer
usage were the drivers of these costs in 1997.
NONOPERATING ITEMS
Income Taxes
The PCS Group's effective tax rates for the first six months were 37.8% in
1998 and 38.0% for the same period 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 PCS Group's primary uses of cash historically have been to fund initial
operating losses, capital expenditures, the acquisition of PCS licenses and
microwave relocation costs. Net losses for the PCS Group were $296 million and
$140 million for the six months ended June 30, 1998 and 1997, respectively,
and were $419 million, $120 million and $20 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Capital expenditures for the
PCS Group totaled $552 million and $32 million for the six months ended
June 30, 1998 and 1997, respectively, and were $154 million for the year ended
December 31, 1997. Capital expenditures for Sprint Spectrum Holdings and
PhillieCo totaled $663 million and $1.3 billion for the six months ended
June 30, 1998 and 1997, respectively, and totaled $2.1 billion, $1.4 billion
and $32 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Capital expenditures were incurred primarily to fund the
buildout of the PCS Group's network. The entities comprising the PCS Group
have also spent a total of approximately $3.1 billion to acquire the PCS
licenses.
Historically, the primary sources of funds for the entities comprising the
PCS Group have been long-term public debt, bank facilities, vendor financing
arrangements, partner loans and capital contributions. Long-term debt
outstanding, including construction obligations and capital lease obligations,
for the PCS Group totaled $729 million at June 30, 1998. Long-term debt
outstanding, including vendor financing and construction obligations, for
Sprint Spectrum Holdings and PhillieCo totaled $6.0 billion at June 30, 1998.
The entities comprising the PCS Group 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 network. These
facilities serve as a primary financing source for the buildout of the
network. For a discussion of certain other debt arrangements see "Sprint
Spectrum Holding Company Combined with MinorCo and PhillieCo Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" included elsewhere in this Prospectus.
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 for 1998 and 1999 will
total approximately $4.7 billion to $5.5 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 funds may be required to remain current with technological changes
and developments.
54
<PAGE>
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 Cox's remaining interest in
Cox PCS based on the fair market value at the time of such acquisition.
Subsequent to December 31, 1997, Cox elected to exercise this right and put an
additional 10.2% ownership interest in Cox PCS to Sprint Spectrum Holdings,
which Sprint Spectrum Holdings acquired as of June 8, 1998 for approximately
$80 million. Sprint Spectrum Holdings also became managing partner of Cox PCS
on June 8, 1998. This put gave Sprint Spectrum Holdings a controlling interest
of 59.2% in Cox PCS. Cox may put certain remaining interests in Cox PCS to
Sprint Spectrum Holdings through December 2008. See "The Related
Transactions--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 Restructuring Agreement,
May 26, 1998, through the closing date of the PCS Restructuring. As of June
30, 1998, $80.6 million had been loaned by Sprint and the Cable Parents under
this agreement, and the remaining amount was funded during the third quarter
of 1998. The PhillieCo Partners agreed to lend up to $50 million, and have
fully funded this commitment as of June 30, 1998, to PhillieCo to fund
operating and working capital requirements and capital expenditures prior to
the closing of the PCS Restructuring. Sprint has also agreed to loan up to
$110.6 million to fund SprintCom's capital requirements during this same
period and has funded substantially all of this commitment as of June 30,
1998. 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 the PCS Restructuring. The above mentioned loans, totaling $510.6 million
excluding loans to PhillieCo, may be repaid from the proceeds of the
Offerings, as further discussed below, but only to the extent the net proceeds
of the Offerings exceed $500 million. In the event the loans remain
outstanding after the Offerings, the remaining balance will be converted into
PCS Preferred Stock (or, in the case of Sprint, Preferred Inter-Group
Interest). See "The Related Transactions--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
working capital 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. 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 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 rates and the rates 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.
For information concerning the use of proceeds from the Offerings, see "Use
of Proceeds."
55
<PAGE>
Sprint intends to file a shelf registration statement for $8.0 billion of
debt securities which would replace existing shelf registration statements
having an aggregate available remaining amount of $1.0 billion. Proceeds from
the sale of securities under the new shelf registration statement would 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 currently
anticipates issuing, at approximately the same time as the Offerings, up to
$3.0 billion aggregate principal amount of debt securities through the Notes
Offering under the new shelf registration statement, subject to market
conditions. There can be no assurance that the Notes Offering will occur.
In early August 1998, Sprint closed new revolving credit facilities for
approximately $5.0 billion which will be used to support commercial paper
operations and replace its existing credit facilities. The agreements have
been negotiated with market terms, conditions and covenants.
In connection with the PCS Restructuring and the Offerings, 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 approximately $ million (assuming
an initial public offering price for the Series 1 PCS Stock offered hereby of
$ , the midpoint of the price range indicated on the cover of this
Prospectus). See "Use of Proceeds."
FINANCIAL STRATEGIES
For information on general hedging policies, interest rate risk management,
foreign exchange risk management and quantitative and qualitative disclosures
about market risk, see "Sprint Corporation Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Strategies."
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 inventory of its computer systems, network
elements, software applications, products and other business systems. Once an
item is identified through the inventory process, its Year 2000 impact is
assessed and a plan is developed to address any required renovation. The PCS
Group is using both internal and external resources to identify, correct or
reprogram, and test its systems for Year 2000 compliance. It is planning that
Year 2000 compliance for these critical systems will be achieved in 1999. The
PCS 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 PCS
Group's financial position and is being expensed as incurred. The PCS Group
relies on third-party vendors for a significant number of its important
operating and computer system functions and therefore is highly dependent on
such third-party vendors for the remediation of network elements, computer
systems, software applications and other business systems. 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.
56
<PAGE>
If compliance is not achieved in a timely manner, the Year 2000 issue could
have a material adverse 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. The PCS Group intends to develop and implement,
if necessary, appropriate contingency plans to mitigate to the extent possible
the effects of any Year 2000 noncompliance.
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.
57
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
SELECTED FINANCIAL DATA
The following unaudited table sets forth Selected Financial Data of Sprint
Spectrum Holding Company, MinorCo and PhillieCo. The following should be read
in conjunction with "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 Combined with
MinorCo and PhillieCo Financial Statements and Notes thereto included
elsewhere in this Prospectus. 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 Combined with
MinorCo and PhillieCo Financial Statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The Selected Financial Data at
December 31, 1995 and 1994, at June 30, 1998, for the year ended December 31,
1994, and for the six months ended June 30, 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. Results for the six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
entire year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------
1998 1997 1997 1996 1995 1994(/1/)
--------- -------- --------- -------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA
Net operating revenues.. $ 468.0 $ 35.3 $ 258.0 $ 4.2 $ -- $ --
Operating loss.......... (933.2) (477.7) (1,379.7) (357.6) (66.9) (3.3)
Net loss................ (1,073.6) (555.8) (1,632.7) (444.6) (112.7) (3.3)
CASH FLOW DATA
Net cash used in
operating activities... $ 892.7 $ 368.8 $ 848.2 $ 172.4 $ 16.9 $ 0.5
Capital expenditures.... 662.6 1,260.9 2,124.6 1,419.2 31.8 0.5
Purchase of PCS
licenses............... -- -- -- -- 2,085.8 118.4
BALANCE SHEET DATA
Total assets............ $ 8,151.4 $ 7,057.9 $4,443.6 $2,329.3 $123.9
Property, plant and
equipment.............. 4,277.4 3,538.2 1,441.6 32.0 0.4
Long-term debt and
construction
obligations (including
short-term borrowings). 6,049.1 4,273.8 1,401.2 -- --
</TABLE>
- --------
(1) Sprint Spectrum Holding Company, MinorCo and PhillieCo had no operations
prior to 1994.
58
<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,
"PhillieCo") which offer services as Sprint PCS, and all entities are
collectively referred to as the "Company" or the "Partnerships."
Sprint Spectrum Holding Company, L.P. ("Holdings") and MinorCo, L.P.
("MinorCo") are limited partnerships formed by subsidiaries (the "Partners")
of Sprint, TCI, Cox and Comcast (the "Parents"). Holdings is the 99% general
partner of, and is consolidated with, its subsidiaries, including NewTelco,
L.P. ("NewTelco"), APC and Sprint Spectrum. Sprint Spectrum's subsidiaries are
Sprint Spectrum Equipment Company, L.P. ("EquipmentCo"), Sprint Spectrum
Realty Company, L.P. ("RealtyCo"), Sprint Spectrum Finance Corporation
("FinCo"), and WirelessCo, L.P. ("WirelessCo"). MinorCo holds the minority
ownership interests of 1% in NewTelco, Sprint Spectrum, EquipmentCo, RealtyCo
and WirelessCo at June 30, 1998, December 31, 1997 and 1996, and APC at June
30, 1998 and December 31, 1997. Holdings owns a 59.2% interest in, and is
consolidated with, Cox Communications PCS, L.P. ("Cox PCS") at June 30, 1998.
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.
and PhillieCo, L.P. PhillieCo II holds the minority ownership interests of 1%
in PhillieCo Sub and PhillieCo, L.P.
The following information includes certain estimates, projections and other
forward-looking statements. 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 impact of the Year 2000 issue and any related noncompliance;
. 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;
. the effects of unanticipated delays resulting from zoning or other
disputes with municipalities; and
. unexpected results in litigation.
59
<PAGE>
GENERAL
LICENSE AND NETWORK COVERAGE--The Company through WirelessCo 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
155.9 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 uses the Sprint(R) and Sprint PCS(R) 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 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 provides management
services.
APC--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 network and GSM network in the
Washington D.C./Baltimore MTA, which covers approximately 8.3 million Pops.
APC launched CDMA service in April 1998.
Cox PCS--Holdings also owns a 59.2% general partnership interest in and is
the managing partner of Cox PCS, a limited partnership that owns a PCS license
for the Los Angeles/San Diego/Las Vegas MTA covering 21.0 million Pops. Cox,
which previously owned this license, contributed the license to Cox PCS on
March 31, 1997. Sprint Spectrum signed an affiliation agreement with Cox PCS
on December 31, 1996. Through December 2008, Cox 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
1997, and was awarded licenses for 139 of 493 BTAs, covering approximately
74.9 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 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.
ROAMING--The Company has entered into roaming agreements with various analog
cellular providers in the United States and Canada. Additionally, the Company
has negotiated roaming arrangements with other CDMA PCS carriers who provide
service in certain geographic areas not currently covered by the CDMA network
of Sprint Spectrum 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 in areas where Sprint PCS service is not available and
where there are roaming agreements.
60
<PAGE>
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 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. PhillieCo I is the sole general partner of PhillieCo Sub,
L.P. 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 the Restructuring
Agreement. See "The Related Transactions--PCS Restructuring" 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 (as defined hereafter), 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 the Restructuring Agreement with
TCI, Comcast, and Cox to restructure Sprint's PCS operations, subject to
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 Holdings and MinorCo and the joint venture interests of TCI and Cox in
PhillieCo. In exchange for these joint venture interests, Sprint will issue to
TCI, Comcast, and Cox shares of Series 2 PCS Stock.
YEAR 2000 ISSUE--The "Year 2000" issue affects 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 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 inventory of its computer systems, network
elements, software applications, products and other business systems. Once an
item is identified through the inventory process, its Year 2000 impact is
assessed and a plan is developed to address any required renovation. The
Company is using both
61
<PAGE>
internal and external resources to identify, correct or reprogram, and test
its systems for Year 2000 compliance. It is planning that Year 2000 compliance
for these critical systems will be achieved in 1999. The Company 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 Company's
financial position and is being expensed as incurred. The Company relies on
the third-party vendors for a significant number of its important operating
and computer system functions and therefore is highly dependent on such third-
party vendors for the remediation of network elements, computer systems,
software applications and other business systems. 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 adverse 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. Sprint intends to develop and implement, if
necessary, appropriate contingency plans to mitigate to the extent possible
the effects of any Year 2000 noncompliance.
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.
See "Emergence From Development Stage and Continuing Risk Factors--Deadlock
Event" for further discussion related to absence of an approved budget. As of
June 30, 1998, the Partners have fulfilled their capital contribution
commitments under the Holdings Partnership Agreement. If the Related
Transactions are not consummated, 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 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 needs, subscriber acquisition costs, capital expenditures and
other general purposes of Sprint Spectrum. The Bank Facility consists of a
$300 million term loan commitment and a revolving credit commitment of $1.7
billion. As of June 30, 1998 and December 31, 1997, $300 million had been
borrowed under the term loan. As of June 30, 1998 and December 31, 1997, $1.4
billion and $605 million had been borrowed under the revolving credit
facility, respectively, with $300 million and $1.1 billion remaining
available, respectively. There were no borrowings under the revolving credit
commitment at December 31, 1996.
62
<PAGE>
Also in October 1996, Sprint Spectrum 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 November 1997, the Nortel facility provides $1.3 billion
in senior secured loans. The Lucent facility, as amended in May and December
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 $2.3 billion and $1.6 billion under such
facilities at June 30, 1998 and December 31, 1997, respectively, of which $300
million was syndicated to Sprint.
The Bank 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'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 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 will be responsible for payment of the Notes. On
August 15, 2001, Sprint Spectrum 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.
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.
63
<PAGE>
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 June
30, 1998 and December 31, 1997, $220 million had been borrowed under the term
loan. As of June 30, 1998 and December 31, 1997, $200 million and $141.4
million had been borrowed under the revolving credit facility, respectively,
with $0 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.
On February 25, 1998 Cox PCS entered into an $800 million, nine-year
revolving and term loan agreement (the "Cox Credit Facility") with a bank
syndicate. The Cox Credit Facility consists of a revolving line of credit in
an aggregate principal amount of $400 million and two term loan facilities
with aggregate principal amounts of $200 million each. In February, Cox PCS
drew one of the $200 million term loans at an interest rate of 8.26%. The Cox
Credit Facility grants Cox PCS an option to expand the credit facility up to
an additional $750 million from time to time, upon Cox PCS meeting certain
requirements. The proceeds from the loan are intended to repay the PCS license
debt, finance working capital needs, subscriber acquisition costs, capital
expenditures and other general purposes of Cox PCS. Provisions of the Cox
Credit Facility required the transfer of certain of Cox PCS' assets into
special purpose subsidiaries of Cox PCS to facilitate the collateralization of
substantially all of Cox PCS' assets.
Furthermore, the amounts advanced under the Cox Credit Facility are
guaranteed by each of the subsidiaries. The Cox Credit Facility also requires
that Cox PCS meet certain operational and financial covenants. Amounts
borrowed under the facility are to be repaid based on scheduled repayment
dates defined in the credit agreement plus interest at a variable rate (as
defined). As of June 30, 1998, $200 million had been borrowed under one of the
term loan facilities.
In conjunction with the assignment of the PCS license covering the Los
Angeles/San Diego/Las Vegas MTA to Cox PCS, Cox PCS assumed the related debt
payable to the FCC. The debt required eight interest-only payments beginning
April 30, 1996 through January 31, 1998. The debt requires repayment in equal
quarterly installments of $23.7 million representing both principal and
interest. The debt is collateralized by the PCS license, bears interest at
7.75% per annum and matures on January 31, 2001. As of June 30, 1998,
remaining principal outstanding under the debt totaled approximately $233
million.
At December 31, 1997, the partners of PhillieCo I had advanced $45 million
to PhillieCo I for general operating purposes. Subsequent to December 31, 1997
and through June 30, 1998, the partners advanced an additional $50 million to
PhillieCo I. Additionally, during that same period, Sprint advanced an
additional $90 million to PhillieCo I. These advances accrue interest at rates
from prime to prime plus 1 5/8%. All of the above advances have maturity dates
of the earliest of the following events: (i) the 90th day following the
closing date of the restructuring of the partnership, or (ii) if the
restructuring does not occur, the date of the closing of the buy/sell
arrangements that would occur under the partnership agreement in connection
with the deadlock event discussed above, or (iii) December 31, 1999.
64
<PAGE>
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 $47.5 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.
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 $316.9 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 six months ended June 30, 1998, the Company used cash of
approximately $892.7 million in operating activities, which consisted of the
operating loss of $1,073.6 million less depreciation and amortization of
$319.9 million and a net change in working capital of $120.4 million. Cash
used in investing activities totaled $743.9 million for the six months ended
June 30, 1998, consisting of capital expenditures, the completion of the
purchase of APC (net of cash acquired), the purchase of an additional 10.2% of
Cox PCS and microwave relocation costs. Cash flow from financing activities
totaled $1,752.0 million for the six months ended June 30, 1998, and included
net proceeds from long-term debt financing of $737.0 million and net
borrowings under revolving credit facilities of $1,018.6 million. The
Company's available financing sources are more fully described above. See Note
10 to the Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Combined Financial Statements included herein for a discussion of the PCS
Restructuring and its potential impact on future sources of liquidity.
SEASONALITY
The wireless industry, including the Company, has experienced a trend of
generating a significantly higher number of subscriber additions and handset
sales in the fourth quarter of each year as compared to the other three fiscal
quarters. A number of factors contribute to the trend, including the
increasing use of retail distribution, which is dependent on the year-end
holiday shopping season, the timing of new product and service announcements
and introductions, competitive pricing pressures and aggressive marketing and
sales promotions. There can be no assurance that strong fourth quarter results
for subscriber additions and handset sales will continue for the wireless
industry or the Company. The Company's fourth quarter subscriber additions and
handset sales could be adversely impacted by a variety of reasons, including
the Company's inability to match
65
<PAGE>
or beat pricing plans offered by competitors, the failure to adequately
promote the Company's products, services and pricing plans or the failure to
have an adequate supply or selection of handsets. If fourth quarter results of
the Company fail to significantly improve upon subscriber additions and
handset sales from the year's previous quarters, the Company's results for the
year could be materially adversely affected.
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 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.
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.
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. As part of the Company's marketing plans, handsets
are normally sold at prices substantially below the Company's cost.
66
<PAGE>
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 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 participates in an affiliation agreement with Cox PCS. Fees
earned under this agreement of $1.1 million for the year ended December 31,
1997 are included in other income. No fees were earned in 1996.
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Operating Revenues/Margin
Revenues and cost of revenues of $468.0 million and $488.2 million,
respectively, for the first six months of 1998 have increased compared to the
revenues and cost of revenues of $35.3 million and $139.0 million,
respectively, for the first six months 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
67
<PAGE>
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.
As part of the Company's marketing plans, handsets are normally sold at prices
substantially below the Company's cost.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for the first six
months of 1998 were $593.1 million compared to $271.3 million for the first
six months of 1997. For the six months ended June 30, 1998, selling expenses
increased $130.1 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 six months of 1998
increased $191.7 million compared to the same period 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 six months of 1998 was
$319.9 million compared to $102.6 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 $223.4 million for the six months ended June
30, 1998, compared to $13.8 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.
68
<PAGE>
SPRINT CORPORATION
SELECTED FINANCIAL DATA
The following unaudited table sets forth the Selected Financial Data of
Sprint Corporation and should be read in conjunction with "Sprint Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Sprint Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. 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 June 30, 1998 and for the
six months ended June 30, 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. Results for the six
months ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the entire year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, 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
DATA
Net operating revenues.. $ 7,878.1 $7,246.0 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 1,343.8 1,200.2 2,451.4 2,267.2 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 430.0 545.9 952.5 1,190.9 946.1 899.2 517.1
Earnings per common
share from continuing
operations(1), (2)
Basic.................. 1.00 1.27 2.21 2.82 2.71 2.59 1.51
Diluted................ 0.98 1.25 2.18 2.79 2.69 2.56 1.49
Dividends per common
share.................. 0.50 0.50 1.00 1.00 1.00 1.00 1.00
Basic weighted average
common shares.......... 430.3 430.5 430.2 421.7 348.7 346.1 341.0
CASH FLOW DATA
Net cash from operating
activities--continuing
operations(3).......... $ 1,933.1 $1,544.4 $ 3,379.0 $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8
Capital expenditures.... 2,040.7 1,268.1 2,862.6 2,433.6 1,857.3 1,751.6 1,429.8
BALANCE SHEET DATA
Total assets............ $19,790.7 $18,184.8 $16,826.4 $15,074.3 $14,425.2 $13,781.8
Property, plant and
equipment, net......... 12,887.7 11,494.1 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
construction
obligations and short-
term borrowings)....... 4,996.8 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... 9,223.2 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 the six months ended June 30, 1997 and year ended December 31,
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) for the six months ended June 30, 1997 and year ended
December 31, 1997 and $36 million ($0.09 per share) for the year ended
December 31, 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.
69
<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 PCS Restructuring, 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 Series 2 PCS Stock, and the exercise of Equity Purchase
Rights by FT and DT in connection with the PCS Restructuring; (2) the 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 Series 1 PCS Stock
and one share of Series 1 FON Stock and by reclassifying each share of DT
Class A Stock held by DT and each share of Existing Class A Common Stock held
by FT so that each share represents an equity interest in the FON Group and an
equity interest in the PCS Group, together with a right to cause Sprint to
initially issue one share of Series 3 FON Stock and 1/2 share of Series 3 PCS
Stock; and (3) the Offerings and the exercise of Equity Purchase Rights by FT,
DT and the Cable Parents in connection with the Offerings. The actual net
proceeds from the Offerings could vary from the amount assumed to be received.
The acquisitions of the Cable Parents' interests in Sprint Spectrum Holdings
and PhillieCo will be accounted for using the purchase method of accounting.
Sprint intends to issue up to $3.0 billion aggregate principal amount of
debt securities, subject to market conditions, in the Notes Offering, which is
expected to be completed at approximately the same time as the Offerings.
Sprint currently expects that the proceeds from the Notes Offering will be
used for working capital needs, including the further buildout of the PCS
network, and to repay certain indebtedness of the PCS Group. The pro forma
condensed combined financial statements included herein do not give effect to
the Notes Offering and there can be no assurance that such offering will
occur.
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
six months ended June 30, 1998, and include the effect of the PCS
Restructuring, Recapitalization, Offerings and exercise of Equity Purchase
Rights by FT, DT and the Cable Parents 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 June 30, 1998. The historical balance sheet amounts have been adjusted to
reflect the PCS Restructuring, Recapitalization, Offerings and exercise of
Equity Purchase Rights by FT, DT and the Cable Parents as though such
transactions had occurred on June 30, 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 Prospectus.
70
<PAGE>
SPRINT CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(Unaudited, in millions)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED
SPRINT PRO FORMA ADJUSTMENTS PRO FORMA
HISTORICAL SPECTRUM ------------------------------ ADJUSTMENTS PRO
SPRINT HOLDINGS AND PCS FOR FORMA AS
CORP. PHILLIECO RESTRUCTURING RECAPITALIZATION PRO FORMA OFFERINGS ADJUSTED
---------- ------------ ------------- ---------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents... $ 93.3 $ 240.3 $ (26.5)A $ 412.8 $
105.7 F
Accounts receivable,
net................... 2,492.6 191.9 (31.6)D 2,652.9 2,652.9
Inventories............ 381.0 130.8 511.8 511.8
Notes and other receiv-
ables................. 384.8 -- 384.8 384.8
Prepaid expenses and
other current assets.. 406.3 48.6 (155.9)C 299.0 299.0
--------- -------- -------- --------- --------
Total current assets... 3,758.0 611.6 (108.3) 4,261.3
Investments in equity
securities............. 367.4 -- 367.4 367.4
Property, plant and
equipment, net......... 12,887.7 4,277.4 17,165.1 17,165.1
Investment in and ad-
vances to Sprint Spec-
trum Holdings and
PhillieCo. ............ 732.8 -- (414.4)B -- --
(183.7)B
(134.7)E
Investments in and ad-
vances to other affil-
iates.................. 560.2 -- 560.2 560.2
Intangibles, net
PCS licenses........... 544.5 2,849.0 3,393.5 3,393.5
Customer base.......... -- -- 389.1 A 389.1 389.1
Goodwill............... 353.0 -- 3,835.8 A 4,188.8 4,188.8
Other assets............ 587.1 413.4 183.7 B 1,184.2 1,184.2
--------- -------- -------- ------- --------- -------- --------
Total................... $19,790.7 $8,151.4 $3,567.5 $ -- $31,509.6 $ $
========= ======== ======== ======= ========= ======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities
Current maturities of
long-term debt........ $ 115.8 $ 122.7 $ 238.5 $ 238.5
Partner advances....... -- 185.0 $ (134.7)E 50.3 50.3
Accounts payable....... 1,251.7 277.6 1,529.3 1,529.3
Accrued interconnection
costs................. 569.0 -- 569.0 569.0
Accrued taxes.......... 354.6 -- 354.6 354.6
Advance billings....... 211.3 -- 211.3 211.3
Other.................. 704.0 448.9 (31.6)D 1,121.3 1,121.3
--------- -------- -------- --------- --------
Total current liabili-
ties.................. 3,206.4 1,034.2 (166.3) 4,074.3 4,074.3
Construction obliga-
tions.................. 474.8 482.7 957.5 957.5
Long-term debt.......... 4,406.2 5,443.7 73.2 A 9,797.8 9,797.8
(125.3)C
Deferred credits and
other liabilities
Deferred income taxes
and investment tax
credits............... 979.9 -- 457.2 A 1,437.1 1,437.1
Postretirement and
other benefit obliga-
tions................. 1,068.1 -- 1,068.1 1,068.1
Other.................. 422.6 73.7 496.3 496.3
--------- -------- -------- --------- --------
Total deferred credits
and other liabilities. 2,470.6 73.7 457.2 3,001.5 3,001.5
Redeemable preferred
stock.................. 9.5 -- 9.5 9.5
Limited partner inter-
est in consolidated
subsidiary............. -- 92.3 92.3 92.3
Common stock and other
stockholders' equity
Common stock
Common stock.......... 875.7 -- $(875.7)H -- --
Class A common stock.. 215.6 -- 215.6 215.6
FON Group............. -- -- 700.6 H 700.6 700.6
PCS Group............. -- -- 195.1 A 175.1 H 375.1
4.9 F
Preferred stock........ -- -- 48.4 G 48.4 48.4
Capital in excess of
par or stated value... 4,479.0 4,291.6 4,034.9 A 8,614.7
(2,524.3)A
(1,718.9)B
100.8 F
(48.4)G
Retained earnings...... 3,899.0 (3,266.8) 1,962.3 A 3,899.0 3,899.0
1,304.5 B
Treasury stock, at
cost.................. (343.0) -- (343.0) (343.0)
Other.................. 96.9 -- (30.6)C 66.3 66.3
--------- -------- -------- ------- --------- -------- --------
Total common stock and
other stockholders'
equity................ 9,223.2 1,024.8 3,328.7 -- 13,576.7
--------- -------- -------- ------- --------- -------- --------
Total................... $19,790.7 $8,151.4 $3,567.5 $ -- $31,509.6 $ $
========= ======== ======== ======= ========= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
71
<PAGE>
SPRINT CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED
SPRINT PRO FORMA ADJUSTMENTS PRO FORMA
HISTORICAL SPECTRUM ------------------------------ ADJUSTMENTS PRO
SPRINT HOLDINGS AND PCS PRO FOR FORMA AS
CORP. PHILLIECO RESTRUCTURING RECAPITALIZATION FORMA OFFERINGS ADJUSTED
---------- ------------ ------------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.. $7,878.1 $ 468.0 $8,346.1 $8,346.1
OPERATING EXPENSES
Costs of services and
products............... 3,775.8 488.2 4,264.0 4,264.0
Selling, general and
administrative......... 1,822.4 593.1 2,415.5 2,415.5
Depreciation and amor-
tization............... 936.1 319.9 $ 3.5 J 1,372.3 1,372.3
47.9 K
64.9 L
-------- --------- ------ -------- --------
Total operating ex-
penses................. 6,534.3 1,401.2 116.3 8,051.8 8,051.8
-------- --------- ------ -------- --------
OPERATING INCOME
(LOSS)................. 1,343.8 (933.2) (116.3) 294.3 294.3
Interest expense........ (128.0) (223.4) 20.6 M (319.5) (319.5)
7.4 N
3.9 O
Equity in loss of
Global One............. (86.9) -- (86.9) (86.9)
Equity in loss of
Sprint Spectrum Hold-
ings and PhillieCo..... (436.0) -- 432.5 J -- --
3.5 J
Other income............ 38.5 11.5 (7.4)N 42.6 42.6
Minority interest....... -- 71.5 71.5 71.5
-------- --------- ------ -------- --------
Income (loss) before
income taxes and ex-
traordinary item....... 731.4 (1,073.6) 344.2 2.0 2.0
Income taxes............ (301.4) -- 253.1 P (32.4) (32.4)
15.9 Q
-------- --------- ------ -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS.. 430.0 (1,073.6) 613.2 (30.4) (30.4)
Preferred stock divi-
dends.................. (0.5) -- (0.7)R (1.2) (1.2)
-------- --------- ------ -------- --------
Earnings (loss) appli-
cable to common stock.. $ 429.5 $(1,073.6) $612.5 $ (31.6) $ (31.6)
======== ========= ====== ======== ========
Earnings (loss) appli-
cable to common stock:
Sprint Corporation..... $ 429.5 $ -- $ --
FON Group.............. -- 718.8 718.8
PCS Group.............. -- (750.4) (750.4)
-------- -------- --------
$ 429.5 $ (31.6) $ (31.6)
======== ======== ========
BASIC EARNINGS (LOSS)
PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Sprint Corporation..... $ 1.00 $ -- $ --
======== ======== ========
FON Group.............. $ -- $ 1.67 $ 1.67
======== ======== ========
PCS Group.............. $ -- $ (1.81) $
======== ======== ========
Basic weighted average
common shares:
Sprint Corporation..... 430.3 -- S -- S
======== ======== ========
FON Group.............. -- 430.3 T 430.3 T
======== ======== ========
PCS Group.............. -- 415.1 U V
======== ======== ========
DILUTED EARNINGS (LOSS)
PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Sprint Corporation..... $ 0.98 $ -- $ --
======== ======== ========
FON Group.............. $ -- $ 1.64 $ 1.64
======== ======== ========
PCS Group.............. $ -- $ (1.81) $
======== ======== ========
Diluted weighted aver-
age common shares:
Sprint Corporation..... 439.0 -- S -- S
======== ======== ========
FON Group.............. -- 439.0 T 439.0 T
======== ======== ========
PCS Group.............. -- 415.1 U V
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
72
<PAGE>
SPRINT CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
HISTORICAL COMBINED PRO FORMA ADJUSTMENTS
SPRINT SPECTRUM ------------------------------ PRO FORMA
HISTORICAL HOLDINGS AND PCS ADJUSTMENTS PRO FORMA
SPRINT CORP. PHILLIECO RESTRUCTURING RECAPITALIZATION PRO FORMA FOR OFFERINGS 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 2,271.7 2,271.7
95.9 K
129.7 L
--------- --------- ------ --------- ---------
Total operating
expenses........... 12,422.5 1,637.7 229.1 14,289.3 14,289.3
--------- --------- ------ --------- ---------
OPERATING INCOME
(LOSS)............. 2,451.4 (1,379.7) (229.1) 842.6 842.6
Interest expense.... (187.2) (123.5) 12.6 M (276.9) (276.9)
13.5 N
7.7 O
Equity in loss of
Global One......... (162.1) -- (162.1) (162.1)
Equity in loss of
Sprint Spectrum
Holdings and
PhillieCo.......... (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) N 166.4 166.4
--------- --------- ------ --------- ---------
Income (loss) before
income taxes....... 1,583.0 (1,632.7) 450.8 401.1 401.1
Income taxes........ (630.5) -- 383.1 P (204.4) (204.4)
43.0 Q
--------- --------- ------ --- --------- ---------
NET INCOME (LOSS)... 952.5 (1,632.7) 876.9 196.7 196.7
Preferred stock
dividends.......... (1.0) -- (1.5) R (2.5) (2.5)
--------- --------- ------ --------- ---------
Earnings applicable
to common stock.... $ 951.5 $(1,632.7) $875.4 $ 194.2 $ 194.2
========= ========= ====== ========= =========
Earnings (loss)
applicable to
common stock:
Sprint Corporation.. $ 951.5 $ -- $ --
FON Group........... -- 1,369.3 1,369.3
PCS Group........... -- (1,175.1) (1,175.1)
--------- --------- ---------
$ 951.5 $ 194.2 $ 194.2
========= ========= =========
BASIC EARNINGS
(LOSS) PER COMMON
SHARE:
Sprint Corporation.. $ 2.21 $ -- $ --
========= ========= =========
FON Group........... $ -- $ 3.18 $ 3.18
========= ========= =========
PCS Group........... $ -- $ (2.83) $
========= ========= =========
Basic weighted
average common
shares:
Sprint Corporation . 430.2 -- S -- S
========= ========= =========
FON Group........... -- 430.2 T 430.2 T
========= ========= =========
PCS Group........... -- 415.1 U V
========= ========= =========
DILUTED EARNINGS
(LOSS) PER COMMON
SHARE:
Sprint Corporation.. $ 2.18 $ -- $ --
========= ========= =========
FON Group........... $ -- $ 3.14 $ 3.14
========= ========= =========
PCS Group........... $ -- $ (2.83) $
========= === ========= =========
Diluted weighted
average common
shares:
Sprint Corporation.. 436.5 -- S -- S
========= ========= =========
FON Group........... -- 436.5 T 436.5 T
========= ========= =========
PCS Group........... -- 415.1 U V
========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
73
<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 Series 2 PCS Stock (195.1 million shares, par value
$1.00) and warrants to purchase additional shares of Series 2 PCS Stock.
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
market value of the PCS Group will be determined based on the market value
of the securities issued in the Offerings. The excess of the purchase price
over the fair value of net assets to be acquired has been preliminarily
calculated as follows (in millions):
<TABLE>
<S> <C>
Preliminary purchase price....................................... $4,230.0
Transaction costs................................................ 26.5
Net assets to be acquired........................................ (562.0)
Customer base.................................................... (389.1)
Step-up in long-term debt to fair value.......................... 73.2
Deferred taxes on acquired assets and liabilities................ 457.2
--------
Goodwill......................................................... $3,835.8
========
</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. The above assumptions as to the
fair value of the net assets acquired are based upon information available
at the time of the preparation of these pro forma condensed combined
financial statements.
A final allocation of the purchase price to the assets acquired and
liabilities assumed is dependent on a study and analysis of the fair value
of such assets and liabilities, including such items as the PCS licenses
and in-process research and development projects, as well as the size of
the customer base at the closing date. Management expects the only
assumptions that could potentially be subject to material change are those
regarding customer base and in-process research and development. The amount
of the purchase price allocated to the customer base in the pro forma
condensed combined financial statements is based on the size of the
customer base at June 30, 1998. To the extent the customer base at the
closing date exceeds the size of the customer base at June 30, 1998, the
purchase price allocated to the customer base will likely increase along
with a corresponding increase in the amortization of the customer base.
Based on current projections of an increase in the customer base at
September 30, 1998, pro forma and pro forma as adjusted net income (loss)
from continuing operations for the six months ended June 30, 1998 and the
year ended December 31, 1997 would be $(41.5) million and $174.5 million,
respectively. Pro forma loss per share of the PCS Group for the six months
ended June 30, 1998 and the year ended December 31, 1997 would be $(1.83)
and $(2.87), respectively, and pro forma as adjusted loss per share of the
PCS Group for the six months ended June 30, 1998 and the year ended
December 31, 1997 would be $ and $ , respectively. Sprint is
undertaking an analysis to determine whether in-process research and
development projects acquired in the PCS Restructuring should be
capitalized or expensed. This analysis is expected to be finalized prior to
the completion of the final purchase price allocation. To the extent that
it is determined through this analysis
74
<PAGE>
SPRINT CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
that some of the in-process research and development projects should be
expensed, a portion of the purchase price will be allocated to these in-
process research and development projects and a nonrecurring, noncash
charge will be recognized in the period in which the charge occurs. Sprint
is unable to determine the potential amount of such charge at this time.
However, such a charge could be material to Sprint's results of operations
for the period in which the charge occurs. Such a write-off would reduce
the amount of purchase price allocated to goodwill, which would result in
lower amortization expense being recognized over the life assigned to the
goodwill. Such a write-off would not impact future cash flows. At the
present time, Sprint anticipates completing its final purchase price
allocation prior to year-end 1998.
B To eliminate Sprint's historical investment in Sprint Spectrum Holdings and
PhillieCo, accounted for by Sprint on the equity method of accounting
($414.4 million), and to reclassify interest capitalized as part of that
investment to other assets ($183.7 million).
C To eliminate Sprint's investment in Sprint Spectrum bonds ($155.9 million)
and the related unrealized gain ($30.6 million).
D To eliminate Sprint's payable to Sprint Spectrum Holdings.
E To eliminate Sprint's advances to PhillieCo.
F To record the exercise of Equity Purchase Rights by FT and DT (4.9 million
shares, par value $1.00). As a result of the issuance of Series 2 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.
G To reflect PCS Preferred Stock issued to the Cable Parents in exchange for
funding provided between the date of the Restructuring Agreement (May 26,
1998) and June 30, 1998. Additional funding of $191.6 million has been
provided subsequent to June 30, 1998 which could result in the issuance of
additional PCS Preferred Stock. See "The Related Transactions--Funding of
the PCS Group Prior to Closing; The PCS Preferred Stock."
H To record the effects of the Recapitalization of Sprint's Existing Common
Stock into one share of Series 1 FON Stock, par value $2.00 (350.3 million
shares) and 1/2 share of Series 1 PCS Stock, par value $1.00 (175.1 million
shares).
I To record the sale of shares in the Offerings ($ million proceeds and
million shares, par value $1.00). Proceeds from the Offerings of $
million have been assumed, net of estimated offering costs of $
million, although the actual amount of the Offerings may vary based on
market conditions. Also to record the exercise of Equity Purchase Rights by
FT and DT ($ million proceeds and million shares, par value
$1.00) and the Cable Parents ($ million proceeds and million
shares, par value $1.00) in connection with the Offerings.
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 ($432.5 million for the six months ended June 30, 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 ($3.5 million for the six months ended June 30, 1998
and the year ended December 31, 1997).
75
<PAGE>
SPRINT CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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. The goodwill associated
with the acquisition of the remaining interests in Sprint Spectrum Holdings
and PhillieCo is directly related to both the acquisition of the PCS
licenses and the ongoing ability of the businesses to provide wireless
telecommunications services using these licenses. The 40-year life for
goodwill is consistent with the 40-year amortization period being used for
the PCS licenses.
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 reduce interest expense resulting from the utilization of increased
current tax benefits (related to the acquisition of the remaining interest
in Sprint Spectrum Holdings and PhillieCo and the resulting consolidation
of these entities). The increased current tax benefits are assumed to
reduce Sprint's tax liability and Sprint's required borrowings. The
computation of the current tax benefit is performed on a quarterly basis,
and the resulting amount is applied to reduce the debt balance and,
therefore, interest expense, from that date forward. Interest expense is
computed using the weighted-average interest rate on the debt assumed to be
repaid, or not incurred, as appropriate. Such debt would have amounted to
$651.1 million and $375.3 million as of June 30, 1998 and December 31,
1997, respectively.
N To eliminate interest income recorded by Sprint and interest expense
recorded by Sprint Spectrum Holdings related to Sprint's investment in
Sprint Spectrum bonds.
O To reflect the amortization of the purchase price adjustment related to
long-term debt (see Note A).
P To record the income tax benefit, using the statutory income tax rate,
relating to the consolidation of the remaining interests in Sprint Spectrum
Holdings and PhillieCo.
Q To record the impact on income taxes of pro forma adjustments L through O,
using the statutory income tax rate.
R To reflect dividends at an assumed annual rate of 3% on PCS Preferred Stock
issued to the Cable Parents. As of June 30, 1998, $48.4 million of funding
by the Cable Parents between the date of the Restructuring Agreement
(May 26, 1998) and June 30, 1998 was assumed to be exchanged for shares of
PCS Preferred Stock. Under the Restructuring Agreement, additional funding
of $191.6 million has been provided subsequent to June 30, 1998 which could
result in the additional issuance of PCS Preferred Stock, resulting in
additional dividends of up to $5.7 million on an annual basis. For a
discussion of how the actual dividend rate will be determined, see
"Description of Capital Stock--Description of PCS Preferred Stock;
Preferred Inter-Group Interest."
S The weighted average common shares outstanding for Sprint are eliminated in
the Recapitalization.
T The weighted average common shares outstanding for the FON Group reflect
the Recapitalization of Sprint's Existing Common Stock into shares of
Series 1 FON Stock on a share for share basis, including the FON Stock
attributes of the Class A Common Stock.
U The weighted average common shares outstanding for the PCS Group reflect
(1) the issuance of Series 2 PCS Stock to the Cable Parents in the PCS
Restructuring (195.1 million shares), (2) the Recapitalization of Sprint's
Existing Common Stock into 1/2 share of Series 1 PCS Stock, including the
PCS Stock attributes of the Class A Common Stock (215.1 million shares for
each period presented) and (3) the exercise of Equity Purchase Rights by FT
and DT in connection with the PCS Restructuring (4.9 million shares).
V The weighted average common shares outstanding for the PCS Group reflect
the items in adjustment "U", as well as the shares assumed to be sold in
the Offerings ( million shares) and the related exercise of Equity
Purchase Rights by FT and DT ( million shares) and the Cable Parents
( million shares). The actual number of shares sold in the Offerings
may vary based on market conditions.
76
<PAGE>
SPRINT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 PCS
operations of Sprint's wholly-owned subsidiary, SprintCom. These operations,
which after the PCS Restructuring will be 100% owned by Sprint (subject to a
40.8% minority interest in Cox PCS, the entity holding the PCS license for and
conducting operations in the Los Angeles/San Diego/Las Vegas MTA), will be
referred to as the PCS Group.
The excess of the purchase price to be paid to the Cable Parents in
connection with the PCS Restructuring over the fair value of the PCS assets to
be acquired will be allocated to goodwill and amortized over 40 years. The
portion of the purchase price allocated to the PCS Group's customer base asset
will be amortized over three years. For a preliminary allocation of the
purchase price to the assets acquired and liabilities assumed, see the
unaudited pro forma condensed combined financial statements of Sprint and
notes thereto included elsewhere in this Prospectus. A final allocation is
dependent on a study and analysis of the fair value of such assets and
liabilities, including such items as the PCS licenses and in-process research
and development projects, as well as the size of the customer base at the
Closing Date. To the extent the customer base exceeds the size currently
reflected in the pro forma financial statements, the purchase price allocated
to the customer base will likely increase along with a corresponding increase
in the amortization of the customer base. Sprint is undertaking an analysis to
determine whether in-process research and development projects acquired in the
PCS Restructuring should be capitalized or expensed. This analysis is expected
to be finalized prior to the completion of the final purchase price
allocation. To the extent that it is determined through this analysis that
some of the in-process research and development projects should be expensed, a
portion of the purchase price will be allocated to these in-process research
and development projects and a nonrecurring, noncash charge will be recognized
in the period in which the charge occurs. Sprint is unable to determine the
potential amount of such a charge at this time. However, such a charge could
be material to Sprint's results of operations for the period in which the
charge occurs. At the present time, Sprint anticipates completing its final
purchase price allocation prior to year-end 1998.
The FON Stock, which will be created in the Recapitalization, is intended to
reflect 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.
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.
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 costs and business risks associated with entering new
markets necessary to provide seamless services and to provide new services;
77
<PAGE>
(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; (viii) the impact of the Year 2000 issue
and any related noncompliance; (ix) 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; and (x)
those factors listed herein under "Risk Factors--The PCS Group" and "Risk
Factors--The Tracking Stocks."
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.
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.
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 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 commenced initial operations in the third
quarter of 1998.
REGULATORY DEVELOPMENTS
See "Business of the PCS Group--Regulation" for a complete discussion of the
regulatory developments that could have a future impact on the PCS Group or
Sprint. See Annex II to Sprint's Proxy Statement/Prospectus that forms a part
of Registration Statement No. 333- (which is incorporated herein by
reference) for additional discussion of certain other regulatory developments
that could have a future impact on the FON Group or 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.
78
<PAGE>
CONSOLIDATED
Total net operating revenues for the six months ended June 30, 1998 were
$7.9 billion, a 9% increase from $7.2 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 $430 million ($1.00 per share) for the
first six months of 1998 compared with $546 million ($1.27 per share) for the
first six months 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>
SIX MONTHS
ENDED JUNE YEAR ENDED
30, DECEMBER 31,
-------------- --------------------------
1998 1997 1997 1996 1995
------ ------ -------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FON Group(/1/)...................... $725.6 $685.6 $1,371.6 $1,310.6 $966.0
PCS Group........................... (295.6) (139.7) (419.1) (119.7) (19.9)
------ ------ -------- -------- ------
Income from continuing operations... $430.0 $545.9 $ 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,
during the six months ended June 30, 1997 and the year ended December 31,
1996, litigation charges were recorded 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).
FON GROUP
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net operating revenues..... $7,878.1 $7,246.0 $14,873.9 $13,887.5 $12,735.3
Total operating expenses... 6,494.8 6,042.2 12,404.0 11,619.8 10,901.0
-------- -------- --------- --------- ---------
Operating income........... $1,383.3 $1,203.8 $ 2,469.9 $ 2,267.7 $ 1,834.3
======== ======== ========= ========= =========
Operating margin........... 17.6% 16.6% 16.6% 16.3% 14.4%
======== ======== ========= ========= =========
Capital expenditures....... $1,488.4 $1,236.3 $ 2,708.9 $ 2,433.6 $ 1,857.3
======== ======== ========= ========= =========
</TABLE>
For further detailed discussion regarding results of operations of the FON
Group, refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of the FON Group included in Annex III to Sprint's
Proxy Statement/Prospectus that forms a part of Registration Statement No.
333- (which is incorporated herein by reference).
Six Months Ended June 30, 1998 and 1997
Net Operating Revenues
In the first six months of 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 revenues for the six months ended June 30, 1998
increased 8% from the same period in 1997. This 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.
79
<PAGE>
The local telecommunications division's revenues for the six months ended
June 30, 1998 increased 3% from the same period in 1997, after adjusting for a
transfer pricing change for transactions between affiliates. This growth was
primarily due to an increase in customer access lines. Local service revenue
increased 6% reflecting 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 1% primarily due to larger calling volumes partly
offset by FCC-mandated access rate reductions. Toll service revenues decreased
28% due to extended local area calling plans and increased competition in the
intrastate long distance market. Other revenue increased mainly due to
increased equipment sales of business systems and data networks, growth in
payphone revenues and increased commissions from the sale of Sprint's long
distance services on behalf of the long distance division.
The product distribution and directory publishing division's revenues for
the six months ended June 30, 1998 increased 26% from the same period in 1997,
after adjusting for a transfer pricing change for transactions between
affiliates. This 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
For the six months ended June 30, 1998, operating expenses increased 7% from
the same 1997 period.
The long distance division's operating expenses increased 5% largely due to
higher selling, general and administrative costs as a result of increased
advertising costs to promote products and services. Interconnection costs
decreased 4% reflecting lower unit costs for domestic and international
access. Operations expense increased 11% primarily due to increased data
services growth.
The local telecommunications division's operating expenses increased 2%
caused primarily by an increase in selling, general and administrative
expenses. Costs of services and products increased 1%. This reflects continued
cost control while still supporting customer access line growth and increased
equipment sales. Selling, general and administrative costs were higher by 7%
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 revenues increased 8% in 1997 and 17% in 1996.
This 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 revenues increased 4% in 1997 and 9%
in 1996, after adjusting for a transfer pricing change for transactions
between affiliates. This growth was primarily due to an increase in customer
access lines. Local service revenue increased 10% in 1997 and 11% in 1996
reflecting economic growth in the division's service areas, an increase in
second-line services, an increase due to extended area calling plans,
80
<PAGE>
and increased demand for advanced intelligent network services. Network access
revenues increased 2% in 1997 and 10% in 1996 primarily due to larger calling
volumes partly offset by FCC-mandated access rate reductions effective in July
1997. Toll service revenues decreased 19% in 1997 and 13% in 1996 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 10% in 1997 and 24% in 1996
mainly due to sales of telecommunications equipment.
The product distribution and directory publishing division's revenues
increased 19% in 1997 and 7% in 1996, after adjusting for a transfer pricing
change for transactions between affiliates. This 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 increased 6% in 1997 and 12%
in 1996 primarily due to higher interconnection costs and operations expense.
Interconnection costs increased 6% in 1997 and 20% in 1996 due to strong
growth in calling volumes, partially offset by lower unit costs for domestic
and international access. Operations expense increased 20% in 1997 and 17% in
1996 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 3% in 1997 and 4% in 1996 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.
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>
SIX MONTHS
ENDED JUNE YEAR ENDED
30, DECEMBER 31,
-------------- ----------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Total operating expenses................ $ 39.5 $ 3.6 $ 18.5 $ 0.5 $ --
------ ------ ------ ------ ------
Operating loss.......................... $(39.5) $ (3.6) $(18.5) $ (0.5) $ --
====== ====== ====== ====== ======
Capital expenditures.................... $552.3 $ 31.8 $153.7 $ -- $ --
====== ====== ====== ====== ======
Purchase of PCS Licenses................ $ -- $433.7 $460.1 $ 84.0 $ --
====== ====== ====== ====== ======
Investments in Sprint Spectrum Holdings
and PhillieCo.......................... $ 65.7 $ 86.7 $405.9 $297.5 $910.9
====== ====== ====== ====== ======
</TABLE>
81
<PAGE>
For further detailed discussion regarding the results of operations of the
PCS Group, refer to the "PCS Group Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the "Sprint Spectrum
Holding Company Combined with MinorCo and PhillieCo Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Six Months Ended June 30, 1998 and 1997
Operating Expenses
Operating expenses were $40 million for the six months ended June 30, 1998
and $4 million for the same period in 1997. These consist of selling, general
and administrative expenses related to the network buildout for those PCS
licenses directly owned by Sprint. The increase in these expenses from 1997 to
1998 is a result of significant additional network buildout activities during
the 1998 period.
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. The increase in
these expenses from 1996 to 1997 is a result of the commencement of the
network buildout in the second half of 1997.
NONOPERATING ITEMS
INTEREST EXPENSE
The following table reflects a computation of the effective interest rate on
Sprint's outstanding borrowings and therefore includes only the interest
expense related to such debt. The difference between the interest expense
amounts disclosed in this table and the interest expense amounts disclosed in
the consolidated financial statements relates to interest expense on items
such as deferred compensation, the employee stock purchase plan, and customer
deposits. Sprint has excluded the interest expense associated with these items
so as not to distort the calculation of the effective interest rate on
borrowings. Interest costs on borrowings consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Interest expense on
outstanding debt............ $ 105.0 $ 69.4 $ 159.9 $ 161.2 $ 231.0
Interest expense related to
Cellular (1)................ -- -- -- 21.5 124.0
Capitalized interest costs... 41.3 56.7 93.0 104.0 57.0
-------- -------- -------- -------- --------
Total interest costs on
outstanding debt............ $ 146.3 $ 126.1 $ 252.9 $ 286.7 $ 412.0
======== ======== ======== ======== ========
Average debt outstanding..... $4,103.5 $3,152.5 $3,251.3 $3,604.9 $5,505.2
======== ======== ======== ======== ========
Effective interest rate...... 7.1% 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.
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.
82
<PAGE>
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 six months ended June 30, 1998
decreased to 7.1% 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 June 30, 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 $523 million for the first six
months of 1998 compared with $529 million in the same period a year ago.
Sprint's share of operating losses from Global One totaled $87 million for the
first six months of 1998 compared with $47 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 is in the process of
implementing various components of a plan addressing these items. It is
expected that Global One will incur nonrecurring charges 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 $468 million for the first six months of 1998 versus $35 million a
year ago. Sprint's share of the combined operating losses from Sprint Spectrum
Holdings and PhillieCo was $436 million for the first six months of 1998
compared with $222 million a year ago. The increase in 1998 losses reflects
marketing and promotional costs to support a growing customer base. At June
30, 1998, the customer base of Sprint Spectrum Holdings and PhillieCo exceeded
1.3 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 for the six months ended June 30, 1998
was $60. 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. Sprint Spectrum Holdings and
PhillieCo have adopted marketing plans that both target and encourage higher
usage and higher average monthly revenue per subscriber. Customer churn rates
and customer marketing costs have been as management expected at this stage of
development and continue to be within the range of results reported by other
PCS providers. As the PCS markets mature and the PCS Group gains additional
scale, management expects both of these measures to trend downward toward
cellular industry levels.
83
<PAGE>
OTHER INCOME (EXPENSE), NET
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED
30, DECEMBER 31,
------------ ----------------------
1998 1997 1997 1996 1995
----- ----- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Dividend and interest income............... $39.7 $42.8 $ 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................................. (1.2) 11.9 (6.4) 3.9 (12.9)
----- ----- ------ ------ ------
Total other income (expense), net.......... $38.5 $54.7 $140.5 $115.3 $(38.9)
===== ===== ====== ====== ======
</TABLE>
Dividend and interest income for the six months ended June 30, 1998 reflects
interest earned on loans to affiliates. Dividend and interest income for the
first six months of 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 six months ended June 30 were 41.2% in
1998 and 39.4% 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 March 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 $19.8 billion at June 30, 1998, $18.2
billion at year-end 1997 and $16.8 billion at year-end 1996. Net property,
plant and equipment increased $1.4 billion 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
84
<PAGE>
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 35.1% at
June 30, 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.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash flows from operating activities, which are Sprint's main source of
liquidity, were $1.9 billion for the first six months of 1998 versus $1.5
billion for the first six months of 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 $2.5
billion for the first six months of 1998 and $1.8 billion for the first six
months of 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 $2.0 billion for the first six months of 1998 and
$1.3 billion for the first six months of 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 $179
million in the first six months of 1998 versus $88 million in the first six
months of 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 six months 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 loans 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 $567 million for the first
six months of 1998, while financing activities for the same period in 1997
used cash of $475 million. Financing activities during the first six months of
1998 reflect long-term borrowings and an increase in construction obligations
of $495 million and $475 million, respectively, partly offset by payments on
long-term debt of $165 million. Financing activities in the first six months
of 1997 reflect payments of $200 million on short-term borrowings and $70
million on long-term debt.
85
<PAGE>
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.
Sprint paid common and preferred dividends totaling $205 million in the
first six months of 1998, $189 million in the first six months 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 continues to repurchase common shares on the open market
in 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 million 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 $6.8 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 Restructuring Agreement,
May 26, 1998, through the closing date of the PCS Restructuring. As of June
30, 1998, $80.6 million had been loaned by Sprint and the Cable Parents under
this agreement and the remaining amount was funded during the third quarter of
1998. The PhillieCo Partners agreed to lend up to $50 million, and have fully
funded this commitment as of June 30, 1998, to PhillieCo to fund operating and
working capital requirements and capital expenditures prior to closing. Sprint
also agreed to loan up to $110.6 million to fund SprintCom's capital
requirements during the same period and has funded substantially all of this
commitment as of June 30, 1998. 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 the PCS Restructuring. The above
mentioned loans, totaling $510.6 million excluding loans to PhillieCo, may be
repaid from the proceeds of the Offerings, but only to the extent the net
proceeds of the Offerings exceed $500 million. In the event the loans remain
outstanding after the Offerings, the remaining balance will be converted into
PCS Preferred Stock. See "The Related Transactions--Funding of the PCS Group
Prior to Closing; The PCS Preferred Stock."
Liquidity
At June 30, 1998, Sprint could borrow $538 million under its existing
revolving credit agreement with a syndicate of domestic and international
banks. Sprint has negotiated a new credit facility as further discussed
86
<PAGE>
below. In addition, in 1997, Sprint negotiated a separate five-year revolving
credit facility with a bank. At June 30, 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 (the "SEC"). Any borrowings Sprint may incur are ultimately limited
by certain debt covenants. At June 30, 1998 and year-end 1997, Sprint could
borrow up to $13.3 billion and $13.5 billion, respectively, 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, $2.9 billion of Sprint's $3.9 billion
of retained earnings at June 30, 1998 and $2.7 billion of Sprint's $3.7
billion of 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 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.
For information concerning the use of proceeds from the Offerings, see "Use
of Proceeds."
Sprint intends to file a shelf registration statement for $8.0 billion of
debt securities which would replace existing shelf registration statements
having an aggregate available remaining amount of $1.0 billion. Proceeds from
the sale of securities under the new shelf registration statement would 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 currently
anticipates issuing, at approximately the same time as the Offerings, up to
$3.0 billion aggregate principal amount of debt securities through the Notes
Offering under the new shelf registration statement, subject to market
conditions. There can be no assurance that the Notes Offering will occur.
In early August 1998, Sprint closed new revolving credit facilities for
approximately $5.0 billion which will be used to support commercial paper
operations and replace its existing credit facilities. The agreements have
been negotiated with market terms, conditions and covenants.
In connection with the PCS Restructuring and the Offerings, 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 approximately $ million (assuming an
initial public offering price for the Series 1 PCS Stock offered hereby of
$ , the midpoint of the price range indicated on the cover of this
Prospectus). See "Use of Proceeds."
87
<PAGE>
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.
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 has completed an inventory and Year 2000 assessment of its
principal computer systems, network elements, software applications and other
business systems. The FON Group expects to complete the renovation of these
computer systems, software applications and the majority of the network
elements and other business systems by year-end 1998. Year 2000 testing
commenced in the third quarter of 1998 and will be completed during 1999. 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 it conducts 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 inventory of its computer systems, network
elements, software applications, products and other business systems. Once an
item is identified through the inventory process, its Year 2000 impact is
assessed and a plan is developed to address any required renovation. The PCS
Group is
88
<PAGE>
using both internal and external resources to identify, correct or reprogram,
and test its systems for Year 2000 compliance. It is planning that Year 2000
compliance for these critical systems will be achieved in 1999. The PCS 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 PCS Group relies on third-party vendors for a
significant number of its important operating and computer system functions,
and therefore is highly dependent on such third-party vendors for the
remediation of network elements, computer systems, software applications and
other business systems. 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.
Sprint expects to incur approximately $200 million in expense in 1998 and
1999 to complete its Year 2000 compliance program. If compliance is not
achieved in a timely manner by Sprint or any significant related third party,
the Year 2000 issue could have a material adverse effect on Sprint's
operations. 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. Sprint intends to develop and implement,
if necessary, appropriate contingency plans to mitigate to the extent possible
the effects of any Year 2000 noncompliance.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 18 of Notes to Consolidated Financial Statements for a discussion
of recently issued accounting pronouncements.
89
<PAGE>
BUSINESS OF THE PCS GROUP
GENERAL OVERVIEW OF THE PCS GROUP
The PCS Group, which markets its wireless telephony products and services
under the Sprint and Sprint PCS brand names, operates the only 100% digital
PCS wireless network in the United States with licenses to provide service
nationwide utilizing a single frequency band 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 161 metropolitan markets within the United States,
including 38 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 in the
United States. The PCS Group currently provides nationwide service through a
combination of (i) operating its own digital network in major metropolitan
areas, (ii) affiliating with other companies, primarily in and around smaller
metropolitan areas, (iii) roaming on analog cellular networks of other
providers using Dual-Band/Dual-Mode Handsets and (iv) roaming on digital PCS
networks of other CDMA-based providers. 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 more than 1.3 million
customers as of June 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 other information concerning the PCS Group (after giving effect to
the Related Transactions), including the number of Pops covered by licenses
held by the PCS Group, is set forth in the chart below:
<TABLE>
<CAPTION>
SPRINT
ENTITY POPS(/1/) OWNERSHIP(/2/) LICENSES
------ ------------- -------------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Sprint Spectrum Holdings
Sprint Spectrum....... 155.9 100.0% 30 MTAs
Cox PCS(3)............ 21.0 59.2 Los Angeles-San Diego-Las Vegas MTA
APC................... 8.3 100.0 Washington D.C.-Baltimore MTA
PhillieCo............... 9.2 100.0 Philadelphia MTA
SprintCom............... 74.9 100.0 139 BTAs
-----
Total............... 269.3
=====
</TABLE>
- --------
(1) Based upon 1997 population data supplied by Equifax Inc.
(2) Assumes that the Related Transactions are completed. See "The Related
Transactions."
(3) Pops data for Cox PCS includes 100% of its Pops, not the PCS Group's
proportional interest. Sprint Spectrum Holdings' current 59.2% ownership
interest in Cox PCS will not be affected by the Related Transactions.
Sprint Spectrum Holdings and Cox, the holder of the remaining 40.8%
partnership interest in Cox PCS, have entered into an arrangement whereby
Cox may require Sprint Spectrum Holdings to purchase Cox's partnership
interests in Cox PCS. Commencing in 2001, Sprint Spectrum Holdings will
have the right to require that Cox sell all of its remaining partnership
interests in Cox PCS to Sprint Spectrum Holdings. See "The Related
Transactions--Amendments to the Cox PCS Agreements."
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.
Sprint Spectrum Holding Company, L.P. and MinorCo, L.P. are the general
partner and limited partner, respectively, of Sprint Spectrum.
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
90
<PAGE>
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 59.2% of Cox PCS. Sprint Spectrum
Holdings and Cox 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 Related
Transactions--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. Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P. are the general partner and limited partner, respectively, of
APC.
PhillieCo. Sprint, TCI and Cox formed PhillieCo to acquire a PCS license for
the Philadelphia MTA. FCC spectrum limitations placed on wireless providers
prevented Comcast, a partner in Sprint Spectrum Holdings that already owned a
cellular license for the Philadelphia metropolitan area, from owning an
interest in a PCS license for the Philadelphia MTA indirectly through Sprint
Spectrum Holdings. The PCS license for the Philadelphia MTA was acquired in
the FCC's A and 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.
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
launched service in certain of the SprintCom markets in August 1998 and
intends to reach approximately 38.6 million additional Pops during the first
half of 1999 (or approximately 50% coverage of SprintCom's 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.
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
91
<PAGE>
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
20.6% and a subscriber 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 $ 19.1 $ 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.................. 20.6% 16.5% 12.8% 9.2% 6.2%
</TABLE>
Paul Kagan Associates estimates that the number of cellular and PCS wireless
service subscribers will reach 89.2 million by the year 2000. The PCS Group
believes that a significant portion of the 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 growing 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 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.
92
<PAGE>
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 multiple access
systems but are incompatible with each other and with CDMA, which is a code
division multiple access system and is incompatible with both GSM and TDMA.
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 customer carries a Dual Band/Dual-Mode Handset that
permits the customer to use the analog cellular system in that area. The same
issue would apply to users of TDMA or GSM systems. This is also true for PCS
customers seeking to roam in a PCS service area served by other operators that
do not use CDMA as their air interface protocol.
STRATEGY
The business objective of the PCS Group is to expand network coverage and
increase market penetration by aggressively marketing competitively priced PCS
products and services under the Sprint and Sprint PCS brand names, offering
enhanced services and seeking to provide superior customer service. The
principal elements of the PCS Group's strategy for achieving these goals are:
Operate a Nationwide Digital Wireless Network. The PCS Group is the only PCS
provider in the United States with a 100% digital PCS wireless network with
licenses to provide services nationwide utilizing a single frequency band and
a single technology. Management believes that the PCS Group's all-digital
network provides its customers with consistency of service and features in all
of its markets. The 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 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. Management believes that using the
established Sprint brand contributes significantly to consumer confidence in,
and acceptance of, the PCS Group's products and services. As competition in
the wireless industry intensifies, management 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. Management believes, based on studies by CDMA
manufacturers, 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 approximately 3 times greater than that of
TDMA and GSM systems, resulting in significant operating and cost efficiencies
which can be passed on to customers. Additionally, management believes that
CDMA technology provides call quality that is superior to that of other
wireless technologies.
Deliver Superior Value to its Customers. In marketing its services, the PCS
Group emphasizes the superior voice quality and functional capabilities of its
wireless service compared 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, none of which requires customers
to sign a long-term service contract. Management believes that its ability to
provide wireless service at competitive prices without 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. As of August 31, 1998, the PCS Group had its
93
<PAGE>
products for sale in over 5,000 third-party retail locations nationwide,
including retailers such as RadioShack, Circuit City and Best Buy. Management
expects to have approximately 8,000 third-party retail locations by the end of
the first half of 1999. The PCS Group also seeks innovative distribution
channels through which to market its products, such as the Sprint Store-
Within-A-Store at RadioShack, which includes an exclusive arrangement pursuant
to which the only PCS products offered by RadioShack-owned stores in the
markets in which the PCS Group has launched operations are the PCS Group's
products. In addition, as of August 31, 1998, the PCS Group had opened 125
Sprint PCS retail locations. Management plans to operate approximately 200
Sprint PCS retail locations by the end of the first half of 1999. The PCS
Group also uses telemarketing, direct sales and cross-marketing and
continually evaluates other alternative distribution channels, including sales
agency, resale, and other arrangements.
Continue Network Expansion. The PCS Group plans to continue the expansion of
its existing network. In addition, the PCS Group is expanding its wireless
coverage, primarily in and around smaller metropolitan areas where it does not
intend to serve customers with its own network, by pursuing affiliation
arrangements with other companies to build networks in portions of the PCS
Group's licensed coverage area at such companies' own expense. Such networks
are expected to be built using the same technological standards as those of
the PCS Group network. These companies will sell PCS Group services under the
Sprint PCS brand name in exchange for a fee and will be required to maintain
certain quality standards to be established by the PCS Group. As of August 31,
1998, the PCS Group had entered into agreements with 10 companies covering an
aggregate of approximately 24 million Pops in 16 states.
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 Care. The PCS Group considers quality customer care 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 in Lenexa, Kansas continually monitors the performance of its
PCS network and provides rapid response for system maintenance needs. A total
of approximately 1,450 customer care representatives in Fort Worth, Texas and
in other customer care centers located in Irvine, California and Herndon,
Virginia are available to address customers' questions about PCS service,
activation, changing personal options and other service options on a 24 hour/7
day a week basis. The PCS Group also uses a vendor to provide additional
customer care support. 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 by calling a toll-free number. All customer
care service representatives undergo a required initial training regimen and
participate in ongoing training programs designed to meet customer needs. In
order to meet the demand for customer care, the PCS Group intends to launch a
fourth customer care center in Rio Rancho, New Mexico by the end of 1998. This
customer care center is expected to have 700 customer care representatives by
the end of 1998 of which 450 are currently in training.
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 in part
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
94
<PAGE>
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 creative
pricing. Home Rate USA allows customers traveling 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 the FON Group by bundling its PCS service with other FON Group
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. The FON Group and
the PCS Group expect to consider cross-marketing opportunities, which may
include sales agency, resale or other arrangements that would be implemented
in accordance with 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 cross-marketing. 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 August 31, 1998, the PCS Group had opened
125 Sprint PCS retail locations. At a Sprint PCS retail store, trained sales
representatives assist customers in acquiring their PCS handsets and choosing
their rate plan and also offer after-sales support. Management plans to
operate approximately 200 Sprint PCS retail locations in operation by the end
of the first half of 1999.
Third Party Retail Stores. As of August 31, 1998, the PCS Group sold its
products and services in over 5,000 third party retail locations. The PCS
Group expects to increase the number of third-party retail stores 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 as of August 31, 1998, sold Sprint PCS products in
approximately 2,750 locations and had approximately 25,500 of its employees
trained in PCS sales. Many RadioShack stores contain a Sprint Store-Within-A-
Store which sells PCS Group and FON Group products and services. 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.
95
<PAGE>
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.
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 permit
users to make private business and personal calls with significantly lower
risk of cloning and eavesdropping than on analog-based systems. PCS Group
customers using Dual-Band/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 by the
end of 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 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. Generally, Dual-
Band/Dual-Mode Handsets are more costly than single-band/single-mode handsets
because of the need for two radios rather than one radio, and currently, the
smallest Dual-Band/Dual-Mode Handset is larger and heavier than the smallest
single-band/single-mode handset. See "--Network--Roaming Agreements."
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-
Band/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
96
<PAGE>
other communications providers, microwave relocation and implementation of
advanced management and information systems. As of July 31, 1998, the PCS
Group's network was able to provide service in areas covering 108 million Pops
or 40% of total 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 in the United States
(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 have network coverage of 40.7
million Pops in addition to the 108 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 3,026 sites are
leased and construction has commenced on approximately 2,693 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 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. The PCS Group 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.
Affiliation Agreements. 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. See "--Strategy--
Continue Network Expansion."
Roaming Agreements. The PCS Group has entered into roaming agreements with
various analog cellular carriers encompassing 90% of the geographic area
covered by cellular service in the United States (85% when counting agreements
that have been implemented). 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.
The PCS Group's network does not allow for call hand-off between the PCS
Group's network and another wireless network, thus requiring a customer to end
a call in progress and initiate a new call when leaving the PCS Group's
network and entering another wireless network. In geographic areas not covered
by an automatic roaming agreement in which there is an analog cellular
provider, 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. The quality of the service provided by a network provider
during a roaming call may not approximate the quality of the service provided
by the PCS Group, the price of a roaming call may not be competitive with the
prices of other wireless companies for such a call and the customer may not be
able to use any of the advanced features (e.g. voice mail notification) the
customer enjoys when making calls from within the PCS Group network.
Vendors. The PCS Group selected Lucent Technologies, Inc., Northern Telecom,
Inc. 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
97
<PAGE>
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 most major
manufacturers of CDMA handsets, of which two also currently provide the PCS
Group with Dual-Band/Dual-Mode 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 Sprint at wholesale
rates which the PCS Group uses in providing long distance services to its
customers, and intends to continue to purchase such services from the FON
Group. The PCS Group intends to purchase long distance services only from the
FON Group. Subsequent to the PCS Restructuring, such purchases will be
effected in accordance with the Tracking Stock Policies. See "Tracking Stock
Policies."
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 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 and offer attractive
pricing options for service and a wider variety of handset options. A major
competitor recently introduced a nationwide flat-rate plan that may be viewed
by customers as more attractive than PCS Group plans. In addition, certain
competitors may be able to offer coverage in areas not served by the PCS
Group's network or, because of their calling volumes or their affiliations
with, or ownership of, wireless providers, may be able to offer roaming rates
that are lower than those offered by the PCS Group. Also, the significant
competition among wireless providers, including new entrants, is expected to
cause a downward pressure on prices for service and equipment. The PCS Group
believes, however, that its service and product offerings are superior to its
competitors' service and product offerings because (i) its CDMA technology
offers better call quality and clarity compared to analog and digital cellular
systems, (ii) it offers competitive pricing through a variety of options to
suit individual customers' calling needs and (iii) it is expanding and
improving its nationwide network, customer care system and handset options.
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.
98
<PAGE>
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, network coverage and reliability, customer care 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 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 laws 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.
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.
99
<PAGE>
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 on November 24, 2002.
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 recently stayed for nine months the
following number portability requirements: (i) CMRS providers must be able to
offer their own customers number portability in their switches in the 100
largest metropolitan areas including the ability to support nationwide roaming
by March 31, 2000, instead of June 30, 1999 and (ii) carriers must request
number portability capability in the 100 largest metropolitan areas by June
30, 1999, instead of September 30, 1998. Capital expenditures required for the
PCS Group to comply with number portability rules are currently estimated to
range from $100 million to $300 million. 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 (from the date of the applicable license) 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 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 "assistance capability
requirements" by October 25, 1998. However, the FCC recently granted a blanket
extension of that deadline until June 30, 2000, because CALEA compliant
equipment is not yet available. CALEA provides that a telecommunications
carrier meeting industry CALEA standards shall have safe harbor for purposes
of compliance with CALEA. 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. 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, could not meet the
requirements of J-STD-025 by October 25, 1998, given hardware changes that are
yet to be developed and implemented by switch manufacturers.
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
100
<PAGE>
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 tele-
communications revenues." Although many states are likely to adopt a similar
assessment methodology, the states are free to calculate telecommunications
service provider contributions in any manner they choose as long as the proc-
ess 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 uni-
versal 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 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 August 31, 1998, the PCS Group employed approximately 8,900 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 June 30, 1998, the PCS Group had under lease
approximately 70 switch sites and had entered into leases (or options to
lease) for approximately 9,600 cell sites. In addition, the PCS Group leases
approximately 160 other facilities including the PCS Group headquarters in
Kansas City, Missouri, customer care facilities in Herndon, Virginia, Ft.
Worth, Texas, Rio Rancho, New Mexico (scheduled to open by the end of 1998)
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 a registered 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.
101
<PAGE>
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 and
operations. 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, and similar
actions taken by others seeking to block the construction of individual cell
sites of the PCS Group's network will not, in the aggregate, have a material
adverse effect on the PCS Group. In addition, the PCS Group is involved in 11
purported class actions of which six involve claims arising from network
quality issues, three involve claims concerning billing practices and two
involve claims arising from the CDMA network overlay of the GSM network in the
Washington, D.C./Baltimore MTA. The only case that has been certified as a
class action is one of the claims involving the CDMA network overlay of the
GSM network, and the PCS Group is vigorously opposing such certification and
the certification of any of the other cases. While it is not possible to
determine the ultimate disposition of each of these proceedings, the PCS Group
believes, after consultation with legal counsel, 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.
102
<PAGE>
MANAGEMENT OF THE PCS GROUP
The following table sets forth the members of the senior management of
Sprint Spectrum Holdings who are expected to have similar functions in the PCS
Group. The ages set forth below are as of June 30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ----------------------------------
<S> <C> <C>
Ronald T. LeMay..................... 52 Chairman
Andrew Sukawaty..................... 43 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.................... 45 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 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
103
<PAGE>
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. Mr.
Bianchino is a director of Geoworks Corporation.
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. Mr. Levine is a director of
Viisage Technologies.
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.
104
<PAGE>
THE RELATED TRANSACTIONS
GENERAL
Sprint's stockholders, at a special meeting to be held November , 1998, are
being asked to approve the following in connection with the PCS Restructuring:
A. The PCS Stock Amendment to the Existing Articles, which would, among other
things:
. define the "PCS Group," which is intended to consist of all business
conducted by Sprint for offering or providing Domestic Wireless Mobile
Telephony Services and any other Domestic PCS Services (other than any
activities of the FON Group pursuant to sales agency, resale or other
arrangements with the PCS Group, which would be implemented pursuant to
the Tracking Stock Policies), 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 is intended to 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 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 of Common
Stock--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 300,000
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;"
. 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; and
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 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 outstanding 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 an equity interest in the FON Group and an
equity interest in the PCS Group, together with a right to cause Sprint
to issue, to each
105
<PAGE>
holder thereof, a number of shares of Series 3 FON Stock or Series 3 PCS
Stock (or with respect to certain designated transferees of such holder,
Series 1 FON Stock or Series 1 PCS Stock, respectively), 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 of Class A Common Stock will entitle
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); and
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; and
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;
. the issuance of the shares of Series 1 PCS Stock being offered in the
Offerings;
. 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 to 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 upon the
exercise of their respective Equity Purchase Rights in connection with
the Offerings 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.
The following table sets forth certain information concerning the
outstanding shares of Sprint's common stock upon completion of the PCS
Restructuring, the Recapitalization and the Offerings (after giving effect to
the exercise of Equity Purchase Rights by FT and DT but without giving effect
to the exercise of Equity Purchase Rights by the Cable Parents in connection
with the Offerings).
106
<PAGE>
OUTSTANDING COMMON STOCK AND INTER-GROUP INTEREST--ASSUMING COMPLETION OF
PCS RESTRUCTURING, RECAPITALIZATION AND OFFERINGS(/1/)
<TABLE>
<CAPTION>
PERCENTAGE
OF SPRINT
NUMBER OF VOTING
SERIES OF SHARES GROUP PERCENTAGE POWER
STOCKHOLDER(S) COMMON STOCK OWNED INTEREST (2)(3)
------------------------ ------------ ----------- ---------------- ----------
<S> <C> <C> <C> <C>
FON GROUP
Existing Sprint
Stockholders(4)....... Series 1 FON 343,840,537 80.0% %
FT(5).................. Series 3 FON 43,118,018 10.0% %
DT(5).................. Series 3 FON 43,118,018 10.0% %
----------- ----- ---
Total-FON Group........ 430,076,573 100.0% %
=========== ===== ===
PCS GROUP
TCI.................... Series 2 PCS 98,563,924(6)(7) % %
Cox.................... Series 2 PCS 49,281,981(6)(7)(8) % %
Comcast................ Series 2 PCS 47,248,435(6)(7) % %
----------- ----- ---
Cable Parents Totals... 195,094,340 % %
Existing Sprint
Stockholders(4)....... Series 1 PCS 171,920,269 % %
Inter-Group Interest... N/A 4,961,714(6)(9) % 0%
FT(5).................. Series 3 PCS (7)(10)(11) % %
DT(5).................. Series 3 PCS (7)(10)(11) % %
New Public
Stockholders.......... Series 1 PCS % %
----------- ----- ---
Total-PCS Group........ (12) 100.0% %
=========== ===== ===
</TABLE>
- --------
(1) Assumes the number of shares of Existing Common Stock and Class A Common
Stock is equal to the number outstanding on June 30, 1998. Percentages
may not total due to rounding.
(2) Each outstanding share of Series 1 FON Stock and Series 3 FON Stock is
entitled to one vote per share. For a description of the PCS Per Share
Vote, see "Prospectus Summary--Selected Rights and Terms of PCS Stock--
Voting Rights." The PCS Per Share Vote may fluctuate substantially. The
tables assume, solely for purposes of illustration, that each share of
Series 1 PCS Stock and Series 3 PCS Stock will have votes per share,
and each share of Series 2 PCS Stock will have votes per share (using
an assumed price for the Series 1 PCS Stock of $ per share (the
midpoint of the price range set forth on the cover page of this
Prospectus) and an assumed price for the FON Stock of $ per share).
The assumed price for the FON Stock is based on the closing price for the
Existing Common Stock on , 1998 ($ per share) and on the assumed
price for the Series 1 PCS Stock, giving effect to the Recapitalization.
There can be no assurance that actual voting power will approximate that
utilized in this illustration.
(3) Does not include shares of Preferred Stock, of which, as of June 30,
1998, there were outstanding: (i) 40,576 shares of Preferred Stock--First
Series, Convertible; (ii) 252,110 shares of Preferred Stock Second
Series, Convertible; and (iii) 95 shares of Preferred Stock-- Fifth
Series. In addition, the table does not include the PCS Preferred Stock
or any shares of PCS Stock that may be issued to the Cable Parents upon
conversion of PCS Preferred Stock or any Inter-Group Interest that may be
held by the FON Group upon conversion of the Preferred Inter-Group
Interest. See "--Funding of the PCS Group Prior to Closing; The PCS
Preferred Stock."
(4) Excludes FT and DT.
(5) Reflects 43,118,018 shares of Series 3 FON Stock or 21,559,009 shares of
Series 3 PCS Stock, as the case may be, that each of FT and DT have a
right to cause Sprint to issue to them (which, with respect to certain
transferees of such holders, would be reflected as Series 1 FON Stock or
Series 1 PCS Stock, respectively). Such shares are represented by
43,118,018 shares of Existing Class A Common Stock and DT Class A Stock
held by FT and DT, respectively.
(6) Does not reflect Warrants to purchase 6,291,315, 3,015,856, and 3,145,658
shares of PCS Stock held by TCI, Comcast and Cox, respectively, or the
FON Group's Warrant Inter-Group Interest to acquire an Inter-Group
Interest equivalent to 12,452,829 shares of PCS Stock, or shares issuable
upon exercise of FT and DT's Equity Purchase Rights in connection with
the exercise thereof.
(7) Reflects shares of Series 2 PCS Stock to be purchased by TCI, Cox
and Comcast in connection with the exercise of their Equity Purchase
Rights in connection with the Offerings and shares of Series 3 PCS
Stock to be purchased by FT and DT in connection therewith. See "--Equity
Purchase Rights."
(8) Does not include shares of Series 2 PCS Stock that may be issued in
connection with the exercise of the call and put rights relating to Cox
PCS. The number of shares so issuable will depend on when the call or put
is exercised, the value of Cox PCS at that time, and the market price of
Series 1 PCS Stock at that time.
107
<PAGE>
(9) Sprint expects that any Inter-Group Interest remaining after the
Recapitalization will be eliminated over time as currently outstanding
employee stock options that are converted in part into options to
purchase PCS Stock are exercised and as shares of PCS Stock are issued
upon conversion by holders of Sprint's existing convertible preferred
stock.
(10) Does not include Series 3 PCS Stock that FT and DT are obligated to
purchase in connection with the issuance of the PCS Preferred Stock.
(11) Includes 2,438,679 shares of Series 3 PCS Stock to be acquired by each of
FT and DT in connection with the PCS Restructuring.
(12) Does not include up to 10 million shares of Series 1 PCS Stock that will
be used to replace the Sprint Spectrum Long-Term Incentive Compensation
Plan. It is anticipated that options will be issued for many of these
shares and therefore the shares would not be outstanding until the
options are exercised.
As the Cable Parents sell their low voting Series 2 PCS Stock and the shares
convert into Series 1 PCS Stock with regular voting power, FT and DT will have
to purchase additional shares if they desire to maintain 20% of the voting
power represented by Sprint's outstanding voting stock. Sprint has agreed that
FT and DT can purchase these shares from Sprint. If FT and DT choose to
purchase these shares from Sprint rather than on the open market or from the
Cable Parents, they could eventually purchase as many as 48.75 million shares,
or 25% of the 195 million shares initially issued to the Cable Parents in the
PCS Restructuring, plus an additional shares with respect to the shares
purchased by the Cable Parents concurrently with the Offerings pursuant to
their Equity Purchase Rights. Similarly, if the Warrants are exercised for PCS
Stock or the PCS Preferred Stock is sold by the Cable Parents, FT and DT would
need to purchase additional shares of PCS Stock to maintain their voting
interest at 20%.
STRATEGIC OBJECTIVES OF THE RELATED TRANSACTIONS
The Related Transactions are intended to allow Sprint to achieve certain
strategic objectives, including the following:
Management Control of the PCS Group. Upon consummation of the PCS
Restructuring, Sprint will obtain 100% ownership and control of the operations
comprising the PCS Group (subject to the 40.8% equity interest of Cox in Cox
PCS).
Greater Market Recognition of the Value of Sprint. The Tracking Stocks will
be listed securities that are intended to track the performance of the PCS
Group and FON Group separately and are intended to 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.
Financial Flexibility. The creation of the Tracking Stocks 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 and can be
issued in connection with acquisitions and investments; however, the use of a
tracking stock in connection with a future acquisition could have adverse
effects, such as the possible inability or increased difficulty of receiving a
ruling from the IRS in connection with the acquisition.
Synergies. The creation of the Tracking Stocks will retain for Sprint the
advantages of doing business under common ownership. Each Group will 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 the PCS Group were not under common ownership. In addition,
operating under a single consolidated structure will provide certain
advantages of tax consolidation.
CREATION OF THE TRACKING STOCKS
Sprint intends to create two new classes of common stock, the PCS Stock and
the FON Stock. The PCS Stock, the PCS Group and the FON Group will be created
in connection with the Offerings and the PCS Restructuring by the filing of
the PCS Stock Amendment.
The PCS Stock is intended to reflect separately the performance of the PCS
Group. The FON Stock is intended to reflect the performance of the FON Group.
The FON Stock will be created as part of the Recapitalization. See "--The
Recapitalization." Both the PCS Stock and the FON Stock are classes of common
108
<PAGE>
stock of Sprint and are subject to all of the risks of an equity investment in
Sprint and all of Sprint's businesses, assets and liabilities. See "Risk
Factors--The Tracking Stocks."
In addition to the Series 1 PCS Stock offered in the Offerings, Sprint also
intends to create and issue two other series of PCS Stock: Series 2 PCS Stock,
to be issued to the Cable Parents, and Series 3 PCS Stock, to be issued to FT
and DT. In addition, Sprint intends to create three series of FON Stock:
Series 1 FON Stock, to be issued to holders of Existing Common Stock in the
Recapitalization; Series 2 FON Stock, to be issued only if Sprint converts the
outstanding shares of PCS Stock into shares of FON Stock at a time when shares
of Series 2 PCS Stock remain outstanding; and Series 3 FON Stock, to be issued
to FT and DT upon exercise of their Equity Purchase Rights following the
Recapitalization. See "--Equity Purchase Rights;" "--The PCS Restructuring,"
"--The Recapitalization" and "Description of Capital Stock."
THE PCS RESTRUCTURING
Sprint currently conducts a substantial portion of its PCS operations
through its 40% interest in Sprint Spectrum Holdings and its approximately 47%
interest in PhillieCo. On May 26, 1998, Sprint entered into the Restructuring
Agreement with TCI, Comcast, Cox and various of their subsidiaries, pursuant
to which Sprint agreed to purchase from the Cable Parents all their respective
interests in Sprint Spectrum Holdings and all the respective interests of TCI
and Cox in PhillieCo in exchange for (i) shares of Series 2 PCS Stock
representing an aggregate initial PCS Group Percentage Interest of
approximately 47% (before issuances in the Offerings and upon exercise of
Equity Purchase Rights in connection with the PCS Restructuring and the
Offerings), (ii) Warrants representing an aggregate initial PCS Group
Percentage Interest of approximately 2.9% and (iii) under certain
circumstances described below, shares of PCS Preferred Stock. Sprint will
acquire such interests in Sprint Spectrum Holdings and PhillieCo by means of
tax-free mergers (the "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 these entities.
Subject to adjustment as described under "Description of Capital Stock--
Description of Warrants; Warrant Inter-Group Interest," each Warrant will be
exercisable for a share of PCS Stock at any time before the fifth anniversary
of the PCS Restructuring at an exercise price equal to the per-share sale
price in the Offerings. At the Closing, the FON Group will receive the Warrant
Inter-Group Interest, with an exercise price and other terms equivalent to the
Warrants, to acquire an additional Inter-Group Interest aggregating an
approximately 2.9% PCS Group Percentage Interest.
Pursuant to the Restructuring Agreement, Sprint and the Cable Parents may
make loans between the date of the Restructuring Agreement and the Closing
Date to finance the operations of Sprint Spectrum Holdings. To the extent that
a Cable Parent elects to contribute its portion of such loans to its
subsidiary holding an interest in Sprint Spectrum Holdings prior to the PCS
Restructuring, it will receive shares of PCS Preferred Stock as consideration
for its corresponding interest in Sprint Spectrum Holdings at the Closing. If
its portion of such loans remains outstanding, then at the Closing, such Cable
Parent may elect to receive either cash from the proceeds of the Offerings
(but only to the extent that net proceeds from the Offerings exceed $500
million) or shares of PCS Preferred Stock in repayment of such loans made by
such Cable Parent. The FON Group may also, depending upon an election to be
made by Sprint, receive a Preferred Inter-Group Interest in repayment of
similar loans made by Sprint. Sprint intends to complete the PCS Restructuring
concurrently with the closings of the Offerings.
INTER-GROUP INTEREST
Sprint has determined the total number of shares of PCS Stock intended to
track the performance of the PCS Group (excluding the shares to be issued in
the Offerings and upon the exercise of Equity Purchase Rights in connection
with the Offerings). At the Closing, Sprint will issue 46.5% of those shares
to the Cable Parents and 1.2% of those shares to FT and DT. In exchange for
the shares issued to the Cable Parents, Sprint will become the sole owner of
each entity in the PCS Group (subject to Cox's minority ownership interest in
Cox PCS). The remaining unissued 52.3% will be represented on the FON Group
financial statements as an ownership interest of the FON Group in the PCS
Group. This interest will be similar to the FON Group holding Tracking Stock
of the PCS Group. Because Sprint cannot own stock in itself, Sprint will
account for this remaining interest in the PCS Group as an "Inter-Group
Interest." Until the Recapitalization occurs, the value of this Inter-Group
109
<PAGE>
Interest should be reflected in Sprint's Existing Common Stock and in the
Class A Common Stock held by FT and DT. The shares of PCS Stock that are
issued to holders of Sprint's Existing Common Stock and Class A Common Stock
in the Recapitalization or issuable in respect of the Class A Common Stock
held by FT and DT will represent substantially all of this Inter-Group
Interest. The FON Group will continue to hold the Warrant Inter-Group Interest
and the Preferred Inter-Group Interest immediately after the Recapitalization.
THE RECAPITALIZATION
Within 90 to 120 days after the consummation of the Offerings and the PCS
Restructuring, Sprint will file the Recapitalization Amendment, which will
result in the tax-free recapitalization of its Existing Common Stock and
Class A Common Stock. In the Recapitalization, Sprint will, among other
things: (i) reclassify each outstanding share of its Existing Common Stock to
represent one share of Series 1 FON Stock and 1/2 share of Series 1 PCS Stock
and (ii) reclassify each share of its Existing Class A Common Stock held by FT
and each share of DT Class A Stock held by DT as described below under "--
Arrangements with Holders of Existing Class A Common Stock."
Before the Recapitalization, the Existing Common Stock and Class A Common
Stock is intended to reflect the performance of the FON Group, as well as the
FON Group's Inter-Group Interest in the PCS Group. After the Recapitalization,
it is intended that the FON Stock will reflect the performance of the FON
Group, and the FON Group's Inter-Group Interest will be substantially
eliminated. The FON Group will continue to hold the Warrant Inter-Group
Interest and the Preferred Inter-Group Interest immediately after the
Recapitalization.
ARRANGEMENTS WITH HOLDERS OF EXISTING CLASS A COMMON STOCK
On May 26, 1998, Sprint entered into the Master Agreement with FT and DT
which provides, among other things, that FT and DT will purchase from Sprint a
sufficient number of shares of Series 3 PCS Stock in connection with the PCS
Restructuring and the Offerings to maintain their aggregate voting power of
approximately 20% of all Sprint Voting Stock, taking into account issuances in
the Offerings, the PCS Restructuring and the exercise by the Cable Parents of
their Equity Purchase Rights. FT and DT have agreed to purchase an aggregate
of 4,877,358 shares of Series 3 PCS Stock in connection with the PCS
Restructuring and an aggregate of shares of Series 3 PCS Stock, or an
aggregate of shares if the Underwriters' over-allotment option is
exercised in full, in connection with the Offerings. 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 Related Transactions. 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 of DT Class A Stock. Pursuant to the Recapitalization
Amendment, each share of Existing Class A Common Stock held by FT and each
share of DT Class A Stock held by DT will be reclassified so that each share
will, among other things, represent an equity interest in the FON Group and an
equity interest in the PCS Group, together with a right to cause Sprint to
issue initially one share of Series 3 FON Stock and 1/2 share of Series 3 PCS
Stock.
The following is a brief 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 Amended 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 (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, 1995, as amended (the "Original Standstill Agreement").
110
<PAGE>
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
Offerings. 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 Offerings.
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 underwriters exercise an over-allotment option in connection
with the Offerings (i.e., the "Greenshoe Purchase" and, collectively with the
Primary 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 shares 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 Offerings (including
issuances resulting from the exercise of Equity Purchase Rights by any of the
Cable Parents) in order to maintain their aggregate voting power at not less
than 20%.
FT and DT will purchase the shares of Series 3 PCS Stock pursuant to the
Primary Purchase at the offering price in the Offerings net of any
underwriting discounts. For a discussion of certain transfer restrictions to
which FT and DT are subject with respect to the PCS Stock, see "FT and DT
Arrangements--Transfer Restrictions" in Sprint's Proxy Statement, incorporated
herein by reference.
For a brief description of the registration rights granted to FT and DT, the
Standstill Agreement entered into in connection with the Related Transactions
and the Equity Purchase Rights of FT and DT, see "Registration Rights--FT and
DT Amended Registration Rights Agreement;" "The Related Transactions--
Standstill Agreements--FT and DT" and "The Related Transactions--Equity
Purchase Rights--FT and DT Equity Purchase Rights."
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 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.
Sprint's PCS Partner will issue similar promissory
111
<PAGE>
notes to Sprint for the Sprint PCS Loans (the "Sprint PCS Notes"). Sprint and
the Cable Parents have fully funded their respective obligations with respect
to the PCS Contributions.
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 Partnership Agreement of Sprint Spectrum Holding Company, L.P.
(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. On the date and at the
time that the certificates of merger with respect to the Mergers are accepted
for filing with the respective Secretary of State (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 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 inter-group 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 prior to the Closing by contributing such loans to
its subsidiary owning interests in Sprint Spectrum Holdings.
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.
Sprint will purchase for shares of PCS Preferred Stock 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 as described in the following
sentence. In connection with the Offerings, each Cable Parent may elect to
require that Sprint purchase for cash all or any portion of its Cable Parent
Loans, but not any shares of PCS Preferred Stock issued as consideration in
any of the Mergers in accordance with the immediately preceding paragraph, up
to a limit of 47% of the amount by which net proceeds in the Offerings exceed
$500 million (or a larger amount if Sprint does not elect to utilize all of
the net proceeds available to repay Sprint PCS Loans and SprintCom Loans, as
described below).
Also in connection with the Offerings, Sprint may elect to have the Sprint
PCS Loans and the SprintCom Loans repaid with net proceeds from the Offerings,
up to a limit of 53% of the amount by which net proceeds in
112
<PAGE>
the Offerings exceed $500 million (or a larger amount if the Cable Parents do
not utilize all the net proceeds available to repay Cable Parent Loans).
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 the immediately
preceding paragraph 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.
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 $50 million as of June 30, 1998. Sprint had loaned an
additional $135 million to PhillieCo as of June 30, 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. Sprint, TCI and
Cox have fully funded their respective obligations with respect to the $50
million funding commitment. 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
Cable Parents
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:
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
Offerings), 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 Offerings, shall be determined as if the Mergers occurred
immediately before the consummation of the Offerings) 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 an increase in the FON Group's 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
113
<PAGE>
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's Inter-Group Interest in the PCS Group as a result of such
contribution of cash or assets; and
(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 Cable Holders will not have any Equity Purchase Right 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.
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.
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.
FT and DT
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.
114
<PAGE>
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 and Restated Stockholders'
Agreement, which will be entered into by Sprint, FT and DT on the date of the
Primary Purchase (the "Amended Stockholders' Agreement), contain a mechanism
whereby the Equity Purchase Rights of the holders of Class A Common Stock,
Series 3 FON Stock and Series 3 PCS Stock (the "Class A 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 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 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" for these purposes is generally a
company which materially competes with a major portion of the
telecommunications services business of FT or 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 Stock to purchase from
Sprint shares of Class A Stock upon the issuance by Sprint of new voting
securities; 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 Stock
will have up to 2 years from the date of any issuance that triggers their
Equity Purchase Rights 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 after 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
115
<PAGE>
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 Stock
to purchase from Sprint shares of Series 3 PCS Stock, when Sprint issues
higher voting PCS Stock or PCS Preferred Stock on the transfer or conversion
of lower voting PCS Stock or PCS Preferred 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 or PCS Preferred Stock, the holders of
Class A Stock may, subject to certain conditions, elect to purchase Series 3
FON Stock from Sprint 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 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, the
holders of Class A Stock, subject to certain conditions, will have limited
additional rights to purchase Series 3 FON Stock and/or Series 3 PCS Stock
from Sprint 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 Stock are entitled to exercise their Equity Purchase
Rights under such agreement, each holder of Class A 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 Stock upon delivery by such holder of Class A 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:
(i) if the tender offer involves only Series 1 FON Stock, and the tender
offer does not permit the holders of Class A 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 (together, 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 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 (together, 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
Stock to sell an equal or greater percentage of their Class A FON
116
<PAGE>
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 defined herein), 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 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 Stock have a right to receive in exchange for all the shares of each class
and/or series of Class A 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 Existing Common Stock, and the rights
of the holders of Existing 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 and the Amended Articles provide that such consequences will also
result if the ratio in clause (ii) above or the ratio in clause (iii) above is
exceeded for more than 60 days after notice from Sprint to FT and DT.
STANDSTILL AGREEMENTS
Cable Parents
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-
117
<PAGE>
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 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 the Sprint
Board 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 Rights Agreement 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.
118
<PAGE>
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 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 of 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 holder 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.
FT and DT
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 Sprint Voting Securities. 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 an Amended and Restated
119
<PAGE>
Standstill Agreement on the date of the Primary Purchase (the "Amended
Standstill Agreement"), which would provide additional acquisition
restrictions.
Subject to certain exceptions described below, each of FT and DT has agreed
that, prior to July 31, 2010 (the "Initial Standstill Period"), it 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 votes represented by the Outstanding Sprint Voting Securities.
This limitation is consistent with the limitation in the Original Standstill
Agreement.
In addition, each of FT and DT has agreed that, during the Initial
Standstill Period, it 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 votes represented by the outstanding FON Stock or PCS
Stock (including as outstanding the shares of FON Stock and PCS Stock
underlying the Class A 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 Telecom 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 Rights Agreement (as defined herein), to increase
their beneficial ownership beyond the applicable Percentage Limitations to the
extent required to match the percentage 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 the voting power
represented by 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 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 Amended 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%
120
<PAGE>
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 the Amended Articles.
LOCKUP AGREEMENTS
Pursuant to the Restructuring Agreement, each Cable Parent has agreed, for a
period of 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.
In addition, pursuant to the Master Agreement, FT and DT have agreed that,
unless the transfer restrictions contained in the Amended and Restated
Stockholders' Agreement have terminated, they will not, for a period of 180
days following the Closing Date, 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.
Sprint has agreed not to waive any of its rights under such lock-up
agreements without the consent of either Warburg Dillon Read LLC or Salomon
Smith Barney Inc.
AMENDMENTS TO THE COX PCS AGREEMENTS
Cox PCS is organized as a limited partnership with two partners, Sprint
Spectrum Holdings and a subsidiary of Cox. Sprint Spectrum Holdings holds a
59.2% interest in Cox PCS and is the managing partner, with control over all
day-to-day operations, subject to certain minority partner rights of Cox. Such
minority rights include approval rights over certain matters including (i)
certain interested party transactions that are not in the ordinary course of
business, (ii) purchases or dispositions of assets of Cox PCS in excess of
certain specified amounts, (iii) purchase of any asset or interest not
reasonably related to the buildout of the network in the markets currently
served by Cox PCS, (iv) admission of any new partner to the Cox PCS
partnership, and (v) certain other matters.
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 enter into an
amendment to the Cox PCS Partnership agreement (the "Cox PCS Amendment")
effective as of the Closing, that will modify these put and call provisions to
provide, 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 2001 through 2005, Cox has the right
to require that Sprint Spectrum Holdings acquire 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. Beginning in 2001 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 "PCS Group Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
EXPECTED MANNER OF COMPLIANCE WITH VARIOUS REPORTING REQUIREMENTS
After the Related Transactions are completed, securities law reporting
requirements applicable to Sprint and its officers and directors will be
satisfied in a manner that the Sprint Board determines to be appropriate
121
<PAGE>
depending upon the nature of the requirement. For example, Sprint expects that
the individuals considered officers and directors for purposes of filing
reports of beneficial ownership of Sprint securities pursuant to Section 16 of
the Exchange Act will be determined at the corporate level rather than by
reference to any individual's duties with the FON Group or the PCS Group.
Sprint expects to provide separate market price performance information for
the FON Group and the PCS Group in its annual Exchange Act filings and other
filings requiring compliance with Item 201 of Regulation S-K. Sprint will
provide, in its Exchange Act filings requiring compliance with Item 403 of
Regulation S-K, beneficial ownership information concerning the FON Stock and
the PCS Stock separately for (i) each beneficial owner of more than five
percent of each of the FON Stock or PCS Stock (including any "group" as that
term is used in Section 13(d)(3) of the Exchange Act) and (ii) its executive
officers (as that term is defined in Item 402(a)(3) of Regulation S-K),
directors and the directors and executive officers as a group, with the
executive officers to be determined at the corporate level rather than by
reference to any individual's duties with the FON Group or the PCS Group.
Executive compensation, biographical data of management and certain
relationships and related transactions for directors and officers will be
provided in accordance with securities law disclosure requirements and in a
manner determined to be most meaningful and practicable depending on various
factors including the nature of the filing or report.
ACCOUNTING MATTERS
General Accounting Matters. 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--The Tracking Stocks--Stockholders of One Corporation; Financial
Effects of the FON Group Could Adversely Affect the PCS Group; Sprint Will
Become 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.
122
<PAGE>
TRACKING STOCK POLICIES
In connection with the PCS Restructuring, 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 (or the Capital Stock Committee of the Sprint Board acting on its
behalf) 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. 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, 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
Sprint Bylaws, 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 Sprint 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.
123
<PAGE>
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, 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.
124
<PAGE>
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.
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
125
<PAGE>
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.
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.
As of June 30, 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 $8.4 billion (however, $2.9 billion of Sprint's
$3.9 billion of retained earnings was restricted under certain debt
covenants), the FON Group Available Dividend Amount would have been
approximately $7.4 billion and the PCS Group Available Dividend Amount (after
giving effect to the Recapitalization, the PCS Restructuring, the exercise of
Equity Purchase Rights by FT and DT in connection with the PCS Restructuring
but excluding any effects of the Offerings immediately following the PCS
Restructuring and any exercise of Equity Purchase Rights by FT and DT and/or
the Cable Parents in connection with the Offerings) would have been
approximately $4.5 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 if the Available Dividend Amount test with
respect to the relevant Group is met. See "Risk Factors--The Tracking Stocks--
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 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 "Risk Factors--The Tracking Stocks--Tracking Stock
Policies Subject to Change."
126
<PAGE>
REGISTRATION RIGHTS
CABLE PARENTS' REGISTRATION RIGHTS
Sprint and the Cable Parents have agreed pursuant to the Restructuring
Agreement to enter into a registration rights agreement (the "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 (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, 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 CP Registration Rights Commencement Date.
Pursuant to the Restructuring Agreement, 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.
127
<PAGE>
Number of Demand Registrations. At any time on or after the CP 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.
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 million
(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 Offerings of not less than $200
million, 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 million (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 CP 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 billion
or (ii) 12 months after the CP 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 billion (excluding transfers solely between or
among the stockholders of the Cable Parents 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
128
<PAGE>
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.
Withdrawal. Each member of a Stockholder Group selling securities pursuant
to a Demand Registration 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 SEC 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 CP 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 Sprint'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 under "--Limitation in Underwritten
Offerings" 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:
129
<PAGE>
(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;
(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 CP 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 billion, 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
130
<PAGE>
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.
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.
131
<PAGE>
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
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
(as defined herein) 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 Sprint's securities made solely to its
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).
132
<PAGE>
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 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.
FT AND DT AMENDED REGISTRATION RIGHTS AGREEMENT
The following is a general description of the terms of the Amended
Registration Rights Agreement (as defined below) and is qualified in its
entirety by the more specific terms of the Amended Registration Rights
Agreement incorporated by reference herein.
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.
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 and Restated Registration Rights Agreement, which will be
entered into by Sprint, FT and DT on the date of the Primary Purchase (the
"Amended Registration Rights Agreement") the total number of registrations
that the holders of a majority of Class A 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 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 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")
133
<PAGE>
(i) acquired by the holders of Class A 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 Stock in the
Recapitalization or pursuant to the Master Agreement as a result of the
Offerings or PCS Restructuring (other than the exercise by the Cable Parents
of their equity purchase rights in connection with the Offerings). 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
Class A 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.
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 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
134
<PAGE>
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
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 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);
(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,
135
<PAGE>
(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 Parent, 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.
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.
136
<PAGE>
FUTURE INTER-GROUP INTEREST
It is Sprint's intention that, upon completion of the Recapitalization, the
FON Group will have only a small Inter-Group Interest in the PCS Group in
addition to 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 common equity value of Sprint attributable to the PCS Group. The Tracking
Stock Policies provide that the PCS Group shall not have or be able to have an
Inter-Group Interest in the FON Group, and the Amended Articles do not make
provision for such an Inter-Group Interest. 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 on 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 FON Group 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 FON Group 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.
137
<PAGE>
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.
138
<PAGE>
ANTI-TAKEOVER CONSIDERATIONS
The Kansas General Corporation Code contains, and upon completion of the
Related Transactions the Amended Articles and the amended Sprint 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, prior to the PCS Restructuring, 7,998,580 shares of
Preferred Stock remain unissued, unreserved and available for issuance. In
addition, the PCS Preferred Stock and the Preferred Stock--Eighth Series will
be created at the time of the PCS Restructuring. See "--Sprint Rights Plan"
and "Description of Capital Stock--Description of PCS Preferred Stock;
Preferred Inter-Group Interest." 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
139
<PAGE>
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.
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, 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 Sprint 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 Sprint 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 Sprint 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
less 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 29, 1998, the Sprint Board approved an amendment to Sprint's rights
agreement to be effective on the filing of the PCS Stock Amendment with the
Kansas Secretary of State. The amended rights agreement (the
140
<PAGE>
"Rights Agreement") amends that the existing Rights that are currently
attached to the Existing Common Stock by designating them as FON Group Rights.
Following the PCS Restructuring and prior to the Recapitalization, a FON Group
Right will be issued in connection with each issuance of a share of Existing
Common Stock and, if issued, each share of Series 2 Common Stock. After the
Recapitalization, a FON Group Right will be issued in connection with the
issuance of each share of any series of FON Stock. The amendment also creates
new PCS Group Rights which will be issued in connection with the issuance of
shares of all series of PCS Stock. Finally, the amendment amends the existing
Rights that are attached to the Existing Class A Common Stock by designating
them as Old Class A Rights and Series DT Rights.
The FON Group Rights will be traded with the Existing Common Stock prior to
the Recapitalization and with the FON Stock after the Recapitalization, and
the PCS Group Rights will be traded with the PCS Stock. The Rights detach from
the FON Stock and the PCS Stock and become exercisable only if, in a
transaction not approved by the Sprint Board, a person or entity acquires
voting securities representing 15% or more of the voting power of Sprint or
announces a tender offer the consummation of which would result in ownership
by a person or group of voting securities representing 15% or more of the
voting power of Sprint.
Once the Rights detach and become exercisable, unless subsequently redeemed,
each FON Group Right then entitles its holder to purchase one one-thousandth
of a share of Preferred Stock--Sixth Series for an exercise price of $350, if
prior to the Recapitalization, or $275, if after the Recapitalization, subject
in each case to certain adjustments. Once the Rights detach and become
exercisable, unless subsequently redeemed, each PCS Group Right then entitles
its holder to purchase one one-thousandth of a share of Preferred Stock--
Eighth Series for an exercise price of $150, subject to certain adjustments.
If the Rights detach and become exercisable prior to the Recapitalization,
each Old Class A Right and Series DT Right would entitle its holder to
purchase one one-thousandth of a share of Preferred Stock--Sixth Series for an
exercise price of $350. After the Recapitalization, each Old Class A Right and
Series DT Right would entitle the holder to purchase one one-thousandth of a
share of Preferred Stock--Sixth Series for an exercise price of $275 for each
share of FON Stock underlying each share of Existing Class A Common Stock or
DT Class A Stock, and one-half of one one-thousandth of a share of Preferred
Stock--Eighth Series for an exercise price of $75 for each one-half of a share
of PCS Stock underlying each share of Existing Class A Common Stock or DT
Class A Stock, subject to certain adjustments.
In the event that a person or group (an "Acquiring Person") becomes the
beneficial owner of voting securities representing 15% or more of the voting
power of Sprint, except pursuant to a Qualifying Offer, each holder of a FON
Group Right and each holder of a PCS Group Right will thereafter have the
right to receive, upon exercise of such Right, FON Stock and PCS Stock,
respectively, having a value equal to two times the then current exercise
price of the Right and each holder of Old Class A Rights or Series DT Rights
will thereafter have the right to receive upon exercise of such Right both FON
Stock and PCS Stock each having a value equal to two times the then current
exercise prices of the Right for Preferred Stock--Sixth Series and Preferred
Stock--Eighth Series, respectively. Following the occurrence of any such
event, all Rights that are, or (under certain circumstances) were,
beneficially owned by any Acquiring Person (or certain related parties) will
be null and void. A "Qualifying Offer" is an offer for outstanding shares of
common stock which a majority of the independent directors (i.e., directors
who are not also officers of Sprint and who are not representatives, nominees,
affiliates or associates of an Acquiring Person) determine, after receiving
advice from one or more investment banking firms, to be fair to the
stockholders and otherwise in the best interests of Sprint and its
stockholders.
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 or
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 voting
securities representing 15% or more of the voting power of Sprint (or in
excess of the shares permitted to be acquired under the Amended Standstill
Agreement, in the case of FT and DT). The terms of the Rights will expire on
June 25, 2007, unless earlier redeemed by Sprint or unless extended by
amending the Rights Agreement.
141
<PAGE>
The Rights Agreement is 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 FON Stock at the same price and all of the
PCS Stock at the same price, or a transaction approved by the Sprint Board. To
the extent an acquiror is discouraged, delayed or prevented by the Rights
Agreement from acquiring or from making an unsolicited proposal to acquire an
equity position in Sprint, stockholders may be deprived from receiving a
premium for their shares. The issuance of additional shares of FON Stock, PCS
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.
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
The provisions of Kan. Stat. Ann. Section 17-12,101 et seq (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 its provisions 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.
142
<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 of Existing Class A Common Stock, designated as Class A Common Stock,
par value $2.50 per share, and 1,000,000,000 shares of Existing Common Stock,
designated as Common Stock, par value $2.50 per share. As of June 30, 1998
Sprint had issued and outstanding 343,840,537 shares of Existing Common Stock,
86,236,036 shares of Existing Class A Common Stock and 292,781 shares of
Existing Preferred Stock.
Pursuant to the PCS Stock Amendment, Sprint will be authorized to issue
4,070,000,000 shares of capital stock, including 20,000,000 shares of Existing
Preferred Stock and 4,050,000,000 shares of common stock. The authorized
common stock will consist of: (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 and (v) 2,350,000,000 shares of PCS Stock. The PCS Stock will be
comprised of 1,250,000,000 shares of Series 1 PCS Stock, 500,000,000 shares of
Series 2 PCS Stock, and 600,000,000 shares of Series 3 PCS Stock. Pursuant to
the PCS Stock Amendment, all shares of Existing Class A Common Stock held by
DT will be automatically reclassified into an identical number of shares of DT
Class A Stock.
Pursuant to the Recapitalization Amendment, the FON Stock will be created
and the Recapitalization will be effected. 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 Existing Common Stock or FON
Stock, respectively, 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 Equity Purchase Rights
described under "The Related Transactions--Equity Purchase Rights."
Holders of PCS Stock and FON Stock will be common stockholders of Sprint and
will be subject to all risks associated with an investment in Sprint and all
of its businesses, assets and liabilities.
143
<PAGE>
SUMMARY CHART OF AUTHORIZED CAPITAL STOCK OF SPRINT
The following table shows the number of authorized shares of capital stock
of Sprint upon completion of the Related Transactions.
<TABLE>
<CAPTION>
NO. OF
AUTHORIZED
DESIGNATION CLASS SERIES PAR VALUE SHARES
----------- -------------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
The "Series 1 FON Stock" FON Stock Series 1 $2.00 per share 2,500,000,000
The "Series 2 FON Stock" FON Stock Series 2 $2.00 per share 500,000,000
The "Series 3 FON Stock" FON Stock Series 3 $2.00 per share 1,200,000,000
The "Existing Class A Class A Common Stock N/A $2.50 per share 100,000,000
Common Stock"
The "DT Class A Stock" Class A Common Stock Series DT $2.50 per share 100,000,000
The "Series 1 PCS Stock" PCS Stock Series 1 $1.00 per share 1,250,000,000
The "Series 2 PCS Stock" PCS Stock Series 2 $1.00 per share 500,000,000
The "Series 3 PCS Stock" PCS Stock Series 3 $1.00 per share 600,000,000
The "Preferred Stock-- Preferred Stock First Series No par value 1,742,853
First Series"
The "Preferred Stock-- Preferred Stock Second Series No par value 8,758,472
Second Series"
The "Preferred Stock-- Preferred Stock Fifth Series No par value 95
Fifth Series"
The "Preferred Stock-- Preferred Stock Sixth Series No par value 1,500,000
Sixth Series"
The "PCS Preferred Stock" Preferred Stock Seventh Series No par value 300,000
The "Preferred Stock-- Preferred Stock Eighth Series No par value 1,250,000
Eighth Series"
</TABLE>
There are an aggregate of 6,448,580 shares of Preferred Stock authorized for
issuance that are not shown in the table above. See "Anti-Takeover
Considerations--Sprint Rights Plan."
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 Existing 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
Existing 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."
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).
144
<PAGE>
CLASS A COMMON STOCK
Effect of PCS Stock 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 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 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 be issuable to holders of Existing Class
A Common Stock in respect of the equity interest of such stock in the
FON Group;
. 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 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 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 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 Prospectus, "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:
145
<PAGE>
(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 Amended Stockholders' Agreement (as defined herein). 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
(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
146
<PAGE>
(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 terms of the PCS Stock 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
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 below under "--Dividends on Common
Stock," 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
147
<PAGE>
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 the 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;
(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
148
<PAGE>
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 DT
Class A 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 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.
The Sprint Board may pay any dividend or redemption price referred to in
subparagraph (1)(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
149
<PAGE>
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 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 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 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
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,
150
<PAGE>
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 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 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 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 45th trading day and not later than
the 35th trading day prior to the redemption date, cause notice to be given to
each holder of shares of
151
<PAGE>
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
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 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
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 PCS 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, 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
152
<PAGE>
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 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 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 45th trading day and not later than
the 35th 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 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 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 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
153
<PAGE>
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 (including pro rata among all
holders of Series 2 PCS Stock and Series 3 PCS Stock) 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 is held at the same time by the same holder,
Sprint may aggregate the number of shares of any capital stock that is
issuable or any other securities or property that is 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 is 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.
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.
154
<PAGE>
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
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" (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, 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.
155
<PAGE>
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 votes
represented by 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 votes
represented by 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 be 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");
-- 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 (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) 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 (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 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
156
<PAGE>
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 (the "Class A 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
Per Share Vote determined as described above, (iii) DT Class A Stock
will be entitled to the DT Class A PCS Vote Per Share and 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.
In addition to the provisions set forth above, (i) if shares of only one
class or series of common stock are outstanding on the record date for
determining the holders of 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 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
157
<PAGE>
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 holder of Class A Stock (a
"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).
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 completion of the Related Transactions, 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 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-- The
Tracking Stocks--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. If any voluntary or involuntary liquidation, dissolution or
winding up of Sprint
158
<PAGE>
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 have one Liquidation
Unit per share);
(iii) at the time of the liquidation, dissolution or winding up of
Sprint, 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
will have one Liquidation Unit per share); and
(iv) each share of PCS Stock will be attributed a number of Liquidation
Units equal to 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 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 legal and financial
advisors. See "Risk Factors--The Tracking Stocks--No Assurance as to Market
Price; No Existing Market." Sprint expects that a majority of its Liquidation
Units would be attributed to the FON Stock if a liquidation were to occur soon
after the implementation of the Tracking Stock Proposal. 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
159
<PAGE>
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.
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.
As of June 30, 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 $8.4 billion (however, $2.9 billion of Sprint's
$3.9 billion of retained earnings was restricted under certain debt
covenants), the FON Group Available Dividend Amount would have been
approximately $7.4 billion and the PCS Group Available Dividend Amount (after
giving effect to the Recapitalization, the PCS Restructuring, the exercise of
Equity Purchase Rights by FT and DT in connection with the PCS Restructuring,
the Offerings and the exercise of Equity Purchase Rights by FT, DT and the
Cable Parents in connection with the Offerings) would have been approximately
$ 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 if the Available Dividend Amount test with respect to the
relevant Group is met. See "Risk Factors--The Tracking Stocks--Potential
Diverging Interests--No Assurance of Payment of Dividends."
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 FON Group exclusively;
160
<PAGE>
(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;
(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 the Amended Articles 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
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; 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 the Amended Articles 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
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.
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
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.
161
<PAGE>
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. UMB Bank,
n.a. will be selected as the transfer agent, registrar and dividend paying
agent for the FON Stock and the PCS Stock.
STOCK EXCHANGE LISTINGS
Sprint has applied with the New York Stock Exchange 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 Offerings 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 have the right to acquire 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 Offerings, 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 Percentage 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.
162
<PAGE>
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 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
163
<PAGE>
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.
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 filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
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. 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 Related Transactions--Funding
of the PCS Group Prior to Closing; The PCS Preferred Stock."
The number of authorized shares of PCS Preferred Stock is 300,000. 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
are expected to 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
164
<PAGE>
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 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) of 100 basis points 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 (as defined herein) 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
165
<PAGE>
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 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 Sprint Board 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 Related Transactions--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 in such consolidation or merger), or a
sale, lease or exchange of all or substantially
166
<PAGE>
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.
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 are entitled 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 Rights" 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
167
<PAGE>
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 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, merges 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.
168
<PAGE>
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.
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.
The Preferred Inter-Group Interest will have terms equivalent to the PCS
Preferred Stock, as summarized above and as set forth in the Certificate of
Designations. 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.
169
<PAGE>
BENEFICIAL OWNERSHIP OF PCS STOCK
The following table sets forth certain information regarding beneficial
ownership of the PCS Stock, assuming completion of the Recapitalization and
the Offerings, by (i) each person who will own beneficially a PCS Group
Percentage Interest of more than 5%, (ii) each executive officer and each
director of Sprint, (iii) each individual named under "Management of the PCS
Group," (iv) all directors and executive officers of Sprint as a group and (v)
all members of PCS Group management as a group. Share ownership of individuals
is based upon known holdings of Existing Common Stock as of June 30, 1998.
<TABLE>
<CAPTION>
PCS STOCK
BENEFICIALLY OWNED
AFTER THE PCS
RESTRUCTURING, THE
OFFERINGS AND THE
RECAPITALIZATION
---------------------------
PCS GROUP
PERCENTAGE
NAME NUMBER INTEREST
- ---- ---------- ----------
<S> <C> <C>
Sprint Executive Officers and Directors
DuBose Ausley..................................... 9,482(1) *%
Warren L. Batts................................... 11,805(1) *
Michel Bon........................................ 750(1) *
William T. Esrey.................................. 657,898(1)(2) *
Gary D. Forsee.................................... 102,968(1) *
Michael B. Fuller................................. 77,636(1) *
Irvine O. Hockaday, Jr. .......................... 1,299(1) *
Harold S. Hook.................................... 17,248(1) *
Arthur B. Krause.................................. 134,532(1)(2) *
Ronald T. LeMay................................... 244,371(1) *
Linda Koch Lorimer................................ 18,917(1) *
D. Wayne Peterson................................. 94,018(1) *
Charles E. Rice................................... 10,819(1) *
Ron Sommer........................................ 750(1) *
Stewart Turley.................................... 10,948(1) *
All Executive Officers and Directors of Sprint as a
group (27 persons)................................ 1,837,142(1)(2) *
PCS Group Management
Bernard A. Bianchino.............................. 873 *
Joseph M. Gensheimer.............................. 0 *
Arthur A. Kurtze.................................. 62,265 *
Charles E. Levine................................. 0 *
F. Edward Mattix.................................. 0 *
Robert M. Neumeister, Jr. ........................ 0 *
Andrew Sukawaty................................... 0 *
All PCS Group Management as a Group (8 persons).... 307,509(3) *
FT................................................. (4)
DT................................................. (4)
TCI................................................ 98,563,924
Comcast............................................ 47,248,435
Cox................................................ 49,281,981
</TABLE>
- --------
* Less than one percent.
(1) Includes shares that may be acquired upon the exercise of stock options
exercisable on or within 60 days after June 30, 1998 under Sprint's stock
option plan as follows: 5,637; 9,248; 750; 456,625; 81,029; 63,368; 0;
9,248; 88,705; 93,748; 18,114; 62,838; 9,248; 750 and 9,248 for Messrs.
Ausley; Batts; Bon; Esrey; Forsee; Fuller; Hockaday; Hook; Krause; LeMay;
Ms. Lorimer; Messrs. Peterson; Rice; Sommer and Turley; respectively, and
1,206,362 shares for all Directors and executive officers of Sprint as a
group.
(2) Includes shares held for the benefit of family members in which beneficial
ownership has been disclaimed: 8,221 shares held in trust for Mr. Esrey's
children; 6,822 shares owned by Mr. Krause's wife and 15,043 shares held
by or for the benefit of family members for all Directors and executive
officers as a group.
(3) Includes shares held by Ronald T. LeMay.
(4) Includes 2,438,680 shares and shares of Series 3 PCS Stock purchased
by each of FT and DT upon exercise of their Equity Purchase Rights in
connection with the PCS Restructuring and the Offerings, respectively. The
remaining shares are shares of Series 3 PCS Stock issuable with respect to
shares of Existing Class A Common Stock and DT Class A Common Stock which
will be held by FT and DT, respectively, following the Recapitalization.
Does not include shares held by the other of FT or DT that may be
considered as beneficially owned by such party as a result of certain
voting agreements.
170
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of Series 1 PCS
Stock. The following 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. The 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 Series 1 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 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.
CLASSIFICATION OF SERIES 1 PCS STOCK AS STOCK OF SPRINT
In the opinion of King & Spalding, counsel to Sprint, any outstanding stock
that is designated as common stock of Sprint in the Articles Amendment,
including the Series 1 PCS Stock, will constitute voting stock of Sprint for
United States federal income tax purposes and will not constitute Section 306
stock within the meaning of Section 306 of the Code.
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 Offerings or the Recapitalization. It is
possible, therefore, that the IRS could assert that the PCS Stock (including
the Series 1 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 sale of Series 1 PCS Stock and 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 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. Counsel believes that if the status for United States 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.
NON-U.S. STOCKHOLDERS
The following is a general discussion of certain United States federal
income tax consequences of the ownership and disposition of Series 1 PCS Stock
by a Non-U.S. Stockholder. A "Non-U.S. Stockholder" is a holder who, for
United States federal income tax purposes, is a foreign corporation, a
nonresident alien individual or a foreign estate or trust.
Dividends
Dividend payments received by a Non-U.S. Stockholder on shares of Series 1
PCS Stock will generally be subject to the withholding of United States
federal income tax at a 30% rate (or such lower rate as may be
171
<PAGE>
specified by an applicable income tax treaty). Dividends paid to a Non-U.S.
Stockholder that are effectively connected with a Non-U.S. Stockholder's
conduct of a trade or business within the United States will not be subject to
the withholding tax, but, instead, will be subject to regular U.S. federal
income tax at the graduated rates in the same manner as if the Non-U.S.
Stockholder were a U.S. resident, unless a tax treaty exemption applies to
exclude such dividends from U.S. tax. If the Non-U.S. Stockholder is a
corporation, any effectively connected income may also be subject to a "branch
profits tax." A Non-U.S. Stockholder may be required to satisfy certain
certification requirements to claim treaty benefits or otherwise claim a
reduction of, or exemption from, the withholding obligation described above.
Sale or Exchange of Series 1 PCS Stock
A Non-U.S. Stockholder generally will not be subject to federal income tax
on any gain realized on the taxable sale or exchange of Series 1 PCS Stock
unless (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 and has a "tax home"
in the United States, (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.
INFORMATION REPORTING AND BACKUP WITHHOLDING FOR U.S. AND NON-U.S.
STOCKHOLDERS
On October 6, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations will generally be effective with respect
to payments made after December 31, 1999. Except as provided below, this
section describes rules applicable to payments made on or before December 31,
1999.
Certain non-corporate holders of Series 1 PCS Stock may 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
Taxpayer Identification Number ("TIN"), (ii) furnishes an incorrect TIN, (iii)
is notified by the IRS that he has failed properly to report payments of
interest or dividends, or (iv) under certain circumstances, fails to certify,
under penalties of perjury, that he has furnished a correct TIN and has not
been notified by the IRS that he is subject to backup withholding for failure
to report payments of interest or dividends.
Upon the sale or other taxable disposition of Series 1 PCS Stock by a
stockholder to or through a United States office of a broker, the broker
generally must backup withhold at a rate of 31% and report the sale to the
IRS, unless the holder certifies its taxpayer identification number or its
exempt Non-U.S. status under penalties of perjury, or otherwise establishes an
exemption from backup withholding. Upon the sale or other taxable disposition
of Series 1 PCS Stock by a Non-U.S. Stockholder to or through the foreign
office of United States broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the IRS
(but not backup withhold), unless the broker has documentary evidence in its
files that the seller is a Non-U.S. Stockholder and/or certain other
conditions are met, or the holder otherwise establishes an exemption.
Stockholders should consult their tax advisors regarding their qualification
for a tax exemption from backup withholding and the procedure for obtaining
such an exemption if applicable.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules are generally allowable as credit against a
stockholder's U.S. federal income tax liability (if any), which may entitle
such stockholder to a refund, provided that the required information is
furnished to the IRS.
172
<PAGE>
The Final Regulations eliminate the general prior legal presumption that
dividends paid to an address in a foreign country are paid to a resident of
that country. In addition, the Final Regulations impose certain certification
and documentation requirements on Non-U.S. Stockholders claiming the benefit
of a reduced withholding rate with respect to dividends under a tax treaty or
otherwise claiming a reduction of, or exemption from, the withholding
obligation described above. Prospective purchasers of Series 1 PCS Stock are
urged to consult their own tax advisors as to the effect, if any, of the Final
Regulations on their purchase, ownership and disposition of Series 1 PCS
Stock.
PROSPECTIVE PURCHASERS OF SERIES 1 PCS STOCK ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
ACQUIRING, HOLDING, AND DISPOSING OF SERIES 1 PCS STOCK AND POTENTIAL CHANGES
IN THE APPLICABLE TAX LAWS.
173
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
between Sprint and the U.S. Underwriters (the "U.S. Underwriting Agreement"),
each of the U.S. Underwriters named below, for whom Warburg Dillon Read LLC
and Salomon Smith Barney Inc. are acting as the joint global coordinators and
book runners and, together with Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and J.P. Morgan Securities Inc., as U.S. representatives
(collectively, the "U.S. Representatives"), has severally agreed to purchase,
and Sprint has agreed to sell to each such U.S. Underwriter, the number of
shares of Series 1 PCS Stock set forth opposite the name of such U.S.
Underwriter:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C>
Warburg Dillon Read LLC.........................................
Salomon Smith Barney Inc. ......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Lehman Brothers Inc.............................................
J.P. Morgan Securities Inc......................................
------
Total..........................................................
======
</TABLE>
Subject to the terms and conditions stated in the underwriting agreement
between Sprint and the International Underwriters (the "International
Underwriting Agreement"), each of the International Underwriters named below,
for whom UBS AG, acting through its division Warburg Dillon Read, Salomon
Brothers International Limited, Merrill Lynch International, Donaldson, Lufkin
& Jenrette International, Lehman Brothers International (Europe) and J.P.
Morgan Securities Ltd. are acting as the international representatives (the
"International Representatives" and, together with the U.S. Representatives
the "Representatives"), has severally agreed to purchase, and Sprint has
agreed to sell to each such International Underwriter, the number of shares of
Series 1 PCS Stock set forth opposite the name of such International
Underwriter:
<TABLE>
<CAPTION>
NUMBER
MANAGER OF SHARES
------- ---------
<S> <C>
UBS AG, acting through its division Warburg Dillon Read.........
Salomon Brothers International Limited..........................
Merrill Lynch International.....................................
Donaldson, Lufkin & Jenrette International......................
Lehman Brothers International (Europe)..........................
J.P. Morgan Securities Ltd. ....................................
------
Total..........................................................
======
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
provide that the obligations of the several Underwriters to purchase the
shares of Series 1 PCS Stock offered hereby are subject to approval of certain
legal matters by counsel and to certain other conditions. The U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that the obligations of the U.S. Underwriters and the International
Underwriters are such that if any of the shares of Series 1 PCS Stock are
purchased by the U.S.
174
<PAGE>
Underwriters pursuant to the U.S. Underwriting Agreement, or by the
International Underwriters pursuant to the International Underwriting
Agreement, all the shares of Series 1 PCS Stock agreed to be purchased by
either the U.S. Underwriters or the International Underwriters, as the case
may be, pursuant to their respective agreements (other than those covered by
the over-allotment option described below) must be so purchased. The price to
public and underwriting discount per share of Series 1 PCS Stock for the U.S.
Offering and the International Offering will be identical. The closing of the
International Offering is a condition to the closing of the U.S. Offering, and
the closing of the U.S. Offering is a condition to the closing of the
International Offering.
The U.S. Underwriters and the International Underwriters (collectively, the
"Underwriters") propose to offer part of the shares of Series 1 PCS Stock to
the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares of Series 1 PCS Stock to certain dealers at
a price less a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other dealers. After the
initial offering of the shares of Series 1 PCS Stock to the public, the public
offering price and such concessions may be changed by the Representatives.
Sprint has granted to the U.S. Underwriters and the International
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to additional shares of Series 1 PCS Stock from
Sprint at the price to public less the underwriting discount. The Underwriters
may exercise such option solely for the purpose of over-allotments, if any,
incurred in connection with the offering of the shares offered hereby. To the
extent that the U.S. Underwriters and the International Underwriters exercise
such option, each of the U.S. Underwriters and the International Underwriters,
as the case may be, will become obligated, subject to certain conditions, to
purchase an additional number of option shares proportionate to such U.S.
Underwriter's or International Underwriter's initial commitment.
Each U.S. Underwriter has severally agreed that, as part of the distribution
of the shares of Series 1 PCS Stock offered by the U.S. Underwriters, (i)
it is not purchasing any of the U.S. Securities for the account of anyone
other than a United States or Canadian Person and (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any of the U.S.
Securities or distribute any U.S. Prospectus to any person outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Each International Underwriter has severally agreed that, as part of the
distribution of the shares of Series 1 PCS Stock offered by the
International Underwriters, (x) it is not purchasing any of the International
Securities for the account of any United States or Canadian Person and (y) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any of the International Securities or distribute any International Prospectus
to any person in the United States or Canada or to any United States or
Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and International Underwriters, including: (i) certain purchases
and sales between the U.S. Underwriters and the International Underwriters;
(ii) certain offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion; (iii)
purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Underwriter or by an International Underwriter who is also
acting as a U.S. Underwriter; and (iv) other transactions specifically
approved by the Representatives. As used herein, "United States or Canadian
Person" shall mean any person who is a national or resident of the United
States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada or of any
political subdivision thereof, and any estate or trust the income of which is
subject to United States or Canadian Federal income taxation, regardless of
its source (other than any non-United States or non-Canadian branch of any
United States or Canadian Person), and shall include any United States or
Canadian branch of a person other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Series 1 PCS Stock as
may be mutually agreed. The price of any shares of Series 1 PCS Stock so sold
shall be the public
175
<PAGE>
offering price, less an amount not greater than the concession to securities
dealers. To the extent that there are sales between the U.S. Underwriters and
the International Underwriters pursuant to the Agreement Between U.S.
Underwriters and International Underwriters, the number of shares of Series 1
PCS Stock initially available for sale by the U.S. Underwriters or by the
International Underwriters may be more or less than the amount specified on
the cover page of this Prospectus.
Any offer of shares of Series 1 PCS Stock in Canada will be made only
pursuant to an exemption from the registration and qualification requirements
in any jurisdiction in Canada in which such offer is made.
Each International Underwriter has severally represented and agreed that it
(i) has not offered or sold, and prior to the expiration of six months from
the closing date, will not offer or sell in the United Kingdom any
International Securities other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(whether as principal or agent) for the purpose of their business or in
circumstances which constitute an offer to the public in the United Kingdom
for the purposes of the Public Offers of Securities Regulations 1995, (ii) has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
International Securities in, from or otherwise involving the United Kingdom
and (iii) it has only issued or passed on and will only issue or pass on to
any person in the United Kingdom any document received by it in connection
with the issue of the International Securities if that person is of a kind
described in Article ii(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom
the document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by Sprint, the U.S.
Underwriters or the International Underwriters that would permit any offering
to the general public of the shares of Series 1 PCS Stock offered hereby in
any jurisdiction other than the United States.
Purchasers of the shares of Series 1 PCS Stock offered hereby may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the offering price set
forth on the cover page hereof.
Sprint has agreed that, for a period of 180 days from the date of this
Prospectus, it will not, without the prior written consent of either Warburg
Dillon Read LLC or Salomon Smith Barney Inc., offer, sell, contract to sell,
or announce the offering of, register, cause to be registered or announce the
registration or intended registration of, any shares of PCS Stock or any
securities convertible into or exercisable or exchangeable for PCS Stock or
grant any options or warrants to purchase shares of PCS Stock (other than,
prior to the consummation of the Recapitalization, shares of Existing Common
Stock and Class A Common Stock), except: (i) grants of options to purchase PCS
Stock and issuances of PCS Stock pursuant to any employee or director benefit
plan, including stock option and stock purchase plans, (ii) issuances of PCS
Stock pursuant to any dividend reinvestment plan, (iii) issuances of PCS Stock
upon conversion of securities outstanding on the Closing Date which are or
became convertible into shares of PCS Stock, (iv) issuances of PCS Stock
pursuant to the PCS Restructuring and the Recapitalization, (v) issuances of
PCS Stock pursuant to Rights granted under the Rights Agreement, (vi)
issuances in connection with an acquisition or merger and (vii) issuances of
PCS Stock to the Cable Parents, FT and DT upon any exercise of their
respective Equity Purchase Rights. Sprint's executive officers and directors
and senior management of the PCS Group listed under "Management of the PCS
Group" have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of either Warburg
Dillon Read LLC or Salomon Smith Barney Inc., offer, sell, contract to sell or
file or participate in the filing of a registration statement with the SEC
with respect to any shares of PCS Stock or any securities convertible into or
exercisable or exchangeable for PCS Stock (other than, prior to the
consummation of the Recapitalization, shares of Existing Common Stock and
Class A Common Stock), except sales, transfers or surrenders to Sprint and, in
the case of Sprint's directors, sales through the Directors' Shares Plan
Grantor Trust Agreement upon retirement or termination of service. Either
Warburg Dillon Read LLC or Salomon Smith Barney Inc., in its sole discretion,
may release any of the shares of PCS Stock subject to the lock-up at any time
without notice.
176
<PAGE>
Sprint has also entered into 180-day "lock-up" agreements with the Cable
Parents, FT and DT. Sprint has agreed with the Underwriters not to waive any
of its rights under such lock-up agreements, without the consent of either
Warburg Dillon Read LLC or Salomon Smith Barney Inc. See "The Related
Transactions--Lock-Up Agreements."
Sprint has been advised by the Representatives that they intend to make a
market in the Securities, but that they are not obligated to do so and may
discontinue making a market at any time without notice. Sprint has made an
application for listing of the Series 1 PCS Stock on the New York Stock
Exchange under the symbol "PCS."
The U.S. Underwriting Agreement and the International Underwriting Agreement
provide that Sprint will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
Warburg Dillon Read LLC and Salomon Smith Barney Inc., on behalf of the
Underwriters, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Rule 104
of Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the offering size, which creates a short position for the
Underwriters. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Series 1 PCS Stock in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from an Underwriter or a dealer when the Securities
originally sold by such an Underwriter or a dealer are purchased in a covering
transaction to cover syndicate short positions. Such over-allotment,
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Securities to be higher than it would otherwise be in
the absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
Prior to this Offering, there has been no public market for the Series 1 PCS
Stock. The initial public offering price has been determined through
negotiations between Sprint and the Representatives and was based on, among
other things, the PCS Group's financial and operating history and condition,
the prospects of the PCS Group and its industry in general, the management of
the PCS Group and the market prices of securities of companies engaged in
businesses similar to those of the PCS Group. There can, however, be no
assurance that the prices at which the shares of Series 1 PCS Stock will sell
in the public market after this Offering will not be lower than the price at
which they are sold by the Underwriters.
The Representatives and the other Underwriters have been retained to perform
certain investment banking and advisory services for Sprint and its affiliates
from time to time. Sprint retained Warburg Dillon Read LLC and Salomon Smith
Barney Inc. to act as financial advisors in connection with the PCS
Restructuring.
LEGAL MATTERS
The validity of the Series 1 PCS Stock offered in the Offerings will be
passed upon for Sprint by Don A. Jensen, Esq., Vice President and Secretary of
Sprint. As of August 31, 1998, Mr. Jensen was the beneficial owner of
approximately 31,000 shares of Existing Common Stock and had options to
purchase in excess of 60,000 shares of Existing Common Stock. Certain other
legal matters will be passed upon for Sprint by King & Spalding. Certain legal
matters in connection with the Offerings will be passed upon for the
Underwriters by Cravath, Swaine & Moore.
177
<PAGE>
EXPERTS
The consolidated financial statements and consolidated financial statement
schedule of Sprint and the combined financial statements of the PCS Group as
of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 appearing in this Prospectus and in the Registration
Statement (as defined herein) have been audited by Ernst & Young LLP,
independent auditors, as set forth 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 financial statements referred
to above are included in reliance upon such reports given upon the authority
of such firms as experts in accounting and auditing.
The consolidated financial statements of Sprint and the combined financial
statements of the FON Group and the PCS Group appearing in Sprint's Proxy
Statement/Prospectus that forms a part of Registration Statement No. 333-
, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference 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. Such consolidated financial statements of
Sprint and combined financial statements of the FON Group and the PCS Group
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firms as experts in accounting and auditing.
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 set forth 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. Such
consolidated financial statements and consolidated financial statement
schedule are incorporated herein by reference in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
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 as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, included or incorporated by reference in this Prospectus
and the related combined financial statement schedule included elsewhere or
incorporated by reference in the Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports (which
express an unqualified opinion and include an explanatory paragraph referring
to the emergence from the development stage) appearing herein and elsewhere in
the Registration Statement and have been so included or incorporated herein by
reference in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedule of Sprint Spectrum Holding Company, L.P. and subsidiaries as of
December 31, 1997 and 1996, not separately presented in this Prospectus,
incorporated in this Prospectus by reference from the Sprint 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) which is
included or incorporated herein by reference, and has been so included or
incorporated herein by reference in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
178
<PAGE>
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 SEC. 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
SEC 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 New York, Chicago and
Pacific stock exchanges and similar information concerning Sprint can be
inspected and copied at the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, the Chicago Stock Exchange, 440 South LaSalle Street,
Chicago, Illinois 60605 and the Pacific Exchange, 301 Pine Street, San
Francisco, California 94104.
Sprint has filed with the SEC a registration statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the PCS Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. Statements contained in this
Prospectus 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 other documents filed as an exhibit or incorporated
by reference to the Registration Statement of which this Prospectus forms a
part, each such statement being qualified in all respects by such reference.
For further information with respect to Sprint and the PCS Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected, without charge, at the offices of the SEC,
or obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Sprint are
incorporated by reference into this Prospectus:
(i)Sprint's Annual Report on Form 10-K for the fiscal year ended December
31, 1997;
(ii)Sprint's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998;
(iii)Sprint's Current Reports on Form 8-K dated May 26, 1998 and June 29,
1998; and
(iv)Sprint's Proxy Statement/Prospectus that forms a part of Registration
Statement No. 333- .
In addition, all documents filed by Sprint pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the completion of the Offerings shall be deemed to be incorporated by
reference into this Prospectus 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 Prospectus 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
Prospectus except as so modified or superseded.
Sprint hereby undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered,
upon the written or oral request of such person, a copy of any or all of the
information filed by it that has been incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference herein unless such exhibits are specifically incorporated by
reference in such information). Requests for such information should be
directed to Sprint Corporation, 2330 Shawnee Mission Parkway, Westwood, Kansas
66205, Attention: Investor Relations (telephone number: (800) 259-3755).
179
<PAGE>
GLOSSARY
"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 Related
Transactions--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.
"Amended Articles" means the Amended and Restated Articles of Incorporation
of Sprint as in effect upon the filing of the Articles Amendment with the
Kansas Secretary of State.
"Associate" means any associate within the meaning of Rule 12b-2 under the
Exchange Act.
"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, "Closing Price" of a share of any class or
series of capital stock for such 20 Trading Day period means, (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.
"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:
G-1
<PAGE>
(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.
"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 Class A Holders plus
the percentage of Sprint Voting Power they are committed to purchase (but not
pursuant to the Master Agreement until such shares are acquired pursuant to
such agreement), determined on a basis that includes as outstanding the shares
such holders of Class A Common 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, except the Class A
Common 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.
"Controlled Affiliates," as defined in the Restructuring Agreement, means
the "Controlled Affiliate" of (i) any person (other than a Parent or any
subsidiary of a Parent) means the Parent of such person as of the date
G-2
<PAGE>
of the Restructuring and each subsidiary of such Parent 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.
"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 or 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
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 Preference Period," as defined in the Amended 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 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" means (i) if the Offerings are
consummated concurrently with the closing of the PCS Restructuring, the date
that is 180 days following such closing, (ii) if the Offerings are not
consummated concurrently with such closing but are consummated within 120 days
of such closing, the later of the 90th day following the Offerings or 180 days
following such closing, or (iii) if the Offerings are not consummated
concurrently with the closing of the PCS Restructuring, or within 120 days
thereafter, the date that is the 180th day following closing of the PCS
Restructuring, unless any Cable Parent shall decide to exercise one of its
rights to a demand registration after such 120th day following such closing
but prior to such 180th day following such 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 Amended 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.
G-3
<PAGE>
"Distribution Date," as defined in the Rights Agreement, means the earlier
of (i) the close of business on the tenth Business Day after the Stock
Acquisition Date, and (ii) the close of business on the tenth business day (or
such later date as the Sprint Board shall determine prior to such time as any
person becomes an Acquiring Person) after the date of the commencement by any
person (other than Sprint, any subsidiary of Sprint, any employee benefit plan
of Sprint or of any subsidiary of Sprint, or any person or entity organized,
appointed or established by Sprint for or pursuant to the terms of any such
plan) of, or the first public announcement of the intention of such person to
commence, a tender offer or exchange offer, the consummation of which would
result in any person becoming the beneficial owner of Sprint Voting Securities
then outstanding representing 15% or more of the voting power of Sprint.
"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, in the case of Class A Common Stock and PCS Stock
voting together as a single class, one, and in all other cases, 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.
"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.
G-4
<PAGE>
"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, in the case of Class A Common Stock and
PCS Stock voting together as a single class, one, and in all other cases, the
applicable PCS Per Share Vote on such date.
"Existing Common Stock" means Sprint's currently publicly traded Common
Stock, par value $2.50 per share.
"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; 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 after 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;
(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;
G-5
<PAGE>
(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 date the Amended Articles become effective 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 FON Group 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 With Respect To The FON Group 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 Inter-Group 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
attributed to the PCS Group in consideration of such conversion, exchange or
exercise (if any) shall be filed in
G-6
<PAGE>
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 Right," as defined in the Rights Agreement, means one right for
(i) each share of Existing Common Stock outstanding at the time of filing the
PCS Stock Amendment and (ii) each share of Existing Common Stock or FON Stock
issued between the filing of the PCS Stock Amendment (whether originally
issued or delivered from Sprint's treasury) and the Distribution Date, and in
certain circumstances, after the Distribution Date, each such right initially
representing the right to purchase one-thousandth of a share of Preferred
Stock--Sixth Series, upon the terms and subject to the conditions set forth in
the Rights Agreement.
"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.
"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
the Nominating Committee or the Sprint Board 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.
"Initial Conversion Price," as defined in the Certificate of Designations,
means an amount equal to (i) 1.28 multiplied by (ii) the first to be
determined of (A) the price per share of Series 1 PCS Stock sold in the
Offerings
G-7
<PAGE>
and (B) the average of the daily closing prices of the Series 1 PCS Stock for
the 30 consecutive Trading Days ending as of the 45th Trading Day following
the commencement of regular way trading in connection with the
Recapitalization.
"Inter-Group Interest" means an interest of the FON Group in the PCS Group
determined as follows: Sprint has determined the total number of shares of PCS
Stock intended to track the performance of the PCS Group (without considering
the shares to be issued in the Offerings). At the closing, Sprint will issue
46.5% of those shares to the Cable Parents and 1.2% of those shares to FT and
DT (before giving effect to the Offerings and the issuances of PCS Stock to FT
and DT and the Cable Parents upon exercise of their Equity Purchase Rights in
connection with the Offerings). In exchange for the shares to be issued to the
Cable Parents, Sprint will become the sole owner of each entity in the PCS
Group (subject to Cox's minority ownership interest in Cox PCS). The remaining
unissued 52.3% will be represented on the FON Group financial statements as an
ownership interest of the FON Group in the PCS Group. This interest will be
similar to the FON Group holding tracking stock of the PCS Group. Because
Sprint cannot own stock in itself, Sprint will account for this remaining
equity interest in the PCS Group as an "Inter-Group Interest." Until the
Recapitalization occurs, the value of this Inter-Group Interest should be
reflected in the Existing Common Stock and the Class A Common Stock held by
the FT and DT. The shares of PCS Stock that are issued to holders of the
Existing Common Stock in the Recapitalization or issuable in respect of the
Class A Common Stock held by FT and DT will represent substantially all of
this Inter-Group Interest.
"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 FON Group 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
FON Group Inter-Group Interest, (B) the aggregate number of shares of PCS
Stock outstanding on such date, (C) the Number Of Shares Issuable With Respect
To The Existing Class A Equity Interest in the PCS Group on such date and (D)
the Number Of Shares Issuable With Respect To The DT Class A Equity Interest
In The PCS Group on such date. A statement setting forth the Inter-Group
Interest Fraction as of the record date for any dividend or distribution on
the PCS Stock, as of the end of each fiscal quarter of Sprint and as of any
date otherwise required under the Amended Articles or 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.
"Junior Stock," as defined in the Certificate of Designations, means any
stock ranking junior as to dividends or upon liquidation, dissolution or
winding up to the PCS Preferred Stock.
" 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.
"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
G-8
<PAGE>
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.
"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.
"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.
"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 date the
Amended Articles become effective, a number equal
G-9
<PAGE>
to the aggregate number of outstanding shares of DT Class A Stock as of the
date the Amended Articles become effective; 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 certain 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 The Class A Equity Interest In The FON Group to
the extent allocated to shares of DT Class A 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 date the
Amended Articles become effective, a number (rounded up to the nearest whole
share) equal to one-half of the aggregate number of outstanding shares of DT
Class A Stock as of the date the Amended Articles become effective; 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
amount of certain payments made to the holders of DT Class A Stock divided
by the corresponding redemption price per share of PCS Stock, (2) 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 DT Class A Stock, (3) the amount necessary to
reflect the conversion of some or all of this number into a Number Of
Shares Issuable With Respect To The DT Class A Equity Interest In The FON
Group, and (4) the amount necessary to reflect the redemption thereof in
exchange for the issuance of shares of common stock of one or more wholly-
owned subsidiaries of Sprint that hold directly or indirectly all of the
assets and liabilities attributed to the PCS Group; and
(C) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by the number of certain shares of Series 1
PCS Stock or Series 3 PCS Stock issued by Sprint; and
(D) adjusted by the Sprint Board 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 Inter-Group
Interest," as defined in the Amended Articles, means, as of the date the
Amended Articles become effective, 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 date the Amended Articles become
effective, 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 date the Amended Articles become effective; 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,
G-10
<PAGE>
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 Inter-Group 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 Amended Articles;
provided, further, that the Sprint Board may make such subsequent changes
to the calculations made pursuant to subparagraphs (A), (B) and (C)
immediately above as may be required for purposes of accurately determining
such number.
"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 date the Amended Articles become effective, a number equal to the
aggregate number of outstanding shares of Existing Class A Common Stock as of
the date the Amended Articles become effective; 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 certain 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 The 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.
G-11
<PAGE>
"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 date
the Amended Articles become effective, means a number (rounded up to the
nearest whole share) equal to one-half of the aggregate number of outstanding
shares of Existing Class A Common Stock as of the date the Amended Articles
become effective; 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
amount of certain payments made to the holders of Existing Class A Common
Stock divided by the corresponding redemption price per share of PCS Stock,
(2) 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, (3) the amount
necessary to reflect 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 (4) the amount necessary to reflect the
redemption thereof in exchange for the issuance of shares of common stock
of one or more wholly-owned subsidiaries of Sprint that hold directly or
indirectly all of the assets and liabilities attributed to the PCS Group;
and
(C) decreased (but not less than zero), if before such decrease such
number is greater than zero, by the number of certain shares of Series 1
PCS Stock or Series 3 PCS Stock issued by Sprint; and
(D) adjusted by the Sprint Board to properly reflect any other necessary
changes on an equivalent Per Class A PCS Share Basis.
"Old Class A Right," as defined in the Rights Agreement, means one right for
(i) each share of Existing Class A Common Stock held by FT and certain
subsidiaries of FT and outstanding at the time of filing the PCS Stock
Amendment and (ii) each share of Existing Class A Common Stock issued between
the filing of the PCS Stock Amendment (whether originally issued or delivered
from Sprint's treasury) and the Distribution Date, and in certain
circumstances, after the Distribution Date, each such right initially
representing (A) if exercised prior to the filing of the Recapitalization
Amendment, the right to purchase one one-thousandth of a share of Preferred
Stock--Sixth Series of Sprint (subject to adjustment as hereinafter provided),
and (B) if exercised after the filing of the Recapitalization Amendment (x)
the right to purchase one one-thousandth of a share of Preferred Stock--Sixth
Series, for each share represented by the quotient of the Number Of Shares
Issuable With Respect To The Existing Class A Equity Interest In The FON Group
divided by the aggregate number of shares of Existing Class A Common Stock
issued and outstanding at that time, and (y) the right to purchase one one-
thousandth of a share of Preferred Stock--Eighth Series, for each share
represented by the quotient of the Number Of Shares Issuable With Respect To
The Existing Class A Equity Interest In The PCS Group divided by the aggregate
number of shares of Existing Class A Common Stock issued and outstanding at
that time.
"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
G-12
<PAGE>
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 will be the number of shares of PCS Stock
outstanding on such date and the denominator of which will 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 Inter-Group Interest on such
date, (iii) the Number Of Shares Issuable With Respect To The Existing Class A
Equity Interest In The PCS Group on such date and (iv) the Number Of Shares
Issuable With Respect To The DT Class A 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 Sprint shall be filed by Sprint's
Corporate Secretary 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.
"Parity Stock," as defined in the Certificate of Designations, means any
stock ranking on a parity as to dividends or upon liquidation, dissolution or
winding up with the PCS Preferred Stock.
"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 more fully 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
date the Amended Articles become effective pursuant
G-13
<PAGE>
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 pursuant to the Amended
Articles;
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 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 will not be treated as a
G-14
<PAGE>
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.
"PCS Group Percentage Interest," as defined in the Restructuring Agreement,
means, with respect to any person, 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 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 Common 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 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 Group Right," as defined in the Rights Agreement, means one right for
each share of PCS Stock issued between the filing of the PCS Stock Amendment
(whether originally issued or delivered from Sprint's treasury) and the
Distribution Date, and in certain circumstances, after the Distribution Date,
each such right initially representing the right to purchase one one-
thousandth of a share of Preferred Stock--Eighth Series, upon the terms and
subject to the conditions set forth in the Rights Agreement.
"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 Inter-Group Interest and any other Inter-
Group Interests held by the 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 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 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.
"PCS Ratio," as defined in the Amended Articles means the ratio of, if the
Offerings occur concurrently with the PCS Restructuring, the price of a share
of Series 1 PCS Stock in the Offerings to the closing price on the date that
the pricing of the Offerings occurs of a share of Common 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.
G-15
<PAGE>
"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 FON 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 number of votes or 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.
"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 number of votes or 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.
"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.
"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).
"Qualifying Offer," as defined in the Rights Agreement, means an acquisition
of shares of common stock of Sprint pursuant to a tender offer or an exchange
offer for all outstanding shares of common stock of Sprint at a price and on
terms determined by at least a majority of the members of the Sprint Board who
are not officers of Sprint and who are not representatives, nominees, or
affiliates or associates of an Acquiring Person, after receiving advice from
one or more investment banking firms, to be (a) fair to stockholders (taking
into account all factors which such members of the Sprint Board deem relevant
including, without limitation, prices which could reasonably be achieved if
Sprint or its assets were sold on an orderly basis designed to realize maximum
value) and (b) otherwise in the best interests of Sprint and its stockholders.
"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
G-16
<PAGE>
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.
"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) 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.
"Series DT Right," as defined in the Rights Agreement, means one right for
(i) each share of Existing Class A Common Stock held by DT or certain
subsidiaries of DT and outstanding at the time of filing the PCS Stock
Amendment, and (ii) each share of DT Class A Stock issued between the filing
of the PCS Stock Amendment (whether originally issued or delivered from
Sprint's treasury) and the Distribution Date, and in certain circumstances,
after the Distribution Date, each such right initially representing (A) if
exercised prior to the filing of the Recapitalization Amendment, the right to
purchase one one-thousandth of a share of Preferred Stock--Sixth Series, and
(B) if exercised after the filing of the Recapitalization Amendment, (y) the
right to purchase one one-thousandth of a share of Preferred Stock--Sixth
Series for each share represented by the quotient of the Number Of Shares
Issuable With Respect To The DT Class A Equity Interest In The FON Group
divided by the aggregate number of shares of DT Class A Stock issued and
outstanding at such time, and (z) the right to purchase one-thousandth of a
share of Preferred Stock--Eighth Series for each share represented by the
quotient of the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group divided by the aggregate number of shares of
DT Class A Stock issued and outstanding at such time.
"Shares Issuable With Respect To The Class A Equity Interest In The FON
Group," as defined in the Recapitalization Amendment, 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.
"Shares Issuable With Respect To The Class A Equity Interest In The PCS
Group," as defined in the Recapitalization Amendment, 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.
"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.
"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.
G-17
<PAGE>
"Sprint Voting Stock" means the Existing Common Stock, the Class A Common
Stock and the Preferred Stock.
"Stock Acquisition Date," as defined in the Rights Agreement, means the
earlier of the date of (i) the first public announcement (which, for purposes
of this definition, shall include, without limitation, a report filed under
the Exchange Act) by Sprint or an Acquiring Person that an Acquiring Person
has become such or (ii) the first public disclosure of facts by Sprint or an
Acquiring Person indicating that an Acquiring Person has become an Acquiring
Person; provided, however, that a Stock Acquisition Date shall not be deemed
to have occurred if any person shall have inadvertently become an Acquiring
Person and within ten Business Days after the date upon which Sprint shall
first become aware of the occurrence of such an event, the Sprint Board in its
sole discretion (1) approves the beneficial ownership interest then held by
such person, or (2) provides such person a thirty day period to divest a
sufficient number of Sprint Voting Securities so as to decrease the beneficial
ownership of such person to less than 15% of the voting power of the Sprint
Voting Securities then outstanding and such person has so divested at the end
of any such thirty day period.
"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 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.
G-18
<PAGE>
"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.
G-19
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PCS GROUP
Report of Independent Auditors.......................................... F-2
Combined Statements of Operations for the six months ended June 30, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995...... F-3
Combined Balance Sheets as of June 30, 1998 and December 31, 1997 and
1996................................................................... F-4
Combined Statements of Cash Flows for the six months ended June 30, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995...... F-5
Notes to Combined Financial Statements.................................. F-6
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
Independent Auditors' Report............................................ F-12
Combined Balance Sheets as of June 30, 1998 and December 31, 1997 and
1996................................................................... F-13
Combined Statements of Operations for the six months ended June 30, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995...... F-14
Combined Statements of Changes in Partners' Capital for the six months
ended June 30, 1998 and 1997 and for the years ended December 31, 1997,
1996 and 1995.......................................................... F-15
Combined Statements of Cash Flows for the six months ended June 30, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995...... F-16
Notes to Combined Financial Statements.................................. F-17
SPRINT CORPORATION
Report of Independent Auditors.......................................... F-35
Independent Auditors' Report............................................ F-36
Consolidated Statements of Income for the six months ended June 30, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995...... F-37
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997
and 1996............................................................... F-38
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995. F-39
Consolidated Statements of Common Stock and Other Stockholders' Equity
for the six months ended June 30, 1998 and for the years ended December
31, 1997, 1996 and 1995................................................ F-40
Notes to Consolidated Financial Statements.............................. F-41
</TABLE>
F-1
<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
F-2
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER
ENDED JUNE 30, 31,
---------------- ------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses.......................... $ 39.5 $ 3.6 $ 18.5 $ 0.5 $ --
Equity in loss of Sprint Spectrum
Holdings and PhillieCo............ 436.0 221.9 659.6 191.8 31.4
------- ------- ------- ------- ------
Loss before income taxes........... (475.5) (225.5) (678.1) (192.3) (31.4)
Income tax benefit................. 179.9 85.8 259.0 72.6 11.5
------- ------- ------- ------- ------
Net loss .......................... $(295.6) $(139.7) $(419.1) $(119.7) $(19.9)
======= ======= ======= ======= ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-3
<PAGE>
PCS GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -----------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Prepaid expenses and other current assets........ $ 22.6 $ 2.9 $ --
Property, plant and equipment.................... 1,009.5 177.3 --
Investments in Sprint Spectrum Holdings and
PhillieCo....................................... 598.1 968.4 1,175.8
Investment in PCS licenses....................... 544.5 544.5 84.0
Other noncurrent assets ......................... 69.3 -- --
-------- -------- --------
Total........................................ $2,244.0 $1,693.1 $1,259.8
======== ======== ========
LIABILITIES AND GROUP EQUITY
Current liabilities
Current maturities of long-term debt .......... $ 19.9 $ -- $ --
Accounts payable............................... 31.6 17.8 --
Advance from the FON Group..................... 186.3 -- --
Payable to Sprint Spectrum Holdings............ 31.6 19.0 --
Accrued expenses and other current liabilities. 1.9 20.8 --
-------- -------- --------
Total current liabilities.................... 271.3 57.6 --
Construction obligations......................... 474.8 -- --
Capital lease obligations........................ 234.7 -- --
Deferred income taxes and other liabilities...... 314.2 249.6 72.2
Group equity..................................... 949.0 1,385.9 1,187.6
-------- -------- --------
Total........................................ $2,244.0 $1,693.1 $1,259.8
======== ======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-4
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................... $ (295.6) $ (139.7) $ (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............... 436.0 221.9 659.6 191.8 31.4
Deferred income taxes..... 58.5 41.6 175.7 64.2 8.0
Current tax benefit
utilized by the FON
Group.................... (238.4) (127.4) (434.7) (136.8) (19.5)
Changes in assets and
liabilities:
Prepaid expenses and
other current assets... (19.7) (0.4) (2.9) -- --
Accounts payable and
other current
liabilities............ 7.5 19.3 57.6 -- --
Noncurrent assets and
liabilities, net....... (63.2) 0.1 1.3 -- --
-------- -------- --------- -------- -------
Net cash provided (used) by
operating activities....... (114.9) 15.4 37.5 (0.5) --
-------- -------- --------- -------- -------
INVESTING ACTIVITIES
Capital expenditures........ (552.3) (31.8) (153.7) -- --
Purchase of PCS licenses.... -- (433.7) (460.1) (84.0) --
Investments in Sprint
Spectrum Holdings and
PhillieCo.................. (65.7) (86.7) (405.9) (297.5) (910.9)
-------- -------- --------- -------- -------
Net cash used by investing
activities................. (618.0) (552.2) (1,019.7) (381.5) (910.9)
-------- -------- --------- -------- -------
FINANCING ACTIVITIES
Advance from the FON Group.. 186.3 -- -- -- --
Contributions from (to) the
FON Group.................. (165.1) 409.4 547.5 245.2 891.4
Current tax benefit utilized
by the FON Group........... 238.4 127.4 434.7 136.8 19.5
Change in construction
obligations................ 474.8 -- -- -- --
Other....................... (1.5) -- -- -- --
-------- -------- --------- -------- -------
Net cash provided by
financing activities....... 732.9 536.8 982.2 382.0 910.9
-------- -------- --------- -------- -------
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... $ 256.1 $ -- $ -- $ -- $ --
======== ======== ========= ======== =======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-5
<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.
The FON Stock, which will be created in the Recapitalization, is intended to
reflect 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. The entities which comprise the PCS Group are commonly controlled
companies. 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. Transactions between the PCS Group and the FON Group have not been
eliminated.
The Combined Financial Statements of the PCS Group provide holders of PCS
stock with financial information regarding the underlying businesses of the
PCS Group. 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, investors in PCS Stock and FON Stock are stockholders of Sprint
and are subject to risks associated with an investment in a single company and
all of Sprint's businesses, assets and liabilities. Sprint retains all
beneficial ownership and control of the assets and operations of the FON Group
and, after the PCS Restructuring, the PCS Group (subject to a minority
interest). 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.
F-6
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 of
incorporation. 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. The PCS Group launched service in certain of the SprintCom markets
during the third quarter of 1998.
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 for
additional 10-year terms 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. The PCS
Group launched service in certain of the SprintCom markets during the third
quarter of 1998.
F-7
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
--------- ------- --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues... $ 468.0 $ 35.3 $ 258.0 $ 4.2 $ --
========= ======= ========= ======== =======
Operating loss........... $ (933.2) $(477.7) $(1,379.7) $ (357.6) $ (66.9)
========= ======= ========= ======== =======
Net loss................. $(1,073.6) $(555.8) $(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>
F-8
<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 caused the effective income tax rates 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
F-9
<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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, 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.................... (295.6) (139.7) (419.1) (119.7) (19.9)
Contributions from the FON
Group...................... 97.1 584.0 1,052.1 478.3 954.1
Equity transfers to the FON
Group...................... (238.4) (127.4) (434.7) (136.8) (19.5)
-------- -------- -------- -------- ------
Balance at end of period.... $ 949.0 $1,504.5 $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 from the date of the signing of the PCS Restructuring
agreement through the closing date of the PCS Restructuring. 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 cash from operations, commercial paper borrowings and leases on
specific equipment. Sprint intends to continue to fund the buildout of the
SprintCom
F-10
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
markets through the closing of this transaction. The above mentioned loans to
Sprint Spectrum Holdings and SprintCom totaling $510.6 million, may be repaid
from the proceeds of the Offerings (as defined in the Prospectus), but only to
the extent the net proceeds of the Offerings exceed $500 million. It is
Sprint's intent to complete the Offerings concurrently with the PCS
Restructuring. There can be no assurance that the Offerings will occur. In the
event the loans remain outstanding after the Offerings, the remaining balance
will be converted into 10-year preferred stock (or, in the case of Sprint, a
preferred inter-group interest).
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 years 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 (UNAUDITED)
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 $256 million have
been recorded under these arrangements as of June 30, 1998.
F-11
<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 in the period ended December 31, 1997, 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
(August 6, 1998 as to Note 4)
F-12
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -----------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 240,269 $ 124,886 $ 71,098
Accounts receivable, net................ 168,212 116,415 3,315
Receivable from affiliates.............. 23,648 43,006 13,375
Inventory............................... 130,764 103,894 72,414
Prepaid expenses and other assets, net.. 48,674 29,648 14,951
Note receivable--unconsolidated partner-
ship................................... -- -- 226,670
----------- ----------- ----------
Total current assets................... 611,567 417,849 401,823
INVESTMENT IN PCS LICENSES, net.......... 2,848,973 2,386,799 2,207,903
INVESTMENTS IN UNCONSOLIDATED PARTNER-
SHIP(S)................................. -- 273,541 179,086
PROPERTY, PLANT AND EQUIPMENT, net....... 4,277,439 3,538,238 1,441,627
MICROWAVE RELOCATION COSTS, net.......... 312,585 271,612 135,802
MINORITY INTEREST........................ -- 56,667 --
OTHER ASSETS, net........................ 100,881 113,153 77,403
----------- ----------- ----------
TOTAL ASSETS............................. $ 8,151,445 $ 7,057,859 $4,443,644
=========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners.................. $ 185,000 $ 45,000 $ 167,819
Accounts payable........................ 277,589 446,263 214,205
Payable to affiliate.................... -- 11,933 5,626
Accrued interest........................ 103,248 59,605 34,057
Accrued expenses........................ 345,659 237,123 49,482
Current maturities of long-term debt.... 122,720 34,562 49
----------- ----------- ----------
Total current liabilities.............. 1,034,216 834,486 471,238
CONSTRUCTION OBLIGATIONS................. 482,702 705,280 714,934
LONG-TERM DEBT........................... 5,443,711 3,533,954 686,192
OTHER NONCURRENT LIABILITIES............. 73,747 50,103 11,356
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY.............................. 92,267 -- --
PARTNERS' CAPITAL AND ACCUMULATED DEFI-
CIT:
Partners' capital....................... 4,291,583 4,127,244 3,120,479
Accumulated deficit..................... (3,266,781) (2,193,208) (560,555)
----------- ----------- ----------
Total partners' capital................ 1,024,802 1,934,036 2,559,924
----------- ----------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL.. $ 8,151,445 $ 7,057,859 $4,443,644
=========== =========== ==========
</TABLE>
See notes to combined financial statements.
F-13
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- ---------------------------------
1998 1997 1997 1996 1995
----------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 467,977 $ 35,300 $ 258,029 $ 4,175 $ --
OPERATING EXPENSES:
Cost of revenues....... 488,165 139,007 574,343 36,824 --
Selling, general and
administrative........ 593,084 271,320 747,084 313,629 66,719
Depreciation and amor-
tization.............. 319,917 102,642 316,276 11,297 211
----------- --------- ----------- --------- ---------
Total operating ex-
penses.............. 1,401,166 512,969 1,637,703 361,750 66,930
----------- --------- ----------- --------- ---------
LOSS FROM OPERATIONS.... (933,189) (477,669) (1,379,674) (357,575) (66,930)
OTHER INCOME (EXPENSE):
Interest income........ 11,758 18,856 27,817 8,593 476
Interest expense....... (223,438) (13,784) (123,490) (323) --
Other income........... (186) 2,876 5,108 1,586 (19)
Equity in loss of
unconsolidated
partnerships.......... -- (86,067) (168,935) (96,850) (46,206)
----------- --------- ----------- --------- ---------
Total other expense.. (211,866) (78,119) (259,500) (86,994) (45,749)
----------- --------- ----------- --------- ---------
NET LOSS BEFORE MINORITY
INTEREST............... (1,145,055) (555,788) (1,639,174) (444,569) (112,679)
MINORITY INTEREST....... 71,482 -- 6,521 -- --
----------- --------- ----------- --------- ---------
NET LOSS................ $(1,073,573) $(555,788) $(1,632,653) $(444,569) $(112,679)
=========== ========= =========== ========= =========
</TABLE>
See notes to combined financial statements.
F-14
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, 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.................... 164,339 226,729 1,018,500 728,678 2,263,006
Return of capital....... -- (11,735) (11,735) -- --
---------- ---------- ---------- ---------- ----------
Balance at end of peri-
od..................... 4,291,583 3,335,473 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................ (1,073,573) (555,788) (1,632,653) (444,569) (112,679)
---------- ---------- ---------- ---------- ----------
Balance at end of peri-
od..................... (3,266,781) (1,116,343) (2,193,208) (560,555) (115,986)
---------- ---------- ---------- ---------- ----------
TOTAL PARTNERS' CAPITAL. $1,024,802 $2,219,130 $1,934,036 $2,559,924 $2,275,815
========== ========== ========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------------ -----------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net loss............... $(1,073,573) $ (555,788) $(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.................. -- 86,067 168,935 96,850 46,206
Minority interest...... (71,482) -- (6,521) -- --
Depreciation and amor-
tization.............. 319,917 107,642 316,854 11,278 242
Amortization of debt
discount and issuance
costs................. 29,153 22,614 49,061 14,008 --
Changes in assets and
liabilities, net of
effects of
acquisition of APC:
Receivables.......... (9,617) (22,569) (132,026) (16,350) (147)
Inventory............ (17,198) (12,132) (27,398) (72,413) --
Prepaid expenses and
other assets........ (9,288) (8,755) (12,965) (22,513) (178)
Accounts payable and
accrued expenses.... (84,252) 5,048 389,740 251,791 47,836
Other noncurrent lia-
bilities............ 23,644 9,027 38,747 9,500 1,856
----------- ----------- ----------- ---------- ----------
Net cash used in op-
erating activities. (892,696) (368,846) (848,226) (172,418) (16,864)
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Capital expenditures... (662,643) (1,260,929) (2,124,556) (1,419,216) (31,806)
Microwave relocation
costs, net............ (23,982) (87,674) (123,816) (135,828) --
Purchase of PCS li-
censes................ -- -- -- -- (2,085,794)
Purchase of APC, net of
cash acquired......... (28,974) -- (6,764) -- --
Purchase of Cox PCS,
net of cash acquired.. (28,300) -- -- -- --
Investment in unconsol-
idated partnerships... -- 13,657 (191,171) (190,390) (131,752)
Loan to unconsolidated
partnership........... -- (52,344) (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. (743,899) (1,140,620) (2,311,105) (1,971,449) (2,250,007)
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Advances from partners. 140,000 45,000 45,000 167,819 --
Net borrowing under re-
volving credit agree-
ment.................. 1,018,571 390,000 605,000 -- --
Proceeds from issuance
of long-term debt..... 737,030 778,277 1,763,045 674,200 --
Change in construction
obligations........... (276,216) 481,590 (9,654) 714,934 --
Payments on long-term
debt.................. (31,746) (207,843) (170,809) (24) --
Debt issuance costs.... -- (20,000) (20,000) (71,791) --
Partner capital contri-
butions............... 164,339 220,500 1,012,272 728,678 2,263,006
Return of capital...... -- (11,735) (11,735) -- --
----------- ----------- ----------- ---------- ----------
Net cash provided by
financing activi-
ties............... 1,751,978 1,675,789 3,213,119 2,213,816 2,263,006
----------- ----------- ----------- ---------- ----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVA-
LENTS.................. 115,383 166,323 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... $ 240,269 $ 237,421 $ 124,886 $ 71,098 $ 1,149
=========== =========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
. Interest paid, net
of amount capital-
ized................ $ 84,804 $ 27 $ 35,629 $ 323 $ --
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
. Accrued interest of
$78,209 and $51,673
related to vendor
financing was con-
verted to long-term
debt during the six
months ended June
30, 1998 and the
year ended December
31, 1997, respec-
tively.
. A PCS license cover-
ing the Omaha MTA
and valued at $6,229
was contributed to
the Company by Cox
Communications dur-
ing the six months
ended June 30, 1997
and the year ended
December 31, 1997.
</TABLE>
See notes to combined financial statements.
F-16
<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 June 30, 1998:
<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. On May 15, 1996, EquipmentCo was formed to lease or
own wireless communication network equipment, and RealtyCo was formed to lease
or own real property on which wireless communication facilities are to be
located. FinCo was formed on May 20, 1996 to be a co-obligor of the debt
obligations discussed in Note 5.
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 nearly
all of 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.
As discussed in Note 4, Holdings became the managing partner of Cox
Communications PCS, L.P. ("Cox PCS") in June 1998. Cox PCS results have been
included in the combined statements of operations from January 1, 1998. Cox
PCS, through subsidiaries, holds a PCS license for and operates a PCS system
in the Los Angeles-San Diego-Las Vegas MTA. Cox PCS includes Cox PCS License,
L.L.C., Cox PCS Assets, L.L.C., and PCS Leasing Co., L.P.
F-17
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
MINORCO, L.P. ("MINORCO")--MinorCo holds the minority ownership interests of
1% in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at
June 30, 1998, December 31, 1997 and 1996, and APC at June 30, 1998 and
December 31, 1997.
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 June 30, 1998:
<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. (now known as
Holdings), dated as of January 31, 1996 (the "Holdings Agreement"), 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.
F-18
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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. See Note 10 for further discussion regarding a restructuring of
the partnership structure. As of June 30, 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 were not 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.
F-19
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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 APC 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.
In addition, in June 1998, concurrent with the Cox PCS acquisition discussed
in Note 4, Cox Pioneer Partnership ("CPP") became the minority owner in Cox
PCS with CPP's remaining ownership-interest in Cox PCS being recorded as
minority interest in the combined balance sheet. CPP has been allocated
approximately $11.5 million in losses in Cox PCS since the date of
acquisition. Losses attributable to Cox incurred from January 1, 1998 through
May 1998 are included in minority interest in the combined statements of
operations.
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 $26.6 million, $9.3 million and $0.2
million, at June 30, 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, or otherwise disposed of, 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.
F-20
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 in 10-year terms 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 $76.2 million, $46.8 million and $1.7
million as of June 30, 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
$8.6 million and $5.3 million as of June 30, 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 six
months ended June 30, 1998 was approximately $33.2 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 six months ended June 30,
1998 was approximately $20.4 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,
1997 and 1996 is included in Note 5.
F-21
<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 June 30, 1998,
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................... $ 3,281 $ 1,445 $ 905
Buildings and leasehold improvements.... 869,142 641,167 86,496
Fixtures and office furniture........... 226,577 168,301 68,520
Network equipment....................... 2,915,839 2,335,965 255,691
Telecommunications plant--construction
work in progress....................... 786,390 653,133 1,039,620
---------- ---------- ----------
4,801,229 3,800,011 1,451,232
Less accumulated depreciation........... (523,790) (261,773) (9,605)
---------- ---------- ----------
$4,277,439 $3,538,238 $1,441,627
========== ========== ==========
</TABLE>
F-22
<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 six months
ended June 30, 1998 was approximately $282.4 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 approximately $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 PCS--On December 31, 1996, Holdings acquired a 49% limited partner
interest in Cox PCS. CPP held a 50.5% general and a 0.5% limited partner
interest and was the general and managing partner. Holdings increased its
ownership in Cox PCS to 59.2% through an additional capital contribution of
approximately $80.6 million and became managing partner upon FCC approval in
June, 1998. This increase in ownership was the result of CPP exercising its
right under the partnership agreement 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. Through December 2008, CPP may put any remaining interest in
Cox PCS to Holdings.
F-23
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition increasing ownership to 59.2% was accounted for as a
purchase. The operating results of Cox PCS have been consolidated since the
beginning of the year. The following table reflects the value of Cox PCS'
assets and liabilities at the date of acquisition:
<TABLE>
<S> <C>
Assets acquired.............................. $ 724,834
Cash paid.................................... (80,558)
Minority interest............................ (103,780)
---------
Liabilities assumed.......................... $ 540,496
=========
</TABLE>
The purchase price was allocated to the assets acquired and the liabilities
assumed based on an estimate of fair value.
The following unaudited proforma information assumes the acquisition had
occurred on January 1, 1997, and that Holdings had consolidated Cox PCS
results in the financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Net sales................................. $ 295,395
Net loss (before minority interest)....... (1,757,821)
</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 the acquisition of controlling interest, Holdings' investment in
Cox PCS was accounted for under the equity method.
Under the terms of the partnership agreement, CPP and the Company 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. Losses of approximately $108
million for the year ended December 31, 1997, are included in equity in losses
of unconsolidated partnerships during the year prior to the acquisition of
controlling interest. 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 increased its ownership to 59.2% and became general
partner 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.
F-24
<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 June 30, 1998 and December
31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 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 $157,576 at
June 30, 1998; $177,720 and $214,501 at
December 31, 1997 and 1996, respectively... 342,424 322,280 285,499
Credit Facility--term loans................. 300,000 300,000 150,000
Credit Facility--revolving credit........... 1,365,000 605,000 --
Vendor Financing............................ 2,349,789 1,612,914 --
APC Senior Secured Term Loan Facility....... 220,000 220,000 --
APC Senior Secured Reducing Revolving Credit
Facility................................... 200,000 141,429 --
APC--Due To FCC, net of unamortized discount
of $9,991 at June 30, 1998 and $11,989 at
December 31, 1997.......................... 84,695 90,355 --
Cox PCS Credit Facility..................... 200,000 -- --
Cox PCS--Due to FCC......................... 233,069 -- --
Other....................................... 21,454 26,538 742
---------- ---------- --------
Total debt.................................. 5,566,431 3,568,516 686,241
Less current maturities..................... 122,720 34,562 49
---------- ---------- --------
Long-term debt.............................. $5,443,711 $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>
F-25
<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 December 1997, certain terms relating to
the financial and operating conditions were amended. As of June 30, 1998, $1.4
billion had been drawn under the revolving credit facility at a weighted
average interest rate of 8.21% with $300 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
June 30, 1998, and December 31, 1997 and 1996, the weighted average interest
rate on the term loans was 8.19%, 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
F-26
<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 June 30, 1998, $835.2 million, including converted accrued
interest of $46.1 million, had been borrowed at a weighted average interest
rate 8.84% with $510.9 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 December 15, 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 June 30, 1998, the Company had borrowed
approximately $1.5 billion with $383.8 million remaining available under the
Lucent facility, including converted accrued interest of $83.8 million, at a
weighted average interest rate of 8.76%. 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.
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
F-27
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(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.
APC 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.
COX PCS CREDIT FACILITY--On February 25, 1998 Cox PCS entered into a $800
million, nine-year revolving and term loan agreement (the "Cox Credit
Facility") with a bank syndicate. The Cox Credit Facility consists of a
revolving line of credit in an aggregate principal amount of $400 million and
two term loan facilities with aggregate principal amounts of $200 million
each. In February 1998, Cox PCS drew one of the $200 million term loans at an
interest rate of 8.26%. The Cox Credit Facility grants Cox PCS an option to
expand the credit facility up to an additional $750 million from time to time,
upon Cox PCS meeting certain requirements. The proceeds from the loan are
intended to repay the PCS license debt, finance working capital needs,
subscriber acquisition costs, capital expenditures and other general purposes
of Cox PCS. Provisions of the Cox Credit
F-28
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Facility required the transfer of certain of Cox PCS' assets into the special
purpose subsidiaries of Cox PCS to facilitate the collateralization of
substantially all of Cox PCS' assets.
Furthermore, the amounts advanced under the Cox Credit Facility are
guaranteed by each of the special purpose subsidiaries. The Cox Credit
Facility also requires that Cox PCS meet certain operational and financial
covenants. Cox PCS is in compliance as of February 25, 1998 (the funding
date). Amounts borrowed under the facility are to be repaid based on scheduled
repayment dates defined in the credit agreement plus interest at a variable
rate (as defined).
COX PCS DUE TO FCC--In conjunction with the assignment of the PCS license
covering the Los Angeles-San Diego-Las Vegas MTA by CPP to Cox PCS, Cox PCS
assumed the related debt payable to the FCC. The debt requires eight interest-
only payments beginning April 30, 1996 through January 31, 1998. Commencing
April 30, 1998, the debt requires repayment in equal quarterly installments of
$23.7 million representing both principal and interest. The debt is
collateralized by the PCS license above, bears interest at 7.75% per annum and
matures on January 31, 2001.
OTHER DEBT--At December 31, 1997 and June 30, 1998, 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%.
INTEREST RATE CONTRACTS--As of June 30, 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 June 30, 1998 and December
31, 1997 was an unrealized loss of approximately $1.8 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>
F-29
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
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
$68.1 million for the six months ended June 30, 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 $25.1 million for
the six months ended June 30, 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.
On May 8, 1998, the Company amended its procurement and services agreement
with Lucent. The amendment provides for an additional pricing structure for
certain equipment, software and engineering services purchased by the Company
from Lucent after January 1, 1998. Major original contract provisions,
including but not limited to, the length of the contract and the payment
terms, have not been amended. The minimum commitment under the amendment is
approximately $353 million.
F-30
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 was 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.
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 $11.5 million for the six months ended June 30, 1998, and $20.3
million, $12.5 million, and $3.5 million for the years ended December 31,
1997, 1996, and 1995, respectively.
F-31
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 six months ended June 30, 1998, approximately $9.4
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 PLANS--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. 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 $2.9 million for the
six months ended June 30, 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 (the "APC Plan"). 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.
On June 26, 1998, the Partnership Board of Holdings approved the termination
of the APC Plan. The assets of the APC Plan are to be liquidated and settled
by July 30, 1998. On August 1, 1998, the assets of the APC Plan are to be
transferred to Merrill Lynch Trust Company as trustee of the Plan.
Additionally, APC Plan participants will become participants in the Savings
Plan.
The Cox PCS Savings and Investment Plan (the "Cox PCS Plan") was established
effective July 1, 1997. Substantially all Cox PCS employees are eligible to
participate in the Cox PCS Plan after completing one year of eligible service
(as defined) and attaining age 21. Employees may make contributions to the Cox
PCS Plan on a pretax basis pursuant to Section 401(k) of the Internal Revenue
Code. Cox PCS makes matching contributions equal to 75% of the employee's
contribution up to a maximum amount equal to 4.5% of the employee's annual
compensation. Employee contributions vest immediately, and Cox PCS' matching
contributions vest over three years of service. Expense under the Cox PCS Plan
approximated $0.6 million for the six months ended June 30, 1998.
F-32
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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 years ended December 31, 1997 and 1996, allocable costs of
approximately $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 $1.6
million and $7.3 million were included in receivables from affiliates in the
respective combined balance sheets for December 31, 1997 and 1996,
respectively. 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 $31.2 million and $6 million at 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 six months ended June 30, 1998
and for the year ended December 31, 1997, costs for services provided of $22.4
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 $14.1 million and $14.0 million are included in receivables from
affiliates at June 30, 1998 and December 31, 1997, respectively. No such costs
were incurred in 1996.
F-33
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 six months ended June 30, 1998
and the years ended December 31, 1997 and 1996, Sprint Communications received
agency fees of approximately $5.0 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. Subsequent to
December 31, 1997 and through June 30, 1998, the PhillieCo Partners advanced
an additional $50 million to PhillieCo I. Additionally, during that same
period, Sprint advanced an additional $90 million to PhillieCo I. These
advances accrue interest at rates from prime to prime plus 1 5/8%. All of the
above advances have maturity dates of the earliest of the following events:
(i) the 90th day following the closing date of the restructuring of the
partnership, or (ii) if the restructuring does not occur, the date of the
closing of the buy/sell arrangements that would occur under the partnership
agreement in connection with the deadlock event discussed in Note 1, or (iii)
December 31, 1999.
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") subject to 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 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 of the PCS
Restructuring. 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.
F-34
<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
F-35
<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
F-36
<PAGE>
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET OPERATING REVENUES.... $7,878.1 $7,246.0 $14,873.9 $13,887.5 $12,735.3
OPERATING EXPENSES
Costs of services and
products............... 3,775.8 3,644.5 7,451.0 6,912.9 6,504.9
Selling, general and
administrative......... 1,822.4 1,571.2 3,245.2 3,116.4 2,842.1
Depreciation and
amortization........... 936.1 830.1 1,726.3 1,591.0 1,466.4
Restructuring costs..... -- -- -- -- 87.6
-------- -------- --------- --------- ---------
Total operating
expenses............... 6,534.3 6,045.8 12,422.5 11,620.3 10,901.0
-------- -------- --------- --------- ---------
OPERATING INCOME.......... 1,343.8 1,200.2 2,451.4 2,267.2 1,834.3
Interest expense.......... (128.0) (85.5) (187.2) (196.7) (260.7)
Equity in loss of Global
One...................... (86.9) (47.3) (162.1) (82.1) (22.9)
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo................ (436.0) (221.9) (659.6) (191.8) (31.4)
Other income (expense),
net...................... 38.5 54.7 140.5 115.3 (38.9)
-------- -------- --------- --------- ---------
Income from continuing
operations before income
taxes.................... 731.4 900.2 1,583.0 1,911.9 1,480.4
Income taxes.............. (301.4) (354.3) (630.5) (721.0) (534.3)
-------- -------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS............... 430.0 545.9 952.5 1,190.9 946.1
Discontinued operation,
net...................... -- -- -- (2.6) 14.5
Extraordinary items, net.. (4.4) -- -- (4.5) (565.3)
-------- -------- --------- --------- ---------
NET INCOME................ 425.6 545.9 952.5 1,183.8 395.3
Preferred stock dividends. (0.5) (0.5) (1.0) (1.3) (2.6)
-------- -------- --------- --------- ---------
Earnings applicable to
common stock............. $ 425.1 $ 545.4 $ 951.5 $ 1,182.5 $ 392.7
======== ======== ========= ========= =========
BASIC EARNINGS PER COMMON
SHARE
Continuing operations... $ 1.00 $ 1.27 $ 2.21 $ 2.82 $ 2.71
Discontinued operation.. -- -- -- (0.01) 0.04
Extraordinary items..... (0.01) -- -- (0.01) (1.62)
-------- -------- --------- --------- ---------
Total..................... $ 0.99 $ 1.27 $ 2.21 $ 2.80 $ 1.13
======== ======== ========= ========= =========
Basic weighted average
common shares............ 430.3 430.5 430.2 421.7 348.7
======== ======== ========= ========= =========
DILUTED EARNINGS PER
COMMON SHARE
Continuing operations... $ 0.98 $ 1.25 $ 2.18 $ 2.79 $ 2.69
Discontinued operation.. -- -- -- (0.01) 0.04
Extraordinary items..... (0.01) -- -- (0.01) (1.61)
-------- -------- --------- --------- ---------
Total..................... $ 0.97 $ 1.25 $ 2.18 $ 2.77 $ 1.12
======== ======== ========= ========= =========
Diluted weighted average
common shares............ 439.0 436.2 436.5 427.0 351.3
======== ======== ========= ========= =========
DIVIDENDS PER COMMON
SHARE.................... $ 0.50 $ 0.50 $ 1.00 $ 1.00 $ 1.00
======== ======== ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-37
<PAGE>
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents....................... $ 93.3 $ 101.7 $ 1,150.6
Accounts receivable, net of allowance for
doubtful accounts of $159.7 (unaudited),
$146.7 and $117.4......................... 2,492.6 2,495.6 2,343.6
Inventories................................ 381.0 352.0 305.3
Prepaid expenses........................... 228.0 159.1 150.0
Notes and other receivables................ 384.8 443.4 101.9
Other...................................... 178.3 199.6 181.5
--------- --------- ---------
Total current assets..................... 3,758.0 3,751.4 4,232.9
Investments in equity securities............. 367.4 303.0 254.5
Property, plant and equipment
Long distance communications services...... 8,838.2 8,245.5 7,467.8
Local communications services.............. 14,536.7 14,011.5 13,368.7
Other...................................... 1,888.2 953.9 574.3
--------- --------- ---------
Total property, plant and equipment........ 25,263.1 23,210.9 21,410.8
Less accumulated depreciation.............. 12,375.4 11,716.8 10,946.7
--------- --------- ---------
Net property, plant and equipment........ 12,887.7 11,494.1 10,464.1
Investment in and advances to Sprint Spectrum
Holdings and PhillieCo...................... 732.8 989.6 1,242.9
Investments in and advances to other
affiliates.................................. 560.2 459.1 284.2
Other assets................................. 1,484.6 1,187.6 347.8
--------- --------- ---------
Total.................................... $19,790.7 $18,184.8 $16,826.4
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt....... $ 115.8 $ 131.0 $ 99.1
Short-term borrowings...................... -- -- 200.0
Accounts payable........................... 1,251.7 1,100.1 1,026.7
Accrued interconnection costs.............. 569.0 672.7 709.0
Accrued taxes.............................. 354.6 270.7 189.2
Advance billings........................... 211.3 202.9 199.7
Other...................................... 704.0 699.4 770.6
--------- --------- ---------
Total current liabilities................ 3,206.4 3,076.8 3,194.3
Construction obligations..................... 474.8 -- --
Long-term debt............................... 4,406.2 3,748.6 2,974.8
Deferred credits and other liabilities
Deferred income taxes and investment tax
credits................................... 979.9 1,016.5 846.9
Postretirement and other benefit
obligations............................... 1,068.1 947.4 919.7
Other...................................... 422.6 358.8 359.0
--------- --------- ---------
Total deferred credits and other
liabilities............................. 2,470.6 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 343.9 (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... 4,479.0 4,457.7 4,425.9
Retained earnings.......................... 3,899.0 3,693.1 3,222.4
Treasury stock, at cost, 6.4 (unaudited),
6.5 and 6.4 shares........................ (343.0) (292.9) (262.2)
Other...................................... 96.9 76.0 42.5
--------- --------- ---------
Total common stock and other
stockholders' equity.................... 9,223.2 9,025.2 8,519.9
--------- --------- ---------
Total.................................... $19,790.7 $18,184.8 $16,826.4
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-38
<PAGE>
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................. $ 425.6 $ 545.9 $ 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............... 521.9 271.0 843.7 273.7 39.1
Extraordinary items, net.. 1.1 -- -- 4.9 565.3
Depreciation and
amortization............. 936.1 830.1 1,726.3 1,591.0 1,466.4
Deferred income taxes and
investment tax credits... (16.9) 88.5 165.7 (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.................... 3.0 (42.8) (127.0) (982.1) (135.4)
Inventories and other
current assets......... (29.2) (5.4) (94.4) 15.7 (38.6)
Accounts payable and
other current
liabilities............ 139.9 (153.1) 18.0 362.0 178.1
Noncurrent assets and
liabilities, net....... (52.9) 16.1 (18.4) (25.5) 123.0
Other, net................ 4.5 (5.9) 5.8 (17.1) 6.4
-------- -------- -------- -------- --------
Net cash provided by
continuing operations...... 1,933.1 1,544.4 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....... 1,933.1 1,544.4 3,379.0 2,403.5 2,772.1
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Capital expenditures........ (2,040.7) (1,268.1) (2,862.6) (2,433.6) (1,857.3)
Purchase of PCS licenses.... -- (433.7) (460.1) (84.0) --
Investments in and loans to
Sprint Spectrum Holdings
and PhillieCo.............. (179.3) (88.0) (706.3) (561.0) (954.1)
Investments in and loans to
other affiliates, net...... (271.7) (52.8) (385.5) (81.4) (37.8)
Paranet acquisition......... -- -- (375.0) -- --
Proceeds from sales of
assets..................... -- -- 292.3 2.1 6.7
Other, net.................. (17.2) 14.3 (2.3) 42.4 (17.1)
-------- -------- -------- -------- --------
Net cash used by continuing
operations................. (2,508.9) (1,828.3) (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................. (2,508.9) (1,828.3) (4,499.5) (1,856.2) (3,184.2)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Payments on long-term debt.. (164.6) (70.1) (135.0) (433.1) (630.0)
Proceeds from long-term
debt....................... 495.2 -- 866.5 9.4 260.7
Change in construction
obligations................ 474.8 -- -- -- --
Net change in short-term
borrowings................. -- (200.0) (200.0) (1,986.8) 1,109.5
Proceeds from Class A common
stock issued............... -- -- -- 3,661.3 --
Dividends paid.............. (205.2) (188.6) (430.0) (419.6) (351.5)
Treasury stock purchased.... (110.4) (73.8) (144.5) (407.2) --
Other, net.................. 77.6 57.5 114.6 55.1 33.9
-------- -------- -------- -------- --------
Net cash provided (used) by
financing activities....... 567.4 (475.0) 71.6 479.1 422.6
-------- -------- -------- -------- --------
Increase (Decrease) in Cash
and Equivalents............ (8.4) (758.9) (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.................. $ 93.3 $ 391.7 $ 101.7 $1,150.6 $ 124.2
======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-39
<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).. -- -- -- -- 425.6 -- -- 425.6
Common stock dividends
(unaudited)............ -- -- -- -- (172.3) -- -- (172.3)
Class A common stock
dividends (unaudited).. -- -- -- -- (43.1) -- -- (43.1)
Treasury stock purchased
(unaudited)............ (1.7) -- -- -- -- (110.4) -- (110.4)
Treasury stock issued
(unaudited)............ 1.8 -- -- 0.5 (5.7) 52.8 -- 47.6
Other, net (unaudited).. -- -- -- 20.8 1.4 7.5 20.9 50.6
----- ------- ------- --------- --------- -------- ------ ---------
JUNE 30, 1998 BALANCE
(unaudited)............ 430.1 $ 875.7 $ 215.6 $ 4,479.0 $ 3,899.0 $ (343.0) $ 96.9 $ 9,223.2
===== ======= ======= ========= ========= ======== ====== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-40
<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 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,
which after the PCS Restructuring will be 100% owned by Sprint (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), will be
referred to as the PCS Group.
The FON Stock, which will be created in the Recapitalization, is intended to
reflect 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
F-41
<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
F-42
<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, PhillieCo and Global One.
Sprint is a 40% partner in Sprint Spectrum Holdings, a partnership with TCI,
Comcast and Cox and a 47.1% partner in PhillieCo, a partnership with TCI and
Cox. Sprint Spectrum Holdings and PhillieCo are 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 and TCI and Cox in PhillieCo.
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>
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
--------- ------- --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues...... $ 468.0 $ 35.3 $ 258.0 $ 4.2 $ --
========= ======= ========= ======== =======
Operating loss.............. $ (933.2) $(477.7) $(1,379.7) $ (357.6) $ (66.9)
========= ======= ========= ======== =======
Net loss.................... $(1,073.6) $(555.8) $(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>
F-43
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At year-end 1997 and 1996, Sprint's investment in Sprint Spectrum Holdings,
including advances and a vendor financing loan, totaled $1.2 billion.
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 is as follows (in
millions):
<TABLE>
<CAPTION>
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------
1998 1997 1997 1996 1995
-------- ------- -------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues......... $1,052.1 $ 952.8 $1,937.6 $1,723.7 $779.5
======== ======= ======== ======== ======
Operating income (loss)........ $ (226.2) $(257.1) $ (782.5) $ (436.4) $ 8.6
======== ======= ======== ======== ======
Net income (loss).............. $ (303.2) $(327.0) $ (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.
F-44
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-45
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-46
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
The differences that caused Sprint's effective income tax rates 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."
F-47
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-48
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
F-49
<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 stockholder may elect a majority
of directors standing for election until all dividends in arrears have been
paid.
F-50
<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. On June 29, 1998, the Sprint Board approved an
amendment to Sprint's Shareholder Rights Plan to be effective on the filling
of the PCS Stock Amendment with the Kansas Secretary of State. See Note 1 for
a discussion of the PCS Restructuring, which necessitated the PCS Stock
Amendment.
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.
F-51
<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.
F-52
<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.
F-53
<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. In June
1998, the court approved the class action settlement; however, a number of
potential class members have decided not to participate in the settlement and
another group of potential class members have appealed from the order
approving the class action 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).
F-54
<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-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.
F-55
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 8.7 and 5.7 million shares (unaudited) for the
six months ended June 30, 1998 and 1997, respectively.
F-56
<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.
F-57
<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.
F-58
<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.
F-59
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. ADDITIONAL FINANCIAL INFORMATION
SUPPLEMENTAL CASH FLOWS INFORMATION (IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31
------------- --------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest (net of amounts capitalized)
Continuing operations................... $126.0 $ 89.7 $197.9 $212.1 $263.5
====== ====== ====== ====== ======
Cellular division....................... $ -- $ -- $ -- $ 21.5 $124.0
====== ====== ====== ====== ======
Income taxes.............................. $224.0 $217.1 $365.8 $695.3 $532.8
====== ====== ====== ====== ======
Noncash activities:
Capital lease obligations................. $256.1 $ 30.0 $ 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.
F-60
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires all derivatives to be
recorded on the balance sheet as either assets or liabilities and measured at
fair value. Gains or losses resulting from changes in the values of the
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. Sprint will adopt SFAS 133
beginning January 1, 2000. This statement is not expected to have a material
impact on Sprint.
19. SUBSEQUENT EVENTS (UNAUDITED)
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, and record the related gain in late 1998.
20. COMPREHENSIVE INCOME (UNAUDITED)
In 1998, Sprint adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS
130 establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income includes all changes in equity
during a period except those due to owner investments and distributions. It
includes items such as foreign currency translation adjustments, and
unrealized gains and losses on available-for-sale securities. This standard
does not change the display or components of present-day net income; rather,
comprehensive income is displayed as a separate statement in the Consolidated
Statements of Comprehensive Income and as an additional component in the
Consolidated Balance Sheets, and the Consolidated Statement of Common Stock
and Other Shareholders' Equity.
Total comprehensive income amounted to $432 million during the first six
months of 1998 and $554 million during the first six months of 1997.
F-61
<PAGE>
SPRINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
</TABLE>
<TABLE>
<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.
F-62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SPRINT, ANY UNDERWRITER OR
BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY A SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors--The PCS Group............................................... 23
Risk Factors--The Tracking Stocks ........................................ 29
Special Note Regarding Forward-Looking Statements......................... 38
Use of Proceeds........................................................... 39
Dividend Policy........................................................... 39
Capitalization of the PCS Group........................................... 40
Capitalization of Sprint Corporation...................................... 41
Historical PCS Group Selected Financial Data.............................. 42
PCS Group Unaudited Pro Forma Condensed Combined Financial Statements..... 43
PCS Group Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 50
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Selected Financial Data.................................................. 58
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 59
Sprint Corporation Selected Financial Data................................ 69
Sprint Corporation Unaudited Pro Forma Condensed Combined Financial
Statements............................................................... 70
Sprint Corporation Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 77
Business of the PCS Group................................................. 90
Management of the PCS Group............................................... 103
The Related Transactions.................................................. 105
Tracking Stock Policies................................................... 123
Registration Rights....................................................... 127
Future Inter-Group Interest............................................... 137
Anti-Takeover Considerations.............................................. 139
Description of Capital Stock.............................................. 143
Beneficial Ownership of PCS Stock......................................... 170
Certain Federal Income Tax Consequences................................... 171
Underwriting.............................................................. 174
Legal Matters............................................................. 177
Experts................................................................... 178
Available Information..................................................... 179
Incorporation of Documents by Reference................................... 179
Glossary.................................................................. G-1
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
SPRINT CORPORATION
PCS COMMON STOCK--SERIES 1
-------
U.S. PROSPECTUS
, 1998
-------
JOINT GLOBAL COORDINATORS
AND BOOK RUNNERS:
WARBURG DILLON READ LLC
SALOMON SMITH BARNEY
-------
SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
J.P. MORGAN & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SPRINT, ANY UNDERWRITER OR
BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY A SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors--The PCS Group............................................... 23
Risk Factors--The Tracking Stocks ........................................ 29
Special Note Regarding Forward-Looking Statements......................... 38
Use of Proceeds........................................................... 39
Dividend Policy........................................................... 39
Capitalization of the PCS Group........................................... 40
Capitalization of Sprint Corporation...................................... 41
Historical PCS Group Selected Financial Data.............................. 42
PCS Group Unaudited Pro Forma Condensed Combined Financial Statements..... 43
PCS Group Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 50
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Selected Financial Data.................................................. 58
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 59
Sprint Corporation Selected Financial Data................................ 69
Sprint Corporation Unaudited Pro Forma Condensed Combined Financial
Statements............................................................... 70
Sprint Corporation Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 77
Business of the PCS Group................................................. 90
Management of the PCS Group............................................... 103
The Related Transactions.................................................. 105
Tracking Stock Policies................................................... 123
Registration Rights....................................................... 127
Future Inter-Group Interest............................................... 137
Anti-Takeover Considerations.............................................. 139
Description of Capital Stock.............................................. 143
Beneficial Ownership of PCS Stock......................................... 170
Certain Federal Income Tax Consequences................................... 171
Underwriting.............................................................. 174
Legal Matters............................................................. 177
Experts................................................................... 178
Available Information..................................................... 179
Incorporation of Documents by Reference................................... 179
Glossary.................................................................. G-1
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
SPRINT CORPORATION
PCS COMMON STOCK--SERIES 1
-------
INTERNATIONAL PROSPECTUS
, 1998
-------
JOINT GLOBAL COORDINATORS
AND BOOK RUNNERS:
WARBURG DILLON READ
SALOMON SMITH BARNEY
INTERNATIONAL
-------
SALOMON SMITH BARNEY
INTERNATIONAL
WARBURG DILLON READ
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
J.P. MORGAN SECURITIES LTD.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimated, except the
SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $178,107
New York Stock Exchange listing fees...............................
Accounting fees and expenses.......................................
Legal fees and expenses............................................
Printing and engraving expenses....................................
Transfer Agent and Registrar fees and expenses.....................
Miscellaneous expenses.............................................
--------
Total............................................................ $
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following summary is qualified in its entirety by reference to the
complete text of the statute referred to below and the Registrant's Restated
Articles of Incorporation and Bylaws.
Under Section 17-6305 of the Kansas General Corporation Code (the "Kansas
Code"), a corporation may indemnify a director, officer, employee or agent of
the corporation (or other entity if such person is serving in such capacity at
the corporation's request) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. In the case of an action brought by
or in the right of a corporation, the corporation may indemnify a director,
officer, employee or agent of the corporation (or other entity if such person
is serving in such capacity at the corporation's request) against expenses
(including attorneys' fees) actually and reasonably incurred by him if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless a court determines that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnification for such expenses as the court shall
deem proper. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil or criminal suit or proceeding may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation.
Consistent with Section 17-6305 of the Kansas Code, Article IV, Section 10
of the Bylaws of the Registrant provide that the Registrant will indemnify its
directors and officers against expenses, judgments, fines and amounts paid in
settlement in connection with any action, suit or proceeding if the director
or officer acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the Registrant. With respect to a
criminal action or proceeding, the director or officer must also have had no
reasonable cause to believe his conduct was unlawful.
In accordance with Section 17-6002(b)(8) of the Kansas Code, the
Registrant's Restated Articles of Incorporation provides that directors shall
not be personally liable for monetary damages for breaches of
II-1
<PAGE>
their fiduciary duty as directors except for (i) breaches of their duty of
loyalty to the Registrant or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or knowing violations of
law, (iii) certain transactions under Section 17-6424 of the Kansas Code
(unlawful payment of dividends) or (iv) transactions from which a director
derives an improper personal benefit.
Under Article IV, Section 10 of the Bylaws of the Registrant, the Registrant
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Registrant, or who is or was
serving at the request of the Registrant as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability arising out of his status as such, whether or
not the Registrant would have the power to indemnify such persons against
liability. The Registrant carries standard directors and officers liability
coverage for its directors and officers and the directors and officers of its
subsidiaries. Subject to certain limitations and exclusions, the policies
reimburse the Registrant for liabilities indemnified under the Bylaws and
indemnify the directors and officers against additional liabilities not
indemnified under the Bylaws.
The Registrant has entered into indemnification agreements with its
directors and officers. These agreements provide for the indemnification, to
the full extent permitted by law, of expenses, judgments, fines, penalties and
amounts paid in settlement incurred by the director or officer in connection
with any threatened, pending or completed action, suit or proceeding on
account of service as a director, officer, employee or agent of the
Registrant.
Reference is made to the indemnity agreements contained in the U.S.
Underwriting Agreement and the International Underwriting Agreement relating
to the securities being registered filed as Exhibit 1.1 and Exhibit 1.2 to the
Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of U.S. Underwriting Agreement between Sprint Corporation and the
U.S. Underwriters.
1.2* Form of International Underwriting Agreement between Sprint
Corporation and the International Underwriters.
2.1 Restructuring and Merger Agreement By and Among Sprint Corporation,
Tele-Communications, Inc., Comcast Corporation, Cox Communications,
Inc. and certain of their subsidiaries, dated as of May 26, 1998
(filed as Exhibit 2 to Sprint Corporation Current Report on Form 8-K
dated May 26, 1998 and incorporated herein by reference).
4.1 The rights of Sprint's equity security holders are defined in the
Fifth, Sixth, Seventh and Eighth Articles of Sprint's Articles of
Incorporation (filed as Exhibit 3(a) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference).
4.2* The rights of Sprint's equity security holders as of the completion of
the PCS Restructuring will be defined in the Fifth, Sixth, Seventh and
Eighth Articles of Sprint's Amended and Restated Articles of
Incorporation (filed as part of Annex IV (pages IV-1 through IV-79) in
the Prospectus/Proxy Statement forming a part of Sprint Corporation
Registration Statement on Form S-4 Registration No. 333- , and
incorporated herein by reference).
4.3* The rights of Sprint's equity security holders as of the consummation
of the Recapitalization will be defined in the Fifth, Sixth, Seventh
and Eighth Articles of Sprint's Amended and Restated Articles of
Incorporation (filed as part of Annex IV (pages IV-80 through IV-177)
in the Prospectus/Proxy Statement forming a part of Sprint Corporation
Registration Statement on Form S-4 Registration No. 333- , and
incorporated herein by reference).
4.4 Standstill Agreement dated as of July 31, 1995, by and among Sprint
Corporation, France Telecom S.A. and Deutsche Telekom AG (filed as
Exhibit (10)(c) to Sprint Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 and incorporated herein by
reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
4.5 Rights Agreement dated as of June 9, 1997, between Sprint Corporation
and UMB Bank, n.a. as Rights Agent (filed as Exhibit 1 to Sprint
Corporation Registration Statement on Form 8-A dated June 12, 1997
(File No. 1-4721), and incorporated herein by reference).
4.6 Amendments to Certain Agreements and Interpretation, dated June 24,
1997, by and among Sprint Corporation, France Telecom S.A. and
Deutsche Telekom AG (filed as Exhibit 4(d) to Sprint Corporation
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference).
4.7 Form of Amended and Restated Rights Agreement between Sprint
Corporation and UMB Bank, n.a., as Rights Agent (filed as Exhibit 4.1
to Sprint Corporation Current Report on Form 8-K dated June 29, 1998
and incorporated herein by reference).
4.8 Form of Amended and Restated Standstill Agreement by and among Sprint
Corporation, France Telecom S.A. and Deutsche Telekom AG (filed as
Exhibit 4.2 to Sprint Corporation Current Report on Form 8-K dated
June 29, 1998 and incorporated herein by reference).
5.1* Opinion of Don A. Jensen as to the legality of the securities being
registered.
8.1* Opinion of King & Spalding regarding tax matters.
10.1* Form of Amended and Restated Registration Rights Agreement among
Sprint Corporation, France Telecom S.A. and Deutsche Telekom A.G.
10.2* Form of Registration Rights Agreement among Sprint Corporation, Tele-
Communications, Inc., Comcast Corporation and Cox Communications, Inc.
10.3 Form of Standstill Agreement, dated May 26, 1996, between Sprint
Corporation and each of Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc.
10.4 Employment Agreement, dated as of July 29, 1996, between Sprint
Spectrum Holding Company, L.P. and Andrew Sukawaty (filed as Exhibit
10.20 to Sprint Spectrum L.P. Registration Statement on Form S-1,
Registration No. 333-06609 and incorporated herein by reference).
10.5 Senior Note Indenture, dated August 15, 1996, among Sprint Spectrum
L.P., Sprint Spectrum Finance Corporation, and The Bank of New York,
as Trustee (filed as Exhibit 4.1 to Sprint Spectrum L.P. Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference).
10.6 Senior Discount Note Indenture, dated August 15, 1996, between Sprint
Spectrum L.P., Sprint Spectrum Finance Corporation, and The Bank of
New York, as Trustee (filed as Exhibit 4.3 to Sprint Spectrum L.P.
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
and incorporated herein by reference).
10.7 Credit Agreement, dated as of October 2, 1996, between Sprint Spectrum
L.P. and Northern Telecom Inc. (filed as Exhibit 10.28 to Sprint
Spectrum L.P. Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference).
10.8 Credit Agreement, dated as of October 2, 1996, between Sprint Spectrum
L.P. and Lucent Technologies Inc. (filed as Exhibit 10.29 to Sprint
Spectrum, L.P. Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference).
10.9 Credit Agreement, dated as of October 2, 1996, among Sprint Spectrum
L.P., the several banks and other financial institutions and entities
from time to time parties to the Credit Agreement and The Chase
Manhattan Bank, as administrative agent for the lenders (filed as
Exhibit 10.30 to Sprint Spectrum, L.P. Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and incorporated herein by
reference).
10.10 Trust Agreement, dated as of October 2, 1996 among Sprint Spectrum
L.P., First Union National Bank and Kenneth D. Benton (filed as
Exhibit 10.31 to Sprint Spectrum, L.P. Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and incorporated herein by
reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.11 Pledge Agreement, dated as of October 2, 1996, made by Sprint Spectrum
L.P. and MinorCo, L.P. in favor of the Trustees under the Trust
Agreement (filed as Exhibit 10.32 to Sprint Spectrum, L.P. Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and
incorporated herein by reference).
10.12 Borrower Security Agreement, dated as of October 2, 1996, made by
Sprint Spectrum L.P. and MinorCo, L.P. in favor of the Trustees under
the Trust Agreement (filed as Exhibit 10.33 to Sprint Spectrum, L.P.
Annual Report on Form 10-K for the fiscal year ended December 31, 1996
and incorporated herein by reference).
10.13 Subsidiary Security Agreement, dated as of October 2, 1996, made by
Sprint Spectrum L.P. and MinorCo, L.P. in favor of the Trustees under
the Trust Agreement (filed as Exhibit 10.34 to Sprint Spectrum, L.P.
Annual Report on Form 10-K for the fiscal year ended December 31, 1996
and incorporated herein by reference).
10.14 Guarantee, dated as of October 2, 1996, by WirelessCo, L.P. in favor
of the trustees under the Trust Agreement (filed as Exhibit 10.35 to
Sprint Spectrum, L.P. Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and incorporated herein by reference).
10.15 Guarantee, dated as of October 2, 1996, by Sprint Spectrum Equipment
Company, L.P. in favor of the Trustees under the Trust Agreement
(filed as Exhibit 10.36 to Sprint Spectrum, L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1996 and incorporated
herein by reference).
10.16 Guarantee, dated as of October 2, 1996, by Sprint Spectrum realty
Company, L.P. in favor of the Trustees under the Trust Agreement
(filed as Exhibit 10.37 to Sprint Spectrum, L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1996 and incorporated
herein by reference).
10.17 Amendment No. 1 dated as of May 29, 1997, to the Credit Agreement,
dated as of October 2, 1996, among Sprint Spectrum L.P., Lucent
Technologies Inc., the several banks and other financial institutions
and entities from time to time parties to the Credit Agreement and
Lucent Technologies Inc., as agent for the Lenders (filed as Exhibit
10.1 to Sprint Spectrum, L.P. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).
10.18 First Amendment dated as of April 30, 1997, to the Credit Agreement
dated as of October 2, 1996, among Sprint Spectrum L.P., Northern
Telecom Inc., the several banks and other financial institutions and
entities from time to time parties to the Credit Agreement and Bank of
America NT & SA, as agent for the Lenders (filed as Exhibit 10.2 to
Sprint Spectrum, L.P. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 and incorporated herein by reference).
10.19 First Amendment dated as of December 15, 1997 to the Credit Agreement,
dated as of October 2, 1996, among Sprint Spectrum L.P., the several
banks and other financial institutions and entities from time to time
parties to the Credit Agreement and The Chase Manhattan Bank, as
Administrative Agent for the Lenders (filed as Exhibit 10.9 to Sprint
Spectrum, L.P. Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference).
10.20 Second Amendment dated as of December 15, 1997 to the Credit Agreement
dated as of October 2, 1996, among Sprint Spectrum L.P., Lucent
Technologies Inc., the several banks and other financial institutions
and entities from time to time parties to the Credit Agreement and The
Chase Manhattan Bank, as agent for the Lenders (filed as Exhibit 10.10
to Sprint Spectrum L.P. Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and incorporated herein by reference).
10.21 Second Amendment dated as of November 20, 1997 to the Credit Agreement
dated as of October 2, 1996, among Sprint Spectrum L.P., Northern
Telecom Inc., the several banks and other financial institutions and
entities from time to time parties to the Credit Agreement and Bank of
America NT and SA, as agent for the Lenders (filed as Exhibit 10.10 to
Sprint Spectrum L.P. Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and incorporated herein by reference).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.22 Master Restructuring and Investment Agreement among Sprint
Corporation, France Telecom S.A. and Deutsche Telekom AG, dated as of
May 26, 1998 (filed as Exhibit 99(B) to Sprint Corporation Current
Report on Form 8-K dated May 26, 1998 and incorporated herein by
reference).
10.23 364-Day Credit Agreement, dated as of August 7, 1998, among Sprint
Corporation and Sprint Capital Corporation, as Borrowers, and The
Initial Lenders Named Therein, as Initial Lenders, and Citibank, N.A.,
as Administrative Agent, and Morgan Guaranty Trust Company of New
York, as Syndication Agent, and Bank of America National Trust and
Savings Association and The Chase Manhattan Bank, as Documentation
Agents.
10.24 Five-Year Credit Agreement, dated as of August 7, 1998, among Sprint
Corporation and Sprint Capital Corporation, as Borrowers, and The
Initial Lenders Named Therein, as Initial Lenders, and Citibank, N.A.,
as Administrative Agent, and Morgan Guaranty Trust Company of New
York, as Syndication Agent, and Bank of America National Trust and
Savings Association and The Chase Manhattan Bank, as Documentation
Agents.
23.1.1 Consent of Ernst & Young LLP.
23.1.2 Consent of Deloitte & Touche LLP.
23.1.3* Consent of King & Spalding (included in Exhibit 8.1).
23.1.4* Consent of Don A. Jensen (included in Exhibit 5.1).
24.1 Power of attorney of the officers and directors of Registrant signing
this Registration Statement (included on signature page).
</TABLE>
- --------
* To be filed by amendment.
II-5
<PAGE>
(b) Financial Statement Schedules
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sprint Corporation
We have audited the consolidated financial statements of Sprint Corporation
("Sprint") as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon
dated February 3, 1998, except for Note 1, as to which the date is May 26,
1998 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule included in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the management
of Sprint. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Kansas City, Missouri
February 3, 1998
SPRINT CORPORATION
SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
----------------
BALANCE CHARGED CHARGED BALANCE
BEGINNING TO TO OTHER OTHER END OF
OF YEAR INCOME ACCOUNTS DEDUCTIONS YEAR
--------- ------- -------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful
accounts..................... $117.4 $388.9 $ 4.0 $(363.6)(1) $146.7
------ ------ ----- ------- ------
Valuation allowance--deferred
income tax assets............ $ 13.7 $ 2.6 $ -- $ (4.5) $ 11.8
------ ------ ----- ------- ------
1996
Allowance for doubtful
accounts..................... $125.8 $248.5 $(1.5) $(255.4)(1) $117.4
------ ------ ----- ------- ------
Valuation allowance--deferred
income tax assets............ $ 17.4 $ 1.9 $ -- $ (5.6) $ 13.7
------ ------ ----- ------- ------
1995
Allowance for doubtful
accounts..................... $ 87.5 $219.2 $ 7.0 $(187.9)(1) $125.8
------ ------ ----- ------- ------
Valuation allowance--deferred
income tax assets............ $ 21.1 $ 4.3 $ -- $ (8.0) $ 17.4
------ ------ ----- ------- ------
</TABLE>
- --------
(1) Accounts written off, net of recoveries.
II-6
<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 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 (the "Partnerships") as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997, and have issued
our report thereon dated May 26, 1998 (August 6, 1998 as to Note 4). Our
audits also included the combined financial statement schedule of the
Partnerships, included in Item 16(b). This financial statement schedule is the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Kansas City, Missouri
May 26, 1998
(August 6, 1998 as to Note 4)
SPRINT SPECTRUM HOLDING COMPANY
COMBINED WITH MINORCO AND PHILLIECO
SCHEDULE II--COMBINED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COSTS AND TO OTHER OTHER END OF
DESCRIPTION OF YEAR EXPENSE ACCOUNTS DEDUCTIONS YEAR
- ------------------------ ---------- ------------ -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Receivables
1997
Allowance for doubtful
accounts.............. $202 $11,539 $-- $(4,426)(1) $7,315
1996
Allowance for doubtful
accounts.............. $-- $ 202 $-- $ -- $ 202
1995
Allowance for doubtful
accounts.............. $-- $ -- $-- $ -- $ --
</TABLE>
- --------
(1) Accounts written off, net of recoveries.
Sprint will furnish to the Securities and Exchange Commission, upon request,
a copy of the instruments defining the rights of holders of its long-term
debt. The total amount of securities authorized under any of said instruments
(other than those listed above) does not exceed 10% of the total assets of
Sprint.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report
II-7
<PAGE>
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE UNDERSIGNED
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTWOOD, STATE OF KANSAS, ON THE
24TH DAY OF SEPTEMBER, 1998.
SPRINT CORPORATION
/s/ W.T. Esrey
By___________________________________
(W.T. Esrey, Chairman of the
Board)
POWER OF ATTORNEY
WE, THE UNDERSIGNED OFFICERS AND DIRECTORS OF SPRINT CORPORATION, HEREBY
SEVERALLY CONSTITUTE W.T. ESREY, A.B. KRAUSE AND J.R. DEVLIN AND EACH OF THEM
SINGLY, OUR TRUE AND LAWFUL ATTORNEYS-IN-FACT, WITH FULL POWER OF
SUBSTITUTION, FOR THEM, AND EACH OF THEM SINGLY, TO SIGN FOR US AND IN OUR
NAMES IN THE CAPACITIES INDICATED BELOW THE REGISTRATION STATEMENT FILED
HEREWITH AND ANY AND ALL AMENDMENTS TO SAID REGISTRATION STATEMENT, AND ANY
REGISTRATION STATEMENT FOR THIS OFFERING THAT IS TO BE EFFECTIVE UPON FILING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
GENERALLY TO DO ALL SUCH THINGS IN OUR NAME AND BEHALF IN OUR CAPACITIES AS
OFFICERS AND DIRECTORS TO ENABLE SPRINT CORPORATION TO COMPLY WITH THE
PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL REQUIREMENTS OF
THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR
SIGNATURES AS THEY MAY BE SIGNED BY OUR SAID ATTORNEYS, OR ANY OF THEM, TO
SAID REGISTRATION STATEMENT AND ANY AND ALL AMENDMENTS THERETO (OR SUCH
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B)).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Chairman of the Board and
Chief Executive Officer
(Principal Executive
/s/ W.T. Esrey Officer)
- -------------------------------------
(W.T. Esrey)
Executive Vice President--
Chief Financial Officer
(Principal Financial
/s/ A.B. Krause Officer)
- -------------------------------------
(A.B. Krause)
Senior Vice President and
Controller (Principal
/s/ J.P. Meyer Accounting Officer)
- -------------------------------------
(J.P. Meyer)
/s/ DuBose Ausley Director
- ------------------------------------
(DuBose Ausley)
/s/ Warren L. Batts Director
- ------------------------------------
(Warren L. Batts)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Michel Bon Director
- ------------------------------------
(Michel Bon)
/s/ I.O. Hockaday, Jr. Director
- ------------------------------------
(Irvine O. Hockaday, Jr.)
/s/ Harold S. Hook Director
- ------------------------------------
(Harold S. Hook)
/s/ Ronald T. LeMay Director September 24, 1998
- ------------------------------------
(Ronald T. LeMay)
/s/ Linda K. Lorimer Director
- ------------------------------------
(Linda Koch Lorimer)
/s/ Charles E. Rice Director
- ------------------------------------
(Charles E. Rice)
/s/ Ron Sommer Director
- ------------------------------------
(Ron Sommer)
/s/ Stewart Turley Director
- ------------------------------------
(Stewart Turley)
</TABLE>
II-10
<PAGE>
EXHIBIT 10.3
EXHIBIT I TO
RESTRUCTURING AND
MERGER AGREEMENT
STANDSTILL AGREEMENT
--------------------
THIS STANDSTILL AGREEMENT (this "Agreement") dated as of May 26, 1998 is
---------
entered into between Sprint Corporation, a Kansas corporation ("Sprint") and
------
_______, a _______ corporation (the "Holder").
------
RECITALS:
--------
WHEREAS, Sprint, Tele-Communications, Inc., a Delaware corporation ("TCI"),
---
Comcast Corporation, a Pennsylvania corporation ("Comcast") and Cox
-------
Communications, Inc., a Delaware corporation ("Cox", and together with TCI and
---
Comcast, the "Cable Holders") and certain of their respective subsidiaries have
-------------
entered into the Restructuring and Merger Agreement, dated as of the date hereof
(the "Restructuring Agreement"), pursuant to which the Cable Holders, either
-----------------------
directly or indirectly through one or more subsidiaries, will acquire shares of
Series 2 PCS Stock (as defined herein), on the terms set forth in the
Restructuring Agreement; and
WHEREAS, as a condition to its entering into the Restructuring Agreement,
Sprint has required that each of the Cable Holders enter into a Standstill
Agreement in the form hereof, which contains certain restrictions on purchases
of Sprint capital stock by the Cable Holders and their respective Affiliates and
certain other limitations on the Cable Holders and their respective Affiliates;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Other
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Holder and Sprint (each a
"Party"), intending to be legally bound, hereby agree as follows:
- ------
ARTICLE 1.
RESTRICTIONS ON ACQUISITION OF VOTING SECURITIES BY
THE HOLDER AND ITS AFFILIATES
-----------------------------
Section 1.1 Acquisition Restrictions.
------------------------
(a) Subject to Section 1.2, the Holder agrees that it will not, and it will
cause each of its Affiliates not to, directly or indirectly, either
individually or as part of a Group, acquire, offer to acquire, or agree to
acquire, by purchase or otherwise, Beneficial Ownership of:
(i) any Sprint Voting Securities at any time prior to the Closing
Date, other than as a result of purchases from Sprint pursuant to the
Restructuring Agreement; or
<PAGE>
(ii) any Sprint Voting Securities on or following the Closing
Date and prior to the tenth anniversary of the date hereof (or the earlier
termination of this Agreement), if as a result the Votes represented by the
Sprint Voting Securities Beneficially Owned by the Holder and its
Affiliates would represent in the aggregate more than one and one half
percent (1.5%) of the Voting Power represented by the Outstanding Sprint
Voting Securities (assuming for purposes of this paragraph (ii) that all
shares of Series 2 PCS Stock have the same voting rights as the Series 1
PCS Stock) (the "Percentage Limitation"); provided, however, that nothing
--------------------- -------- -------
in this Agreement shall prohibit or restrict the Holder or an Affiliate of
the Holder from (A) exercising the equity purchase rights provided for in
Section 6.8 of the Restructuring Agreement, including paragraphs (h) and
(i) of such Section 6.8, (B) acquiring additional shares of Series 2 PCS
Stock upon conversion of shares of PCS Preferred, (C) acquiring additional
shares of Series 2 PCS Stock upon exercise of the Warrants [COX AGREEMENT
ONLY: OR (D) EXERCISING ITS RIGHTS UNDER SECTION 13.6 OF THE AMENDED COX
PCS AGREEMENT].
Section 1.2 Effect of Action by Sprint. The Holder shall not be
--------------------------
deemed in violation of this Article 1 if the Beneficial Ownership of Sprint
Voting Securities by the Holder and its Affiliates exceeds the Percentage
Limitation (i) solely as a result of an increase in the Votes per share
attributed by the Board of Directors of Sprint to shares of PCS Stock, (ii)
solely as a result of an acquisition of Sprint Voting Securities by Sprint that,
by reducing the number of Outstanding Sprint Voting Securities, increases the
proportionate number of Sprint Voting Securities Beneficially Owned by the
Holder and its Affiliates, or (iii) because the Holder or its Affiliates
mistakenly purchase shares in excess of the Percentage Limitation in reliance on
information provided in writing by Sprint regarding the number of shares
permitted to be purchased under Section 6.8 of the Restructuring Agreement.
ARTICLE 2.
CERTAIN ADDITIONAL AGREEMENTS
-----------------------------
Section 2.1 Further Restrictions. Subject to Section 2.2, the
--------------------
Holder agrees that it will not, and it will cause each of its Affiliates not to,
directly or indirectly, alone or in concert with others (including with any of
the other Cable Holders or their respective Affiliates), unless specifically
requested in writing by the Chairman of Sprint or by a resolution of a majority
of the directors of Sprint, take any of the actions set forth below:
(a) effect, seek, offer, propose (whether publicly or otherwise) or
cause or participate in (whether by purchasing or offering to purchase
securities or by taking any other action, including communicating with
stockholders of Sprint), or assist any other Person to effect, seek, offer or
propose (whether publicly or otherwise) or participate in:
-2-
<PAGE>
(i) any acquisition of Beneficial Ownership of Sprint Voting
Securities or other equity interests in Sprint which would result in a breach of
Section 1.1 of this Agreement;
(ii) any tender or exchange offer for Sprint Voting Securities;
(iii) any 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) any 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 used in the
proxy rules under the Exchange Act promulgated by the United States Securities
and Exchange Commission but without regard to the exclusion set forth in Section
14a-1(l)(2)(iv) from the definition of "solicitation") with respect to Sprint or
any of its Affiliates or any action resulting in such Person becoming a
"participant" in any "election contest" (as such terms are used in such proxy
rules) with respect to Sprint or any of its Affiliates;
(b) propose any matter for submission to a vote of stockholders of
Sprint or any of its Affiliates;
(c) except as may result from the transactions contemplated by the
Other Agreements, form, join or participate in a Group with respect to any
Sprint Voting Securities;
(d) grant any proxy with respect to any Sprint Voting Securities to
any Person not designated by Sprint, except for proxies granted to individuals
who are officers, employees or regular agents or advisors of the Holder who have
received specific instructions from the Holder as to the voting of such Sprint
Voting Securities with respect to the matter or matters for which the proxy is
granted;
(e) except as provided for in such Holder's Voting Agreement, deposit
any Sprint Voting Securities in a voting trust or subject any Sprint Voting
Securities to any arrangement or agreement with respect to the voting of such
Sprint Voting Securities or other agreement having similar effect;
(f) execute any written stockholder consent with respect to Sprint,
except for written consents executed by such Persons as holders of Series 2 PCS
Stock in connection with any vote by the holders of the PCS Stock with respect
to which such holders are entitled to vote as a class;
(g) take any other action to seek to affect the control of the
management or Board of Directors of Sprint or any of its Affiliates;
-3-
<PAGE>
(h) 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;
(i) disclose to any Person any intention, plan or arrangement
inconsistent with the foregoing or form any such intention which would result in
the Holder 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
(j) request Sprint or any of its Affiliates, directors, officers,
employees, representatives, advisors or agents, directly or indirectly, to amend
or waive in any material respect this Agreement (including this Section 2.1(j)),
the Sprint Rights Plan, the Articles or the bylaws of Sprint or any of its
Affiliates.
Section 2.2 Actions in Opposition. Notwithstanding anything in
---------------------
this Article 2 to the contrary, in the event that Sprint shall submit to a vote
of its stockholders any Covered Proposal with which the Holder disagrees (a
"Rejected Proposal"), the Holder and its Affiliates shall be free to:
- ------------------
(a) 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;
(b) make a proposal in opposition to such Rejected Proposal for
submission to a vote of stockholders of Sprint or any of its Affiliates;
(c) form, join in or participate in a Group with respect to any Sprint
Voting Securities for the sole purpose of responding to or opposing such
Rejected Proposal;
(d) grant a proxy with respect to any Sprint Voting Securities to any
Person with specific instructions from the Holder as to the voting of such
Sprint Voting Securities with respect to such Rejected Proposal; and
(e) 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.
Section 2.3 Press Releases, Etc. by the Holder.
----------------------------------
(a) Subject to Section 2.3(b), the Holder 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, the Holder will use reasonable efforts to
consult with Sprint in good faith regarding the form and content of any such
communication, and the Holder will use reasonable
-4-
<PAGE>
efforts to coordinate any such communication with any decisions reached by
Sprint with respect to disclosures relating to such matters.
(b) Notwithstanding the provisions of Section 2.3(a), unless required
by applicable law or permitted by Section 2.2, neither the Holder 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 Section 2.1
without the prior written consent of the Chairman of Sprint or by a resolution
of a majority of the directors of Sprint. Nothing in this Section 2.3 shall
permit the taking of any action which would otherwise violate any provision
contained in Section 2.1; provided that the Holder and its Affiliates shall be
--------
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 the Holder or any of its Affiliates in violation of this
Agreement. Nothing in this Section 2.3 shall prevent the taking of any actions
permitted by Section 2.2.
Section 2.4 Transfers to Affiliates and Associates.
--------------------------------------
(a) The Holder may Transfer shares of capital stock of Sprint to its
Affiliates only if, prior to such Transfer, such transferee executes and
delivers to Sprint (in accordance with Section 4.2) a Standstill Agreement in
the form hereof.
(b) If and to the extent that the Holder 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 Holder may effect such
Transfer only if, prior to such Transfer, such transferee executes and delivers
to Sprint (in accordance with Section 4.2) a Standstill Agreement in the form
hereof.
Section 2.5 Voting of Sprint Voting Securities. Except as set
-----------------------------------
forth in Sections 2.1(d), 2.1(e) and 2.1(f) (each to the extent limited by
Section 2.2), nothing in Section 2.1 shall restrict the manner in which the
Holder and its Affiliates may vote their Sprint Voting Securities.
Section 2.6 No Modification of Sprint Rights Plan. Nothing in this
-------------------------------------
Agreement shall be deemed to modify, amend, supersede or grant or imply any
waiver with respect to the Sprint Rights Plan.
Section 2.7 Permitted Activities. Nothing in this Agreement shall
--------------------
prevent the Holder 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 Section 2.1(a), in the same manner as
any other non-initiating holder of Sprint Voting Securities or (ii) taking any
actions necessary or appropriate for the Holder and its Affiliates to exercise
their rights under any of the Other Agreements.
-5-
<PAGE>
ARTICLE 3.
DEFINITIONS AND CONSTRUCTION
----------------------------
Section 3.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the meanings specified below:
"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. For purposes of
Section 2.4 only, "Affiliate" of the 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.
"Agreement" has the meaning set forth in the Preamble.
---------
"Amended Cox PCS Agreement" means the Agreement of Limited Partnership
-------------------------
of Cox Communications PCS, L.P., as amended by an amendment thereto to be
entered into and dated as of the Closing Date. [COX AGREEMENT ONLY]
"Articles" means the Articles of Incorporation of Sprint, as amended
--------
or supplemented from time to time.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under
---------
the Exchange Act.
"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 has, directly or indirectly, the
sole or shared 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 pursuant to
the Restructuring Agreement, or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise;
(b) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to vote or dispose of (whether such right is exercisable
immediately or only after the passage of time) or "beneficial ownership" of (as
determined pursuant to Rule 13d-3 under the Exchange Act as in effect on the
date hereof 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 has, any agreement, arrangement
or understanding (whether or not in writing) for the purpose of acquiring,
holding, voting or disposing
-6-
<PAGE>
of any securities which are Beneficially Owned, directly or indirectly, by any
other Person (or any Affiliate thereof), provided that the Restructuring
--------
Agreement shall not be deemed an agreement, arrangement or understanding
contemplated by this paragraph (c).
"Cable Holders" has the meaning set forth in the Recitals.
-------------
"Change of Control" 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 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.
- --------
"Class A Stock" means the Class A Common Stock, par value $2.50 per
-------------
share, of Sprint.
"Closing Date" means the Closing Date as defined in the Restructuring
------------
Agreement.
"Common Stock" means the Common Stock, par value $2.50 per share, of
------------
Sprint.
"Control" (including, with its correlative meanings, "Controlled by"
------- -------------
and "under common Control with") means, with respect to a Person or Group:
-------------------------
(a) ownership by such Person or Group of Votes entitling it to
exercise in the aggregate more than 50 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; (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; or (iii) with
respect
-7-
<PAGE>
to a particular action or agreement, to direct or cause the direction of
decisions, or veto or otherwise prevent decisions, of or with respect to the
entity in question relating to such action or agreement.
"Covered Proposal" means any proposal by Sprint (i) for a merger,
----------------
consolidation, business combination, recapitalization or similar transaction,
(ii) to modify or amend either the Articles or the provisions of the Bylaws
relating to the Capital Stock Committee of the Board of Directors of Sprint 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.
"Exchange Act" means the United States Securities Exchange Act of 1934
------------
and the rules and regulations thereunder.
"FON Stock" means the Sprint FON Group Common Stock that will be
---------
created on the Closing Date, as defined in the Restructuring Agreement.
"Group" means any group within the meaning of Section 13(d)(3) of the
-----
Exchange Act as in effect on the date hereof.
"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.
"Holder" has the meaning set forth in the Preamble.
------
"Other Agreements" means (i) the Restructuring Agreement, (ii) the
----------------
Registration Rights Agreement, (iii) the Tax Sharing Agreement, (iv) the Cox
L.A. Amendments, (v) the Warrant Agreements, together with the Warrants, (vi)
the Mutual Release and Waiver, (vii) the FT/DT Purchase Rights Agreement and
(viii) the Voting Agreements, each as defined in the Restructuring Agreement.
"Other Termination Event" 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
-8-
<PAGE>
shall not represent any business, assets or liabilities comprising any part of
the FON Group immediately prior to such conversion.
"Outstanding Sprint Voting Securities" means the Sprint Voting
-----------
Securities outstanding as of any particular date.
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock and
---------
the Series 3 PCS Stock.
"PCS Preferred Stock" means the Series 7 Preferred Stock of Sprint, no
-------------------
par value per share, which shall be created by the filing of a Certificate of
Designations as described in Section 6.2(d) of the Restructuring Agreement.
"Percentage Limitation" has the meaning set forth in Section
---------------------
1.1(a)(ii).
"Person" means an individual, a partnership, an association, a joint
------
venture, a corporation, a business, a trust, an unincorporated organization, or
any other entity organized under applicable law.
"Preferred Stock" means any class or series of the Preferred Stock, no
---------------
par value, of Sprint, including the PCS Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of the date hereof among Sprint and the Cable Holders.
"Restructuring Agreement" has the meaning set forth in the Recitals.
-----------------------
"Series 1 PCS Stock" means the Series 1 PCS Group Common Stock, par
------------------
value $____ per share, of Sprint, which will be created on the Closing Date by
the filing of the Initial Charter Amendment, as defined in the Restructuring
Agreement.
"Series 2 PCS Stock" means the Series 2 PCS Group Common Stock, par
------------------
value $____ per share, 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, of Sprint, which will be created on the Closing Date by
the filing of the Initial Charter Amendment.
"Sprint Rights Plan" means the Rights Agreement dated as of June 9,
------------------
1997, as amended, between Sprint and UMB Bank, n.a., as rights agent, as amended
or modified from time to time, or any successor or similar Plan.
-9-
<PAGE>
"Sprint Voting Securities" means the Common Stock, the Class A Stock,
------------------------
the FON Stock, the PCS Stock, the Preferred Stock and any other securities of
Sprint having the right to Vote.
"Strategic Merger" means a merger or other business combination
----------------
involving Sprint (a) in which the Holder 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 Holder 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 Holder 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 (other than the Cable 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 and (d) in which holders of PCS Stock receive 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 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.
"Subsidiary" means, with respect to any Person (the "Parent"), any
---------- ------
other Person in which the Parent, one or more Subsidiaries of the Parent, or the
Parent and one or more of its 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.
"Transfer" means any act pursuant to which, directly or indirectly,
--------
the ownership of assets or securities in question is sold, transferred,
conveyed, delivered or otherwise disposed of.
"Vote" means, as to any entity, the ability to cast a vote at a
----
stockholders' or comparable meeting of such entity with respect to the election
of directors or other members of such entity's governing body; provided that
--------
with respect to Sprint only, "Vote" means the ability to exercise general voting
power (as opposed to the exercise of special voting or disapproval rights) with
respect to matters other than the election of directors at a meeting of the
stockholders of Sprint.
"Voting Agreement" has the meaning assigned to such term in the
----------------
Restructuring Agreement.
-10-
<PAGE>
"Voting Power" means, as to any entity as of any date, the aggregate
------------
number of Votes outstanding as of such date in respect of such entity; provided
--------
that, 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 Board of Directors of Sprint, whether for the most recent vote of
stockholders or for a vote of stockholders to be conducted in the future.
"Warrant" has the meaning set forth in the Agreement.
-------
Section 3.2 Interpretation and Construction of this Agreement. The
-------------------------------------------------
definitions in Section 3.1 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." All references herein to Articles, Sections and
Exhibits shall be deemed to be references to Articles and Sections of, and
Exhibits to, this Agreement unless the context shall otherwise require. The
headings of the Articles and Sections are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. Unless the context shall otherwise require or
provide, any reference to any agreement or other instrument or statute or
regulation is to such agreement, instrument, statute or regulation as amended
and supplemented from time to time (and, in the case of a statute or regulation,
to any successor provision).
ARTICLE 4.
MISCELLANEOUS
-------------
Section 4.1 Termination. The provisions of this Agreement shall
-----------
terminate (a) upon the consent in writing of all of the Parties, (b) upon a
Change of Control, (c) if the Restructuring Agreement is terminated prior to the
Closing thereunder, (d) following the Closing under the Restructuring Agreement,
if the Votes represented by the Sprint Voting Securities Beneficially Owned by
the Holder and its Affiliates, directly or indirectly, either individually or as
part of a Group, in the aggregate no longer exceed the Percentage Limitation
(assuming for purposes of this clause (d) that all shares of Series 2 PCS Stock
have the same voting rights as the shares of Series 1 PCS Stock), or (e) upon
the occurrence of an Other Termination Event. As to a Holder that is an
Affiliate or an Associate of a Cable Holder and that has executed this Agreement
in accordance with Section 2.4, the provisions of this Agreement shall
terminate, in addition to the above circumstances, when such Holder ceases to be
an Affiliate (or Associate, as applicable) of a Cable Holder and all shares of
Series 2 PCS Stock held by such party shall have converted to Series 1 PCS
Stock. Any termination of this Agreement as provided herein shall be without
prejudice to the rights of any Party arising out of the breach by any other
Party of any provision of this Agreement.
Section 4.2 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
-11-
<PAGE>
requested) or sent by hand or overnight courier, or by facsimile transmission
(with acknowledgment received and confirmation sent as provided below), 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:
Holder: _________________
_________________
_________________
_________________
with a copy to:
_________________
_________________
_________________
_________________
Sprint: 2330 Shawnee Mission Parkway
East Wing
Westwood, Kansas 66205
Attention: General Counsel
Tel: (913) 624-8440
Fax: (913) 624-8426
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Bruce N. Hawthorne, Esq.
Tel: (404) 572-4903
Fax: (404) 572-5146
The Parties shall promptly notify each other in the manner provided in this
Section 4.2 of any change in their respective addresses. A notice of change of
address shall not be deemed to have been given until received by the addressee.
Communications by facsimile also shall be sent concurrently by mail, but shall
in any event be effective as stated above.
Section 4.3 Assignment. No Party will assign this Agreement or any
----------
rights, interests or obligations hereunder, or delegate performance of any of
its obligations hereunder, without the prior written consent of each other
Party.
-12-
<PAGE>
Section 4.4 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the Parties with respect to the subject matter
contained herein, provided that this provision shall not abrogate any other
--------
written agreement between the Parties executed simultaneously with this
Agreement. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to such subject matter.
Section 4.5 Waiver, Amendment, etc. This Agreement may not be
-----------------------
amended or supplemented, and no waivers of or consents to departures from the
provisions hereof shall be effective, unless set forth in a writing signed by,
and delivered to, all the Parties. No failure or delay of any Party in
exercising any power or right under this Agreement will operate as a waiver
thereof, nor will any single or partial exercise of any 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 4.6 Binding Agreement; No Third Party Beneficiaries. This
-----------------------------------------------
Agreement will be binding upon and inure to the benefit of the Parties and their
successors and permitted assigns. Nothing expressed or implied herein is
intended or will be construed to confer upon or to give to any third party any
rights or remedies by virtue hereof.
Section 4.7 Governing Law; Dispute Resolution; Equitable Relief.
---------------------------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW).
(b) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION,
SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR LIABILITIES
UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
OR, IN THE EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE STATE OF
NEW YORK SITTING IN THE COUNTY OF NEW YORK, AND EACH PARTY HEREBY IRREVOCABLY
ACCEPTS AND SUBMITS TO THE JURISDICTION OF EACH OF THE AFORESAID COURTS IN
PERSONAM, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING (INCLUDING CLAIMS
FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS
IN WHICH SUCH PARTY IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR
PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
-13-
<PAGE>
(c) EACH PARTY AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTY FOR ANY BREACH OF THIS AGREEMENT BY IT, AND THAT IN
ADDITION TO ALL OTHER REMEDIES THE OTHER PARTIES MAY HAVE, IT SHALL BE ENTITLED
TO SPECIFIC PERFORMANCE AND TO INJUNCTIVE OR OTHER EQUITABLE RELIEF AS A REMEDY
FOR ANY SUCH BREACH. EACH PARTY AGREES NOT TO OPPOSE THE GRANTING OF SUCH RELIEF
IN THE EVENT A COURT DETERMINES THAT SUCH BREACH HAS OCCURRED, AND AGREES TO
WAIVE ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH
SUCH REMEDY.
Section 4.8 Severability. The invalidity or unenforceability of
------------
any provision hereof in any jurisdiction will not affect the validity or
enforceability of the remainder hereof in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction. To the extent permitted by applicable law, each Party waives any
provision of applicable law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the Parties to the extent possible.
Section 4.9 Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which when so executed and delivered will be deemed an
original but all of which will constitute one and the same Agreement.
Section 4.10 Remedies. In addition to any other remedies which may
--------
be available to Sprint (including any remedies which Sprint may have at law or
in equity):
(a) If the Holder breaches this Agreement in any material respect,
then unless and until such breach is cured in all material respects, the Holder
shall not be entitled to vote any of its shares of capital stock of Sprint (or
any shares into which such shares of capital stock are converted) with respect
to any matter or proposal arising from, relating to or involving such breach,
and no such purported vote by the Holder on such matter shall be effective or
shall be counted; and
(b) The Holder agrees that Sprint shall have no obligation to honor
Transfers of Sprint Voting Securities or other equity interests in Sprint to the
Holder or any of its Affiliates that would cause the Holder and its Affiliates
to Beneficially Own Sprint Voting Securities or other equity interests in Sprint
in violation of this Agreement, any such Transfers shall be void and of no
effect, and Sprint shall be entitled to instruct any transfer agent or agents
for the equity interests in Sprint to refuse to honor such Transfers.
-14-
<PAGE>
IN WITNESS WHEREOF, Sprint and the Holder have caused their respective duly
authorized officers to execute this Standstill Agreement as of the day and year
first above written.
_____________________________________
By:__________________________________
Title:____________________________
SPRINT CORPORATION
By:_________________________________
Title:____________________________
-15-
<PAGE>
EXHIBIT 10.23
364-DAY CREDIT AGREEMENT
Dated as of August 7, 1998
SPRINT CORPORATION, a Kansas corporation (the "Company"), SPRINT
CAPITAL CORPORATION, a Delaware corporation ("Sprint Capital" and, together with
the Company, the "Borrowers"), the banks, financial institutions and other
---------
institutional lenders (the "Initial Lenders") listed on the signature pages
---------------
hereof, and CITIBANK, N.A. ("Citibank"), as administrative agent (together with
--------
any successor administrative agent appointed pursuant to Section 8.06, the
"Administrative Agent") for the Lenders (as hereinafter defined), MORGAN
- ---------------------
GUARANTY TRUST COMPANY OF NEW YORK, as syndication agent, and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION and THE CHASE MANHATTAN BANK, as
documentation agents, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Advance" means a Revolving Credit Advance or a Competitive Bid
-------
Advance.
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 10% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Administrative Agent's Account" means the account of the
------------------------------
Administrative Agent maintained by the Administrative Agent at Citibank
with its office at 2 Penns Way, Suite 200, New Castle, Delaware 19720,
Account No. 63852248, Attention: Bank Loan Syndications.
"Applicable Lending Office" means, with respect to each Lender, such
-------------------------
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a Competitive Bid Advance, the office of such
Lender notified by such Lender to the Administrative Agent as its
Applicable Lending Office with respect to such Competitive Bid Advance.
"Applicable Margin" means, as of any date, a percentage per annum
-----------------
determined by reference to the Public Debt Rating in effect on such date as
set forth below:
<PAGE>
2
<TABLE>
<CAPTION>
Public Debt Rating Applicable Margin for Applicable Margin for
S&P/Moody's Eurodollar Rate Advances Eurodollar Rate Advances
Prior to the Term Loan From the Term Loan
Conversion Date Conversion Date
===========================================================================================================
<S> <C> <C>
Level 1 0.155% 0.200%
- -------
A /A2 or above
Level 2 0.190% 0.250%
- -------
A- / A3
Level 3 0.200% 0.275%
- -------
BBB+ / Baa1
Level 4 0.235% 0.325%
- -------
BBB / Baa2
Level 5 0.325% 0.450%
- -------
BBB- / Baa3
Level 6 0.575% 0.750%
- -------
Lower than Level 5 or unrated
===========================================================================================================
</TABLE>
"Applicable Percentage" means, as of any date, a percentage per annum
---------------------
determined by reference to the Public Debt Rating in effect on such date as
set forth below:
<TABLE>
<CAPTION>
Public Debt Rating Applicable
S&P/Moody's Percentage
====================================================
<S> <C>
Level 1 0.045%
-------
A / A2 or above
Level 2 0.060%
-------
A- / A3
Level 3 0.075%
-------
BBB+/Baa1
Level 4 0.090%
-------
BBB / Baa2
Level 5 0.125%
-------
BBB- / Baa3
Level 6 0.175%
-------
Lower than Level 5 or unrated
=======================================================
</TABLE>
"Applicable Utilization Fee" means (a) at all times when the aggregate
--------------------------
principal amount of the Advances equals or exceeds 25% (but is less than
50%) of the aggregate amount of the Lenders' Commitments, 0.05%, (b) at all
times when the aggregate principal amount of the Advances equals or exceeds
50% (but is less than 75%) of the aggregate amount of the Lenders'
Commitments, 0.10% and (c)
<PAGE>
3
at all times when the aggregate principal of the Advances equals or exceeds
75% of the aggregate amount of the Lenders' Commitments, 0.15%.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Assuming Lender" means an Increase Assuming Lender or an Extension
---------------
Assuming Lender.
"Assumption Agreement" means (a) in the case of any such agreement
--------------------
delivered pursuant to Section 2.17(c), an assumption agreement entered into
between an Extension Assuming Lender and a Non-Consenting Lender and
accepted by the Administrative Agent and the Company, in such form as is
agreed among the applicable Extension Assuming Lender, the applicable Non-
Consenting Lender, the Administrative Agent and the Company and (b) in the
case of any such agreement delivered pursuant to Section 2.16(d), an
assumption agreement entered into between an Increase Assuming Lender and
the Borrowers and accepted by the Administrative Agent, in form and
substance satisfactory to the Administrative Agent.
"Base Rate" means a fluctuating interest rate per annum in effect from
---------
time to time, which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no
nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1% per
annum, plus (ii) the rate obtained by dividing (A) the latest three-
----
week moving average of secondary market morning offering rates in the
United States for three-month certificates of deposit of major United
States money market banks, such three-week moving average (adjusted to
the basis of a year of 360 days) being determined weekly on each
Monday (or, if such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday
by Citibank on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank of New
York or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from three New
York certificate of deposit dealers of recognized standing selected by
Citibank, by (B) a percentage equal to 100% minus the average of the
daily percentages specified during such three-week period by the Board
of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, but not
limited to, any emergency, supplemental or other marginal reserve
requirement) for Citibank with respect to liabilities consisting of or
including (among other liabilities) three-month U.S. dollar non-
personal time deposits in the United States, plus (iii) the average
----
during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable
by Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. dollar deposits of Citibank in the United
States; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance that bears
-----------------
interest as provided in Section 2.07(a)(i).
"Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
---------
Borrowing.
<PAGE>
4
"Business Day" means a day of the year on which banks are not required
------------
or authorized by law to close in New York City and, if the applicable
Business Day relates to any Eurodollar Rate Advances, on which dealings are
carried on in the London interbank market.
"Commitment" has the meaning specified in Section 2.01.
----------
"Commitment Date" has the meaning specified in Section 2.16(b).
---------------
"Commitment Increase" has the meaning specified in Section 2.16(a).
-------------------
"Competitive Bid Advance" means an advance by a Lender to a Borrower
-----------------------
as part of a Competitive Bid Borrowing resulting from the competitive
bidding procedure described in Section 2.03 and refers to a Fixed Rate
Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
-------------------------
simultaneous Competitive Bid Advances from each of the Lenders whose offer
to make one or more Competitive Bid Advances as part of such borrowing has
been accepted under the competitive bidding procedure described in Section
2.03.
"Competitive Bid Reduction" has the meaning specified in Section 2.01.
-------------------------
"Confidential Information" means information that any Borrower
------------------------
furnishes to the Administrative Agent or any Lender in a writing designated
as confidential, but does not include any such information that is or
becomes generally available to the public or that is or becomes available
to the Administrative Agent or such Lender from a source other than a
Borrower.
"Consenting Lender" has the meaning specified in Section 2.17(b).
-----------------
"Consolidated" refers to the consolidation of accounts in accordance
------------
with GAAP.
"Convert", "Conversion" and "Converted" each refers to a conversion of
------- ---------- ---------
Revolving Credit Advances of one Type into Revolving Credit Advances of the
other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all indebtedness
----
of such Person for borrowed money, (b) all obligations of such Person for
the deferred purchase price of property or services (other than trade
payables not overdue by more than 60 days incurred in the ordinary course
of such Person's business), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all obligations
of such Person as lessee under leases that have been or should be, in
accordance with GAAP, recorded as capital leases, (e) all obligations,
contingent or otherwise, of such Person in respect of acceptances, letters
of credit or similar extensions of credit, (f) all Debt of others referred
to in clauses (a) through (e) above or clause (g) below guaranteed directly
or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (1) to pay or
purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the holder of
such Debt against loss, (3) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services
are rendered) or (4) otherwise to assure a creditor against loss, and (g)
all Debt referred to in clauses (a) through (f) above secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such Debt.
"Default" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
<PAGE>
5
"Domestic Lending Office" means, with respect to any Lender, the
-----------------------
office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance or
Assumption Agreement pursuant to which it became a Lender, or such other
office of such Lender as such Lender may from time to time specify to the
Borrowers and the Administrative Agent.
"EBITDA" means, for any period, net income (or net loss) (before
------
discontinued operations for such period and exclusive of (x) the income or
loss resulting from extraordinary items and (y) the income or loss of any
Person accounted for by the Company on the equity method) plus the sum of
----
(a) interest expense, (b) income tax expense, (c) depreciation expense and
(d) amortization expense, in each case determined in accordance with GAAP
for such period.
"Effective Date" has the meaning specified in Section 3.01.
--------------
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender
-----------------
that is a bank or other financial institution; and (iii) any other bank or
financial institution approved by the Administrative Agent and, unless an
Event of Default has occurred and is continuing at the time any assignment
is effected in accordance with Section 9.07, the Company, such approval not
to be unreasonably withheld or delayed; provided, however, that neither any
-------- -------
Borrower nor an Affiliate of any Borrower shall qualify as an Eligible
Assignee.
"Environmental Action" means any action, suit, demand, demand letter,
--------------------
claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental
Permit or Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment, including, without limitation,
(a) by any governmental or regulatory authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"Environmental Law" means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial or agency interpretation, policy or guidance relating to pollution
or protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
--------------------
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
---------------
ERISA is a member of the Company's controlled group, or under common
control with the Company, within the meaning of Section 414 of the Internal
Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
-----------
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC, or (ii) the requirements of subsection (1) of Section
4043(b) of ERISA (without regard to subsection (2) of such Section) are met
with respect to a contributing sponsor, as defined in Section 4001(a)(13)
of ERISA, of a Plan, and an event described in paragraph (9), (10), (11),
(12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur
with respect to such Plan within the following 30 days; (b) the application
for a minimum funding waiver with respect to a Plan; (c) the provision by
the administrator of any Plan of a notice of intent to terminate such Plan
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
the cessation of operations at a facility of the Company or any ERISA
Affiliate in
<PAGE>
6
the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal
by the Company or any ERISA Affiliate from a Multiple Employer Plan during
a plan year for which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under
Section 302(f) of ERISA shall have been met with respect to any Plan; (g)
the adoption of an amendment to a Plan requiring the provision of security
to such Plan pursuant to Section 307 of ERISA; or (h) the institution by
the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that constitutes grounds for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
-------------------------
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance or
Assumption Agreement pursuant to which it became a Lender (or, if no such
office is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the Borrowers
and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar
---------------
Rate Advance comprising part of the same Revolving Credit Borrowing, an
interest rate per annum equal to the rate per annum obtained by dividing
(a) the average (rounded upward to the nearest whole multiple of 1/16 of 1%
per annum, if such average is not such a multiple) of the rate per annum at
which deposits in U.S. dollars are offered by the principal office of each
of the Reference Banks in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before the
first day of such Interest Period in an amount substantially equal to such
Reference Bank's Eurodollar Rate Advance comprising part of such Revolving
Credit Borrowing to be outstanding during such Interest Period and for a
period equal to such Interest Period by (b) a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage for such Interest Period. The
Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance
comprising part of the same Revolving Credit Borrowing shall be determined
by the Administrative Agent on the basis of applicable rates furnished to
and received by the Administrative Agent from the Reference Banks two
Business Days before the first day of such Interest Period, subject,
-------
however, to the provisions of Section 2.08.
-------
"Eurodollar Rate Advance" means a Revolving Credit Advance that bears
-----------------------
interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
----------------------------------
Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same
Borrowing means the reserve percentage applicable two Business Days before
the first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a
term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"Extension Assuming Lender" has the meaning specified in Section
-------------------------
2.17(c).
"Extension Date" has the meaning specified in Section 2.17(b).
--------------
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with
<PAGE>
7
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"Five-Year Credit Agreement" means the Five-Year Credit Agreement
--------------------------
dated as of August 7, 1998 among the Company, Sprint Capital, the lenders
parties thereto, Citibank, as administrative agent, Morgan Guaranty Trust
Company of New York, as syndication agent, and Bank of America National
Trust and Savings Association and The Chase Manhattan Bank, as
documentation agents, as amended, supplemented or otherwise modified from
time to time.
"Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i).
-------------------
"FON Group" has the meaning specified in the Company's Articles of
---------
Incorporation, as currently proposed to be amended.
"GAAP" has the meaning specified in Section 1.03.
----
"Guaranteed Obligations" has the meaning specified in Section 7.01.
----------------------
"Hazardous Materials" means (a) petroleum and petroleum products,
-------------------
byproducts or breakdown products, radioactive materials, asbestos-
containing materials, polychlorinated biphenyls and radon gas and (b) any
other chemicals, materials or substances designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law.
"Increase Assuming Lender" has the meaning specified in Section
------------------------
2.16(d).
"Increase Date" has the meaning specified in Section 2.16(a).
-------------
"Increasing Lender" has the meaning specified in Section 2.16(b).
-----------------
"Information Memorandum" means the information memorandum dated June
----------------------
22, 1998 used by the Administrative Agent in connection with the
syndication of the Commitments.
"Insignificant Subsidiary" means any Subsidiary of the Company that
-------------------------
(i) has assets aggregating $500,000 or less and (ii) does not have any
creditor that is the beneficiary of a guaranty of the Company or any of its
Subsidiaries.
"Interest Period" means, for each Eurodollar Rate Advance comprising
---------------
part of the same Revolving Credit Borrowing and each LIBO Rate Advance
comprising part of the same Competitive Bid Borrowing, the period
commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance
or the date of the Conversion of any Base Rate Advance into such Eurodollar
Rate Advance and ending on the last day of the period selected by the
applicable Borrower pursuant to the provisions below and, thereafter, with
respect to Eurodollar Rate Advances, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on the
last day of the period selected by such Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be one, two, three
or six months (or if available to all Lenders, nine months), as the
applicable Borrower may, upon notice received by the Administrative Agent
not later than 11:00 A.M. (New York City time) on the third Business Day
prior to the first day of such Interest Period, select; provided, however,
-------- -------
that:
(i) no Borrower may select any Interest Period that ends after
the scheduled Revolver Termination Date or, if the Revolving Credit
Advances have been converted to a term loan pursuant to Section 2.06
prior to such selection, that ends after the Maturity Date;
<PAGE>
8
(ii) Interest Periods commencing on the same date for Eurodollar
Rate Advances comprising part of the same Revolving Credit Borrowing
or for LIBO Rate Advances comprising part of the same Competitive Bid
Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
-------- -------
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lenders" means the Initial Lenders and each Person that shall become
-------
a party hereto pursuant to Section 2.16, Section 2.17 or Section 9.07.
"LIBO Rate" means, for any Interest Period for all LIBO Rate Advances
---------
comprising part of the same Competitive Bid Borrowing, an interest rate per
annum equal to the rate per annum obtained by dividing (a) the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if
such average is not such a multiple) of the rate per annum at which
deposits in U.S. dollars are offered by the principal office of each of the
Reference Banks in London, England to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before the first day
of such Interest Period in an amount substantially equal to the amount that
would be the Reference Banks' respective ratable shares of such Borrowing
if such Borrowing were to be a Revolving Credit Borrowing to be outstanding
during such Interest Period and for a period equal to such Interest Period
by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Interest Period. The LIBO Rate for any Interest Period
for each LIBO Rate Advance comprising part of the same Competitive Bid
Borrowing shall be determined by the Administrative Agent on the basis of
applicable rates furnished to and received by the Administrative Agent from
the Reference Banks two Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 2.08.
------- -------
"LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i).
------------------
"Lien" means any lien, security interest or other charge or
----
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Material Adverse Change" means any material adverse change in the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Borrower or any Borrower and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Borrower or any Borrower and its
Subsidiaries taken as a whole, (b) the rights and remedies of the
Administrative Agent or any Lender under this Agreement or any Note or (c)
the ability of any Borrower to perform its obligations under this Agreement
or any Note.
<PAGE>
9
"Maturity Date" means the earlier of (a) the first anniversary of the
-------------
Revolver Termination Date and (b) the date of termination in whole of the
aggregate Commitments pursuant to Section 2.05 or 6.01.
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan, as defined in Section
------------------
4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate is making
or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
----------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any ERISA Affiliate and at least one Person other than the
Company and the ERISA Affiliates or (b) was so maintained and in respect of
which the Company or any ERISA Affiliate could have liability under Section
4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"Net Worth" means the sum of (a) common stock and other shareholders'
---------
equity, (b) capital in excess of par or stated value, (c) retained
earnings, (d) redeemable preferred stock, (e) non-redeemable preferred
stock and (f) deferred taxes and deferred income tax credits, in each case
of the Company and its Subsidiaries on a Consolidated basis.
"Non-Consenting Lender" has the meaning specified in Section 2.17(b).
---------------------
"Note" means a promissory note of a Borrower payable to the order of
----
any Lender, in substantially the form of Exhibit A hereto, evidencing the
aggregate indebtedness of such Borrower to such Lender resulting from the
Advances made by such Lender.
"Notice of Competitive Bid Borrowing" has the meaning specified in
-----------------------------------
Section 2.03(a).
"Notice of Revolving Credit Borrowing" has the meaning specified in
------------------------------------
Section 2.02(a).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
----
successor).
"PCS Group" has the meaning specified in the Company's Articles of
---------
Incorporation, as currently proposed to be amended.
"Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under Section
5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations that
are not overdue for a period of more than 60 days or which are being
contested in good faith by appropriate proceedings and as to which
appropriate reserves are being maintained; (c) pledges or deposits to
secure obligations under workers' compensation laws or similar legislation
or to secure public or statutory obligations; (d) deposits to secure the
performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business; and (e) easements, rights of way and other encumbrances on title
to real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such
property for its present purposes.
"Person" means an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----
<PAGE>
10
"Public Debt Rating" means, as of any date, the highest rating that
------------------
has been most recently announced by either S&P or Moody's, as the case may
be, for any class of non-credit enhanced long-term senior unsecured debt
issued by the Company. For purposes of the foregoing, (a) if only one of
S&P and Moody's shall have in effect a Public Debt Rating, the Applicable
Margin and the Applicable Percentage shall be determined by reference to
the available rating; (b) if neither S&P nor Moody's shall have in effect a
Public Debt Rating, the Applicable Margin and the Applicable Percentage
will be set in accordance with Level 6 under the definition of "Applicable
----------
Margin" or "Applicable Percentage", as the case may be; (c) if the ratings
------ ---------------------
established by S&P and Moody's shall fall within different levels, the
Applicable Margin and the Applicable Percentage shall be based upon the
higher rating, provided that if the lower of such ratings is more than one
--------
level below the higher of such ratings, then the Applicable Margin and the
Applicable Percentage shall be based on the rating that is the level above
the lower of such ratings; (d) if any rating established by S&P or Moody's
shall be changed, such change shall be effective as of the date on which
such change is first announced publicly by the rating agency making such
change; and (e) if S&P or Moody's shall change the basis on which ratings
are established, each reference to the Public Debt Rating announced by S&P
or Moody's, as the case may be, shall refer to the then equivalent rating
by S&P or Moody's, as the case may be.
"Reference Banks" means Citibank, Morgan Guaranty Trust Company of New
---------------
York, Bank of America National Trust and Savings Association and The Chase
Manhattan Bank.
"Register" has the meaning specified in Section 9.07(d).
--------
"Required Lenders" means at any time Lenders owed at least a majority
----------------
in interest of the then aggregate unpaid principal amount of the Revolving
Credit Advances owing to Lenders, or, if no such principal amount is then
outstanding, Lenders having at least a majority in interest of the
Commitments.
"Revolver Termination Date" means the earlier of (a) August 6, 1999,
-------------------------
subject to the extension thereof pursuant to Section 2.17, and (b) the date
of termination in whole of the Commitments pursuant to Section 2.05 or
6.01; provided, however, that the Revolver Termination Date of any Lender
that is a Non-Consenting Lender to any requested extension pursuant to
Section 2.17 shall be the Revolver Termination Date in effect immediately
prior to the applicable Extension Date for all purposes of this Agreement.
"Revolving Credit Advance" means an advance by a Lender to a Borrower
------------------------
as part of a Revolving Credit Borrowing and refers to a Base Rate Advance
or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving
----
Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
--------------------------
simultaneous Revolving Credit Advances of the same Type made by each of the
Lenders pursuant to Section 2.01.
"S&P" means Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc.
"Single Employer Plan" means a single employer plan, as defined in
--------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any ERISA Affiliate and no Person other than the Company and
the ERISA Affiliates or (b) was so maintained and in respect of which the
Company or any ERISA Affiliate could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits
<PAGE>
11
of such limited liability company, partnership or joint venture or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Telephone Asset" means any asset of a Person used by such Person to
---------------
provide telephone or communication services.
"Term Loan Conversion Date" means the Revolver Termination Date on
-------------------------
which all Advances outstanding on such date are converted into a term loan
pursuant to Section 2.06.
"Term Loan Election" has the meaning specified in Section 2.06(a).
------------------
"Voting Stock" means capital stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to appoint or to vote
for the election of directors (or persons performing similar functions) of
such Person, even if the right so to vote has been suspended by the
happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(e) ("GAAP").
----
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances. Each Lender severally
-----------------------------
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Credit Advances to any Borrower from time to time on any Business Day during the
period from the Effective Date until the Revolver Termination Date in an
aggregate amount not to exceed at any time outstanding the amount set forth
opposite such Lender's name on the signature pages hereof or, if such Lender has
entered into any Assignment and Acceptance or an Assumption Agreement, set forth
for such Lender in the Register maintained by the Administrative Agent pursuant
to Section 9.07(d), as such amount may be reduced pursuant to Section 2.05 (such
Lender's "Commitment"), provided that the aggregate amount of the Commitments of
---------- --------
the Lenders shall be deemed used from time to time to the extent of the
aggregate amount of the Competitive Bid Advances then outstanding and such
deemed use of the aggregate amount of the Commitments shall be allocated among
the Lenders ratably according to their respective Commitments (such deemed use
of the aggregate amount of the Commitments being a "Competitive Bid Reduction").
-------------------------
Each Revolving Credit Borrowing shall be in an aggregate amount of $25,000,000
or an integral multiple of $1,000,000 in excess thereof and shall consist of
Revolving Credit Advances of the same Type made on the same day by the Lenders
ratably according to their respective Commitments. Notwithstanding any other
provision of this Agreement, more than one Revolving Credit Borrowing may be
made on the same day by either or both Borrowers. Within the limits of each
Lender's Commitment, the Borrowers may borrow under this Section 2.01, prepay
pursuant to Section 2.10 and reborrow under this Section 2.01.
SECTION 2.02. Making the Revolving Credit Advances. (a) Each
------------------------------------
Revolving Credit Borrowing shall be made on notice, given not later than 11:00
A.M. (New York City time) on the third Business Day prior to the date of the
proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Eurodollar Rate Advances, or the date of the proposed Revolving
Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base
Rate Advances, by a Borrower to the Administrative Agent, which shall give to
each Lender prompt notice thereof by telecopier or telex. Each such notice of a
Revolving Credit Borrowing (a
<PAGE>
12
"Notice of Revolving Credit Borrowing") shall be by telephone, confirmed
------------------------------------
immediately in writing, or telecopier or telex in substantially the form of
Exhibit B-1 hereto, specifying therein the requested (i) date of such Revolving
Credit Borrowing, (ii) Type of Advances comprising such Revolving Credit
Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, and (iv)
in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate
Advances, initial Interest Period for each such Revolving Credit Advance. Each
Lender shall, before 12:00 noon (New York City time) on the date of such
Revolving Credit Borrowing, make available for the account of its Applicable
Lending Office to the Administrative Agent at the Administrative Agent's
Account, in same day funds, such Lender's ratable portion of such Revolving
Credit Borrowing. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available on the date of such
Revolving Credit Advance to the Borrower giving such Notice of Revolving Credit
Borrowing at the Administrative Agent's address referred to in Section 9.02.
(b) Anything in subsection (a) above to the contrary notwithstanding, no
Borrower may select Eurodollar Rate Advances for any Revolving Credit Borrowing
at any time that the obligation of the Lenders to make Eurodollar Rate Advances
shall then be suspended pursuant to Section 2.08 or 2.12.
(c) Each Notice of Revolving Credit Borrowing shall be irrevocable and
binding on the Borrower giving such Notice of Revolving Credit Borrowing. In
the case of any Revolving Credit Borrowing that the related Notice of Revolving
Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrower giving such Notice of Revolving Credit Borrowing shall indemnify each
Lender against any loss, cost or expense incurred by such Lender as a result of
any failure to fulfill on or before the date specified in such Notice of
Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of Applicable Margin), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund the Revolving Credit Advance to be made by such Lender as part of such
Revolving Credit Borrowing when such Revolving Credit Advance, as a result of
such failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Revolving Credit Borrowing that such Lender will
not make available to the Administrative Agent such Lender's ratable portion of
such Revolving Credit Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the date
of such Revolving Credit Borrowing in accordance with subsection (a) of this
Section 2.02 and the Administrative Agent may, in reliance upon such assumption,
make available to a Borrower giving such Notice of Revolving Credit Borrowing on
such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Administrative Agent,
such Lender and the applicable Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Administrative Agent,
at (i) in the case of such Borrower, the interest rate applicable at the time to
Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Revolving Credit Advance as part of such Revolving
Credit Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the Revolving Credit Advance to be
made by it as part of any Revolving Credit Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Revolving Credit Advance
on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender
----------------------------
severally agrees that any Borrower may make Competitive Bid Borrowings under
this Section 2.03 from time to time on any Business Day during the period from
the date hereof until the date occurring 30 days prior to the Revolver
Termination Date in the manner set forth below; provided that, following the
--------
making of each Competitive Bid Borrowing, the aggregate amount of the Advances
then outstanding shall not exceed the aggregate amount of the Commitments of the
Lenders (computed without regard to any Competitive Bid Reduction).
<PAGE>
13
(i) Any Borrower may request a Competitive Bid Borrowing under this
Section 2.03 by delivering to the Administrative Agent, by telecopier or
telex, a notice of a Competitive Bid Borrowing (a "Notice of Competitive
---------------------
Bid Borrowing"), in substantially the form of Exhibit B-2 hereto,
-------------
specifying therein the requested (v) date of such proposed Competitive Bid
Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing,
(x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate
Advances, Interest Period, or in the case of a Competitive Bid Borrowing
consisting of Fixed Rate Advances, maturity date for repayment of each
Fixed Rate Advance to be made as part of such Competitive Bid Borrowing
(which maturity date may not be earlier than the date occurring 7 days
after the date of such Competitive Bid Borrowing or later than the earlier
of (I) 180 days after the date of such Competitive Bid Borrowing and (II)
the Revolver Termination Date), (y) interest payment date or dates relating
thereto, and (z) other terms (if any) to be applicable to such Competitive
Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least
one Business Day prior to the date of the proposed Competitive Bid
Borrowing, if the applicable Borrower shall specify in the Notice of
Competitive Bid Borrowing that the rates of interest to be offered by the
Lenders shall be fixed rates per annum (the Advances comprising any such
Competitive Bid Borrowing being referred to herein as "Fixed Rate
----------
Advances") and (B) at least four Business Days prior to the date of the
proposed Competitive Bid Borrowing, if the applicable Borrower shall
instead specify in the Notice of Competitive Bid Borrowing that the rates
of interest to be offered by the Lenders are to be based on the LIBO Rate
(the Advances comprising such Competitive Bid Borrowing being referred to
herein as "LIBO Rate Advances"). The Administrative Agent shall in turn
------------------
promptly notify each Lender of each request for a Competitive Bid Borrowing
received by it from a Borrower by sending such Lender a copy of the related
Notice of Competitive Bid Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more Competitive Bid Advances to the
applicable Borrower as part of such proposed Competitive Bid Borrowing at a
rate or rates of interest specified by such Lender in its sole discretion,
by notifying the Administrative Agent (which shall give prompt notice
thereof to such Borrower), before 9:30 A.M. (New York City time) on the
date of such proposed Competitive Bid Borrowing, in the case of a
Competitive Bid Borrowing consisting of Fixed Rate Advances and before
10:00 A.M. (New York City time) three Business Days before the date of such
proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of LIBO Rate Advances, of the minimum amount and
maximum amount of each Competitive Bid Advance which such Lender would be
willing to make as part of such proposed Competitive Bid Borrowing (which
amounts may, subject to the proviso to the first sentence of this Section
2.03(a), exceed such Lender's Commitment, if any), the rate or rates of
interest therefor and such Lender's Applicable Lending Office with respect
to such Competitive Bid Advance; provided that if the Administrative Agent
--------
in its capacity as a Lender shall, in its sole discretion, elect to make
any such offer, it shall notify the applicable Borrower of such offer at
least 30 minutes before the time and on the date on which notice of such
election is to be given to the Administrative Agent by the other Lenders.
If any Lender shall elect not to make such an offer, such Lender shall so
notify the Administrative Agent, before 10:00 A.M. (New York City time) on
the date on which notice of such election is to be given to the
Administrative Agent by the other Lenders, and such Lender shall not be
obligated to, and shall not, make any Competitive Bid Advance as part of
such Competitive Bid Borrowing; provided that the failure by any Lender to
--------
give such notice shall not cause such Lender to be obligated to make any
Competitive Bid Advance as part of such proposed Competitive Bid Borrowing.
(iii) The Borrower giving the Notice of Competitive Bid Borrowing
shall, in turn, before 10:30 A.M. (New York City time) on the date of such
proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of Fixed Rate Advances and before 11:00 A.M. (New
York City time) three Business Days before the date of such proposed
Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing
consisting of LIBO Rate Advances, either:
(x) cancel such Competitive Bid Borrowing by giving the
Administrative Agent notice to that effect, or
<PAGE>
14
(y) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above, in its sole discretion, by
giving notice to the Administrative Agent of the amount of each
Competitive Bid Advance (which amount shall be equal to or greater
than the minimum amount, and equal to or less than the maximum amount,
notified to the applicable Borrower by the Administrative Agent on
behalf of such Lender for such Competitive Bid Advance pursuant to
paragraph (ii) above) to be made by each Lender as part of such
Competitive Bid Borrowing, and reject any remaining offers made by
Lenders pursuant to paragraph (ii) above by giving the Administrative
Agent notice to that effect. The Borrower giving the Notice of
Competitive Bid Borrowing shall accept the offers made by any Lender
or Lenders to make Competitive Bid Advances in order of the lowest to
the highest rates of interest offered by such Lenders. If two or more
Lenders have offered the same interest rate, the amount to be borrowed
at such interest rate will be allocated among such Lenders in
proportion to the maximum amount that each such Lender offered at such
interest rate.
(iv) If the applicable Borrower notifies the Administrative Agent that
such Competitive Bid Borrowing is canceled pursuant to paragraph (iii)(x)
above, the Administrative Agent shall give prompt notice thereof to the
Lenders and such Competitive Bid Borrowing shall not be made.
(v) If the applicable Borrower accepts one or more of the offers made
by any Lender or Lenders pursuant to paragraph (iii)(y) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that has
made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such Competitive Bid Borrowing and whether or not any
offer or offers made by such Lender pursuant to paragraph (ii) above have
been accepted by the applicable Borrower, (B) each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing, of the
amount of each Competitive Bid Advance to be made by such Lender as part of
such Competitive Bid Borrowing, and (C) each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing, upon
receipt, that the Administrative Agent has received forms of documents
appearing to fulfill the applicable conditions set forth in Article III.
Each Lender that is to make a Competitive Bid Advance as part of such
Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on
the date of such Competitive Bid Borrowing specified in the notice received
from the Administrative Agent pursuant to clause (A) of the preceding
sentence or any later time when such Lender shall have received notice from
the Administrative Agent pursuant to clause (C) of the preceding sentence,
make available for the account of its Applicable Lending Office to the
Administrative Agent at the Administrative Agent's Account, in same day
funds, such Lender's portion of such Competitive Bid Borrowing. Upon
fulfillment of the applicable conditions set forth in Article III and after
receipt by the Administrative Agent of such funds, the Administrative Agent
will make such funds available to the applicable Borrower at the
Administrative Agent's address referred to in Section 9.02. Promptly after
each Competitive Bid Borrowing the Administrative Agent will notify each
Lender of the amount of the Competitive Bid Borrowing, the consequent
Competitive Bid Reduction and the dates upon which such Competitive Bid
Reduction commenced and will terminate.
(vi) If the applicable Borrower notifies the Administrative Agent that
it accepts one or more of the offers made by any Lender or Lenders pursuant
to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable
and binding on such Borrower. The Borrower giving the Notice of
Competitive Bid Borrowing shall indemnify each Lender against any loss,
cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified in the related Notice of
Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable
conditions set forth in Article III, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Competitive
Bid Advance to be made by such Lender as part of such Competitive Bid
Borrowing when such Competitive Bid Advance, as a result of such failure,
is not made on such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate amount of
$25,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each Competitive Bid Borrowing, the
<PAGE>
15
Borrowers shall be in compliance with the limitation set forth in the proviso to
the first sentence of subsection (a) above.
(c) Within the limits and on the conditions set forth in this Section 2.03,
the Borrowers may from time to time borrow under this Section 2.03, repay or
prepay pursuant to subsection (d) below, and reborrow under this Section 2.03.
(d) The applicable Borrower shall repay to the Administrative Agent for the
account of each Lender that has made a Competitive Bid Advance, on the maturity
date of each Competitive Bid Advance (such maturity date being that specified by
such Borrower for repayment of such Competitive Bid Advance in the related
Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i)
above), the then unpaid principal amount of such Competitive Bid Advance. No
Borrower shall have any right to prepay any principal amount of any Competitive
Bid Advance unless, and then only on the terms, specified by the applicable
Borrower for such Competitive Bid Advance in the related Notice of Competitive
Bid Borrowing delivered pursuant to subsection (a)(i) above.
(e) The applicable Borrower shall pay interest on the unpaid principal
amount of each Competitive Bid Advance from the date of such Competitive Bid
Advance to the date the principal amount of such Competitive Bid Advance is
repaid in full, at the rate of interest for such Competitive Bid Advance
specified by the Lender making such Competitive Bid Advance in its notice with
respect thereto delivered pursuant to subsection (a)(ii) above, payable on the
interest payment date or dates specified by such Borrower for such Competitive
Bid Advance in the related Notice of Competitive Bid Borrowing delivered
pursuant to subsection (a)(i) above. Upon the occurrence and during the
continuance of an Event of Default, such Borrower shall pay interest on the
amount of unpaid principal of and interest on each Competitive Bid Advance owing
to a Lender, payable in arrears on the date or dates interest is payable
thereon, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on such Competitive Bid Advance.
SECTION 2.04. Fees. (a) Facility Fee. The Borrowers agree to pay
---- ------------
to the Administrative Agent for the account of each Lender a facility fee on the
aggregate amount of such Lender's Commitment from the date hereof in the case of
each Initial Lender and from the effective date specified in the Assignment and
Acceptance or Assumption Agreement pursuant to which it became a Lender in the
case of each other Lender until the Revolver Termination Date (or, if
applicable, until such Lender's Commitment has been assigned to another Lender)
at a rate per annum equal to the Applicable Percentage in effect from time to
time, payable in arrears quarterly on the last day of each March, June,
September and December, commencing September 30, 1998, and on the Revolver
Termination Date.
(b) Administrative Agent's Fees. The Borrowers shall pay to the
---------------------------
Administrative Agent for its own account such fees as may from time to time be
agreed among the Borrowers and the Administrative Agent.
SECTION 2.05. Termination or Reduction of the Commitments. (a)
-------------------------------------------
Optional. The Company shall have the right, upon at least three Business Days'
- --------
notice to the Administrative Agent, to terminate in whole or reduce ratably in
part the aggregate unused Commitments of the Lenders; provided that each partial
--------
reduction shall be in an aggregate amount of $25,000,000 or an integral multiple
of $1,000,000 in excess thereof or, if less, the aggregate amount of all
Commitments at such time.
(b) Mandatory. On the Revolver Termination Date, if the Borrowers
---------
have made the Term Loan Election in accordance with Section 2.06(a) prior to
such date, and from time to time thereafter upon each prepayment of the
Advances, the aggregate Commitments of the Lenders shall be automatically and
permanently reduced on a pro rata basis by an amount equal to the amount by
which (i) the aggregate Commitments immediately prior to such reduction exceeds
-------
(ii) the aggregate unpaid principal amount of all Advances outstanding at such
time.
SECTION 2.06. Repayment of Advances. (a) Revolving Credit Advances.
--------------------- -------------------------
Each Borrower shall, subject to the next succeeding sentence, repay to the
Administrative Agent, for the ratable account of the Lenders, on the Revolver
Termination Date the aggregate principal amount of all Revolving Credit Advances
made to it outstanding on such date. The Borrowers may, upon not less than 15
days' notice to the Administrative Agent, elect
<PAGE>
16
(the "Term Loan Election") to convert all of the Revolving Credit Advances
------------------
outstanding on the Revolver Termination Date in effect at such time into a term
loan which the Borrower that requested each such Revolving Credit Advance shall
repay in full ratably to the Lenders on the Maturity Date; provided that the
--------
Term Loan Election may not be exercised if a Default has occurred and is
continuing on the date of notice of the Term Loan Election or on the date on
which the Term Loan Election is to be effected. All Revolving Credit Advances
converted to a term loan pursuant to this Section 2.06(a) shall continue to
constitute Revolving Credit Advances except that the Borrowers may not reborrow
pursuant to Section 2.01 after all or any portion of such Revolving Credit
Advances have been prepaid pursuant to Section 2.10.
(b) Competitive Bid Advances. Each Borrower shall repay to the
------------------------
Administrative Agent, for the account of each Lender that has made a Competitive
Bid Advance, the aggregate outstanding principal amount of each Competitive Bid
Advance made to such Borrower and owing to such Lender on the earlier of (i) the
maturity date therefor, specified in the related Notice of Competitive Bid
Borrowing delivered pursuant to Section 2.03(a)(i) and (ii) the Revolver
Termination Date.
SECTION 2.07. Interest on Revolving Credit Advances. (a) Scheduled
------------------------------------- ---------
Interest. Each Borrower shall pay interest on the unpaid principal amount of
- --------
each Revolving Credit Advance made to it owing to each Lender from the date of
such Revolving Credit Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Revolving Credit
------------------
Advance is a Base Rate Advance, a rate per annum equal at all times to the
Base Rate in effect from time to time, payable in arrears quarterly on the
last day of each March, June, September and December during such periods
and on the date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Revolving
------------------------
Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Revolving Credit Advance to the
sum of (x) the Eurodollar Rate for such Interest Period for such Revolving
Credit Advance plus (y) the Applicable Margin in effect from time to time
----
plus (z) the Applicable Utilization Fee, payable in arrears on the last day
----
of such Interest Period and, if such Interest Period has a duration of more
than three months, on each day that occurs during such Interest Period
every three months from the first day of such Interest Period and on the
date such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an
----------------
Event of Default under Section 6.01(a) or Section 6.01(e), each Borrower shall
pay interest on (i) the unpaid principal amount of each Revolving Credit Advance
made to it and owing to each Lender, payable in arrears on the dates referred to
in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2%
per annum above the rate per annum required to be paid on such Revolving Credit
Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount payable
hereunder that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on Base Rate
Advances pursuant to clause (a)(i) above.
SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank
---------------------------
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each Eurodollar Rate and each LIBO Rate. If any one or more of
the Reference Banks shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such interest rate, the
Administrative Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks. The Administrative
Agent shall give prompt notice to the Borrowers and the Lenders of the
applicable interest rate determined by the Administrative Agent for purposes of
Section 2.07(a)(i) or (ii) , and the rate, if any, furnished by each Reference
Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
<PAGE>
17
(b) If, with respect to any Eurodollar Rate Advances, the Required Lenders
notify the Administrative Agent that the Eurodollar Rate for any Interest Period
for such Advances will not adequately reflect the cost to such Required Lenders
of making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrowers and the Lenders, whereupon (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to
make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances
shall be suspended until the Administrative Agent shall notify the Borrowers and
the Lenders that the circumstances causing such suspension no longer exist.
(c) If any Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify such Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $25,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of Default
under Section 6.01(a) or Section 6.01(e), (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,
or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
(f) If fewer than two Reference Banks furnish timely information to the
Administrative Agent for determining the Eurodollar Rate or LIBO Rate for any
Eurodollar Rate Advances or LIBO Rate Advances, as the case may be,
(i) the Administrative Agent shall forthwith notify the Borrowers and
the Lenders that the interest rate cannot be determined for such Eurodollar
Rate Advances or LIBO Rate Advances, as the case may be,
(ii) with respect to Eurodollar Rate Advances, each such Advance will
automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance (or if such Advance is then a
Base Rate Advance, will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate Advances
or LIBO Rate Advances or to Convert Revolving Credit Advances into
Eurodollar Rate Advances shall be suspended until the Administrative Agent
shall notify the Borrowers and the Lenders that the circumstances causing
such suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit Advances. Each
------------------------------------------------
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the date of the proposed Conversion and subject to the provisions of Sections
2.08 and 2.12, Convert all Revolving Credit Advances made to it of one Type
comprising the same Borrowing into Revolving Credit Advances of the other Type;
provided, however, that any Conversion of Eurodollar Rate Advances into Base
- -------- -------
Rate Advances shall be made only on the last day of an Interest Period for such
Eurodollar Rate Advances, and any Conversion of Base Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.01. Each such notice of a Conversion shall, within the
restrictions specified above, specify (i) the date of such Conversion, (ii) the
Revolving Credit Advances to be Converted, and (iii) if such Conversion is into
Eurodollar Rate Advances, the duration of the initial Interest Period for each
such Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower giving such notice.
SECTION 2.10. Optional Prepayments of Revolving Credit Advances.
-------------------------------------------------
Each Borrower may, upon notice by 11:00 A.M. (New York City time) at least two
Business Days' prior to the date of the proposed
<PAGE>
18
prepayment (in the case of Eurodollar Rate Advances) and notice by 11:00 A.M.
(New York City time) on the date of the proposed prepayment (in the case of Base
Rate Advances) to the Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given such
Borrower shall, prepay the outstanding principal amount of the Revolving Credit
Advances made to it comprising part of the same Revolving Credit Borrowing in
whole or ratably in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid; provided, however, that (x) each
-------- -------
partial prepayment shall be in an aggregate principal amount of $25,000,000 or
an integral multiple of $1,000,000 in excess thereof and (y) in the event of any
such prepayment of a Eurodollar Rate Advance, such Borrower shall be obligated
to reimburse the Lenders in respect thereof pursuant to Section 9.04(c).
SECTION 2.11. Increased Costs. (a) If, due to either (i) the
---------------
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
after the date hereof, in the case of Eurodollar Rate Advances, or after the
date of any Lender's offer to make a Competitive Bid Advance pursuant to Section
2.03(a)(ii), in the case of LIBO Rate Advances, there shall be any increase in
the cost to any Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances or LIBO Rate Advances (excluding for purposes of this
Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes
(as to which Section 2.14 shall govern) and (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender is
organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrowers shall from time to time, upon demand by such Lender
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost. A certificate as
to the amount of such increased cost, submitted to the Borrowers and the
Administrative Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend hereunder and other
commitments of this type, then, upon demand by such Lender (with a copy of such
demand to the Administrative Agent), the Borrowers shall pay to the
Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in capital to be allocable
to the existence of such Lender's commitment to lend hereunder. A certificate
as to such amounts submitted to the Borrowers and the Administrative Agent by
such Lender shall be conclusive and binding for all purposes, absent manifest
error.
SECTION 2.12. Illegality. Notwithstanding any other provision of
----------
this Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate
Advances hereunder, (i) each LIBO Rate Advance of such Lender and each
Eurodollar Rate Advance will automatically, upon such demand, Convert into a
Base Rate Advance or an Advance that bears interest at the rate set forth in
Section 2.07(a)(i), as the case may be, and (ii) the obligation of such Lender
to make LIBO Rate Advances and the obligation of the Lenders to make Eurodollar
Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrowers and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 2.13. Payments and Computations. (a) Each Borrower shall
-------------------------
make each payment hereunder and under the Notes not later than 11:00 A.M. (New
York City time) on the day when due in U.S. dollars to the Administrative Agent
at the Administrative Agent's Account in same day funds. The Administrative
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest or facility fees ratably (other than
amounts payable pursuant to Section 2.03, 2.11, 2.14 or 9.04(c)) to the Lenders
for the
<PAGE>
19
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Lender to such Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 9.07(c), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the case
may be, and all computations of interest based on the Eurodollar Rate or the
Federal Funds Rate and of facility fees and utilization fees shall be made by
the Administrative Agent on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Administrative Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that, if such extension would cause payment of interest on or
- -------- -------
principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day.
(d) Unless the Administrative Agent shall have received notice from the
applicable Borrower prior to the date on which any payment is due to the Lenders
hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the applicable Borrower shall not have so made such payment in full to
the Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.14. Taxes. (a) Any and all payments by each Borrower
-----
hereunder or under the Notes shall be made, in accordance with Section 2.13,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Administrative
---------
Agent, taxes imposed on its overall net income, and franchise taxes imposed on
it in lieu of net income taxes, by the jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If any
-----
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note to any Lender or the Administrative
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Lender or the Administrative Agent
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Borrower shall make such deductions
and (iii) such Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, each Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the
<PAGE>
20
Notes or from the execution, delivery or registration of, performing under, or
otherwise with respect to, this Agreement or the Notes (hereinafter referred to
as "Other Taxes").
-----------
(c) Each Borrower shall indemnify each Lender and the Administrative Agent
for and hold it harmless against the full amount of Taxes or Other Taxes imposed
on or paid by such Lender or the Administrative Agent (as the case may be) and
any liability (including penalties, interest and expenses, but excluding items
specifically excluded from the definition of "Taxes" in subsection (a) above)
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date such Lender or the Administrative Agent (as the
case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, each Borrower
shall furnish to the Administrative Agent, at its address referred to in Section
9.02, the original or a certified copy of a receipt evidencing such payment. In
the case of any payment hereunder or under the Notes by or on behalf of any
Borrower through an account or branch outside the United States or by or on
behalf of such Borrower by a payor that is not a United States person, if such
Borrower determines that no Taxes are payable in respect thereof, such Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
------------- -------------
person" shall have the meanings specified in Section 7701 of the Internal
- ------
Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender and on the date of the Assignment
and Acceptance or the Assumption Agreement pursuant to which it becomes a Lender
in the case of each other Lender, and from time to time thereafter as requested
in writing by the Borrowers (but only so long as such Lender remains lawfully
able to do so), shall provide each of the Administrative Agent and the Borrowers
with two original Internal Revenue Service forms 1001 or 4224, as appropriate,
or any successor or other forms prescribed by the Internal Revenue Service,
certifying that such Lender is exempt from or entitled to a reduced rate of
United States withholding tax on payments pursuant to this Agreement or the
Notes. If the form provided by a Lender at the time such Lender first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from Taxes unless and until such Lender provides the appropriate forms
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment and Acceptance
-------- -------
or the Assumption Agreement pursuant to which a Lender assignee becomes a party
to this Agreement, the Lender assignor was entitled to payments under subsection
(a) in respect of United States withholding tax with respect to interest paid at
such date, then, to such extent, the term Taxes shall include United States
withholding tax at a rate equal to the lesser of (i) the rate of United States
withholding tax, if any, included in Taxes in respect of the Lender assignor on
such date or (ii) the rate of United States withholding tax, if any, applicable
with respect to the Lender assignee on such date. If any form or document
referred to in this subsection (e) requires the disclosure of information, other
than information necessary to compute the tax payable and information required
by Internal Revenue Service form 1001 or 4224, or any successor or other forms
prescribed by the Internal Revenue Service, that the Lender reasonably considers
to be confidential, the Lender shall give notice thereof to the Borrowers and
shall not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a Lender has failed to provide the
Borrowers with the appropriate form described in Section 2.14(e) (other than if
----- ----
such failure is due to a change in law occurring subsequent to the date on which
a form originally was required to be provided, or if such form otherwise is not
required under subsection (e) above), such Lender shall not be entitled to
indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided, however, that should a
-------- -------
Lender become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrowers shall take such steps as the Lender shall reasonably
request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction
<PAGE>
21
of its Eurodollar Lending Office if the making of such a change would avoid the
need for, or reduce the amount of, any such additional amounts that may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender.
SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain
------------------------
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Revolving Credit Advances owing to
it (other than pursuant to Section 2.11, 2.14 or 9.04(c)) in excess of its
ratable share of payments on account of the Revolving Credit Advances obtained
by all the Lenders, such Lender shall forthwith purchase from the other Lenders
such participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
-------- -------
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. Each
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.15 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of such Borrower in the amount of such participation.
SECTION 2.16. Increase in the Aggregate Commitments. (a) The
-------------------------------------
Borrowers may, at any time but in any event not more than once in any calendar
year prior to the Revolver Termination Date, by notice to the Administrative
Agent, request that the aggregate amount of the Commitments be increased by
$25,000,000 or an integral multiple of $25,000,000 in excess thereof (each a
"Commitment Increase") to be effective as of a date that is at least 90 days
- --------------------
prior to the scheduled Revolver Termination Date then in effect (the "Increase
--------
Date") as specified in the related notice to the Administrative Agent; provided,
- ---- --------
however, that (i) in no event shall the aggregate amount of the Commitments at
- -------
any time exceed $3,500,000,000, (ii) no Default shall have occurred and be
continuing as of the date of such request and (iii) all of the applicable
conditions set forth in Article III shall be satisfied as of the applicable
Increase Date.
(b) The Administrative Agent shall promptly notify the Lenders of a
request by the Borrowers for a Commitment Increase, which notice shall include
(i) the proposed amount of such requested Commitment Increase, (ii) the proposed
Increase Date and (iii) the date by which Lenders wishing to participate in the
Commitment Increase must commit to an increase in the amount of their respective
Commitments (the "Commitment Date"). Each Lender that is willing to participate
---------------
in such requested Commitment Increase (each an "Increasing Lender") shall, in
-----------------
its sole discretion, give written notice to the Administrative Agent on or prior
to the Commitment Date of the amount by which it is willing to increase its
Commitment. If the Lenders notify the Administrative Agent that they are
willing to increase the amount of their respective Commitments by an aggregate
amount that exceeds the amount of the requested Commitment Increase, the
requested Commitment Increase shall be allocated among the Lenders willing to
participate therein in such amounts as are agreed between the Borrowers and the
Administrative Agent.
(c) Promptly following each Commitment Date, the Administrative Agent
shall notify the Borrowers as to the amount, if any, by which the Lenders are
willing to participate in the requested Commitment Increase. If the aggregate
amount by which the Lenders are willing to participate in any requested
Commitment Increase on any such Commitment Date is less than the requested
Commitment Increase, then the Borrowers may extend offers to one or more
Eligible Assignees to participate in any portion of the requested Commitment
Increase that has not been committed to by the Lenders as of the applicable
Commitment Date; provided, however, that the Commitment of each such Eligible
-------- -------
Assignee, when aggregated with the commitment of such Person to lend under the
Five-Year Credit Agreement, shall in no event be less than $10,000,000.
(d) On each Increase Date, each Eligible Assignee that accepts an
offer to participate in a requested Commitment Increase in accordance with
Section 2.16(c) (each an "Increase Assuming Lender") shall become a Lender party
------------------------
to this Agreement as of such Increase Date and the Commitment of each Increasing
Lender
<PAGE>
22
for such requested Commitment Increase shall be so increased by such amount (or
by the amount allocated to such Lender pursuant to the last sentence of Section
2.16(b)) as of such Increase Date; provided, however, that the Administrative
-------- -------
Agent shall have received on or before such Increase Date the following, each
dated such date:
(i) (A) certified copies of resolutions of the board of directors of
each Borrower or the Executive Committee of such board approving the amount
of the Commitments after giving effect to the Commitment Increase, (B) a
certificate, signed by a duly authorized Responsible Officer of each
Borrower, stating that all of the applicable conditions in Article III have
been satisfied and (C) an opinion of counsel for the Borrowers, in
substantially the form of Exhibit C hereto;
(ii) an Assumption Agreement from each Increase Assuming Lender, duly
executed by such Increase Assuming Lender, the Administrative Agent and the
Borrowers; and
(iii) confirmation from each Increasing Lender of the increase in the
amount of its Commitment in a writing satisfactory to the Borrowers and the
Administrative Agent.
On each Increase Date, upon fulfillment of the conditions set forth in the
immediately preceding sentence of this Section 2.16(d), the Administrative Agent
shall notify the Lenders (including, without limitation, each Increase Assuming
Lender) and the Borrowers, on or before 1:00 P.M. (New York City time), by
telecopier or telex, of the occurrence of the Commitment Increase to be effected
on such Increase Date and shall record in the Register the relevant information
with respect to each Increasing Lender and each Increase Assuming Lender on such
date. In addition, on each Increase Date, each of the Increasing Lenders and
the Increase Assuming Lenders will purchase and assume from the other Lenders
such interests in the Revolving Credit Advances made by such other Lenders and
outstanding on such Increase Date as shall be necessary so that, after giving
effect to such purchases and assumptions, each of the Lenders (including the
Increasing Lenders and the Increase Assuming Lenders) will hold their respective
pro rata shares of all Revolving Credit Advances outstanding on such Increase
Date (such purchases and assumptions to be effected by each of the Increasing
Lenders and the Increase Assuming Lenders making an amount equal to such
respective pro rata shares available for the accounts of their Applicable
Lending Offices to the Administrative Agent at the Administrative Agent's
Account, in same day funds). Each Borrower hereby agrees to each of the
purchases and assumptions described in the immediately preceding sentence.
SECTION 2.17. Extension of Revolver Termination Date. (a) At least
--------------------------------------
45 days but not more than 60 days prior to the scheduled Revolver Termination
Date then in effect, the Borrowers, by written notice to the Administrative
Agent, may request an extension of such Revolver Termination Date for a period
of 364 days from its then scheduled expiration; provided, however, that the
-------- -------
Borrowers shall not have made the Term Loan Election for Advances outstanding on
such Revolver Termination Date prior to such time. The Administrative Agent
shall promptly notify each Lender of such request, and each Lender shall in
turn, in its sole discretion, not earlier than 30 days but at least 20 days
prior to the scheduled Revolver Termination Date then in effect, notify the
Administrative Agent in writing as to whether such Lender will consent to such
extension. If any Lender shall fail to notify the Administrative Agent in
writing of its consent to, or refusal of, any such request for extension of the
Revolver Termination Date at least 20 days prior to the scheduled Revolver
Termination Date then in effect, such Lender shall be deemed to be a Non-
Consenting Lender with respect to such request. The Administrative Agent shall
notify the Borrowers in writing not later than 15 days prior to the scheduled
Revolver Termination Date then in effect of the decision of the Lenders
regarding the Borrowers' request for an extension of such Revolver Termination
Date. It is understood and agreed that no Lender shall have any obligation
whatsoever to agree to any request made by the Borrowers for an extension of the
Revolver Termination Date.
(b) If all of the Lenders consent in writing to any such request in
accordance with subsection (a) of this Section 2.17, upon fulfillment of the
applicable conditions set forth in Article III, the Revolver Termination Date in
effect at such time shall, effective as at such Revolver Termination Date (the
"Extension Date"), be extended for a period of 364 days from such Extension
- ---------------
Date. If Lenders holding at least a majority in interest of the aggregate
Commitments at such time (after giving effect to any assumptions of the
Commitments of Non-Consenting Lenders in accordance with subsection (c) of this
Section 2.17) consent in writing to any such request in accordance with
subsection (a) of this Section 2.17, the Revolver Termination Date in effect at
such time
<PAGE>
23
shall, upon fulfillment of the applicable conditions set forth in Article III,
effective as at the applicable Extension Date, be extended as to those Lenders
that so consented (each a "Consenting Lender") but shall not be extended as to
-----------------
any other Lender (each a "Non-Consenting Lender"). To the extent that the
---------------------
Revolver Termination Date is not extended as to any Lender pursuant to this
Section 2.17 and the Commitment of such Lender is not assumed in accordance with
subsection (c) of this Section 2.17 on or prior to the applicable Extension
Date, the Commitment of such Non-Consenting Lender shall automatically terminate
in whole on such unextended Revolver Termination Date without any further notice
or other action by the Borrowers, such Lender or any other Person; provided that
such Non-Consenting Lender's rights under Sections 2.11, 2.14 and 9.04, and its
obligations under Section 8.05, shall survive the Revolver Termination Date for
such Lender as to matters occurring prior to such Extension Date.
(c) If less than all of the Lenders consent to any such request
pursuant to subsection (a) of this Section 2.17, the Agent shall promptly so
notify the Consenting Lenders, and each Consenting Lender may, in its sole
discretion, give written notice to the Agent not later than 10 days prior to the
Revolver Termination Date of the amount of the Non-Consenting Lenders'
Commitments for which it is willing to accept an assignment. If the Consenting
Lenders notify the Agent that they are willing to accept assignments of
Commitments in an aggregate amount that exceeds the amount of the Commitments of
the Non-Consenting Lenders, such Commitments shall be allocated among the
Consenting Lenders willing to accept such assignments in such amounts as are
agreed between the Borrowers and the Agent. If after giving effect to the
assignments described above there remains any Commitments of Non-Consenting
Lenders, the Borrowers may arrange for one or more Consenting Lenders or other
Eligible Assignees to assume, effective as of the Extension Date, any Non-
Consenting Lender's Commitment and all of the rights and obligations of such
Non-Consenting Lender under this Agreement thereafter arising (each Eligible
Assignee assuming the Commitment of one or more Non-Consenting Lenders pursuant
to this Section 2.17 being an "Extension Assuming Lender"), without recourse to
-------------------------
or warranty by, or expense to, such Non-Consenting Lender; provided, however,
-------- -------
that the Commitment of any such Extension Assuming Lender shall in no event be
less than $10,000,000 unless the Commitment of such Non-Consenting Lender
hereunder at such time is less than $10,000,000, in which case such Extension
Assuming Lender shall assume all of such lesser amount; and provided further
-------- -------
that:
(i) the Consenting Lenders and Extension Assuming Lenders shall
collectively have paid to the Non-Consenting Lenders the aggregate
principal amount of, and any interest accrued and unpaid to the effective
date of such assumption on, the outstanding Advances, if any, of such Non-
Consenting Lenders;
(ii) any accrued and unpaid Facility Fees and Utilization Fees owing
to such Non-Consenting Lenders as of the effective date of such assumption,
and all additional cost and expense reimbursements and indemnification
payments payable to such Non-Consenting Lenders, and all other accrued and
unpaid amounts owing to such Non-Consenting Lenders under this Agreement
and the Notes, as of the effective date of such assumption, shall have been
paid to such Non-Consenting Lenders by the Borrowers or such Consenting
Lenders and Extension Assuming Lenders; and
(iii) with respect to any such Extension Assuming Lender, the
applicable processing and recordation fee required under Section 9.07(a)
shall have been paid; and
provided further that such Non-Consenting Lender's rights under Sections 2.11,
- -------- -------
2.14 and 9.04, and its obligations under Section 8.05, shall survive such
substitution as to matters occurring prior to the date of substitution. At
least three Business Days prior to each Extension Date, (A) each such Extension
Assuming Lender, if any, shall have delivered to the Borrowers and the
Administrative Agent an Assumption Agreement, duly executed by such Extension
Assuming Lender, such Non-Consenting Lender, the Borrowers and the
Administrative Agent, (B) each such Consenting Lender, if any, shall have
delivered written confirmation satisfactory to the Borrowers and the
Administrative Agent as to any increase in the amount of its Commitment
resulting from its assumption of one or more Commitments of the Non-Consenting
Lenders and (C) each Non-Consenting Lender being replaced pursuant to this
Section 2.17(c) shall have delivered to the Administrative Agent, to be held in
escrow on behalf of such Non-Consenting Lender until the payment in full of all
amounts owing to such Non-Consenting Lender under clauses (i) through (iii) of
this Section 2.17(c), any Note or Notes held by such Non-Consenting Lender.
Upon the payment or prepayment of all amounts referred to in clauses (i), (ii)
and (iii) of this Section 2.17(c), each such Consenting
<PAGE>
24
Lender or Extension Assuming Lender, as of the Extension Date, will be
substituted for the applicable Non-Consenting Lender(s) under this Agreement and
shall be a Lender for all purposes of this Agreement, without any further
acknowledgment by or the consent of any of the other Lenders, and the
obligations of each such Non-Consenting Lender hereunder shall, by the
provisions hereof, be released and discharged.
(d) If Lenders holding at least a majority in interest of the
aggregate Commitments at such time (after giving effect to any assumptions
pursuant to subsection (c) of this Section 2.17) consent in writing to a
requested extension (whether by execution and delivery of an Assumption
Agreement or otherwise) not later than one Business Day prior to an Extension
Date, the Administrative Agent shall so notify the Borrowers, and, upon
fulfillment of the applicable conditions set forth in Article III and subsection
(c) above, the Revolver Termination Date then in effect shall be extended for
the 364-day period described in subsection (a) of this Section 2.17, and all
references in this Agreement and in the Notes to the "Revolver Termination Date"
-------------------------
shall, with respect to each Consenting Lender and each Extension Assuming Lender
for such Extension Date, refer to the Revolver Termination Date as so extended.
Promptly following each Extension Date, the Administrative Agent shall notify
the Lenders (including, without limitation, each Assuming Lender) of the
extension of the scheduled Revolver Termination Date in effect immediately prior
thereto and shall thereupon record in the Register the relevant information with
respect to each such Consenting Lender and each such Extension Assuming Lender.
SECTION 2.18. Use of Proceeds. The proceeds of the Advances shall be
---------------
available (and each Borrower agrees that it shall use such proceeds) solely for
general corporate purposes of the Company and its Subsidiaries, including
commercial paper backstop.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01
------------------------------------------------------
and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on
- --------
and as of the first date (the "Effective Date") on which the following
--------------
conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change since
December 31, 1997.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting the Company or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
could be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Agreement or any Note or the consummation of the transactions contemplated
hereby.
(c) Nothing shall have come to the attention of the Lenders during the
course of their due diligence investigation to lead them to believe that
the Information Memorandum was or has become misleading, incorrect or
incomplete in any material respect; without limiting the generality of the
foregoing, the Lenders shall have been given such access to the management,
records, books of account, contracts and properties of the Company and its
Subsidiaries as they shall have reasonably requested.
(d) All governmental and third party consents and approvals necessary
in connection with the transactions contemplated hereby shall have been
obtained (without the imposition of any conditions that are not acceptable
to the Lenders) and shall remain in effect, and no law or regulation shall
be applicable in the reasonable judgment of the Lenders that restrains,
prevents or imposes materially adverse conditions upon the transactions
contemplated hereby.
(e) The Company shall have notified each Lender and the Administrative
Agent in writing as to the proposed Effective Date.
<PAGE>
25
(f) The Company shall have paid all accrued fees and expenses of the
Administrative Agent and the Lenders in connection with this Agreement and
the transactions contemplated hereby (including the accrued fees and
expenses of counsel to the Administrative Agent).
(g) On the Effective Date, the following statements shall be true and
the Administrative Agent shall have received for the account of each Lender
a certificate signed by a duly authorized officer of the Company, dated the
Effective Date, stating that:
(i) The representations and warranties contained in Section 4.01
are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that constitutes a
Default.
(h) The Administrative Agent shall have received on or before the
Effective Date the following, each dated such day, in form and substance
satisfactory to the Administrative Agent and (except for the Notes) in
sufficient copies for each Lender:
(i) The Notes payable to the order of the Lenders, respectively.
(ii) Certified copies of the resolutions of the Board of
Directors of each Borrower authorizing this Agreement and the Notes to
be executed by it, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to
this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying the names and true signatures of the
officers of such Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
(iv) A favorable opinion of Don A. Jensen, Vice President and
Secretary of each of the Borrowers, counsel for the Borrowers,
substantially in the form of Exhibit D hereto and as to such other
matters as any Lender through the Administrative Agent may reasonably
request.
(v) A favorable opinion of Shearman & Sterling, counsel for the
Administrative Agent, in form and substance satisfactory to the
Administrative Agent.
(i) The Borrowers shall have terminated the commitments, and paid in
full all Debt, interest, fees and other amounts outstanding, under the
$1,500,000,000 Credit Agreement dated as of October 31, 1995 among the
Company, Sprint Capital and Central Telephone Company, as borrowers, the
lenders parties thereto and Bank of America National Trust and Savings
Association, Barclays Bank PLC, Citibank N.A. and Morgan Guaranty Trust
Company of New York as managing agents, and each of the Lenders that is a
party to such $1,500,000,000 Credit Agreement hereby waives, upon execution
of this Agreement, the three Business Days' notice required by Section 2.6
of such Credit Agreement relating to the termination of commitments
thereunder.
SECTION 3.02. Conditions Precedent to Each Revolving Credit
---------------------------------------------
Borrowing, Increase Date and Extension Date. The obligation of each Lender to
- -------------------------------------------
make a Revolving Credit Advance on the occasion of each Revolving Credit
Borrowing, each Commitment Increase and each extension of Commitments pursuant
to Section 2.17 shall be subject to the conditions precedent that the
Effective Date shall have occurred and on the date of such Revolving Credit
Borrowing, the applicable Increase Date and the applicable Extension Date (a)
the following statements shall be true (and each of the giving of the applicable
Notice of Revolving Credit Borrowing, request for Commitment Increase, request
for Commitment extension and the acceptance by the applicable Borrower of the
proceeds of such Revolving Credit Borrowing shall constitute a representation
and warranty by such Borrower that on the date of such Borrowing, such Increase
Date and such Extension Date such statements are true):
<PAGE>
26
(i) the representations and warranties contained in Section 4.01
(except the representations set forth in the last sentence of subsection
(e) thereof and in subsection (f) thereof (other than clause (ii) thereof))
are correct in all material respects on and as of the date of such
Revolving Credit Borrowing, before and after giving effect to such
Revolving Credit Borrowing and to the application of the proceeds
therefrom, such Commitment Increase or Commitment extension as though made
on and as of such date, and
(ii) no event has occurred and is continuing, or would result from
such Revolving Credit Borrowing or from the application of the proceeds
therefrom, that constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Lender through the Administrative Agent may
reasonably request.
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing.
------------------------------------------------------
The obligation of each Lender that is to make a Competitive Bid Advance on the
occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as
part of such Competitive Bid Borrowing is subject to the conditions precedent
that (a) the Administrative Agent shall have received the written notice of the
acceptance of offers made by Lenders for Competitive Bid Advances with respect
thereto in accordance with Section 2.03(a)(iii)(y) and (b) on the date of such
Competitive Bid Borrowing the following statements shall be true (and each of
the giving of the applicable Notice of Competitive Bid Borrowing and the
acceptance by the applicable Borrower of the proceeds of such Competitive Bid
Borrowing shall constitute a representation and warranty by such Borrower that
on the date of such Competitive Bid Borrowing such statements are true):
(i) the representations and warranties contained in Section 4.01
(except the representations set forth in the last sentence of subsection
(e) thereof and in subsection (f) thereof (other than clause (ii) thereof))
are correct in all material respects on and as of the date of such
Competitive Bid Borrowing, before and after giving effect to such
Competitive Bid Borrowing and to the application of the proceeds therefrom,
as though made on and as of such date, and
(ii) no event has occurred and is continuing, or would result from
such Competitive Bid Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
SECTION 3.04. Determinations Under Section 3.01. For purposes of
---------------------------------
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by
this Agreement shall have received notice from such Lender prior to the date
that the Borrowers, by notice to the Lenders, designate as the proposed
Effective Date, specifying its objection thereto. The Administrative Agent
shall promptly notify the Lenders of the occurrence of the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrowers. Each
-----------------------------------------------
Borrower represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Kansas. Sprint Capital is
a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) The execution, delivery and performance by each Borrower of this
Agreement and the Notes to be executed by it, and the consummation of the
transactions contemplated hereby, are within such
<PAGE>
27
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) such Borrower's charter or
bylaws or (ii) any law or any contractual restriction binding on or
affecting such Borrower.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by
such Borrower of this Agreement or the Notes to be executed by it.
(d) This Agreement has been duly executed and delivered by each
Borrower. This Agreement is the legal, valid and binding obligation of
each Borrower enforceable against such Borrower in accordance with its
terms. Each of the Notes to be executed by a Borrower when delivered
hereunder will have been duly executed and delivered by such Borrower and
will be the legal, valid and binding obligation of such Borrower,
enforceable against such Borrower in accordance with its terms.
(e) The Consolidated balance sheet of the Company and its Subsidiaries
as at December 31, 1997, and the related Consolidated statements of income
and cash flows of the Company and its Subsidiaries for the fiscal year then
ended, accompanied by an opinion of Ernst & Young LLP, independent public
accountants, and the Consolidated balance sheet of the Company and its
Subsidiaries as at March 31, 1998, and the related Consolidated statements
of income and cash flows of the Company and its Subsidiaries for the three
months then ended, duly certified by the chief financial officer or chief
accounting officer of the Company, copies of which have been furnished to
each Lender, fairly present, subject, in the case of said balance sheet as
at March 31, 1998, and said statements of income and cash flows for the
three months then ended, to year-end audit adjustments, the Consolidated
financial condition of the Company and its Subsidiaries as at such dates
and the Consolidated results of the operations of the Company and its
Subsidiaries for the periods ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
December 31, 1997, there has been no Material Adverse Change.
(f) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting the Company or any of its Subsidiaries before any court,
governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Agreement or any Note or the
consummation of the transactions contemplated hereby.
(g) No Borrower is engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
(h) The Company and each of its Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, technology, know-how and
processes necessary for the conduct of its business as currently conducted
except for those the failure to own or license which could not reasonably
be expected to have a Material Adverse Effect (the "Intellectual
------------
Property"). No claim has been asserted and is pending by any Person
--------
challenging or questioning the use of any such Intellectual Property or the
validity or effectiveness of any such Intellectual Property, nor does such
Borrower know of any valid basis for any such claim, except, in either
case, for such claims that in the aggregate could not reasonably be
expected to have a Material Adverse Effect. The use of such Intellectual
Property by the Company and its Subsidiaries does not infringe on the
rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(i) No Borrower is an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company
Act of 1940, as amended. No Borrower is subject to regulation under any
Federal or State statute or regulation which limits its ability to incur
Debt.
<PAGE>
28
(j) The Company owns all of the shares of the issued and outstanding
capital stock of Sprint Capital.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any Advance shall
---------------------
remain unpaid or any Lender shall have any Commitment hereunder, each Borrower
will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
--------------------------
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders (including, without limitation, compliance
with ERISA and Environmental Laws).
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
---------------------
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided, however, that neither the
-------- -------
Company nor any of its Subsidiaries shall be required to pay or discharge
any such tax, assessment, charge or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained.
(c) Maintenance of Insurance. Maintain, and cause each of its
------------------------
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks
as is usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which such Borrower or such
Subsidiary operates.
(d) Preservation of Corporate Existence, Etc. Continue to engage in
----------------------------------------
business of the same general type as now conducted by it and preserve and
maintain, and cause each of its Subsidiaries (other than Insignificant
Subsidiaries) to preserve and maintain, its existence, rights (charter and
statutory) and franchises; provided, however, that the Company and its
-------- -------
Subsidiaries may consummate any merger or consolidation permitted under
Section 5.02(b) and provided further that neither the Company nor any of
-------- -------
its Subsidiaries shall be required to preserve any right or franchise if
the Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Company or such Subsidiary, as the case may be, and that the loss thereof
is not disadvantageous in any material respect to the Company, such
Subsidiary or the Lenders.
(e) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit the Administrative Agent or any of the Lenders or any agents or
representatives thereof to examine and make copies of and abstracts from
the records and books of account of, and visit the properties of, such
Borrower and any of its Subsidiaries, and to discuss the affairs, finances
and accounts of such Borrower and any of its Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(f) Keeping of Books. Keep, and cause each of its Subsidiaries to
----------------
keep, proper books of record and account in which full and correct entries
shall be made of all financial transactions and the assets and business of
such Borrower and each such Subsidiary in accordance with generally
accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
------------------------------
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
<PAGE>
29
(h) Transactions with Affiliates. Conduct, and cause each of its
----------------------------
Subsidiaries to conduct, all transactions otherwise permitted under this
Agreement with any of their Affiliates (other than the Company and its
Subsidiaries) on terms that are fair and reasonable and no less favorable
to such Borrower or such Subsidiary than it would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
(i) Reporting Requirements. Furnish to the Administrative Agent for
----------------------
the account of each of the Lenders:
(i) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the
Company, Consolidated balance sheets of (A) the Company and its
Subsidiaries, (B) the PCS Group and (C) the FON Group as of the end of
such quarter and Consolidated statements of income and cash flows of
(A) the Company and its Subsidiaries, (B) the PCS Group and (C) the
FON Group for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, duly certified (subject
to year-end audit adjustments) by the chief financial officer, the
chief accounting officer or the treasurer of the Company as having
been prepared in accordance with generally accepted accounting
principles and a certificate of the chief financial officer, the chief
accounting officer or the treasurer of the Company as to compliance
with the terms of this Agreement and setting forth in reasonable
detail the calculations necessary to demonstrate compliance with
Section 5.03, provided that in the event of any change in GAAP used in
--------
the preparation of such financial statements, the Company shall also
provide, if necessary for the determination of compliance with Section
5.03, a statement of reconciliation conforming such financial
statements to GAAP; provided further, that financial statements for
-------- -------
the PCS Group and the FON Group shall be required only for periods
during which the Company has PCS tracking stock outstanding;
(ii) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, containing
Consolidated balance sheets of (A) the Company and its Subsidiaries,
(B) the PCS Group and (C) the FON Group as of the end of such fiscal
year and Consolidated statements of income and cash flows of (A) the
Company and its Subsidiaries, (B) the PCS Group and (C) the FON Group
for such fiscal year, in each case accompanied by an opinion
acceptable to the Required Lenders by Ernst & Young LLP or other
independent public accountants acceptable to the Required Lenders,
provided that in the event of any change in GAAP used in the
--------
preparation of such financial statements, the Company shall also
provide, if necessary for the determination of compliance with Section
5.03, a statement of reconciliation conforming such financial
statements to GAAP; provided further, that financial statements for
-------- -------
the PCS Group and the FON Group shall be required only for periods
during which the Company has PCS tracking stock outstanding;
(iii) as soon as possible and in any event within five days
after the occurrence of each Default continuing on the date of such
statement, a statement of the chief financial officer, the chief
accounting officer or the treasurer of the Company setting forth
details of such Default and the action that the Company has taken and
proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of all
reports that the Company sends to any of its securityholders, and
copies of all reports and proxy solicitations that the Company files
with the Securities and Exchange Commission;
(v) promptly after the commencement thereof, notice of all
actions and proceedings before any court, governmental agency or
arbitrator affecting the Company or any of its Subsidiaries of the
type described in Section 4.01(f); and
(vi) such other information respecting the Company or any of its
Subsidiaries as any Lender through the Administrative Agent may from
time to time reasonably request.
<PAGE>
30
SECTION 5.02. Negative Covenants. So long as any Advance shall
------------------
remain unpaid or any Lender shall have any Commitment hereunder, the Company
will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
-----------
Subsidiaries to create or suffer to exist, any Lien on or with respect to
any of its properties, whether now owned or hereafter acquired, or assign
for security purposes, or permit any of its Subsidiaries to assign for
security purposes, any right to receive income, other than:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real property or
equipment acquired or held by the Company or any Subsidiary in the
ordinary course of business to secure the purchase price of such
property or equipment or to secure Debt incurred solely for the
purpose of financing the acquisition of such property or equipment, or
Liens existing on such property or equipment at the time of its
acquisition (other than any such Liens created in contemplation of
such acquisition that were not incurred to finance the acquisition of
such property) or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided, however, that no
-------- -------
such Lien shall extend to or cover any properties of any character
other than the real property or equipment being acquired, and no such
extension, renewal or replacement shall extend to or cover any
properties not theretofore subject to the Lien being extended, renewed
or replaced,
(iii) the Liens existing on the Effective Date and described on
Schedule 5.02(a) hereto,
(iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any
Subsidiary of the Company or becomes a Subsidiary of the Company;
provided that such Liens were not created in contemplation of such
--------
merger, consolidation or acquisition and do not extend to any assets
other than those of the Person so merged into or consolidated with the
Company or such Subsidiary or acquired by the Company or such
Subsidiary,
(v) Liens on the property or assets of a Subsidiary of the
Company that is a member of the FON Group which secure obligations and
liabilities of such Subsidiary,
(vi) other Liens securing Debt in an aggregate principal amount
not to exceed at any time outstanding 2% of the sum of Consolidated
Debt and Consolidated Net Worth of the Company and its Subsidiaries,
and
(vii) the replacement, extension or renewal of any Lien
described on Schedule 5.02(a) upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent obligor)
of the Debt secured thereby.
(b) Mergers, Etc. Merge or consolidate with or into, or convey,
-------------
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, any Person, or permit any of its
Subsidiaries to do so, except that (i) any Subsidiary of the Company may
merge or consolidate with or into, or dispose of assets to, any other
Subsidiary of the Company, (ii) any Subsidiary of the Company may merge
into or dispose of assets to the Company and the Company or any of its
Subsidiaries may merge with any other Person so long as the Company or any
of its Subsidiaries is the surviving corporation; (iii) the Company or any
of its Subsidiaries may exchange Telephone Assets for Telephone Assets of
any other Person, for the purpose of consolidating the Telephone Assets of
the Company or such Subsidiary, to the extent of the greater of the book
value and the fair market value (as determined in good faith by the Board
of Directors of the
<PAGE>
31
Company or such Subsidiary) of the Telephone Assets obtained by the Company
or such Subsidiary as a result of such exchange; (iv) the Company or any of
its Subsidiaries may sell any and all investments owned by it that
constitute minority interests in other Persons, provided that the aggregate
book value of all such investments so sold by the Company and its
Subsidiaries does not exceed $1,000,000,000; (v) the Company or any of its
Subsidiaries may sell accounts receivable with or without recourse; and
(vi) the Company and any of its Subsidiaries may sell, lease, transfer or
otherwise dispose of its non-current assets (in addition to sales,
transfers or other dispositions permitted by clauses (iii), (iv) and (v)
above), provided that the excess of (A) the aggregate book value of all
such assets so sold, leased, transferred or otherwise disposed of over (B)
liabilities associated with such assets for which neither the Company nor
any of its Subsidiaries are liable immediately after any such sale,
transfer, or other disposition does not exceed $1,700,000,000 for the
period from December 31, 1997 through the Revolver Termination Date
provided further, in each case, that no Default shall have occurred and be
-------- -------
continuing at the time of such proposed transaction or would result
therefrom.
(c) Accounting Changes. Make or permit, or permit any of its
------------------
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required or permitted by generally accepted
accounting principles.
SECTION 5.03. Financial Covenants. So long as any Advance shall
-------------------
remain unpaid or any Lender shall have any Commitment hereunder, the
Company will:
(a) Leverage Ratio. Maintain a ratio of Consolidated Debt to the sum
--------------
of Consolidated Debt and Consolidated Net Worth of not greater than
0.65:1.00.
(b) Interest Coverage Ratio. Maintain, as of the end of any fiscal
-----------------------
quarter ending on or prior to June 30, 1999, for any period of four fiscal
quarters (which need not be consecutive) out of any the five consecutive
fiscal quarters ending at the end of such fiscal quarter a ratio of
Consolidated EBITDA of the Company and its Subsidiaries for such four
fiscal quarter period to interest expense on, including amortization of
debt discount in respect of, Consolidated Debt of the Company and its
Subsidiaries during such four fiscal quarter period of not less than
2.50:1; provided that if the Revolver Termination Date is extended one or
--------
more times pursuant to the provisions of Section 2.17, (w) such ratio shall
not be less than 2.50:1 for any fiscal quarter ending on or prior to June
30, 2000, (x) such ratio shall not be less than 3.00:1 for any fiscal
quarter ending after June 30, 2000 and on or before June 30, 2001, (y) such
ratio shall not be less than 3.50:1 for any fiscal quarter ending after
June 30, 2001 and on or before June 30, 2002, and (z) such ratio shall not
be less than 4.00:1 for any fiscal quarter ending after June 30, 2002 and
on or before June 30, 2003.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
- -------------------
(a) Any Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable; or any Borrower shall fail to pay any
interest on any Advance or make any other payment of fees or other amounts
payable under this Agreement or any Note within three Business Days after
the same becomes due and payable; or
(b) Any representation or warranty made by any Borrower herein or by
such Borrower in connection with this Agreement shall prove to have been
incorrect in any material respect when made; or
(c) (i) Any Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(d), (e) or (i), 5.02 or
5.03, or (ii) any Borrower shall fail to perform or observe
<PAGE>
32
any other term, covenant or agreement contained in this Agreement on its
part to be performed or observed if such failure shall remain unremedied
for 30 days after written notice thereof shall have been given to the
Borrowers by the Administrative Agent or any Lender; or
(d) The Company or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal amount of at least $75,000,000 in the aggregate (but excluding
Debt outstanding hereunder) of the Company or such Subsidiary (as the case
may be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or an
offer to prepay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof; or
(e) The Company or any of its Subsidiaries (other than any
Insignificant Subsidiary) shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the Company or any of
its Subsidiaries (other than any Insignificant Subsidiary) seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in
the case of any such proceeding instituted against it (but not instituted
by it), either such proceeding shall remain undismissed or unstayed for a
period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against,
or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur;
or the Company or any of its Subsidiaries (other than any Insignificant
Subsidiary) shall take any corporate action to authorize any of the actions
set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Company or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor or upon such judgment or order or (ii) there
shall be any period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(g) (i) Any Person or two or more Persons (other than France Telecom
S.A., a societe anonyme formed under the laws of France ("FT"), or Deutsche
--
Telekom AG, an Aktiengesellschaft formed under the laws of Germany ("DT"))
--
acting in concert shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934), directly or indirectly, of Voting Stock
of the Company (or other securities convertible into such Voting Stock)
representing 33 1/3% or more of the combined voting power of all Voting
Stock of the Company, or shall obtain the power (whether or not exercised)
to elect a majority of the Company's directors; or (ii) any Person or two
or more Persons (other than FT or DT) acting in concert shall succeed in
having sufficient of its nominees elected to the Board of Directors of the
Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who
is a related person of such Person, shall constitute a majority of the
Board of Directors of the Company; (iii) any Person or two or more Persons
(other than FT or DT) acting in concert shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement (and five
Business Days shall have elapsed since the date of entering into such
contract or arrangement) that, upon consummation, will result in its or
their acquisition of the power to exercise, directly or indirectly, a
<PAGE>
33
controlling influence over the management or policies of the Company; or
(iv) the Company shall cease to maintain beneficial ownership of 100% of
the Voting Stock of Sprint Capital; or
(h) The Company or any of its ERISA Affiliates shall incur, or shall
be reasonably likely to incur, liability in excess of $75,000,000 in the
aggregate as a result of one or more of the following: (i) the occurrence
of any ERISA Event; (ii) the partial or complete withdrawal of the Company
or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the
reorganization or termination of a Multiemployer Plan; or
(i) The Company Guaranty contained in Article VII of this Agreement
shall cease for any reason to be valid and binding on or enforceable
against the Company or the Company shall so state in writing;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the Notes, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrowers; provided, however, that in the
-------- -------
event of an actual or deemed entry of an order for relief with respect to any
Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to
make Advances shall automatically be terminated and (B) the Notes, all such
interest and all such amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by each Borrower.
ARTICLE VII
COMPANY GUARANTY
SECTION 7.01. Guaranty. The Company hereby unconditionally and
--------
irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of Sprint Capital now
or hereafter existing under this Agreement or any Note, whether for principal,
interest, fees, expenses or otherwise (such obligations, to the extent not paid
by Sprint Capital or specifically waived in accordance with Section 9.01, being
the "Guaranteed Obligations"), and agrees to pay any and all expenses (including
----------------------
reasonable counsel fees and expenses) incurred by the Administrative Agent or
the Lenders in enforcing any rights under this Article VII ("this Guaranty").
---- --------
Without limiting the generality of the foregoing, the Company's liability shall
extend to all amounts that constitute part of the Guaranteed Obligations and
would be owed by Sprint Capital to the Administrative Agent or any Lender under
this Agreement or any Note but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving Sprint Capital.
SECTION 7.02. Guaranty Absolute. The Company guarantees that the
-----------------
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Administrative Agent or the Lenders with respect thereto. The
obligations of the Company under this Guaranty are independent of the Guaranteed
Obligations, and a separate action or actions may be brought and prosecuted
against the Company to enforce this Guaranty, irrespective of whether any action
is brought against Sprint Capital or whether Sprint Capital is joined in any
such action or actions. The liability of the Company under this Guaranty shall
be irrevocable, absolute and unconditional irrespective of, and, to the maximum
extent permitted by law, the Company hereby irrevocably waives any defenses it
may now or hereafter have in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of this Agreement or any
agreement or instrument relating hereto;
<PAGE>
34
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from this Agreement or
any Note, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to Sprint
Capital or otherwise;
(c) any taking, exchange, release or non-perfection of any collateral,
or any taking, release or amendment or waiver of or consent to departure
from any other guaranty, for all or any of the Guaranteed Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of Sprint Capital; or
(e) any other circumstance (including, without limitation, any statute
of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any Lender that might otherwise constitute a
defense available to, or a discharge of, the Company, Sprint Capital or any
other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of Sprint Capital or otherwise, all as
though such payment had not been made.
SECTION 7.03. Waiver. The Company hereby waives promptness,
------
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and any requirement that the
Administrative Agent or any Lender exhaust any right or take any action against
Sprint Capital or any other Person or any collateral. The Company acknowledges
that it will receive direct and indirect benefits from the financing
arrangements contemplated herein and that the waiver set forth in this Section
7.03 is knowingly made in contemplation of such benefits. The Company hereby
waives any right to revoke this Guaranty, and acknowledges that this Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.
SECTION 7.04. Continuing Guaranty; Assignments. This Guaranty is a
--------------------------------
continuing guaranty and shall (a) remain in full force and effect until the
later of the cash payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty and the Revolver Termination Date, (b) be
binding upon the Company, its successors and assigns and (c) inure to the
benefit of and be enforceable by the Lenders, the Administrative Agent and their
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Lender may assign or otherwise transfer all or any
portion of its rights and obligations hereunder (including, without limitation,
all or any portion of its Commitment, the Advances owing to it and the Note or
Notes held by it) to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Lender
herein or otherwise, in each case as provided in Section 9.07.
SECTION 7.05. Subrogation. The Company will not exercise any rights
-----------
that it may now or hereafter acquire against Sprint Capital or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
the Company's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Administrative Agent or any Lender against Sprint Capital or any other insider
guarantor or any collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from Sprint Capital or any other
insider guarantor, directly or indirectly, in cash or other property or by set-
off or in any other manner, payment or security solely on account of such claim,
remedy or right, unless and until all of the Guaranteed Obligations and all
other amounts payable under this Guaranty shall have been paid in full in cash
and the Revolver Termination Date shall have occurred. If any amount shall be
paid to the Company in violation of the preceding sentence at any time prior to
the later of the payment in full in cash of the Guaranteed Obligations and all
other amounts payable under this Guaranty and the Revolver Termination Date,
such amount shall be held in trust for the benefit of the Administrative Agent
and the
<PAGE>
35
Lenders and shall forthwith be paid to the Administrative Agent to be credited
and applied to the Guaranteed Obligations and all other amounts payable under
this Guaranty, whether matured or unmatured, in accordance with the terms of
this Guaranty, or to be held as collateral for any Guaranteed Obligations or
other amounts payable under this Guaranty thereafter arising. If (i) the Company
shall make payment to the Administrative Agent or any Lender of all or any part
of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all
other amounts payable under this Guaranty shall be paid in full in cash and
(iii) the Revolver Termination Date shall have occurred, the Administrative
Agent and the Lenders will, at the Company's request and expense, execute and
deliver to the Company appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
the Company of an interest in the Guaranteed Obligations resulting from such
payment by the Company.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
SECTION 8.01. Authorization and Action. Each Lender hereby appoints
------------------------
and authorizes the Administrative Agent to take such action as Administrative
Agent on its behalf and to exercise such powers and discretion under this
Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers and discretion as are reasonably incidental thereto.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Notes), the Administrative
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lenders and all holders
of Notes; provided, however, that the Administrative Agent shall not be required
-------- -------
to take any action that exposes the Administrative Agent to personal liability
or that is contrary to this Agreement or applicable law. The Administrative
Agent agrees to give to each Lender prompt notice of each notice given to it by
any Borrower pursuant to the terms of this Agreement.
SECTION 8.02. Administrative Agent's Reliance, Etc. Neither the
------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07;
(ii) may consult with legal counsel (including counsel for the Borrowers),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (iv) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement on the part of the Borrowers or
to inspect the property (including the books and records) of the Borrowers; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; and (vi) shall incur
no liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram or telex) reasonably believed by it to be genuine and signed or sent by
the proper party or parties.
SECTION 8.03. Citibank and Affiliates. With respect to its
-----------------------
Commitment, the Advances made by it and the Note issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Administrative Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of business
with, the Company, any of its Subsidiaries and any Person who may do business
with or own securities of the Company or any such Subsidiary, all as if Citibank
were not the Administrative Agent and without any duty to account therefor to
the Lenders.
<PAGE>
36
SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Administrative Agent or any
other Lender and based on the financial statements referred to in Section 4.01
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 8.05. Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent (to the extent not reimbursed by the Borrowers), ratably
according to the respective principal amounts of the Notes then held by each of
them (or if no Notes are at the time outstanding or if any Notes are held by
Persons that are not Lenders, ratably according to the respective amounts of
their Commitments), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, reasonable costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Administrative Agent under this Agreement (collectively, the "Indemnified
-----------
Costs"), provided that no Lender shall be liable for any portion of the
- ----- --------
Indemnified Costs resulting from the Administrative Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Administrative Agent promptly upon demand for its ratable share of
any reasonable out-of-pocket expenses (including reasonable counsel fees)
incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, to the
extent that the Administrative Agent is not reimbursed for such expenses by the
Borrowers. In the case of any investigation, litigation or proceeding giving
rise to any Indemnified Costs, this Section 8.05 applies whether any such
investigation, litigation or proceeding is brought by the Administrative Agent,
any Lender or a third party.
SECTION 8.06. Successor Administrative Agent. The Administrative
------------------------------
Agent may resign at any time by giving written notice thereof to the Lenders and
the Borrowers. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement.
SECTION 8.07. Other Agents. Each Lender hereby acknowledges that
------------
none of the syndication agent, the documentation agents or any other Lender
designated as any "Agent" on the signature pages hereof has any liability
hereunder other than in its capacity as a Lender.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement or the Notes, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective
<PAGE>
37
only in the specific instance and for the specific purpose for which given;
provided, however, that no amendment, waiver or consent shall, unless in writing
- -------- -------
and signed by all the Lenders, do any of the following: (a) waive any of the
conditions specified in Section 3.01, (b) increase the Commitments of the
Lenders or subject the Lenders to any additional obligations (except as
contemplated by Section 2.16), (c) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, (e) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Advances, or the number of
Lenders, that shall be required for the Lenders or any of them to take any
action hereunder, (f) reduce or limit the obligations of the Company under
Section 7.01 or release or otherwise limit liability of the Company with respect
to the Guaranteed Obligations or (g) amend this Section 9.01; and
provided further that no amendment, waiver or consent shall, unless in writing
- -------- -------
and signed by the Administrative Agent in addition to the Lenders required above
to take such action, affect the rights or duties of the Administrative Agent
under this Agreement or any Note.
SECTION 9.02. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
if to the Company, at its address at 2330 Shawnee Mission Parkway, Westwood,
Kansas 66205, Attention: Treasurer (Telecopier No.: (913) 624-8426); if to
Sprint Capital, at its address at 2330 Shawnee Mission Parkway, Westwood,
Kansas 66205, Attention: Treasurer (Telecopier No.: (913) 624-8426); if to any
Initial Lender, at its Domestic Lending Office specified opposite its name on
Schedule I hereto; if to any other Lender, at its Domestic Lending Office
specified in the Assignment and Acceptance or the Assumption Agreement pursuant
to which it became a Lender; and if to the Administrative Agent, at its address
at 399 Park Avenue, New York, New York 10043, Attention: Robert Parr (Telecopier
No.: _________); or, as to any Borrower or the Administrative Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrowers and the
Administrative Agent. All such notices and communications shall, when mailed,
telecopied, telegraphed or telexed, be effective when deposited in the mails,
telecopied, delivered to the telegraph company or confirmed by telex
answerback, respectively, except that notices and communications to the
Administrative Agent pursuant to Article II, III or VII shall not be effective
until received by the Administrative Agent. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit (other than the Notes) hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any
-------------------
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs and Expenses. (a) The Borrowers agree to pay on
------------------
demand all reasonable costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement, the Notes and the other documents
to be delivered hereunder, including, without limitation, (A) all due diligence,
syndication (including printing, distribution and bank meetings),
transportation, computer, duplication, appraisal, consultant, and audit expenses
and (B) the reasonable fees and expenses of outside counsel for the
Administrative Agent with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under this Agreement.
The Borrowers further agree to pay on demand all costs and expenses of the
Administrative Agent and the Lenders, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Administrative Agent and each Lender in connection with the enforcement of
rights under this Section 9.04(a).
(b) The Borrowers agree to indemnify and hold harmless the Administrative
Agent and each Lender and each of their Affiliates and their officers,
directors, employees, agents and advisors (each, an "Indemnified Party") from
-----------------
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation,
<PAGE>
38
reasonable fees and expenses of counsel) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation or proceeding or preparation of a defense in
connection therewith) the Notes, this Agreement, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances, except to the extent such claim, damage, loss, liability or expense is
found in a final, non-appealable judgment by a court of competent jurisdiction
to have resulted from such Indemnified Party's gross negligence or willful
misconduct. In the case of an investigation, litigation or other proceeding to
which the indemnity in this Section 9.04(b) applies, such indemnity shall be
effective whether or not such investigation, litigation or proceeding is brought
by any Borrower, its directors, shareholders or creditors or an Indemnified
Party or any other Person or any Indemnified Party is otherwise a party thereto
and whether or not the transactions contemplated hereby are consummated. Each
Borrower also agrees not to assert any claim against the Administrative Agent,
any Lender, or any of their respective directors, officers, employees, attorneys
and agents, on any theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to the Notes, this
Agreement, any of the transactions contemplated herein or the actual or proposed
use of the proceeds of the Advances.
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance or LIBO Rate Advance is made by any Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, as a
result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or
2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, or by an Eligible Assignee to a Lender other than on the last
day of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 9.07 as a result of a
demand by the Borrowers pursuant to Section 9.07(a), such Borrower shall, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss (including loss of Applicable Margin),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in Sections 2.11, 2.14 and 9.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during
----------------
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of any Borrower against any and all of the
obligations of such Borrower now or hereafter existing under this Agreement and
the Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the applicable Borrower after
any such set-off and application, provided that the failure to give such notice
--------
shall not affect the validity of such set-off and application. The rights of
each Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that such Lender may
have.
SECTION 9.06. Binding Effect. This Agreement shall become effective
--------------
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by each Borrower and the Administrative Agent and when
the Administrative Agent shall have been notified by each Initial Lender that
such Initial Lender has executed it and thereafter shall be binding upon and
inure to the benefit of the Borrowers, the Administrative Agent and each Lender
and their respective successors and assigns, except that no Borrower shall have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lenders.
<PAGE>
39
SECTION 9.07. Assignments and Participations. (a) Each Lender may
------------------------------
and, if demanded by the Borrowers (following a demand by such Lender pursuant to
Section 2.11 or 2.14) upon at least 5 Business Days' notice to such Lender and
the Administrative Agent, will assign to one or more banks or other financial
institutions all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the
Revolving Credit Advances owing to it and the Note or Notes held by it);
provided, however, that (i) each such assignment shall be of a constant, and not
- -------- -------
a varying, percentage of all rights and obligations under this Agreement (other
than any right to make Competitive Bid Advances and Competitive Bid Advances
owing to it), (ii) except in the case of an assignment to a bank or other
financial institution that, immediately prior to such assignment, was a Lender
or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each
such assignment shall be to an Eligible Assignee, (iv) each such assignment made
as a result of a demand by the Borrowers pursuant to this Section 9.07(a) shall
be arranged by the Borrowers after consultation with the Administrative Agent
and shall be either an assignment of all of the rights and obligations of the
assigning Lender under this Agreement or an assignment of a portion of such
rights and obligations made concurrently with another such assignment or other
such assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (v) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrowers pursuant to this
Section 9.07(a) unless and until such Lender shall have received one or more
payments from either a Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
subject to such assignment and a processing and recordation fee of $3,000. Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder and (y) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement (and, in the case of
an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to
take such action as Administrative Agent on its behalf and to exercise such
powers and discretion under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
<PAGE>
40
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together (if the entire interest is being assigned) with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrowers. Within five Business Days after its receipt of such notice, each
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent a new Note to the order of such Eligible Assignee. Such new Note shall be
dated the effective date of such Assignment and Acceptance and shall otherwise
be in substantially the form of Exhibit A hereto.
(d) The Administrative Agent shall maintain at its address referred to in
Section 9.02 a copy of each Assignment and Acceptance and each Assumption
Agreement delivered to and accepted by it and a register for the recordation of
the names and addresses of the Lenders and the Commitment of, and principal
amount of the Advances owing to, each Lender from time to time (the "Register").
--------
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrowers, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by any Borrower or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(e) Each Lender may sell participations to one or more banks or other
financial institutions (other than the Company or any of its Affiliates) in or
to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrowers, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of this Agreement or
any Note, or any consent to any departure by any Borrower therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, or postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation.
(i) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.07, disclose to
the assignee or participant or proposed assignee or participant, any
information relating to the Borrowers furnished to such Lender by or on behalf
of the Borrowers; provided that, prior to any such disclosure, the assignee or
--------
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to the Borrowers
received by it from such Lender.
(j) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 9.08. Confidentiality. Neither the Administrative Agent nor
---------------
any Lender shall disclose any Confidential Information to any other Person
without the consent of the Company, other than (a) to the Administrative Agent's
or such Lender's Affiliates (that are not competitors of the Company and its
Subsidiaries) and their officers, directors, employees, agents and advisors and,
as contemplated by Section 9.07(i), to actual or prospective assignees and
participants, and then only on a confidential and a need-to-know basis, (b) as
required by any law, rule or regulation or judicial process and (c) as requested
or required by any state, federal or foreign authority or examiner regulating
banks or banking.
<PAGE>
41
SECTION 9.09. Governing Law. This Agreement and the Notes shall be
-------------
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 9.10. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.11. Jurisdiction, Etc. (a) Each of the parties hereto
-----------------
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment
arising out of or relating to this Agreement or the Notes, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the Notes in the courts of
any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that 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 or the Notes in any New
York State court or federal court sitting in New York City. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
<PAGE>
42
SECTION 9.12. Waiver of Jury Trial. Each of the Borrowers, the
--------------------
Administrative Agent and the Lenders hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or the
Notes or the actions of the Administrative Agent or any Lender in the
negotiation, administration, performance or enforcement hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
SPRINT CORPORATION
By
------------------------
Title:
SPRINT CAPITAL CORPORATION
By
------------------------
Title:
CITIBANK, N.A.,
as Administrative Agent
By
------------------------
Title:
INITIAL LENDERS
---------------
Administrative Agent
--------------------
Commitment
- ----------
$165,000,000 CITIBANK, N.A.
By
------------------------
Title:
<PAGE>
43
Syndication Agent
-----------------
$165,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
------------------------
Title:
Documentation Agents
--------------------
$165,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By
------------------------
Title:
$165,000,000 THE CHASE MANHATTAN BANK
By
------------------------
Title:
Senior Managing Agents
----------------------
$142,800,000 ABN AMRO BANK N.V.
By
------------------------
Title:
By
------------------------
Title:
<PAGE>
44
$142,800,000 UBS AG, NEW YORK BRANCH
By
------------------------
Title:
By
------------------------
Title:
<PAGE>
45
$142,800,000 WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By
------------------------
------------------------
Title:
By
------------------------
Title:
Managing Agents
---------------
$90,000,000 LEHMAN BROTHERS COMMERCIAL PAPER INC.
By
------------------------
Title:
$90,000,000 MELLON BANK, N.A.
By
------------------------
Title:
$90,000,000 SALOMON BROTHERS HOLDING
COMPANY INC
By
------------------------
Title:
$142,800,000 CREDIT SUISSE FIRST BOSTON
By
------------------------
Title:
By
------------------------
Title:
$142,800,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLANDS BRANCH
By
------------------------
Title:
By
------------------------
Title:
$142,800,000 FIRST UNION NATIONAL BANK
By
------------------------
Title:
$142,800,000 FLEET NATIONAL BANK
By
------------------------
Title:
$142,800,000 NATIONSBANK, N.A.
By
------------------------
Title:
$142,800,000 ROYAL BANK OF CANADA
By
------------------------
Title:
Co-Agents
---------
$60,000,000 BANK ONE, ARIZONA, NA, A NATIONAL
BANKING ASSOCIATION
By
------------------------
Title:
<PAGE>
46
$60,000,000 BANQUE NATIONALE DE PARIS
By
------------------------
Title:
By
------------------------
Title:
$60,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By
------------------------
Title:
$60,000,000 THE FUJI BANK, LIMITED
By
------------------------
Title:
$60,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED
By
------------------------
Title:
$60,000,000 THE NORTHERN TRUST COMPANY
By
------------------------
Title:
$60,000,000 WACHOVIA BANK, N.A.
By
------------------------
Title:
<PAGE>
47
Lenders
-------
$45,000,000 THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By
------------------------
Title:
$30,000,000 BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN
ISLANDS BRANCH
By
------------------------
Title:
By
------------------------
Title:
$30,000,000 BANCA COMMERCIALE ITALIANA,
CHICAGO BRANCH
By
------------------------
Title:
By
------------------------
Title:
$30,000,000 BANCA NAZIONALE DEL LAVORO S.P.A.- NEW YORK
BRANCH
By
------------------------
Title:
By
------------------------
Title:
$30,000,000 CENTURA BANK
By
------------------------
Title:
<PAGE>
48
$30,000,000 BAYERISCHE HYPOTHEKEN-UND
WECHSEL - BANK AKTIENGESELLSCHAFT, NEW YORK
BRANCH
By
------------------------
Title:
By
------------------------
Title:
$30,000,000 ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A.
By
------------------------
Title:
By
------------------------
Title:
$28,800,000 THE DAI-ICHI KANGYO BANK, LTD.
CHICAGO BRANCH
By
------------------------
Title:
$18,000,000 BANK OF HAWAII
By
------------------------
Title:
$15,000,000 CRESTAR BANK
By
------------------------
Title:
$15,000,000 FIFTH THIRD BANK
By
------------------------
Title:
<PAGE>
49
$15,000,000 FIRST HAWAIIAN BANK
By
------------------------
Title:
$15,000,000 THE NORINCHUKIN BANK,
NEW YORK BRANCH
By
------------------------
Title:
$15,000,000 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
------------------------
Title:
$9,000,000 COMMERCE BANK, N.A.
By
------------------------
Title:
$9,000,000 UMB BANK, N.A.
By
------------------------
Title:
$3,000,000,000 Total of the Commitments
<PAGE>
EXHIBIT 10.24
FIVE-YEAR CREDIT AGREEMENT
Dated as of August 7, 1998
SPRINT CORPORATION, a Kansas corporation (the "Company"), SPRINT
-------
CAPITAL CORPORATION, a Delaware corporation ("Sprint Capital" and, together with
--------------
the Company, the "Borrowers"), the banks, financial institutions and other
---------
institutional lenders (the "Initial Lenders") listed on the signature pages
---------------
hereof, and CITIBANK, N.A. ("Citibank"), as administrative agent (together with
--------
any successor administrative agent appointed pursuant to Section 8.06, the
"Administrative Agent") for the Lenders (as hereinafter defined), MORGAN
- ---------------------
GUARANTY TRUST COMPANY OF NEW YORK, as syndication agent, and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION and THE CHASE MANHATTAN BANK, as
documentation agents, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Advance" means a Revolving Credit Advance or a Competitive Bid
-------
Advance.
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 10% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Administrative Agent's Account" means the account of the
------------------------------
Administrative Agent maintained by the Administrative Agent at Citibank
with its office at 2 Penns Way, Suite 200, New Castle, Delaware 19720,
Account No. 63852248, Attention: Bank Loan Syndications.
"Applicable Lending Office" means, with respect to each Lender, such
-------------------------
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a Competitive Bid Advance, the office of such
Lender notified by such Lender to the Administrative Agent as its
Applicable Lending Office with respect to such Competitive Bid Advance.
"Applicable Margin" means, as of any date, a percentage per annum
-----------------
determined by reference to the Public Debt Rating in effect on such date as
set forth below:
<PAGE>
2
<TABLE>
<CAPTION>
Public Debt Rating Applicable Margin for
S&P/Moody's Eurodollar Rate Advances
================================================================
<S> <C>
Level 1
-------
A /A2 or above 0.135%
----------------------------------------------------------------
Level 2
-------
A- / A3 0.170%
----------------------------------------------------------------
Level 3
-------
BBB+ / Baa1 0.185%
----------------------------------------------------------------
Level 4
-------
BBB / Baa2 0.215%
----------------------------------------------------------------
Level 5
-------
BBB- / Baa3 0.300%
----------------------------------------------------------------
Level 6
-------
Lower than Level 5 or unrated 0.550%
================================================================
</TABLE>
"Applicable Percentage" means, as of any date, a percentage per annum
---------------------
determined by reference to the Public Debt Rating in effect on such date as
set forth below:
<TABLE>
<CAPTION>
Public Debt Rating Applicable
S&P/Moody's Percentage
==================================================
<S> <C>
Level 1
-------
A / A2 or above 0.065%
--------------------------------------------------
Level 2
-------
A- / A3 0.080%
--------------------------------------------------
Level 3
-------
BBB+/Baa1 0.090%
--------------------------------------------------
Level 4
-------
BBB / Baa2 0.110%
--------------------------------------------------
Level 5
-------
BBB- / Baa3 0.150%
--------------------------------------------------
Level 6
-------
Lower than Level 5 or unrated 0.200%
==================================================
</TABLE>
"Applicable Utilization Fee" means (a) at all times when the aggregate
--------------------------
principal amount of the Advances equals or exceeds 25% (but is less than
50%) of the aggregate amount of the Lenders' Commitments, 0.05%, (b) at all
times when the aggregate principal amount of the Advances equals or exceeds
50% (but is less than 75%) of the aggregate amount of the Lenders'
Commitments, 0.10% and (c)
<PAGE>
3
at all times when the aggregate principal of the Advances equals or exceeds
75% of the aggregate amount of the Lenders' Commitments, 0.15%.
<PAGE>
4
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Assuming Lender" means an Increase Assuming Lender or an Extension
---------------
Assuming Lender.
"Assumption Agreement" means (a) in the case of any such agreement
--------------------
delivered pursuant to Section 2.17(c), an assumption agreement entered into
between an Extension Assuming Lender and a Non-Consenting Lender and
accepted by the Administrative Agent and the Company, in such form as is
agreed among the applicable Extension Assuming Lender, the applicable Non-
Consenting Lender, the Administrative Agent and the Company and (b) in the
case of any such agreement delivered pursuant to Section 2.16(d), an
assumption agreement entered into between an Increase Assuming Lender and
the Borrowers and accepted by the Administrative Agent, in form and
substance satisfactory to the Administrative Agent.
"Base Rate" means a fluctuating interest rate per annum in effect from
---------
time to time, which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no
nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1% per
annum, plus (ii) the rate obtained by dividing (A) the latest three-
----
week moving average of secondary market morning offering rates in the
United States for three-month certificates of deposit of major United
States money market banks, such three-week moving average (adjusted to
the basis of a year of 360 days) being determined weekly on each
Monday (or, if such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday
by Citibank on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank of New
York or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from three New
York certificate of deposit dealers of recognized standing selected by
Citibank, by (B) a percentage equal to 100% minus the average of the
daily percentages specified during such three-week period by the Board
of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, but not
limited to, any emergency, supplemental or other marginal reserve
requirement) for Citibank with respect to liabilities consisting of or
including (among other liabilities) three-month U.S. dollar non-
personal time deposits in the United States, plus (iii) the average
----
during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable
by Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. dollar deposits of Citibank in the United
States; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance that bears
-----------------
interest as provided in Section 2.07(a)(i).
"Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
---------
Borrowing.
"Business Day" means a day of the year on which banks are not required
------------
or authorized by law to close in New York City and, if the applicable
Business Day relates to any Eurodollar Rate Advances, on which dealings are
carried on in the London interbank market.
"Commitment" has the meaning specified in Section 2.01.
----------
<PAGE>
5
"Commitment Date" has the meaning specified in Section 2.16(b).
---------------
"Commitment Increase" has the meaning specified in Section 2.16(a).
-------------------
"Competitive Bid Advance" means an advance by a Lender to a Borrower
-----------------------
as part of a Competitive Bid Borrowing resulting from the competitive
bidding procedure described in Section 2.03 and refers to a Fixed Rate
Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
-------------------------
simultaneous Competitive Bid Advances from each of the Lenders whose offer
to make one or more Competitive Bid Advances as part of such borrowing has
been accepted under the competitive bidding procedure described in Section
2.03.
"Competitive Bid Reduction" has the meaning specified in Section 2.01.
-------------------------
"Confidential Information" means information that any Borrower
------------------------
furnishes to the Administrative Agent or any Lender in a writing designated
as confidential, but does not include any such information that is or
becomes generally available to the public or that is or becomes available
to the Administrative Agent or such Lender from a source other than a
Borrower.
"Consenting Lender" has the meaning specified in Section 2.17(b).
-----------------
"Consolidated" refers to the consolidation of accounts in accordance
------------
with GAAP.
"Convert", "Conversion" and "Converted" each refers to a conversion of
------- ---------- ---------
Revolving Credit Advances of one Type into Revolving Credit Advances of the
other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all indebtedness
----
of such Person for borrowed money, (b) all obligations of such Person for
the deferred purchase price of property or services (other than trade
payables not overdue by more than 60 days incurred in the ordinary course
of such Person's business), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all obligations
of such Person as lessee under leases that have been or should be, in
accordance with GAAP, recorded as capital leases, (e) all obligations,
contingent or otherwise, of such Person in respect of acceptances, letters
of credit or similar extensions of credit, (f) all Debt of others referred
to in clauses (a) through (e) above or clause (g) below guaranteed directly
or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (1) to pay or
purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the holder of
such Debt against loss, (3) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services
are rendered) or (4) otherwise to assure a creditor against loss, and (g)
all Debt referred to in clauses (a) through (f) above secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such Debt.
"Default" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"Domestic Lending Office" means, with respect to any Lender, the
-----------------------
office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance or
Assumption Agreement pursuant to which it became a Lender, or such other
office of such Lender as such Lender may from time to time specify to the
Borrowers and the Administrative Agent.
<PAGE>
6
"EBITDA" means, for any period, net income (or net loss) (before
------
discontinued operations for such period and exclusive of (x) the income or
loss resulting from extraordinary items and (y) the income or loss of any
Person accounted for by the Company on the equity method) plus the sum of
----
(a) interest expense, (b) income tax expense, (c) depreciation expense and
(d) amortization expense, in each case determined in accordance with GAAP
for such period.
"Effective Date" has the meaning specified in Section 3.01.
--------------
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender
-----------------
that is a bank or other financial institution; and (iii) any other bank or
financial institution approved by the Administrative Agent and, unless an
Event of Default has occurred and is continuing at the time any assignment
is effected in accordance with Section 9.07, the Company, such approval not
to be unreasonably withheld or delayed; provided, however, that neither any
-------- -------
Borrower nor an Affiliate of any Borrower shall qualify as an Eligible
Assignee.
"Environmental Action" means any action, suit, demand, demand letter,
--------------------
claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental
Permit or Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment, including, without limitation,
(a) by any governmental or regulatory authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"Environmental Law" means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial or agency interpretation, policy or guidance relating to pollution
or protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
--------------------
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
---------------
ERISA is a member of the Company's controlled group, or under common
control with the Company, within the meaning of Section 414 of the Internal
Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
-----------
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC, or (ii) the requirements of subsection (1) of Section
4043(b) of ERISA (without regard to subsection (2) of such Section) are met
with respect to a contributing sponsor, as defined in Section 4001(a)(13)
of ERISA, of a Plan, and an event described in paragraph (9), (10), (11),
(12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur
with respect to such Plan within the following 30 days; (b) the application
for a minimum funding waiver with respect to a Plan; (c) the provision by
the administrator of any Plan of a notice of intent to terminate such Plan
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
the cessation of operations at a facility of the Company or any ERISA
Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
the withdrawal by the Company or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to any Plan; (g) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA; or
(h) the institution by
<PAGE>
7
the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that constitutes grounds for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
-------------------------
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance or
Assumption Agreement pursuant to which it became a Lender (or, if no such
office is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the Borrowers
and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar
---------------
Rate Advance comprising part of the same Revolving Credit Borrowing, an
interest rate per annum equal to the rate per annum obtained by dividing
(a) the average (rounded upward to the nearest whole multiple of 1/16 of 1%
per annum, if such average is not such a multiple) of the rate per annum at
which deposits in U.S. dollars are offered by the principal office of each
of the Reference Banks in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before the
first day of such Interest Period in an amount substantially equal to such
Reference Bank's Eurodollar Rate Advance comprising part of such Revolving
Credit Borrowing to be outstanding during such Interest Period and for a
period equal to such Interest Period by (b) a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage for such Interest Period. The
Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance
comprising part of the same Revolving Credit Borrowing shall be determined
by the Administrative Agent on the basis of applicable rates furnished to
and received by the Administrative Agent from the Reference Banks two
Business Days before the first day of such Interest Period, subject,
-------
however, to the provisions of Section 2.08.
-------
"Eurodollar Rate Advance" means a Revolving Credit Advance that bears
-----------------------
interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
----------------------------------
Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same
Borrowing means the reserve percentage applicable two Business Days before
the first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a
term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"Extension Assuming Lender" has the meaning specified in Section
-------------------------
2.17(c).
"Extension Date" has the meaning specified in Section 2.17(b).
--------------
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
<PAGE>
8
"Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i).
-------------------
"FON Group" has the meaning specified in the Company's Articles of
---------
Incorporation, as currently proposed to be amended.
"GAAP" has the meaning specified in Section 1.03.
----
"Guaranteed Obligations" has the meaning specified in Section 7.01.
----------------------
"Hazardous Materials" means (a) petroleum and petroleum products,
-------------------
byproducts or breakdown products, radioactive materials, asbestos-
containing materials, polychlorinated biphenyls and radon gas and (b) any
other chemicals, materials or substances designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law.
"Increase Assuming Lender" has the meaning specified in Section
------------------------
2.16(d).
"Increase Date" has the meaning specified in Section 2.16(a).
-------------
"Increasing Lender" has the meaning specified in Section 2.16(b).
-----------------
"Information Memorandum" means the information memorandum dated June
----------------------
22, 1998 used by the Administrative Agent in connection with the
syndication of the Commitments.
"Insignificant Subsidiary" means any Subsidiary of the Company that
-------------------------
(i) has assets aggregating $500,000 or less and (ii) does not have any
creditor that is the beneficiary of a guaranty of the Company or any of its
Subsidiaries.
"Interest Period" means, for each Eurodollar Rate Advance comprising
---------------
part of the same Revolving Credit Borrowing and each LIBO Rate Advance
comprising part of the same Competitive Bid Borrowing, the period
commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance
or the date of the Conversion of any Base Rate Advance into such Eurodollar
Rate Advance and ending on the last day of the period selected by the
applicable Borrower pursuant to the provisions below and, thereafter, with
respect to Eurodollar Rate Advances, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on the
last day of the period selected by such Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be one, two, three
or six months (or if available to all Lenders, nine or twelve months), as
the applicable Borrower may, upon notice received by the Administrative
Agent not later than 11:00 A.M. (New York City time) on the third Business
Day prior to the first day of such Interest Period, select; provided,
--------
however, that:
-------
(i) no Borrower may select any Interest Period that ends after
the scheduled Revolver Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Revolving Credit
Borrowing or for LIBO Rate Advances comprising part of the same
Competitive Bid Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
-------- -------
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day; and
<PAGE>
9
(iv) whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lenders" means the Initial Lenders and each Person that shall become
-------
a party hereto pursuant to Section 2.16, Section 2.17 or Section 9.07.
"LIBO Rate" means, for any Interest Period for all LIBO Rate Advances
---------
comprising part of the same Competitive Bid Borrowing, an interest rate per
annum equal to the rate per annum obtained by dividing (a) the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if
such average is not such a multiple) of the rate per annum at which
deposits in U.S. dollars are offered by the principal office of each of the
Reference Banks in London, England to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before the first day
of such Interest Period in an amount substantially equal to the amount that
would be the Reference Banks' respective ratable shares of such Borrowing
if such Borrowing were to be a Revolving Credit Borrowing to be outstanding
during such Interest Period and for a period equal to such Interest Period
by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Interest Period. The LIBO Rate for any Interest Period
for each LIBO Rate Advance comprising part of the same Competitive Bid
Borrowing shall be determined by the Administrative Agent on the basis of
applicable rates furnished to and received by the Administrative Agent from
the Reference Banks two Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 2.08.
------- -------
"LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i).
------------------
"Lien" means any lien, security interest or other charge or
----
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Material Adverse Change" means any material adverse change in the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Borrower or any Borrower and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Borrower or any Borrower and its
Subsidiaries taken as a whole, (b) the rights and remedies of the
Administrative Agent or any Lender under this Agreement or any Note or (c)
the ability of any Borrower to perform its obligations under this Agreement
or any Note.
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan, as defined in Section
------------------
4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate is making
or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
----------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any ERISA Affiliate and at least one Person other than the
Company and the ERISA Affiliates or (b) was so maintained and in respect of
which the Company or any ERISA Affiliate could have liability under Section
4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
<PAGE>
10
"Net Worth" means the sum of (a) common stock and other shareholders'
---------
equity, (b) capital in excess of par or stated value, (c) retained
earnings, (d) redeemable preferred stock, (e) non-redeemable preferred
stock and (f) deferred taxes and deferred income tax credits, in each case
of the Company and its Subsidiaries on a Consolidated basis.
"Non-Consenting Lender" has the meaning specified in Section 2.17(b).
---------------------
"Note" means a promissory note of a Borrower payable to the order of
----
any Lender, in substantially the form of Exhibit A hereto, evidencing the
aggregate indebtedness of such Borrower to such Lender resulting from the
Advances made by such Lender.
"Notice of Competitive Bid Borrowing" has the meaning specified in
-----------------------------------
Section 2.03(a).
"Notice of Revolving Credit Borrowing" has the meaning specified in
------------------------------------
Section 2.02(a).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
----
successor).
"PCS Group" has the meaning specified in the Company's Articles of
---------
Incorporation, as currently proposed to be amended.
"Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under Section
5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations that
are not overdue for a period of more than 60 days or which are being
contested in good faith by appropriate proceedings and as to which
appropriate reserves are being maintained; (c) pledges or deposits to
secure obligations under workers' compensation laws or similar legislation
or to secure public or statutory obligations; (d) deposits to secure the
performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business; and (e) easements, rights of way and other encumbrances on title
to real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such
property for its present purposes.
"Person" means an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----
"Public Debt Rating" means, as of any date, the highest rating that
------------------
has been most recently announced by either S&P or Moody's, as the case may
be, for any class of non-credit enhanced long-term senior unsecured debt
issued by the Company. For purposes of the foregoing, (a) if only one of
S&P and Moody's shall have in effect a Public Debt Rating, the Applicable
Margin and the Applicable Percentage shall be determined by reference to
the available rating; (b) if neither S&P nor Moody's shall have in effect a
Public Debt Rating, the Applicable Margin and the Applicable Percentage
will be set in accordance with Level 6 under the definition of "Applicable
----------
Margin" or "Applicable Percentage", as the case may be; (c) if the ratings
------ ---------------------
established by S&P and Moody's shall fall within different levels, the
Applicable Margin and the Applicable Percentage shall be based upon the
higher rating, provided that if the lower of such ratings is more than one
--------
level below the higher of such ratings, then the Applicable Margin and the
Applicable Percentage shall be based on the rating that is the level above
the lower of such ratings; (d) if any rating established by S&P or Moody's
shall be changed, such change shall be effective as of the date on which
such change is first announced publicly by the rating agency making such
change; and (e) if S&P or
<PAGE>
11
Moody's shall change the basis on which ratings are established, each
reference to the Public Debt Rating announced by S&P or Moody's, as the
case may be, shall refer to the then equivalent rating by S&P or Moody's,
as the case may be.
"Reference Banks" means Citibank, Morgan Guaranty Trust Company of New
---------------
York, Bank of America National Trust and Savings Association and The Chase
Manhattan Bank.
"Register" has the meaning specified in Section 9.07(d).
--------
"Required Lenders" means at any time Lenders owed at least a majority
----------------
in interest of the then aggregate unpaid principal amount of the Revolving
Credit Advances owing to Lenders, or, if no such principal amount is then
outstanding, Lenders having at least a majority in interest of the
Commitments.
"Revolver Termination Date" means the earlier of (a) August 7, 2003,
-------------------------
subject to extension thereof pursuant to Section 2.17, and (b) the date of
termination in whole of the Commitments pursuant to Section 2.05 or 6.01;
provided, however, that the Revolver Termination Date of any Lender that is
a Non-Consenting Lender to any requested extension pursuant to Section 2.17
shall be the Revolver Termination Date in effect immediately prior to the
applicable Extension Date for all purposes of this Agreement.
"Revolving Credit Advance" means an advance by a Lender to a Borrower
------------------------
as part of a Revolving Credit Borrowing and refers to a Base Rate Advance
or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving
----
Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
--------------------------
simultaneous Revolving Credit Advances of the same Type made by each of the
Lenders pursuant to Section 2.01.
"S&P" means Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc.
"Single Employer Plan" means a single employer plan, as defined in
--------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any ERISA Affiliate and no Person other than the Company and
the ERISA Affiliates or (b) was so maintained and in respect of which the
Company or any ERISA Affiliate could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such limited liability company, partnership or joint venture or
(c) the beneficial interest in such trust or estate is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Telephone Asset" means any asset of a Person used by such Person to
---------------
provide telephone or communication services.
"364-Day Credit Agreement" means the 364-Day Credit Agreement dated as
------------------------
of August 7, 1998 among the Company, Sprint Capital, the lenders parties
thereto, Citibank, as administrative agent, Morgan Guaranty Trust Company
of New York, as syndication agent, and Bank of America National Trust and
Savings Association and The Chase Manhattan Bank, as documentation agents,
as amended, supplemented or otherwise modified from time to time.
<PAGE>
12
"Voting Stock" means capital stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to appoint or to vote
for the election of directors (or persons performing similar functions) of
such Person, even if the right so to vote has been suspended by the
happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(e) ("GAAP").
----
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances. Each Lender severally
-----------------------------
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Credit Advances to any Borrower from time to time on any Business Day during the
period from the Effective Date until the Revolver Termination Date in an
aggregate amount not to exceed at any time outstanding the amount set forth
opposite such Lender's name on the signature pages hereof or, if such Lender has
entered into any Assignment and Acceptance or an Assumption Agreement, set forth
for such Lender in the Register maintained by the Administrative Agent pursuant
to Section 9.07(d), as such amount may be reduced pursuant to Section 2.05 (such
Lender's "Commitment"), provided that the aggregate amount of the Commitments of
---------- --------
the Lenders shall be deemed used from time to time to the extent of the
aggregate amount of the Competitive Bid Advances then outstanding and such
deemed use of the aggregate amount of the Commitments shall be allocated among
the Lenders ratably according to their respective Commitments (such deemed use
of the aggregate amount of the Commitments being a "Competitive Bid Reduction").
-------------------------
Each Revolving Credit Borrowing shall be in an aggregate amount of $25,000,000
or an integral multiple of $1,000,000 in excess thereof and shall consist of
Revolving Credit Advances of the same Type made on the same day by the Lenders
ratably according to their respective Commitments. Notwithstanding any other
provision of this Agreement, more than one Revolving Credit Borrowing may be
made on the same day by either or both Borrowers. Within the limits of each
Lender's Commitment, the Borrowers may borrow under this Section 2.01, prepay
pursuant to Section 2.10 and reborrow under this Section 2.01.
SECTION 2.02. Making the Revolving Credit Advances. (a) Each
------------------------------------
Revolving Credit Borrowing shall be made on notice, given not later than 11:00
A.M. (New York City time) on the third Business Day prior to the date of the
proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Eurodollar Rate Advances, or the date of the proposed Revolving
Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base
Rate Advances, by a Borrower to the Administrative Agent, which shall give to
each Lender prompt notice thereof by telecopier or telex. Each such notice of a
Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be
------------------------------------
by telephone, confirmed immediately in writing, or telecopier or telex in
substantially the form of Exhibit B-1 hereto, specifying therein the requested
(i) date of such Revolving Credit Borrowing, (ii) Type of Advances comprising
such Revolving Credit Borrowing, (iii) aggregate amount of such Revolving Credit
Borrowing, and (iv) in the case of a Revolving Credit Borrowing consisting of
Eurodollar Rate Advances, initial Interest Period for each such Revolving Credit
Advance. Each Lender shall, before 12:00 noon (New York City time) on the date
of such Revolving Credit Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at the Administrative
Agent's Account, in same day funds, such Lender's ratable portion of such
Revolving Credit Borrowing. After the Administrative Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Administrative Agent will make such funds available on the date of such
Revolving Credit Advance to the Borrower giving such Notice of Revolving Credit
Borrowing at the Administrative Agent's address referred to in Section 9.02.
<PAGE>
13
(b) Anything in subsection (a) above to the contrary notwithstanding, no
Borrower may select Eurodollar Rate Advances for any Revolving Credit Borrowing
at any time that the obligation of the Lenders to make Eurodollar Rate Advances
shall then be suspended pursuant to Section 2.08 or 2.12.
(c) Each Notice of Revolving Credit Borrowing shall be irrevocable and
binding on the Borrower giving such Notice of Revolving Credit Borrowing. In
the case of any Revolving Credit Borrowing that the related Notice of Revolving
Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrower giving such Notice of Revolving Credit Borrowing shall indemnify each
Lender against any loss, cost or expense incurred by such Lender as a result of
any failure to fulfill on or before the date specified in such Notice of
Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of Applicable Margin), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund the Revolving Credit Advance to be made by such Lender as part of such
Revolving Credit Borrowing when such Revolving Credit Advance, as a result of
such failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Revolving Credit Borrowing that such Lender will
not make available to the Administrative Agent such Lender's ratable portion of
such Revolving Credit Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the date
of such Revolving Credit Borrowing in accordance with subsection (a) of this
Section 2.02 and the Administrative Agent may, in reliance upon such assumption,
make available to a Borrower giving such Notice of Revolving Credit Borrowing on
such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Administrative Agent,
such Lender and the applicable Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Administrative Agent,
at (i) in the case of such Borrower, the interest rate applicable at the time to
Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Revolving Credit Advance as part of such Revolving
Credit Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the Revolving Credit Advance to be
made by it as part of any Revolving Credit Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Revolving Credit Advance
on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender
----------------------------
severally agrees that any Borrower may make Competitive Bid Borrowings under
this Section 2.03 from time to time on any Business Day during the period from
the date hereof until the date occurring 30 days prior to the Revolver
Termination Date in the manner set forth below; provided that, following the
--------
making of each Competitive Bid Borrowing, the aggregate amount of the Advances
then outstanding shall not exceed the aggregate amount of the Commitments of the
Lenders (computed without regard to any Competitive Bid Reduction).
(i) Any Borrower may request a Competitive Bid Borrowing under this
Section 2.03 by delivering to the Administrative Agent, by telecopier or
telex, a notice of a Competitive Bid Borrowing (a "Notice of Competitive
---------------------
Bid Borrowing"), in substantially the form of Exhibit B-2 hereto,
-------------
specifying therein the requested (v) date of such proposed Competitive Bid
Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing,
(x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate
Advances, Interest Period, or in the case of a Competitive Bid Borrowing
consisting of Fixed Rate Advances, maturity date for repayment of each
Fixed Rate Advance to be made as part of such Competitive Bid Borrowing
(which maturity date may not be earlier than the date occurring 7 days
after the date of such Competitive Bid Borrowing or later than the earlier
of (I) 180 days after the date of such Competitive Bid Borrowing and (II)
the Revolver Termination Date), (y) interest payment date or dates relating
thereto, and (z) other terms (if any) to be applicable to such Competitive
Bid Borrowing, not later
<PAGE>
14
than 10:00 A.M. (New York City time) (A) at least one Business Day prior to
the date of the proposed Competitive Bid Borrowing, if the applicable
Borrower shall specify in the Notice of Competitive Bid Borrowing that the
rates of interest to be offered by the Lenders shall be fixed rates per
annum (the Advances comprising any such Competitive Bid Borrowing being
referred to herein as "Fixed Rate Advances") and (B) at least four Business
-------------------
Days prior to the date of the proposed Competitive Bid Borrowing, if the
applicable Borrower shall instead specify in the Notice of Competitive Bid
Borrowing that the rates of interest to be offered by the Lenders are to be
based on the LIBO Rate (the Advances comprising such Competitive Bid
Borrowing being referred to herein as "LIBO Rate Advances"). The
------------------
Administrative Agent shall in turn promptly notify each Lender of each
request for a Competitive Bid Borrowing received by it from a Borrower by
sending such Lender a copy of the related Notice of Competitive Bid
Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more Competitive Bid Advances to the
applicable Borrower as part of such proposed Competitive Bid Borrowing at a
rate or rates of interest specified by such Lender in its sole discretion,
by notifying the Administrative Agent (which shall give prompt notice
thereof to such Borrower), before 9:30 A.M. (New York City time) on the
date of such proposed Competitive Bid Borrowing, in the case of a
Competitive Bid Borrowing consisting of Fixed Rate Advances and before
10:00 A.M. (New York City time) three Business Days before the date of such
proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of LIBO Rate Advances, of the minimum amount and
maximum amount of each Competitive Bid Advance which such Lender would be
willing to make as part of such proposed Competitive Bid Borrowing (which
amounts may, subject to the proviso to the first sentence of this Section
2.03(a), exceed such Lender's Commitment, if any), the rate or rates of
interest therefor and such Lender's Applicable Lending Office with respect
to such Competitive Bid Advance; provided that if the Administrative Agent
--------
in its capacity as a Lender shall, in its sole discretion, elect to make
any such offer, it shall notify the applicable Borrower of such offer at
least 30 minutes before the time and on the date on which notice of such
election is to be given to the Administrative Agent by the other Lenders.
If any Lender shall elect not to make such an offer, such Lender shall so
notify the Administrative Agent, before 10:00 A.M. (New York City time) on
the date on which notice of such election is to be given to the
Administrative Agent by the other Lenders, and such Lender shall not be
obligated to, and shall not, make any Competitive Bid Advance as part of
such Competitive Bid Borrowing; provided that the failure by any Lender to
--------
give such notice shall not cause such Lender to be obligated to make any
Competitive Bid Advance as part of such proposed Competitive Bid Borrowing.
(iii) The Borrower giving the Notice of Competitive Bid Borrowing
shall, in turn, before 10:30 A.M. (New York City time) on the date of such
proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of Fixed Rate Advances and before 11:00 A.M. (New
York City time) three Business Days before the date of such proposed
Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing
consisting of LIBO Rate Advances, either:
(x) cancel such Competitive Bid Borrowing by giving the
Administrative Agent notice to that effect, or
(y) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above, in its sole discretion, by
giving notice to the Administrative Agent of the amount of each
Competitive Bid Advance (which amount shall be equal to or greater
than the minimum amount, and equal to or less than the maximum amount,
notified to the applicable Borrower by the Administrative Agent on
behalf of such Lender for such Competitive Bid Advance pursuant to
paragraph (ii) above) to be made by each Lender as part of such
Competitive Bid Borrowing, and reject any remaining offers made by
Lenders pursuant to paragraph (ii) above by giving the Administrative
Agent notice to that effect. The Borrower giving the Notice of
Competitive Bid Borrowing shall accept the offers made by any Lender
or Lenders to make Competitive Bid Advances in order of the lowest to
the highest rates of interest offered by such Lenders. If two or more
Lenders have offered the same interest rate, the amount to be borrowed
<PAGE>
15
at such interest rate will be allocated among such Lenders in
proportion to the maximum amount that each such Lender offered at such
interest rate.
(iv) If the applicable Borrower notifies the Administrative Agent
that such Competitive Bid Borrowing is canceled pursuant to paragraph
(iii)(x) above, the Administrative Agent shall give prompt notice thereof
to the Lenders and such Competitive Bid Borrowing shall not be made.
(v) If the applicable Borrower accepts one or more of the offers
made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that has
made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such Competitive Bid Borrowing and whether or not any
offer or offers made by such Lender pursuant to paragraph (ii) above have
been accepted by the applicable Borrower, (B) each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing, of the
amount of each Competitive Bid Advance to be made by such Lender as part of
such Competitive Bid Borrowing, and (C) each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing, upon
receipt, that the Administrative Agent has received forms of documents
appearing to fulfill the applicable conditions set forth in Article III.
Each Lender that is to make a Competitive Bid Advance as part of such
Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on
the date of such Competitive Bid Borrowing specified in the notice received
from the Administrative Agent pursuant to clause (A) of the preceding
sentence or any later time when such Lender shall have received notice from
the Administrative Agent pursuant to clause (C) of the preceding sentence,
make available for the account of its Applicable Lending Office to the
Administrative Agent at the Administrative Agent's Account, in same day
funds, such Lender's portion of such Competitive Bid Borrowing. Upon
fulfillment of the applicable conditions set forth in Article III and after
receipt by the Administrative Agent of such funds, the Administrative Agent
will make such funds available to the applicable Borrower at the
Administrative Agent's address referred to in Section 9.02. Promptly after
each Competitive Bid Borrowing the Administrative Agent will notify each
Lender of the amount of the Competitive Bid Borrowing, the consequent
Competitive Bid Reduction and the dates upon which such Competitive Bid
Reduction commenced and will terminate.
(vi) If the applicable Borrower notifies the Administrative Agent
that it accepts one or more of the offers made by any Lender or Lenders
pursuant to paragraph (iii)(y) above, such notice of acceptance shall be
irrevocable and binding on such Borrower. The Borrower giving the Notice of
Competitive Bid Borrowing shall indemnify each Lender against any loss,
cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified in the related Notice of
Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable
conditions set forth in Article III, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Competitive
Bid Advance to be made by such Lender as part of such Competitive Bid
Borrowing when such Competitive Bid Advance, as a result of such failure,
is not made on such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate amount of
$25,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each Competitive Bid Borrowing, the Borrowers shall be
in compliance with the limitation set forth in the proviso to the first sentence
of subsection (a) above.
(c) Within the limits and on the conditions set forth in this Section
2.03, the Borrowers may from time to time borrow under this Section 2.03, repay
or prepay pursuant to subsection (d) below, and reborrow under this Section
2.03.
(d) The applicable Borrower shall repay to the Administrative Agent for
the account of each Lender that has made a Competitive Bid Advance, on the
maturity date of each Competitive Bid Advance (such maturity date being that
specified by such Borrower for repayment of such Competitive Bid Advance in the
related Notice of Competitive Bid Borrowing delivered pursuant to subsection
(a)(i) above), the then unpaid principal amount of such Competitive Bid Advance.
No Borrower shall have any right to prepay any principal amount of any
Competitive
<PAGE>
16
Bid Advance unless, and then only on the terms, specified by the applicable
Borrower for such Competitive Bid Advance in the related Notice of Competitive
Bid Borrowing delivered pursuant to subsection (a)(i) above.
(e) The applicable Borrower shall pay interest on the unpaid principal
amount of each Competitive Bid Advance from the date of such Competitive Bid
Advance to the date the principal amount of such Competitive Bid Advance is
repaid in full, at the rate of interest for such Competitive Bid Advance
specified by the Lender making such Competitive Bid Advance in its notice with
respect thereto delivered pursuant to subsection (a)(ii) above, payable on the
interest payment date or dates specified by such Borrower for such Competitive
Bid Advance in the related Notice of Competitive Bid Borrowing delivered
pursuant to subsection (a)(i) above. Upon the occurrence and during the
continuance of an Event of Default, such Borrower shall pay interest on the
amount of unpaid principal of and interest on each Competitive Bid Advance owing
to a Lender, payable in arrears on the date or dates interest is payable
thereon, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on such Competitive Bid Advance.
SECTION 2.04. Fees. (a) Facility Fee. The Borrowers agree to pay
---- ------------
to the Administrative Agent for the account of each Lender a facility fee on the
aggregate amount of such Lender's Commitment from the date hereof in the case of
each Initial Lender and from the effective date specified in the Assignment and
Acceptance or Assumption Agreement pursuant to which it became a Lender in the
case of each other Lender until the Revolver Termination Date (or, if
applicable, until such Lender's Commitment has been assigned to another Lender)
at a rate per annum equal to the Applicable Percentage in effect from time to
time, payable in arrears quarterly on the last day of each March, June,
September and December, commencing September 30, 1998, and on the Revolver
Termination Date.
(b) Administrative Agent's Fees. The Borrowers shall pay to the
---------------------------
Administrative Agent for its own account such fees as may from time to time be
agreed among the Borrowers and the Administrative Agent.
SECTION 2.05. Optional Termination or Reduction of the Commitments.
----------------------------------------------------
The Company shall have the right, upon at least three Business Days' notice to
the Administrative Agent, to terminate in whole or reduce ratably in part the
aggregate unused Commitments of the Lenders; provided that each partial
--------
reduction shall be in an aggregate amount of $25,000,000 or an integral multiple
of $1,000,000 in excess thereof or, if less, the aggregate amount of all
Commitments at such time.
SECTION 2.06. Repayment of Advances. (a) Revolving Credit Advances.
--------------------- -------------------------
Each Borrower shall repay to the Administrative Agent, for the ratable account
of the Lenders, on the Revolver Termination Date the aggregate principal amount
of all Revolving Credit Advances made to it outstanding on such date.
(b) Competitive Bid Advances. Each Borrower shall repay to the
------------------------
Administrative Agent, for the account of each Lender that has made a Competitive
Bid Advance, the aggregate outstanding principal amount of each Competitive Bid
Advance made to such Borrower and owing to such Lender on the earlier of (i) the
maturity date therefor, specified in the related Notice of Competitive Bid
Borrowing delivered pursuant to Section 2.03(a)(i) and (ii) the Revolver
Termination Date.
SECTION 2.07. Interest on Revolving Credit Advances. (a) Scheduled
------------------------------------- ---------
Interest. Each Borrower shall pay interest on the unpaid principal amount of
- --------
each Revolving Credit Advance made to it owing to each Lender from the date of
such Revolving Credit Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Revolving Credit
------------------
Advance is a Base Rate Advance, a rate per annum equal at all times to the
Base Rate in effect from time to time, payable in arrears quarterly on the
last day of each March, June, September and December during such periods
and on the date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Revolving
------------------------
Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such
<PAGE>
17
Revolving Credit Advance to the sum of (x) the Eurodollar Rate for such
Interest Period for such Revolving Credit Advance plus (y) the Applicable
----
Margin in effect from time to time plus (z) the Applicable Utilization Fee,
----
payable in arrears on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day that
occurs during such Interest Period every three months from the first day of
such Interest Period and on the date such Eurodollar Rate Advance shall be
Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of
----------------
an Event of Default under Section 6.01(a) or Section 6.01(e), each Borrower
shall pay interest on (i) the unpaid principal amount of each Revolving Credit
Advance made to it and owing to each Lender, payable in arrears on the dates
referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on such
Revolving Credit Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to
the fullest extent permitted by law, the amount of any interest, fee or other
amount payable hereunder that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate per annum equal
at all times to 2% per annum above the rate per annum required to be paid on
Base Rate Advances pursuant to clause (a)(i) above.
SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank
---------------------------
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each Eurodollar Rate and each LIBO Rate. If any one or more of
the Reference Banks shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such interest rate, the
Administrative Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks. The Administrative
Agent shall give prompt notice to the Borrowers and the Lenders of the
applicable interest rate determined by the Administrative Agent for purposes of
Section 2.07(a)(i) or (ii) , and the rate, if any, furnished by each Reference
Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the Required Lenders
notify the Administrative Agent that the Eurodollar Rate for any Interest Period
for such Advances will not adequately reflect the cost to such Required Lenders
of making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrowers and the Lenders, whereupon (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to
make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances
shall be suspended until the Administrative Agent shall notify the Borrowers and
the Lenders that the circumstances causing such suspension no longer exist.
(c) If any Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify such Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $25,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of Default
under Section 6.01(a) or Section 6.01(e), (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,
or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
(f) If fewer than two Reference Banks furnish timely information to the
Administrative Agent for determining the Eurodollar Rate or LIBO Rate for any
Eurodollar Rate Advances or LIBO Rate Advances, as the case may be,
<PAGE>
18
(i) the Administrative Agent shall forthwith notify the Borrowers
and the Lenders that the interest rate cannot be determined for such
Eurodollar Rate Advances or LIBO Rate Advances, as the case may be,
(ii) with respect to Eurodollar Rate Advances, each such Advance
will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance (or if such Advance is then a
Base Rate Advance, will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate Advances
or LIBO Rate Advances or to Convert Revolving Credit Advances into
Eurodollar Rate Advances shall be suspended until the Administrative Agent
shall notify the Borrowers and the Lenders that the circumstances causing
such suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit Advances. Each
------------------------------------------------
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the date of the proposed Conversion and subject to the provisions of Sections
2.08 and 2.12, Convert all Revolving Credit Advances made to it of one Type
comprising the same Borrowing into Revolving Credit Advances of the other Type;
provided, however, that any Conversion of Eurodollar Rate Advances into Base
- -------- -------
Rate Advances shall be made only on the last day of an Interest Period for such
Eurodollar Rate Advances, and any Conversion of Base Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.01. Each such notice of a Conversion shall, within the
restrictions specified above, specify (i) the date of such Conversion, (ii) the
Revolving Credit Advances to be Converted, and (iii) if such Conversion is into
Eurodollar Rate Advances, the duration of the initial Interest Period for each
such Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower giving such notice.
SECTION 2.10. Optional Prepayments of Revolving Credit Advances.
-------------------------------------------------
Each Borrower may, upon notice by 11:00 A.M. (New York City time) at least two
Business Days' prior to the date of the proposed prepayment (in the case of
Eurodollar Rate Advances) and notice by 11:00 A.M. (New York City time) on the
date of the proposed prepayment (in the case of Base Rate Advances) to the
Administrative Agent stating the proposed date and aggregate principal amount of
the prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amount of the Revolving Credit Advances made to it
comprising part of the same Revolving Credit Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that (x) each partial prepayment
-------- -------
shall be in an aggregate principal amount of $25,000,000 or an integral multiple
of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a
Eurodollar Rate Advance, such Borrower shall be obligated to reimburse the
Lenders in respect thereof pursuant to Section 9.04(c).
SECTION 2.11. Increased Costs. (a) If, due to either (i) the
---------------
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
after the date hereof, in the case of Eurodollar Rate Advances, or after the
date of any Lender's offer to make a Competitive Bid Advance pursuant to Section
2.03(a)(ii), in the case of LIBO Rate Advances, there shall be any increase in
the cost to any Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances or LIBO Rate Advances (excluding for purposes of this
Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes
(as to which Section 2.14 shall govern) and (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender is
organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrowers shall from time to time, upon demand by such Lender
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost. A certificate as
to the amount of such increased cost, submitted to the Borrowers and the
Administrative Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would
<PAGE>
19
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of this type, then, upon demand by such
Lender (with a copy of such demand to the Administrative Agent), the Borrowers
shall pay to the Administrative Agent for the account of such Lender, from time
to time as specified by such Lender, additional amounts sufficient to compensate
such Lender or such corporation in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the existence of such Lender's commitment to lend hereunder. A
certificate as to such amounts submitted to the Borrowers and the Administrative
Agent by such Lender shall be conclusive and binding for all purposes, absent
manifest error.
SECTION 2.12. Illegality. Notwithstanding any other provision of
----------
this Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate
Advances hereunder, (i) each LIBO Rate Advance of such Lender and each
Eurodollar Rate Advance will automatically, upon such demand, Convert into a
Base Rate Advance or an Advance that bears interest at the rate set forth in
Section 2.07(a)(i), as the case may be, and (ii) the obligation of such Lender
to make LIBO Rate Advances and the obligation of the Lenders to make Eurodollar
Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrowers and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 2.13. Payments and Computations. (a) Each Borrower shall
-------------------------
make each payment hereunder and under the Notes not later than 11:00 A.M. (New
York City time) on the day when due in U.S. dollars to the Administrative Agent
at the Administrative Agent's Account in same day funds. The Administrative
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest or facility fees ratably (other than
amounts payable pursuant to Section 2.03, 2.11, 2.14 or 9.04(c)) to the Lenders
for the account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Lender to such Lender
for the account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 9.07(c), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the case
may be, and all computations of interest based on the Eurodollar Rate or the
Federal Funds Rate and of facility fees and utilization fees shall be made by
the Administrative Agent on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Administrative Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that, if such extension would cause payment of interest on or
- -------- -------
principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day.
(d) Unless the Administrative Agent shall have received notice from the
applicable Borrower prior to the date on which any payment is due to the Lenders
hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative
<PAGE>
20
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent the applicable
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.
SECTION 2.14. Taxes. (a) Any and all payments by each Borrower
-----
hereunder or under the Notes shall be made, in accordance with Section 2.13,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Administrative
---------
Agent, taxes imposed on its overall net income, and franchise taxes imposed on
it in lieu of net income taxes, by the jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If any
-----
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note to any Lender or the Administrative
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Lender or the Administrative Agent
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Borrower shall make such deductions
and (iii) such Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, each Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the Notes or from the
execution, delivery or registration of, performing under, or otherwise with
respect to, this Agreement or the Notes (hereinafter referred to as "Other
-----
Taxes").
(c) Each Borrower shall indemnify each Lender and the Administrative Agent
for and hold it harmless against the full amount of Taxes or Other Taxes imposed
on or paid by such Lender or the Administrative Agent (as the case may be) and
any liability (including penalties, interest and expenses, but excluding items
specifically excluded from the definition of "Taxes" in subsection (a) above)
-----
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date such Lender or the Administrative Agent (as the
case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, each Borrower
shall furnish to the Administrative Agent, at its address referred to in Section
9.02, the original or a certified copy of a receipt evidencing such payment. In
the case of any payment hereunder or under the Notes by or on behalf of any
Borrower through an account or branch outside the United States or by or on
behalf of such Borrower by a payor that is not a United States person, if such
Borrower determines that no Taxes are payable in respect thereof, such Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
------------- -------------
person" shall have the meanings specified in Section 7701 of the Internal
- ------
Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender and on the date of the Assignment
and Acceptance or the Assumption Agreement pursuant to which it becomes a Lender
in the case of each other Lender, and from time to time thereafter as requested
in writing by the Borrowers (but only so long as such Lender remains lawfully
able to do so), shall provide each of the Administrative Agent and the Borrowers
with two original Internal Revenue Service forms 1001 or 4224, as appropriate,
or any successor or other forms prescribed by the Internal Revenue Service,
certifying that such Lender is exempt from or entitled to a reduced rate of
United States withholding tax on payments pursuant to this Agreement or the
Notes. If the form provided by a
<PAGE>
21
Lender at the time such Lender first becomes a party to this Agreement indicates
a United States interest withholding tax rate in excess of zero, withholding tax
at such rate shall be considered excluded from Taxes unless and until such
Lender provides the appropriate forms certifying that a lesser rate applies,
whereupon withholding tax at such lesser rate only shall be considered excluded
from Taxes for periods governed by such form; provided, however, that, if at the
-------- -------
date of the Assignment and Acceptance or the Assumption Agreement pursuant to
which a Lender assignee becomes a party to this Agreement, the Lender assignor
was entitled to payments under subsection (a) in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include United States withholding tax at a rate
equal to the lesser of (i) the rate of United States withholding tax, if any,
included in Taxes in respect of the Lender assignor on such date or (ii) the
rate of United States withholding tax, if any, applicable with respect to the
Lender assignee on such date. If any form or document referred to in this
subsection (e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required by Internal
Revenue Service form 1001 or 4224, or any successor or other forms prescribed by
the Internal Revenue Service, that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrowers and shall
not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a Lender has failed to provide
the Borrowers with the appropriate form described in Section 2.14(e) (other than
----- ----
if such failure is due to a change in law occurring subsequent to the date on
which a form originally was required to be provided, or if such form otherwise
is not required under subsection (e) above), such Lender shall not be entitled
to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided, however, that should a
-------- -------
Lender become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrowers shall take such steps as the Lender shall reasonably
request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain
------------------------
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Revolving Credit Advances owing to
it (other than pursuant to Section 2.11, 2.14 or 9.04(c)) in excess of its
ratable share of payments on account of the Revolving Credit Advances obtained
by all the Lenders, such Lender shall forthwith purchase from the other Lenders
such participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
-------- -------
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. Each
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.15 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of such Borrower in the amount of such participation.
SECTION 2.16. Increase in the Aggregate Commitments. (a) The
-------------------------------------
Borrowers may, at any time but in any event not more than once in any calendar
year prior to the Revolver Termination Date, by notice to the Administrative
Agent, request that the aggregate amount of the Commitments be increased by
$25,000,000 or an integral multiple of $25,000,000 in excess thereof (each a
"Commitment Increase") to be effective as of a date that is at least 90 days
- --------------------
prior to the scheduled Revolver Termination Date then in effect (the "Increase
--------
Date") as specified in the related notice to the Administrative Agent; provided,
- ---- --------
however, that (i) in no event shall the aggregate amount of the Commitments at
- -------
any time exceed $2,500,000,000, (ii) no Default shall have occurred and be
continuing as of
<PAGE>
22
the date of such request and (iii) all of the applicable conditions set forth in
Article III shall be satisfied as of the applicable Increase Date.
(b) The Administrative Agent shall promptly notify the Lenders of a
request by the Borrowers for a Commitment Increase, which notice shall include
(i) the proposed amount of such requested Commitment Increase, (ii) the proposed
Increase Date and (iii) the date by which Lenders wishing to participate in the
Commitment Increase must commit to an increase in the amount of their respective
Commitments (the "Commitment Date"). Each Lender that is willing to participate
---------------
in such requested Commitment Increase (each an "Increasing Lender") shall, in
-----------------
its sole discretion, give written notice to the Administrative Agent on or prior
to the Commitment Date of the amount by which it is willing to increase its
Commitment. If the Lenders notify the Administrative Agent that they are
willing to increase the amount of their respective Commitments by an aggregate
amount that exceeds the amount of the requested Commitment Increase, the
requested Commitment Increase shall be allocated among the Lenders willing to
participate therein in such amounts as are agreed between the Borrowers and the
Administrative Agent.
(c) Promptly following each Commitment Date, the Administrative
Agent shall notify the Borrowers as to the amount, if any, by which the Lenders
are willing to participate in the requested Commitment Increase. If the
aggregate amount by which the Lenders are willing to participate in any
requested Commitment Increase on any such Commitment Date is less than the
requested Commitment Increase, then the Borrowers may extend offers to one or
more Eligible Assignees to participate in any portion of the requested
Commitment Increase that has not been committed to by the Lenders as of the
applicable Commitment Date; provided, however, that the Commitment of each such
-------- -------
Eligible Assignee, when aggregated with the commitment of such Person to lend
under the 364-Day Credit Agreement, shall in no event be less than $10,000,000.
(d) On each Increase Date, each Eligible Assignee that accepts an
offer to participate in a requested Commitment Increase in accordance with
Section 2.16(c) (each an "Increase Assuming Lender") shall become a Lender party
------------------------
to this Agreement as of such Increase Date and the Commitment of each Increasing
Lender for such requested Commitment Increase shall be so increased by such
amount (or by the amount allocated to such Lender pursuant to the last sentence
of Section 2.16(b)) as of such Increase Date; provided, however, that the
-------- -------
Administrative Agent shall have received on or before such Increase Date the
following, each dated such date:
(i) (A) certified copies of resolutions of the board of directors
of each Borrower or the Executive Committee of such board approving the
amount of the Commitments after giving effect to the Commitment Increase,
(B) a certificate, signed by a duly authorized Responsible Officer of each
Borrower, stating that all of the applicable conditions in Article III have
been satisfied and (C) an opinion of counsel for the Borrowers, in
substantially the form of Exhibit C hereto;
(ii) an Assumption Agreement from each Increase Assuming Lender,
duly executed by such Increase Assuming Lender, the Administrative Agent
and the Borrowers; and
(iii) confirmation from each Increasing Lender of the increase in the
amount of its Commitment in a writing satisfactory to the Borrowers and the
Administrative Agent.
On each Increase Date, upon fulfillment of the conditions set forth in the
immediately preceding sentence of this Section 2.16(d), the Administrative Agent
shall notify the Lenders (including, without limitation, each Increase Assuming
Lender) and the Borrowers, on or before 1:00 P.M. (New York City time), by
telecopier or telex, of the occurrence of the Commitment Increase to be effected
on such Increase Date and shall record in the Register the relevant information
with respect to each Increasing Lender and each Increase Assuming Lender on such
date. In addition, on each Increase Date, each of the Increasing Lenders and
the Increase Assuming Lenders will purchase and assume from the other Lenders
such interests in the Revolving Credit Advances made by such other Lenders and
outstanding on such Increase Date as shall be necessary so that, after giving
effect to such purchases and assumptions, each of the Lenders (including the
Increasing Lenders and the Increase Assuming Lenders) will hold their respective
pro rata shares of all Revolving Credit Advances outstanding on such Increase
Date (such purchases and assumptions to be effected by each of the Increasing
Lenders and the Increase Assuming Lenders making an
<PAGE>
23
amount equal to such respective pro rata shares available for the accounts of
their Applicable Lending Offices to the Administrative Agent at the
Administrative Agent's Account, in same day funds). Each Borrower hereby agrees
to each of the purchases and assumptions described in the immediately preceding
sentence.
SECTION 2.17. Extension of Revolver Termination Date. (a) At least
--------------------------------------
45 days but not more than 60 days prior to the scheduled Revolver Termination
Date then in effect, the Borrowers, by written notice to the Administrative
Agent, may request an extension of such Revolver Termination Date for a period
of one year from its then scheduled expiration. The Administrative Agent shall
promptly notify each Lender of such request, and each Lender shall in turn, in
its sole discretion, not earlier than 30 days but at least 20 days prior to the
scheduled Revolver Termination Date then in effect, notify the Administrative
Agent in writing as to whether such Lender will consent to such extension. If
any Lender shall fail to notify the Administrative Agent in writing of its
consent to, or refusal of, any such request for extension of the Revolver
Termination Date at least 20 days prior to the scheduled Revolver Termination
Date then in effect, such Lender shall be deemed to be a Non-Consenting Lender
with respect to such request. The Administrative Agent shall notify the
Borrowers in writing not later than 15 days prior to the scheduled Revolver
Termination Date then in effect of the decision of the Lenders regarding the
Borrowers' request for an extension of such Revolver Termination Date. It is
understood and agreed that no Lender shall have any obligation whatsoever to
agree to any request made by the Borrowers for an extension of the Revolver
Termination Date.
(b) If all of the Lenders consent in writing to any such request in
accordance with subsection (a) of this Section 2.17, upon fulfillment of the
applicable conditions set forth in Article III, the Revolver Termination Date in
effect at such time shall, effective as at such Revolver Termination Date (the
"Extension Date"), be extended for a period of one year from such Extension
- ---------------
Date. If Lenders holding at least a majority in interest of the aggregate
Commitments at such time (after giving effect to any assumptions of the
Commitments of Non-Consenting Lenders in accordance with subsection (c) of this
Section 2.17) consent in writing to any such request in accordance with
subsection (a) of this Section 2.17, the Revolver Termination Date in effect at
such time shall, upon fulfillment of the applicable conditions set forth in
Article III, effective as at the applicable Extension Date, be extended as to
those Lenders that so consented (each a "Consenting Lender") but shall not be
-----------------
extended as to any other Lender (each a "Non-Consenting Lender"). To the extent
---------------------
that the Revolver Termination Date is not extended as to any Lender pursuant to
this Section 2.17 and the Commitment of such Lender is not assumed in accordance
with subsection (c) of this Section 2.17 on or prior to the applicable Extension
Date, the Commitment of such Non-Consenting Lender shall automatically terminate
in whole on such unextended Revolver Termination Date without any further notice
or other action by the Borrowers, such Lender or any other Person; provided that
such Non-Consenting Lender's rights under Sections 2.11, 2.14 and 9.04, and its
obligations under Section 8.05, shall survive the Revolver Termination Date for
such Lender as to matters occurring prior to such Extension Date.
(c) If less than all of the Lenders consent to any such request
pursuant to subsection (a) of this Section 2.17, the Agent shall promptly so
notify the Consenting Lenders, and each Consenting Lender may, in its sole
discretion, give written notice to the Agent not later than 10 days prior to the
Revolver Termination Date of the amount of the Non-Consenting Lenders'
Commitments for which it is willing to accept an assignment. If the Consenting
Lenders notify the Agent that they are willing to accept assignments of
Commitments in an aggregate amount that exceeds the amount of the Commitments of
the Non-Consenting Lenders, such Commitments shall be allocated among the
Consenting Lenders willing to accept such assignments in such amounts as are
agreed between the Borrowers and the Agent. If after giving effect to the
assignments described above there remains any Commitments of Non-Consenting
Lenders, the Borrowers may arrange for one or more Consenting Lenders or other
Eligible Assignees to assume, effective as of the Extension Date, any Non-
Consenting Lender's Commitment and all of the rights and obligations of such
Non-Consenting Lender under this Agreement thereafter arising (each Eligible
Assignee assuming the Commitment of one or more Non-Consenting Lenders pursuant
to this Section 2.17 being an "Extension Assuming Lender"), without recourse to
-------------------------
or warranty by, or expense to, such Non-Consenting Lender; provided, however,
-------- -------
that the Commitment of any such Extension Assuming Lender shall in no event be
less than $10,000,000 unless the Commitment of such Non-Consenting Lender
hereunder at such time is less than $10,000,000, in which case such Extension
Assuming Lender shall assume all of such lesser amount; and provided further
-------- -------
that:
<PAGE>
24
(i) the Consenting Lenders and Extension Assuming Lenders shall
collectively have paid to the Non-Consenting Lenders the aggregate
principal amount of, and any interest accrued and unpaid to the effective
date of such assumption on, the outstanding Advances, if any, of such Non-
Consenting Lenders;
(ii) any accrued and unpaid Facility Fees and Utilization Fees owing
to such Non-Consenting Lenders as of the effective date of such assumption,
and all additional cost and expense reimbursements and indemnification
payments payable to such Non-Consenting Lenders, and all other accrued and
unpaid amounts owing to such Non-Consenting Lenders under this Agreement
and the Notes, as of the effective date of such assumption, shall have been
paid to such Non-Consenting Lenders by the Borrowers or such Consenting
Lenders and Extension Assuming Lenders; and
(iii) with respect to any such Extension Assuming Lender, the
applicable processing and recordation fee required under Section 9.07(a)
shall have been paid; and
provided further that such Non-Consenting Lender's rights under Sections 2.11,
- -------- -------
2.14 and 9.04, and its obligations under Section 8.05, shall survive such
substitution as to matters occurring prior to the date of substitution. At
least three Business Days prior to each Extension Date, (A) each such Extension
Assuming Lender, if any, shall have delivered to the Borrowers and the
Administrative Agent an Assumption Agreement, duly executed by such Extension
Assuming Lender, such Non-Consenting Lender, the Borrowers and the
Administrative Agent, (B) each such Consenting Lender, if any, shall have
delivered written confirmation satisfactory to the Borrowers and the
Administrative Agent as to any increase in the amount of its Commitment
resulting from its assumption of one or more Commitments of the Non-Consenting
Lenders and (C) each Non-Consenting Lender being replaced pursuant to this
Section 2.17(c) shall have delivered to the Administrative Agent, to be held in
escrow on behalf of such Non-Consenting Lender until the payment in full of all
amounts owing to such Non-Consenting Lender under clauses (i) through (iii) of
this Section 2.17(c), any Note or Notes held by such Non-Consenting Lender.
Upon the payment or prepayment of all amounts referred to in clauses (i), (ii)
and (iii) of this Section 2.17(c), each such Consenting Lender or Extension
Assuming Lender, as of the Extension Date, will be substituted for the
applicable Non-Consenting Lender(s) under this Agreement and shall be a Lender
for all purposes of this Agreement, without any further acknowledgment by or the
consent of any of the other Lenders, and the obligations of each such Non-
Consenting Lender hereunder shall, by the provisions hereof, be released and
discharged.
(d) If Lenders holding at least a majority in interest of the
aggregate Commitments at such time (after giving effect to any assumptions
pursuant to subsection (c) of this Section 2.17) consent in writing to a
requested extension (whether by execution and delivery of an Assumption
Agreement or otherwise) not later than one Business Day prior to an Extension
Date, the Administrative Agent shall so notify the Borrowers, and, upon
fulfillment of the applicable conditions set forth in Article III and subsection
(c) above, the Revolver Termination Date then in effect shall be extended for
the one year period described in subsection (a) of this Section 2.17, and all
references in this Agreement and in the Notes to the "Revolver Termination Date"
-------------------------
shall, with respect to each Consenting Lender and each Extension Assuming Lender
for such Extension Date, refer to the Revolver Termination Date as so extended.
Promptly following each Extension Date, the Administrative Agent shall notify
the Lenders (including, without limitation, each Assuming Lender) of the
extension of the scheduled Revolver Termination Date in effect immediately prior
thereto and shall thereupon record in the Register the relevant information with
respect to each such Consenting Lender and each such Extension Assuming Lender.
SECTION 2.18. Use of Proceeds. The proceeds of the Advances shall be
---------------
available (and each Borrower agrees that it shall use such proceeds) solely for
general corporate purposes of the Company and its Subsidiaries, including
commercial paper backstop.
<PAGE>
25
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01
------------------------------------------------------
and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on
- --------
and as of the first date (the "Effective Date") on which the following
--------------
conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change since
December 31, 1997.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting the Company or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
could be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Agreement or any Note or the consummation of the transactions contemplated
hereby.
(c) Nothing shall have come to the attention of the Lenders during
the course of their due diligence investigation to lead them to believe
that the Information Memorandum was or has become misleading, incorrect or
incomplete in any material respect; without limiting the generality of the
foregoing, the Lenders shall have been given such access to the management,
records, books of account, contracts and properties of the Company and its
Subsidiaries as they shall have reasonably requested.
(d) All governmental and third party consents and approvals necessary
in connection with the transactions contemplated hereby shall have been
obtained (without the imposition of any conditions that are not acceptable
to the Lenders) and shall remain in effect, and no law or regulation shall
be applicable in the reasonable judgment of the Lenders that restrains,
prevents or imposes materially adverse conditions upon the transactions
contemplated hereby.
(e) The Company shall have notified each Lender and the
Administrative Agent in writing as to the proposed Effective Date.
(f) The Company shall have paid all accrued fees and expenses of the
Administrative Agent and the Lenders in connection with this Agreement and
the transactions contemplated hereby (including the accrued fees and
expenses of counsel to the Administrative Agent).
(g) On the Effective Date, the following statements shall be true and
the Administrative Agent shall have received for the account of each Lender
a certificate signed by a duly authorized officer of the Company, dated the
Effective Date, stating that:
(i) The representations and warranties contained in Section
4.01 are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that constitutes a
Default.
(h) The Administrative Agent shall have received on or before the
Effective Date the following, each dated such day, in form and substance
satisfactory to the Administrative Agent and (except for the Notes) in
sufficient copies for each Lender:
(i) The Notes payable to the order of the Lenders,
respectively.
(ii) Certified copies of the resolutions of the Board of
Directors of each Borrower authorizing this Agreement and the Notes to
be executed by it, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to
this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying the names and true signatures of the
officers of such Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
<PAGE>
26
(iv) A favorable opinion of Don A. Jensen, Vice President and
Secretary of each of the Borrowers, counsel for the Borrowers,
substantially in the form of Exhibit D hereto and as to such other
matters as any Lender through the Administrative Agent may reasonably
request.
(v) A favorable opinion of Shearman & Sterling, counsel for the
Administrative Agent, in form and substance satisfactory to the
Administrative Agent.
(i) The Borrowers shall have terminated the commitments, and paid in
full all Debt, interest, fees and other amounts outstanding under the
$1,500,000,000 Credit Agreement dated as of October 31, 1995 among the
Company, Sprint Capital and Central Telephone Company, as borrowers, the
lenders parties thereto and Bank of America National Trust and Savings
Association, Barclays Bank PLC, Citibank, N.A. and Morgan Guaranty Trust
Company of New York, as managing agents, and each of the Lenders that is a
party to such $1,500,000,000 Credit Agreement hereby waives, upon execution
of this Agreement, the three Business Days' notice required by Section 2.6
of such Credit Agreement relating to the termination of commitments
thereunder.
SECTION 3.02. Conditions Precedent to Each Revolving Credit
---------------------------------------------
Borrowing, Increase Date and Extension Date. The obligation of each Lender to
- -------------------------------------------
make a Revolving Credit Advance on the occasion of each Revolving Credit
Borrowing, each Commitment Increase and each extension of Commitments pursuant
to Section 2.17 shall be subject to the conditions precedent that the Effective
Date shall have occurred and on the date of such Revolving Credit Borrowing, the
applicable Increase Date and the applicable Extension Date (a) the following
statements shall be true (and each of the giving of the applicable Notice of
Revolving Credit Borrowing, request for Commitment Increase, request for
Commitment extension and the acceptance by the applicable Borrower of the
proceeds of such Revolving Credit Borrowing shall constitute a representation
and warranty by such Borrower, that on the date of such Borrowing such Increase
Date or such Extension Date such statements are true):
(i) the representations and warranties contained in Section 4.01
(except the representations set forth in the last sentence of subsection
(e) thereof and in subsection (f) thereof (other than clause (ii) thereof))
are correct in all material respects on and as of the date of such
Revolving Credit Borrowing, before and after giving effect to such
Revolving Credit Borrowing and to the application of the proceeds
therefrom, such Commitment Increase or Commitment extension as though made
on and as of such date, and
(ii) no event has occurred and is continuing, or would result from
such Revolving Credit Borrowing or from the application of the proceeds
therefrom, that constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Lender through the Administrative Agent may
reasonably request.
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing.
------------------------------------------------------
The obligation of each Lender that is to make a Competitive Bid Advance on the
occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as
part of such Competitive Bid Borrowing is subject to the conditions precedent
that (a) the Administrative Agent shall have received the written notice of the
acceptance of offers made by Lenders for Competitive Bid Advances with respect
thereto in accordance with Section 2.03(a)(iii)(y) and (b) on the date of such
Competitive Bid Borrowing the following statements shall be true (and each of
the giving of the applicable Notice of Competitive Bid Borrowing and the
acceptance by the applicable Borrower of the proceeds of such Competitive Bid
Borrowing shall constitute a representation and warranty by such Borrower that
on the date of such Competitive Bid Borrowing such statements are true):
(i) the representations and warranties contained in Section 4.01
(except the representations set forth in the last sentence of subsection
(e) thereof and in subsection (f) thereof (other than clause (ii) thereof))
are correct in all material respects on and as of the date of such
Competitive Bid Borrowing,
<PAGE>
27
before and after giving effect to such Competitive Bid Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date, and
(ii) no event has occurred and is continuing, or would result from
such Competitive Bid Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
SECTION 3.04. Determinations Under Section 3.01. For purposes of
---------------------------------
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by
this Agreement shall have received notice from such Lender prior to the date
that the Borrowers, by notice to the Lenders, designate as the proposed
Effective Date, specifying its objection thereto. The Administrative Agent
shall promptly notify the Lenders of the occurrence of the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrowers. Each
-----------------------------------------------
Borrower represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Kansas. Sprint Capital is
a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) The execution, delivery and performance by each Borrower of this
Agreement and the Notes to be executed by it, and the consummation of the
transactions contemplated hereby, are within such Borrower's corporate
powers, have been duly authorized by all necessary corporate action, and do
not contravene (i) such Borrower's charter or bylaws or (ii) any law or any
contractual restriction binding on or affecting such Borrower.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by
such Borrower of this Agreement or the Notes to be executed by it.
(d) This Agreement has been duly executed and delivered by each
Borrower. This Agreement is the legal, valid and binding obligation of
each Borrower enforceable against such Borrower in accordance with its
terms. Each of the Notes to be executed by a Borrower when delivered
hereunder will have been duly executed and delivered by such Borrower and
will be the legal, valid and binding obligation of such Borrower,
enforceable against such Borrower in accordance with its terms.
(e) The Consolidated balance sheet of the Company and its
Subsidiaries as at December 31, 1997, and the related Consolidated
statements of income and cash flows of the Company and its Subsidiaries for
the fiscal year then ended, accompanied by an opinion of Ernst & Young LLP,
independent public accountants, and the Consolidated balance sheet of the
Company and its Subsidiaries as at March 31, 1998, and the related
Consolidated statements of income and cash flows of the Company and its
Subsidiaries for the three months then ended, duly certified by the chief
financial officer or chief accounting officer of the Company, copies of
which have been furnished to each Lender, fairly present, subject, in the
case of said balance sheet as at March 31, 1998, and said statements of
income and cash flows for the three months then ended, to year-end audit
adjustments, the Consolidated financial condition of the Company and its
Subsidiaries as at such dates and the Consolidated results of the
operations of the Company and its Subsidiaries for the periods ended on
such dates, all in accordance with generally
<PAGE>
28
accepted accounting principles consistently applied. Since December 31,
1997, there has been no Material Adverse Change.
(f) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting the Company or any of its Subsidiaries before any court,
governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Agreement or any Note or the
consummation of the transactions contemplated hereby.
(g) No Borrower is engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
(h) The Company and each of its Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, technology, know-how and
processes necessary for the conduct of its business as currently conducted
except for those the failure to own or license which could not reasonably
be expected to have a Material Adverse Effect (the "Intellectual
------------
Property"). No claim has been asserted and is pending by any Person
challenging or questioning the use of any such Intellectual Property or the
validity or effectiveness of any such Intellectual Property, nor does such
Borrower know of any valid basis for any such claim, except, in either
case, for such claims that in the aggregate could not reasonably be
expected to have a Material Adverse Effect. The use of such Intellectual
Property by the Company and its Subsidiaries does not infringe on the
rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(i) No Borrower is an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company
Act of 1940, as amended. No Borrower is subject to regulation under any
Federal or State statute or regulation which limits its ability to incur
Debt.
(j) The Company owns all of the shares of the issued and outstanding
capital stock of Sprint Capital.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any Advance shall
---------------------
remain unpaid or any Lender shall have any Commitment hereunder, each Borrower
will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
--------------------------
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders (including, without limitation, compliance
with ERISA and Environmental Laws).
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
---------------------
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided, however, that neither the
-------- -------
Company nor any of its Subsidiaries shall be required to pay or discharge
any such tax, assessment, charge or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained.
(c) Maintenance of Insurance. Maintain, and cause each of its
------------------------
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and
<PAGE>
29
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which
such Borrower or such Subsidiary operates.
(d) Preservation of Corporate Existence, Etc. Continue to engage in
----------------------------------------
business of the same general type as now conducted by it and preserve and
maintain, and cause each of its Subsidiaries (other than Insignificant
Subsidiaries) to preserve and maintain, its existence, rights (charter and
statutory) and franchises; provided, however, that the Company and its
-------- -------
Subsidiaries may consummate any merger or consolidation permitted under
Section 5.02(b) and provided further that neither the Company nor any of
-------- -------
its Subsidiaries shall be required to preserve any right or franchise if
the Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Company or such Subsidiary, as the case may be, and that the loss thereof
is not disadvantageous in any material respect to the Company, such
Subsidiary or the Lenders.
(e) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit the Administrative Agent or any of the Lenders or any agents or
representatives thereof to examine and make copies of and abstracts from
the records and books of account of, and visit the properties of, such
Borrower and any of its Subsidiaries, and to discuss the affairs, finances
and accounts of such Borrower and any of its Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(f) Keeping of Books. Keep, and cause each of its Subsidiaries to
----------------
keep, proper books of record and account in which full and correct entries
shall be made of all financial transactions and the assets and business of
such Borrower and each such Subsidiary in accordance with generally
accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
------------------------------
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of its
----------------------------
Subsidiaries to conduct, all transactions otherwise permitted under this
Agreement with any of their Affiliates (other than the Company and its
Subsidiaries) on terms that are fair and reasonable and no less favorable
to such Borrower or such Subsidiary than it would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
(i) Reporting Requirements. Furnish to the Administrative Agent for
----------------------
the account of each of the Lenders:
(i) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the
Company, Consolidated balance sheets of (A) the Company and its
Subsidiaries, (B) the PCS Group and (C) the FON Group as of the end of
such quarter and Consolidated statements of income and cash flows of
(A) the Company and its Subsidiaries, (B) the PCS Group and (C) the
FON Group for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, duly certified (subject
to year-end audit adjustments) by the chief financial officer, the
chief accounting officer or the treasurer of the Company as having
been prepared in accordance with generally accepted accounting
principles and a certificate of the chief financial officer, the chief
accounting officer or the treasurer of the Company as to compliance
with the terms of this Agreement and setting forth in reasonable
detail the calculations necessary to demonstrate compliance with
Section 5.03, provided that in the event of any change in GAAP used in
--------
the preparation of such financial statements, the Company shall also
provide, if necessary for the determination of compliance with Section
5.03, a statement of reconciliation conforming such financial
statements to GAAP; provided further, that financial statements for
-------- -------
the PCS Group and the FON Group shall be required only for periods
during which the Company has PCS tracking stock outstanding;
<PAGE>
30
(ii) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, containing
Consolidated balance sheets of (A) the Company and its Subsidiaries,
(B) the PCS Group and (C) the FON Group as of the end of such fiscal
year and Consolidated statements of income and cash flows of (A) the
Company and its Subsidiaries, (B) the PCS Group and (C) the FON Group
for such fiscal year, in each case accompanied by an opinion
acceptable to the Required Lenders by Ernst & Young LLP or other
independent public accountants acceptable to the Required Lenders,
provided that in the event of any change in GAAP used in the
--------
preparation of such financial statements, the Company shall also
provide, if necessary for the determination of compliance with Section
5.03, a statement of reconciliation conforming such financial
statements to GAAP; provided further, that financial statements for
-------- -------
the PCS Group and the FON Group shall be required only for periods
during which the Company has PCS tracking stock outstanding;
(iii) as soon as possible and in any event within five days
after the occurrence of each Default continuing on the date of such
statement, a statement of the chief financial officer, the chief
accounting officer or the treasurer of the Company setting forth
details of such Default and the action that the Company has taken and
proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of
all reports that the Company sends to any of its securityholders, and
copies of all reports and proxy solicitations that the Company files
with the Securities and Exchange Commission;
(v) promptly after the commencement thereof, notice of all
actions and proceedings before any court, governmental agency or
arbitrator affecting the Company or any of its Subsidiaries of the
type described in Section 4.01(f); and
(vi) such other information respecting the Company or any of
its Subsidiaries as any Lender through the Administrative Agent may
from time to time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Advance shall
------------------
remain unpaid or any Lender shall have any Commitment hereunder, the Company
will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
-----------
Subsidiaries to create or suffer to exist, any Lien on or with respect to
any of its properties, whether now owned or hereafter acquired, or assign
for security purposes, or permit any of its Subsidiaries to assign for
security purposes, any right to receive income, other than:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real property or
equipment acquired or held by the Company or any Subsidiary in the
ordinary course of business to secure the purchase price of such
property or equipment or to secure Debt incurred solely for the
purpose of financing the acquisition of such property or equipment, or
Liens existing on such property or equipment at the time of its
acquisition (other than any such Liens created in contemplation of
such acquisition that were not incurred to finance the acquisition of
such property) or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided, however, that no
-------- -------
such Lien shall extend to or cover any properties of any character
other than the real property or equipment being acquired, and no such
extension, renewal or replacement shall extend to or cover any
properties not theretofore subject to the Lien being extended, renewed
or replaced,
(iii) the Liens existing on the Effective Date and described on
Schedule 5.02(a) hereto,
<PAGE>
31
(iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any
Subsidiary of the Company or becomes a Subsidiary of the Company;
provided that such Liens were not created in contemplation of such
--------
merger, consolidation or acquisition and do not extend to any assets
other than those of the Person so merged into or consolidated with the
Company or such Subsidiary or acquired by the Company or such
Subsidiary,
(v) Liens on the property or assets of a Subsidiary of the
Company that is a member of the FON Group which secure obligations and
liabilities of such Subsidiary,
(vi) other Liens securing Debt in an aggregate principal amount
not to exceed at any time outstanding 2% of the sum of Consolidated
Debt and Consolidated Net Worth of the Company and its Subsidiaries,
and
(vii) the replacement, extension or renewal of any Lien
described on Schedule 5.02(a) upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent obligor)
of the Debt secured thereby.
(b) Mergers, Etc. Merge or consolidate with or into, or convey,
-------------
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, any Person, or permit any of its
Subsidiaries to do so, except that (i) any Subsidiary of the Company may
merge or consolidate with or into, or dispose of assets to, any other
Subsidiary of the Company, (ii) any Subsidiary of the Company may merge
into or dispose of assets to the Company and the Company or any of its
Subsidiaries may merge with any other Person so long as the Company or any
of its Subsidiaries is the surviving corporation; (iii) the Company or any
of its Subsidiaries may exchange Telephone Assets for Telephone Assets of
any other Person, for the purpose of consolidating the Telephone Assets of
the Company or such Subsidiary, to the extent of the greater of the book
value and the fair market value (as determined in good faith by the Board
of Directors of the Company or such Subsidiary) of the Telephone Assets
obtained by the Company or such Subsidiary as a result of such exchange;
(iv) the Company or any of its Subsidiaries may sell any and all
investments owned by it that constitute minority interests in other
Persons, provided that the aggregate book value of all such investments so
--------
sold by the Company and its Subsidiaries does not exceed $1,000,000,000;
(v) the Company or any of its Subsidiaries may sell accounts receivable
with or without recourse; and (vi) the Company and any of its Subsidiaries
may sell, lease, transfer or otherwise dispose of its non-current assets
(in addition to sales, transfers or other dispositions permitted by clauses
(iii), (iv) and (v) above), provided that the excess of (A) the aggregate
--------
book value of all such assets so sold, leased, transferred or otherwise
disposed of over (B) liabilities associated with such assets for which
neither the Company nor any of its Subsidiaries are liable immediately
after any such sale, transfer, or other disposition does not exceed
$1,700,000,000 for the period from December 31, 1997 through the Revolver
Termination Date provided further, in each case, that no Default shall have
-------- -------
occurred and be continuing at the time of such proposed transaction or
would result therefrom.
(c) Accounting Changes. Make or permit, or permit any of its
------------------
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required or permitted by generally accepted
accounting principles.
SECTION 5.03. Financial Covenants. So long as any Advance shall
-------------------
remain unpaid or any Lender shall have any Commitment hereunder, the
Company will:
(a) Leverage Ratio. Maintain a ratio of Consolidated Debt to the sum
--------------
of Consolidated Debt and Consolidated Net Worth of not greater than
0.65:1.00.
<PAGE>
32
(b) Interest Coverage Ratio. Maintain, as of the end of any fiscal
-----------------------
quarter ending on or prior to June 30, 1999, for any period of four fiscal
quarters (which need not be consecutive) out of any the five consecutive
fiscal quarters ending at the end of such fiscal quarter a ratio of
Consolidated EBITDA of the Company and its Subsidiaries for such four
fiscal quarter period to interest expense on, including amortization of
debt discount in respect of, Consolidated Debt of the Company and its
Subsidiaries during such four fiscal quarter period of not less than the
ratio set forth below for such period:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
-----------------------------------------------------------------
<S> <C>
On or prior to June 30, 2000 2.50:1.00
-----------------------------------------------------------------
After June 30, 2000 and on or before June 30, 2001 3.00:1.00
-----------------------------------------------------------------
After June 30, 2001 and on or before June 30, 2002 3.50:1.00
-----------------------------------------------------------------
After June 30, 2002 4.00:1.00
-----------------------------------------------------------------
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
- -------------------
(a) Any Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable; or any Borrower shall fail to pay any
interest on any Advance or make any other payment of fees or other amounts
payable under this Agreement or any Note within three Business Days after
the same becomes due and payable; or
(b) Any representation or warranty made by any Borrower herein or by
such Borrower in connection with this Agreement shall prove to have been
incorrect in any material respect when made; or
(c) (i) Any Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(d), (e) or (i), 5.02 or
5.03, or (ii) any Borrower shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement on its part to be
performed or observed if such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to the Borrowers by the
Administrative Agent or any Lender; or
(d) The Company or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal amount of at least $75,000,000 in the aggregate (but excluding
Debt outstanding hereunder) of the Company or such Subsidiary (as the case
may be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or an
offer to prepay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof; or
(e) The Company or any of its Subsidiaries (other than any
Insignificant Subsidiary) shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be
<PAGE>
33
instituted by or against the Company or any of its Subsidiaries (other than
any Insignificant Subsidiary) seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding
shall remain undismissed or unstayed for a period of 60 days, or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of
its property) shall occur; or the Company or any of its Subsidiaries (other
than any Insignificant Subsidiary) shall take any corporate action to
authorize any of the actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Company or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor or upon such judgment or order or (ii) there
shall be any period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(g) (i) Any Person or two or more Persons (other than France Telecom
S.A., a societe anonyme formed under the laws of France ("FT"), or Deutsche
Telekom AG, an Aktiengesellschaft formed under the laws of Germany ("DT"))
--
acting in concert shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934), directly or indirectly, of Voting Stock
of the Company (or other securities convertible into such Voting Stock)
representing 33 1/3% or more of the combined voting power of all Voting
Stock of the Company, or shall obtain the power (whether or not exercised)
to elect a majority of the Company's directors; or (ii) any Person or two
or more Persons (other than FT or DT) acting in concert shall succeed in
having sufficient of its nominees elected to the Board of Directors of the
Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who
is a related person of such Person, shall constitute a majority of the
Board of Directors of the Company; (iii) any Person or two or more Persons
(other than FT or DT) acting in concert shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement (and five
Business Days shall have elapsed since the date of entering into such
contract or arrangement) that, upon consummation, will result in its or
their acquisition of the power to exercise, directly or indirectly, a
controlling influence over the management or policies of the Company; or
(iv) the Company shall cease to maintain beneficial ownership of 100% of
the Voting Stock of Sprint Capital; or
(h) The Company or any of its ERISA Affiliates shall incur, or shall
be reasonably likely to incur, liability in excess of $75,000,000 in the
aggregate as a result of one or more of the following: (i) the occurrence
of any ERISA Event; (ii) the partial or complete withdrawal of the Company
or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the
reorganization or termination of a Multiemployer Plan; or
(i) The Company Guaranty contained in Article VII of this Agreement
shall cease for any reason to be valid and binding on or enforceable
against the Company or the Company shall so state in writing;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the Notes, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrowers; provided, however, that in the
-------- -------
event of an actual or deemed entry of an order for relief with respect to any
Borrower under the Federal Bankruptcy Code, (A)
<PAGE>
34
the obligation of each Lender to make Advances shall automatically be terminated
and (B) the Notes, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by each Borrower.
ARTICLE VII
COMPANY GUARANTY
SECTION 7.01. Guaranty. The Company hereby unconditionally and
--------
irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of Sprint Capital now
or hereafter existing under this Agreement or any Note, whether for principal,
interest, fees, expenses or otherwise (such obligations, to the extent not paid
by Sprint Capital or specifically waived in accordance with Section 9.01, being
the "Guaranteed Obligations"), and agrees to pay any and all expenses (including
----------------------
reasonable counsel fees and expenses) incurred by the Administrative Agent or
the Lenders in enforcing any rights under this Article VII ("this Guaranty").
-------------
Without limiting the generality of the foregoing, the Company's liability shall
extend to all amounts that constitute part of the Guaranteed Obligations and
would be owed by Sprint Capital to the Administrative Agent or any Lender under
this Agreement or any Note but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving Sprint Capital.
SECTION 7.02. Guaranty Absolute. The Company guarantees that the
-----------------
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Administrative Agent or the Lenders with respect thereto. The
obligations of the Company under this Guaranty are independent of the Guaranteed
Obligations, and a separate action or actions may be brought and prosecuted
against the Company to enforce this Guaranty, irrespective of whether any action
is brought against Sprint Capital or whether Sprint Capital is joined in any
such action or actions. The liability of the Company under this Guaranty shall
be irrevocable, absolute and unconditional irrespective of, and, to the maximum
extent permitted by law, the Company hereby irrevocably waives any defenses it
may now or hereafter have in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of this Agreement or any
agreement or instrument relating hereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from this Agreement or
any Note, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to Sprint
Capital or otherwise;
(c) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of Sprint Capital; or
(e) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any
representation by the Administrative Agent or any Lender that might
otherwise constitute a defense available to, or a discharge of, the
Company, Sprint Capital or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of Sprint Capital or otherwise, all as
though such payment had not been made.
<PAGE>
35
SECTION 7.03. Waiver. The Company hereby waives promptness,
------
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and any requirement that the
Administrative Agent or any Lender exhaust any right or take any action against
Sprint Capital or any other Person or any collateral. The Company acknowledges
that it will receive direct and indirect benefits from the financing
arrangements contemplated herein and that the waiver set forth in this Section
7.03 is knowingly made in contemplation of such benefits. The Company hereby
waives any right to revoke this Guaranty, and acknowledges that this Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.
SECTION 7.04. Continuing Guaranty; Assignments. This Guaranty is a
--------------------------------
continuing guaranty and shall (a) remain in full force and effect until the
later of the cash payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty and the Revolver Termination Date, (b) be
binding upon the Company, its successors, and assigns and (c) inure to the
benefit of and be enforceable by the Lenders, the Administrative Agent and their
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Lender may assign or otherwise transfer all or any
portion of its rights and obligations hereunder (including, without limitation,
all or any portion of its Commitment, the Advances owing to it and the Note or
Notes held by it) to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Lender
herein or otherwise, in each case as provided in Section 9.07.
SECTION 7.05. Subrogation. The Company will not exercise any rights
-----------
that it may now or hereafter acquire against Sprint Capital or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
the Company's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Administrative Agent or any Lender against Sprint Capital or any other insider
guarantor or any collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from Sprint Capital or any other
insider guarantor, directly or indirectly, in cash or other property or by set-
off or in any other manner, payment or security solely on account of such claim,
remedy or right, unless and until all of the Guaranteed Obligations and all
other amounts payable under this Guaranty shall have been paid in full in cash
and the Revolver Termination Date shall have occurred. If any amount shall be
paid to the Company in violation of the preceding sentence at any time prior to
the later of the payment in full in cash of the Guaranteed Obligations and all
other amounts payable under this Guaranty and the Revolver Termination Date,
such amount shall be held in trust for the benefit of the Administrative Agent
and the Lenders and shall forthwith be paid to the Administrative Agent to be
credited and applied to the Guaranteed Obligations and all other amounts payable
under this Guaranty, whether matured or unmatured, in accordance with the terms
of this Guaranty, or to be held as collateral for any Guaranteed Obligations or
other amounts payable under this Guaranty thereafter arising. If (i) the
Company shall make payment to the Administrative Agent or any Lender of all or
any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations
and all other amounts payable under this Guaranty shall be paid in full in cash
and (iii) the Revolver Termination Date shall have occurred, the Administrative
Agent and the Lenders will, at the Company's request and expense, execute and
deliver to the Company appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
the Company of an interest in the Guaranteed Obligations resulting from such
payment by the Company.
<PAGE>
36
ARTICLE VIII
THE ADMINISTRATIVE AGENT
SECTION 8.01. Authorization and Action. Each Lender hereby appoints
------------------------
and authorizes the Administrative Agent to take such action as Administrative
Agent on its behalf and to exercise such powers and discretion under this
Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers and discretion as are reasonably incidental thereto.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Notes), the Administrative
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lenders and all holders
of Notes; provided, however, that the Administrative Agent shall not be required
-------- -------
to take any action that exposes the Administrative Agent to personal liability
or that is contrary to this Agreement or applicable law. The Administrative
Agent agrees to give to each Lender prompt notice of each notice given to it by
any Borrower pursuant to the terms of this Agreement.
SECTION 8.02. Administrative Agent's Reliance, Etc. Neither the
------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07;
(ii) may consult with legal counsel (including counsel for the Borrowers),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (iv) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement on the part of the Borrowers or
to inspect the property (including the books and records) of the Borrowers; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; and (vi) shall incur
no liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram or telex) reasonably believed by it to be genuine and signed or sent by
the proper party or parties.
SECTION 8.03. Citibank and Affiliates. With respect to its
-----------------------
Commitment, the Advances made by it and the Note issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Administrative Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of business
with, the Company, any of its Subsidiaries and any Person who may do business
with or own securities of the Company or any such Subsidiary, all as if Citibank
were not the Administrative Agent and without any duty to account therefor to
the Lenders.
SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Administrative Agent or any
other Lender and based on the financial statements referred to in Section 4.01
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 8.05. Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent (to the extent not reimbursed by the Borrowers), ratably
according to the respective principal amounts of the Notes then held by each of
them (or if no Notes are at the time outstanding or if any Notes are held by
Persons that are not Lenders, ratably according to the respective amounts of
their Commitments), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, reasonable costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Administrative Agent in any
<PAGE>
37
way relating to or arising out of this Agreement or any action taken or omitted
by the Administrative Agent under this Agreement (collectively, the "Indemnified
-----------
Costs"), provided that no Lender shall be liable for any portion of the
- ----- --------
Indemnified Costs resulting from the Administrative Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Administrative Agent promptly upon demand for its ratable share of
any reasonable out-of-pocket expenses (including reasonable counsel fees)
incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, to the
extent that the Administrative Agent is not reimbursed for such expenses by the
Borrowers. In the case of any investigation, litigation or proceeding giving
rise to any Indemnified Costs, this Section 8.05 applies whether any such
investigation, litigation or proceeding is brought by the Administrative Agent,
any Lender or a third party.
SECTION 8.06. Successor Administrative Agent. The Administrative
------------------------------
Agent may resign at any time by giving written notice thereof to the Lenders and
the Borrowers. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement.
SECTION 8.07. Other Agents. Each Lender hereby acknowledges that
------------
none of the syndication agent, the documentation agents or any other Lender
designated as any "Agent" on the signature pages hereof has any liability
hereunder other than in its capacity as a Lender.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement or the Notes, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
-------- -------
unless in writing and signed by all the Lenders, do any of the following: (a)
waive any of the conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations
(except as contemplated by Section 2.16), (c) reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, (d)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (e) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Advances,
or the number of Lenders, that shall be required for the Lenders or any of them
to take any action hereunder, (f) reduce or limit the obligations of the Company
under Section 7.01 or release or otherwise limit liability of the Company with
respect to the Guaranteed Obligations or (g) amend this Section 9.01; and
provided further that no amendment, waiver or consent shall, unless in writing
- -------- -------
and signed by the Administrative Agent in addition to the Lenders required above
to take such action, affect the rights or duties of the Administrative Agent
under this Agreement or any Note.
SECTION 9.02. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed
<PAGE>
38
or delivered, if to the Company, at its address at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, Attention: Treasurer (Telecopier No.: (913) 624-8426);
if to Sprint Capital, at its address at 2330 Shawnee Mission Parkway, Westwood,
Kansas 66205, Attention: Treasurer (Telecopier No.: (913) 624-8426); if to any
Initial Lender, at its Domestic Lending Office specified opposite its name on
Schedule I hereto; if to any other Lender, at its Domestic Lending Office
specified in the Assignment and Acceptance or the Assumption Agreement pursuant
to which it became a Lender; and if to the Administrative Agent, at its address
at 399 Park Avenue, New York, New York 10043, Attention: Robert Parr (Telecopier
No.: _________); or, as to any Borrower or the Administrative Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrowers and the
Administrative Agent. All such notices and communications shall, when mailed,
telecopied, telegraphed or telexed, be effective when deposited in the mails,
telecopied, delivered to the telegraph company or confirmed by telex answerback,
respectively, except that notices and communications to the Administrative Agent
pursuant to Article II, III or VII shall not be effective until received by the
Administrative Agent. Delivery by telecopier of an executed counterpart of any
amendment or waiver of any provision of this Agreement or the Notes or of any
Exhibit (other than the Notes) hereto to be executed and delivered hereunder
shall be effective as delivery of a manually executed counterpart thereof.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any
-------------------
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs and Expenses. (a) The Borrowers agree to pay on
------------------
demand all reasonable costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement, the Notes and the other documents
to be delivered hereunder, including, without limitation, (A) all due diligence,
syndication (including printing, distribution and bank meetings),
transportation, computer, duplication, appraisal, consultant, and audit expenses
and (B) the reasonable fees and expenses of outside counsel for the
Administrative Agent with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under this Agreement.
The Borrowers further agree to pay on demand all costs and expenses of the
Administrative Agent and the Lenders, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Administrative Agent and each Lender in connection with the enforcement of
rights under this Section 9.04(a).
(b) The Borrowers agree to indemnify and hold harmless the Administrative
Agent and each Lender and each of their Affiliates and their officers,
directors, employees, agents and advisors (each, an "Indemnified Party") from
-----------------
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation or proceeding or
preparation of a defense in connection therewith) the Notes, this Agreement, any
of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances, except to the extent such claim, damage, loss,
liability or expense is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. In the case of an investigation, litigation
or other proceeding to which the indemnity in this Section 9.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any Borrower, its directors, shareholders or creditors
or an Indemnified Party or any other Person or any Indemnified Party is
otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated. Each Borrower also agrees not to assert any claim
against the Administrative Agent, any Lender, or any of their respective
directors, officers, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Notes, this Agreement, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances.
<PAGE>
39
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance or LIBO Rate Advance is made by any Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, as a
result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or
2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, or by an Eligible Assignee to a Lender other than on the last
day of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 9.07 as a result of a
demand by the Borrowers pursuant to Section 9.07(a), such Borrower shall, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss (including loss of Applicable Margin),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in Sections 2.11, 2.14 and 9.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during
----------------
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of any Borrower against any and all of the
obligations of such Borrower now or hereafter existing under this Agreement and
the Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the applicable Borrower after
any such set-off and application, provided that the failure to give such notice
--------
shall not affect the validity of such set-off and application. The rights of
each Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that such Lender may
have.
SECTION 9.06. Binding Effect. This Agreement shall become effective
--------------
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by each Borrower and the Administrative Agent and when
the Administrative Agent shall have been notified by each Initial Lender that
such Initial Lender has executed it and thereafter shall be binding upon and
inure to the benefit of the Borrowers, the Administrative Agent and each Lender
and their respective successors and assigns, except that no Borrower shall have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lenders.
SECTION 9.07. Assignments and Participations. (a) Each Lender may
------------------------------
and, if demanded by the Borrowers (following a demand by such Lender pursuant to
Section 2.11 or 2.14) upon at least 5 Business Days' notice to such Lender and
the Administrative Agent, will assign to one or more banks or other financial
institutions all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the
Revolving Credit Advances owing to it and the Note or Notes held by it);
provided, however, that (i) each such assignment shall be of a constant, and not
- -------- -------
a varying, percentage of all rights and obligations under this Agreement (other
than any right to make Competitive Bid Advances and Competitive Bid Advances
owing to it), (ii) except in the case of an assignment to a bank or other
financial institution that, immediately prior to such assignment, was a Lender
or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each
such assignment shall be to an Eligible Assignee, (iv) each such assignment made
as a result of a demand by the Borrowers pursuant to this Section 9.07(a) shall
be arranged by the Borrowers after consultation with the Administrative Agent
and shall be either an assignment of all of the rights and obligations of the
assigning Lender under this Agreement or an assignment of a portion of such
rights and obligations made concurrently with another such assignment or other
such assignments
<PAGE>
40
that together cover all of the rights and obligations of the assigning Lender
under this Agreement, (v) no Lender shall be obligated to make any such
assignment as a result of a demand by the Borrowers pursuant to this Section
9.07(a) unless and until such Lender shall have received one or more payments
from either a Borrower or one or more Eligible Assignees in an aggregate amount
at least equal to the aggregate outstanding principal amount of the Advances
owing to such Lender, together with accrued interest thereon to the date of
payment of such principal amount and all other amounts payable to such Lender
under this Agreement, and (vi) the parties to each such assignment shall execute
and deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Note subject to such
assignment and a processing and recordation fee of $3,000. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (y) the Lender assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to
take such action as Administrative Agent on its behalf and to exercise such
powers and discretion under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together (if the entire interest is being assigned) with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrowers. Within five Business Days after its receipt of such notice, each
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent a new Note to the order of such Eligible Assignee. Such new Note shall be
dated the effective date of such Assignment and Acceptance and shall otherwise
be in substantially the form of Exhibit A hereto.
(d) The Administrative Agent shall maintain at its address referred to in
Section 9.02 a copy of each Assignment and Acceptance and each Assumption
Agreement delivered to and accepted by it and a register for the recordation of
the names and addresses of the Lenders and the Commitment of, and principal
amount of the Advances owing to, each Lender from time to time (the "Register").
--------
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrowers, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this
<PAGE>
41
Agreement. The Register shall be available for inspection by any Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Each Lender may sell participations to one or more banks or other
financial institutions (other than the Company or any of its Affiliates) in or
to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrowers, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of this Agreement or
any Note, or any consent to any departure by any Borrower therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, or postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation.
(i) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.07, disclose to
the assignee or participant or proposed assignee or participant, any
information relating to the Borrowers furnished to such Lender by or on behalf
of the Borrowers; provided that, prior to any such disclosure, the assignee or
--------
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to the Borrowers
received by it from such Lender.
(j) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 9.08. Confidentiality. Neither the Administrative Agent nor
---------------
any Lender shall disclose any Confidential Information to any other Person
without the consent of the Company, other than (a) to the Administrative Agent's
or such Lender's Affiliates (that are not competitors of the Company and its
Subsidiaries) and their officers, directors, employees, agents and advisors and,
as contemplated by Section 9.07(i), to actual or prospective assignees and
participants, and then only on a confidential and a need-to-know basis, (b) as
required by any law, rule or regulation or judicial process and (c) as requested
or required by any state, federal or foreign authority or examiner regulating
banks or banking.
SECTION 9.09. Governing Law. This Agreement and the Notes shall be
-------------
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 9.10. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.11. Jurisdiction, Etc. (a) Each of the parties hereto
-----------------
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment
arising out of or relating to this Agreement or the Notes, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
Each of the
<PAGE>
42
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or the Notes in the courts of any
jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that 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 or the Notes in any New
York State court or federal court sitting in New York City. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
<PAGE>
SECTION 9.12. Waiver of Jury Trial. Each of the Borrowers, the
--------------------
Administrative Agent and the Lenders hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or the
Notes or the actions of the Administrative Agent or any Lender in the
negotiation, administration, performance or enforcement hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
SPRINT CORPORATION
By__________________________________________
Title:
SPRINT CAPITAL CORPORATION
By__________________________________________
Title:
CITIBANK, N.A.,
as Administrative Agent
By__________________________________________
Title:
INITIAL LENDERS
---------------
Administrative Agent
--------------------
Commitment
- ----------
$110,000,000 CITIBANK, N.A.
By__________________________________________
Title:
Syndication Agent
-----------------
$110,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By__________________________________________
Title:
<PAGE>
Documentation Agents
--------------------
$110,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By________________________________________________
Title:
$110,000,000 THE CHASE MANHATTAN BANK
By________________________________________________
Title:
Senior Managing Agents
----------------------
$95,200,000 ABN AMRO BANK N.V.
By________________________________________________
Title:
By________________________________________________
Title:
<PAGE>
$95,200,000 UBS AG, NEW YORK BRANCH
By________________________________________________
Title:
By________________________________________________
Title:
$95,200,000 WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By________________________________________________
Title:
By________________________________________________
Title:
<PAGE>
Managing Agents
---------------
$60,000,000 LEHMAN COMMERCIAL PAPER INC,
By________________________________________________
Title:
$60,000,000 MELLON BANK, N.A.
By________________________________________________
Title:
$60,000,000 SALOMON BROTHERS HOLDING
COMPANY INC
By________________________________________________
Title:
$95,200,000 CREDIT SUISSE FIRST BOSTON
By________________________________________________
Title:
By________________________________________________
Title:
$95,200,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS
BRANCH
By________________________________________________
Title:
By________________________________________________
Title:
$95,200,000 FIRST UNION NATIONAL BANK
By________________________________________________
Title:
$95,200,000 FLEET NATIONAL BANK
By________________________________________________
Title:
$95,200,000 NATIONSBANK, N.A.
By________________________________________________
Title:
$95,200,000 ROYAL BANK OF CANADA
By________________________________________________
Title
Co-Agents
---------
$40,000,000 BANK ONE, ARIZONA, NA, A NATIONAL
BANKING ASSOCIATION
By________________________________________________
Title:
$40,000,000 BANQUE NATIONALE DE PARIS
By________________________________________________
Title:
By________________________________________________
Title:
$40,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By________________________________________________
Title:
<PAGE>
$40,000,000 THE FUJI BANK, LIMITED
By________________________________________________
Title:
$40,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED
By________________________________________________
Title:
$40,000,000 THE NORTHERN TRUST COMPANY
By________________________________________________
Title:
$40,000,000 WACHOVIA BANK, N.A.
By________________________________________________
Title:
Lenders
-------
$30,000,000 THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By________________________________________________
Title:
$20,000,000 BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN ISLANDS
BRANCH
By________________________________________________
Title:
By________________________________________________
Title:
$20,000,000 BANCA COMMERCIALE ITALIANA,
CHICAGO BRANCH
<PAGE>
By________________________________________________
Title:
By________________________________________________
Title:
$20,000,000 BANCA NAZIONALE DEL LAVORO S.P.A.- NEW YORK BRANCH
By________________________________________________
Title:
By________________________________________________
Title:
$20,000,000 CENTURA BANK
By________________________________________________
Title:
$20,000,000 BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESELLSCHAFT, NEW YORK
BRANCH
By________________________________________________
Title:
By________________________________________________
Title:
$20,000,000 ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A.
By________________________________________________
Title:
By________________________________________________
Title:
$19,200,000 THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH
By________________________________________________
Title:
<PAGE>
49
$12,000,000 BANK OF HAWAII
By________________________________________________
Title:
<PAGE>
$10,000,000 CRESTAR BANK
By________________________________________________
Title:
$10,000,000 FIFTH THIRD BANK
By________________________________________________
Title:
$10,000,000 FIRST HAWAIIAN BANK
By________________________________________________
Title:
$10,000,000 THE NORINCHUKIN BANK,
NEW YORK BRANCH
By________________________________________________
Title:
$10,000,000 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By________________________________________________
Title:
$6,000,000 COMMERCE BANK, N.A.
By________________________________________________
Title:
$6,000,000 UMB BANK, N.A.
By________________________________________________
Title:
<PAGE>
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Historical PCS
Group Summary Financial Data," "Sprint Corporation Summary Financial Data,"
"Historical PCS Group Selected Financial Data," "Sprint Corporation Selected
Financial Data," and "Experts," and to the use of our reports for Sprint
Corporation dated February 3, 1998 (except Note 1, as to which the date is May
26, 1998) and our report for the PCS Group dated May 26, 1998, in the
Registration Statement (Form S-3) and related Prospectus of Sprint Corporation
for the registration of shares of its PCS common stock, to the incorporation
by reference therein of our reports for Sprint Corporation and the FON Group
dated February 3, 1998 (except Note 1, as to which the date is May 26, 1998)
and our report for the PCS Group dated May 26, 1998, included in Sprint's
Proxy Statement/Prospectus that forms a part of the Registration Statement
(Form S-4) for the registration of shares of FON common stock and PCS common
stock filed with the Securities and Exchange Commission, and to the
incorporation by reference therein of our report dated February 3, 1998, with
respect to the consolidated financial statements and schedule of Sprint
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
September 25, 1998
<PAGE>
EXHIBIT 23.1.2
INDEPENDENT AUDITORS' CONSENTS
We consent to the use in this Registration Statement of Sprint Corporation on
Form S-3 of our report dated May 26, 1998 (August 6, 1998 as to Note 4), on 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 (which expresses
an unqualified opinion and includes an explanatory paragraph referring to the
emergence from the development stage), appearing in and incorporated by
reference in the Prospectus, which is part of this Registration Statement, and
of our report dated May 26, 1998 (August 6, 1998 as to Note 4) relating to the
financial statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Sprint Spectrum
Holding Company Combined with MinorCo and PhillieCo Summary Financial Data",
"Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo Selected
Financial Data" and "Experts" in such Prospectus.
We consent to the use in and incorporation by reference in this Registration
------
Statement of Sprint Corporation on Form S-3 of our report dated February 3,
1998, on Sprint Spectrum Holding Company, L.P. and subsidiaries (which expresses
an unqualified opinion and includes an explanatory paragraph referring to the
emergence from the development stage) appearing in the Annual Report on Form
10-K of Sprint Corporation for the year ended December 31, 1997 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 23, 1998
/s/ Deloitte & Touche LLP
