<PAGE>
As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 333-64241
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 1
to
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
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<TABLE>
<CAPTION>
Proposed Maximum
Proposed Maximum Aggregate Amount of
Title of Shares Amount to be Offering Price Offering Registration
to be Registered Registered(1) Per Unit(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
PCS Common Stock--Series 23,851,851
1..................... shares $25.3125 $603,749,979 $178,107
</TABLE>
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(1) Includes shares of PCS Common Stock--Series 1 that may be sold pursuant to
the Underwriters' over-allotment option.
(2) Calculated in accordance with Rule 457(c) under the Securities Act of
1933.
(3) Fee previously paid.
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.
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<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 JANUARY 22, 1999
U.S. PROSPECTUS
16,985,000 Shares
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"), 13,585,000 shares are being offered
in the United States and Canada (the "U.S. Offering") and 3,400,000 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).
The Series 1 PCS Stock is listed on the New York Stock Exchange under the
symbol "PCS." The last reported sale price of the Series 1 PCS Stock on the New
York Stock Exchange on January 21, 1999 was $29 7/16 per share.
(continued on next page)
See "Risk Factors--The PCS Group" and "Risk Factors--The Tracking Stocks"
beginning on pages 22 and 28, 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.
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<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Sprint(2)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------
Total(3) $ $ $
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</TABLE>
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(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 $3,000,000.
(3) Sprint has granted to the U.S. Underwriters and the International
Underwriters a 30-day option to purchase up to an additional 2,547,750
shares of Series 1 PCS Stock at the 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-Running Managers:
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
,1999 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.
, 1999
<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 jurisdiction in which such offer, solicitation or sale +
+would be unlawful prior to registration or qualification under the securities +
+laws of any such jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 22, 1999
INTERNATIONAL PROSPECTUS
16,985,000 Shares
Sprint Corporation
[LOGO] Sprint(R)
Sprint PCS(R)
PCS Common Stock--Series 1
Of the shares of PCS Common Stock--Series 1 ("Series 1 PCS Stock") being
offered by Sprint Corporation ("Sprint"), 3,400,000 shares are being offered
outside the United States and Canada (the "International Offering") and
13,585,000 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).
The Series 1 PCS Stock is listed on the New York Stock Exchange under the
symbol "PCS." The last reported sale price of the Series 1 PCS Stock on the New
York Stock Exchange on January 21, 1999 was $29 7/16 per share.
(continued on next page)
See "Risk Factors--The PCS Group" and "Risk Factors--The Tracking Stocks"
beginning on pages 22 and 28, 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.
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<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Sprint(2)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------
</TABLE>
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(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 $3,000,000.
(3) Sprint has granted to the International Underwriters and the U.S.
Underwriters a 30-day option to purchase up to an additional 2,547,750
shares of Series 1 PCS Stock at the 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-Running Managers:
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 , 1999 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.
, 1999
<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 includes the operations of Sprint Spectrum Holdings, PhillieCo and
SprintCom, each as defined herein. France Telecom S.A. ("FT") and Deutsche
Telekom AG ("DT") have agreed to purchase an aggregate of 4,246,250 shares of
PCS Common Stock--Series 3 ("Series 3 PCS Stock"), or an aggregate of
4,883,188 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.
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 FON Common Stock, listed on the New York Stock Exchange under
the symbol "FON" (the "FON Stock"), and the Class A Common Stock, held by FT
and DT ("Class A Common"). The PCS Stock and the FON Stock each have three
series: one that is publicly-traded (Series 1), a second that is for issuances
to certain cable companies which were partners with Sprint in various entities
now included in the PCS Group (Series 2), and a third that is for issuances to
FT and DT (Series 3). Each share of Class A Common 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. The FON Stock is intended to
reflect the performance of Sprint's operations other than the operations of
the PCS Group (the "FON Group").
Except as required by applicable law or as otherwise described herein, the
holders of PCS Stock and FON Stock 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 Series 1
PCS Stock relative to the market value of a share of Series 1 FON Stock, and
each share of Series 2 PCS Stock is entitled to 1/10 of the vote per share of
the Series 1 PCS Stock and Series 3 PCS Stock. Each share of Class A Common
entitles 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 2 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."
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."
[Inside cover: Diagram of U.S., indicating markets with Sprint PCS service as of
December 31, 1998 and markets where service will be available early in 1999.]
<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 comprise the PCS Group, which may be modified from time to time.
See "Tracking Stock Policies" and the definition of "PCS Group" included in the
Glossary.
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. At December 31, 1998, the PCS Group, together with certain affiliated
companies, operated PCS systems in 225 metropolitan markets within the United
States, including 45 of the 50 largest metropolitan areas. By the end of the
first quarter 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 2.5 million
customers as of December 31, 1998.
Management believes that there are significant growth opportunities in the
wireless industry. According to the Cellular Telecommunications Industry
Association, as of June 30, 1998, there were 60.8 million wireless telephone
subscribers in the United States, representing an overall wireless penetration
rate of 22.4% and a subscriber growth rate of 24.9% from June 30, 1997. Paul
Kagan Associates estimates that the number of cellular and PCS wireless service
subscribers will reach 98.4 million by 2001. 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. 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.
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, an Internet site, telemarketing, private label resale and cross-
marketing. The PCS Group launched its third-party retail distribution channel
in 1995 with
3
<PAGE>
RadioShack, which as of December 31, 1998 sold Sprint PCS products in
approximately 3,250 locations and had approximately 20,000 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 December 31, 1998, the PCS Group had opened 188 Sprint PCS
retail locations and had its products for sale in approximately 7,750 third-
party retail locations. The PCS Group plans to operate approximately 210 Sprint
PCS retail locations and approximately 8,750 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, 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 Licenses
------ ------------- --------- --------
<S> <C> <C> <C>
Sprint Spectrum Holdings
Sprint Spectrum........ 155.9 100.0% 30 MTAs
Cox PCS(2)............. 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) Pops data for Cox PCS includes 100% of its Pops, not the PCS Group's
proportional interest. 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
Formation 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 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.
4
<PAGE>
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 recently
introduced all-inclusive nationwide service plans that offer a single rate for
local and long distance calls to anywhere in the United States when made on the
Sprint PCS network. 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 December 31, 1998, the PCS Group had its products for sale in
approximately 7,750 third-party retail locations nationwide, including
retailers such as RadioShack, Circuit City and Best Buy. The PCS Group plans to
have approximately 8,750 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
December 31, 1998, the PCS Group operated 188 Sprint PCS retail locations. The
PCS Group plans to operate approximately 210 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 and tests other alternative
distribution channels, including sales agency, private label resale, Internet
and other arrangements.
Continue Coverage Expansion. The PCS Group has three principal strategies for
expanding the areas where its handsets are usable. First, the PCS Group intends
to build several thousand additional cell sites in and around its existing
markets. Second, the PCS Group is pursuing affiliation arrangements with other
companies, primarily in and around smaller metropolitan areas in the United
States where it does not intend to serve customers with its own network. These
companies have agreed 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 December 31, 1998, the PCS Group had
entered into agreements with 11 companies covering an aggregate of
approximately 26 million Pops in 19 states. As of December 31, 1998, the
affiliation companies had launched 10 metropolitan markets covering 2 million
Pops. Third, the PCS Group also markets Dual-Band/Dual-Mode Handsets which may
be programmed to access analog cellular networks when the customer travels
outside of the coverage of the PCS Group network. As of December 31, 1998, the
PCS Group had entered into over 100 agreements with digital PCS and analog
cellular providers which allow
5
<PAGE>
customers to use these networks automatically in most areas of the country. In
other areas this service is available as manual roaming, requiring the use of a
credit card or similar billing device. The PCS Group intends to continue to use
this service to provide coverage in places which may not financially support
the construction of a PCS network.
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. The businesses and operations engaged in these
activities comprise the FON Group. The principal offices of Sprint are located
at 2330 Shawnee Mission Parkway, Westwood, Kansas 66205, and its telephone
number is (913) 624-3000.
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 more than 7.5 million access lines in 18 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 Formation Transactions
On November 13, 1998, Sprint's stockholders approved a proposal providing
for, among other things, (i) the formation of the PCS Group and the FON Group,
(ii) the creation of the PCS Stock and the FON Stock (the "Tracking Stocks")
and (iii) Sprint's acquisition of the ownership interests in the PCS Group
which it did not already own, other than a minority interest in Cox PCS (the
"PCS Restructuring"). Sprint acquired these ownership interests from Tele-
Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox
Communications, Inc. ("Cox") (collectively, the "Cable Parents") in exchange
for shares of a special low-voting series of PCS Stock and warrants to acquire
additional shares of PCS Stock ("Warrants"). In addition, Sprint issued to the
Cable Parents shares of a new class of preferred stock convertible into shares
of PCS Stock. These transactions, which are collectively referred to as the
"Formation Transactions," were completed on November 23, 1998 (the "PCS
Restructuring Closing"). See "The Formation Transactions."
In addition, simultaneously with the PCS Restructuring Closing, each share of
Sprint's publicly-traded Common Stock outstanding prior to the Formation
Transactions was reclassified into one share of FON Stock and 1/2 share of PCS
Stock in a tax-free recapitalization in which the shares of Class A Common
Stock held by FT and DT were also recapitalized (the "Recapitalization"). See
"--Holdings and Certain Rights of FT and DT." The agreements among Sprint, FT
and DT concerning their investments in Sprint were also amended and restated at
the time of the Formation Transactions.
6
<PAGE>
The Tracking Stocks
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.
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."
The PCS Stock and the FON Stock each have three series: one that is publicly-
traded (Series 1), a second, which has 1/10th of the vote per share of the
Series 1 and Series 3 shares, that is for issuances to the Cable Parents
(Series 2) and a third that is for issuances to FT and DT (Series 3). See
"Description of Capital Stock."
The PCS Restructuring
Prior to the Formation Transactions, Sprint held a 40% interest in Sprint
Spectrum Holdings and an approximately 47% interest in PhillieCo. On May 26,
1998, Sprint entered into a Restructuring and Merger Agreement (the
"Restructuring Agreement") with the Cable Parents and various of their
subsidiaries which was consummated on November 23, 1998 and pursuant to which
Sprint purchased 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) an aggregate of approximately 195 million shares of Series 2 PCS Stock,
representing approximately 46.4% of the total number of shares of PCS Stock
intended to track the performance of the PCS Group as of December 31, 1998 and
(ii) Warrants to acquire an aggregate of approximately 12.5 million shares of
Series 2 PCS Stock, representing approximately 3% of such total shares as of
December 31, 1998. See "--Inter-Group Interest." Sprint also issued to the
Cable Parents shares of a new class of preferred stock of Sprint designated
"Preferred Stock--Seventh Series, Convertible" (the "PCS Preferred Stock").
Cox, in connection with the Offerings, has elected to require Sprint to
repurchase its shares of PCS Preferred Stock from proceeds of the Offerings if
sufficient net proceeds are received to trigger this right under the
Restructuring Agreement. See "The Formation Transactions--Funding of the PCS
Group Prior to the PCS Restructuring Closing; The PCS Preferred Stock."
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 November 23, 2003 at an
exercise price equal to the average of the daily closing prices of a share of
Series 1 PCS Stock as traded on the New York Stock Exchange for a period of 30
consecutive trading days ending on January 29, 1999. The FON Group possesses a
right, with an exercise price and other terms equivalent to the Warrants, to
acquire an additional Inter-Group Interest (as defined below) equivalent to
approximately 3% of the total number of shares of PCS Stock intended to track
the performance of the PCS Group as of December 31, 1998. See "--Inter-Group
Interest." The FON Group also possesses 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").
Inter-Group Interest
As of December 31, 1998, the total number of shares of PCS Stock intended to
track the performance of the PCS Group (including shares of PCS Stock that are
issuable with respect to the Class A Common held by FT and DT) was
approximately 420,293,000. The Cable Parents' shares of Series 2 PCS Stock
represented an aggregate of 46.4% of these shares. The shares owned by FT and
DT represented an aggregate of 11.5%, which consisted of shares of Series 3 PCS
Stock and shares of PCS Stock issuable with respect to the Class A Common owned
by FT and DT, discussed below under "--Holdings and Certain Rights of FT and
DT." The publicly-traded shares of PCS Stock represented 41.0% of these shares.
The remaining, unissued 1.1% represented an ownership interest of the FON Group
in the PCS Group, similar to the FON Group holding shares of PCS Stock. This
ownership interest is referred to as an "Inter-Group Interest." Sprint expects
this Inter-Group Interest to be eliminated over time as certain employee stock
options are exercised for, and shares of convertible preferred stock are
converted into, shares of PCS Stock. The FON Group's Inter-Group Interest may,
however, increase in the future. See "Future Inter-Group Interest." In
addition, the FON Group holds the Warrant Inter-Group Interest and the
Preferred Inter-Group Interest.
7
<PAGE>
Holdings and Certain Rights of FT and DT
FT holds shares of Class A Common Stock, par value $2.50 per share ("FT Class
A Stock"). DT holds shares of Class A Common Stock--Series DT, par value $2.50
per share ("DT Class A Stock"). Shares of these series are referred to
collectively as shares of "Class A Common." Each share of Class A Common, among
other things, 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.
FT and DT also hold shares of Series 3 PCS Stock purchased in connection with
the PCS Restructuring.
Pursuant to the Master Restructuring and Investment Agreement among Sprint,
FT and DT (the "Master Agreement"), FT and DT have agreed to purchase from
Sprint a sufficient number of shares of Series 3 PCS Stock in connection with
the Offerings to maintain their aggregate voting power of approximately 20% of
all Sprint voting stock. See "--The Offerings." In general, FT and DT have the
right ("Equity Purchase Rights") to purchase additional shares of Series 3 PCS
Stock if Sprint issues shares of PCS Stock, and the right to purchase shares of
Series 3 FON Stock if Sprint issues shares of FON Stock, all to the extent
necessary to maintain their aggregate 20% voting power. See "The Formation
Transactions--Equity Purchase Rights--FT and DT."
Holdings and Certain Rights of the Cable Parents
The Cable Parents hold shares of Series 2 PCS Stock, Warrants and PCS
Preferred Stock. Each Cable Parent has the right to purchase additional shares
of Series 2 PCS Stock, also referred to as "Equity Purchase Rights," 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. See "The Formation
Transactions--Equity Purchase Rights--Cable Parents." Each Cable Parent has
elected not to exercise its Equity Purchase Rights in connection with the
Offerings. Each Cable Parent's Equity Purchase Rights will terminate upon
termination of its Standstill Agreement, defined herein. See "The Formation
Transactions--Standstill Agreements."
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 also adopted an amendment to the bylaws of Sprint
establishing a committee of the Sprint Board 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 is an Independent Director
or a person who, except for a relationship with FT or DT or a subsidiary
thereof, would be an Independent Director. The Capital Stock Committee
currently consists 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
8
<PAGE>
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. See "Tracking Stock Policies."
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. 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."
Recent Results
Although the PCS Group's results of operations for the fourth quarter and for
the full year 1998 are not final, the following information reflects the PCS
Group's expectations with respect to such results based on currently available
information.
The following financial information does not reflect the impact of the
allocation of the purchase price to the assets acquired and liabilities assumed
in the PCS Restructuring. 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 value attributable to the customer base. Based on Sprint's preliminary
purchase price allocation, it is expected that approximately $180 million of
the purchase price will be allocated to in-process research and development
projects and will be recognized as a non-recurring, non-cash charge in the
fourth quarter of 1998. For a preliminary allocation of the purchase price to
the assets acquired and liabilities assumed, see the Unaudited Pro Forma
Condensed Combined Financial Statements and notes thereto of the PCS Group
included elsewhere in this Prospectus.
The wireless industry 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 quarters. A number of factors
influence this trend including use of retail distribution, which is dependent
on the year-end holiday shopping season, the timing of new product and service
introductions, and aggressive marketing and sales promotions. In the fourth
quarter of 1998, these factors and the opening of several new markets
contributed to strong customer growth for the PCS Group. The PCS Group acquired
approximately 830,000 net new customers in the quarter and finished the year
with more than 2.58 million customers. For all of 1998, the PCS Group increased
its customer base by 1.7 million customers.
For the fourth quarter of 1998, the PCS Group expects total revenue to be in
a range between $430 million to $450 million, and for all of 1998, total
revenue is expected to be between $1.22 billion and $1.24 billion. For the
fourth quarter, an estimated 75% of total revenue is from recurring monthly
services while for the full year slightly more than 80% is from these sources.
The average monthly service revenue per subscriber ("ARPU") for the fourth
quarter is expected to be approximately $54 to $55.
9
<PAGE>
Earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the fourth quarter of 1998 is expected to be a loss of between $590 million and
$610 million, compared with a loss of approximately $350 million in the third
quarter of 1998. For all of 1998, the EBITDA loss is expected to be between
$1.59 billion and $1.61 billion. The increase in fourth quarter EBITDA loss is
due to higher customer acquisition costs associated with the significant gain
in new customers and up-front expenditures associated with the opening of 48
new markets during the quarter. During the fourth quarter, the average
marketing and equipment subsidy cost to acquire a customer improved over
previous quarters. Customer churn rates during the fourth quarter remained
above historic industry averages, but are within a range of rates being
reported by other new wireless entrants.
For the fourth quarter of 1998, capital expenditures are expected to be
approximately $700 million, and for all of 1998, they are expected to be nearly
$3.0 billion. Capital expenditures during the fourth quarter were principally
used to construct new markets and further build out existing markets. At the
end of 1998, the PCS Group was able to provide service to slightly more than
half of the U.S. population.
The Offerings
<TABLE>
<S> <C>
Shares of Series 1 PCS Stock Offered Hereby:
U.S. Offering.................................................. 13,585,000
International Offering......................................... 3,400,000
-----------
Total........................................................ 16,985,000
===========
Shares of PCS Stock Outstanding and Inter-Group Interest as of
December 31, 1998 after giving effect to the Offerings:
Existing Public Stockholders... 172,425,138
FT and DT ..................... 48,316,686(/1/)
Cable Parents.................. 195,094,340
Inter-Group Interest........... 4,456,844
To be Issued in the Offerings.. 16,985,000
To be Issued to FT and DT in Connection with the Offerings...... 4,246,250
-----------
Total after Offerings ....................................... 441,524,258(/2/)
===========
</TABLE>
- --------
(1) Consists of 5,198,668 shares of Series 3 PCS Stock issued in connection
with the PCS Restructuring and 43,118,018 shares of PCS Stock issuable in
respect of the aggregate of 86,236,036 shares of Class A Common held by FT
and DT. Does not include shares to be purchased by FT and DT in connection
with the Offerings.
(2) 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 5
and 10 under the following table, "--PCS Stock Outstanding and Inter-Group
Interest Assuming Completion of the Offerings as of December 31, 1998."
10
<PAGE>
PCS Stock Outstanding and Inter-Group Interest
Assuming Completion of the Offerings as of December 31, 1998
<TABLE>
<CAPTION>
Ownership Percentage of
Series of Number of Interest in Sprint Voting
Stockholders(s) PCS Stock Shares Owned(1) PCS Group(2) Power(1)(2)(3)
--------------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
TCI.................... Series 2 98,563,924 (4) 22.3% 0.4%
Cox.................... Series 2 49,281,981 (4)(5) 11.2% 0.2%
Comcast................ Series 2 47,248,435 (4) 10.7% 0.2%
----------- ------ -----
Cable Parents Totals... 195,094,340 44.2% 0.9%
Existing Public
Stockholders(6)....... Series 1 172,425,138 39.1% 7.8%
Inter-Group Interest... N/A 4,456,844 (4)(7) 1.0% N/A
FT..................... Series 3 26,281,468 (4)(8)(9) 6.0% 1.2%
DT..................... Series 3 26,281,468 (4)(8)(9) 6.0% 1.2%
New Public
Stockholders.......... Series 1 16,985,000 3.8% 0.8%
----------- ------ -----
Total--PCS Group....... 441,524,258 (10) 100.0% 11.8%
=========== ====== =====
</TABLE>
- --------
(1) Does not include shares of Preferred Stock, of which, as of December 31,
1998, there were outstanding: (i) 38,595 shares of Preferred Stock--First
Series, Convertible; (ii) 245,163 shares of Preferred Stock--Second
Series, Convertible; and (iii) 95 shares of Preferred Stock--Fifth Series.
In addition, the table does not include the 246,766 shares of 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.
(2) Percentages may not total due to rounding.
(3) 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. Solely for purposes of
illustration, if a record date for a stockholder vote were set on January
22, 1999, each share of Series 1 PCS Stock and Series 3 PCS Stock would
have 0.221 votes per share, and each share of Series 2 PCS Stock would
have 0.0221 votes per share.
(4) Does not reflect Warrants to purchase 6,291,314, 3,145,659 and 3,015,858
shares of PCS Stock held by TCI, Cox and Comcast, respectively, or the FON
Group's Warrant Inter-Group Interest to acquire an Inter-Group Interest
equivalent to 12,452,831 shares of PCS Stock, or shares issuable upon
exercise of FT and DT's Equity Purchase Rights in connection with the
exercise of the Warrants.
(5) 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, and the market price of Series 1 PCS
Stock.
(6) Excludes FT and DT.
(7) Sprint expects that the FON Group's Inter-Group Interest will be
eliminated over time as certain employee stock options are exercised for,
and as shares of convertible preferred stock are converted into, shares of
PCS Stock. Inter-Group Interest is not represented by actual shares and
does not carry any vote.
(8) Includes (i) 2,599,334 shares of Series 3 PCS Stock issued in connection
with the PCS Restructuring and (ii) 21,559,009 shares of PCS Stock
issuable in respect of the 43,118,018 shares of Class A Common held by
each of FT and DT.
(9) Includes 2,123,125 shares of Series 3 PCS Stock to be purchased by each of
FT and DT in connection with the Offerings, which assumes that 16,985,000
shares are sold in the Offerings. See "The Formation Transactions--Equity
Purchase Rights."
(10) Does not include 14,637,917 shares of Series 1 PCS Stock underlying
existing employee stock options. Of such options, only 2,700,499 will be
satisfied with issuances of PCS Stock by the PCS Group. The remaining
options will be satisfied out of the FON Group Inter-Group Interest or
with shares purchased with FON Group assets. Also does not include up to
1,640,413 additional shares of PCS Stock that may be issued in partial
replacement of the former Sprint Spectrum Long-Term Incentive Compensation
Plan. See "Management of the PCS Group--Incentive Plans."
11
<PAGE>
Purchases by FT and DT in
Connection with the
Offerings..............
FT and DT have agreed to purchase shares of
Series 3 PCS Stock concurrently with the
closing of the Offerings. The net proceeds to
Sprint from the sale of such stock to FT and
DT are estimated to be $120.3 million ($138.4
million if the Underwriters' over-allotment
option is exercised in full) at an assumed
purchase price equal to the assumed public
offering price less estimated underwriting
discounts and commissions.
Use of Proceeds.............
The net proceeds to Sprint from the Offerings
are expected to be $478.2 million ($550.4
million if the Underwriters' over-allotment
option is exercised in full) at an assumed
public offering price of $29.44 per share
after deducting estimated underwriting
discounts and commissions and estimated
offering expenses payable by Sprint. Subject
to the following sentence, all of the net
proceeds from the Offerings and the purchases
by FT and DT in connection therewith will be
attributed to the PCS Group and used for
working capital needs, including the further
buildout of the PCS network. If the net
proceeds to Sprint from the Offerings exceed
$500 million, up to approximately $62 million
of such excess net proceeds will be used to
redeem shares of PCS Preferred Stock held by
Cox. Pending such uses, such net proceeds
will be invested in short-term investments.
See "Use of Proceeds."
PCS
New York Stock Exchange
Symbol.................
12
<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 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. For example, if a record date
were set on January 22, 1999, each share of
FON Stock would have been entitled to one
vote and each share of Series 1 and Series 3
PCS Stock would have been entitled to 0.221
votes. 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 Articles of
Incorporation of Sprint (the "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 the FON Stock
will continue for the foreseeable future to
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 (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
September 30, 1998, the PCS Group Available
Dividend Amount (after giving effect to the
Offerings and the issuances to FT and DT in
connection with the Offerings) would have
been approximately $4.0 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 to mean at least
80% on a then-current market value basis) of
the
13
<PAGE>
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 in respect of any
equity interest in the PCS Group represented
by the Class A Common 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 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
of the PCS Group 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.
Conversion at the Option of Sprint may at any time after November 23,
Sprint...................... 2001 convert each share of PCS Stock into
shares of FON Stock, with the number of
shares of FON Stock determined prior to
November 23, 2002 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 November 23,
2002, the conversion rate will be determined
by the Sprint Board, subject to the
requirement that the Sprint Board must make
independent determinations as to the fairness
of the conversion ratio to the
14
<PAGE>
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 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 November 23, 2000, such
redemption must be approved by the
affirmative vote of holders of a majority of
the shares of PCS Stock and Class A Common
(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
must exist 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 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 FON Stock will be
attributed one Liquidation Unit. Each share
of PCS Stock will be attributed approximately
0.205 Liquidation Units. 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 are amended. It is
expected that the FON Stock would in any case
be attributed a majority of the Liquidation
Units of Sprint. See "Description of Capital
Stock--Liquidation."
Each outstanding share of FT Class A 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 FT Class A Stock or DT
Class A Stock, respectively, at the time of
the liquidation divided by (ii) the aggregate
number of outstanding shares of FT Class A
Stock or DT Class A Stock, respectively.
15
<PAGE>
Risk Factors
See "Risk Factors--The PCS Group" and "Risk Factors--The Tracking Stocks"
beginning on pages 22 and 28, 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 ARE 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. SPRINT DOES NOT EXPECT TO PAY
DIVIDENDS ON THE PCS STOCK IN THE FORESEEABLE FUTURE.
OWNERSHIP OF PCS STOCK DOES NOT REPRESENT A DIRECT LEGAL INTEREST IN THE ASSETS
AND LIABILITIES OF THE PCS GROUP. RATHER, THE PCS STOCK IS COMMON STOCK OF
SPRINT REPRESENTING AN OWNERSHIP INTEREST IN SPRINT. HOWEVER, THE PCS STOCK IS
INTENDED TO TRACK THE PERFORMANCE OF ONLY THE PCS GROUP.
16
<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 September 30, 1998, for the
year ended December 31, 1994 and for the nine months ended September 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 nine months ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the entire year.
<TABLE>
<CAPTION>
At or For the
Nine Months At or For the
Ended September 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.......... $ (80.0) $ (7.4) $ (18.5) $ (0.5) $ -- $ --
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (686.5) (410.6) (659.6) (191.8) (31.4) --
Net loss................ (471.8) (257.3) (419.1) (119.7) (19.9) --
Cash Flow Data
Net cash provided (used)
by operating
activities............. $ (193.0) $ 25.8 $ 37.5 $ (0.5) $ -- $ --
Capital expenditures.... 672.1 68.2 153.7 -- -- --
Purchase of PCS
licenses............... -- 460.1 460.1 84.0 -- --
Investments in Sprint
Spectrum Holdings and
PhillieCo, net......... 193.5 255.5 405.9 297.5 910.9 51.1
Balance Sheet Data
Total assets............ $ 2,494.2 $1,693.1 $1,259.8 $973.7 $51.1
Property, plant and
equipment, net......... 1,327.2 177.3 -- -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo.............. 475.4 968.4 1,175.8 973.7 51.1
Construction and capital
lease obligations
(including short-term
borrowings)............ 859.7 -- -- -- --
Group equity............ 831.0 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 ARE 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. SPRINT
DOES NOT EXPECT TO PAY DIVIDENDS ON THE PCS STOCK IN THE FORESEEABLE FUTURE.
17
<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 September 30, 1998, for the year ended December 31, 1994, and for the
nine months ended September 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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
At or For the
Nine Months At or For the
Ended September 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.. $ 788.0 $ 110.5 $ 258.0 $ 4.2 $ -- $ --
Operating loss.......... (1,455.8) (869.0) (1,379.7) (357.6) (66.9) (3.3)
Net loss................ (1,692.0) (1,021.5) (1,632.7) (444.6) (112.7) (3.3)
Cash Flow Data
Net cash used in
operating activities... $ 1,301.4 $ 606.4 $ 848.2 $ 172.4 $ 16.9 $ 0.5
Capital expenditures.... 1,107.7 1,632.8 2,124.6 1,419.2 31.8 0.5
Purchase of PCS
licenses............... -- -- -- -- 2,085.8 118.4
Balance Sheet Data
Total assets............ $ 8,526.4 $ 7,057.9 $4,443.6 $2,329.3 $123.9
Property, plant and
equipment, net......... 4,531.9 3,538.2 1,441.6 32.0 0.4
Long-term debt and
construction
obligations (including
short-term borrowings). 6,701.4 4,273.8 1,401.2 -- --
</TABLE>
- --------
(1) Sprint Spectrum Holding Company, MinorCo and PhillieCo had no operations
prior to 1994.
18
<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 nine months ended September 30, 1998 and summary pro
forma and pro forma as adjusted balance sheet data at September 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, the Recapitalization and the sale of
$5.0 billion of Senior Notes issued in an underwritten public offering by
Sprint Capital Corporation (and guaranteed by Sprint) in November 1998 ("the
Notes Offering"), and the pro forma as adjusted data give effect to the PCS
Restructuring, the Recapitalization, the Notes Offering 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 September 30,
1998. The actual amount of any proceeds raised in the Offerings could vary from
the amount assumed to be received. 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 nine months
ended September 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
------------------------------------- -------------------------------------------
Nine Months Ended Year Ended Nine Months Ended Year Ended
September 30, 1998 December 31, 1997 September 30, 1998 December 31, 1997
------------------- ----------------- --------------------- ---------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data
Net operating revenues.. $ 787.9 $ 258.0 $ 787.9 $ 258.0
Operating loss.......... (1,785.1) (1,727.1) (1,785.1) (1,727.1)
Net loss................ (1,212.5) (1,223.7) (1,212.5) (1,223.7)
Basic and diluted loss
per
common share........... $ (2.94) $ (2.98) $ (2.80) $ (2.84)
Weighted average common
shares................. 415.7 415.4 436.9 436.6
<CAPTION>
Pro Forma
Pro Forma As Adjusted
At September 30, 1998 At September 30, 1998
--------------------- ---------------------
(in millions)
<S> <C> <C> <C> <C>
Balance Sheet Data
Total assets.................................................. $ 14,376.0 $ 14,974.5
Property, plant and equipment, net............................ 6,055.9 6,055.9
Total debt (including construction obligations and
short-term borrowings)....................................... 7,670.9 7,670.9
Group equity.................................................. 4,281.8 4,880.3
</TABLE>
19
<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 September 30, 1998, and for
the nine months ended September 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 nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
At or For the
Nine Months At or For the
Ended September 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.. $11,940.3 $11,024.9 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 2,017.9 1,840.9 2,451.4 2,267.2 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 669.3 757.6 952.5 1,190.9 946.1 899.2 517.1
Earnings per common
share from continuing
operations(1), (2)
Basic.................. 1.55 1.76 2.21 2.82 2.71 2.59 1.51
Diluted................ 1.52 1.74 2.18 2.79 2.69 2.56 1.49
Dividends per common
share.................. 0.75 0.75 1.00 1.00 1.00 1.00 1.00
Basic weighted average
common shares.......... 430.7 430.3 430.2 421.7 348.7 346.1 341.0
Cash Flow Data
Net cash from operating
activities--continuing
operations(3).......... $ 2,950.0 $ 2,410.7 $ 3,379.0 $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8
Capital expenditures.... 2,992.1 1,903.9 2,862.6 2,433.6 1,857.3 1,751.6 1,429.8
Balance Sheet Data
Total assets............ $20,453.8 $18,184.8 $16,826.4 $15,074.3 $14,425.2 $13,781.8
Property, plant and
equipment, net......... 13,502.2 11,494.1 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
construction
obligations and short-
term borrowings)....... 5,549.4 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... 9,302.3 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 nine months ended September 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 nine months ended September 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.
20
<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 nine months ended September 30, 1998 and summary pro forma and pro
forma as adjusted balance sheet data at September 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, the Recapitalization and the Notes Offering and the pro
forma as adjusted data give effect to the PCS Restructuring, the
Recapitalization, the Notes Offering 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 September 30, 1998. The actual
amount of any proceeds raised in the Offerings could vary from the amount
assumed to be received. 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 nine months ended September
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
-------------------------- --------------------------
Nine Months Year- Nine Months Year
Ended Ended Ended Ended
September 30, December 31, September 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.. $12,728.2 $15,131.9 $12,728.2 $15,131.9
Operating income........ 312.8 742.8 312.8 742.8
Earnings (loss) from
continuing operations
applicable to Common
Stock:
FON Group............. $ 1,099.6 $ 1,250.7 $ 1,099.6 $ 1,250.7
PCS Group............. (1,224.0) (1,239.0) (1,224.0) (1,239.0)
--------- --------- --------- ---------
Total Sprint.......... $ (124.4) $ 11.7 $ (124.4) $ 11.7
========= ========= ========= =========
Basic earnings (loss)
per common share
from continuing
operations
FON Group............. $ 2.55 $ 2.91 $ 2.55 $ 2.91
PCS Group............. $ (2.94) $ (2.98) $ (2.80) $ (2.84)
Basic weighted average
common shares
FON Group............. 430.7 430.2 430.7 430.2
PCS Group............. 415.7 415.4 436.9 436.6
Diluted earnings (loss)
per common share
from continuing
operations
FON Group............. $ 2.51 $ 2.87 $ 2.51 $ 2.87
PCS Group............. $ (2.94) $ (2.98) $ (2.80) $ (2.84)
Diluted weighted average
common shares
FON Group............. 438.7 436.5 438.7 436.5
PCS Group............. 415.7 415.4 436.9 436.6
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Pro Forma As Adjusted
At September 30, At September 30,
1998 1998
---------------- ----------------
(in millions)
<S> <C> <C>
Balance Sheet Data
Total assets................................. $33,644.4 $34,242.9
Property, plant and equipment, net........... 18,230.9 18,230.9
Total debt (including construction obliga-
tions and short-term borrowings)............ 13,845.4 13,845.4
Common stock and other stockholders' equity.. 12,601.2 13,199.7
</TABLE>
21
<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 September 30, 1998, the entities that comprise the PCS Group had
incurred pre-tax cumulative losses in excess of $3.9 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. Such events could have a
material adverse effect on the operations and financial condition of the PCS
Group. 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 buildout activities remaining to be completed. 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 in the time frame 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 1999 will total between $2.3 billion and $2.6 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 Formation Transactions--Amendments to
the Cox PCS Agreements." Cox has given Sprint Spectrum Holdings notice to
start the appraisal process related to a potential put of all or a portion of
Cox's remaining partnership interest to Sprint Spectrum Holdings. There can be
no assurance that Sprint will
22
<PAGE>
be able to arrange additional financing to fund the PCS Group's capital
requirements on terms acceptable to Sprint or that Sprint would be willing to
provide such financing. Failure to obtain any such financing could result in
the delay or abandonment of the PCS Group's development or expansion plans or
the failure to meet regulatory buildout requirements. See "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, some of which are provided by third-
party vendors (collectively referred to as "Internal Support Systems"). 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. Management believes that the PCS Group's billing system has
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 Offerings. As of December 31, 1998, Sprint had loaned to
the PCS Group $4.2 billion of the proceeds from the Notes Offering, and the
PCS Group has other indebtedness. The PCS Group used approximately $3.3
billion
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of these funds to repay existing indebtedness. As of September 30, 1998,
assuming completion of the Formation Transactions, the Notes Offering and the
Offerings on that date (including the effects of the purchases of PCS Stock by
FT and DT in connection with the Offerings) the PCS Group's aggregate
indebtedness on a pro forma basis would have totaled $6.5 billion, with $4.9
billion of PCS Group equity as of September 30, 1998 on a pro forma basis. 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 traditional dividing lines between long distance, local,
wireless and Internet services are increasingly becoming blurred. Through
mergers and various service integration strategies, all major players,
including Sprint, are striving to provide integrated solutions both within and
across all geographic markets. The PCS Group expects competition to intensify
as a result of the entrance of new competitors and the rapid development of
new technologies, products and services. Sprint cannot predict which of many
possible future technologies, products or services will be important to
maintain its competitive position or what expenditures will be required to
develop and provide such technologies, products or 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 each of the top 50 metropolitan markets has 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, have significantly greater financial and
technical resources than
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those available to the PCS Group and offer attractive pricing options for
service and a wide variety of handset options. A major competitor offers
nationwide service for a flat monthly rate, without roaming charges.
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 generally 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. In addition, the PCS Group's use of affiliation arrangements to
expand network coverage has only been recently implemented. There can be no
assurance that the companies entering into such affiliation arrangements with
the PCS Group will meet the PCS Group's technical, marketing and other
requirements for affiliation. 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.
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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 than 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 in future years. The number of customer additions and handset
sales for the PCS Group could be adversely impacted for the fourth quarter of
any fiscal year 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 in any fiscal year fail to significantly
improve upon customer additions and handset sales for the relevant fiscal
year's previous quarters, the PCS Group's results for such 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
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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.
Availability of Telephone Numbers
Failure by various regulatory bodies to issue new telephone numbers in a
timely manner could result in the PCS Group not having enough numbers to
assign to new subscribers in certain markets, such as New York City, as soon
as mid-1999. As a result, the PCS Group may (i) incur significant costs to
either acquire new numbers or reassign subscribers to new numbers and/or (ii)
experience a delay in enrolling new subscribers because of the lack of
numbers. Various states have sought to ration phone numbers in order to avoid
having to create a new area code. The PCS Group and other carriers have
challenged this practice, and the FCC has issued an order prohibiting
rationing without ordering area code relief. Various states, however, have
challenged the FCC's order. There can be no assurance that the PCS Group will
be able to obtain sufficient new telephone numbers on a timely basis in order
to meet demand.
Year 2000 Risk
Failure by the PCS Group or any of its significant third-party service
providers to be Year 2000 compliant in a timely manner could have a material
adverse effect on the PCS Group's operations. 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,
resellers or other service providers.
The PCS Group has completed an inventory of its computer systems, network
elements, software applications, products and other business systems. The Year
2000 impact of items identified through the inventory process is being
assessed and a plan is being 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.
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RISK FACTORS--THE TRACKING STOCKS
Stockholders of One Corporation; Financial Effects of the FON Group Could
Adversely Affect the PCS Group
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, Sprint and each of its subsidiaries as legal entities are
responsible for their respective liabilities, and holders of PCS Stock are
subject to risks associated with an investment in a single corporation.
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, whether on behalf of the FON Group or the PCS 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. 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
There can be no assurance that the PCS Stock will accurately "track" the
performance of the PCS Group; i.e., that the market 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 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 the future, the market price of the PCS Stock 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 have only the rights customarily held by common
stockholders of any corporation and do not have any rights specifically
related to the assets or business of the PCS Group, except (i) the requirement
that a dividend, redemption or conversion occur upon the disposition of all or
substantially all (as defined in the Articles 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 and PCS Stock vote together as a
single voting group, except as to certain amendments to the Sprint Bylaws and
the Articles, and as to any spin-off by Sprint of the PCS Group prior to
November 23, 2000. 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
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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 "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 and PCS
Stock fluctuates from time to time. Each share of Series 1 FON Stock and
Series 3 FON Stock has one vote, and each share of Series 2 FON Stock has
1/10th of a vote. Each share of Series 1 PCS Stock and Series 3 PCS Stock has
the PCS Per Share Vote and each share of Series 2 PCS Stock has 1/10th of a
PCS Per Share Vote. Each share of FT Class A Stock will have the FT Class A
FON Vote Per Share plus the FT 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 a specified number of days prior to
the record date for any vote. Accordingly, the relative voting power per share
of FON Stock, Class A Common 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 continue to represent a majority of
the voting power of all Sprint Voting Stock entitled to vote in the election
of directors for the foreseeable future because the market value of the Series
1 FON Stock is expected to continue to be substantially greater than the
market value of the Series 1 PCS Stock. Market value could be influenced by
many factors. See "--No Assurance as to Market Price." In addition, changes in
the aggregate votes or relative voting power of the PCS Stock or FON Stock
could result from the market's reaction to a decision by Sprint's management
or the Sprint Board that is perceived to disparately affect one class of
Common Stock relative 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.
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Subject to the provisions of the Tracking Stock Policies, in resolving any
given conflict the Sprint Board may benefit, or appear to benefit, the FON
Group at the expense of the PCS Group. See "--Tracking Stock Policies Subject
to Change." Certain potential diverging or conflicting interests are 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 (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
provide 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 (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. Any 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 (to the extent it represents unissued shares of such stock),
exclusively on the PCS Stock and the Class A Common (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). 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, declare dividends on the PCS Stock and
the Class A Common (to the extent it represents unissued shares of such stock)
in excess of the PCS Group Available Dividend Amount, or could declare
dividends on the FON Stock and the Class A Common (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 (each as defined in the Articles) 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 Formation 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
November 23, 2001 and before November 23, 2002, 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
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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 November 23, 2002, and the
applicable conversion rate will be determined by the Sprint Board, subject to
a provision in the Articles 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 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 Formation 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, 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. The Articles
also contain 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
(but only to the extent such stock represents a number of unissued shares of
PCS Stock) an amount of cash and/or securities (other than Common Stock) or
other property equal to the fair value of the net proceeds of such disposition
(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 into a number of unissued
shares of FON Stock on an equivalent basis). See "Description of Capital
Stock--Conversion and Redemption." The Articles 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. 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.
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<PAGE>
Operational and Financial Decisions. 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.
In connection with the Formation Transactions, directors of Sprint received
one share of FON Stock and 1/2 share of PCS Stock for each share of Sprint's
previously outstanding Common Stock held by them, the same proportion that
applied to all holders of such Common Stock. Thus, each director has a greater
economic interest in the FON Group than in the PCS Group. Disproportionate
ownership interests of members of the Sprint Board in FON Stock or PCS Stock
or disparities in the respective market values of the FON Stock and the PCS
Stock could give rise to potential claims of conflicts of interest when
directors are faced with decisions that could have different implications for
the different classes.
Inter-Group Transactions
The Sprint Board may in certain circumstances determine to transfer funds
between Groups, 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
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<PAGE>
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 will continue for the
foreseeable future to 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
Articles and the Tracking Stock Policies, an Inter-Group Interest of the PCS
Group in the FON Group cannot be created. See "Tracking Stock Policies" 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 entered into and undertaken by
Sprint at the time of the Formation Transactions (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.
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 Tax Sharing Agreement (including the Stacking Procedure) applies 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,
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<PAGE>
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. 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" and "Tracking Stock
Policies."
Absence of Approval Rights for 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 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 Articles provide 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 (but
only to the extent such shares of Class A Common 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 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
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<PAGE>
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" and "Description of Capital Stock--
Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of PCS
Stock."
Future Sales of PCS Stock; Registration Rights
Following the Offerings, sales of substantial additional shares of PCS Stock
into the public market, or the perception that such sales might occur, could
adversely affect the prevailing market price of the Series 1 PCS Stock and
Sprint's ability to raise capital. As of December 31, 1998 and after giving
effect to the Offerings, Sprint had a total of 437,067,414 shares of PCS Stock
outstanding (including shares of PCS Stock that are issuable with respect to
the Class A Common held by FT and DT), consisting of: (i) 16,985,000 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)
5,198,668 shares of Series 3 PCS Stock which FT and DT purchased at the time
of the PCS Restructuring, (iv) 4,246,250 shares of Series 3 PCS Stock which FT
and DT have agreed to purchase concurrently with the closing of the Offerings,
(v) 172,425,138 existing publicly-traded shares of Series 1 PCS Stock and (vi)
43,118,018 shares of PCS Stock that are issuable with respect to the Class A
Common held by FT and DT. Of these shares, only the existing publicly-traded
shares and 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."
Pursuant to the Restructuring Agreement and the Master Agreement, Sprint has
entered into "lock-up" arrangements with the Cable Parents, FT and DT. The
Cable Parents have agreed, until the later of May 22, 1999 (180 days following
the PCS Restructuring Closing) or 90 days after the closing of the Offerings,
to refrain from engaging in any public sale or distribution of PCS Stock, or
securities convertible into, or exchangeable or exercisable for, or the value
of which relates to or is based upon, PCS Stock. 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 ending 90
days after the closing of the Offerings, engage in any public sale or
distribution of PCS Stock or securities convertible into, or exchangeable or
exercisable for, or the value of which relates to or is based upon, PCS Stock.
Among other transfer restrictions, the Amended and Restated Stockholders'
Agreement provides, in effect, that none of the shares of Class A Common or
PCS Stock held by FT and DT as of December 31, 1998, and none of the shares of
PCS Stock purchased by FT and DT in connection with the Offerings, may be
transferred prior to January 31, 2001. The transfer restrictions may terminate
in limited circumstances. Sprint has agreed with the Underwriters not to waive
any of its rights under such lock-up arrangements without the consent of
either Warburg Dillon Read LLC or Salomon Smith Barney Inc. See
"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 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 Formation 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
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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.
After the CP Registration Rights Commencement Date and 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 CP Registration Rights Commencement Date, 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. The
shares of PCS Stock currently held by TCI are expected, after the merger, to
be attributed to an AT&T tracking group. The shares of AT&T common stock
intended to track the performance of this group are referred to herein as the
"AT&T Liberty Tracking Stock." On December 30, 1998, the United States
Department of Justice filed with the U.S. District Court for the District of
Columbia a complaint, a proposed final judgment, a stipulation, and a
competitive impact statement concerning the acquisition of TCI by AT&T. These
documents were published in the Federal Register by the Department of Justice
on January 14, 1999. If the proposed final judgment is entered, it would
permit the acquisition to go forward subject to the terms of the proposed
final judgment, which requires TCI to place all of its shares of PCS Stock
into a trust prior to closing for divestiture within a five year period. Under
the terms of the proposed final judgment, (i) the trustee would be required to
divest on or before May 23, 2002 sufficient shares of PCS Stock to cause the
TCI holdings to amount to no more than 10% of the outstanding shares of PCS
Stock, which is defined in the proposed judgement to include (a) all shares of
Series 1, Series 2 and Series 3 PCS Stock, (b) the shares of PCS Stock that
are issuable in respect of the Class A Common, (c) the PCS Preferred Stock,
the Warrants (and the shares of PCS Stock issuable upon exercise or conversion
thereof), (d) any other securities that are convertible into or exercisable
for shares of PCS Stock, such as employee stock options, and (e) any Inter-
Group Interest, (ii) the trustee would be required to divest the remaining
shares on or before May 23, 2004, (iii) the trustee would be required to
accomplish the divestiture only in a manner reasonably calculated to maximize
the value of the PCS Stock contributed to the trust to the holders of the AT&T
Liberty Tracking Stock, and (iv) there are no specified limits on the number
of shares that may be sold in any given period. Substantial sales into the
public markets could have a material adverse effect on the market price of the
PCS Stock.
Under Sprint's Articles, the shares of PCS Stock transferred by TCI to the
proposed trust will remain shares of low-voting Series 2 PCS Stock if TCI (i)
causes the trustee to execute a Standstill Agreement in the form of the
Standstill Agreement between Sprint and TCI and (ii) takes certain other
ministerial actions prior to the
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transfer to provide that the shares will remain low-voting. TCI has indicated
to Sprint that it currently expects to cause the trust to execute such a
Standstill Agreement and intends to take such other actions in connection with
such transfer. Thus, Sprint expects that the shares transferred to the trust
will not convert to shares of Series 1 PCS Stock, and that FT and DT will not
have an opportunity to exercise Equity Purchase Rights as to such shares
until, and only to the extent that, they are sold by the trust in offerings to
persons that are not Cable Parents or certain of their related parties. The
proposed order provides that the trust will not vote any of the shares that
are transferred to it. The proposed final judgment has not been entered by the
Court and will not be entered prior to the expiration of a 60-day period that
began with the publication of the Department of Justice's filing in the
Federal Register. Interested parties have the right to comment to the
Department of Justice on the proposed consent decree, and if such comments are
made, the Department of Justice must file them with the court, along with a
response by the Department of Justice. There is no assurance that materially
different provisions will not be ordered by the Court or that the FCC, which
is also reviewing the transaction, will not impose other requirements.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference 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 the PCS Group, wherever they occur in this
Prospectus, are necessarily estimates reflecting the best judgment of the
senior management of Sprint and the PCS Group 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 uncertainties 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."
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.
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PRICE RANGE OF THE SERIES 1 PCS STOCK
Market Prices; Listing
The Series 1 PCS Stock is listed on the NYSE under the symbol "PCS" and
began regular way trading on November 24, 1998. The following table sets forth
for each calendar quarter since the initial day of regular way trading the
high and low sales prices per share of the Series 1 PCS Stock as reported on a
consolidated basis on the NYSE.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fourth quarter 1998 (since November 24, 1998)............... $23.38 $14.06
First quarter 1999 (through January 21, 1999)............... $29.75 $20.88
</TABLE>
As of January 15, 1999, Sprint had approximately 75,900 Series 1 PCS Stock
record holders. On January 21, 1999, the last reported sale price of the
Series 1 PCS Stock, as reported on a consolidated basis on the NYSE, was
$29.44 per share.
DIVIDEND POLICY
Sprint has not declared any dividends on the Series 1 PCS Stock and does not
expect to declare such dividends in the foreseeable future. The Sprint Board
will periodically consider appropriate dividend policies and practices
relating to future dividends on the PCS Stock. 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). If the dividend policy set forth in the Tracking Stock Policies were so
altered, the Sprint Board could, under the 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."
USE OF PROCEEDS
The net proceeds to Sprint from the Offerings are expected to be $478.2
million ($550.4 million if the Underwriters' over-allotment option is
exercised in full) at an assumed public offering price of $29.44 per share
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by Sprint. The net proceeds to Sprint from the
purchase of shares of Series 3 PCS Stock by FT and DT in connection with the
Offerings are expected to be $120.3 million ($138.4 million if the
Underwriters' over-allotment option is exercised in full) at an assumed
purchase price equal to the assumed public offering price less estimated
underwriting discounts and commissions.
Subject to the following sentence, all of the net proceeds from the
Offerings and the purchases by FT and DT in connection therewith will be
attributed to the PCS Group and used for working capital needs, including the
further buildout of the PCS network. If the net proceeds to Sprint from the
Offerings exceed $500 million, up to approximately $62 million of such excess
net proceeds will be used to redeem shares of PCS Preferred Stock held by Cox.
Pending such uses, such net proceeds will be invested in short-term
investments.
38
<PAGE>
CAPITALIZATION OF THE PCS GROUP
The following table sets forth as of September 30, 1998 (i) the historical
capitalization of the PCS Group; (ii) the capitalization of the PCS Group 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
Notes Offering; 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
Series 3 PCS Stock to FT and DT 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.
<TABLE>
<CAPTION>
September 30, 1998
--------------------------------
Pro Forma
Historical Pro Forma As Adjusted
---------- --------- -----------
(in millions)
<S> <C> <C> <C>
Cash and equivalents.......................... $ -- $ 409.8 $ 1,008.3
======== ========= =========
Short-term debt (includes current maturities
of long-term debt)........................... $ 42.5 $ 167.0 $ 167.0
Long-term debt................................ 388.2 6,499.2 6,499.2
Construction obligations...................... 429.0 1,004.7 1,004.7
Group equity.................................. 831.0 4,281.8 4,880.3
-------- --------- ---------
Total capitalization........................ $1,690.7 $11,952.7 $12,551.2
======== ========= =========
</TABLE>
39
<PAGE>
CAPITALIZATION OF SPRINT CORPORATION
The following table sets forth as of September 30, 1998 (i) the historical
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,
(b) the Recapitalization and (c) the Notes Offering; 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 Series 3 PCS Stock to
FT and DT 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.
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------
Pro Forma
Historical Pro Forma As Adjusted
---------- --------- -----------
<S> <C> <C> <C>
(in millions)
Cash and equivalents....................... $ 47.7 $ 2,042.2 $ 2,640.7
========= ========= =========
Short-term debt (includes current maturi-
ties of long-term debt)................... $ 80.6 $ 205.1 $ 205.1
Long-term debt............................. 5,039.8 12,635.6 12,635.6
Construction obligations................... 429.0 1,004.7 1,004.7
Redeemable preferred stock................. 9.5 9.5 9.5
Existing Common Stock, $2.50 par value, 1.0
billion shares authorized, 344.5 million
shares outstanding (Historical), 0 shares
outstanding (Pro Forma and Pro Forma As
Adjusted)................................. 875.7 -- --
Class A Common, $2.50 par value, 500.0
million shares authorized (Historical),
200.0 million shares authorized (Pro Forma
and Pro Forma As Adjusted), 86.2 million
shares issued and outstanding (Historical,
Pro Forma and Pro Forma As Adjusted) ..... 215.6 215.6 215.6
FON Stock, $2.00 par value, 4.2 billion
shares authorized, 0 shares outstanding
(Historical), 350.3 million shares issued
and 344.5 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
(Historical), 375.4 million shares issued
and outstanding (Pro Forma) and 396.6
shares issued and outstanding (Pro Forma
As Adjusted).............................. -- 375.4 396.6
PCS Preferred Stock........................ -- 240.0 240.0
Capital in excess of par or stated value... 4,490.8 7,575.3 8,152.6
Retained earnings.......................... 4,012.7 3,802.4 3,802.4
Treasury stock, at cost.................... (396.1) (396.1) (396.1)
Other...................................... 103.6 88.0 88.0
--------- --------- ---------
Total capitalization...................... $14,861.2 $26,456.1 $27,054.6
========= ========= =========
</TABLE>
40
<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
September 30, 1998, for the year ended December 31, 1994 and for the nine
months ended September 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 nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for
the entire year.
<TABLE>
<CAPTION>
At or For the
Nine Months
Ended September At or For the
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.......... $ (80.0) $ (7.4) $ (18.5) $ (0.5) $ -- $ --
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (686.5) (410.6) (659.6) (191.8) (31.4) --
Net loss................ (471.8) (257.3) (419.1) (119.7) (19.9) --
Cash Flow Data
Net cash provided (used)
by operating
activities............. $ (193.0) $ 25.8 $ 37.5 $ (0.5) $ -- $ --
Capital expenditures.... 672.1 68.2 153.7 -- -- --
Purchase of PCS
licenses............... -- 460.1 460.1 84.0 -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo, net......... 193.5 255.5 405.9 297.5 910.9 51.1
Balance Sheet Data
Total assets............ $2,494.2 $1,693.1 $1,259.8 $973.7 $51.1
Property, plant and
equipment, net......... 1,327.2 177.3 -- -- --
Investment in Sprint
Spectrum Holdings and
PhillieCo.............. 475.4 968.4 1,175.8 973.7 51.1
Construction and capital
lease obligations
(including short-term
borrowings)............ 859.7 -- -- -- --
Group equity............ 831.0 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 are 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. Sprint does not expect to pay
dividends on the PCS Stock in the foreseeable future.
41
<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
acquired 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, effected by reclassifying each
share of Sprint's 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 FT Class A 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; (3) the Notes
Offering and the use of net proceeds therefrom; and (4) the Offerings and the
purchase of PCS Stock by FT and DT 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 were accounted for using the purchase method
of accounting.
The unaudited pro forma condensed combined statements of operations include
the historical results of the PCS Group and the historical combined results of
Sprint Spectrum Holdings and PhillieCo for the year ended December 31, 1997
and the nine months ended September 30, 1998, and include the effect of the
PCS Restructuring and the related exercise of Equity Purchase Rights by FT and
DT, Recapitalization, Notes Offering and Offerings and related purchase of PCS
Stock by FT and DT 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 September 30,
1998. The historical balance sheet amounts have been adjusted to reflect the
PCS Restructuring and the related exercise of Equity Purchase Rights by FT and
DT, Recapitalization, Notes Offering and Offerings and related purchase of PCS
Stock by FT and DT as though such transactions had occurred on September 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. Certain historical amounts have been
reclassified to conform to the pro forma presentation. These reclassifications
had no effect on the results of operations or group equity as previously
reported.
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.
42
<PAGE>
PCS Group
Pro Forma Condensed Combined Balance Sheet
September 30, 1998
(Unaudited, in millions)
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------
Historical
Combined
Sprint Pro Forma
Spectrum Adjustments
Historical Holdings and PCS Notes for Pro Forma
PCS Group PhillieCo Restructuring Recapitalization Offering Pro Forma Offerings as Adjusted
---------- ------------ ------------- ---------------- -------- --------- ----------- -----------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets
Cash and
equivalents...... $ -- $ 325.3 $ 84.5 D $ 409.8 $598.5 H $ 1,008.3
Accounts
receivable, net.. -- 195.3 (47.1) C 148.2 148.2
Inventories....... -- 177.8 177.8 177.8
Other............. 32.8 44.1 76.9 76.9
-------- -------- -------- --------- ------ ---------
Total current
assets........... 32.8 742.5 37.4 812.7 598.5 1,411.2
Property, plant and
equipment, net.... 1,327.2 4,531.9 196.8 A 6,055.9 6,055.9
Investments in
Sprint Spectrum
Holdings and
PhillieCo ........ 475.4 -- (293.4) B -- --
(182.0) B
Intangibles, net
PCS licenses...... 544.5 2,466.0 3,010.5 3,010.5
Customer base..... -- -- 681.4 A 681.4 681.4
Goodwill.......... -- 363.1 2,911.8 A 3,057.0 3,057.0
(217.9) A
Assembled
workforce........ -- -- 45.3 A 45.3 45.3
Other assets....... 114.3 422.9 182.0 B $ 25.2 F 713.2 713.2
(31.2) G
-------- -------- -------- ------- -------- --------- ------ ---------
Total.............. $2,494.2 $8,526.4 $3,361.4 $ -- $ (6.0) $14,376.0 $598.5 $14,974.5
======== ======== ======== ======= ======== ========= ====== =========
<CAPTION>
Liabilities and
Group Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current liabilities
Current maturities
of
long-term debt... $ 42.5 $ 124.5 $ 167.0 $ 167.0
Partner advances.. -- 185.0 185.0 185.0
Accounts payable.. 20.2 287.1 307.3 307.3
Advance from the
FON Group........ 410.0 -- $ (110.6) E 299.4 299.4
Payable to Sprint
Spectrum
Holdings......... 47.1 -- (47.1) C -- --
Accrued expenses and
other current
liabilities...... 7.3 476.4 483.7 483.7
-------- -------- -------- --------- ---------
Total current
liabilities...... 527.1 1,073.0 (157.7) 1,442.4 1,442.4
Construction
obligations....... 429.0 575.7 1,004.7 1,004.7
Long-term debt..... 388.2 6,001.2 84.6 A $3,371.8 F 6,499.2 6,499.2
(3,346.6) F
Deferred income
taxes and other
liabilities....... 318.9 84.9 678.3 A 1,082.1 1,082.1
Limited partner
interest in
consolidated
subsidiary ....... -- 65.8 65.8 65.8
Group equity....... 831.0 725.8 3,033.6 A (31.2) G 4,281.8 $598.5 H 4,880.3
(179.1) A
(293.4) B
84.5 D
510.6 E
(400.0) E
-------- -------- -------- ------- -------- --------- ------ ---------
Total.............. $2,494.2 $8,526.4 $3,361.4 $ -- $ (6.0) $14,376.0 $598.5 $14,974.5
======== ======== ======== ======= ======== ========= ====== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
43
<PAGE>
PCS Group
Pro Forma Condensed Combined Statement of Operations
Nine Months Ended September 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 Notes for Pro Forma
PCS Group PhillieCo Restructuring Recapitalization Offering Pro Forma Offerings As Adjusted
---------- --------------- ------------- ---------------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Rev-
enues............ $ -- $ 787.9 $ 787.9 $ 787.9
Operating Expenses
Costs of services
and products..... -- 783.0 783.0 783.0
Selling, general
and
administrative... 78.2 931.6 1,009.8 1,009.8
Depreciation and
amortization..... 1.8 529.2 $ 5.2 I 780.2 780.2
50.5 J
170.3 K
6.8 L
16.4 M
------- --------- ------- --------- ---------
Total operating
expenses......... 80.0 2,243.8 249.2 2,573.0 2,573.0
------- --------- ------- --------- ---------
Operating Loss.... (80.0) (1,455.9) (249.2) (1,785.1) (1,785.1)
Interest expense.. -- (358.3) 60.1 N $(2.6) P (294.1) (294.1)
6.7 O
Equity in loss of
Sprint Spectrum
Holdings and
PhillieCo........ (686.5) -- 681.3 I -- --
5.2 I
Other income...... -- 23.2 23.2 23.2
Minority interest
................. -- 99.0 99.0 99.0
------- --------- ------- ----- --------- ---------
Loss before income
taxes............ (766.5) (1,692.0) 504.1 (2.6) (1,957.0) (1,957.0)
Income tax bene-
fit.............. 294.7 -- 399.0 Q 1.0 R 744.5 744.5
49.8 R
------- --------- ------- ----- --------- ---------
Net Loss.......... (471.8) (1,692.0) 952.9 (1.6) (1,212.5) (1,212.5)
Preferred stock
dividends........ -- -- (11.5)S (11.5) (11.5)
------- --------- ------- ----- --------- ---------
Loss applicable to
common stock..... $(471.8) $(1,692.0) $ 941.4 $(1.6) $(1,224.0) $(1,224.0)
======= ========= ======= ===== ========= =========
Basic and Diluted
Loss per Common
Share............ $ (2.94) $ (2.80)
========= =========
Weighted average
common shares.... 415.7 T 436.9 U
========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
44
<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 Notes for Pro Forma
PCS Group PhillieCo Restructuring Recapitalization Offering Pro Forma Offerings As Adjusted
---------- ------------ ------------- ---------------- -------- --------- ----------- -----------
<S> <C> <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 I 645.2 645.2
67.3 J
227.1 K
9.1 L
21.9 M
------- --------- ------ --------- ---------
Total operating
expenses............ 18.5 1,637.7 328.9 1,985.1 1,985.1
------- --------- ------ --------- ---------
Operating Loss....... (18.5) (1,379.7) (328.9) (1,727.1) (1,727.1)
Interest expense..... -- (123.5) 21.0 N $(8.7)P (102.3) (102.3)
8.9 O
Equity in loss of
Sprint Spectrum
Holdings and
PhillieCo........... (659.6) -- 656.1 I -- --
3.5 I
Equity in loss of
unconsolidated
partnership......... -- (168.9) (168.9) (168.9)
Other income......... -- 39.4 39.4 39.4
------- --------- ------ ----- --------- ---------
Loss before income
taxes............... (678.1) (1,632.7) 360.6 (8.7) (1,958.9) (1,958.9)
Income tax benefit... 259.0 -- 383.1 Q 3.4 R 735.2 735.2
89.7 R
------- --------- ------ ----- --------- ---------
Net Loss............. (419.1) (1,632.7) 833.4 (5.3) (1,223.7) (1,223.7)
Preferred stock
dividends........... -- -- (15.3)S (15.3) (15.3)
------- --------- ------ --- ----- --------- ---------
Loss applicable to
common stock........ $(419.1) $(1,632.7) $818.1 $(5.3) $(1,239.0) $(1,239.0)
======= ========= ====== === ===== ========= =========
Basic and Diluted
Loss per Common
Share............... $ (2.98) $ (2.84)
========= =========
Weighted average com-
mon shares.......... 415.4 T 436.6 U
========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
45
<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
was shares of Series 2 PCS Stock and warrants to purchase additional shares
of Series 2 PCS Stock. The excess of the purchase price, which was based on
the market value of the Series 2 PCS Stock issued to the Cable Parents,
over the fair value of net assets acquired has been preliminarily allocated
as follows (in millions):
<TABLE>
<S> <C>
Purchase price................................................. $3,200.3
Transaction costs.............................................. 25.7
Net assets acquired............................................ (192.4)
Fair value assigned to customer base acquired.................. (681.4)
Fair value assigned to assembled workforce acquired............ (45.3)
Increase in property, plant and equipment to fair value........ (196.8)
Write-off of acquired goodwill................................. 217.9
Mark-to-market of long-term debt to fair value................. 84.6
Deferred taxes on acquired assets and liabilities.............. 678.3
Completed in-process research and development.................. (179.1)
--------
Goodwill....................................................... $2,911.8
========
</TABLE>
The above purchase price allocation assumes that the carrying amounts of
assets acquired and liabilities assumed approximate fair market value, except
for certain property, plant and equipment of Sprint Spectrum Holdings and
PhillieCo and long-term debt of Sprint Spectrum Holdings, both of which have
been recorded at fair value.
A portion of the purchase price was attributed to the customer base acquired.
The value assigned to the customer base will be amortized over three years. A
portion of the purchase price was also attributed to the assembled workforce
acquired. The value assigned to the assembled workforce will be amortized over
five years. 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 were contributed by the FON Group to the PCS
Group.
A portion of the purchase price was attributed to in-process research and
development ("IPR&D"). Development efforts of Sprint Spectrum Holdings are
focused in three general areas: (i) building internal software applications,
primarily systems which improve customer care and service, (ii) providing
additional value enhancing services to PCS customers, and (iii) establishing a
state of the art infrastructure and network to deliver these services. Many of
the research and development projects are positioning Sprint to take advantage
of rapid adoption of the Internet and the rapid convergence of voice, data,
and video. Software development activities were carefully evaluated to
determine if technological feasibility had been achieved. Consideration of
acquired IPR&D was limited to significant new products under development that
were intended to address emerging market needs and requirements. No routine
research and development projects, minor refinements, normal enhancements, or
production activities were included in the acquired IPR&D. The possibility of
alternative future use was extensively evaluated and it was determined that
these technologies, once completed, could only be economically used for their
intended purposes. The income approach was the primary technique utilized in
valuing the purchased IPR&D. The pro forma statements of operations exclude
the impact of the IPR&D costs, which were recorded as a nonrecurring, noncash
charge in connection with the purchase price allocation.
46
<PAGE>
PCS Group
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements--(continued)
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 ($293.4 million), and to reclassify interest capitalized as
part of that investment to other assets ($182.0 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 was required in order for FT and DT to maintain
their combined 20% voting interest in Sprint.
E To reflect PCS Preferred Stock ($240.0 million) and Preferred Inter-Group
Interest ($270.6 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 September 30, 1998. See "The
Formation Transactions--Funding of the PCS Group Prior to the PCS
Restructuring Closing; The PCS Preferred Stock."
F To record the loan by Sprint to the PCS Group of a portion of the net
proceeds from the Notes Offering, and the use of the proceeds therefrom,
net of deferred financing costs of $25.2 million, to repay existing
indebtedness.
G To write off deferred financing costs associated with the repayment of debt
($3,346.6 million) with the net proceeds from the Notes Offering loaned by
Sprint to the PCS Group.
H To record the sale of shares in the Offerings ($478.2 million). Proceeds
from the Offerings of $478.2 million have been assumed, net of estimated
offering costs of $21.8 million, although the actual amount of the
Offerings may vary based on market conditions. Also to record the purchase
of PCS Stock by FT and DT ($120.3 million) in connection with the
Offerings.
Pro Forma Statement of Operations Adjustments
I 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 ($681.3 million for the nine months ended September 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 ($5.2 million for the nine months ended September 30,
1998 and $3.5 million for the year ended December 31, 1997).
J 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.
K 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.
L To reflect the amortization of the assembled workforce recorded in
connection with the purchase of the remaining interests in Sprint Spectrum
Holdings and PhillieCo, which is being amortized over five years.
M To reflect the additional depreciation associated with the purchase price
adjustment to step-up the property, plant and equipment acquired to fair
value (see Note A).
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PCS Group
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements--(continued)
N 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 $1,271.3 million
and $727.3 million as of September 30, 1998 and December 31, 1997,
respectively.
O To reflect the amortization of the purchase price adjustment related to
long-term debt (see Note A).
P To reflect the interest expense and amortization of deferred financing
costs related to the loan by Sprint to the PCS Group of a portion of the
net proceeds from the Notes Offering, offset by interest savings and
amortization of deferred financing costs of the debt assumed to be repaid
with the proceeds from the loan. The rate of interest charged by Sprint was
used in determining interest expense, while actual interest expense
incurred during the respective period on the debt repaid was assumed to be
avoided.
Q 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.
R To record the impact on income taxes of pro forma adjustments K through P
using the statutory income tax rate.
S 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 September 30, 1998, $510.6 million of funding by
the Cable Parents and the FON Group between the date of the Restructuring
Agreement (May 26, 1998) and September 30, 1998 was assumed to be exchanged
for shares of PCS Preferred Stock or Preferred Inter-Group Interest. For a
discussion of how the actual dividend rate is determined, see "Description
of Capital Stock--Description of PCS Preferred Stock; Preferred Inter-Group
Interest."
T 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 Common Stock into 1/2
share of Series 1 PCS Stock, including the PCS Stock attributes of the
Class A Common Stock (215.4 million shares for the nine months ended
September 30, 1998, and 215.1 million shares for the year ended December
31, 1997), and (3) the exercise of Equity Purchase Rights by FT and DT in
connection with the PCS Restructuring (5.2 million shares).
U The weighted average common shares outstanding reflect the items in
adjustment "T", as well as the shares assumed to be sold in the Offerings
(17.0 million shares) and the purchase of PCS Stock by FT and DT (4.2
million shares) in connection with the Offerings. The actual number of
shares sold in the Offerings may vary based on market conditions.
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PCS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
On May 26, 1998, Sprint entered into the Restructuring Agreement with the
Cable Parents to restructure Sprint's wireless PCS operations, which was
consummated on November 23, 1998. Pursuant to the Restructuring Agreement
Sprint acquired 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 issued 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 are 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), are referred to as the PCS Group.
The excess of the purchase price paid to the Cable Parents in connection
with the PCS Restructuring over the fair value of the PCS assets 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 an allocation of the purchase price to the
assets acquired and liabilities assumed, see the Unaudited Pro Forma Condensed
Combined Financial Statements and notes thereto of the PCS Group included
elsewhere in this Prospectus.
The FON Stock, which was 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 are referred to as the FON Group.
Holders of PCS Stock are 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.
Recent Results
Although the PCS Group's results of operations for the fourth quarter and
for the full year 1998 are not final, the following information reflects the
PCS Group's expectations with respect to such results based on currently
available information.
The following financial information does not reflect the impact of the
allocation of the purchase price to the assets acquired and liabilities
assumed in the PCS Restructuring. 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 value attributable to the customer base. Based on Sprint's
preliminary purchase price allocation, it is expected that approximately $180
million of the purchase price will be allocated to in-process research and
development projects and will be recognized as a non-recurring, non-cash
charge in the fourth quarter of 1998. 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.
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The wireless industry 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 quarters. A number of factors
influence this trend including use of retail distribution, which is dependent
on the year-end holiday shopping season, the timing of new product and service
introductions, and aggressive marketing and sales promotions. In the fourth
quarter of 1998, these factors and the opening of several new markets
contributed to strong customer growth for the PCS Group. The PCS Group
acquired approximately 830,000 net new customers in the quarter and finished
the year with more than 2.58 million customers. For all of 1998, the PCS Group
increased its customer base by 1.7 million customers.
For the fourth quarter of 1998, the PCS Group expects total revenue to be
in a range between $430 million to $450 million, and for all of 1998, total
revenue is expected to be between $1.22 billion and $1.24 billion. For the
fourth quarter, an estimated 75% of total revenue is from recurring monthly
services while for the full year slightly more than 80% is from these sources.
ARPU for the fourth quarter is expected to be approximately $54 to $55.
EBITDA for the fourth quarter of 1998 is expected to be a loss of between
$590 million and $610 million, compared with a loss of approximately $350
million in the third quarter of 1998. For all of 1998 the EBITDA loss is
expected to be between $1.59 billion and $1.61 billion. The increase in fourth
quarter EBITDA loss is due to higher customer acquisition costs associated
with the significant gain in new customers and up-front expenditures
associated with the opening of 48 new markets during the quarter. During the
fourth quarter, the average marketing and equipment subsidy cost to acquire a
customer improved over previous quarters. Customer churn rates during the
fourth quarter remained above historic industry averages, but are within a
range of rates being reported by other new wireless entrants.
For the fourth quarter of 1998, capital expenditures are expected to be
approximately $700 million, and for all of 1998 they are expected to be nearly
$3.0 billion. Capital expenditures during the fourth quarter were principally
used to construct new markets and further build out existing markets. At the
end of 1998, the PCS Group was able to provide service to slightly more than
half of the U.S. population.
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
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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. The operating results of Sprint
Spectrum Holdings and PhillieCo are reflected in the PCS Group Combined
Financial Statements along with SprintCom. Subsequent to the PCS Restructuring
Closing the operating results of Sprint Spectrum Holdings and PhillieCo will
be reflected on a consolidated basis in the PCS Group Combined Financial
Statements.
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. As of December 31, 1998,
the PCS Group, together with certain affiliated companies, operated PCS
systems in 225 metropolitan markets within the United States, including 45 of
the 50 largest metropolitan areas in the United States. The PCS Group already
provides nationwide service through a combination of (i) operating its own
digital network in major metropolitan areas in the United States, (ii)
affiliating with other companies, primarily in and around smaller metropolitan
areas in the United States, (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.
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 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 subscriber additions and handset sales from the
year's previous quarters, the PCS Group's results for the year could be
materially adversely affected.
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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>
Nine Months
Ended September Year Ended
30, December 31,
---------------- -------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
Total operating expenses........... $ 80.0 $ 7.4 $ 18.5 $ 0.5 $ --
------- ------- ------- ------- -------
Operating loss..................... $ (80.0) $ (7.4) $ (18.5) $ (0.5) $ --
======= ======= ======= ======= =======
Equity in loss of Sprint Spectrum
Holdings and PhillieCo............ $(686.5) $(410.6) $(659.6) $(191.8) $(31.4)
======= ======= ======= ======= =======
</TABLE>
Nine Months Ended September 30, 1998 and 1997
Operating Expenses
Operating expenses were $80 million for the first nine months of 1998 and $7
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 $687 million for the first nine months of 1998 compared with
$411 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. See PCS Group Unaudited Pro Forma Condensed
Combined Financial Statements.
Net operating revenues for the PCS Group on a pro forma basis were $788
million for the first nine 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 $783 million
for the first nine 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 ARPU for the nine-month period ended September 30, 1998 was
approximately $57. ARPU was $55, $55 and $60 for the three month periods ended
September 30, 1998, June 30, 1998 and
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March 31, 1998, respectively. This average is expected to continue to decline
(consistent with industry projections) due to increased competition resulting
from additional wireless service providers entering the market and the
addition of lower usage subscribers to the PCS Group's subscriber base. The
PCS Group has adopted marketing plans that both target and encourage higher
usage and higher ARPU. 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.
At September 30, 1998, the PCS Group was operating in 39 of the largest 50
metropolitan areas in the United States. Subscribers totaled more than 1.75
million at September 30, 1998. 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 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.
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Nonoperating Items
Income Taxes
The PCS Group's effective tax rate was 38.4% for the first nine months of
1998 and 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 $472 million and
$257 million for the nine months ended September 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 $672 million and $68 million for the
nine months ended September 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 $1.1 billion and $1.6 billion for the
nine months ended September 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 $860 million at September 30, 1998. Long-term debt
outstanding, including vendor financing and construction obligations, for
Sprint Spectrum Holdings and PhillieCo totaled $6.7 billion at September 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."
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 during 1999 will total
between $2.3 and $2.6 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.
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
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PCS to Sprint Spectrum Holdings through December 2008. See "The Formation
Transactions--Amendments to the Cox PCS Agreements." Cox has given Sprint
Spectrum Holdings notice to start the appraisal process related to a potential
put of all or a portion of Cox's remaining partnership interest to Sprint
Spectrum Holdings.
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 its former PhillieCo Partners, TCI and Cox, loaned $50 million to
PhillieCo to fund operating and working capital requirements and capital
expenditures through September 30, 1998. Sprint agreed pursuant to the
Restructuring Agreement to cause the above described loans to PhillieCo to be
repaid by February 21, 1999. Approximately $62 million of the PCS Preferred
Stock owned by Cox will be redeemed with the proceeds from the Offerings, but
only to the extent the net proceeds of the Offerings exceed $500 million. See
"The Formation Transactions--Funding of the PCS Group Prior to the PCS
Restructuring 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.
In August 1998, Sprint entered into $5.0 billion of new revolving credit
facilities with syndicates of domestic and international banks. These
facilities support Sprint's commercial paper operations and replace its
previous $1.5 billion revolving credit facility. As of September 30, 1998,
Sprint could borrow $3.6 billion under these new facilities. Sprint also has a
separate five-year revolving credit facility with a bank. The unused capacity
under the committed portion of that facility was $100 million.
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission (SEC) for $8.0 billion of debt securities.
This shelf registration replaced $1.0 billion of Sprint's existing shelf
registration statements. 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.
In November 1998, Sprint Capital Corporation issued $5.0 billion of Senior
Notes (guaranteed by Sprint) in the Notes Offering under the new shelf
registration statement. As of December 31, 1998, Sprint had loaned to the PCS
Group $4.2 billion of the proceeds from the sale of the Senior Notes at a
weighted-average interest rate of approximately 8.5%. The PCS Group used
approximately $3.3 billion of these funds to repay existing indebtedness.
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In connection with 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 purchase of these shares are expected to total approximately
$120.3 million ($138.4 million if the Underwriters' over-allotment option is
exercised in full) at an assumed purchase price equal to the assumed public
offering price less estimated underwriting discounts and commissions. See "Use
of Proceeds."
For information concerning the use of proceeds from the Offerings, 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 has completed an inventory of its computer systems, network
elements, software applications, products and other business systems. The Year
2000 impact on items identified through the inventory process is being
assessed and a plan is being 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. However, full compliance may not be achieved
as planned by the PCS Group and such third parties and the PCS Group may not
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
(for example, 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. 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 such cost could become material because of the various
reasons described above, many of which are out of the PCS Group's control.
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.
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<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 September 30, 1998, for the year ended December
31, 1994, and for the nine months ended September 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 nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
At or For the
Nine Months At or For the
Ended September 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.. $ 788.0 $ 110.5 $ 258.0 $ 4.2 $ -- $ --
Operating loss.......... (1,455.8) (869.0) (1,379.7) (357.6) (66.9) (3.3)
Net loss................ (1,692.0) (1,021.5) (1,632.7) (444.6) (112.7) (3.3)
Cash Flow Data
Net cash used in
operating activities... $ 1,301.4 $ 606.4 $ 848.2 $ 172.4 $ 16.9 $ 0.5
Capital expenditures.... 1,107.7 1,632.8 2,124.6 1,419.2 31.8 0.5
Purchase of PCS
licenses............... -- -- -- -- 2,085.8 118.4
Balance Sheet Data
Total assets............ $ 8,526.4 $ 7,057.9 $4,443.6 $2,329.3 $123.9
Property, plant and
equipment, net ........ 4,531.9 3,538.2 1,441.6 32.0 0.4
Long-term debt and
construction
obligations (including
short-term borrowings). 6,701.4 4,273.8 1,401.2 -- --
</TABLE>
- --------
(1) Sprint Spectrum Holding Company, MinorCo and PhillieCo had no operations
prior to 1994.
57
<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 under the brand name Sprint PCS, and all
entities are collectively referred to as the "Company" or the "Partnerships."
The following discussion is as of and for the periods ended prior to September
30, 1998 and should be read in conjunction with the "PCS Group Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 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,
L.P. ("WirelessCo"). MinorCo holds the minority ownership interests of 1% in
NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at
September 30, 1998, December 31, 1997 and 1996, and APC at September 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 September 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.
("PhillieCo Sub") 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 the PCS Restructuring;
. 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.
58
<PAGE>
General
License and Network Coverage--The Company through Sprint Spectrum L.P.
acquired PCS licenses in the FCC's A Block and B Block PCS auction, which
concluded in March 1995, to provide service to 29 major trading areas ("MTAs")
covering over 150 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 L.P. 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 L.P. 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. See "The Formation Transactions--Amendments
to the Cox PCS Agreements." Cox has given Holdings notice to start the
appraisal process related to a potential put of all or a portion of Cox's
remaining partnership interest 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 L.P. has been providing buildout services in certain
BTA markets where SprintCom was awarded PCS licenses and is being reimbursed
for such services, which include engineering, management, purchasing,
accounting, and other related services. SprintCom markets its products and
services as Sprint PCS.
Other--In June 1998, the Company and its affiliates also entered into
various management agreements with other companies pursuant to which such
other companies (each a "Manager") will build networks in portions of the
Company's licensed coverage area and then affiliate the Manager's network with
the Company's network. These Manager networks will be built using the same
technological standards as those of the Company, and the Managers will use the
Sprint PCS brand name to market their services and will be required to
maintain certain quality standards to be established by the Company. The
Company and affiliates entered into additional agreements in the third quarter
and intend to continue to enter into additional management agreements as a
means of expanding its existing network.
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<PAGE>
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 L.P. and its affiliates. As a result, customers with Dual-
Mode Handsets capable of transmitting over cellular and CDMA PCS frequencies
have the ability to roam in areas where Sprint PCS service is not available
and where there are roaming agreements.
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.
PCS Restructuring--On May 26, 1998, Sprint entered into the Restructuring
Agreement with TCI, Comcast, and Cox to restructure Sprint's PCS operations,
pursuant to which Sprint acquired, on November 23, 1998, 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 issued to TCI, Comcast, and Cox shares of Series 2
PCS Stock and the Warrants. In addition, Sprint issued to the Cable Parents
shares of PCS Preferred 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 has completed an inventory of its computer systems, network
elements, software applications, products and other business systems. The Year
2000 impact of items identified through the inventory process is being
assessed and a plan is being developed to address any required renovation. The
Company 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
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. However, full compliance may not be achieved as
planned by the PCS Group and such third parties and the PCS Group may not
receive warranties and assurances from such third parties. 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. 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 such cost could become material because of the various reasons described
above, many of which are out of the PCS Group's control.
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.
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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.
In October 1996 and as amended in December 1997, Sprint Spectrum L.P.
entered into a credit agreement with The Chase Manhattan Bank, as
administrative agent for a group of lenders, for a $2.0 billion senior secured
credit facility (the "Bank Facility"). The proceeds of the Bank Facility are
to be used to finance working capital needs, subscriber acquisition costs,
capital expenditures and other general purposes of Sprint Spectrum L.P. The
Bank Facility consists of a $300 million term loan commitment and a revolving
credit commitment of $1.7 billion. As of September 30, 1998 and December 31,
1997, $300 million had been borrowed under the term loan. As of September 30,
1998 and December 31, 1997, $1.6 billion and $605 million had been borrowed
under the revolving credit facility, respectively, with $100 million and $1.1
billion remaining available, respectively. There were no borrowings under the
revolving credit commitment at December 31, 1996. The term loan commitment
under the Bank Facility was repaid subsequent to September 30, 1998.
Also in October 1996, Sprint Spectrum L.P. entered into credit agreements
for up to an aggregate of $3.1 billion of senior secured multiple drawdown
term loan facilities from two of its network infrastructure equipment vendors.
As amended in April and 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 had borrowed $2.5 billion and $1.6 billion under such
facilities at September 30, 1998 and December 31, 1997, respectively, of which
$300 million was syndicated to Sprint. The Vendor Financing was repaid
subsequent to September 30, 1998.
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 L.P.'s
interest in WirelessCo, RealtyCo and EquipmentCo and certain other personal
and real property (the "Shared Lien"). The Shared Lien equally and ratably
secures the Bank Facility and the Vendor Financing. The Secured Financing is
jointly and severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and
is non-recourse to the Partners.
In August 1996, Sprint Spectrum L.P. and FinCo issued $250 million aggregate
principal amount of the 11% Senior Notes and $500 million aggregate principal
amount at maturity of 12 1/2% Senior Discount Notes (together, the "Notes").
The Senior Discount Notes were issued at a discount to their aggregate
principal amount at maturity and generated proceeds of approximately $273
million. Cash interest on the Senior Notes will accrue at a rate of 11% per
annum and is payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 1997. Cash interest will not accrue or be
payable on the Senior Discount Notes prior to August 15, 2001. Thereafter,
cash interest on the Senior Discount Notes will accrue at a rate of 12 1/2%
per
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annum and will be payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 2002. FinCo was formed solely to be a co-
obligor of the Notes. FinCo has only nominal assets and no operations or
revenues, and Sprint Spectrum L.P. will be responsible for payment of the
Notes. On August 15, 2001, Sprint Spectrum L.P. will be required to redeem an
amount equal to $384.772 per $1,000 principal amount at maturity of each
Senior Discount Note then outstanding ($192 million in aggregate principal
amount at maturity, assuming all of the Senior Discount Notes remain
outstanding at such date). The proceeds of approximately $509 million from the
issuance of the Notes (net of approximately $14 million of underwriting
discounts, commissions, and offering expenses) were used to fund capital
expenditures, including the buildout of the nationwide PCS network, to fund
working capital requirements, to fund operating losses and for other
partnership purposes. Sprint purchased, and continues to hold, approximately
$183 million principal amount at maturity of the Senior Discount Notes. The
Notes contain certain restrictive covenants, including, among other
requirements limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting restricted subsidiaries.
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. The FCC debt
relates specifically to the Washington D.C./Baltimore MTA.
In February 1997 and as amended in January 1998 and September 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
September 30, 1998 and December 31, 1997, $220 million had been borrowed under
the term loan. As of September 30, 1998 and December 31, 1997, $200 million
and $141.4 million had been borrowed under the revolving credit facility,
respectively, with $58.6 million remaining available as of December 31, 1997.
There was no remaining availability under the facility at September 30, 1998.
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 was repaid subsequent to September 30, 1998.
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. At September 30, 1998,
$400 million had been borrowed under the term loan facilities at a weighted
average interest rate of 8.13%. 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).
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
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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 September 30, 1998, remaining principal
outstanding under the debt totaled approximately $213.9 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 September 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.
Subsequent to the PCS Restructuring, Sprint intends to borrow funds and then
allocate the borrowings to the PCS Group depending upon its capital structure
and funding needs. Sprint will lend to the PCS Group at interest rates and on
other terms and conditions substantially equivalent to those which the PCS
Group could obtain from third parties as a direct or indirect wholly-owned
subsidiary of Sprint, but without the benefit of any guaranty by Sprint.
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission for $8.0 billion of debt securities. In
November 1998, Sprint Capital Corporation issued $5.0 billion of Senior Notes
(guaranteed by Sprint) in the Notes Offering under the new shelf registration
statement. As of December 31, 1998, Sprint had loaned to the PCS Group $4.2
billion of the proceeds from the sale of the Senior Notes at a weighted-
average interest rate of approximately 8.5%. Approximately $3.3 billion of
these funds were used to repay the Vendor Financing agreements, the term loan
commitment under the Bank Facility and the APC Credit Agreement.
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 nine months ended September 30, 1998, the Company used cash of
approximately $1.3 billion in operating activities, which consisted of the
operating loss of $1.7 billion less depreciation and amortization of $529.2
million and a net change in working capital of $117.2 million. Cash used in
investing activities totaled $1.2 billion for the nine months ended September
30, 1998, consisting of capital expenditures, the completion of
63
<PAGE>
the purchase of APC (net of cash acquired), the purchase of an additional
10.2% of Cox PCS (net of cash acquired), the investment in unconsolidated
partnerships and microwave relocation costs. Cash flow from financing
activities totaled $2.7 billion for the nine months ended September 30, 1998,
and included net proceeds from long-term debt financing of $1.3 billion and
net borrowings under revolving credit facilities of $1.0 billion. The
Company's available financing sources are more fully described above. 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.
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 for a variety of reasons, including
the Company's inability to match
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
64
<PAGE>
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.
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
65
<PAGE>
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 L.P. participates in an affiliation agreement with Cox PCS.
Fees earned under this agreement of $1.1 million for the year ended December
31, 1997 are included in other income. No fees were earned in 1996.
For the Nine Months Ended September 30, 1998
Operating Revenues/Margin
Revenues and cost of revenues of $788.0 million and $783.0 million,
respectively, for the first nine months of 1998 were higher than the revenues
and cost of revenues of $110.5 million and $308.3 million, respectively, for
the first nine 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 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
nine months of 1998 were $931.6 million compared to $481.3 million for the
first nine months of 1997. For the nine months ended September 30, 1998,
selling expenses increased $178.0 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 nine months of 1998
increased $272.3 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 nine months of 1998 was
$529.2 million compared to $189.9 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 $358.3 million for the nine months ended
September 30, 1998, compared to $55.6 million for the same period in 1997. The
balance of the Company's construction accounts eligible for interest
capitalization declined during the period as markets launched commercial
service and equipment was placed in service. Additionally, interest expense
continues to increase as borrowings increase.
66
<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 September 30, 1998, and
for the nine months ended September 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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire
year.
<TABLE>
<CAPTION>
At or For the
Nine Months At or For the
Ended September 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.. $11,940.3 $11,024.9 $14,873.9 $13,887.5 $12,735.3 $11,964.8 $10,894.9
Operating income(1)..... 2,017.9 1,840.9 2,451.4 2,267.2 1,834.3 1,690.7 1,214.1
Income from continuing
operations(1), (2)..... 669.3 757.6 952.5 1,190.9 946.1 899.2 517.1
Earnings per common
share from continuing
operations(1), (2)
Basic.................. 1.55 1.76 2.21 2.82 2.71 2.59 1.51
Diluted................ 1.52 1.74 2.18 2.79 2.69 2.56 1.49
Dividends per common
share.................. 0.75 0.75 1.00 1.00 1.00 1.00 1.00
Basic weighted average
common shares.......... 430.7 430.3 430.2 421.7 348.7 346.1 341.0
Cash Flow Data
Net cash from operating
activities--continuing
operations(3).......... $ 2,950.0 $ 2,410.7 $ 3,379.0 $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8
Capital expenditures.... 2,992.1 1,903.9 2,862.6 2,433.6 1,857.3 1,751.6 1,429.8
Balance Sheet Data
Total assets............ $20,453.8 $18,184.8 $16,826.4 $15,074.3 $14,425.2 $13,781.8
Property, plant and
equipment, net......... 13,502.2 11,494.1 10,464.1 9,715.8 10,258.8 9,883.1
Total debt (including
construction
obligations and short-
term borrowings)....... 5,549.4 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... 9,302.3 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 nine months ended September 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 nine months ended September 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.
67
<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
acquired 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, effected by reclassifying each
share of Sprint's 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 FT Class A 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; (3) the Notes
Offering and the use of net proceeds therefrom; and (4) the Offerings and the
purchase of PCS Stock by FT and DT 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 were accounted for using the purchase method
of accounting.
The unaudited pro forma condensed combined statements of income include the
historical results of Sprint and the historical combined results of Sprint
Spectrum Holdings and PhillieCo for the year ended December 31, 1997 and the
nine months ended September 30, 1998, and include the effect of the PCS
Restructuring and the related exercise of Equity Purchase Rights by FT and DT,
Recapitalization, Notes Offering and Offerings and related purchase of PCS
Stock by FT and DT 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 September 30, 1998. The
historical balance sheet amounts have been adjusted to reflect the PCS
Restructuring and the related exercise of Equity Purchase Rights by FT and DT,
Recapitalization, Notes Offering and Offerings and related purchase of PCS
Stock by FT and DT as though such transactions had occurred on September 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.
68
<PAGE>
Sprint Corporation
Pro Forma Condensed Combined Balance Sheet
September 30, 1998
(Unaudited, in millions)
<TABLE>
<CAPTION>
Historical
Combined
Sprint Pro Forma Adjustments Pro Forma Pro
Historical Spectrum --------------------------------------- Adjustments Forma
Sprint Holdings and PCS Notes for As
Corp. PhillieCo Restructuring Recapitalization Offering Pro Forma Offerings Adjusted
---------- ------------ ------------- ---------------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and equivalents.. $ 47.7 $ 325.3 $ (25.7)A $1,610.4 I $ 2,042.2 $ 598.5 K $ 2,640.7
84.5 F
Accounts receivable,
net.................. 2,515.8 195.3 (47.1)D 2,664.0 2,664.0
Inventories........... 349.9 177.8 527.7 527.7
Notes and other re-
ceivables............ 407.8 -- 407.8 407.8
Prepaid expenses and
other current assets. 422.7 44.1 (153.6)C 313.2 313.2
--------- -------- -------- -------- --------- -------- ---------
Total current assets.. 3,743.9 742.5 (141.9) 1,610.4 5,954.9 598.5 6,553.4
Investments in equity
securities............ 420.2 -- 420.2 420.2
Property, plant and
equipment, net........ 13,502.2 4,531.9 196.8 A 18,230.9 18,230.9
Investment in and ad-
vances to Sprint
Spectrum Holdings and
PhillieCo. ........... 610.1 -- (293.4)B -- --
(182.0)B
(134.7)E
Investments in and ad-
vances to other af-
filiates.............. 634.0 -- 634.0 634.0
Intangibles, net
PCS licenses.......... 544.5 2,466.0 3,010.5 3,010.5
Customer base......... -- -- 681.4 A 681.4 681.4
Goodwill.............. 346.6 363.1 2,911.8 A 3,403.6 3,403.6
(217.9)A
Assembled workforce... -- -- 45.3 A 45.3 45.3
Other assets........... 652.3 422.9 182.0 B 37.6 I 1,263.6 1,263.6
(31.2)J
--------- -------- -------- ------- -------- --------- -------- ---------
Total.................. $20,453.8 $8,526.4 $3,047.4 $ -- $1,616.8 $33,644.4 $ 598.5 $34,242.9
========= ======== ======== ======= ======== ========= ======== =========
Liabilities and Stock-
holders' Equity
Current liabilities
Current maturities of
long-term debt....... $ 80.6 $ 124.5 $ 205.1 $ 205.1
Partner advances...... -- 185.0 $ (134.7)E 50.3 50.3
Accounts payable...... 1,099.0 287.1 1,386.1 1,386.1
Accrued interconnec-
tion costs........... 564.7 -- 564.7 564.7
Accrued taxes......... 399.2 -- 399.2 399.2
Advance billings...... 213.3 -- 213.3 213.3
Other................. 849.0 476.4 (47.1)D 1,278.3 1,278.3
--------- -------- -------- --------- ---------
Total current liabili-
ties................. 3,205.8 1,073.0 (181.8) 4,097.0 4,097.0
Construction obliga-
tions................. 429.0 575.7 1,004.7 1,004.7
Long-term debt......... 5,039.8 6,001.2 84.6 A $4,994.6 I 12,635.6 12,635.6
(138.0)C (3,346.6)I
Deferred credits and
other liabilities
Deferred income taxes
and investment tax
credits.............. 1,029.2 -- 678.3 A 1,707.5 1,707.5
Postretirement and
other benefit obliga-
tions................ 1,067.4 -- 1,067.4 1,067.4
Other................. 370.8 84.9 455.7 455.7
--------- -------- -------- --------- ---------
Total deferred credits
and other liabili-
ties................. 2,467.4 84.9 678.3 3,230.6 3,230.6
Redeemable preferred
stock................. 9.5 -- 9.5 9.5
Limited partner inter-
est in consolidated
subsidiary............ -- 65.8 65.8 65.8
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 375.4 $ 21.2 K 396.6
5.2 F
Preferred stock....... -- -- 240.0 G 240.0 240.0
Capital in excess of
par or stated value.. 4,490.8 4,611.0 3,005.2 A 7,575.3 577.3 K 8,152.6
(2,526.6)A
(1,844.4)B
79.3 F
(240.0)G
Retained earnings..... 4,012.7 (3,885.2) 2,334.2 A (31.2) 3,802.4 3,802.4
(179.1)A
1,551.0 B
Treasury stock, at
cost................. (396.1) -- (396.1) (396.1)
Other................. 103.6 -- (15.6)C 88.0 88.0
--------- -------- -------- ------- -------- --------- -------- ---------
Total common stock and
other stockholders'
equity............... 9,302.3 725.8 2,604.3 -- (31.2) 12,601.2 598.5 13,199.7
--------- -------- -------- ------- -------- --------- -------- ---------
Total.................. $20,453.8 $8,526.4 $3,047.4 $ -- $1,616.8 $33,644.4 $ 598.5 $34,242.9
========= ======== ======== ======= ======== ========= ======== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
69
<PAGE>
Sprint Corporation
Pro Forma Condensed Combined Statement of Income
Nine Months Ended September 30, 1998
(Unaudited, in millions, except per share data)
<TABLE>
<CAPTION>
Historical
Combined
Sprint
Spectrum Pro Forma Adjustments Pro Forma
Historical Holdings --------------------------------------- Adjustments Pro Forma
Sprint and PCS Notes for As
Corp. PhillieCo Restructuring Recapitalization Offering Pro Forma Offerings Adjusted
---------- ---------- ------------- ---------------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues. $11,940.3 $ 787.9 $12,728.2 $12,728.2
Operating Expenses
Costs of services and
products.............. 5,691.3 783.0 6,474.3 6,474.3
Selling, general and
administrative........ 2,802.0 931.6 3,733.6 3,733.6
Depreciation and amor-
tization.............. 1,429.1 529.2 $ 5.2 L 2,207.5 2,207.5
50.5 M
170.3 N
6.8 O
16.4 P
--------- --------- ------ --------- ---------
Total operating ex-
penses................ 9,922.4 2,243.8 249.2 12,415.4 12,415.4
--------- --------- ------ --------- ---------
Operating Income
(Loss)................ 2,017.9 (1,455.9) (249.2) 312.8 312.8
Interest expense....... (185.6) (358.3) 36.0 Q $(55.7)T (545.7) (545.7)
11.2 R
6.7 S
Equity in loss of
Global One............ (120.0) -- (120.0) (120.0)
Equity in loss of
Sprint Spectrum Hold-
ings and PhillieCo.... (686.5) -- 681.3 L -- --
5.2 L
Other income........... 48.6 23.2 (11.2)R 60.6 60.6
Minority interest...... -- 99.0 99.0 99.0
--------- --------- ------ ------ --------- ---------
Income (loss) before
income taxes and
extraordinary item.... 1,074.4 (1,692.0) 480.0 (55.7) (193.3) (193.3)
Income taxes........... (405.1) -- 399.0 U 21.9 V 75.1 75.1
59.3 V
--------- --------- ------ ------ --------- ---------
Income (Loss) from
Continuing Operations. 669.3 (1,692.0) 938.3 (33.8) (118.2) (118.2)
Preferred stock divi-
dends................. (0.8) -- (5.4)W (6.2) (6.2)
--------- --------- ------ ------ --------- ---------
Earnings (loss) appli-
cable to common stock. $ 668.5 $(1,692.0) $932.9 $(33.8) $ (124.4) $ (124.4)
========= ========= ====== ====== ========= =========
Earnings (loss) appli-
cable to common stock:
Sprint Corporation..... $ 668.5 $ -- $ --
FON Group.............. -- 1,099.6 1,099.6
PCS Group.............. -- (1,224.0) (1,224.0)
--------- --------- ---------
$ 668.5 $ (124.4) $ (124.4)
========= ========= =========
Basic Earnings (Loss)
per Common Share from
Continuing Operations:
Sprint Corporation..... $ 1.55 $ -- $ --
========= ========= =========
FON Group.............. $ -- $ 2.55 $ 2.55
========= ========= =========
PCS Group.............. $ -- $ (2.94) $ (2.80)
========= ========= =========
Basic weighted average
common shares:
Sprint Corporation..... 430.7 -- X -- X
========= ========= =========
FON Group.............. -- 430.7 Y 430.7 Y
========= ========= =========
PCS Group.............. -- 415.7 Z 436.9 AA
========= ========= =========
Diluted Earnings (Loss)
per Common Share from
Continuing Operations:
Sprint Corporation..... $ 1.52 $ -- $ --
========= ========= =========
FON Group.............. $ -- $ 2.51 $ 2.51
========= ========= =========
PCS Group.............. $ -- $ (2.94) $ (2.80)
========= ========= =========
Diluted weighted aver-
age common shares:
Sprint Corporation..... 438.7 -- X -- X
========= ========= =========
FON Group.............. -- 438.7 Y 438.7 Y
========= ========= =========
PCS Group.............. -- 415.7 Z 436.9 AA
========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
70
<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 Notes Adjustments
Sprint Corp. PhillieCo Restructuring Recapitalization Offering Pro Forma for Offerings
------------ ------------------- ------------- ---------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Operating
Revenues........ $14,873.9 $ 258.0 $15,131.9
Operating
Expenses
Costs of services
and products.... 7,451.0 574.3 8,025.3
Selling, general
and
administrative.. 3,245.2 747.1 3,992.3
Depreciation and
amortization.... 1,726.3 316.3 $ 3.5 L 2,371.5
67.3 M
227.1 N
9.1 O
21.9 P
--------- --------- ------ ---------
Total operating
expenses........ 12,422.5 1,637.7 328.9 14,389.1
--------- --------- ------ ---------
Operating Income
(Loss).......... 2,451.4 (1,379.7) (328.9) 742.8
Interest expense. (187.2) (123.5) 12.6 Q $(211.2)T (486.9)
13.5 R
8.9 S
Equity in loss of
Global One...... (162.1) -- (162.1)
Equity in loss of
Sprint Spectrum
Holdings and
PhillieCo....... (659.6) -- 656.1 L --
3.5 L
Equity in loss of
unconsolidated
partnership..... -- (168.9) (168.9)
Other income..... 140.5 39.4 (13.5) R 166.4
--------- --------- ------ ------- ---------
Income (loss)
before income
taxes........... 1,583.0 (1,632.7) 352.2 (211.2) 91.3
Income taxes..... (630.5) -- 383.1 U 83.0 V (71.4)
93.0 V
--------- --------- ------ ------- ---------
Net Income
(Loss).......... 952.5 (1,632.7) 828.3 (128.2) 19.9
Preferred stock
dividends....... (1.0) -- (7.2) W (8.2)
--------- --------- ------ ------- ---------
Earnings
applicable to
common stock.... $ 951.5 $(1,632.7) $821.1 $(128.2) $ 11.7
========= ========= ====== ======= =========
Earnings (loss)
applicable to
common stock:
Sprint
Corporation.... $ 951.5 $ --
FON Group....... -- 1,250.7
PCS Group....... -- (1,239.0)
--------- ---------
$ 951.5 $ 11.7
========= =========
Basic Earnings
(Loss) per
Common Share:
Sprint
Corporation.... $ 2.21 $ --
========= =========
FON Group....... $ -- $ 2.91
========= =========
PCS Group....... $ -- $ (2.98)
========= =========
Basic weighted
average common
shares:
Sprint
Corporation ... 430.2 -- X
========= =========
FON Group....... -- 430.2 Y
========= =========
PCS Group....... -- 415.4 Z
========= =========
Diluted Earnings
(Loss) per
Common Share:
Sprint
Corporation.... $ 2.18 $ --
========= =========
FON Group....... $ -- $ 2.87
========= =========
PCS Group....... $ -- $ (2.98)
========= =========
Diluted weighted
average common
shares:
Sprint
Corporation.... 436.5 -- X
========= =========
FON Group....... -- 436.5 Y
========= =========
PCS Group....... -- 415.4 Z
========= =========
<CAPTION>
Pro Forma
as Adjusted
--------------
<S> <C>
Net Operating
Revenues........ $15,131.9
Operating
Expenses
Costs of services
and products.... 8,025.3
Selling, general
and
administrative.. 3,992.3
Depreciation and
amortization.... 2,371.5
--------------
Total operating
expenses........ 14,389.1
--------------
Operating Income
(Loss).......... 742.8
Interest expense. (486.9)
Equity in loss of
Global One...... (162.1)
Equity in loss of
Sprint Spectrum
Holdings and
PhillieCo....... --
Equity in loss of
unconsolidated
partnership..... (168.9)
Other income..... 166.4
--------------
Income (loss)
before income
taxes........... 91.3
Income taxes..... (71.4)
--------------
Net Income
(Loss).......... 19.9
Preferred stock
dividends....... (8.2)
--------------
Earnings
applicable to
common stock.... $ 11.7
==============
Earnings (loss)
applicable to
common stock:
Sprint
Corporation.... $ --
FON Group....... 1,250.7
PCS Group....... (1,239.0)
--------------
$ 11.7
==============
Basic Earnings
(Loss) per
Common Share:
Sprint
Corporation.... $ --
==============
FON Group....... $ 2.91
==============
PCS Group....... $ (2.84)
==============
Basic weighted
average common
shares:
Sprint
Corporation ... -- X
==============
FON Group....... 430.2 Y
==============
PCS Group....... 436.6 AA
==============
Diluted Earnings
(Loss) per
Common Share:
Sprint
Corporation.... $ --
==============
FON Group....... $ 2.87
==============
PCS Group....... $ (2.84)
==============
Diluted weighted
average common
shares:
Sprint
Corporation.... -- X
==============
FON Group....... 436.5 Y
==============
PCS Group....... 436.6 AA
==============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
71
<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
was 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
excess of the purchase price, which was based on the market value of the
Series 2 PCS Stock issued to the Cable Parents, over the fair value of net
assets acquired has been preliminarily allocated as follows (in millions):
<TABLE>
<S> <C>
Purchase price................................................... $3,200.3
Transaction costs................................................ 25.7
Net assets acquired.............................................. (192.4)
Fair value assigned to customer base acquired.................... (681.4)
Fair value assigned to assembled workforce acquired.............. (45.3)
Increase in property, plant and equipment to fair value.......... (196.8)
Write-off of acquired goodwill................................... 217.9
Mark-to-market of long-term debt to fair value................... 84.6
Deferred taxes on acquired assets and liabilities................ 678.3
Completed in-process research and development.................... (179.1)
--------
Goodwill......................................................... $2,911.8
========
</TABLE>
The above purchase price allocation assumes that the carrying amounts of
assets acquired and liabilities assumed approximate fair market value,
except for certain property, plant and equipment of Sprint Spectrum
Holdings and PhillieCo and long-term debt of Sprint Spectrum Holdings, both
of which have been recorded at fair value.
A portion of the purchase price was attributed to the customer base
acquired. The value assigned to the customer base will be amortized over
three years. A portion of the purchase price was also attributed to the
assembled workforce acquired. The value assigned to the assembled workforce
will be amortized over five years. In addition, deferred taxes have been
recorded for the difference in the book and tax bases of the assets
acquired and liabilities assumed.
A portion of the purchase price was attributed to in-process research and
development ("IPR&D"). Development efforts of Sprint Spectrum Holdings are
focused in three general areas: (i) building internal software
applications, primarily systems which improve customer care and service,
(ii) providing additional value enhancing services to PCS customers, and
(iii) establishing a state of the art infrastructure and network to deliver
these services. Many of the research and development projects are
positioning Sprint to take advantage of rapid adoption of the Internet and
the rapid convergence of voice, data, and video. Software development
activities were carefully evaluated to determine if technological
feasibility had been achieved. Consideration of acquired IPR&D was limited
to significant new products under development that were intended to address
emerging market needs and requirements. No routine research and development
projects, minor refinements, normal enhancements, or production activities
were included in the acquired IPR&D. The possibility of alternative future
use was extensively evaluated and it was determined that these
technologies, once completed, could only be economically used for their
intended purposes. The income approach was the primary technique utilized
in valuing the purchased IPR&D. The pro forma statements of income exclude
the impact of the IPR&D costs, which were recorded as a nonrecurring,
noncash charge in connection with the purchase price allocation.
72
<PAGE>
Sprint Corporation
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements--(continued)
B To eliminate Sprint's historical investment in Sprint Spectrum Holdings and
PhillieCo, accounted for by Sprint on the equity method of accounting
($293.4 million), and to reclassify interest capitalized as part of that
investment to other assets ($182.0 million).
C To eliminate Sprint's investment in Sprint Spectrum bonds ($153.6 million)
and the related unrealized gain ($15.6 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 (5.2 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 was 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 September 30, 1998. See "The Formation Transactions--Funding of
the PCS Group Prior to the PCS Restructuring Closing; The PCS Preferred
Stock."
H To record the effects of the Recapitalization of Sprint's 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 issuance of $5,000.0 million of senior notes in the Notes
Offering, net of deferred financing costs of $37.6 million and debt
discount of $5.4 million, and the use of a portion of the proceeds
therefrom to repay existing indebtedness.
J To write off deferred financing costs associated with the repayment of debt
with a portion of the net proceeds from the Notes Offering.
K To record the sale of shares in the Offerings ($478.2 million proceeds and
17.0 million shares, par value $1.00). Proceeds from the Offerings of
$478.2 million have been assumed, net of estimated offering costs of $21.8
million, although the actual amount of the Offerings may vary based on
market conditions. Also to record the purchase of PCS Stock by FT and DT
($120.3 million proceeds and 4.2 million shares, par value $1.00) in
connection with the Offerings.
Pro Forma Statement of Income Adjustments
L 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 ($681.3 million for the nine months ended September 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 ($5.2 million for the nine months ended September 30,
1998 and $3.5 million for the year ended December 31, 1997).
M 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.
73
<PAGE>
Sprint Corporation
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements--(continued)
N 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.
O To reflect the amortization of the assembled workforce recorded in
connection with the purchase of the remaining interests in Sprint Spectrum
Holdings and PhillieCo, which is being amortized over five years.
P To reflect the additional depreciation associated with the purchase price
adjustment to step-up the property, plant and equipment acquired to fair
value (see Note A).
Q 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
$762.1 million and $375.3 million as of September 30, 1998 and December 31,
1997, respectively.
R To eliminate interest income recorded by Sprint and interest expense
recorded by Sprint Spectrum Holdings related to Sprint's investment in
Sprint Spectrum bonds.
S To reflect the amortization of the purchase price adjustment related to
long-term debt (see Note A).
T To reflect the interest expense and amortization of deferred financing
costs on the senior notes issued in the Notes Offering, offset by interest
savings and amortization of deferred financing costs on the debt
outstanding during the period that was ultimately repaid with a portion of
the net proceeds from the Notes Offering. The stated rate of interest on
the senior notes was used in determining interest expense, while actual
interest expense incurred during the respective period on the debt repaid
was assumed to be avoided.
U 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.
V To record the impact on income taxes of pro forma adjustments N through T,
using the statutory income tax rate.
W To reflect dividends at an assumed annual rate of 3% on PCS Preferred Stock
issued to the Cable Parents. As of September 30, 1998, $240.0 million of
funding by the Cable Parents between the date of the Restructuring
Agreement (May 26, 1998) and September 30, 1998 was assumed to be exchanged
for shares of PCS Preferred Stock. For a discussion of how the actual
dividend rate is determined, see "Description of Capital Stock--Description
of PCS Preferred Stock; Preferred Inter-Group Interest."
X The weighted average common shares outstanding for Sprint are eliminated in
the Recapitalization.
Y The weighted average common shares outstanding for the FON Group reflect
the Recapitalization of Sprint's 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.
Z 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
Common Stock into 1/2 share of Series 1 PCS Stock, including the PCS Stock
attributes of the Class A Common Stock (215.4 million shares for the nine
months ended September 30, 1998 and 215.1 million shares for the year ended
December 31, 1997) and (3) the exercise of Equity Purchase Rights by FT and
DT in connection with the PCS Restructuring (5.2 million shares).
AA The weighted average common shares outstanding for the PCS Group reflect
the items in adjustment "Z", as well as the shares assumed to be sold in
the Offerings (17.0 million shares) and the purchase of PCS Stock by FT and
DT in connection with the Offerings (4.2 million shares). The actual number
of shares sold in the Offerings may vary based on market conditions.
74
<PAGE>
SPRINT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On May 26, 1998, Sprint entered into the Restructuring Agreement with the
Cable Parents to restructure Sprint's wireless PCS operations which was
consummated on November 23, 1998. Pursuant to the Restructuring Agreement
Sprint acquired 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 issued to the Cable
Parents a newly created class of Sprint Common Stock, the PCS Stock, the
Warrants, and shares of PCS Preferred 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 are 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), are
referred to as the PCS Group.
The excess of the purchase price paid to the Cable Parents in connection
with the PCS Restructuring over the fair value of the PCS assets 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 an 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.
The FON Stock, which was 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 are referred to as the FON Group.
Holders of FON Stock and PCS Stock are 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;
(iii) the ability of the PCS Group to establish a significant market presence;
(iv) the uncertainties 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."
75
<PAGE>
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 are 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 III to Sprint's Current Report on Form 8-K dated November 2,
1998 (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.
Consolidated
Total net operating revenues for the nine months ended September 30, 1998
were $11.9 billion, an 8% increase from $11.0 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.
76
<PAGE>
Income from continuing operations was $669 million ($1.55 per share) for the
first nine months of 1998 compared with $758 million ($1.76 per share) for the
first nine 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>
Nine Months Year Ended
Ended September 30, December 31,
-------------------- --------------------------
1998 1997 1997 1996 1995
--------- --------- -------- -------- ------
(in millions)
<S> <C> <C> <C> <C> <C>
FON Group(/1/)............... $ 1,141.1 $ 1,014.9 $1,371.6 $1,310.6 $966.0
PCS Group.................... (471.8) (257.3) (419.1) (119.7) (19.9)
--------- --------- -------- -------- ------
Income from continuing
operations.................. $ 669.3 $ 757.6 $ 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 nine months ended September 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>
Nine Months Year Ended
Ended September 30, December 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(in millions)
<S> <C> <C> <C> <C> <C>
Net operating revenues.. $11,940.3 $11,024.9 $14,873.9 $13,887.5 $12,735.3
Total operating
expenses............... 9,842.4 9,176.6 12,404.0 11,619.8 10,901.0
--------- --------- --------- --------- ---------
Operating income........ $ 2,097.9 $ 1,848.3 $ 2,469.9 $ 2,267.7 $ 1,834.3
========= ========= ========= ========= =========
Operating margin........ 17.6% 16.8% 16.6% 16.3% 14.4%
========= ========= ========= ========= =========
Capital expenditures.... $ 2,320.0 $ 1,835.7 $ 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
Current Report on Form 8-K dated November 2, 1998 (which is incorporated
herein by reference).
Nine Months Ended September 30, 1998 and 1997
Net Operating Revenues
In the first nine months of 1998, net operating revenues increased 8% 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 nine months ended September
30, 1998 increased 9% 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 the Sprint Sense Anytime "10 by 24" product as well as
international and prepaid calling cards and calling card calls made by
customers of local telephone companies. The business market reflects growth in
data services, toll-free and direct distance-dialing
77
<PAGE>
toll calls. Growth in the small business market benefited from Sprint
international business calling plan. The wholesale market showed strong minute
growth mainly from increased WATS calls.
The local telecommunications division's revenues for the nine months ended
September 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 5% reflecting access line growth and continued demand for
network-based services as well as increases in private line services and
maintenance of customer wiring and equipment. 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 revenues from locating underground utility lines, as well as
increased commissions from the sale of Sprint's long distance services.
The product distribution and directory publishing division's revenues for
the nine months ended September 30, 1998 increased 19% 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 to both non-
affiliates and affiliates as a result of lower pricing.
Revenues in the emerging businesses segment increased due to the acquisition
of Sprint Paranet in late 1997.
Operating Expenses
For the nine months ended September 30, 1998, operating expenses increased
7% from the same 1997 period.
The long distance division's operating expenses increased 6% largely due to
higher selling, general and administrative costs as a result of increased
marketing activities and promotions of products and services. Interconnection
costs decreased 3% reflecting lower unit costs for domestic and international
access to others' networks. Operations expense increased 10% 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 decreased less than 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 8% 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. This increase also reflects
Sprint's July 1998 acquisition of a sales force from another directory sales
company.
Costs incurred in the first nine months of 1998 were mainly due to the
development of ION and costs related to the network buildout and new market
launches for the PCS Group. The PCS Group launched service in Jacksonville and
Tallahassee, Florida, in the third quarter of 1998. Sprint will continue to
devote significant resources through 1999 to develop ION as well as to fund
the network buildout and launch additional PCS Group markets.
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.
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The long distance division's revenues increased 8% in 1997 and 14% 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
Sprint's Fridays Free program. 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, 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 18% in 1997, 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. Operations expense was relatively unchanged in 1996.
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.
Costs incurred 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.
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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>
Nine Months
Ended September Year Ended
30, December 31,
---------------- ----------------------
1998 1997 1997 1996 1995
------- ------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Total operating expenses.............. $ 80.0 $ 7.4 $ 18.5 $ 0.5 $ --
------- ------- ------ ------ ------
Operating loss........................ $ (80.0) $ (7.4) $(18.5) $ (0.5) $ --
======= ======= ====== ====== ======
Capital expenditures.................. $ 672.1 $ 68.2 $153.7 $ -- $ --
======= ======= ====== ====== ======
Purchase of PCS Licenses.............. $ -- $ 460.1 $460.1 $ 84.0 $ --
======= ======= ====== ====== ======
Investments in and loans to Sprint
Spectrum Holdings and PhillieCo...... $ 193.5 $ 255.5 $405.9 $297.5 $910.9
======= ======= ====== ====== ======
</TABLE>
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."
Nine Months Ended September 30, 1998 and 1997
Operating Expenses
Operating expenses were $80 million for the nine months ended September 30,
1998 and $7 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 difference between the interest expense amounts disclosed in the
following table and the 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 - items not related to
borrowings. Sprint
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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>
Nine Months Year Ended
Ended September 30, December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
--------- --------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Interest expense on
outstanding debt.......... $ 152.2 $ 117.1 $ 159.9 $ 161.2 $ 231.0
Interest expense related to
Cellular (1).............. -- -- -- 21.5 124.0
Capitalized interest costs. 74.7 69.7 93.0 104.0 57.0
--------- --------- -------- -------- --------
Total interest costs on
outstanding debt.......... $ 226.9 $ 186.8 $ 252.9 $ 286.7 $ 412.0
========= ========= ======== ======== ========
Average debt outstanding... $ 4,613.0 $ 3,156.4 $3,251.3 $3,604.9 $5,505.2
========= ========= ======== ======== ========
Effective interest rate.... 6.6% 7.9% 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.
Average debt outstanding increased $1.4 billion for the nine months ended
September 30, 1998 to support the network buildout of the SprintCom PCS
markets and to fund capital contributions to Sprint Spectrum Holdings and
PhillieCo and investments in other Sprint affiliates. 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 nine months ended September 30,
1998 decreased to 6.6% from 7.9% for the same period in 1997 mainly because of
an increase in short-term borrowings as a percentage of total debt
outstanding, which have lower interest rates. 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 September 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 $801 million for the first nine
months of 1998 compared with $810 million in the same period a year ago.
Sprint's losses associated with Global One totaled $120 million for the first
nine months of 1998 compared with $88 million a year ago.
Global One's revenues totaled $1.1 billion for 1997 compared to $800 million
in 1996. Sprint's losses associated with 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.
In an effort to improve profitability, Global One is refocusing its efforts
to place more emphasis on multinational customers. In addition, it is
continuing to review its operations, implement expense controls, and focus on
improving the network infrastructure. Global One is in the process of
implementing its plan to address these items, which may result in one-time
charges.
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Sprint Spectrum Holdings and PhillieCo
Sprint's equity ownership of Sprint Spectrum Holdings and PhillieCo, prior
to the PCS Restructuring, were accounted for on the equity basis in the PCS
Group. The combined revenues from Sprint Spectrum Holdings and PhillieCo
totaled $788 million for the first nine months of 1998 versus $111 million a
year ago. Sprint's share of the combined operating losses from Sprint Spectrum
Holdings and PhillieCo was $687 million for the first nine months of 1998
compared with $411 million a year ago. The increase in 1998 losses reflects
marketing and promotional costs (including losses on handset sales), and
operating costs to support a growing customer base. At September 30, 1998, the
combined customer base of Sprint Spectrum Holdings and PhillieCo exceeded 1.75
million customers. The venture continues to aggressively market to new
customers, which will result in higher losses in 1998 and 1999 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.
ARPU for the nine months ended September 30, 1998 was approximately $57.
ARPU was $55, $55 and $60 for the three month periods ended September 30,
1998, June 30, 1998 and March 31, 1998, respectively. This average is expected
to continue to decline (consistent with industry projections) due to increased
competition resulting from additional wireless service providers entering the
market and the addition of lower usage subscribers to the PCS Group's
subscriber base. Sprint Spectrum Holdings and PhillieCo have adopted marketing
plans that both target and encourage higher usage and higher ARPU. Customer
turnover rates and customer marketing costs have been as 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.
Other Income (Expense), Net
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30, December 31,
------------------- ----------------------
1998 1997 1997 1996 1995
--------- --------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Dividend and interest income..... $ 49.1 $ 52.8 $ 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....................... (0.5) (1.0) (6.4) 3.9 (12.9)
--------- --------- ------ ------ ------
Total other income (expense),
net............................. $ 48.6 $ 51.8 $140.5 $115.3 $(38.9)
========= ========= ====== ====== ======
</TABLE>
Dividend and interest income for the nine months ended September 30, 1998
reflects interest earned on loans to unconsolidated affiliates. Dividend and
interest income for the first nine 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.
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<PAGE>
Income Taxes
Sprint's effective tax rates for the nine months ended September 30 were
37.7% in 1998 and 39.9% 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 $20.5 billion at September 30, 1998,
$18.2 billion at year-end 1997 and $16.8 billion at year-end 1996. Net
property, plant and equipment increased $2.0 billion since year-end 1997
mainly because of capital expenditures, to support the core long distance and
local networks and expanded product and service offerings. Sprint's debt-to-
capital ratio was 37.3% at September 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 $3.0 billion for the first nine months of 1998 versus $2.4
billion for the first nine 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 $3.7
billion for the first nine months of 1998 and $3.2 billion for the first nine
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 $3.0 billion for the first nine months of 1998 and
$1.9 billion for the first nine months of 1997 and totaled $2.9 billion in
1997, $2.4 billion in 1996 and $1.9 billion in 1995. Long distance division
capital expenditures were incurred
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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 $307
million in the first nine months of 1998 versus $410 million in the first nine
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 nine 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 for the 1997 nine-
month period and for the year ended December 31, 1997 are $154 million and
$300 million, respectively, 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 the first nine months
of 1997, bringing the total payments to $544 million.
"Investments in and loans to other affiliates, net" includes net
contributions to Global One to fund operations as well as investments in other
affiliates.
In the first nine months of 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 $705 million for the first
nine months of 1998, while financing activities for the same period in 1997
used cash of $238 million. Financing activities during the first nine months
of 1998 reflect proceeds from long-term debt of $946 million and increased
construction obligations of $429 million, partly offset by payments on long-
term debt of $247 million. Financing activities in the first nine months of
1997 reflect an increase in short-term borrowings of $195 million, offset by
payments on long-term debt of $111 million.
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 $292 million in the
first nine months of 1998, $275 million in the first nine 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.
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Capital Requirements
Sprint's investing activities, consisting of capital expenditures and
investments in affiliates, for the PCS Group and the FON Group are expected to
require cash of $6.7 billion to $8.0 billion for 1999. Dividend payments on
FON Stock are expected to total $430 million in 1999.
Sprint and its former PhillieCo Partners, TCI and Cox, loaned $50 million to
PhillieCo to fund operating and working capital requirements and capital
expenditures through September 30, 1998. Sprint agreed pursuant to the
Restructuring Agreement to cause the above described loans to PhillieCo to be
repaid by February 21, 1999. Approximately $62 million of the PCS Preferred
Stock owned by Cox will be redeemed with the proceeds from the Offerings, but
only to the extent the net proceeds of the Offerings exceed $500 million. See
"The Formation Transactions--Funding of the PCS Group Prior to the PCS
Restructuring Closing; The PCS Preferred Stock."
Liquidity
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 Sprint
PCS debt obligations.
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.
In August 1998, Sprint entered into $5.0 billion of new revolving credit
facilities with syndicates of domestic and international banks. These
facilities support Sprint's commercial paper operations and replace its
previous $1.5 billion revolving credit facility. As of September 30, 1998,
Sprint could borrow $3.6 billion under these new facilities. Sprint also has a
separate five-year revolving credit facility with a bank. The unused capacity
under the committed portion of that facility was $100 million.
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission (SEC) for $8.0 billion of debt securities.
This shelf registration replaced $1.0 billion of Sprint's existing shelf
registration statements. Proceeds from the sale of securities under the new
shelf registration statement will be used to repay short-term borrowings, to
refinance existing long-term borrowings, and to provide funds for working
capital and new capital expenditures for both the PCS Group and the FON Group.
In November 1998, Sprint Capital Corporation issued $5.0 billion of Senior
Notes (guaranteed by Sprint) in the Notes Offering under the new shelf
registration statement. As of December 31, 1998, Sprint had loaned to the PCS
Group $4.2 billion of the proceeds from the sale of the Senior Notes at a
weighted-average interest rate of approximately 8.5%. The PCS Group used
approximately $3.3 billion of these funds to repay existing indebtedness.
Any borrowings Sprint may incur are ultimately limited by certain debt
covenants. Sprint could borrow up to $13.8 billion at September 30, 1998 under
the most restrictive of its debt covenants. Among other restrictions, Sprint
must maintain certain levels of consolidated net worth.
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<PAGE>
In connection with 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 purchase of these shares are expected to total approximately
$120.3 million ($138.4 million if the Underwriters' over-allotment option is
exercised in full) at an assumed purchase price equal to the assumed public
offering price less estimated underwriting discounts and commissions. See "Use
of Proceeds."
For information concerning the use of proceeds from the Offerings, see "Use
of Proceeds."
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
Sprint
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.
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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 substantially 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.
Sprint expects its total Year 2000 compliance program to incur approximately
$250 million of expense. 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.
Although Sprint intends to develop and implement, if necessary, appropriate
contingency plans to mitigate to the extent possible the effects of any Year
2000 noncompliance, such plans may not be adequate and the cost of Year 2000
compliance may be higher than $250 million.
Affiliates
Sprint's results of operations and financial condition could also be
materially adversely affected by the failure of its affiliates, including
Global One, to achieve Year 2000 compliance in a timely manner.
As a result of the PCS Restructuring, Sprint acquired management control of
Sprint PCS; therefore the following discussion provides additional information
related to the Year 2000 compliance efforts of the PCS Group.
The PCS Group has completed an inventory of its computer systems, network
elements, software applications, products and other business systems. The Year
2000 impact of items identified through the inventory process is being
assessed and a plan is being 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. However, full compliance may not be achieved
as planned by the PCS Group and such third parties and the PCS Group may not
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
(for example, 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. 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 such cost could become material because of the various
reasons described above, many of which are out of the PCS Group's control.
Impact of Recently Issued Accounting Pronouncements
See Note 18 of Notes to Consolidated Financial Statements for a discussion
of recently issued accounting pronouncements.
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BUSINESS OF THE PCS GROUP
Overview
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. At December 31, 1998, the
PCS Group, together with certain affiliated companies, operated PCS systems in
225 metropolitan markets within the United States, including 45 of the 50
largest metropolitan areas. By the end of the first quarter 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 2.5 million customers as of December
31, 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, 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 Licenses
------ ------------- --------- --------
(in millions)
<S> <C> <C> <C>
Sprint Spectrum Holdings
Sprint Spectrum....... 155.9 100.0% 30 MTAs
Cox PCS(2)............ 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) Pops data for Cox PCS includes 100% of its Pops, not the PCS Group's
proportional interest. 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 Formation 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
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million for the license. Cox PCS launched commercial service in the San Diego
area in December 1996, in the Los Angeles area in November 1997 and in Las
Vegas in October 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
Formation Transactions--Amendments to the Cox PCS Agreements." Cox has given
Sprint Spectrum Holdings notice to start the appraisal process related to a
potential put of all or a portion of Cox's remaining partnership interest to
Sprint Spectrum Holdings.
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, then 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. SprintCom has entered into an agreement with PrimeCo to
acquire PrimeCo's Hawaii wireless business, including the CDMA network and
customer base. Subject to the receipt of FCC approval, the transaction is
expected to close in the first quarter of 1999.
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.
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In the wireless communications industry there are two principal services
licensed by the FCC for transmitting two-way, real time voice and data
signals: "cellular" and "PCS." Cellular, which uses the 800 MHz frequency
block, is the predominant form of wireless voice communications service
utilized by subscribers today. Cellular systems are predominantly analog-based
systems, although digital technology has been introduced in most metropolitan
markets. Analog-based systems send signals in which the transmitted signal
resembles the input signal, while in digital systems the input signal is coded
into a binary form before the signal is transmitted.
In 1993, the FCC allocated the 1900 MHz frequency block of the radio
spectrum for the provision of a new wireless personal communications service,
commonly known as PCS. PCS differs from traditional analog cellular telephone
service principally in that PCS systems operate at a higher frequency and
employ advanced digital technology. Digital systems convert voice or data
signals into a stream of digits that permit a single radio channel to carry
multiple simultaneous transmissions. Digital systems also achieve greater
frequency reuse than analog systems resulting in greater capacity than analog
systems. This enhanced capacity, along with enhancements in digital protocols,
allows digital-based wireless technologies (whether using PCS or cellular
frequencies) to offer new and enhanced services, and more robust data
transmission (such as greater clarity, better security, facsimile, electronic
mail and connecting notebook computers with computer/data networks).
Cellular service was first introduced in the United States in 1983. As of
June 30, 1998, according to the Cellular Telecommunications Industry
Association ("CTIA"), there were 60.8 million wireless telephone subscribers
in the United States, representing an overall wireless penetration rate of
22.4% and a subscriber growth rate of 24.9% from June 30, 1997.
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>
Six Months Year Ended
Ended June 30, December 31,
--------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Service Revenues
(in billions).......... $ 15.3 $ 13.1 $ 27.5 $ 23.6 $ 19.1 $ 14.2 $ 10.9
Ending Wireless
Subscribers (in
millions).............. 60.8 48.7 55.3 44.0 33.8 24.1 16.0
Subscriber Growth....... 24.9% -- 25.6% 30.4% 40.0% 50.8% 45.1%
Average Monthly Revenue
per Subscriber......... $ 39.32 $ 42.20 $ 41.12 $ 44.66 $ 47.59 $ 51.48 $ 58.74
Ending Penetration...... 22.4% 18.1% 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 98.4 million by the year 2001. 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. 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.
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
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agreements with local exchange carriers and interexchange carriers, thereby
integrating their system with the existing landline communications system.
Because the signal strength of a transmission between a handset and a cell
site declines as the handset moves away from the cell site, the switching
office and the cell site monitor the signal strength of calls in progress.
When the signal strength of a call declines to a predetermined level, the
switching office may "hand off" the call to another cell site where the signal
strength is stronger.
Wireless digital signal transmission is accomplished through the use of
various forms of frequency management technology or "air interface protocols."
The FCC has not mandated a universal air interface protocol for PCS systems.
PCS systems operate under one of three principal air interface protocols:
CDMA, TDMA and GSM. TDMA and GSM are both time division 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.
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 recently
introduced all-inclusive nationwide service plans that offer a single rate for
local and long distance calls to anywhere in the United States when made on
the Sprint PCS network. The PCS Group also offers several innovative pricing
plans that allow its customers to select billing plans that suit their usage
patterns,
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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 December 31, 1998, the PCS Group had its products for sale in
approximately 7,750 third-party retail locations nationwide, including
retailers such as RadioShack, Circuit City and Best Buy. The PCS Group plans
to have approximately 8,750 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 December 31, 1998, the PCS Group operated 188 Sprint PCS
retail locations. The PCS Group plans to operate approximately 210 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 and
tests other alternative distribution channels, including sales agency, private
label resale, Internet and other arrangements.
Continue Coverage Expansion. The PCS Group has three principal strategies
for expanding the areas where its handsets are usable. First, the PCS Group
intends to build several thousand additional cell sites in and around its
existing markets. Second, the PCS Group is pursuing affiliation arrangements
with other companies, primarily in and around smaller metropolitan areas in
the United States where it does not intend to serve customers with its own
network. These companies have agreed 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 December
31, 1998, the PCS Group had entered into agreements with 11 companies covering
an aggregate of approximately 26 million Pops in 19 states. As of December 31,
1998, the affiliation companies had launched 10 metropolitan markets covering
2 million Pops. Third, the PCS Group also markets Dual-Band/Dual-Mode Handsets
which may be programmed to acquire analog cellular networks when the customer
travels outside the coverage of the PCS Group network. As of December 31,
1998, the PCS Group had entered into over 100 agreements with digital PCS and
analog cellular providers which allow customers to use these networks
automatically in most areas of the country. In other areas this service is
available as manual roaming, requiring the use of a credit card or similar
billing device. The PCS Group intends to continue to use this service to
provide coverage in places which may not financially support the construction
of a PCS network.
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 and simple 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. As of
December 31, 1998, a total of approximately 2,250 customer care
representatives in Fort Worth, Texas and in other customer care centers
located in Irvine, California, Rio Rancho, New Mexico and Herndon, Virginia
were 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 several vendors to provide additional customer
care support. Customer care representatives are
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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 fifth customer care center in a location yet to be
determined by the middle of 1999, which is expected to have 500 customer care
representatives.
To meet customer demands for account information, the PCS Group also allows
customers to manage their accounts directly by telephone through an automated
voice response system and through the Internet by accessing the Sprint PCS web
site. These features reduce the need for customer care representatives to
handle customer inquiries and are intended to enhance customer satisfaction.
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.
On October 1, 1998, Sprint PCS introduced new all-inclusive nationwide
service plans that offer a single rate for local and long distance calls in
the United States anytime, anywhere on the Sprint PCS network. The new service
plans offer customers long distance calling at no additional charge.
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"
and the simplicity of its rate structure compared to other service providers.
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. The PCS Group also sponsors numerous selective,
broad-based national, regional and local events which 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 sales and direct sales forces, third-party
retail stores, an Internet site, telemarketing, private label resale 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 December 31, 1998, the PCS Group had opened
188 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. The PCS Group plans to
operate approximately 210 Sprint PCS retail locations by the end of the first
half of 1999.
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Third Party Retail Stores. As of December 31, 1998, the PCS Group sold its
products and services in approximately 7,750 third party retail locations. The
PCS Group expects to increase the number of third-party retail stores to
approximately 8,750 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 December 31, 1998, sold PCS Group products in
approximately 3,250 locations and had approximately 20,000 of its employees
trained in PCS sales. Many RadioShack stores contain a Sprint Store-Within-A-
Store which sells PCS Group and FON Group 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.
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.
Electronic Commerce. The PCS Group launched its Internet site in December
1998. The Internet site contains information on PCS Group products and
services. A visitor to the Internet site can order and pay for a handset and
select a rate plan. Customers visiting the site can review the status of their
account, including the number of minutes used in the current billing cycle.
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.
Voice Messaging Services. The PCS Group offers a number of voice message
services, including voicemail and numeric paging. The PCS Group also offers
Enhanced Voicemail which permits customers who purchase the service to send,
reply to and forward messages to other PCS Group voicemail customers.
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 offers text messaging in most of its markets
with full roll out anticipated by the end of the third quarter of 1999. Text
messaging allows customers to receive alpha-numeric messages of up to 100
characters in length. Senders are able to submit messages via the Sprint PCS
Internet site, e-mail or personal computer software. Another data service
expected to be launched by the end of the third quarter of 1999 will permit
customers to connect their data capable handsets to a personal computer using
a data cable and use their handsets to connect to a landline network at speeds
up to 14.4 Kbps. Data capable handsets can also provide facsimile data
services.
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,
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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.
Prepaid Service. The PCS Group offers customers the option of prepaying for
their service. This alternate payment method is utilized by individuals who do
not qualify for a credit plan, by those who wish to avoid paying a deposit to
secure service or by those who wish to control spending.
Network
Network Buildout and Expansion. The initial buildout of the PCS Group's
network involved systems design, acquisition and construction of cell sites,
equipment procurement and installation, interconnection with other
communications providers, microwave relocation and implementation of advanced
management and information systems. As of December 31, 1998, the PCS Group's
network was able to provide service in areas covering more than 162 million
Pops, or 60% of total Pops. The emphasis and focus in many of the markets
served by the PCS Group has shifted from an initial network buildout process
to network operations.
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 Coverage 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 and substantially all North
American coverage has been implemented. Pursuant to these roaming agreements,
PCS Group customers who have Dual-Band/Dual-Mode Handsets have the ability to
roam automatically in substantially all of North America 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 PCS Group currently has CDMA roaming in
portions of Canada and Puerto Rico and expects to have CDMA roaming in
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Mexico, Singapore, Chile and other Latin American countries in 1999. 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 network of the PCS Group.
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 PCS transmitters
and receivers. 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. 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 offers nationwide service for a flat monthly rate, without roaming
charges. 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.
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The PCS Group also faces competition from "resellers" which provide wireless
service to customers but do not hold FCC licenses or own facilities. Instead,
the reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to
the public. Thus, a reseller is both a customer of a wireless licensee's
services and also a competitor of that and other licensees. The FCC requires
all cellular and PCS licensees to permit resale of carrier service to a
reseller.
In the future, the PCS Group expects to face increased competition from
entities providing similar services using other communications technologies,
including satellite-based telecommunications and wireless cable systems. While
some of these technologies and services are currently operational, others are
being developed or may be developed in the future.
Over the past several years the FCC has and will continue to auction large
amounts of wireless spectrum that could be used to compete with the PCS
Group's services. Based upon increased competition, the PCS Group anticipates
that market prices for two-way wireless services generally will decline in the
future. The PCS Group competes to attract and retain customers principally on
the basis of services and features, the size and location of its service
areas, 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 (40% if a small business or rural telephone company))
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. Certain pro forma assignments or transfers of control
require only post-consummation notification.
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
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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.
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 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 requires that by March 31, 2000 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. 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 November 2002. The FCC
must rule on the CTIA petition by mid-March 1998.
The FCC also has proposed a rebuttable presumption that any wireless service
provided under a CMRS provider's license would be considered to come within
the definition of CMRS and consequently regulated as CMRS. In June 1996, the
FCC adopted rules requiring broadband PCS and other CMRS providers to
implement two phases of enhanced emergency 911 capabilities within 18 months
after the effective date of the FCC's rules. 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. Phase II capabilities include
passing to the public safety entity information concerning the location of the
911 caller.
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. The FCC recently, however, 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 software and 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. The FCC recently announced that it will be issuing a Further
Notice of Proposed Rulemaking tentatively concluding that J-STD-025 is
deficient and that the industry must provide certain other capabilities to
comply with CALEA.
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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. 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 percent-
age of "end-user telecommunications 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 process is not inconsistent with the FCC's rules. At the present
time it is not possible to predict the extent of the PCS Group's total federal
and state universal service assessments or ability to recover from the univer-
sal 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.
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 December 31, 1998, the PCS Group employed approximately 11,500 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 of cell sites, customer care, research, advertising, and
information technology.
Facilities
The PCS Group leases space for base station towers and switch sites for its
nationwide network. As of December 31, 1998, the PCS Group had under lease (or
options to lease) approximately 10,300 cell sites. In addition, the PCS Group
leases approximately 173 facilities (other than retail stores) of which 63
facilities house 83 switches with the remaining facilities leased for the PCS
Group headquarters in Kansas City, Missouri, customer care facilities in
Herndon, Virginia, Ft. Worth, Texas, Rio Rancho, New Mexico and Irvine,
California, as well as numerous sales and marketing offices.
Patents, Trademarks and Service Marks
Sprint owns various trademarks and service marks 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.
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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.
Environmental Compliance
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. In addition, Qualcomm filed an
application for a pioneer preference license for PCS service for southern
Florida. The FCC denied the application. Qualcomm has subsequently initiated a
proceeding against the FCC requesting that the FCC award Qualcomm a pioneer
preference license. If Qualcomm were to be successful in its proceeding, the
FCC might choose to award Qualcomm a license, which could include a license
presently held by the PCS Group, e.g. the Miami MTA license, without
compensating the PCS Group for loss of the license. 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.
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MANAGEMENT OF THE PCS GROUP
The following table sets forth the members of the senior management of the
PCS Group. The information set forth below is as of December 31, 1998.
<TABLE>
<CAPTION>
Name Age Position
------------------------------------ --- ----------------------------------
<S> <C> <C>
Ronald T. LeMay..................... 53 Chairman
Andrew Sukawaty..................... 43 Chief Executive Officer
Arthur A. Kurtze.................... 54 Chief Operating Officer
Bernard A. Bianchino................ 50 Chief Business Development Officer
William J. Gunter................... 56 Chief Financial Officer
F. Edward Mattix.................... 45 Chief Public Relations Officer
Charles E. Levine................... 45 Chief Sales and Marketing Officer
Joseph M. Gensheimer................ 47 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 1993, 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 PowerWave
Technologies 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. Prior to that, 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
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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.
William J. Gunter was named Chief Financial Officer of Sprint Spectrum
Holdings in October 1998. Prior to that, Mr. Gunter was Senior Vice President
of Finance for Sprint's Long Distance Division, a position he held since 1993.
Mr. Gunter has served in various staff and management positions for Sprint
since 1969.
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.
Incentive Plans
Replacement of Units Under Sprint Spectrum Long-Term Incentive Plan
Under the Sprint Spectrum Long-Term Incentive Plan (the "Sprint Spectrum
LTIP"), participants received units for the 1996 plan year having a base
appraisal price set as of July 1, 1996, and received units for the 1997 plan
year having a base appraisal price set as of July 1, 1997. The base appraisal
price was based upon an independent appraisal of the value of Sprint Spectrum
Holdings. Each July 1, an independent appraisal of Sprint Spectrum Holdings
(adjusted prospectively to reflect the effects of the PCS Restructuring for
1998) determined the amount of appreciation in the units during the prior
year. With respect to vested units, participants could elect, within 45 days
following completion of each year's appraisal, to receive payment of the
appreciation in cash or to keep the units in the plan. On December 8, 1998,
the Organization, Compensation and Nominating Committee (the "Compensation
Committee") of Sprint's Board terminated the Sprint Spectrum LTIP and replaced
units under the plan with a package consisting of shares of PCS Stock and
options to buy shares of PCS Stock at a strike price of $15.84375, the average
of the high and low trading prices of Series 1 PCS Stock on that date.
Sprint converted units under the Sprint Spectrum LTIP to a number of shares
of PCS Stock and options to buy a specific number of shares of PCS Stock under
a formula designed to (1) replace the appreciated value of each participant's
units as of July 1, 1998, with shares of PCS Stock and (2) continue each
participant's upside appreciation potential by the grant of options to buy
additional shares of PCS Stock. With respect to vested units
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under the Sprint Spectrum LTIP as of December 8, 1998, each participant may
elect, on or before January 22, 1999, whether to receive the amount of the
appreciation of vested units in cash in lieu of the grant of shares and
options. With respect to unvested units, the issuance of shares and the
exercisability of options is deferred until the date on which the
corresponding units would have vested under the Sprint Spectrum LTIP. Sprint
will issue the shares and the options will become exercisable only if the
participant is still employed by Sprint or a Sprint subsidiary on the vesting
date.
Because of the deferred issuance of shares with respect to unvested units
and the right of participants to elect cash in lieu of shares and options with
respect to vested units, Sprint cannot determine the exact number of shares
that will be issued to participants in replacement of units under the Sprint
Spectrum LTIP. The following table, however, summarizes the shares and shares
under option that would be issued to participants with respect to the
termination of the Sprint Spectrum LTIP if (1) with respect to unvested units,
all participants remain employed until Sprint issues all shares being issued
on a deferred basis and (2) with respect to vested units, no participants
elect to receive cash.
<TABLE>
<CAPTION>
Shares Options
--------- ---------
<S> <C> <C>
In Replacement of Vested Units........................... 392,368 455,624
In Replacement of Unvested Units......................... 1,248,045 1,440,754
--------- ---------
Total.................................................. 1,640,413 1,896,378
========= =========
</TABLE>
Grant of Half-Year PCS Options Under Sprint Stock Option Plan
In addition to shares and options issued to convert units under the Sprint
Spectrum LTIP, Sprint also granted options to buy shares of PCS Stock to
certain PCS Group employees to synchronize the Sprint Spectrum incentive
compensation cycle (which ran from July 1 to June 30) with Sprint's calendar-
year cycle. Sprint granted to each such employee PCS Stock options that would
equate to one-half of the expected annual grant for PCS Group employees. These
options were granted on December 8, 1998, and give each optionee the right to
buy shares of PCS Stock at a strike price of $15.84375 per share. The options
become exercisable with respect to 25% of the number of shares subject to
purchase on each of the first four anniversaries of the grant date. In total,
Sprint granted options to buy 804,121 shares of PCS Stock in the half-year
grants.
Participation in Future Grants Under Sprint Stock Option Plan
In connection with the PCS Restructuring, Sprint amended its 1990 Stock
Option Plan to permit the grant of options to buy either FON Stock or PCS
Stock. The Compensation Committee has traditionally granted options to
management employees each year at its February meeting. Sprint expects that
the Committee will grant options in February 1999, and that the Committee will
approve grants to management employees of both the FON Group and PCS Group.
Participation in Other Equity-Based Plans
The Sprint Board also amended its other stock-based employee plans to
provide for the issuance of both FON Stock and PCS Stock, or units measured by
the value of both FON Stock and PCS Stock. In particular, members of the PCS
Group management will be eligible to participate in the 1999 offering under
the Management Incentive Stock Option Plan, in which they can elect to forego
receiving either 25% or 50% of their annual incentive compensation in cash in
return for options to buy FON Stock and PCS Stock. All participants will be
offered the opportunity to buy options in both classes of stock. The
allocation between options to buy FON Stock and PCS Stock were set by the
Compensation Committee in a manner that reflects the job responsibilities of
employees. PCS Group employees, for example, generally will be able to use 90%
of their foregone incentive compensation for the purchase of options to buy
PCS Stock and 10% to purchase options to buy FON Stock. The allocation for
members of senior management of the PCS Group (other than Mr. LeMay) has been
set at 82% PCS Stock and 18% FON Stock. Percentages for corporate center
employees and high-level management of Sprint, including Mr. LeMay, whose
responsibilities cross Group boundaries, will be allocated 82% to FON Stock
and 18% to PCS Stock.
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Effective December 31, 1998, Sprint merged the Sprint Spectrum Savings and
Retirement Plan into the Sprint Retirement Savings Plan. Under the Sprint
Retirement Savings Plan, PCS Group employees can elect to invest their
contributions in a PCS Stock fund and will be entitled to receive matching
contributions, partially invested in a PCS Stock fund. Employees of the PCS
Group will also be eligible to participate in the 1999 offering under Sprints'
Employees Stock Purchase Plan on the same basis as all other employees of
Sprint and its eligible subsidiaries.
PCS Stock and Options Held by PCS Management
The following table sets forth certain information regarding (i) Series 1
PCS Stock, (ii) options to acquire Series 1 PCS Stock and (iii) rights to
receive Series 1 PCS Stock and options to acquire Series 1 PCS Stock from the
conversion of the Sprint Spectrum LTIP, held by each member of the PCS Group
management based on known holdings as of December 31, 1998.
<TABLE>
<CAPTION>
Sprint Spectrum LTIP Conversions
-----------------------------------------------------------
Vested Unvested
---------------------------------- ------------------------
Shares Options
Name Held Held(/1/) Shares(/2/)(/3/) Options(/3/)(/4/) Shares(/5/) Options(/6/)
- ---- ------- --------- ---------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald T. LeMay......... 157,262 924,864 0 0 0 0
Andrew Sukawaty......... 0 0 42,280 39,608 126,839 118,823
Arthur A. Kurtze........ 19,024 61,935 16,031 15,018 48,093 45,054
Bernard A. Bianchino.... 944 11,001 9,903 9,277 29,708 27,830
William J. Gunter....... 3,700 46,082 0 0 0 0
F. Edward Mattix........ 0 4,315 3,300 3,091 9,899 9,273
Charles E. Levine....... 0 12,943 0 0 24,094 22,572
Joseph M. Gensheimer.... 0 8,629 8,778 8,233 26,364 24,698
------- --------- ------ ------ ------- -------
Total................. 180,930 1,069,769 80,292 75,227 264,997 248,250
======= ========= ====== ====== ======= =======
</TABLE>
- --------
(1) All amounts in this column indicate options which may or may not be
exercisable within 60 days after the date of this Prospectus. Does not
include options issued upon conversion of the Sprint Spectrum LTIP.
(2) To be issued after January 22, 1999 unless the individual elects cash in
lieu of vested units.
(3) No later than the close of business on January 22, 1999, Messrs.
Sukawaty, Kurtze, Bianchino, Mattix and Gensheimer have the option to
elect to receive a cash payment of $868,006, $329,115, $203,320, $67,739
and $180,416, respectively, in lieu of receiving vested shares and
options as a result of the conversion of the Sprint Spectrum LTIP.
(4) These options were granted on December 8, 1998 and become exercisable in
full on January 23, 1999, but are subject to forfeiture if the individual
elects cash in lieu of vested units.
(5) To be issued in equal annual installments over a three-year period,
subject to continued employment.
(6) These options were granted on December 8, 1998 and become exercisable in
equal annual installments over a three-year period, subject to continued
employment.
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THE FORMATION TRANSACTIONS
General
Sprint's stockholders, at a special meeting held November 13, 1998, approved
the following in connection with the PCS Restructuring:
A. Amendments to the Articles as constituted prior to the Formation
Transactions, which, 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, consisting of 2,350,000,000
authorized shares divided into three series: (1) Series 1 PCS Stock, (2)
Series 2 PCS Stock, to be issued to certain subsidiaries of the Cable
Parents pursuant to the PCS Restructuring and (3) Series 3 PCS Stock, to
be issued to FT and DT;
. 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 previously outstanding share of Sprint Common Stock into
1/2 share of Series 1 PCS Stock and one share of Series 1 FON Stock,
consisting of 2,500,000,000 authorized shares;
. reclassify each outstanding share of Class A Common that is held by DT
into one share of DT Class A Stock, consisting of 100,000,000 authorized
shares;
. establish the terms of the Series 2 FON Stock, which will only be issued
if Sprint converts the outstanding shares of PCS Stock into shares of
FON Stock at a time when shares of Series 2 PCS Stock are outstanding,
consisting of 500,000,000 authorized shares; and
. reclassify each outstanding share of FT Class A 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 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 FT Class A Stock or DT Class A
Stock, as the case may be, represent a number of unissued shares of FON
Stock or PCS Stock, as applicable.
B. 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 (together with the mergers to acquire Sprint Spectrum Holdings,
the "Mergers");
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C. 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 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 were issued either directly for the purchase of such indebtedness
or as consideration in the Mergers if a Cable Parent elected to
contribute the right to repayment of such indebtedness to the respective
subsidiaries being acquired by Sprint in 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 (if the Cable Parents exercise
their Equity Purchase Rights) the Cable Parents in connection with the
Offerings and (subject to certain exceptions) any future issuances of PCS
Stock or creation of an Inter-Group Interest; and
D. 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 Offerings:
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Outstanding Common Stock and Inter-Group Interest--Assuming Completion of
the Offerings as of December 31, 1998
<TABLE>
<CAPTION>
Number of Percentage of
Series of Shares Group Ownership Sprint Voting
Stockholder(s) Common Stock Owned(1) Interest (2) Power (1)(2)(3)
------------------------ ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C>
FON Group
Existing Public
Stockholders(4)....... Series 1 FON 344,425,366 80.0% 70.5%
FT..................... Series 3 FON 43,118,018(5) 10.0% 8.8%
DT..................... Series 3 FON 43,118,018(5) 10.0% 8.8%
----------- ----- ----
Total-FON Group........ 430,661,402 100.0% 88.2%
=========== ===== ====
PCS Group
TCI.................... Series 2 PCS 98,563,924(6) 22.3% 0.4%
Cox.................... Series 2 PCS 49,281,981(6)(7) 11.2% 0.2%
Comcast................ Series 2 PCS 47,248,435(6) 10.7% 0.2%
----------- ----- ----
Cable Parents Totals... 195,094,340 44.2% 0.9%
Existing Public
Stockholders(4)....... Series 1 PCS 172,425,138 39.1% 7.8%
Inter-Group Interest... N/A 4,456,844(6)(8) 1.0% N/A
FT..................... Series 3 PCS 26,281,468(6)(9)(10) 6.0% 1.2%
DT..................... Series 3 PCS 26,281,468(6)(9)(10) 6.0% 1.2%
New Public
Stockholders.......... Series 1 PCS 16,985,000 3.8% 0.8%
----------- ----- ----
Total-PCS Group........ 441,524,258(11) 100.0% 11.8%
=========== ===== ====
</TABLE>
- --------
(1) Does not include shares of Preferred Stock, of which, as of December 31,
1998, there were outstanding: (i) 38,595 shares of Preferred Stock--First
Series, Convertible; (ii) 245,163 shares of Preferred Stock--Second
Series, Convertible; and (iii) 95 shares of Preferred Stock--Fifth
Series. In addition, the table does not include the 246,766 shares of 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.
(2) Percentages may not total due to rounding.
(3) 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.
Solely for purposes of illustration, if a record date for a stockholder
vote were set on January 22, 1999, each share of Series 1 PCS Stock and
Series 3 PCS Stock would have 0.221 votes per share, and each share of
Series 2 PCS Stock would have 0.0221 votes per share.
(4) Excludes FT and DT.
(5) These shares are issuable in respect of the 43,118,018 shares of Class A
Common held by each of FT and DT.
(6) Does not reflect Warrants to purchase 6,291,314, 3,145,659 and 3,015,858
shares of PCS Stock held by TCI, Cox and Comcast, respectively, or the
FON Group's Warrant Inter-Group Interest to acquire an Inter-Group
Interest equivalent to 12,452,831 shares of PCS Stock, or shares issuable
upon exercise of FT and DT's Equity Purchase Rights in connection with
the exercise of the Warrants.
(7) 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, and the market price of Series 1 PCS
Stock.
(8) Sprint expects that the FON Group's Inter-Group Interest will be
eliminated over time as certain employee stock options are exercised for,
and as shares of convertible preferred stock are converted into, shares
of PCS Stock. Inter-Group Interest is not represented by actual shares
and does not carry any vote.
(9) Includes 2,123,125 shares of Series 3 PCS Stock to be purchased by each
of FT and DT in connection with the Offerings, which assumes that
16,985,000 shares are sold in the Offerings. See "--Equity Purchase
Rights."
(10) Includes (i) 2,599,334 shares of Series 3 PCS Stock issued in connection
with the PCS Restructuring and (ii) 21,559,009 shares of PCS Stock
issuable in respect of the 43,118,018 shares of Class A Common held by
each of FT and DT.
(11) Does not include 14,637,917 shares of Series 1 PCS Stock underlying
existing employee stock options. Of these options, only 2,700,499 will be
satisfied with issuances of PCS Stock by the PCS Group. The remaining
options will be satisfied out of the FON Group Inter-Group Interest or
with shares purchased with FON Group assets. Also does not include up to
1,640,413 additional shares of PCS Stock that may be issued in partial
replacement of the former Sprint Spectrum Long-Term Incentive
Compensation Plan. See "Management of the PCS Group--Incentive Plans."
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
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<PAGE>
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. 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%.
The Tracking Stocks
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.
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."
The PCS Stock and the FON Stock each have three series: one that is
publicly-traded (Series 1), a second, which has 1/10th of the vote per share
of the Series 1 and Series 3 shares, that is for issuances to the Cable
Parents (Series 2) and a third that is for issuances to FT and DT (Series 3).
See "Description of Capital Stock."
The PCS Restructuring
Prior to the Formation Transactions, Sprint held a 40% interest in Sprint
Spectrum Holdings and an approximately 47% interest in PhillieCo. On May 26,
1998, Sprint entered into the Restructuring Agreement with the Cable Parents
and various of their subsidiaries, pursuant to which Sprint purchased, on
November 23, 1998, all of their respective interests in Sprint Spectrum
Holdings and all the respective interests of TCI and Cox in PhillieCo in
exchange for (i) an aggregate of approximately 195 million shares of Series 2
PCS Stock and (ii) Warrants to acquire an aggregate of approximately 12.5
million shares of Series 2 PCS Stock. Sprint also issued to the Cable Parents
shares of PCS Preferred Stock. Sprint acquired such interests in Sprint
Spectrum Holdings and PhillieCo by means of the Mergers, which were 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 owned
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 is exercisable for a share of PCS
Stock at any time before November 23, 2003 at an exercise price equal to the
average of the daily closing prices of a share of Series 1 PCS Stock as traded
on the New York Stock Exchange for a period of 30 consecutive trading days
ending on January 29, 1999. In the PCS Restructuring, the FON Group received
the Warrant Inter-Group Interest, with an exercise price and other terms
equivalent to the Warrants, to acquire an additional Inter-Group Interest
equivalent to approximately 12.5 million shares of PCS Stock. The FON Group
also received the Preferred Inter-Group Interest, with terms similar to those
of the PCS Preferred Stock, also convertible into an additional Inter-Group
Interest.
Inter-Group Interest
As of December 31, 1998, the total number of shares of PCS Stock intended to
track the performance of the PCS Group (including shares of PCS Stock that are
issuable with respect to the Class A Common held by FT and DT) was
approximately 420,293,000. The Cable Parents' shares of Series 2 PCS Stock
represented an aggregate of 46.4% of these shares. The shares owned by FT and
DT represented an aggregate of 11.5%, which consisted of shares of Series 3
PCS Stock and shares of PCS Stock issuable with respect to the Class A Common
owned by FT and DT. The publicly-traded shares of PCS Stock represented 41.0%
of these shares. The remaining, unissued 1.1% represented an ownership
interest of the FON Group in the PCS Group, similar to the FON Group holding
shares of PCS Stock. This ownership interest is referred to as an "Inter-Group
Interest." Sprint expects this Inter-Group Interest to be eliminated over time
as certain employee stock options are exercised for, and shares of convertible
preferred stock are converted into, shares of PCS Stock. The FON Group's
Inter-Group Interest may, however, increase in the future. See "Future Inter-
Group Interest." In addition, the FON Group holds the Warrant Inter-Group
Interest and the Preferred Inter-Group Interest.
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<PAGE>
The Recapitalization
Simultaneously with the consummation of the PCS Restructuring, Sprint
reclassified (i) each share of Sprint's publicly-traded Common Stock to
represent one share of Series 1 FON Stock and 1/2 share of Series 1 PCS Stock
and (ii) each share of Class A Common Stock as described below under "--
Arrangements with FT and DT."
Arrangements with FT and DT
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
Offerings to maintain their aggregate voting power of approximately 20% of all
Sprint Voting Stock. The various investment documents among Sprint, FT and DT,
including the stockholders agreement and the standstill agreement, were also
amended and restated to reflect and address the changes provided for by the
Formation Transactions.
Pursuant to the Articles, simultaneously with the consummation of the PCS
Restructuring, each share of FT Class A Stock held by FT and each share of DT
Class A Stock held by DT was reclassified so that each share, among other
things, 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. Series 3 PCS
Stock has most of the same voting rights as the Series 1 PCS Stock (except it
is voted along with the Series 3 FON Stock and Class A Common for the election
of the Class A Directors) and dividend and liquidation rights that are
identical to the Series 1 PCS Stock.
Purchases of Series 3 PCS Stock. Pursuant to the Master Agreement, FT and DT
agreed to purchase shares of Series 3 PCS Stock sufficient for FT and DT to
acquire beneficial ownership, in the aggregate, equal to 25% of the aggregate
voting power attributable to the shares of Series 2 PCS Stock and PCS
Preferred Stock issued in the PCS Restructuring and Series 1 PCS Stock issued
in the Offerings (including issuances of Series 2 PCS Stock resulting from the
exercise of Equity Purchase Rights by any of the Cable Parents and any shares
of Series 1 PCS Stock issued upon exercise of the Underwriters' over-allotment
option in the Offerings) 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 in
connection with the Offerings 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 dated October
5, 1998 in connection with the stockholder vote on the Formation Transactions,
incorporated herein by reference.
Funding of the PCS Group Prior to the PCS Restructuring Closing; The PCS
Preferred Stock
Sprint Spectrum Holdings. The capital requirements of Sprint Spectrum
Holdings between the signing of the Restructuring Agreement and the time of
the PCS Restructuring Closing were satisfied by aggregate capital
contributions of $400 million (the "PCS Contributions") from the entities
directly holding each of the respective interests in Sprint Spectrum Holdings
(the "PCS Partners") (the "PCS Contributions"). The PCS Contributions were
funded by (i) loans from the Cable Parents or subsidiaries thereof to certain
of their respective Cable Subsidiaries (the "Cable Parent Loans"), and (ii)
loans from Sprint or a subsidiary of Sprint to Sprint's PCS Partner (the
"Sprint PCS Loans"). Each lender received promissory notes in consideration
for such loans, including promissory notes issued by Sprint's PCS Partner to
Sprint for the Sprint PCS Loans (the "Sprint PCS Notes").
SprintCom. The capital requirements of SprintCom between the signing of the
Restructuring Agreement and the time of the PCS Restructuring Closing were
provided by loans from Sprint or its Affiliates evidenced by promissory notes
in the aggregate principal amount of $110.6 million. Such loans are referred
to herein as the "SprintCom Loans." Indebtedness of SprintCom to Sprint or its
Affiliates that was advanced or otherwise existed prior to January 1, 1998 was
contributed to the equity of SprintCom at the time of the Formation
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Transactions. Indebtedness advanced by Sprint or its affiliates to SprintCom
on or after January 1, 1998 and through the PCS Restructuring Closing, other
than the SprintCom Loans, became inter-group debt of the PCS Group, in the
aggregate principal amount of $549 million, on terms consistent with the
Tracking Stock Policies.
Capitalization or Purchase of Cable Parent Loans, Sprint PCS Loans and
SprintCom Loans. Pursuant to the Restructuring Agreement, TCI and Comcast
elected to capitalize all of their respective Cable Parent Loans prior to the
PCS Restructuring Closing by contributing such loans to their respective
subsidiaries owning interests in Sprint Spectrum Holdings.
In the Mergers, TCI and Comcast received, as consideration in the Merger of
its respective subsidiary, 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. TCI
received 123,314 shares of PCS Preferred Stock; Comcast received 61,726
shares.
At the PCS Restructuring Closing, Sprint purchased for shares of PCS
Preferred Stock all of the Cox Cable Parent Loans, which were not capitalized
as described above. Cox received 61,726 shares of PCS Preferred Stock. As a
result, pursuant to the Restructuring Agreement, Cox has the right to require
that Sprint purchase for cash all or any portion of its PCS Preferred Stock
out of net proceeds of the Offerings in excess of $500 million. Cox has
elected to have all of its PCS Preferred Stock repurchased, if sufficient
funds are available.
At the PCS Restructuring Closing, the Sprint PCS Notes and SprintCom Loans
were repaid by the creation of the Preferred Inter-Group Interest, which is
the economic equivalent of the FON Group owning 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. TCI, Cox and Sprint (the parents of the former PhillieCo
Partners) have loaned to PhillieCo an aggregate of $95 million as of December
31, 1998. Sprint had loaned an additional $90 million to PhillieCo as of
December 31, 1998. Sprint will cause all loans advanced by the Parents of the
PhillieCo Partners or their respective Affiliates to PhillieCo to be repaid by
PhillieCo (together with accrued interest) on the 90th day following the PCS
Restructuring Closing.
Equity Purchase Rights
Cable Parents
Pursuant to the Restructuring Agreement, the Cable Parents and their
Subsidiaries holding PCS Stock have certain rights to purchase additional
shares of PCS Stock ("Equity Purchase Rights"), as follows:
Each Cable Parent and any subsidiary of a Cable Parent that holds shares of
PCS Stock (a "Cable Holder") has the right to purchase from Sprint:
(i) if 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 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 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;
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(iii) if 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 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 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.
Each Cable Parent has elected not to exercise its Equity Purchase Rights in
connection with the Offerings.
The Cable Holders will not have any Equity Purchase Right with respect to
shares of PCS Stock issued pursuant to (i) exercises of the Warrants, (ii)
conversion of the PCS Preferred Stock, (iii) qualified or non-qualified
employee and director benefit plans, arrangements or contracts (including
stock purchase plans), (iv) dividend reinvestment plans, (v) conversion rights
under capital stock of Sprint outstanding as of May 26, 1998 or (vi) 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 (i)-(v)
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 (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 (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 Equity Purchase Rights. In connection with the Formation
Transactions, Sprint, FT and DT entered into the Amended and Restated
Stockholders' Agreement dated November 23, 1998 (the "Amended and Restated
Stockholders' Agreement"). FT and DT have the right, based upon their
Committed Percentage, to acquire additional shares 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 Common Stock). Generally, FT and DT
must
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purchase Series 3 FON Stock when Sprint issues Series 1 FON Stock and Series 3
PCS Stock when Sprint issues Series 1 PCS Stock or Series 2 PCS Stock. The
holders of Class A Common, Series 3 FON Stock and Series 3 PCS Stock ("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 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 holders of Class A Stock may 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.
Generally, the price paid for shares purchased on exercise of Equity
Purchase Rights will be the weighted average price per share paid in the
issuance giving rise to such rights or the market price of a share of the
class purchased by the holder of Class A Stock as of the date of the issuance
giving rise to such rights. Payment for shares to be purchased in respect of
such rights generally will be made as follows:
(i) If the aggregate purchase price with respect to the shares to be
acquired by the holders of Class A Stock is less than $200 million, then
payment will be made in cash.
(ii) If the aggregate purchase price with respect to such shares is
between $200 million and $500 million, $200 million of such purchase price
will be paid in cash. 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 Class A 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 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, the Amended and
Restated Stockholders' Agreement contains a mechanism whereby the Equity
Purchase Rights of the holders of Class A Stock will be automatically
exercised and Sprint will immediately issue to FT and DT the shares of Class A
Stock which they are entitled to purchase pursuant to such rights.
Special Equity Purchase Rights apply 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.
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Record Date Blackout Purchases. The Amended and Restated 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 and Restated 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 also applies upon certain transfers of PCS Preferred Stock. 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 Amended and Restated 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 Class A 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 definition of an Exclusionary Tender
Offer includes 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 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.
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Ownership Ratios. Pursuant to the Amended and Restated 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 Amended and Restated
Stockholders' Agreement and the Articles, FT and DT have agreed that if the
ratio in clauses (i), (ii) or (iii) above is exceeded for more than 60 days
after notice from Sprint to FT and DT, then each share of Class A Stock
outstanding will automatically convert into the applicable number of shares of
Series 1 FON Stock or Series 1 PCS Stock, as the case may be, and the rights
of the holders of Class A 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.
Standstill Agreements
Cable Parents
The following statements with respect to the Standstill Agreements entered
into by Sprint and each Cable Parent dated May 26, 1998 are subject to the
detailed provisions of such Standstill Agreements. 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 such Standstill Agreements, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus forms
a part.
General. In connection with the execution of the Restructuring Agreement,
Sprint and each Cable Parent 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 PCS
Restructuring Closing, acquire any Sprint Voting Securities, other than as a
result of purchases from Sprint pursuant to the Restructuring Agreement, or
(ii) on and after November 23, 1998 and before November 23, 2008 (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 amounted to
more than 1.5% of the Voting Power represented by the then-Outstanding Sprint
Voting Securities, 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, (iii)
acquiring additional shares of Series 2 PCS Stock upon exercise of the
Warrants or (iv) 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
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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.
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
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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) 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 (iv) 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
The following statements with respect to the Amended and Restated Standstill
Agreement dated November 23, 1998 among Sprint, FT and DT (the "Amended
Standstill Agreement") are subject to the detailed provisions of the Amended
Standstill Agreement. 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 Standstill Agreement, a copy of which is incorporated by reference as
an exhibit to the Registration Statement of which this Prospectus forms a
part.
Pursuant to the Amended Standstill Agreement, 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.
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
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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 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 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% 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 Articles;
or
(v) as a result of a redemption or conversion of any PCS Stock pursuant
to the Articles.
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.
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In connection with the Restructuring Agreement, Sprint Spectrum Holdings and
Cox entered into an amendment to the Cox PCS Partnership agreement (the "Cox
PCS Amendment") providing, 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, in connection with the Restructuring Agreement, Sprint and Cox
agreed that Cox PCS's obligation to pay an affiliation fee to Sprint Spectrum
Holdings under the affiliation agreement terminated effective March 31, 1998.
See "PCS Group Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Cox has given Sprint
Spectrum Holdings notice to start the appraisal process related to a potential
put of all or a portion of Cox's remaining partnership interest to Sprint
Spectrum Holdings.
Expected Manner of Compliance With Various Reporting Requirements
Securities law reporting requirements applicable to Sprint and its officers
and directors will be satisfied in light of the Formation Transactions in a
manner that the Sprint Board determines to be appropriate 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."
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.
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TRACKING STOCK POLICIES
In connection with the PCS Restructuring, Sprint 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. An amendment to the Sprint Bylaws, which became
effective on November 23, 1998, established a committee of the Sprint Board
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 reasonable 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. The Capital Stock Committee
consists of each member of the Sprint Board other than Mr. Esrey and Mr.
LeMay.
Pursuant to the bylaws amendment, the Capital Stock Committee has 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).
The Articles provide that the provisions of the Sprint Bylaws regarding the
Capital Stock Committee will not be amended prior to November 23, 2002 by the
Sprint Board without (i) the approval of the holders of a majority of the
shares of then outstanding Common Stock and (ii) the approval of the holders
of a majority of the shares of then outstanding PCS Stock, voting as a
separate class.
Scope of the PCS Group; Allocation of Business Opportunities and
Operations. The Articles set forth the entities that comprised the PCS Group
as of the PCS Restructuring Closing. 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
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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.
Pursuant to the Tracking Stock Policies, the PCS Group will not acquire an
Inter-Group Interest in the FON Group (or in any Other Group). Transfers of
assets from the PCS Group to the FON Group therefore will not be treated as
creating an Inter-Group Interest of the PCS Group in the FON Group, but may be
treated as a reduction of any existing Inter-Group Interest of the FON Group
in the PCS Group, but not below zero.
All other transfers of assets between one Group (the "Transferor Group") and
another Group (the "Transferee Group"), not designated by the Sprint Board as
equity transfers and not pursuant to a contract for the provision of goods or
services between the Groups, will be accompanied by (i) the transfer by the
Transferee Group to the Transferor Group of other assets, (ii) the creation of
inter-group debt owed by the Transferee Group to the Transferor Group, or
(iii) the reduction of inter-group debt owed by the Transferor Group to the
Transferee Group, in each case in an amount having a fair market value, in the
judgment of the Sprint Board, equivalent to the fair market value of the
assets transferred by the Transferor Group.
Notwithstanding the above, the Sprint Board has determined pursuant to the
Tracking Stock Policies that neither the FON Group nor any Other Group will
acquire in one transaction or in a series of related transactions a
significant portion of the assets of the PCS Group without receiving the
consent of the holders of a majority of the outstanding shares of PCS Stock,
voting as a separate class, and the consent of the holders of a majority of
the outstanding shares of FON Stock or stock of such Other Group, voting as a
separate class. A "significant portion of the business of the PCS Group" is
defined as more than 33% of the assets of the PCS Group, based on the fair
market value of the assets, both tangible and intangible, of the PCS Group as
of the time that the proposed transaction is approved by the Sprint Board.
Any inter-group transaction that results in a change in the size of any
Inter-Group Interest held by the FON Group or any Other Group in the PCS Group
will be subject to the review and approval of the Capital Stock Committee. If
such review occurs before such transaction is undertaken and such transaction
is disapproved, the transaction will not proceed. If such review occurs after
such transaction is undertaken and such transaction is disapproved,
appropriate actions will be taken to reinstate the pre-existing circumstances
to the fullest extent practicable.
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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 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 PCS
Restructuring Closing 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 CP
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 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) applies
to tax years ending on or before December 31, 2001, and shall not be modified,
suspended or rescinded, nor will additions or exceptions be made to the Tax
Sharing Agreement, for such periods. For subsequent periods, the Sprint Board
will adopt a tax sharing arrangement that will be designed to allocate
Sprint's tax benefits and burdens fairly between the PCS Group and the FON
Group. Sprint expects that tax benefits that cannot be used by a Group
generating those benefits but can be used on a consolidated basis will
continue to result in payments to the Group that generated
such benefits based on the value of such benefits to Sprint on a consolidated
basis. In addition, Sprint expects that tax benefits, if any, pertaining to
tax loss or tax credit carry forwards generated by a Group but not utilized as
of the expiration of the initial Tax Sharing Agreement will continue to result
in payments to the Group that generated such benefits based on the value of
such benefits to Sprint on a consolidated basis when such tax benefits are
utilized. Sprint has not determined whether or not it will continue to utilize
the Stacking Procedure for tax years ending after December 31, 2001.
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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 September 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 $8.5 billion, the FON Group Available
Dividend Amount would have been approximately $7.6 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 purchase of PCS
Stock by FT and DT in connection with the Offerings) would have been
approximately $4.0 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. 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."
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REGISTRATION RIGHTS
Cable Parents' Registration Rights
The following statements with respect to the Cable Parents' registration
rights are subject to the detailed provisions of the Registration Rights
Agreement dated November 23, 1998 entered into by Sprint and the Cable Parents
(the "Registration Rights Agreement"). 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 Registration Rights Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Pursuant to the Registration Rights Agreement, Sprint has agreed to register
the shares of PCS Stock issued 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
the PCS Restructuring 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
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period ending the later of (i) May 22, 1999 and (ii) 90 days after the closing
of the Offerings, refrain from engaging in any public sale or distribution of
any PCS Stock or securities convertible into, or exchangeable or exercisable
for, or the value of which relates to or is based upon, PCS Stock.
Number of Demand Registrations. At any time on or after the 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 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 of not less than $200 million
at an assumed price per share of approximately $16.20, 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
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
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selected by each of Sprint and the sellers of 50% or more of the securities to
be sold by Stockholder Groups exercising Demand Registration rights. In
offerings of Derivative Securities, such Stockholder Groups shall select the
lead managing underwriter (who shall be the book running manager), and, if
there are co-managers, (i) there shall be at least one non-book running co-
lead manager selected by such initial holder(s) who is reasonably acceptable
to Sprint; or (ii) if such Stockholder Groups shall require Sprint to
participate in a "roadshow" for such offering, Sprint will select a non-book
running co-lead manager.
If the book running managing underwriters of any underwritten public
offering determine that the number of shares to be offered exceeds the number
that could be sold without having an adverse effect on such offering
(including the price at which the Registrable Securities may be sold), then
the number of shares to be offered will be reduced to an amount recommended by
the co-lead joint book running underwriters. Any such required reductions will
be made (i) first, from the securities proposed to be sold by persons who are
not part of a Stockholder Group other than FT or DT, (ii) second, from
securities proposed to be registered pursuant to incidental registration
rights held by FT and DT (together with securities being offered for the
account of Sprint); (iii) third, from securities proposed to be registered by
members of Stockholder Groups registering shares pursuant to their Incidental
Registration Rights; and (iv) last, from the shares to be registered by
Stockholder Groups initiating the Demand Registration.
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),
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then the number of shares to be offered will be reduced to an amount
recommended by the co-lead joint book running underwriters. Any such required
reductions will affect any Stockholder Group participating in such offering as
follows:
(i) in connection with an offering initiated by Sprint, all of the
proceeds of which will be allocated to the PCS Group, if securities are
being offered for the account of persons other than Sprint, such reduction
shall be made:
(x) first, from the securities intended to be offered by such other
persons (other than those described in clause (i)(y) below);
(y) second, from (A) the securities requested to be included in such
offering by the Stockholder Group and (B) the securities requested to
be included by FT and/or DT pursuant to their incidental registration
rights on a pro rata basis, based on the number of Registrable
Securities and securities of FT and/or DT which are requested to be
included in such offering; and
(z) last, from the number of securities to be offered for the account
of Sprint; provided, that no reduction pursuant to (i)(y) above shall
be made from the securities of any Stockholder Group until the end of
the Priority Period;
(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,
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the number of securities to be included in such offering for the
account of Sprint the proceeds of which will be allocated to the PCS
Group;
(y) third, from (A) the number of Registrable Securities requested to
be included in such offering by the applicable Stockholders and (B) the
number of securities requested to be included in such offering by FT
and/or DT pursuant to their incidental registration rights, on a pro
rata basis, based on the number of Registrable Securities and
securities of FT and DT which are requested to be included in the
registration; and
(z) last, following the Priority Period, the number of securities, if
any, to be included in such offering for the account of Sprint the
proceeds of which will be allocated to the PCS Group.
Following the Secondary Priority Period, the priorities set forth in clause
(iii) of the preceding sentence shall cease to apply and any offering of
securities initiated by Sprint shall be treated as if the terms of clause (i)
of the preceding sentence applied to such offering.
Withdrawal. Any member of a Stockholder Group may elect to withdraw its
respective Registrable Securities from inclusion in an Incidental Registration
at any time prior to five business days prior to the then anticipated
effective date of the applicable registration statement. Withdrawal will not
affect obligations to pay expenses under the Registration Rights Agreement.
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
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to cause Registrable Securities that are registered to be listed on the
principal exchange on which publicly traded Registrable Securities are listed
and keeping publicly available information current for purposes of Rule 144
sales.
Pursuant to the Registration Rights Agreement the members of Stockholder
Groups will, in connection with any registration in which they participate,
cooperate with Sprint in connection with the preparation of the applicable
registration statement and discontinue sales forthwith upon notice of a
Material Activity or the occurrence of an event necessitating an amendment or
supplement to an applicable registration statement or prospectus.
Holdbacks. Pursuant to the Registration Rights Agreement, in an underwritten
public offering of Derivative Securities or Registrable Securities, if the
lead managing underwriter or underwriters advise Sprint in writing that a
public sale or distribution (including a sale pursuant to Rule 144 under the
Securities Act) of Registrable Securities other than pursuant to such
underwritten public offering would materially adversely impact such
underwritten public offering, then each member of a Stockholder Group will
refrain from effecting any public sale or distribution of Registrable
Securities or securities convertible into, or exchangeable or exercisable for,
or the value of which relates to or is based upon, such securities during the
ten days prior to, and during the ninety day period beginning on, the
effective date of the Registration Statement for such offering or such shorter
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
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alleged statements, or omissions or alleged omissions, contained in the
applicable registration statement (in the case of an offering of Derivative
Securities, also including the registration statement registering the
Derivative Securities of such member).
Other Registration Rights. The Registration Rights Agreement provides that
Sprint shall not grant to any person any demand registration right, incidental
registration right or other right that would be inconsistent with any of the
rights granted in the Registration Rights Agreement.
Designated Representatives. The Registration Rights Agreement provides that
all actions by, and all notices by or to, a Stockholder Group or any member
thereof will be taken or made by or provided to, as the case may be, a
designated representative for such Stockholder Group.
Assignment. Holders of Registrable Securities may transfer any of their
rights under the Registration Rights Agreement, without the consent of Sprint,
to any person to whom such holder transfers any Registrable Securities if such
transfer is not made pursuant to an effective Registration Statement or
pursuant to Rule 144 or Rule 145 (or any successor provisions) under the
Securities Act or in any other manner the effect of which is to cause the
transferred securities to be freely transferable without regard to the volume
and manner of sale limitations set forth in Rule 144 (or any successor
provision) in the hands of the transferee as of the date of such 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 statements with respect to the registration rights of FT and
DT are subject to the detailed provisions of the Amended and Restated
Registration Rights Agreements among Sprint, FT and DT, dated as of November
23, 1998 (the "Amended Registration Rights Agreement"). 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 Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
Pursuant to the investment agreements among Sprint, FT and DT, none of the
shares of Class A Common or PCS Stock held by FT and DT as of December 31,
1998, and none of the shares of PCS Stock purchased by FT and DT in connection
with the Offerings, may be transferred prior to January 31, 2001, subject to
certain exceptions.
Registration Rights--Number of Registrations. Under the Amended Registration
Rights Agreement the holders of a majority of the Class A Stock are entitled
to demand one registration in any 12-month period, up to a maximum of ten
registrations. Sprint is responsible for the registration expenses in
connection with the first seven of such registrations; the holders of the
Class A Stock requesting registration would be responsible for the
registration expenses in connection with the remaining three registrations.
The holders of the Class A 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.
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Sprint is not required to effect any registration unless the market value of
the Class A Stock requested to be registered exceeds $200 million unless the
registration relates to the sale of Series 3 PCS Stock ("Post-Restructuring
Series 3 PCS Shares"):
(i) acquired by the holders of Class A 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 and Restated 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, or
(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. If 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 Amended
Registration Rights Agreement provides for the following priorities in
registrations demanded by FT and DT:
(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 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
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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
Amended Registration Rights Agreement provides for the following priorities in
incidental registrations by FT and DT:
(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, (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 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
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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 Amended 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.
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FUTURE INTER-GROUP INTEREST
In addition to the Warrant Inter-Group Interest and the Preferred Inter-
Group Interest, the FON Group has a small Inter-Group Interest in the PCS
Group. 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 a larger 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 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.
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.
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ANTI-TAKEOVER CONSIDERATIONS
The Kansas General Corporation Code, the Articles and the Sprint Bylaws
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 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 six series of Preferred Stock, aggregating in total 13,551,420
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, 1,500,000 shares of the Preferred Stock--Sixth Series,
300,000 shares of PCS Preferred Stock and 1,250,000 shares of Preferred
Stock--Eighth Series. Accordingly, 6,448,580 shares of Preferred Stock remain
unissued, unreserved and available for issuance. 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 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 Articles contain
a provision (ARTICLE EIGHTH) that requires the affirmative vote of a majority
of the Sprint voting power to approve any purchase, redemption or other
acquisition by Sprint of any capital stock of Sprint at above-market prices
from an Interested Securityholder (defined generally as any person who
beneficially owns, directly or indirectly, five percent or more of the class
of securities to be acquired) who has owned such securities for less than two
years. Shares
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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 Articles contain a provision (ARTICLE FIFTH) that provides for a
classified Sprint Board under which one-third of the total number of directors
(other than directors elected by the holders of Class A Stock) are elected
each year. The 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 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 Articles
and the Sprint Bylaws, and even then, under the Kansas General Corporation
Code, an amendment to the 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 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 which became effective on November 23, 1998. The amended rights
agreement (the "Rights Agreement") amended the Rights
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that were attached to Sprint's outstanding Common Stock prior to the PCS
Restructuring by designating them as FON Group Rights. The Rights Agreement
also provided that a FON Group Right would be issued in connection with the
issuance of each share of any series of FON Stock and created new PCS Group
Rights which would be issued in connection with the issuance of shares of all
series of PCS Stock. Finally, the amendment amended the Rights that were
attached to the Class A Common Stock prior to the PCS Restructuring by
designating them as Old Class A Rights and Series DT Rights.
The FON Group Rights will be traded with the FON Stock, 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 $275,
subject 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. 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 FT Class A 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 FT Class A 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.
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
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their shares. The issuance of additional shares of FON Stock, PCS Stock or
Class A Common 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 PCS Restructuring 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.
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DESCRIPTION OF CAPITAL STOCK
General
The following statements with respect to the Articles are subject to the
detailed provisions of the Articles. 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 Articles, a copy of which is filed or incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
The Articles provide that Sprint is authorized to issue 6,770,000,000 shares
of capital stock, including 20,000,000 shares of preferred stock, without par
value, and 6,750,000,000 shares of common stock. The authorized common stock
consists of: (i) 4,200,000,000 shares of FON Stock, consisting of
2,500,000,000 shares of Series 1 FON Stock, 500,000,000 shares of Series 2 FON
Stock and 1,200,000 shares of Series 3 FON Stock; (ii) 200,000,000 shares of
Class A Common, consisting of 100,000,000 shares of FT Class A Stock
and 100,000,000 shares of DT Class A Stock; and (iii) 2,350,000,000 shares of
PCS Stock, consisting 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.
The Series 3 FON Stock and Series 3 PCS Stock will be issued only to FT and
DT (and certain majority-owned subsidiaries of FT and/or DT which satisfy
certain criteria (the "Qualified Subsidiaries")). The Series 2 FON Stock will
be issued only to the Cable Parents and will be issued only if the PCS Stock
is converted into FON Stock in accordance with the terms described below prior
to the conversion of all shares of Series 2 PCS Stock into Series 1 PCS Stock.
The authorized but unissued shares of FON Stock, PCS Stock and Preferred
Stock will be available for issuance by Sprint from time to time, as
determined by the Sprint Board, for any proper corporate purpose, which could
include raising capital for use by either Group, payment of dividends,
providing compensation or benefits to employees or acquiring other companies
or businesses. The issuance of such shares would not be subject to approval by
the stockholders of Sprint unless deemed advisable by the Sprint Board or
required by applicable law, regulation or stock exchange listing requirements.
Neither holders of FON Stock or PCS Stock will have any preemptive rights. The
Cable Parents and FT and DT will, however, possess the Equity Purchase Rights
described under "The Formation Transactions--Equity Purchase Rights."
Holders of PCS Stock and FON Stock are common stockholders of Sprint and are
subject to all risks associated with an investment in Sprint and all of its
businesses, assets and liabilities.
Summary Chart of Authorized Capital Stock of Sprint
The following table shows the number of authorized shares of capital stock
of Sprint.
<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 "FT Class A Stock" Class A Common Stock N/A $2.50 per share 100,000,000
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 Preferred Stock."
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Representation of the Common Equity of Sprint and the Groups
The total common equity of Sprint, the FON Group and the PCS Group is
represented as follows:
. The total common equity of Sprint is represented by the outstanding
shares of (A) the FON Stock, (B) the PCS Stock and (C) the Class A
Common.
. The total common equity of the FON Group is represented by the
outstanding shares of (A) the FON Stock and (B) the FT Class A Stock and
DT Class A Stock (but only to the extent such stock represents a Number
Of Shares Issuable With Respect To The FT 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 is 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 FT Class A Stock and DT Class A Stock (but only to
the extent such stock represents a Number Of Shares Issuable With
Respect To The FT Class A Equity Interest In The PCS Group and a Number
Of Shares Issuable With Respect To The DT Class A Equity Interest In The
PCS Group, respectively).
Class A Common Stock
Reclassification of All Class A Common Stock. In the Recapitalization, the
Class A Common Stock held by FT and DT prior to the Formation Transactions was
reclassified into an equal number of shares of FT Class A 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 changed as follows:
. The FT Class A Stock is now deemed to represent a number of shares of
Series 3 FON Stock equal to the Number Of Shares Issuable With Respect
To The FT 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 FT Class A Equity Interest In The PCS Group.
. The DT Class A Stock is now 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. The Articles provide that the FT
Class A Stock and DT Class A Stock 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 FT Class
A Stock or DT Class A Stock. Accordingly,
. the "Number Of Shares Issuable With Respect To The FT 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 FT Class A Stock in
respect of the equity interest of such stock in the FON Group;
. the "Number Of Shares Issuable With Respect To The FT 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 FT Class A 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.
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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 FT 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 FT 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 Articles provide
each holder of a share of FT 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 FT 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 FT 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 and Restated Stockholders' Agreement (as defined herein). A holder
of FT 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 FT Class A
Equity Interest In The FON Group, solely with respect to the Number Of Shares
Issuable With Respect To The FT 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 FT 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 FT 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 FT
Class A Equity Interest In The FON Group and the Number Of Shares Issuable
With Respect To The FT Class A Equity Interest In The PCS Group are both
zero, the FT Class A Stock may be redeemed, at Sprint's option, at a
redemption price of $0.001 per share.
Similarly, the Articles also provide 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 Amended and Restated 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,
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(i) when the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The FON Group is reduced to zero, no further shares of
Series 1 FON Stock or Series 3 FON Stock may be issued pursuant to this
right,
(ii) when the Number Of Shares Issuable With Respect To The DT Class A
Equity Interest In The PCS Group is reduced to zero, no further shares of
Series 1 PCS Stock or Series 3 PCS Stock may be issued pursuant to this
right, and
(iii) if at any time the Number Of Shares Issuable With Respect To The DT
Class A Equity Interest In The FON Group and the Number Of Shares Issuable
With Respect To The DT Class A Equity Interest In The PCS Group are both
zero, the DT Class A Stock may be redeemed, at Sprint'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 FT Class A
Stock, each share of the FT Class A Stock will be automatically
reclassified into a share of FT Class A Stock with a new par value amount
equal to the Reduced Par Value Amount, and the Number Of Shares Issuable
With Respect To The FT Class A Equity Interest In The FON Group and the
Number Of Shares Issuable With Respect To The FT 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 DT Class A Stock will be automatically
reclassified into a share of DT Class A Stock 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 Articles do not provide for either mandatory or optional conversion or
redemption of the FON Stock, except for Sprint's ability to redeem FON Stock
beneficially owned by Aliens (as defined in the Articles) in certain
circumstances. The terms of the PCS Stock 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
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PCS Fraction as of the record date for determining holders entitled
to receive such dividend multiplied by the fair value of the Net
Proceeds of such Disposition; or
(b)(i) if such Disposition involves all (not merely substantially all)
of the properties and assets attributed to the PCS Group, redeem
all outstanding shares of PCS Stock in exchange for cash and/or
for securities (other than any class or series of FON Stock or
PCS Stock) or other property having a Fair Value as of the PCS
Group Disposition Date in the aggregate equal to the product of
the Outstanding PCS Fraction as of 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 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 FT Class A 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 FT 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 FT Class A 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 FT Class A Equity Interest In The
PCS Group and the Number Of Shares Issuable
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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 FT Class A
Equity Interest In The PCS Group will convert into a Number Of Shares
Issuable With Respect To The FT 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 November 23,
2001, 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 FT 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 FT 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 November 23, 2001, 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
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FON Stock, respectively (or, if the Series 1 FON Stock is not publicly-traded
at such time and shares of any other class or series of common stock of Sprint
(other than PCS Stock) are then publicly-traded, of such other class or series
of common stock as has the largest total market capitalization as of the close
of business on the trading day immediately preceding the date of the notice of
conversion) equal to, on the Conversion Date, (i) if following November 23,
2001 but prior to November 23, 2002, 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 November 23, 2002 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 FT 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 FT 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 November 23, 2000 unless it is
approved by the affirmative vote of the holders of a majority of shares of
PCS Stock and Class A Common (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 FT Class A Stock and DT
Class A Stock will receive the number of shares of the PCS Group Subsidiary
equal to the product of (A) the FT Class A PCS Interest Fraction, in the
case of the holders of the FT Class A 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, exchange or
exercise of any Convertible Securities will, immediately upon issuance
pursuant to such conversion,
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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 FT 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 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 FT 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 PCS Stock, Class A Common and Convertible Securities
convertible into or exchangeable or exercisable for
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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 FT 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 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 FT
Class A PCS Interest Fraction and the DT Class A 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 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
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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 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 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 FT 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 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
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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.
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
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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.
Voting Rights of Common Stock
In General. Pursuant to the Articles, except as otherwise provided by law or
as expressly set forth in the Articles, each share of FON Stock, PCS Stock and
Class A Common will be entitled to vote, in accordance with the provisions set
forth in "--Number of Votes" and "--Temporary Voting Adjustment For Class A
Holders,"
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on all matters in respect of which the holders of Sprint's common stock are
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 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, 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, 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,
. on each matter to be voted on by the holders of FON Stock, PCS Stock and
Class A Common 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 FT Class A 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 FT Class A Stock, the FT Class
A FON Vote Per Share and the FT 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 Per Share
Vote") equal to 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;
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. 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 (iv) 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, 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) FT Class A Stock and DT Class A Stock will
be entitled to the FT 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, 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) FT Class A Stock and DT Class A Stock
will be entitled to the FT 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,
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) FT Class A Stock will be
entitled to the FT Class A PCS Vote Per Share and the FT 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 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, 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, for the foreseeable
future, the FON Stock will continue to 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, 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 and the PCS
Stock fluctuate as described above so that a holder's voting rights 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
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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 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.
The holders of FON Stock or PCS Stock do 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 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 or
the PCS Stock, voting as a separate class, would be required under Kansas law
to approve any amendment to the Articles that would change the par value of
the shares of the class (other than as already provided in the Articles) 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 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
and PCS Stock, voting together as a single class, if the holders of any such
class of FON Stock, Class A Common 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
If any voluntary or involuntary liquidation, dissolution or winding up of
Sprint occurs, then after payment or provision for payment of the debts and
other liabilities of Sprint, including the liquidation preferences of any
series of Preferred Stock, the holders of FON Stock, Class A Common 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 FT 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 FT Class A Equity Interest In
The FON Group and (II) the product of the Number Of Shares Issuable With
Respect To The FT Class A Equity Interest In The PCS Group and the PCS
Ratio (approximately 0.205), divided by (B) the aggregate number of shares
of FT Class A Stock outstanding;
(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 (approximately 0.205), divided by (B) the aggregate
number of shares of DT Class A Stock outstanding; and
(iv) each share of PCS Stock will be attributed approximately 0.205
Liquidation Units.
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
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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 (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 and PCS Stock were
determined by Sprint in consultation with its legal and financial advisors.
Sprint expects that a majority of its Liquidation Units would be attributed to
the FON Stock if a liquidation were to occur in the foreseeable future. Sprint
considers that its complete liquidation is a remote contingency, and its
financial advisors believe that, in general, these liquidation provisions are
immaterial to trading in FON Stock and PCS Stock. No holder of FON Stock has
any special right to receive specific assets attributable to the FON Group and
no holder of PCS Stock has 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
Dividends may be declared and paid on the FON Stock, the Class A Common 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 (on a Per Class A FON Share Basis), (ii)
exclusively on the PCS Stock and the Class A Common (on a Per Class A PCS
Share Basis) or (iii) on the FON Stock and the Class A Common (on a Per Class
A FON Share Basis), on the one hand, and the PCS Stock and the Class A Common
(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 September 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 $8.5 billion, the FON Group Available
Dividend Amount would have been approximately $7.6 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 purchase of PCS
Stock by FT and DT in connection with the Offerings) would have been
approximately $4.0 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
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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 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 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 (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;
(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 (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 (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 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 (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 (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 Articles as
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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 (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.
Stock Transfer Agent and Registrar
UMB Bank, n.a. is the transfer agent, registrar and dividend paying agent
for the FON Stock and the PCS Stock.
Stock Exchange Listings
The New York Stock Exchange lists the Series 1 FON Stock, which is traded
under the symbol "FON," and the Series 1 PCS Stock, which is traded under the
symbol "PCS."
Description of Warrants; Warrant Inter-Group Interest
The Warrants were issued as part of the consideration issued to the Cable
Parents and their subsidiaries at the time of the PCS Restructuring Closing.
The Warrants were issued pursuant to the terms of the Warrant Agreements dated
as of November 23, 1998 between Sprint and each Cable Parent or an affiliate
thereof (the "Warrant Agreements"). Subject to adjustment as described below,
each Warrant is exercisable for a share of PCS Stock at the option of the
holder at any time prior to November 23, 2003 at an initial exercise price
(the "Exercise Price") with respect to each Warrant equal to 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 acquired an Inter-Group Interest of the
FON Group in the PCS Group that has terms equivalent to the Warrants (the
"Warrant Inter-Group Interest").
The Warrants held by TCI, Comcast and Cox and their respective Affiliates
represent approximately 1.50%, .72% and .75% of the total shares of PCS Stock
outstanding, respectively, as of December 31, 1998 (including Series 1 PCS
Stock held by the public, Series 2 PCS Stock held by the Cable Parents, Series
3 PCS Stock held by FT and DT, the shares of PCS Stock that are issuable with
respect to the Class A Common held by FT and DT and the Inter-Group Interest
held by the FON Group, but not including shares issuable upon conversion of
the PCS Preferred Stock or shares issued in the Offerings), and the Warrant
Inter-Group Interest of the FON Group represents approximately 3.0% of such
total shares of PCS Stock outstanding.
The Warrants are freely transferable by the Cable Parents and their
subsidiaries. Each Warrant represents the right, subject to the provisions of
the Warrant Agreements, to purchase (i) if the holder of such Warrant is a
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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 November
23, 2003. Such surrender must be accompanied by any of (i) the payment to
Sprint of the amount, in cash or by certified or bank cashier's check or by
wire transfer in immediately available funds, of the Exercise Price then in
effect for each Warrant exercised, (ii) a request that Sprint withhold from
the number of shares of PCS Stock to be issued upon exercise of the Warrants a
number of shares equal to (A) the Exercise Price multiplied by the aggregate
number of Warrants then being exercised, divided by (B) the closing price per
share of the Series 1 PCS Stock on the trading day immediately preceding the
date of the notice of exercise or (iii) a combination of payment as set forth
in (i) and (ii) in an amount equal to such aggregate Exercise Price.
The Exercise Price and the number of shares of PCS Stock issuable upon
exercise of the Warrants will be subject to adjustment on the occurrence of
certain events, including:
(i) the payment by Sprint of dividends (or the making of other
distributions) with respect to PCS Stock payable in shares of PCS Stock;
(ii) subdivisions, combinations and reclassifications of the PCS Stock;
(iii) the issuance of rights or warrants to the holders of the PCS Stock
entitling them to subscribe for or purchase shares of PCS Stock (or
securities convertible into PCS Stock), in each case for consideration 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.
If 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, if 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
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distribution of stock of a subsidiary of Sprint as a dividend to all holders
of PCS Stock, then each holder of the Warrants may elect to have the Warrants
thereafter exercisable for shares of stock of the subsidiary (the "Spun-Off
Subsidiary") that is spun off as a result of such transaction (the "Redemption
Securities"). If, pursuant to such redemption or spinoff, the holders of PCS
Stock also receive property or assets of Sprint other than the Redemption
Securities, then each holder of the Warrants may elect to have each Warrant
converted into two separate warrants, one of which will be an obligation of
the Spun-Off Subsidiary and will be convertible into those Redemption
Securities that would have been received by the holder of a number of shares
of PCS Stock for which the Warrant could have been exercised immediately prior
to such redemption or spinoff and the other of which will be an obligation of
Sprint and will be convertible into such other property or assets that would
have been received by the holder of a number of shares of PCS Stock for which
the Warrant could have been exercised immediately prior to such redemption or
spinoff. If any holder of the Warrants elects not to so convert the Warrant,
the Warrant will remain an obligation of Sprint and will thereafter be
convertible only into such property or assets (if any) other than Redemption
Securities that would have been received by the holder of a number of shares
of PCS Stock for which the Warrant could have been exercised immediately prior
to such redemption or spinoff.
Any Warrants that are not exercised on or prior to November 23, 2003 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 has 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 Articles, a copy of which is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus forms a part.
General. The PCS Preferred Stock was issued at the PCS Restructuring Closing
to the Cable Parents to purchase (i) $240 million of indebtedness advanced by
the Cable Parents to fund the operations of Sprint Spectrum Holdings between
May 26, 1998 and the PCS Restructuring Closing and (ii) interest on such
indebtedness. Shares of PCS Preferred Stock were issued either directly for
the purchase of such indebtedness and interest or as consideration in the
Mergers with respect to any of such indebtedness and interest as was
capitalized by the Cable Parents prior to the closing of the PCS
Restructuring. The Preferred Inter-Group Interest was issued by the PCS Group
to the FON Group to extinguish (i) $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 PCS Restructuring
Closing and (ii) interest on such indebtedness. See "The Formation
Transactions--Funding of the PCS Group Prior to the PCS Restructuring Closing;
The PCS Preferred Stock."
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The number of authorized shares of PCS Preferred Stock is 300,000. The PCS
Preferred Stock is, and the PCS Stock issuable upon conversion thereof will
be, validly issued, fully paid and nonassessable. The holders of the PCS
Preferred Stock do 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 is not 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 November 23, 2008. The PCS Preferred Stock is not listed on the NYSE. The
shares of PCS Stock issuable upon conversion of the PCS Preferred Stock have
been approved for issuance on the NYSE subject to official notice of issuance.
Ranking. The PCS Preferred Stock ranks junior as to dividends and upon
liquidation to shares of the First Series of the Preferred Stock, Second
Series of the Preferred Stock, Fifth Series of the Preferred Stock and any
other Preferred Stock designated as senior to the PCS Preferred Stock as to
dividends or upon liquidation, dissolution or winding up ("Senior Stock"), and
will have a preference over shares of Common Stock and any other class or
series of Junior Stock. The term "Junior Stock" means any stock ranking junior
as to dividends or upon liquidation, dissolution or winding up to the PCS
Preferred Stock.
Dividends. Holders of shares of PCS Preferred Stock are entitled to receive,
when, as and if declared by the Sprint Board out of funds of Sprint legally
available for payment, cumulative cash dividends payable at the rate of $6.73
per share quarterly in arrears on each September 30, December 31, March 31 and
June 30 (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. Dividends on the PCS Preferred Stock are
cumulative and accumulate from the date of original issuance of the PCS
Preferred Stock. Dividends are 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. A
dividend of $2.77 per share was paid on December 31, 1998. 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 are not
redeemable prior to November 23, 2001. Sprint may at its option redeem the PCS
Preferred Stock in whole or in part after November 23, 2001, 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 November 23, 2000 and before November 23, 2001, 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
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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 November 23, 2008
(or, if such day is not a business day, on the first business day thereafter)
(subject to extension as provided in the last sentence of this paragraph, the
"Mandatory Redemption Date"), all remaining shares of PCS Preferred Stock then
outstanding, at the redemption price of $1,000 for each share outstanding,
plus an amount in cash equal to all accrued but unpaid dividends thereon to
the Mandatory Redemption Date. Prior to authorizing or making such redemption
with respect to the PCS Preferred Stock, Sprint, by resolution of the Sprint
Board will, to the extent of funds legally available therefor, declare a
dividend on the PCS Preferred Stock payable on the Mandatory Redemption Date
in an amount equal to any accrued and unpaid dividends on the PCS Preferred
Stock as of 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) November 23, 2008, and (ii) the fifth anniversary of the date of
issuance of such Exchange Preferred Stock or Mirror Preferred Stock.
If 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 Formation Transactions--Funding of the PCS Group Prior to the PCS
Restructuring 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
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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
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 is 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 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.
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Holders of shares of PCS Preferred Stock at the close of business on a
record date for any payment of declared preferred dividends will be entitled
to receive the Preferred Dividends payable on those shares of PCS Preferred
Stock on the corresponding Dividend Payment Date notwithstanding the
conversion pursuant to this section of those shares of PCS Preferred Stock
following such record date and before the close of business on such Dividend
Payment Date. Except as provided in the preceding sentence, upon any
conversion of shares of PCS Preferred Stock, Sprint will make no payment of or
allowance of unpaid Preferred Dividends, whether or not in arrears, on such
shares of PCS Preferred Stock, or for previously declared dividends or
distributions on the shares of Series 2 PCS Stock issued upon conversion.
Conversion of shares of PCS Preferred Stock may be effected by delivering
certificates evidencing such shares of PCS Preferred Stock, together with
written notice of conversion stating the number of shares to be converted and
a proper assignment of such certificates to Sprint or in blank, to the office
of the transfer agent for the PCS Preferred Stock or to any other office or
agency maintained by Sprint for that purpose and otherwise in 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 is 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 is 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.
If 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
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Sprint) resulting from such consolidation or merger or the person purchasing
such assets or other appropriate person shall assume, by written instrument,
the obligation to deliver to the holders of the PCS Preferred Stock such
securities, cash or other assets as, in accordance with the foregoing
provisions, the holder may be entitled to purchase and the other obligations
under the Certificate of Designations.
Subject to the following paragraph, if 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 has 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.
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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 in
existence 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, including the
Series 1 PCS Stock, will constitute voting stock of Sprint for United States
federal income tax purposes.
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 would have recognized significant
taxable gain on the Recapitalization, in each case 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
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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 a 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.
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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.
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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-running managers 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......................................................... 13,585,000
==========
</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.......................................................... 3,400,000
=========
</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.
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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 2,547,750 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 13,585,000 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 3,400,000 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
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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 11(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 90 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, 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, and registrations in connection with such grants or issuances,
(ii) issuances of PCS Stock pursuant to any dividend reinvestment plan, (iii)
issuances of PCS Stock upon conversion of securities or exercise of warrants
outstanding on the date of closing of the Offerings which are or become
convertible into or exercisable for shares of PCS Stock, (iv) issuances of PCS
Stock pursuant to Rights granted under the Rights Agreement, (v) issuances in
connection with an acquisition or merger, (vi) issuances of PCS Stock to, or
registrations of PCS Stock for, the Cable Parents, FT and DT in connection
with the Offerings or upon any exercise of their respective Equity Purchase
Rights or registration rights, (vii) issuances or registrations of shares of
PCS Stock which are issuable to FT, DT or third parties in respect of the
shares of Class A Common held by FT and DT and (viii) issuances of PCS Stock
in connection with strategic or other significant investments in which the
purchaser agrees to be bound for any remaining portion of such 90-day period
on the above terms. 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 90 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 or contract to sell or file (or
participate in the filing of) a registration statement (with respect to shares
owned by them) with the SEC with respect to any shares of PCS Stock or any
securities convertible into or exercisable or exchangeable for PCS 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.
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Sprint has also entered into "lock-up" arrangements 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 Formation Transactions--
Lock-Up Agreements."
The Series 1 PCS Stock is listed 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 Series 1 PCS Stock to be higher than it would otherwise
be in the absence of such transactions. These transactions, if commenced, may
be discontinued at any time.
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. Sprint retained Salomon Smith Barney Inc., J.P. Morgan
Securities Inc., Warburg Dillon Read LLC and Lehman Brothers Inc. to act as
co-managers in connection with the offering of $5.0 billion of debt securities
of Sprint Capital Corporation effected in November 1998.
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 December 31, 1998, Mr. Jensen was the beneficial owner of
approximately 31,000 shares of FON Stock and 15,500 shares of PCS Stock, and
had options to purchase in excess of 60,000 shares of FON Stock and 30,000
shares of PCS 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.
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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. 333-65173
and in Sprint's Current Report on Form 8-K dated November 2, 1998, 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) 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 by reference in this Prospectus from the Sprint Corporation
Annual Report on Form 10-K for the year ended December 31, 1997, Registration
Statement No. 333-65173 and Form 8-K dated November 2, 1998, 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 incorporated
herein by reference in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Sprint Spectrum L.P. and Sprint Spectrum Finance
Corporation as of December 31, 1997 and 1996, not separately presented in this
Prospectus, are incorporated by reference in this Prospectus from Registration
Statement No. 333-65173, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, (which express unqualified
opinions and include explanatory paragraphs referring to the emergence from
the development stage) which are incorporated herein by reference in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
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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 Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661, and copies of such materials can be obtained from the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Information on the operation of the Public Reference Room is
available by telephone at 1-800-732-0330. 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,
located at http://www.sec.gov. In addition, the PCS Stock is listed on the New
York Stock Exchange and similar information concerning Sprint can be inspected
and copied at its offices, located at 20 Broad Street, New York, New York
10005.
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 into 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 Room 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 the Registration Statement and 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, June 30, 1998 and September 30, 1998;
(iii)Sprint's Current Reports on Form 8-K dated May 26, 1998, June 29,
1998, October 28, 1998, November 2, 1998, November 12, 1998 and November
23, 1998;
(iv)Sprint's Proxy Statement/Prospectus that forms a part of Registration
Statement No. 333-65173;
(v)The description of PCS Common Stock contained in Sprint's Registration
Statement on Form 8-A relating to Sprint's PCS Common Stock, filed November
2, 1998; and
(vi)The description of PCS Group Rights contained in Amendment No. 1 to
Sprint's Registration Statement on Form 8-A relating to Sprint's PCS Group
Rights, filed November 25, 1998.
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 the Registration Statement and 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
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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).
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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
Formation 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.
"Articles" means the Articles of Incorporation of Sprint on file 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 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 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.
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"Change of Control," as defined in the Standstill Agreements with the Cable
Parents, means the consummation of:
(a) a third party tender offer for Voting Securities of Sprint
representing more than 35% of the Voting Power of Sprint;
(b) a sale of all or substantially all of the assets of Sprint in one
transaction or in a series of related transactions;
(c) a merger or other business combination that would result in (a) a
Person holding Voting Securities of the resulting entity representing 35%
or more of the Voting Power of Sprint or (ii) the stockholders of Sprint
immediately prior to the record date for such transaction owning less than
50% of the outstanding equity securities of the surviving Person following
such combination; or
(d) a change in the identity of a majority of the directors on the Sprint
Board due to (i) a proxy contest (or the threat to engage in a proxy
contest) or the election of directors by the holders of Preferred Stock; or
(ii) any unsolicited tender, exchange or other purchase offer which has not
been approved by a majority of the Independent Directors;
provided that a Strategic Merger shall not be deemed a Change of Control.
"Closing Price," as defined in the 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 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.
"Control" (including, with its correlative meanings, "Controlled by" and
"under common Control with"), as defined in the 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
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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 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 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 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
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 the later of the 90th day
following the Offerings or May 22, 1999 (180 days following the PCS
Restructuring Closing).
"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 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.
"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
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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 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 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 FT 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 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 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.
"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
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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.
"Fair Value," as defined in the 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.
"FT Class A FON Vote Per Share," as defined in the Articles, means, on any
date, a number equal to X / Y, where "X" equals the Number Of Shares Issuable
With Respect To The FT Class A Equity Interest In The FON Group and "Y" equals
the aggregate number of outstanding shares of FT Class A Stock.
"FT Class A PCS Interest Fraction," as defined in the Articles, means the
fraction the numerator of which is the Number of Shares Issuable With Respect
To The FT 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
FT 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.
"FT Class A PCS Vote Per Share," as defined in the 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 FT Class A Equity Interest In The PCS Group, "Y"
equals the aggregate number of outstanding shares of FT Class A Stock and "Z"
equals, in the case of Class A Common and PCS Stock voting together as a
single class, one, and in all other cases, the applicable PCS Per Share Vote
on such date.
"FON Group," as defined in the Articles, means, as of any date from and
after the PCS Restructuring Closing:
(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;
(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)
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 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
Articles; and
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(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 (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 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 PCS Restructuring Closing 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.
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"FON Group Right," as defined in the Rights Agreement, means one right for
each share of FON Stock issued prior to 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.
"FON Stock" means the FON Common Stock of Sprint, $2.00 par value per share.
"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 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 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 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 ownership interest of the FON Group in the
PCS Group, similar to the FON Group holding shares of PCS Stock. This
ownership interest is referred to as an "Inter-Group Interest." Such interest
was computed as follows: as of December 31, 1998, the total number of shares
of PCS Stock intended to track the performance of the PCS Group was
approximately 420,293,000. The Cable Parents' shares of Series 2 PCS Stock
represented an aggregate of 46.4% of these shares, and the shares owned by FT
and DT represented an aggregate of 11.5%. The publicly-traded shares of PCS
Stock represented 41.0% of these shares. The remaining, unissued 1.1%
represented the Inter-Group Interest. The Inter-Group Interest is not
represented by actual shares and does not carry any vote.
"Inter-Group Interest Fraction," as defined in the Articles, 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
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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 FT 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 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 Articles) means the average of the high and low
reported sales prices regular way of a share of such class or series on such
day (if such day is a Trading Day, and if such day is not a Trading Day, on
the Trading Day immediately preceding such day) or, in case no such reported
sale takes place on such Trading Day, the average of the reported closing bid
and asked prices regular way of a share of such class or series on such
Trading Day, in either case as reported on the NYSE Composite Tape or, if the
shares of such class or series are not listed or admitted to trading on such
exchange on such Trading Day, on the principal national securities exchange in
the United States on which the shares of such class or series are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange on such Trading Day, on the National Market tier of The
Nasdaq Stock Market or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on such
National Market System on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter market
on such Trading Day as furnished by any NYSE member firm selected from time to
time by the Sprint Board or, if such closing bid and asked prices are not made
available by any such NYSE member firm on such Trading Day, the Fair Value of
a share of such class or series; provided that, for purposes of determining
the Market Value of a share of any class or series of capital stock for any
period,
(i) the "Market Value" of a share of capital stock on any day prior to
any "ex-dividend" date or any similar date occurring during such period for
any dividend or distribution (other than any dividend or distribution
contemplated by clause (ii)(B) of this definition) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and
(ii) The "Market Value" of any share of capital stock on any day prior to
(A) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of
such period or (B) any "ex-dividend" date or any similar date occurring
during such period for any dividend or distribution with respect to such
capital stock to be made in shares of such class
or series of capital stock or Convertible Securities that are convertible,
exchangeable or exercisable for such class or series of capital stock shall
be appropriately adjusted, as determined by the Sprint Board, to reflect
such subdivision, combination, dividend or distribution.
"Mirror Preferred Stock," as defined in the Certificate of Designations,
means convertible preferred stock issued by (i) in the case of a redemption of
Redeemable Capital Stock, the issuer of the applicable Redemption Securities,
and (b) in the case of a Spin Off, the issuer of the applicable Spin Off
Securities and having terms, designations, conditions, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as is
practicable in the judgment of the Sprint Board, to those of the PCS Preferred
Stock for which such Mirror Preferred Stock is exchanged, except that (i) the
liquidation preference will be
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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 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 Articles, means, as of the date of the PCS
Restructuring Closing, a number equal to the aggregate number of outstanding
shares of DT Class A Stock as of such date as a result of the
Recapitalization; 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 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 Articles, means, as of the date of the PCS
Restructuring Closing, 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 such date as a result of the Recapitalization; 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
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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 Articles, means, as of the date of the PCS
Restructuring Closing, a number equal to 220,000,000 less the sum of (i) the
Number Of Shares Issuable With Respect To The FT 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 Recapitalization, 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 Recapitalization; provided, however, that such number
shall from time to time thereafter be:
(A) adjusted, as determined by the Sprint Board to be appropriate to
reflect equitably any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of the PCS Stock or any
dividend or other distribution of shares of PCS Stock to holders of shares
of PCS Stock or any reclassification of PCS Stock;
(B) decreased (but to not less than zero), if before such decrease such
number is greater than zero, by action of the Sprint Board by (1) the
number of shares of PCS Stock issued or sold by Sprint that, immediately
prior to such issuance or sale, were included (as determined by the Sprint
Board pursuant to paragraph (C) of this definition) in the Number Of Shares
Issuable With Respect To The FON Group Inter-Group Interest, (2) the number
of shares of PCS Stock issued upon conversion, exchange or exercise of
Convertible Securities that, immediately prior to the issuance or sale of
such Convertible Securities, were included in the Number Of Shares Issuable
With Respect To The FON Group Inter-Group Interest, (3) the number of
shares of PCS Stock issued by Sprint as a dividend or other distribution
(including in connection with any reclassification or exchange of shares)
to holders of FON Stock and Class A Common (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 (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 (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
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(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 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 FT Class A Equity Interest In
The FON Group," as defined in the Articles, means, as of the date of the PCS
Restructuring Closing, a number equal to the aggregate number of outstanding
shares of FT Class A Stock as of such date as a result of the
Recapitalization; 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 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 FT 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 FT Class A Equity Interest In
The PCS Group," as defined in the Articles, as of the date of the PCS
Restructuring Closing, means a number (rounded up to the nearest whole share)
equal to one-half of the aggregate number of outstanding shares of FT Class A
Stock as of such date as a result of the Recapitalization; 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 FT 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 FT 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 FT 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.
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"Old Class A Right," as defined in the Rights Agreement, means one right for
each share of FT Class A Stock issued prior to the Distribution Date, and in
certain circumstances, after the Distribution Date, each such right initially
representing (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 FT Class A Equity Interest
In The FON Group divided by the aggregate number of shares of FT Class A 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 FT Class A Equity Interest In The PCS Group divided by the aggregate
number of shares of FT Class A Stock issued and outstanding at that time.
"Optional Conversion Ratio" as of any date, as defined in the 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 Articles with
respect to which Sprint creates or issues tracking stock to which it
attributes or allocates any present or future assets or businesses.
"Other Termination Event," as defined in the Standstill Agreement, means (i)
a redemption of all of the outstanding shares of PCS Stock for the common
equity securities of one or more wholly owned subsidiaries of Sprint that hold
all or substantially all of the assets attributed to the PCS Group (as such
term is defined in the Restructuring Agreement), (ii) a redemption of all or a
substantial portion of the outstanding shares of PCS Stock upon the sale of
all or substantially all of the assets of the PCS Group, or (iii) a conversion
of all of the outstanding shares of PCS Stock into any class of Sprint common
stock that is not a common equity tracking security that continues to reflect
substantially all of the business, assets and liabilities comprising the PCS
Group immediately prior to such conversion, but which shall not represent any
business, assets or liabilities comprising any part of the FON Group
immediately prior to such conversion.
"Outstanding PCS Fraction," as defined by the 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 FT 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 Articles, means, as of any date
from and after the PCS Restructuring Closing:
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(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 of the PCS Restructuring Closing pursuant to transactions in the
ordinary course of business of both the FON Group and the PCS Group or
otherwise as the Sprint Board may have directed;
(D) all properties and assets transferred to the PCS Group from the FON
Group in connection with an increase in the Number Of Shares Issuable With
Respect To The FON Group Inter-Group Interest; and
(E) the interest of Sprint or any of its subsidiaries in any business or
asset acquired and any liabilities assumed by Sprint or any of its
subsidiaries outside of the ordinary course of business and attributed to
the PCS Group, as determined by the Sprint Board pursuant to the 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 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
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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 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 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 were converted into Series 3 PCS
Stock and Series 3 FON Stock pursuant to the 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 (whether originally issued or delivered from
Sprint's treasury) prior to 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, 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-
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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 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 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 Articles, means the ratio of 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. The PCS Ratio is
approximately 0.205.
"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.
"PCS Stock" means the PCS Common Stock of Sprint, $1.00 par value per share.
"Per Class A FON Share Basis," as defined in the Articles, means, with
respect to FT Class A 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 FT 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 FT Class A 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 FT Class A Stock or DT Class A Stock is
being compared.
"Per Class A PCS Share Basis," as defined in the Articles, means, with
respect to FT Class A 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 FT 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 FT Class A 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 FT Class A Stock or DT Class A Stock is
being compared.
"Percentage Ownership Interest," as defined in the 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 PCS Restructuring
Closing and that were exercisable or exchangeable for or convertible into
shares of Sprint Common Stock, which, in connection with the Recapitalization,
became, 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 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
G-15
<PAGE>
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 Articles, means at any time
and only with respect to either the FT Class A Stock or the DT Class A Stock
following an issuance of FON Stock and/or PCS Stock in accordance with the
rights described under "--Right to Cause Issuance of FON Stock and PCS Stock,"
the amount resulting from (X - Y)/ Z, where
"X" equals Z times the par value per share of either the FT Class A 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 FT Class A Stock or the DT
Class A Stock, as applicable.
"Related Business Transaction," as defined in the 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
each share of DT Class A Stock issued prior to the Distribution Date, and in
certain circumstances, after the Distribution Date, each such right initially
representing (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 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 (y) 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 Articles, means, at any time, the Number Of Shares
Issuable With Respect To The FT 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 Articles, means, at any time, the Number Of Shares
Issuable With Respect To The FT 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.
G-16
<PAGE>
"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 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 Class A Common, the FON Stock, the PCS
Stock, the Preferred Stock and any other securities of Sprint having the right
to vote.
"Sprint Voting Stock" means the FON Stock, the PCS 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 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
G-17
<PAGE>
or liabilities of the surviving parent entity or its subsidiaries, including
businesses, assets or liabilities of the FON Group immediately prior to such
merger or business combination, it being understood that no merger or business
combination shall be deemed to meet the requirements of this definition unless
the requirements of each of
clauses (a) through (d) above have been met. "Fair market value" with respect
to any property, for purposes of this definition, shall be as determined in
writing in good faith by a majority of the independent directors of Sprint.
"TDMA" means Time Division Multiple Access, a digital spread-spectrum
technology which allocates a discrete amount of frequency bandwidth to each
user in order to permit more than one simultaneous conversation on a single RF
channel.
"Total Market Capitalization" of any class or series of common stock on any
date, as defined in the 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 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 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 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 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-18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PCS Group
Report of Independent Auditors.......................................... F-2
Combined Statements of Operations for the nine months ended September
30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995................................................................... F-3
Combined Balance Sheets as of September 30, 1998 and December 31, 1997
and 1996............................................................... F-4
Combined Statements of Cash Flows for the nine months ended September
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 September 30, 1998 and December 31, 1997
and 1996............................................................... F-13
Combined Statements of Operations for the nine months ended September
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 nine months
ended September 30, 1998 and 1997 and for the years ended December 31,
1997, 1996 and 1995.................................................... F-15
Combined Statements of Cash Flows for the nine months ended September
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 nine months ended September
30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995................................................................... F-37
Consolidated Balance Sheets as of September 30, 1998 and December 31,
1997 and 1996.......................................................... F-38
Consolidated Statements of Cash Flows for the nine months ended
September 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 nine months ended September 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>
Nine Months
Ended September Year Ended December
30, 31,
---------------- ------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- ------
(unaudited)
Operating Expenses
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses.......................... $ 78.2 $ 7.4 $ 18.5 $ 0.5 $ --
Depreciation and amortization...... 1.8 -- -- -- --
------- ------- ------- ------- ------
Total operating expenses......... 80.0 7.4 18.5 0.5 --
------- ------- ------- ------- ------
Operating Loss..................... (80.0) (7.4) (18.5) (0.5) --
Equity in loss of Sprint Spectrum
Holdings and PhillieCo............ (686.5) (410.6) (659.6) (191.8) (31.4)
------- ------- ------- ------- ------
Loss before income taxes........... (766.5) (418.0) (678.1) (192.3) (31.4)
Income tax benefit................. 294.7 160.7 259.0 72.6 11.5
------- ------- ------- ------- ------
Net loss .......................... $(471.8) $(257.3) $(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>
September 30, December 31,
------------- -----------------
1998 1997 1996
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
Assets
Prepaid expenses and other current assets...... $ 32.8 $ 2.9 $ --
Property, plant and equipment, net............. 1,327.2 177.3 --
Investments in Sprint Spectrum Holdings and
PhillieCo..................................... 475.4 968.4 1,175.8
Investment in PCS licenses..................... 544.5 544.5 84.0
Other noncurrent assets ....................... 114.3 -- --
-------- -------- --------
Total...................................... $2,494.2 $1,693.1 $1,259.8
======== ======== ========
Liabilities and Group Equity
Current liabilities
Current maturities of long-term debt ........ $ 42.5 $ -- $ --
Accounts payable............................. 20.2 17.8 --
Advance from the FON Group................... 410.0 -- --
Payable to Sprint Spectrum Holdings.......... 47.1 19.0 --
Accrued expenses and other current
liabilities................................. 7.3 20.8 --
-------- -------- --------
Total current liabilities.................. 527.1 57.6 --
Construction obligations....................... 429.0 -- --
Capital lease obligations...................... 388.2 -- --
Deferred income taxes and other liabilities.... 318.9 249.6 72.2
Group equity................................... 831.0 1,385.9 1,187.6
-------- -------- --------
Total...................................... $2,494.2 $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>
Nine Months
Ended Year Ended
September 30, December 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- --------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss..................... $ (471.8) $ (257.3) $ (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................ 686.5 410.6 659.6 191.8 31.4
Depreciation and
amortization.............. 1.8 -- -- -- --
Deferred income taxes...... 56.9 191.2 175.7 64.2 8.0
Current tax benefit
utilized by the FON Group. (351.6) (351.9) (434.7) (136.8) (19.5)
Changes in assets and
liabilities:
Prepaid expenses and
other current assets.... (29.9) (2.2) (2.9) -- --
Accounts payable and
other current
liabilities............. 17.0 35.4 57.6 -- --
Noncurrent assets and
liabilities, net........ (101.9) -- 1.3 -- --
-------- -------- --------- -------- -------
Net cash provided (used) by
operating activities........ (193.0) 25.8 37.5 (0.5) --
-------- -------- --------- -------- -------
Investing Activities
Capital expenditures......... (672.1) (68.2) (153.7) -- --
Purchase of PCS licenses..... -- (460.1) (460.1) (84.0) --
Investments in and loans to
Sprint Spectrum Holdings and
PhillieCo................... (193.5) (255.5) (405.9) (297.5) (910.9)
-------- -------- --------- -------- -------
Net cash used by investing
activities.................. (865.6) (783.8) (1,019.7) (381.5) (910.9)
-------- -------- --------- -------- -------
Financing Activities
Advance from the FON Group... 410.0 -- -- -- --
Contributions from (to) the
FON Group................... (124.6) 406.1 547.5 245.2 891.4
Current tax benefit utilized
by the FON Group............ 351.6 351.9 434.7 136.8 19.5
Change in construction
obligations................. 429.0 -- -- -- --
Other........................ (7.4) -- -- -- --
-------- -------- --------- -------- -------
Net cash provided by
financing activities........ 1,058.6 758.0 982.2 382.0 910.9
-------- -------- --------- -------- -------
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.... $ 438.1 $ -- $ -- $ -- $ --
======== ======== ========= ======== =======
</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 beginning on page F-35 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>
Nine Months At or For the
Ended September 30, Year Ended December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
--------- --------- --------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating
revenues............. $ 788.0 $ 110.5 $ 258.0 $ 4.2 $ --
========= ========= ========= ======== =======
Operating loss........ $(1,455.8) $ (869.0) $(1,379.7) $ (357.6) $ (66.9)
========= ========= ========= ======== =======
Net loss.............. $(1,692.0) $(1,021.5) $(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 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.
F-9
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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>
Nine Months
Ended September Year Ended
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.................... (471.8) (257.3) (419.1) (119.7) (19.9)
Contributions from the FON
Group...................... 268.5 804.3 1,052.1 478.3 954.1
Equity transfers to the FON
Group...................... (351.6) (351.9) (434.7) (136.8) (19.5)
-------- -------- -------- -------- ------
Balance at end of period.... $ 831.0 $1,382.7 $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 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).
F-10
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 $447 million have
been recorded under these arrangements as of December 31, 1998. As of December
31, 1998, the PCS Group had also increased its construction obligations by
$563 million since December 31, 1997.
In October 1998, Sprint filed a shelf registration statement with the SEC
for $8.0 billion of debt securities. This replaced $1.0 billion of Sprint's
previous shelf registration statements totaling $1.1 billion. In
November 1998, Sprint Capital Corporation issued $5.0 billion in debt
securities (guaranteed by Sprint) under the new shelf registration statement.
As of December 31, 1998, Sprint had loaned to the PCS Group $4.2 billion of
the proceeds from the sale of the Senior Notes at a weighted average interest
rate of approximately 8.5%. The PCS Group used approximately $3.3 billion of
these funds to repay existing indebtedness.
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>
September 30, December 31,
------------- -----------------------
1998 1997 1996
------------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 325,325 $ 124,886 $ 71,098
Accounts receivable, net............... 165,508 116,415 3,315
Receivable from affiliates............. 29,754 43,006 13,375
Inventory.............................. 177,859 103,894 72,414
Prepaid expenses and other assets, net. 44,077 29,648 14,951
Note receivable--unconsolidated
partnership........................... -- -- 226,670
---------- ----------- ----------
Total current assets.................. 742,523 417,849 401,823
INVESTMENT IN PCS LICENSES, net......... 2,829,087 2,386,799 2,207,903
INVESTMENTS IN UNCONSOLIDATED
PARTNERSHIP(S)......................... -- 273,541 179,086
PROPERTY, PLANT AND EQUIPMENT, net...... 4,531,850 3,538,238 1,441,627
MICROWAVE RELOCATION COSTS, net......... 325,602 271,612 135,802
MINORITY INTEREST....................... -- 56,667 --
OTHER ASSETS, net....................... 97,310 113,153 77,403
---------- ----------- ----------
TOTAL ASSETS............................ $8,526,372 $ 7,057,859 $4,443,644
========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners................. $ 185,000 $ 45,000 $ 167,819
Accounts payable....................... 287,082 446,263 214,205
Payable to affiliate................... 1,648 11,933 5,626
Accrued interest....................... 95,132 59,605 34,057
Accrued expenses....................... 379,638 237,123 49,482
Current maturities of long-term debt... 124,491 34,562 49
---------- ----------- ----------
Total current liabilities............. 1,072,991 834,486 471,238
CONSTRUCTION OBLIGATIONS................ 575,725 705,280 714,934
LONG-TERM DEBT, net..................... 6,001,217 3,533,954 686,192
OTHER NONCURRENT LIABILITIES............ 84,835 50,103 11,356
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY............................. 65,777 -- --
PARTNERS' CAPITAL AND ACCUMULATED
DEFICIT:
Partners' capital...................... 4,611,025 4,127,244 3,120,479
Accumulated deficit.................... (3,885,198) (2,193,208) (560,555)
---------- ----------- ----------
Total partners' capital............... 725,827 1,934,036 2,559,924
---------- ----------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL. $8,526,372 $ 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>
Nine Months Year Ended
Ended September 30, December 31,
------------------------ ---------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 787,953 $ 110,528 $ 258,029 $ 4,175 $ --
OPERATING EXPENSES:
Cost of revenues....... 783,023 308,292 574,343 36,824 --
Selling, general and
administrative........ 931,606 481,290 747,084 313,629 66,719
Depreciation and amor-
tization.............. 529,166 189,924 316,276 11,297 211
----------- ----------- ----------- --------- ---------
Total operating
expenses............ 2,243,795 979,506 1,637,703 361,750 66,930
----------- ----------- ----------- --------- ---------
LOSS FROM OPERATIONS.... (1,455,842) (868,978) (1,379,674) (357,575) (66,930)
OTHER INCOME (EXPENSE):
Interest income........ 24,467 24,636 27,817 8,593 476
Interest expense....... (358,321) (55,568) (123,490) (323) --
Other income (expense). (1,268) 3,907 5,108 1,586 (19)
Equity in loss of
unconsolidated
partnerships.......... -- (125,455) (168,935) (96,850) (46,206)
----------- ----------- ----------- --------- ---------
Total other expense.. (335,122) (152,480) (259,500) (86,994) (45,749)
----------- ----------- ----------- --------- ---------
NET LOSS BEFORE MINORITY
INTEREST............... (1,790,964) (1,021,458) (1,639,174) (444,569) (112,679)
MINORITY INTEREST....... 98,974 -- 6,521 -- --
----------- ----------- ----------- --------- ---------
NET LOSS................ $(1,691,990) $(1,021,458) $(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>
Nine Months Year Ended
Ended September 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
capital................ 483,781 648,728 1,018,500 728,678 2,263,006
Return of capital....... -- (11,735) (11,735) -- --
---------- ---------- ---------- ---------- ----------
Balance at end of
period................. 4,611,025 3,757,472 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................ (1,691,990) (1,021,458) (1,632,653) (444,569) (112,679)
---------- ---------- ---------- ---------- ----------
Balance at end of
period................. (3,885,198) (1,582,013) (2,193,208) (560,555) (115,986)
---------- ---------- ---------- ---------- ----------
TOTAL PARTNERS' CAPITAL. $ 725,827 $2,175,459 $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>
Nine Months Year Ended
Ended September 30, December 31,
------------------------ -----------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net loss............... $(1,691,990) $(1,021,458) $(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
unconsolidated
partnership........... -- 125,455 168,935 96,850 46,206
Minority interest...... (98,974) -- (6,521) -- --
Loss on disposition of
non-network
equipment............. 2,161 -- -- -- --
Depreciation and
amortization.......... 529,166 189,924 316,854 11,278 242
Amortization of debt
discount and issuance
costs................. 40,694 35,328 49,061 14,008 --
Changes in assets and
liabilities, net of
effects of
acquisition of APC:
Receivables.......... (7,004) (83,003) (132,026) (16,350) (147)
Inventory............ (64,293) (9,374) (27,398) (72,413) --
Prepaid expenses and
other assets........ (1,120) (10,130) (12,965) (22,513) (178)
Accounts payable and
accrued expenses.... (44,798) 153,182 389,740 251,791 47,836
Other noncurrent
liabilities......... 34,733 13,652 38,747 9,500 1,856
----------- ----------- ----------- ---------- ----------
Net cash used in
operating
activities......... (1,301,425) (606,424) (848,226) (172,418) (16,864)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (1,107,684) (1,632,828) (2,124,556) (1,419,216) (31,806)
Microwave relocation
costs, net............ (45,254) (104,411) (123,816) (135,828) --
Purchase of PCS
licenses.............. -- -- -- -- (2,085,794)
Purchase of APC, net of
cash acquired......... (28,906) -- (6,764) -- --
Purchase of Cox PCS,
net of cash acquired.. (28,300) -- -- -- --
Investment in
unconsolidated
partnerships.......... -- (112,695) (191,171) (190,390) (131,752)
Loan to unconsolidated
partnership........... -- (81,114) (111,468) (231,964) (655)
Payment received on
loan to unconsolidated
partnership........... -- 246,670 246,670 5,949 --
----------- ----------- ----------- ---------- ----------
Net cash used in
investing
activities......... (1,210,144) (1,684,378) (2,311,105) (1,971,449) (2,250,007)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Advances from partners. 140,000 45,000 45,000 167,819 --
Net borrowing under
revolving credit
agreement............. 1,018,571 370,000 605,000 -- --
Proceeds from issuance
of long-term debt..... 1,314,242 1,327,553 1,763,045 674,200 --
Change in construction
obligations........... (183,193) 176,383 (9,654) 714,934 --
Payments on long-term
debt.................. (61,393) (169,308) (170,809) (24) --
Debt issuance costs.... -- (20,000) (20,000) (71,791) --
Partner capital
contributions......... 483,781 642,499 1,012,272 728,678 2,263,006
Return of capital...... -- (11,735) (11,735) -- --
----------- ----------- ----------- ---------- ----------
Net cash provided by
financing
activities......... 2,712,008 2,360,392 3,213,119 2,213,816 2,263,006
----------- ----------- ----------- ---------- ----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 200,439 69,590 53,788 69,949 (3,865)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 124,886 71,098 71,098 1,149 5,014
----------- ----------- ----------- ---------- ----------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 325,325 $ 140,688 $ 124,886 $ 71,098 $ 1,149
=========== =========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
. Interest paid, net
of amount capital-
ized................ $ 169,115 $ 12,226 $ 35,629 $ 323 $ --
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
. Accrued interest of
$139,000 and $51,673
related to vendor
financing was con-
verted to long-term
debt during the nine
months ended Septem-
ber 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 nine months
ended September 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
(unaudited with respect to September 30, 1998)
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 September 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)
(unaudited with respect to September 30, 1998)
MinorCo, L.P. ("MinorCo")--MinorCo holds the minority ownership interests of
1% in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at
September 30, 1998, December 31, 1997 and 1996, and APC at September 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 September 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)
(unaudited with respect to September 30, 1998)
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 September 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)
(unaudited with respect to September 30, 1998)
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 $99.0 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) and Sprint PCS(R) are the registered
trademark and service mark, respectively, of Sprint Communications Company
L.P. and Sprint(R) and Sprint PCS SM are licensed to Holdings on a royalty-
free basis pursuant to trademark license agreements 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 $23.9 million, $9.3 million and $0.2
million, at September 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)
(unaudited with respect to September 30, 1998)
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 $91.8 million, $46.8 million and $1.7
million as of September 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
$10.6 million and $5.3 million as of September 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 nine
months ended September 30, 1998 was approximately $50.9 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 nine months ended September
30, 1998 was approximately $23.8 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)
(unaudited with respect to September 30, 1998)
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 did not
differ 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 September 30,
1998, December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
------------- ----------------------
1998 1997 1996
------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Land.................................. $ 3,288 $ 1,445 $ 905
Buildings and leasehold improvements.. 901,164 641,167 86,496
Fixtures and office furniture......... 309,419 168,301 68,520
Network equipment..................... 3,319,669 2,335,965 255,691
Telecommunications plant--construction
work in progress..................... 706,343 653,133 1,039,620
---------- ---------- ----------
5,239,883 3,800,011 1,451,232
Less accumulated depreciation......... (708,033) (261,773) (9,605)
---------- ---------- ----------
$4,531,850 $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)
(unaudited with respect to September 30, 1998)
Depreciation expense on property, plant and equipment for the nine months
ended September 30, 1998 was approximately $471.4 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)
(unaudited with respect to September 30, 1998)
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)
(unaudited with respect to September 30, 1998)
5. Long-Term Debt and Borrowing Arrangements
Long-term debt consists of the following as of September 30, 1998 and
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
September 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
$147,035 at September 30, 1998; $177,720
and $214,501 at December 31, 1997 and
1996, respectively...................... 352,965 322,280 285,499
Credit Facility--term loans.............. 300,000 300,000 150,000
Credit Facility--revolving credit........ 1,565,000 605,000 --
Vendor Financing......................... 2,527,002 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 $8,992 at September 30, 1998
and $11,989 at December 31, 1997........ 77,844 90,355 --
Cox PCS Credit Facility.................. 400,000 -- --
Cox PCS--Due to FCC...................... 213,855 -- --
Other.................................... 19,042 26,538 742
---------- ---------- --------
Total debt............................... 6,125,708 3,568,516 686,241
Less current maturities.................. 124,491 34,562 49
---------- ---------- --------
Long-term debt........................... $6,001,217 $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)
(unaudited with respect to September 30, 1998)
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 September 30, 1998,
$1.6 billion had been drawn under the revolving credit facility at a weighted
average interest rate of 8.19% with $100 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 0.625% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, ("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
September 30, 1998, and December 31, 1997 and 1996, the weighted average
interest rate on the term loans was 8.20%, 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)
(unaudited with respect to September 30, 1998)
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.
In April 1997 and November 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 September 30, 1998, $856.3 million, including converted accrued interest of
$67.2 million, had been borrowed at a weighted average interest rate 8.78%
with $510.9 million remaining available. 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.
In May 1997 and December 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 September 30, 1998, the Company had borrowed
approximately $1.7 billion, including converted accrued interest of $123.5
million, with $252.8 million remaining available under the Lucent facility at
a weighted average interest rate of 8.70%. 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)
(unaudited with respect to September 30, 1998)
(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. At September 30, 1998, $400 million had been borrowed under the term
loan facilities at a weighted average interest rate of 8.13%. 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 the
special purpose subsidiaries of Cox PCS to facilitate the collateralization of
substantially all of Cox PCS' assets.
F-28
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(unaudited with respect to September 30, 1998)
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 September 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 September 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 September 30, 1998 and
December 31, 1997 was an unrealized loss of approximately $4.8 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
Facility........................... 220,000 220,000 -- --
APC Senior Secured Reducing
Revolving 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)
(unaudited with respect to September 30, 1998)
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
$106.5 million for the nine months ended September 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
$37.4 million for the nine months ended September 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)
(unaudited with respect to September 30, 1998)
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 $20.9 million for the nine months ended September 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)
(unaudited with respect to September 30, 1998)
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 was 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 nine months ended September 30, 1998, approximately
$14.2 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 $5.2 million for the
nine months ended September 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 were eligible and could contribute up to 15% of their pretax
earnings. APC matched 100% of the first 3% of the employee's contribution.
Employees were immediately fully vested in APC's contributions. In addition,
APC could make discretionary contributions on behalf of eligible participants
in the amount of 2% of employee's compensation. Expenses relating to the
employee savings plan were 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 were liquidated, settled and
transferred to Merrill Lynch Trust Company as trustee of the Plan.
Additionally, APC Plan participants became 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 $0.9 million for the nine months ended September 30, 1998.
F-32
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY COMBINED WITH MINORCO AND PHILLIECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(unaudited with respect to September 30, 1998)
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 nine months ended September 30,
1998 and for the year ended December 31, 1997, costs for services provided of
$36.3 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 $23.3 million and $14.0 million are included in
receivables from affiliates at September 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)
(unaudited with respect to September 30, 1998)
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 nine months ended September
30, 1998 and the years ended December 31, 1997 and 1996, Sprint Communications
received agency fees of approximately $6.5 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 September 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>
Nine Months Year Ended
Ended September 30, December 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Operating Revenues.. $11,940.3 $11,024.9 $14,873.9 $13,887.5 $12,735.3
Operating Expenses
Costs of services and
products............. 5,691.3 5,523.7 7,451.0 6,912.9 6,504.9
Selling, general and
administrative....... 2,802.0 2,395.1 3,245.2 3,116.4 2,842.1
Depreciation and
amortization......... 1,429.1 1,265.2 1,726.3 1,591.0 1,466.4
Restructuring costs... -- -- -- -- 87.6
--------- --------- --------- --------- ---------
Total operating
expenses............. 9,922.4 9,184.0 12,422.5 11,620.3 10,901.0
--------- --------- --------- --------- ---------
Operating Income........ 2,017.9 1,840.9 2,451.4 2,267.2 1,834.3
Interest expense........ (185.6) (133.3) (187.2) (196.7) (260.7)
Equity in loss of Global
One.................... (120.0) (88.3) (162.1) (82.1) (22.9)
Equity in loss of Sprint
Spectrum Holdings and
PhillieCo.............. (686.5) (410.6) (659.6) (191.8) (31.4)
Other income (expense),
net.................... 48.6 51.8 140.5 115.3 (38.9)
--------- --------- --------- --------- ---------
Income from continuing
operations before
income taxes........... 1,074.4 1,260.5 1,583.0 1,911.9 1,480.4
Income taxes............ (405.1) (502.9) (630.5) (721.0) (534.3)
--------- --------- --------- --------- ---------
Income from Continuing
Operations............. 669.3 757.6 952.5 1,190.9 946.1
Discontinued operation,
net.................... -- -- -- (2.6) 14.5
Extraordinary items,
net.................... (4.4) -- -- (4.5) (565.3)
--------- --------- --------- --------- ---------
Net Income.............. 664.9 757.6 952.5 1,183.8 395.3
Preferred stock
dividends.............. (0.8) (0.8) (1.0) (1.3) (2.6)
--------- --------- --------- --------- ---------
Earnings applicable to
common stock........... $ 664.1 $ 756.8 $ 951.5 $ 1,182.5 $ 392.7
========= ========= ========= ========= =========
Basic Earnings per
Common Share
Continuing operations. $ 1.55 $ 1.76 $ 2.21 $ 2.82 $ 2.71
Discontinued
operation............ -- -- -- (0.01) 0.04
Extraordinary items... (0.01) -- -- (0.01) (1.62)
--------- --------- --------- --------- ---------
Total................... $ 1.54 $ 1.76 $ 2.21 $ 2.80 $ 1.13
========= ========= ========= ========= =========
Basic weighted average
common shares.......... 430.7 430.3 430.2 421.7 348.7
========= ========= ========= ========= =========
Diluted Earnings per
Common Share
Continuing operations. $ 1.52 $ 1.74 $ 2.18 $ 2.79 $ 2.69
Discontinued
operation............ -- -- -- (0.01) 0.04
Extraordinary items... (0.01) -- -- (0.01) (1.61)
--------- --------- --------- --------- ---------
Total................... $ 1.51 $ 1.74 $ 2.18 $ 2.77 $ 1.12
========= ========= ========= ========= =========
Diluted weighted average
common shares.......... 438.7 436.1 436.5 427.0 351.3
========= ========= ========= ========= =========
Dividends per Common
Share.................. $ 0.75 $ 0.75 $ 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>
September 30, December 31,
------------- --------------------
1998 1997 1996
------------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and equivalents..................... $ 47.7 $ 101.7 $ 1,150.6
Accounts receivable, net of allowance for
doubtful accounts of $166.0 (unaudited),
$146.7 and $117.4....................... 2,515.8 2,495.6 2,343.6
Inventories.............................. 349.9 352.0 305.3
Prepaid expenses......................... 216.3 159.1 150.0
Notes and other receivables.............. 407.8 443.4 101.9
Other.................................... 206.4 199.6 181.5
--------- --------- ---------
Total current assets................... 3,743.9 3,751.4 4,232.9
Investments in equity securities........... 420.2 303.0 254.5
Property, plant and equipment
Long distance communications services.... 9,133.0 8,245.5 7,467.8
Local communications services............ 14,817.2 14,011.5 13,368.7
Other.................................... 2,309.2 953.9 574.3
--------- --------- ---------
Total property, plant and equipment...... 26,259.4 23,210.9 21,410.8
Less accumulated depreciation............ 12,757.2 11,716.8 10,946.7
--------- --------- ---------
Net property, plant and equipment...... 13,502.2 11,494.1 10,464.1
Investment in and advances to Sprint
Spectrum Holdings and PhillieCo........... 610.1 989.6 1,242.9
Investments in and advances to other
affiliates................................ 634.0 459.1 284.2
Other assets............................... 1,543.4 1,187.6 347.8
--------- --------- ---------
Total.................................. $20,453.8 $18,184.8 $16,826.4
========= ========= =========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt..... $ 80.6 $ 131.0 $ 99.1
Short-term borrowings.................... -- -- 200.0
Accounts payable......................... 1,099.0 1,100.1 1,026.7
Accrued interconnection costs............ 564.7 672.7 709.0
Accrued taxes............................ 399.2 270.7 189.2
Advance billings......................... 213.3 202.9 199.7
Other.................................... 849.0 699.4 770.6
--------- --------- ---------
Total current liabilities.............. 3,205.8 3,076.8 3,194.3
Construction obligations................... 429.0 -- --
Long-term debt............................. 5,039.8 3,748.6 2,974.8
Deferred credits and other liabilities
Deferred income taxes and investment tax
credits................................. 1,029.2 1,016.5 846.9
Postretirement and other benefit
obligations............................. 1,067.4 947.4 919.7
Other.................................... 370.8 358.8 359.0
--------- --------- ---------
Total deferred credits and other
liabilities........................... 2,467.4 2,322.7 2,125.6
Redeemable preferred stock................. 9.5 11.5 11.8
Common stock and other stockholders' equity
Common stock, par value $2.50 per share,
1,000.0 shares authorized, 350.3 shares
issued, and 344.5 (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. 4,490.8 4,457.7 4,425.9
Retained earnings........................ 4,012.7 3,693.1 3,222.4
Treasury stock, at cost, 5.8 (unaudited),
6.5 and 6.4 shares...................... (396.1) (292.9) (262.2)
Other.................................... 103.6 76.0 42.5
--------- --------- ---------
Total common stock and other
stockholders' equity.................. 9,302.3 9,025.2 8,519.9
--------- --------- ---------
Total.................................. $20,453.8 $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>
Nine Months
Ended Year Ended
September 30, December 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income.................. $ 664.9 $ 757.6 $ 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............... 824.9 506.9 843.7 273.7 39.1
Extraordinary items, net.. 1.1 -- -- 4.9 565.3
Depreciation and
amortization............. 1,429.1 1,265.2 1,726.3 1,591.0 1,466.4
Deferred income taxes and
investment tax credits... 20.8 217.2 165.7 (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.................... (20.2) (92.9) (127.0) (982.1) (135.4)
Inventories and other
current assets......... (28.0) (37.2) (94.4) 15.7 (38.6)
Accounts payable and
other current
liabilities............ 124.1 (195.5) 18.0 362.0 178.1
Noncurrent assets and
liabilities, net....... (69.0) (14.3) (18.4) (25.5) 123.0
Other, net................ 2.3 3.7 5.8 (17.1) 6.4
-------- -------- -------- -------- --------
Net cash provided by
continuing operations...... 2,950.0 2,410.7 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....... 2,950.0 2,410.7 3,379.0 2,403.5 2,772.1
-------- -------- -------- -------- --------
Investing Activities
Capital expenditures........ (2,992.1) (1,903.9) (2,862.6) (2,433.6) (1,857.3)
Purchase of PCS licenses.... -- (460.1) (460.1) (84.0) --
Investments in and loans to
Sprint Spectrum Holdings
and PhillieCo.............. (307.1) (410.0) (706.3) (561.0) (954.1)
Investments in and loans to
other affiliates, net...... (395.3) (98.5) (385.5) (81.4) (37.8)
Paranet acquisition......... -- (375.0) (375.0) -- --
Proceeds from sales of
assets..................... -- -- 292.3 2.1 6.7
Other, net.................. (14.0) 33.8 (2.3) 42.4 (17.1)
-------- -------- -------- -------- --------
Net cash used by continuing
operations................. (3,708.5) (3,213.7) (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................. (3,708.5) (3,213.7) (4,499.5) (1,856.2) (3,184.2)
-------- -------- -------- -------- --------
Financing Activities
Payments on long-term debt.. (246.7) (110.6) (135.0) (433.1) (630.0)
Proceeds from long-term
debt....................... 945.6 -- 866.5 9.4 260.7
Change in construction
obligations................ 429.0 -- -- -- --
Net change in short-term
borrowings................. -- 194.7 (200.0) (1,986.8) 1,109.5
Proceeds from Class A common
stock issued............... -- -- -- 3,661.3 --
Dividends paid.............. (291.6) (274.5) (430.0) (419.6) (351.5)
Treasury stock purchased.... (235.4) (128.8) (144.5) (407.2) --
Other, net.................. 103.6 81.0 114.6 55.1 33.9
-------- -------- -------- -------- --------
Net cash provided (used) by
financing activities....... 704.5 (238.2) 71.6 479.1 422.6
-------- -------- -------- -------- --------
Increase (Decrease) in Cash
and Equivalents............ (54.0) (1,041.2) (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.................. $ 47.7 $ 109.4 $ 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).. -- -- -- -- 664.9 -- -- 664.9
Common stock dividends
(unaudited)............ -- -- -- -- (258.6) -- -- (258.6)
Class A common stock
dividends (unaudited).. -- -- -- -- (64.7) -- -- (64.7)
Treasury stock purchased
(unaudited)............ (3.9) -- -- -- -- (260.2) -- (260.2)
Treasury stock issued
(unaudited)............ 4.6 -- -- 0.5 (12.8) 149.4 -- 137.1
Other, net (unaudited).. -- -- -- 32.6 (9.2) 7.6 27.6 58.6
----- ------- ------- --------- --------- -------- ------- ---------
September 30, 1998
balance (unaudited).... 430.7 $ 875.7 $ 215.6 $ 4,490.8 $ 4,012.7 $ (396.1) $ 103.6 $ 9,302.3
===== ======= ======= ========= ========= ======== ======= =========
</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 (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, 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>
Nine Months At or For the
Ended September 30, Year Ended December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
--------- --------- --------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues.... $ 788.0 $ 110.5 $ 258.0 $ 4.2 $ --
========= ========= ========= ======== =======
Operating loss............ $(1,455.8) $ (869.0) $(1,379.7) $ (357.6) $ (66.9)
========= ========= ========= ======== =======
Net loss.................. $(1,692.0) $(1,021.5) $(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
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 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>
Nine Months
Ended September At or For the
30, Year Ended December 31,
------------------ --------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Results of operations
Net operating revenues........ $1,680.6 $1,535.4 $1,937.6 $1,723.7 $779.5
======== ======== ======== ======== ======
Operating income (loss)....... $ (375.9) $ (473.1) $ (782.5) $ (436.4) $ 8.6
======== ======== ======== ======== ======
Net income (loss)............. $ (495.4) $ (494.4) $ (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 8.0 and 5.8 million shares (unaudited) for the
nine months ended September 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>
Nine Months
Ended Year Ended
September 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................... $174.1 $133.2 $197.9 $212.1 $263.5
====== ====== ====== ====== ======
Cellular division....................... $ -- $ -- $ -- $ 21.5 $124.0
====== ====== ====== ====== ======
Income taxes.............................. $279.1 $288.5 $365.8 $695.3 $532.8
====== ====== ====== ====== ======
Noncash activities:
Capital lease obligations................. $438.1 $ 30.1 $ 30.1 $ -- $ --
====== ====== ====== ====== ======
Tax benefit from stock options exercised.. $ 37.8 $ 19.5 $ 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... $ 73.8 $ -- $ 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)
Borrowings
During the first nine months of 1998, Sprint increased its short-term
borrowings by $946 million. These borrowings, however, have been classified as
long-term debt because of Sprint's intent and ability, through unused credit
facilities, to refinance them on a long-term basis. The borrowings have
weighted average interest rates of 5.8%. Sprint also increased its
construction obligations by $429 million since year-end 1997.
In August 1998, Sprint entered into new revolving credit facilities with
syndicates of banks totaling $5.0 billion. These facilities support Sprint's
commercial paper operations and replace its previous $1.5 billion revolving
credit facility. At September 30, 1998, $3.6 billion was available under these
facilities.
In October 1998, Sprint filed a shelf registration statement with the SEC
for $8.0 billion of debt securities. This replaced $1.0 billion of Sprint's
previous shelf registration statements totaling $1.1 billion. In November
1998, Sprint Capital Corporation issued $5.0 billion in debt securities
(guaranteed by Sprint) under this new shelf registration. As of December 31,
1998 Sprint had loaned to the PCS Group $4.2 billion of the proceeds from the
sale of the Senior Notes at a weighted average interest rate of 8.5%. The PCS
Group used approximately $3.3 billion of these funds to repay existing
indebtedness.
Other
In April 1998, Sprint signed an agreement to sell approximately 80,000
residential and business access lines in rural Illinois. Sprint completed the
sale of these properties and recorded the related gain in November 1998.
In October 1998, Sprint's Board of Directors declared common and Class A
common stock dividends of $0.25 per share payable December 28, 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 $671 million during the first nine
months of 1998 and $770 million during the first nine 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
[Inside cover: Photographs of customers using PCS phones, with caption:
"Wireless phones for everyday for everyone..."]
<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............................................... 22
Risk Factors--The Tracking Stocks ........................................ 28
Special Note Regarding Forward-Looking Statements......................... 37
Price Range of the Series 1 PCS Stock..................................... 38
Dividend Policy........................................................... 38
Use of Proceeds........................................................... 38
Capitalization of the PCS Group........................................... 39
Capitalization of Sprint Corporation...................................... 40
Historical PCS Group Selected Financial Data.............................. 41
PCS Group Unaudited Pro Forma Condensed Combined Financial Statements..... 42
PCS Group Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 49
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Selected Financial Data.................................................. 57
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 58
Sprint Corporation Selected Financial Data................................ 67
Sprint Corporation Unaudited Pro Forma Condensed Combined Financial
Statements............................................................... 68
Sprint Corporation Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 75
Business of the PCS Group................................................. 88
Management of the PCS Group............................................... 101
The Formation Transactions................................................ 105
Tracking Stock Policies................................................... 119
Registration Rights....................................................... 123
Future Inter-Group Interest............................................... 133
Anti-Takeover Considerations.............................................. 134
Description of Capital Stock.............................................. 138
Certain Federal Income Tax Consequences................................... 163
Underwriting.............................................................. 166
Legal Matters............................................................. 169
Experts................................................................... 170
Available Information..................................................... 171
Incorporation of Documents by Reference................................... 171
Glossary.................................................................. G-1
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16,985,000 Shares
Sprint Corporation
PCS Common Stock--Series 1
-------
U.S. PROSPECTUS
, 1999
-------
Joint Global Coordinators
and Book-Running Managers:
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............................................... 22
Risk Factors--The Tracking Stocks ........................................ 28
Special Note Regarding Forward-Looking Statements......................... 37
Price Range of the Series 1 PCS Stock..................................... 38
Dividend Policy........................................................... 38
Use of Proceeds........................................................... 38
Capitalization of the PCS Group........................................... 39
Capitalization of Sprint Corporation...................................... 40
Historical PCS Group Selected Financial Data.............................. 41
PCS Group Unaudited Pro Forma Condensed Combined Financial Statements..... 42
PCS Group Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 49
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Selected Financial Data.................................................. 57
Sprint Spectrum Holding Company Combined with MinorCo and PhillieCo
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 58
Sprint Corporation Selected Financial Data................................ 67
Sprint Corporation Unaudited Pro Forma Condensed Combined Financial
Statements............................................................... 68
Sprint Corporation Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 75
Business of the PCS Group................................................. 88
Management of the PCS Group............................................... 101
The Formation Transactions................................................ 105
Tracking Stock Policies................................................... 119
Registration Rights....................................................... 123
Future Inter-Group Interest............................................... 133
Anti-Takeover Considerations.............................................. 134
Description of Capital Stock.............................................. 138
Certain Federal Income Tax Consequences................................... 163
Underwriting.............................................................. 166
Legal Matters............................................................. 169
Experts................................................................... 170
Available Information..................................................... 171
Incorporation of Documents by Reference................................... 171
Glossary.................................................................. G-1
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16,985,000 Shares
Sprint Corporation
[LOGO] Sprint(R)
Sprint PCS(R)
PCS Common Stock--Series 1
-------
INTERNATIONAL PROSPECTUS
, 1999
-------
Joint Global Coordinators
and Book-Running Managers:
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............................. 50,000
Accounting fees and expenses..................................... 100,000
Legal fees and expenses.......................................... 1,100,000
Printing and engraving expenses.................................. 1,400,000
Transfer Agent and Registrar fees and expenses................... 1,000
Miscellaneous expenses........................................... 170,893
----------
Total.......................................................... $3,000,000
==========
</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 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 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 the Articles of
Incorporation of Sprint Corporation (filed as Exhibit 4A to Post-
Effective Amendment No. 2 to Sprint Corporation Registration Statement
on Form S-3 (Registration No. 033-58488) and incorporated herein by
reference).
4.2 Rights Agreement, dated as of November 23, 1998, between Sprint
Corporation and UMB Bank, n.a. as Rights Agent (filed as Exhibit 4.1
to Amendment No. 1 to Sprint Corporation Registration Statement on
Form 8-A relating to Sprint's PCS Group Rights, filed November 25,
1998, and incorporated herein by reference).
4.3 Provisions regarding the Capital Stock Committee are set forth in
Article IV, Section 13 of the Bylaws (filed as Exhibit 4C to Post-
Effective Amendment No. 2 to Sprint Corporation Registration Statement
on Form S-3 (Registration No. 033-58488) and incorporated herein by
reference).
4.4 Tracking Stock Policies of Sprint Corporation (filed as Exhibit 4D to
Post-Effective Amendment No. 2 to Sprint Corporation Registration
Statement on Form S-3 (Registration No. 033-58488) and incorporated
herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- ----------------------------------------------------------------------
<C> <S>
4.5 Amended and Restated Standstill Agreement, dated as of November 23,
1998, by and among Sprint Corporation, France Telecom S.A. and
Deutsche Telekom AG (filed as Exhibit 4E to Post-Effective Amendment
No. 2 to Sprint Corporation Registration Statement on Form S-3
(Registration No. 033-58488) 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.
8.2 Opinion of Stinson, Mag & Fizzell (filed as Exhibit 8.2 to Amendment
No. 1 to Sprint Corporation Registration Statement on Form S-4
(Registration No. 333-65173) and incorporated herein by reference).
8.3 Opinion of Stinson, Mag & Fizzell.
10.1 Amended and Restated Registration Rights Agreement, dated as of
November 23, 1998, among Sprint Corporation, France Telecom S.A. and
Deutsche Telekom A.G.
10.2 Registration Rights Agreement, dated as of November 23, 1998, 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).
23.1.5 Consent of Stinson, Mag & Fizzell (included in Exhibit 8.3).
*24.1 Power of attorney of the officers and directors of Registrant signing
this Registration Statement.
</TABLE>
- --------
* Previously filed.
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 Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Westwood, State of Kansas, on the
22nd day of January, 1999.
SPRINT CORPORATION
/s/ Arthur B. Krause
By___________________________________
Executive Vice President--Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ W.T. Esrey* Chairman of the Board and
- ------------------------------------- Chief Executive Officer
(W.T. Esrey) (Principal Executive
Officer)
/s/ A.B. Krause* Executive Vice President--
- ------------------------------------- Chief Financial Officer
(A.B. Krause) (Principal Financial
Officer)
/s/ J.P. Meyer* Senior Vice President and
- ------------------------------------- Controller (Principal
(J.P. Meyer) Accounting Officer)
/s/ DuBose Ausley* Director
- ------------------------------------
(DuBose Ausley) January 22, 1999
/s/ Warren L. Batts* Director
- ------------------------------------
(Warren L. Batts)
/s/ Michel Bon* Director
- ------------------------------------
(Michel Bon)
/s/ I.O. Hockaday, Jr.* Director
- ------------------------------------
(Irvine O. Hockaday, Jr.)
/s/ Harold S. Hook* Director
- ------------------------------------
(Harold S. Hook)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ronald T. LeMay* Director
- ------------------------------------
(Ronald T. LeMay)
/s/ Linda K. Lorimer* Director
- ------------------------------------
(Linda Koch Lorimer)
/s/ Charles E. Rice* Director
- ------------------------------------
(Charles E. Rice) January 22, 1999
/s/ Ron Sommer* Director
- ------------------------------------
(Ron Sommer)
/s/ Stewart Turley* Director
- ------------------------------------
(Stewart Turley)
</TABLE>
/s/ Arthur B. Krause
*By_______________________
For himself and as Attorney-
in-fact
II-10
<PAGE>
EXHIBIT 1.1
Sprint Corporation
__________ Shares/1/
PCS Common Stock--Series 1
($1.00 par value)
Form of U.S. Underwriting Agreement
New York, New York
, 1999
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.
As U.S. Representatives of the several
U.S. Underwriters,
c/o Warburg Dillon Read LLC
299 Park Avenue
New York, New York 10171
and
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Sprint Corporation, a corporation organized under the laws of Kansas
(the "Company"), proposes to issue and sell to the several underwriters named in
Schedule I hereto (the "U.S. Underwriters"), for whom you (the "U.S.
Representatives") are acting as representatives, __________ shares of PCS Common
Stock--Series 1, $1.00 par value ("Common Stock"), of the Company (said shares
to be issued and sold by the Company being hereinafter called the "U.S.
Underwritten Securities"). The Company also proposes to grant to the U.S.
Underwriters an option to purchase up to _________ additional shares of Common
Stock to cover over-allotments (the "U.S. Option Securities" and, together with
the U.S. Underwritten Securities, the "U.S. Securities"). It is understood that
the Company is concurrently entering into an International Underwriting
Agreement dated the date hereof (the "International Underwriting Agreement" and,
together with this Underwriting Agreement, the
- ------------------------------
/1/ Plus an option to purchase from the Company up to _________ additional
U.S. Securities to cover over-allotments.
<PAGE>
2
"Underwriting Agreements") providing for the sale by the Company to the several
International Underwriters of an aggregate of _________ shares of Common Stock
(said shares to be sold by the Company pursuant to the International
Underwriting Agreement being hereinafter called the "International Underwritten
Securities") and providing for the grant to the International Underwriters of an
option to purchase from the Company up to _______ additional shares of Common
Stock (the "International Option Securities"). It is further understood and
agreed that the International Underwriters and the U.S. Underwriters have
entered into an Agreement Between U.S. Underwriters and International
Underwriters dated the date hereof (the "Agreement Between U.S. Underwriters and
International Underwriters"), pursuant to which, among other things, the
International Underwriters may purchase from the U.S. Underwriters a portion of
the U.S. Securities to be sold pursuant to this U.S. Underwriting Agreement and
the U.S. Underwriters may purchase from the International Underwriters a portion
of the International Securities to be sold pursuant to the International
Underwriting Agreement. To the extent there are no additional U.S. Underwriters
listed on Schedule I other than you, the term U.S. Representatives as used
herein shall mean you, as U.S. Underwriters, and the terms U.S. Representatives
and U.S. Underwriters shall mean either the singular or plural as the context
requires. The use of the neuter in this U.S. Underwriting Agreement shall
include the feminine and masculine wherever appropriate. Any reference herein to
the Registration Statement, any Preliminary Prospectuses or the Prospectuses
shall be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act
on or before the Effective Date of the Registration Statement or the issue date
of such Preliminary Prospectuses or the Prospectuses, as the case may be; and
any reference herein to the terms "amend", "amendment" or "supplement" with
respect to the Registration Statement, any Preliminary Prospectuses or the
Prospectuses shall be deemed to refer to and include the filing of any document
under the Exchange Act after the Effective Date of the Registration Statement or
the issue date of any Preliminary Prospectuses or the Prospectuses, as the case
may be, deemed to be incorporated therein by reference. Certain terms used in
this U.S. Underwriting Agreement are defined in Section 19.
1. Representations and Warranties.
-------------------------------
(i) The Company represents and warrants to, and agrees with, each
U.S. Underwriter as set forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3 under the
Act for purposes of the Registration Statement and has prepared and filed
with the Commission a registration statement (file number 333-64241) on
Form S-3, including related preliminary prospectuses, for registration
under the Act of the offering and sale of the Securities. The Company may
have filed one or more amendments thereto, and may have used preliminary
prospectuses, each of which has previously been furnished to you. The
Company will next file with the Commission one of the following: either (1)
prior to the Effective Date of such registration statement, a further
amendment to such registration statement (including the form of final
prospectuses) or (2) after the Effective Date of such registration
statement, the Prospectuses in accordance with Rules 430A and 424(b). In
the case of clause (2), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to be
included in such registration statement and the Prospectuses. As filed,
such amendment and form of final prospectuses, or such registration
statement and Prospectuses, shall contain or be deemed to contain
information
<PAGE>
3
(including, in the case of clause (2), Rule 430A Information)
required by the Act and the rules thereunder to be included in such
registration statement and Prospectuses, and, except to the extent the U.S.
Representatives shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectuses) as the Company has
advised you, prior to the Execution Time, will be included or made therein.
It is understood that two forms of prospectuses are to be used in
connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be offered and sold
to persons other than United States and Canadian Persons. The U.S.
Prospectus and the International Prospectus are identical except for the
outside front cover page and the outside back cover page.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectuses are first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein) and on any date on
which Option Securities are purchased, if such date is not the Closing Date
(a "settlement date"), each Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the Exchange Act and the respective rules thereunder; on the Effective
Date and at the Execution Time, the Registration Statement did not or will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date, each
Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date
of any filing pursuant to Rule 424(b) and on the Closing Date and any
settlement date, each Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties
-------- -------
as to the information contained in or omitted from the Registration
Statement or the Prospectuses (or any supplement thereto) in reliance upon
and in conformity with information furnished in writing to the Company by
or on behalf of any Underwriter through the Representatives specifically
for inclusion in the Registration Statement or the Prospectuses (or any
supplement thereto).
(c) Each of the Company and the PCS Companies has been duly
incorporated or otherwise organized and is validly existing as a
corporation, limited liability company, or partnership, as the case may be,
in good standing under the laws of the jurisdiction in which it is
chartered or organized with full corporate, limited liability company, or
partnership power and authority to own or lease, as the case may be, and to
operate its properties and conduct its business as described in the
Prospectuses, and is duly qualified to do business as a foreign
corporation, limited liability company, or partnership and is in good
standing under the laws of each jurisdiction where the nature of its
properties or the conduct of its business requires such qualification,
except where the failure to so qualify does not have a Material Adverse
Effect.
<PAGE>
4
(d) All the outstanding shares of capital stock or ownership
interests of each Material Subsidiary and PCS Company have been duly and
validly authorized and issued and are fully paid and nonassessable, and,
except as otherwise set forth or incorporated by reference in the
Prospectuses, all outstanding shares of capital stock or ownership
interests of such subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any perfected security
interest or any other security interests, claims, liens or encumbrances.
(e) The Company's authorized equity capitalization is as set forth in
the Prospectuses; the capital stock of the Company which is described in
the Prospectuses conforms in all material respects to the description
thereof contained in the Prospectuses; the outstanding shares of Common
Stock have been duly and validly authorized and issued and are fully paid
and nonassessable; the Securities have been duly and validly authorized
and, when issued and delivered to and paid for by the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement and by the International
Underwriters pursuant to the International Underwriting Agreement, will be
fully paid and nonassessable, the Securities are duly listed, and admitted
and authorized for trading, subject to official notice of issuance and
evidence of satisfactory distribution, on the New York Stock Exchange; the
certificates for the Securities are in valid and sufficient form; the
holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities;
and, except as set forth in the Prospectuses or as issued pursuant to
employee or director benefit plans described or incorporated by reference
in the Prospectuses, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital stock of
or ownership interests in the Company or the PCS Companies are outstanding.
(f) There is no franchise, contract or other document or any legal or
governmental proceedings of a character required to be described in the
Registration Statement or the Prospectuses, or to be filed as an exhibit
thereto, which is not described or filed as required; and the statements in
the Prospectuses under the headings "Certain Federal Income Tax
Consequences", "Business of the PCS Group--Regulation" and "--Legal
Proceedings" fairly summarize the matters therein described.
(g) Each of this U.S. Underwriting Agreement and the International
Underwriting Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectuses, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated in the Underwriting Agreements, except such as
have been obtained under the Act and such as may be required under the blue
sky or securities laws of any jurisdiction in connection with the purchase
and distribution of the Securities by the Underwriters in the manner
contemplated in the Underwriting Agreements and in the Prospectuses.
<PAGE>
5
(j) Neither the issue and sale of the Securities hereunder and under
the International Underwriting Agreement nor the consummation of any other
of the transactions herein or therein contemplated nor the fulfillment of
the terms hereof or thereof will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
(i) the charter or by-laws of the Company or any of its Material
Subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company or any
of its subsidiaries is a party or bound or to which its or their property
is subject or (iii) any statute, law, rule, regulation, judgment, order or
decree applicable to the Company or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of its
subsidiaries or any of their properties except, as to (ii) and (iii), for
such conflicts, breaches, violations or impositions that could not
reasonably be expected to have a Material Adverse Effect.
(k) No holder of securities of the Company has rights to the
registration of such securities under the Registration Statement.
(l) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
U.S. Underwriting Agreement or the International Underwriting Agreement or
the consummation of any of the transactions contemplated hereby or thereby
or (ii) could reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, or the
PCS Group, whether or not arising from transactions in the ordinary course
of business, except, in the case of this clause (ii), as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto).
(m) Neither the Company nor any of its Material Subsidiaries is in
violation or default of (i) any provision of its charter or bylaws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject, or (iii) any statute, law, rule, regulation, judgment,
order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or such subsidiary or any of its properties, as applicable,
except in the case of clauses (ii) and (iii) of this paragraph, as could
not reasonably be expected to have a Material Adverse Effect.
(n) The Company and its subsidiaries possess all material licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial
or otherwise),
<PAGE>
6
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, or the PCS Group, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(o) The Company has not taken, directly or indirectly, any action
designed to result, or which has constituted, or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by
the Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and
------------------
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each U.S. Underwriter, and each U.S. Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $ [bold] per share, the amount of the U.S. Underwritten
Securities set forth opposite such U.S. Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties set forth herein, the Company hereby grants an
option to the several U.S. Underwriters to purchase, severally and not jointly,
an aggregate of up to ______ U.S. Option Securities at the same purchase
price per share as the U.S. Underwriters shall pay for the U.S. Underwritten
Securities. Said option may be exercised only to cover over-allotments in the
sale of the Underwritten Securities by the Underwriters. Said option may be
exercised in whole or in part at any time (but not more than once) on or before
the 30th day after the date of the U.S. Prospectus upon written or telegraphic
notice by the U.S. Representatives to the Company setting forth the number of
shares of the U.S. Option Securities as to which the several U.S. Underwriters
are exercising the option and the settlement date. The number of shares of U.S.
Option Securities to be purchased by each U.S. Underwriter shall be the same
percentage of the total number of shares of the U.S. Option Securities to be
purchased by the several U.S. Underwriters as such U.S. Underwriter is
purchasing of the U.S. Underwritten Securities, subject to such adjustments as
you in your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the U.S.
---------------------
Underwritten Securities and the U.S. Option Securities (if the option provided
for in Section 2(b) hereof shall have been exercised on or before the third
Business Day prior to the Closing Date) shall be made at 10:00 AM, New York City
time, on ______ , 1999, or at such time on such later date not more than
three Business Days after the foregoing date as the U.S. Representatives and the
International Representatives shall designate, which date and time may be
postponed by agreement among the U.S. Representatives, the International
Representatives and the Company or as provided in Section 9 hereof (such date
and time of delivery and payment for the U.S. Securities being herein called the
"Closing Date"). Delivery of the U.S. Securities shall be made to the U.S.
Representatives for the respective accounts of the several U.S. Underwriters
against payment by the several U.S. Underwriters through the U.S.
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the U.S. Underwritten Securities and the U.S. Option
Securities shall be made through the
<PAGE>
7
facilities of The Depository Trust Company unless the U.S. Representatives shall
otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
U.S. Option Securities (at the expense of the Company) to the U.S.
Representatives, at 299 Park Avenue, New York, New York on the date specified by
the U.S. Representatives (which shall be at least three Business Days after
exercise of said option) for the respective accounts of the several U.S.
Underwriters, against payment by the several U.S. Underwriters through the U.S.
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. If settlement for the U.S. Option Securities occurs after the
Closing Date, the Company will deliver to the U.S. Representatives on the
settlement date for the U.S. Option Securities, and the obligation of the U.S.
Underwriters to purchase the U.S. Option Securities shall be conditioned upon
receipt of, supplemental opinions, certificates and letters confirming as of
such date the opinions, certificates and letters delivered on the Closing Date
pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the International Underwriting
Agreement, and that the settlement date, if any, shall occur simultaneously with
the "settlement date" under the International Underwriting Agreement.
4. Offering by Underwriters. It is understood that the several U.S.
-------------------------
Underwriters propose to offer the U.S. Securities for sale to the public as set
forth in the U.S. Prospectus.
5. Agreements.
-----------
(i) The Company agrees with the several U.S. Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file (other than, subject to Section
5(i)(f) hereof, the filing of any prospectus or preliminary prospectus
relating to an offering of Securities covered by this Agreement or the
filing of any document required to be filed under the Exchange Act that
upon filing is deemed to be incorporated by reference in the Registration
Statement or the Prospectuses) any amendment of the Registration Statement
or supplement to the Prospectuses or any Rule 462(b) Registration Statement
unless the Company has furnished you a copy for your review prior to filing
and will not file any such proposed amendment or supplement to which you
reasonably object. During such time the Company will not file any document
required to be filed under the Exchange Act that upon filing is deemed to
be incorporated by reference in the Registration Statement or the
Prospectuses unless the Company has furnished to your counsel a copy for
their review and comment a reasonable amount of time prior to filing, which
comments the Company shall review in good faith. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the Prospectuses is otherwise required
under Rule 424(b), the Company will cause the Prospectuses, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory
<PAGE>
8
to the U.S. Representatives of such timely filing. The Company will
promptly advise the U.S. Representatives (1) when the Registration
Statement, if not effective at the Execution Time, shall have become
effective, (2) when the Prospectuses, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b)
or when any Rule 462(b) Registration Statement shall have been filed with
the Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (4) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the Prospectuses or for
any additional information, (5) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the institution or threatening of any proceeding for that purpose and (6)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order or the suspension of any such qualification and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which either of the Prospectuses as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to
amend the Registration Statement or supplement either of the Prospectuses
to comply with the applicable provisions of the Act or the Exchange Act or
the respective rules thereunder, the Company promptly will (1) notify the
U.S. Representatives of any such event; (2) prepare and file with the
Commission, subject to the second and third sentences of paragraph (i)(a)
of this Section 5, an amendment or supplement which will correct such
statement or omission or effect such compliance; and (3) supply any
supplemented Prospectuses to you in such quantities as you may reasonably
request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the U.S. Representatives an earnings
statement which will satisfy the provisions of Section 11(a) of the Act and
Rule 158 under the Act.
(d) The Company will furnish to the U.S. Representatives and counsel
for the U.S. Underwriters copies of the signed Registration Statement
(including exhibits thereto) and to each other U.S. Underwriter a copy of
the Registration Statement (without exhibits thereto) and, so long as
delivery of a prospectus by an U.S. Underwriter or dealer may be required
by the Act, as many copies of each U.S. Preliminary Prospectus and the U.S.
Prospectus and any supplement thereto as the U.S. Representatives may
reasonably request.
(e) The Company will cooperate with you and with counsel for the
Underwriters in connection with the qualification of the Securities for
sale under the laws of such jurisdictions as the U.S. Representatives may
designate and will take such actions as are necessary to maintain such
qualifications in effect so long as required for the distribution of the
U.S. Securities; provided that in no event shall the Company be obligated
to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action that would subject it to service of process
in suits,
<PAGE>
9
other than those arising out of the offering or sale of the Securities, in
any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc. or Warburg Dillon Read LLC, for a period of 90
days following the Execution Time, offer, sell, contract to sell, pledge or
otherwise dispose of (or enter into any transaction which is designed to
result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Company or
any affiliate of the Company or any person in privity with the Company or
any affiliate of the Company) directly or indirectly, or register, cause to
be registered or announce the registration, offering or intended
registration or offering of, any other shares of PCS Stock or any
securities convertible into or exercisable or exchangeable for shares of
PCS Stock, or grant any options or warrants to purchase shares of PCS
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, and registrations in connection with
such grants or issuances, (ii) issuances of PCS Stock pursuant to any
dividend reinvestment plan, (iii) issuances of PCS Stock upon conversion of
securities or exercise of warrants outstanding on the Closing Date which
are or become convertible into or exercisable for shares of PCS Stock, (iv)
issuances of PCS Stock in acquisitions or mergers, (v) registrations of PCS
Stock for, or issuances of PCS Stock to, the Cable Parents, FT and DT in
connection with the Offerings or upon any exercise of their respective
Equity Purchase Rights or registration rights, (vi) issuances of PCS Stock
pursuant to Sprint's Rights Plan, (vii) issuances, or registrations, of
shares of PCS Stock which are issuable to FT, DT or third parties in
respect of the shares of the Company's Class A Common Stock held by FT and
DT at the Execution Time and (viii) issuances of PCS Stock in connection
with strategic or other significant investments in which the purchaser
agrees to be bound for any remaining portion of such 90-day period on the
above terms.
(g) The Company will not take, directly or indirectly, any action
designed to result in or which has constituted, or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and
filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary Prospectus,
each Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, each Prospectus, and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of this U.S.
Underwriting Agreement and the International Underwriting Agreement, any
blue sky memorandum and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of the
Securities; (v) the registration of the Securities under the Exchange Act
and the listing of the Securities on the New York Stock Exchange; (vi) any
registration or qualification of the Securities for offer and sale under
the securities or blue sky laws of the several states (including
<PAGE>
10
filing fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such registration and qualification); (vii) any
filings required to be made with the National Association of Securities
Dealers, Inc. (including filing fees and the reasonable fees and expenses
of counsel for the Underwriters relating to such filings); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives but not including representatives of the Underwriters in
connection with presentations to prospective purchasers of the Securities;
(ix) the fees and expenses of the Company's accountants and the fees and
expenses of counsel (including local and special counsel) for the Company;
and (x) all other costs and expenses incident to the performance by the
Company of its obligations under the Underwriting Agreements.
(i) The Company will use its best efforts to cause the Securities to
be listed on the New York Stock Exchange.
(ii) Each U.S. Underwriter agrees that (a) it is not purchasing any
of the U.S. Securities for the account of anyone other than a United States or
Canadian Person, (b) 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, and (c) any dealer to whom it may sell
any of the U.S. Securities will represent that it is not purchasing for the
account of anyone other than a United States or Canadian Person and agree that
it will not offer or resell, directly or indirectly, any of the U.S. Securities
outside the United States or Canada, or to anyone other than a United States or
Canadian Person or to any other dealer who does not so represent and agree;
provided, however, that the foregoing shall not restrict (1) purchases and sales
- -------- -------
between the International Underwriters on the one hand and the U.S. Underwriters
on the other hand pursuant to the Agreement Between U.S. Underwriters and
International Underwriters, (2) stabilization transactions contemplated under
the Agreement Between U.S. Underwriters and International Underwriters,
conducted through Salomon Smith Barney Inc. and Warburg Dillon Read LLC (or
through the U.S. Representatives and International Representatives) as part of
the distribution of the Securities, and (3) sales to or through (or
distributions of U.S. Prospectuses or U.S. Preliminary Prospectuses to) United
States or Canadian Persons who are investment advisors, or who otherwise
exercise investment discretion, and who are purchasing for the account of anyone
other than a United States or Canadian Person.
(iii) The agreements of the U.S. Underwriters set forth in paragraph
(ii) of this Section 5 shall terminate upon the earlier of the following events:
(a) a mutual agreement of the U.S. Representatives and the
International Representatives to terminate the selling restrictions set
forth in paragraph (ii) of this Section 5 and in Section 5(ii) of the
International Underwriting Agreement; or
(b) the expiration of a period of 30 days after the Closing Date,
unless (A) the U.S. Representatives shall have given notice to the Company
and the International Representatives that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed, or (B) the
International Representatives shall have given notice to the Company and
the U.S. Representatives that the distribution of the International
Securities by the International Underwriters has not yet been completed. If
such notice by the U.S. Representatives or the International
Representatives is given, the agreements set forth in such paragraph (ii)
shall survive until the earlier of
<PAGE>
11
(1) the event referred to in clause (a) of this subsection (iii) or (2) the
expiration of an additional period of 30 days from the date of any such
notice.
6. Conditions to the Obligations of the U.S. Underwriters. The
-------------------------------------------------------
obligations of the U.S. Underwriters to purchase the U.S. Underwritten
Securities and the U.S. Option Securities, as the case may be, shall be subject
to the accuracy of the representations and warranties on the part of the Company
contained herein as of the Execution Time and the Closing Date, to the accuracy
of the statements of the Company made in any certificates pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the U.S. Representatives and the International
Representatives agree in writing to a later time, the Registration Statement
will become effective not later than (i) 6:00 PM New York City time on the date
of determination of the public offering price, if such determination occurred at
or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the
Business Day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City time on
such date; if filing of either of the Prospectuses, or any supplement thereto,
is required pursuant to Rule 424(b), the Prospectuses, and any such supplement,
will be filed in the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have requested King & Spalding, counsel for the
Company, to have furnished to the Representatives its opinion, dated the Closing
Date and addressed to the Representatives, to the effect that:
(i) the Registration Statement has become effective under the Act; any
required filing of the Prospectuses, and any supplements thereto, pursuant
to Rule 424(b) has been made in the manner and within the time period
required by Rule 424(b); to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued,
no proceedings for that purpose have been instituted or threatened and the
Registration Statement and each of the Prospectuses (other than (A) the
financial statements and schedules and other accounting or statistical
information contained therein or omitted therefrom, and (B) the materials
incorporated by reference therein or omitted therefrom, other than the
Proxy Statement, as to which such counsel need express no opinion) comply
as to form in all material respects with the applicable requirements of the
Act and the Exchange Act and the respective rules thereunder; and
(ii) the Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectuses, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that although it has not undertaken,
except as otherwise indicated in such opinion, to determine independently, and
does not assume any responsibility for, the accuracy, completeness or fairness
of the statements in the Registration Statement or the Prospectuses, such
counsel has participated in the preparation of the Registration Statement and
Prospectuses (but not in the preparation of any of the materials incorporated
<PAGE>
12
by reference therein, other than the Proxy Statement), and nothing has come to
its attention that causes it to believe that on the Effective Date the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectuses, as of
their date and on the Closing Date, contained or contain any untrue statement of
a material fact or omitted or omit to state any material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading (in each case other than the materials incorporated by
reference in the Registration Statement and the Prospectuses (except the Proxy
Statement), the financial statements and schedules and other accounting or
statistical information included or incorporated by reference therein, or
omitted therefrom, as to which counsel need not make any statement).
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of New York, the
Federal laws of the United States or the Delaware General Corporation Law, to
the extent it deems proper and specified in such opinion, upon the opinion of
other counsel of good standing whom it believes to be reliable and who are
reasonably satisfactory to counsel for the Underwriters and (B) as to matters of
fact, to the extent it deems proper, on certificates of responsible officers of
the Company or the PCS Companies and public officials. References to the
Prospectuses in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Company shall have requested Don Jensen, Esq., in-house
counsel for the Company, to have furnished to the Representatives such counsel's
opinion, dated the Closing Date and addressed to the Representatives, to the
effect that:
(i) each of the Company and the PCS Companies has been duly
incorporated or otherwise organized and is validly existing as a
corporation, limited liability company, or partnership, as the case may be,
in good standing under the laws of the jurisdiction in which it is
chartered or organized, with full corporate, limited liability company, or
partnership power and authority to own or lease, as the case may be, and to
operate its properties and conduct its business as described in the
Prospectuses, and is duly qualified to do business as a foreign
corporation, limited liability company or partnership and is in good
standing under the laws of each jurisdiction where the nature of its
properties or the conduct of its business requires such qualification,
except where the failure to so qualify does not have a Material Adverse
Effect;
(ii) all the outstanding shares of capital stock or ownership
interests of each PCS Company have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set
forth or incorporated by reference in the Prospectuses, all outstanding
shares of capital stock or ownership interests of such PCS Companies are
owned by the Company either directly or through wholly owned subsidiaries
free and clear of any perfected security interest and, to the knowledge of
such counsel, after due inquiry, any other security interest, claim, lien
or encumbrance;
(iii) the Company's authorized equity capitalization is as set forth
in the Prospectuses; the capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectuses;
the outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable; the Securities
have been duly and validly authorized, and, when issued and delivered to
and paid for by the U.S. Underwriters pursuant to this U.S.
<PAGE>
13
Underwriting Agreement and by the International Underwriters pursuant to
the International Underwriting Agreement, will be fully paid and
nonassessable; and the Securities are duly listed, and admitted and
authorized for trading, subject to official notice of issuance and evidence
of satisfactory distribution, on the New York Stock Exchange; the
certificates for the Securities are in valid form; the holders of
outstanding shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities; and, except as
set forth or incorporated by reference in the Prospectuses or as issued
pursuant to employees or director benefits plans described or incorporated
by reference in the Prospectuses, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to convert
any obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company or the PCS Companies are
outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed or incorporated by reference in the Prospectuses, and
there is no franchise, contract or other document of a character required
to be described in the Registration Statement or Prospectuses, or to be
filed as an exhibit thereto, which is not described or filed as required or
incorporated by reference therein; and the statements included or
incorporated by reference in the Prospectuses under the headings "Certain
Federal Income Tax Consequences", "Business of the PCS Group--Regulation"
and "--Legal Proceedings" fairly summarize the matters therein described;
(v) the Underwriting Agreements have been duly authorized, executed
and delivered by the Company;
(vi) no consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated in the Underwriting Agreements, except such as
have been obtained under the Act and such as may be required under the blue
sky or securities laws of any jurisdiction in connection with the purchase
and distribution of the Securities by the Underwriters in the manner
contemplated in the Underwriting Agreements and in the Prospectuses and
such other approvals (specified in such opinion) as have been obtained;
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions contemplated in the
Underwriting Agreements nor the fulfillment of the terms of the
Underwriting Agreements will conflict with, result in a breach or violation
of or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or its subsidiaries pursuant to, (i) the charter or
by-laws of the Company or its Material Subsidiaries, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which the Company or any of its subsidiaries is a party or bound or to
which its or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of
its subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or any of its subsidiaries or any of its or their properties
that is known to
<PAGE>
14
such counsel, except, as to (ii) and (iii), for such conflicts, breaches,
violations or impositions that could not reasonably be expected to have a
Material Adverse Effect;
(viii) to the knowledge of such counsel, no holders of securities of
the Company have rights to the registration of such securities under the
Registration Statement; and
(ix) no filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, the Federal Communications
Commission (the "FCC"), is necessary or required for the due authorization,
execution or delivery by the Company of this Agreement or the International
Underwriting Agreement or for the performance by the Company of the
transactions contemplated under the Prospectuses, this Agreement or the
International Underwriting Agreement.
In addition, such counsel shall state that although such counsel has not
undertaken, except as otherwise indicated in such opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement or the
Prospectuses, such counsel has participated in the preparation of the
Registration Statement and the Prospectuses, including the documents
incorporated by reference therein, and nothing has come to such counsel's
attention that causes such counsel to believe that on the Effective Date the
Registration Statement contained any untrue statement of fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectuses, as of their date
and on the Closing Date, contained or contain any untrue statement of a material
fact or omitted or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading (in each case other than the financial statements and
schedules and other accounting or statistical information included or
incorporated by reference therein, or omitted therefrom, as to which counsel
need not make any statement).
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of New York, the
Federal laws of the United States (except with respect to regulatory and tax
matters), the Delaware General Corporation Law or, the laws of the State of
Kansas, to the extent he deems proper and specified in such opinion (including
with respect to regulatory and tax matters), upon the opinion of other counsel
of good standing whom he believes to be reliable and who are reasonably
satisfactory to counsel for the Underwriters and (B) as to matters of fact, to
the extent he deems proper, on certificates of responsible officers of the
Company or the PCS Companies and public officials. Reference to the
Prospectuses in this paragraph (c) include any supplements thereto at the
Closing Date.
(d) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the Closing
Date and addressed to the Representatives, with respect to the issuance and sale
of the Securities, the Registration Statement, the Prospectuses (together with
any supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to pass
upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by an executive officer (meaning those
officers who file reports pursuant to Section 16(b) of the Exchange Act) and the
principal financial or accounting officer of the
<PAGE>
15
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplements to the Prospectuses and the Underwriting
Agreements and that:
(i) the representations and warranties of the Company in the
Underwriting Agreements are true and correct in all material respects on
and as of the Closing Date with the same effect as if made on the Closing
Date and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included
or incorporated by reference in the Prospectuses (exclusive of any
supplement thereto), there has been no material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, or the
PCS Group, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectuses
(exclusive of any supplement thereto).
(f) The Company shall have requested Ernst & Young LLP to have
furnished to the Representatives letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent auditors with respect to
the Company within the meaning of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder and that they
have performed a review of the unaudited interim financial information of the
Company and the PCS Group as of and for the nine-month period ended September
30, 1998, and as at September 30, 1998, in accordance with Statement on Auditing
Standards No. 71, and stating in effect that:
(i) in their opinion the audited financial statements and financial
statement schedules included or incorporated by reference in the
Registration Statement and the Prospectuses and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries (as defined
in the introductory paragraph hereof); their limited review, in accordance
with standards established under Statement on Auditing Standards No. 71, of
the unaudited interim financial information for the nine-month period ended
September 30, 1998, and as at September 30, 1998; carrying out certain
specified procedures (but not an examination in accordance with generally
accepted auditing standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such letter; a
reading of the minutes of the meetings of the stockholders, directors and
committees of the Company and its subsidiaries; and inquiries of certain
officials of the Company and its subsidiaries who have responsibility for
financial and accounting matters of the Company and its subsidiaries, as to
transactions and events subsequent to September 30, 1998; and a reading of
the letter from Deloitte & Touche LLP,
<PAGE>
16
independent auditors with respect to Sprint Spectrum, to the
Representatives, nothing came to their attention which caused them to
believe that:
(1) any unaudited financial statements of the Company, the FON
Group or the PCS Group included or incorporated by reference in the
Registration Statement and the Prospectuses do not comply as to form
in all material respects with applicable accounting requirements of
the Act and with the published rules and regulations of the Commission
with respect to financial statements included or incorporated by
reference in quarterly reports on Form 10-Q under the Exchange Act;
and said unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
included or incorporated by reference in the Registration Statement
and the Prospectuses;
(2) with respect to the period subsequent to September 30, 1998,
there were, at a specified date not more than five days prior to the
date of the letter, any changes in the long-term debt and construction
obligations or capital stock, or decreases in the stockholders'
equity, of the Company, or any changes in the long-term debt and
construction obligations, or any decreases in the group equity, of the
PCS Group, as compared with the amounts shown on the September 30,
1998 balance sheet for the Company or the PCS Group, as the case may
be, included or incorporated by reference in the Registration
Statement and the Prospectuses, or for the period from October 1, 1998
to such specified date there were, as compared with the corresponding
period in the immediately preceding quarter, any decreases in net
operating revenues, operating income, income from continuing
operations or net income, or increases in equity in loss of Global
One, of the Company, or any increases in operating loss or net loss of
the PCS Group, except in all instances for changes, increases or
decreases (i) resulting from the Notes Offering, the Recapitalization
or the change in accounting for Sprint Spectrum Holdings and PhillieCo
from the equity basis to the consolidated basis in connection with the
PCS Restructuring or (ii) set forth in such letter, in which case the
letter shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed necessary
by the Representatives; and
(3) the information included or incorporated by reference in the
Registration Statement and Prospectuses in response to Regulation S-K,
Item 301 (Selected Financial Data), Item 302 (Supplementary Financial
Information), Item 402 (Executive Compensation) and Item 503(d) (Ratio
of Earnings to Fixed Charges) with respect to the Company or the PCS
Group is not in conformity with the applicable disclosure requirements
of Regulation S-K;
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company and its subsidiaries) set forth in the Registration Statement
and the Prospectuses, including the information included or incorporated by
reference in the Company's Annual Report on Form 10-K, Quarterly
<PAGE>
17
Reports on Form 10-Q, Current Reports on Form 8-K and the Proxy Statement,
each of which is incorporated by reference in the Registration Statement
and the Prospectuses, and the information included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Sprint" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the PCS Group" in the Prospectuses, agrees
with the accounting records of the Company and its subsidiaries, excluding
any questions of legal interpretation; and
(iv) on the basis of a reading of the unaudited pro forma financial
statements of Sprint, the PCS Group and/or the FON Group included or
incorporated by reference in the Registration Statement and the
Prospectuses (the "pro forma financial statements"); carrying out certain
specified procedures; inquiries of certain officials of the Company and its
subsidiaries who have responsibility for financial and accounting matters;
and proving the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the pro forma financial
statements, nothing came to their attention which caused them to believe
that such pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of Rule 11-02
of Regulation S-X or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of such statements.
References to the Prospectuses in this paragraph (f) include any supplement
thereto at the date of the letter.
(g) The Company shall have requested Deloitte & Touche LLP to have
furnished to the Representatives letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within the
meaning of the Act and the Exchange Act and the respective applicable published
rules and regulations thereunder and that they have performed a review of the
unaudited interim financial information of Sprint Spectrum as of and for the
nine-month period ended September 30, 1998, and as at September 30, 1998, in
accordance with Statement on Auditing Standards No. 71, and stating in effect
that:
(i) in their opinion the audited financial statements and financial
statement schedules included in or incorporated by reference in the
Registration Statement and the Prospectuses and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by Sprint Spectrum; their limited review, in
accordance with standards established under Statement on Auditing Standards
No. 71, of the unaudited interim financial information of Sprint Spectrum
for the nine-month period ended September 30, 1998, and as at September 30,
1998; carrying out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the comments set
forth in such letter; a reading of the minutes of the meetings of the
partners and committees of Sprint Spectrum; and inquiries of certain
officials of Sprint Spectrum who have responsibility for financial and
accounting matters of Sprint
<PAGE>
18
Spectrum as to transactions and events subsequent to September 30, 1998,
nothing came to their attention which caused them to believe that:
(1) any unaudited financial statements of Sprint Spectrum
included or incorporated by reference in the Registration Statement
and the Prospectuses do not comply as to form in all material respects
with applicable accounting requirements of the Act and with the
published rules and regulations of the Commission with respect to
financial statements included or incorporated by reference in
quarterly reports on Form 10-Q under the Exchange Act; and said
unaudited financial statements are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included or
incorporated by reference in the Registration Statement and the
Prospectuses;
(2) with respect to the period subsequent to September 30, 1998,
there were, at a specified date not more than five days prior to the
date of the letter, any changes in the long-term debt or any decreases
in partner's capital of Sprint Spectrum as compared with the amounts
shown on the September 30, 1998 balance sheet for Sprint Spectrum
included or incorporated by reference in the Registration Statement
and the Prospectuses, or for the period from October 1, 1998 to such
specified date there were, as compared with the corresponding period
in the immediately preceding quarter, any decreases in net operating
revenues or any increases in operating loss or net loss of Sprint
Spectrum, except in all instances for changes, increases or decreases
set forth in such letter, in which case the letter shall be
accompanied by an explanation by Sprint as to the significance thereof
unless said explanation is not deemed necessary by the
Representatives; and
(3) the information included or incorporated by reference in the
Registration Statement and Prospectuses in response to Regulation S-K,
Item 301 (Selected Financial Data) and Item 302 (Supplementary
Financial Information) with respect to Sprint Spectrum is not in
conformity with the applicable disclosure requirements of Regulation
S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
Sprint Spectrum) set forth in the Registration Statement and the
Prospectuses, including the information included or incorporated by
reference in the Proxy Statement, which is incorporated by reference in the
Registration Statement and in the Prospectuses, and the information
included in "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Sprint Spectrum Holdings Company Combined with
MinorCo and PhillieCo" in the Prospectuses, agrees with the accounting
records of Sprint Spectrum, excluding any questions of legal
interpretation.
References to the Prospectuses in this paragraph (g) include any supplement
thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and
<PAGE>
19
the Prospectuses (exclusive of any supplement thereto), there shall not have
been (i) any change, increase or decrease specified in the letter or letters
referred to in paragraph (f) or (g) of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting the condition
(financial or otherwise), earnings, business or properties of the Company and
its subsidiaries, taken as a whole, or the PCS Group, whether or not arising
from transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto) the
effect of which, in any case referred to in clause (i) or (ii) above, is, in the
sole judgment of the U.S. Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the offering or delivery of the U.S.
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the U.S. Prospectus (exclusive of any supplement
thereto).
(i) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's or Sprint Spectrum's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act) or any notice given of any
intended or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(j) The Securities shall have been listed and admitted and authorized
for trading on the New York Stock Exchange, and satisfactory evidence of such
actions shall have been provided to the Representatives.
(k) At the Execution Time, the Company shall have furnished to the
Representatives a lock-up letter in form and substance satisfactory to the U.S.
Representatives from each officer for purposes of Section 16 under the Exchange
Act and director of the Company and from each member of the management of the
PCS Group listed under the caption "Management of the PCS Group" in the
Prospectus addressed to the Representatives.
(l) The closing of the purchase of the U.S. Underwritten Securities
pursuant to the U.S. Underwriting Agreement shall occur concurrently with the
closing of the International Underwritten Securities pursuant to the
International Underwriting Agreement.
(m) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this U.S.
Underwriting Agreement, or if any of the opinions and certificates mentioned
above or elsewhere in this U.S. Underwriting Agreement shall not be in all
material respects reasonably satisfactory in form and substance to the U.S.
Representatives and counsel for the Underwriters, this U.S. Underwriting
Agreement and all obligations of the U.S. Underwriters under this U.S.
Underwriting Agreement may be canceled at, or at any time prior to, the Closing
Date by the U.S. Representatives. Notice of such cancelation shall be given to
the Company in writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at 825 Eighth Avenue, Worldwide Plaza, New York, New York 10019,
on the Closing Date.
<PAGE>
20
7. Reimbursement of U.S. Underwriters' Expenses. If the sale of the
---------------------------------------------
U.S. Securities provided for in this U.S. Underwriting Agreement is not
consummated because any condition to the obligations of the U.S. Underwriters
set forth in Section 6 hereof is not satisfied (unless Section 6(l) is not
satisfied due to a default by an International Underwriter under Section 9 of
the International Underwriting Agreement), because of any termination pursuant
to Section 10 hereof or because of any refusal, inability or failure on the part
of the Company to perform any agreement in this U.S. Underwriting Agreement or
comply with any provision hereof other than by reason of a default by any of the
U.S. Underwriters or the International Underwriters, the Company will reimburse
the U.S. Underwriters severally through Salomon Smith Barney Inc. or Warburg
Dillon Read LLC on demand for all out-of-pocket expenses (including reasonable
fees and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each U.S. Underwriter, the directors, officers,
employees and agents of each U.S. Underwriter and each person who controls any
U.S. Underwriter within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement as
originally filed or in any amendment thereof, or in any U.S. or International
Preliminary Prospectus or in either of the Prospectuses, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each U.S. Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors and officers, and
each person who controls the Company within the meaning of either the Act or the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each U.S. Underwriter, but only with reference to written information furnished
to the Company by or on behalf of such U.S. Underwriter through the U.S.
Representatives specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any U.S. Underwriter may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page regarding delivery of the U.S. Securities, the legend in block capital
letters on page 2 related to stabilization, syndicate covering transactions and
penalty bids and, under the heading "Underwriting", (i) the list of U.S.
Underwriters and their respective participations in the sale of the Securities,
(ii) the description of the Agreement between U.S. Underwriters and
International Underwriters, (iii) the paragraph related to offerings outside the
United States by underwriters, (iv) the sentence regarding sales in Canada, (v)
the sentences related to concessions and reallowances and (vi) the paragraph
related to stabilization, syndicate covering transactions and penalty bids in
<PAGE>
21
any U.S. or International Preliminary Prospectus and the Prospectuses constitute
the only information furnished in writing by or on behalf of the several U.S.
Underwriters for inclusion in any U.S. or International Preliminary Prospectus
or the Prospectuses.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or
(b) above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
-------- -------
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ one
separate counsel (plus local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel, if (i) the use of
counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought under this U.S. Underwriting Agreement (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, and the U.S. Underwriters
severally, agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and one or more of the U.S. Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and by the U.S. Underwriters on the other from the
offering of the U.S. Securities. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the U.S.
Underwriters severally shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and of the U.S. Underwriters on the other in connection
with the statements or
<PAGE>
22
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses) received by
it, and benefits received by the U.S. Underwriters shall be deemed to be equal
to the total underwriting discounts and commissions, in each case as set forth
on the cover page of the U.S. Prospectus. Relative fault shall be determined by
reference to, among other things, whether any untrue or any alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information provided by the Company on the one hand or
the U.S. Underwriters on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the U.S. Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls a U.S. Underwriter within the meaning
of either the Act or the Exchange Act and each director, officer, employee and
agent of a U.S. Underwriter shall have the same rights to contribution as such
U.S. Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by a U.S. Underwriter. If any one or more U.S.
------------------------------
Underwriters shall fail to purchase and pay for any of the U.S. Securities
agreed to be purchased by such U.S. Underwriter or U.S. Underwriters under this
U.S. Underwriting Agreement and such failure to purchase shall constitute a
default in the performance of its or their obligations under this U.S.
Underwriting Agreement, the remaining U.S. Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the amount
of U.S. Securities set forth opposite their names in Schedule I hereto bears to
the aggregate amount of U.S. Securities set forth opposite the names of all the
remaining U.S. Underwriters) the U.S. Securities which the defaulting U.S.
Underwriter or U.S. Underwriters agreed but failed to purchase; provided,
--------
however, that in the event that the aggregate amount of U.S. Securities which
- -------
the defaulting U.S. Underwriter or U.S. Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of U.S. Securities set forth
in Schedule I hereto, the remaining U.S. Underwriters shall have the right to
purchase all, but shall not be under any obligation to purchase any, of the U.S.
Securities, and if such nondefaulting U.S. Underwriters do not purchase all the
U.S. Securities, this U.S. Underwriting Agreement will terminate without
liability to any nondefaulting U.S. Underwriter or the Company. In the event of
a default by any U.S. Underwriter as set forth in this Section 9, the Closing
Date shall be postponed for such period, not exceeding five Business Days, as
the U.S. Representatives shall determine in order that the required changes in
the Registration Statement and the Prospectuses or in any other documents or
arrangements may be effected. Nothing contained in this U.S. Underwriting
Agreement shall relieve any defaulting U.S. Underwriter of its liability, if
any, to the Company and any nondefaulting U.S. Underwriter for damages
occasioned by its default under this U.S. Underwriting Agreement.
10. Termination. This U.S. Underwriting Agreement shall be subject
------------
to termination in the absolute discretion of the U.S. Representatives, by notice
given to the Company prior to delivery of and payment for the U.S. Securities,
if at any time prior to such
<PAGE>
23
time (i) trading in any class of the Company's capital stock shall have been
suspended by the Commission or the New York Stock Exchange or trading in
securities generally on the New York Stock Exchange shall have been suspended or
limited or minimum prices shall have been established on the New York Stock
Exchange, (ii) a banking moratorium shall have been declared either by Federal
or New York State authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war, or other calamity or crisis the effect of which on financial
markets is such as to make it, in the sole judgment of the U.S. Representatives,
impractical or inadvisable to proceed with the offering or delivery of the U.S.
Securities as contemplated by the U.S. Prospectus (exclusive of any supplement
thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the U.S. Underwriters set forth in or made
pursuant to this U.S. Underwriting Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or the Company or any of the officers, directors or controlling
persons referred to in Section 8 hereof, and will survive delivery of and
payment for the U.S. Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancelation of this U.S. Underwriting
Agreement.
12. Notices. All communications under this U.S. Underwriting
--------
Agreement will be in writing and effective only on receipt, and, if sent to the
U.S. Representatives, will be mailed, delivered or telefaxed to the Salomon
Smith Barney Inc. General Counsel (fax no.(212) 816-7912), and the Warburg
Dillon Read LLC General Counsel (fax no. (212) 821-2675 and confirmed to such
General Counsel at Salomon Smith Barney Inc., 388 Greenwich Street, New York,
New York, 10013, Attention: General Counsel and at Warburg Dillon Read LLC, 299
Park Avenue, New York New York, 10171, Attention: General Counsel]; or, if sent
to the Company, will be mailed, delivered or telefaxed to Sprint Corporation
(fax no. (913) 624-2256) and confirmed to it at 2330 Shawnee Mission Parkway,
Westwood, KS, 66205, attention of the Legal Department.
13. Successors. This U.S. Underwriting Agreement will inure to the
-----------
benefit of and be binding upon the parties hereto and their respective
successors and the officers and directors and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation under
this U.S. Underwriting Agreement.
14. Applicable Law. This U.S. Underwriting Agreement will be
---------------
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York,
without regard to the choice of law principles of any jurisdiction.
15. Counterparts. This U.S. Underwriting Agreement may be signed in
------------
one or more counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same agreement.
16. Headings. The section headings used in this U.S. Underwriting
---------
Agreement are for convenience only and shall not affect the construction hereof.
17. Third-Party Lock-Up Agreements. (a) The Company agrees to (i)
------------------------------
(A) take promptly any actions requested by the Representatives necessary to
enforce its rights under the Lock-Up Agreements and (B) not waive any right
granted to it under or
<PAGE>
24
amend or otherwise modify any provision of the Lock-Up Agreements (unless the
Representatives consent in writing to such waiver, amendment or modification)
and (ii) promptly notify the Representatives by telephone (followed by written
notice) if the Company becomes aware that a Cable Parent, FT or DT has taken or
proposes to take any action which violates or may violate its Lock-Up Agreement.
(b) (i) Subject to the provisions of paragraph (b)(ii), the U.S.
Underwriters, severally and not jointly, shall indemnify and hold harmless the
Company and its directors, officers, employees and agents from and against any
loss, claim, damage, liability or expense, joint or several, or any action in
respect thereof to which they or any of them may become subject insofar as such
loss, claim, damage, liability, expense or action arises out of or is based on
the Company taking or refraining from taking any action required by paragraph
(a) of this section. The U.S. Underwriters shall be entitled to appoint counsel
of their choice at their expense to represent the indemnified party in any
action for which indemnification is sought (in which case the U.S. Underwriters
shall not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties). No indemnified party
will, without the prior consent of the U.S. Underwriters (which consent will not
be unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought under this section
(whether or not the indemnified parties are actual or potential parties to such
claim, action, suit or proceeding).
(ii) If and to the extent it is finally determined that any loss,
claim, damage, liability, expense or action that is otherwise the subject of
paragraph (b)(i) would not have arisen or been incurred had the Underwriters
been party to a Lock-Up Agreement (in lieu of the Company) which the
Underwriters had enforced to the same extent and by the same means that the
Company was requested to and did enforce its rights pursuant to paragraph (a),
the Underwriters shall have no obligation under paragraph (i) and the Company
shall indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act from and
against any loss, claim, damage, liability or expense, joint or several, or any
action in respect thereof to which they or any of them may become subject
insofar as such loss, claim, damage, liability, expense or action arises out of
or is based on the Underwriters requesting the Company to take or refrain from
taking any action pursuant to paragraph (a). The Company shall be entitled to
appoint counsel of its choice at its expense to represent the indemnified party
in any action for which indemnification is sought (in which case the Company
shall not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties). No indemnified party
will, without the prior consent of the Company (which consent will not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought under this section
(whether or not the indemnified parties are actual or potential parties to such
claim, action, suit or proceeding).
(iii) The determination contemplated by paragraph (ii) shall be made
by binding arbitration, upon demand by the Representatives or the Company.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association and Title 9 of the U.S. Code. All arbitration hearings shall be
conducted in New York, New York. Notwithstanding anything foregoing to the
contrary, any arbitration proceeding demanded hereunder shall begin within 60
days after such demand thereof and shall be concluded within 90 days after such
demand. These time limitations may not be extended unless a party hereto shows
cause for extension and then such extension shall not exceed a total of 30 days.
The panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The parties hereto do not waive any applicable Federal or state
substantive law except as provided herein.
(iv) In the event the parties cannot agree on the extent to which a
loss, claim, damage, liability, expense or action would not have arisen or
incurred had the Representatives been party to a Lock-Up Agreement (in lieu of
the Company) and exercising solely their own rights thereunder, then pending the
determination of such issue by arbitration pursuant to paragraph (iii), the
Underwriters will continue to indemnify and hold harmless the Company and other
indemnified parties pursuant to paragraph (i). If it shall subsequently be
determined that the Company was not entitled to indemnification by reason of
paragraph (ii), it shall
<PAGE>
25
refund all amounts previously received by it or any other indemnified party and
promptly perform its obligations under paragraph (ii).
18. Miscellaneous. Warburg Dillon Read LLC, an indirect, wholly
--------------
owned subsidiary of UBS AG, is not a bank and is separate from any affiliated
bank, including any U.S. branch or agency of UBS AG. Because Warburg Dillon
Read LLC is a separately incorporated entity, it is solely responsible for its
own contractual obligations and commitments, including obligations with respect
to sales and purchases of securities. Securities sold, offered or recommended by
Warburg Dillon Read LLC are not deposits, are not guaranteed by a branch or
agency, and are not otherwise an obligation or responsibility of a branch or
agency.
A lending affiliate of Warburg Dillon Read LLC may have lending
relationships with issuers of securities underwritten or privately placed by
Warburg Dillon Read LLC. To the extent required under the securities laws,
prospectus and other disclosure documents for securities underwritten or
privately placed by Warburg Dillon Read LLC will disclose the existence of any
such lending relationships and whether the proceeds of the issue will be used to
repay debts owed to affiliates of Warburg Dillon Read LLC.
Without the Company's prior written approval, the U.S. branches and
agencies of UBS AG will not share with Warburg Dillon Read LLC any non-public
information concerning the Company, and Warburg Dillon Read LLC will not share
any non-public information received from the Company with any of such U.S.
branches and agencies of UBS AG.
19. Definitions. The terms which follow, when used in this U.S.
------------
Underwriting Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Cable Parents" shall mean, collectively, Tele-Communications, Inc.,
Comcast Corporation and Cox Communications, Inc.
"Closing Date" shall mean the date referred to in Section 3 hereof.
"Commission" shall mean the Securities and Exchange Commission.
"DT" shall mean Deutsche Telekom AG.
"Effective Date" shall mean each date and time that the Registration
State ment, any post-effective amendment or amendments thereto and any
Rule 462(b) Registration Statement became or become effective.
"Equity Purchase Rights" shall have the meaning assigned thereto in
the Proxy Statement.
<PAGE>
26
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this U.S.
Underwriting Agreement is executed and delivered by the parties hereto.
"FT" shall mean France Telecom S.A.
"International Preliminary Prospectus" shall have the meaning set
forth under "U.S. Preliminary Prospectus".
"International Prospectus" shall mean such form of prospectus relating
to the International Securities as first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is made,
such form of prospectus included in the Registration Statement at the
Effective Date.
"International Representative" shall mean the addressees of the
International Underwriting Agreement.
"International Securities" shall mean the International Underwritten
Securities and the International Option Securities.
"International Underwriters" shall mean the several underwriters named
in Schedule I to the International Underwriting Agreement.
"International Underwriting Agreement" shall mean the International
Underwriting Agreement dated the date hereof related to the sale of the
International Securities by the Company to the International Underwriters.
"Lock-Up Agreements" means the agreements by the Cable Parents and FT
and DT to refrain from selling or distributing PCS Stock and certain other
securities, as more fully set forth in Section 6.2(c) of the Restructuring
Agreement and Section 5.2(d) of the Master Agreement, respectively.
"Material Adverse Effect" shall mean a material adverse effect on (i)
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole or (ii)
the Company's ability to perform the transactions contemplated by this
Agreement.
"Material Subsidiary" shall mean any subsidiary of the Company that
would be a "significant subsidiary" of the Company within the meaning of
Rule 1-02 under Regulation S-X promulgated by the Commission, substituting
five percent for 10 percent in the conditions specified therein and
substituting "proportionate share of the total net revenue (after
intercompany eliminations)" for "equity in the income from continuing
operations before income taxes, extraordinary items and cumulative effect
of a change in accounting principle" and "such revenue" for "such income"
in clause (3) of such definition.
"Option Securities" shall mean the U.S. Option Securities and the
International Option Securities.
<PAGE>
27
"PCS Companies" shall mean, collectively, Sprint Spectrum Holding
Company L.P., American PCS, L.P., MinorCo L.P., PhillieCo Partners I, L.P.,
PhillieCo Partners II, L.P., Cox Communications PCS, L.P., SprintCom Inc.
and SprintCom Equipment Company L.P.
"PCS Group" shall have the meaning assigned thereto in the Proxy
Statement.
"PCS Restructuring" shall have the meaning assigned thereto in the
Proxy Statement.
"PCS Stock" shall mean, collectively, PCS Common Stock -- Series 1,
PCS Common Stock -- Series 2, PCS Common Stock -- Series 3 and any other
class or series of common stock that may be issued by the Company which is
intended to reflect separately the performance of the PCS Companies.
"Preliminary Prospectus" shall have the meaning set forth under "U.S.
Preliminary Prospectus" and "International Preliminary Prospectus".
"Prospectuses" and "each Prospectus" shall mean the U.S. Prospectus
and the International Prospectus.
"Proxy Statement" shall mean the Company's Proxy Statement/Prospectus
dated October 5, 1998 that forms a part of Registration Statement No. 333-
65173 on Form S-4.
"Recapitalization" shall have the meaning assigned thereto in the
Proxy Statement.
"Registration Statement" shall mean the registration statement
referred to in Section 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Representatives" shall mean the U.S. Representatives and the
International Representatives.
"Restructuring Agreement" shall mean the Merger and Restructuring
Agreement dated as of May 26, 1998, among the Company, the Cable Parents
and various of their subsidiaries.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
<PAGE>
28
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a)(i) above.
"Securities" shall mean the U.S. Securities and the International
Securities.
"Sprint Spectrum" shall mean, collectively, Sprint Spectrum Holding
Company, L.P., MinorCo L.P., PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P. and their respective subsidiaries.
"Underwriter" and "Underwriters" shall mean the U.S. Underwriters and
the International Underwriters.
"Underwriting Agreements" shall mean the U.S. Underwriting Agreement
and the International Underwriting Agreement.
"Underwritten Securities" shall mean the International Underwritten
Securities and the U.S. Underwritten Securities.
"U.S. Preliminary Prospectus" and the "International Preliminary
Prospectus", respectively, shall mean any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, referred to in Section 1(i)(a) above and
any preliminary prospectus with respect to the offering of the U.S.
Securities and the International Securities, as the case may be, included
in the Registration Statement at the Effective Date that omits Rule 430A
Information; and the U.S. Preliminary Prospectus and the International
Preliminary Prospectus are herein collectively called the "Preliminary
Prospectuses".
"U.S. Prospectus" shall mean the prospectus relating to the U.S.
Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the U.S. Securities included in the
Registration Statement at the Effective Date.
"U.S. Representatives" shall mean the addressees of this U.S.
Underwriting Agreement.
"U.S. Securities" shall mean the U.S. Underwritten Securities and the
U.S. Option Securities.
"U.S. Underwriters" shall mean the several underwriters named in
Schedule I to this U.S. Underwriting Agreement.
"U.S. Underwriting Agreement" shall mean this agreement relating to
the sale of the U.S. Securities by the Company to the U.S. Underwriters.
"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, or 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
<PAGE>
29
Person), and shall include any United States or Canadian branch of a person
other than a United States or Canadian Person. "U.S." or "United States"
shall mean the United States of America (including the states thereof and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this U.S. Underwriting Agreement and your acceptance shall represent a binding
agreement between the Company and the several U.S. Underwriters.
Very truly yours,
Sprint Corporation
By:
-------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
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.
By: Warburg Dillon Read LLC
By: ............................
Name:
Title:
By: Salomon Smith Barney Inc.
By: ............................
Name:
Title:
For themselves and the other
several U.S. Underwriters
named in Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
----------
Number of
Underwritten
Securities to be
Underwriters Purchased
- ------------- ----------------
Warburg Dillon Read LLC
Salomon Smith Barney Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Donaldson, Lufkin & Jenrette Securities Inc.
Lehman Brothers Inc.
JP Morgan Securities Inc.
---------------
Total....................................
---------------
<PAGE>
Exhibit 1.2
Sprint Corporation
. Shares/1/
PCS Common Stock--Series 1
($1.00 par value)
International Underwriting Agreement
London, England
. , 1999
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.
As International Representatives of the several
International Underwriters,
c/o UBS AG, acting through its division Warburg Dillon Read
[address]
and
Salomon Brothers International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W OSB
England
Ladies and Gentlemen:
Sprint Corporation, a corporation organized under the laws of Kansas
(the "Company"), proposes to issue and sell to the several underwriters named in
Schedule I hereto (the "International Underwriters"), for whom you (the
"International Representatives") are acting as representatives, . shares of
PCS Common Stock--Series 1, $1.00 par value ("Common Stock"), of the Company
(said shares to be issued and sold by the Company being hereinafter called the
"International Underwritten Securities"). The Company also proposes to grant to
the International Underwriters an option to purchase up to . additional
shares of Common Stock to cover over-allotments (the "International Option
Securities" and, together with the International Underwritten Securities, the
"International Securities"). It is understood that the Company is concurrently
entering into a U.S. Underwriting Agreement dated the date hereof (the "U.S.
Underwriting
- ---------------------
/1/ Plus an option to purchase from the Company up to . additional
International Securities to cover over-allotments.
<PAGE>
2
Agreement" and, together with this International Underwriting Agreement, the
"Underwriting Agreements") providing for the sale by the Company
to the several U.S. Underwriters of an aggregate of . shares of Common Stock
(said shares to be sold by the Company pursuant to the U.S. Underwriting
Agreement being hereinafter called the "U.S. Underwritten Securities") and
providing for the grant to the U.S. Underwriters of an option to purchase from
the Company up to . additional shares of Common Stock (the "U.S. Option
Securities"). It is further understood and agreed that the International
Underwriters and the U.S. Underwriters have entered into an Agreement Between
U.S. Underwriters and International Underwriters dated the date hereof (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which, among other things, the International Underwriters may purchase from
the U.S. Underwriters a portion of the U.S. Securities to be sold pursuant to
the U.S. Underwriting Agreement and the U.S. Underwriters may purchase from the
International Underwriters a portion of the International Securities to be sold
pursuant to this International Underwriting Agreement. To the extent there are
no additional International Underwriters listed on Schedule I other than you,
the term International Representatives as used herein shall mean you, as
International Underwriters, and the terms International Representatives and
International Underwriters shall mean either the singular or plural as the
context requires. The use of the neuter in this International Underwriting
Agreement shall include the feminine and masculine wherever appropriate. Any
reference herein to the Registration Statement, any Preliminary Prospectuses or
the Prospectuses shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which were
filed under the Exchange Act on or before the Effective Date of the Registration
Statement or the issue date of such Preliminary Prospectuses or the
Prospectuses, as the case may be; and any reference herein to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
Preliminary Prospectuses or the Prospectuses shall be deemed to refer to and
include the filing of any document under the Exchange Act after the Effective
Date of the Registration Statement or the issue date of any Preliminary
Prospectuses or the Prospectuses, as the case may be, deemed to be incorporated
therein by reference. Certain terms used in this International Underwriting
Agreement are defined in Section 19.
1. Representations and Warranties.
-------------------------------
(i) The Company represents and warrants to, and agrees with, each
International Underwriter as set forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3 under the
Act for purposes of the Registration Statement and has prepared and filed
with the Commission a registration statement (file number 333-64241) on
Form S-3, including related preliminary prospectuses, for registration
under the Act of the offering and sale of the Securities. The Company may
have filed one or more amendments thereto, and may have used preliminary
prospectuses, each of which has previously been furnished to you. The
Company will next file with the Commission one of the following: either (1)
prior to the Effective Date of such registration statement, a further
amendment to such registration statement (including the form of final
prospectuses) or (2) after the Effective Date of such registration
statement, the Prospectuses in accordance with Rules 430A and 424(b). In
the case of clause (2), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to be
included in such
<PAGE>
3
registration statement and the Prospectuses. As filed, such amendment and
form of final prospectuses, or such registration statement and
Prospectuses, shall contain or be deemed to contain information (including,
in the case of clause (2), Rule 430A Information) required by the Act and
the rules thereunder to be included in such registration statement and
Prospectuses, and, except to the extent the International Representatives
shall agree in writing to a modification, shall be in all substantive
respects in the form furnished to you prior to the Execution Time or, to
the extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that contained in
the latest Preliminary Prospectuses) as the Company has advised you, prior
to the Execution Time, will be included or made therein.
It is understood that two forms of prospectuses are to be used in
connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be offered and sold
to persons other than United States and Canadian Persons. The U.S.
Prospectus and the International Prospectus are identical except for the
outside front cover page and the outside back cover page.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectuses are first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein) and on any date on
which Option Securities are purchased, if such date is not the Closing Date
(a "settlement date"), each Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the Exchange Act and the respective rules thereunder; on the Effective
Date and at the Execution Time, the Registration Statement did not or will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date, each
Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date
of any filing pursuant to Rule 424(b) and on the Closing Date and any
settlement date, each Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties
-------- -------
as to the information contained in or omitted from the Registration
Statement or the Prospectuses (or any supplement thereto) in reliance upon
and in conformity with information furnished in writing to the Company by
or on behalf of any Underwriter through the Representatives specifically
for inclusion in the Registration Statement or the Prospectuses (or any
supplement thereto).
(c) Each of the Company and the PCS Companies has been duly
incorporated or otherwise organized and is validly existing as a
corporation, limited liability company, or partnership, as the case may be,
in good standing under the laws of the jurisdiction in which it is
chartered or organized with full corporate, limited liability company, or
partnership power and authority to own or lease, as the case may be, and to
operate its properties and conduct its business as described in the
Prospectuses, and is duly qualified to do business as a foreign
corporation, limited liability company, or partnership and is in good
standing under the laws of each jurisdiction where the nature of its
properties or the conduct of its business requires such
<PAGE>
4
qualification, except where the failure to so qualify does not have a
Material Adverse Effect.
(d) All the outstanding shares of capital stock or ownership
interests of each Material Subsidiary of the Company and PCS Company have
been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise set forth or incorporated by
reference in the Prospectuses, all outstanding shares of capital stock or
ownership interests of such subsidiaries are owned by the Company either
directly or through wholly owned subsidiaries free and clear of any
perfected security interest or any other security interests, claims, liens
or encumbrances.
(e) The Company's authorized equity capitalization is as set forth in
the Prospectuses; the capital stock of the Company which is described in
the Prospectuses conforms in all material respects to the description
thereof contained in the Prospectuses; the outstanding shares of Common
Stock have been duly and validly authorized and issued and are fully paid
and nonassessable; the Securities have been duly and validly authorized
and, when issued and delivered to and paid for by the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement and by the International
Underwriters pursuant to the International Underwriting Agreement, will be
fully paid and nonassessable, the Securities are duly listed, and admitted
and authorized for trading, subject to official notice of issuance and
evidence of satisfactory distribution, on the New York Stock Exchange; the
certificates for the Securities are in valid and sufficient form; the
holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities;
and, except as set forth in the Prospectuses, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of
capital stock of or ownership interests in the Company or the PCS Companies
are outstanding.
(f) There is no franchise, contract or other document or any legal or
governmental proceedings of a character required to be described in the
Registration Statement or the Prospectuses, or to be filed as an exhibit
thereto, which is not described or filed as required; and the statements in
the Prospectuses under the headings "Certain Federal Income Tax
Consequences", "Business of the PCS Group--Regulation" and "--Legal
Proceedings" fairly summarize the matters therein described.
(g) Each of the U.S. Underwriting Agreement and this International
Underwriting Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectuses, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated in the Underwriting Agreements, except such as
have been obtained under the Act and such as may be required under the blue
sky or securities laws of
<PAGE>
5
any jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated in the
Underwriting Agreements and in the Prospectuses.
(j) Neither the issue and sale of the Securities hereunder and under
the U.S. Underwriting Agreement nor the consummation of any other of the
transactions herein or therein contemplated nor the fulfillment of the
terms hereof or thereof will conflict with, result in a breach or violation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, (i) the
charter or by-laws of the Company or any of its Material Subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or any of its subsidiaries is a
party or bound or to which its or their property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its subsidiaries or any of
their properties except, as to (ii) and (iii), for such conflicts,
breaches, violations or impositions that could not reasonably be expected
to have a Material Adverse Effect.
(k) No holder of securities of the Company has rights to the
registration of such securities under the Registration Statement.
(l) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
International Underwriting Agreement or the U.S. Underwriting Agreement or
the consummation of any of the transactions contemplated hereby or thereby
or (ii) could reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, or the
PCS Group, whether or not arising from transactions in the ordinary course
of business, except, in the case of this clause (ii), as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto).
(m) Neither the Company nor any of its Material Subsidiaries is in
violation or default of (i) any provision of its charter or bylaws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject, or (iii) any statute, law, rule, regulation, judgment,
order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or such subsidiary or any of its properties, as applicable,
except in the case of clauses (ii) and (iii) of this paragraph, as could
not reasonably be expected to have a Material Adverse Effect.
(n) The Company and its subsidiaries possess all material licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and
<PAGE>
6
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, or the PCS Group, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(o) The Company has not taken, directly or indirectly, any action
designed to result, or which has constituted, or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Secu rities.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by
the Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and
------------------
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each International Underwriter, and each International
Underwriter agrees, severally and not jointly, to purchase from the Company, at
a purchase price of $ . per share, the amount of the International
Underwritten Securities set forth opposite such International Underwriter's name
in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties set forth herein, the Company hereby grants an
option to the several International Underwriters to purchase, severally and not
jointly, an aggregate of up to . International Option Securities
at the same purchase price per share as the International Underwriters shall pay
for the International Underwritten Securities. Said option may be exercised only
to cover over-allotments in the sale of the Underwritten Securities by the
Underwriters. Said option may be exercised in whole or in part at any time (but
not more than once) on or before the 30th day after the date of the
International Prospectus upon written or telegraphic notice by the International
Representatives to the Company setting forth the number of shares of the
International Option Securities as to which the several International
Underwriters are exercising the option and the settlement date. The number of
shares of International Option Securities to be purchased by each International
Underwriter shall be the same percentage of the total number of shares of the
International Option Securities to be purchased by the several International
Underwriters as such International Underwriter is purchasing of the
International Underwritten Securities, subject to such adjustments as you in
your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
---------------------
International Underwritten Securities and the International Option Securities
(if the option provided for in Section 2(b) hereof shall have been exercised on
or before the third Business Day prior to the Closing Date) shall be made at
10:00 AM, New York City time, on . , 1999, or at such time on such
later date not more than three Business Days after the foregoing date as the
U.S. Representatives and the International Representatives shall
<PAGE>
7
designate, which date and time may be postponed by agreement among the U.S.
Representatives, the International Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
International Securities being herein called the "Closing Date"). Delivery of
the International Securities shall be made to the International Representatives
for the respective accounts of the several International Underwriters against
payment by the several International Underwriters through the International
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the International Underwritten Securities and the
International Option Securities shall be made through the facilities of The
Depository Trust Company unless the International Representatives shall
otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
International Option Securities (at the expense of the Company) to the
International Representatives, at 299 Park Avenue, New York, New York on the
date specified by the International Representatives (which shall be at least
three Business Days after exercise of said option) for the respective accounts
of the several International Underwriters, against payment by the several
International Underwriters through the International Representatives of the
purchase price thereof to or upon the order of the Company by wire transfer
payable in same-day funds to an account specified by the Company. If settlement
for the International Option Securities occurs after the Closing Date, the
Company will deliver to the International Representatives on the settlement date
for the International Option Securities, and the obligation of the International
Underwriters to purchase the International Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the U.S. Underwriting Agreement,
and that the settlement date, if any, shall occur simultaneously with the
"settlement date" under the U.S. Underwriting Agreement.
4. Offering by Underwriters. It is understood that the several
-------------------------
International Underwriters propose to offer the International Securities for
sale to the public as set forth in the International Prospectus.
5. Agreements.
-----------
(i) The Company agrees with the several International Underwriters
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file (other than, subject to Section
5(i)(f) hereof, the filing of any prospectus or preliminary prospectus
relating to an offering of Securities covered by this Agreement or the
filing of any document required to be filed under the Exchange Act that
upon filing is deemed to be incorporated by reference in the Registration
Statement or the Prospectuses) any amendment of the Registration Statement
or supplement to the Prospectuses or any Rule 462(b) Registration Statement
unless the Company has furnished you a copy for your review prior to
<PAGE>
8
filing and will not file any such proposed amendment or supplement to which
you reasonably object. During such time the Company will not file any
document required to be filed under the Exchange Act that upon filing is
deemed to be incorporated by reference in the Registration Statement or the
Prospectuses unless the Company has furnished to your counsel a copy for
their review and comment a reasonable amount of time prior to filing, which
comments the Company shall review in good faith. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the Prospectuses is otherwise required
under Rule 424(b), the Company will cause the Prospectuses, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the International
Representatives of such timely filing. The Company will promptly advise the
International Representatives (1) when the Registration Statement, if not
effective at the Execution Time, shall have become effective, (2) when the
Prospectuses, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b) or when any Rule
462(b) Registration Statement shall have been filed with the Commission,
(3) when, prior to termination of the offering of the Securities, any
amendment to the Registration Statement shall have been filed or become
effective, (4) of any request by the Commission or its staff for any
amendment of the Registration Statement, or any Rule 462(b) Registration
Statement, or for any supplement to the Prospectuses or for any additional
information, (5) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order or the suspension of any such qualification and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which either of the Prospectuses as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to
amend the Registration Statement or supplement either of the Prospectuses
to comply with the applicable provisions of the Act or the Exchange Act or
the respective rules thereunder, the Company promptly will (1) notify the
International Representatives of any such event; (2) prepare and file with
the Commission, subject to the second and third sentences of paragraph
(i)(a) of this Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance; and (3) supply any
supplemented Prospectuses to you in such quantities as you may reasonably
request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the International Representatives an
earnings statement which will satisfy the provisions of Section 11(a) of
the Act and Rule 158 under the Act.
<PAGE>
9
(d) The Company will furnish to the International Representatives and
counsel for the International Underwriters copies of the signed
Registration Statement (including exhibits thereto) and to each other
International Underwriter a copy of the Registration Statement (without
exhibits thereto) and, so long as delivery of a prospectus by an
International Underwriter or dealer may be required by the Act, as many
copies of each International Preliminary Prospectus and the International
Prospectus and any supplement thereto as the International Representatives
may reasonably request.
(e) The Company will cooperate with you and with counsel for the
Underwriters in connection with the qualification of the Securities for
sale under the laws of such jurisdictions as the International
Representatives may designate and will take such actions as are necessary
to maintain such qualifications in effect so long as required for the
distribution of the International Securities; provided that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that
would subject it to service of process in suits, other than those arising
out of the offering or sale of the Securities, in any jurisdiction where it
is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Brothers International Limited or UBS AG, acting through its
division Warburg Dillon Read, for a period of 90 days following the
Execution Time, offer, sell, contract to sell, pledge or otherwise dispose
of (or enter into any transaction which is designed to result in the
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Company or any
affiliate of the Company or any person in privity with the Company or any
affiliate of the Company) directly or indirectly, or register, cause to be
registered or announce the registration, offering or intended registration
or offering of, any other shares of PCS Stock or any securities convertible
into or exercisable or exchangeable for shares of PCS Stock, or grant any
options or warrants to purchase shares of PCS 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 and registrations in connection with such grants or
issuances, (ii) issuances of PCS Stock pursuant to any dividend
reinvestment plan, (iii) issuances of PCS Stock upon conversion of
securities or exercise of warrants outstanding on the Closing Date which
are or become convertible into or exercisable for shares of PCS Stock, (iv)
issuances of PCS Stock in acquisitions or mergers, (v) registrations of
PCS Stock for, or issuances of PCS Stock to the Cable Parents, FT and DT in
connection with the Offerings or upon any exercise of their respective
Equity Purchase Rights or registration rights, (vi) issuances of PCS Stock
pursuant to Sprint's Rights Plan, and (vii) issuances, or registrations, of
shares of PCS Stock which are issuable to FT, DT or third parties in
respect of the shares of the Company's Class A Common Stock held by FT and
DT at the Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to result in or which has constituted, or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
<PAGE>
10
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and
filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary Prospectus,
each Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, each Prospectus, and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of the U.S.
Underwriting Agreement and this International Underwriting Agreement, any
blue sky memorandum and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of the
Securities; (v) the registration of the Securities under the Exchange Act
and the listing of the Securities on the New York Stock Exchange; (vi) any
registration or qualification of the Securities for offer and sale under
the securities or blue sky laws of the several states (including filing
fees and the reasonable fees and expenses of counsel for the Underwriters
relating to such registration and qualification); (vii) any filings
required to be made with the National Association of Securities Dealers,
Inc. (including filing fees and the reasonable fees and expenses of counsel
for the Underwriters relating to such filings); (viii) the transportation
and other expenses incurred by or on behalf of Company representatives but
not including representatives of the Underwriters in connection with
presentations to prospective purchasers of the Securities; (ix) the fees
and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company; and (x) all
other costs and expenses incident to the performance by the Company of its
obligations under the Underwriting Agreements.
(i) The Company will use its best efforts to cause the Securities to
be listed on the New York Stock Exchange.
(ii) Each International Underwriter agrees that (a) it is not
purchasing any of the International Securities for the account of any United
States or Canadian Person, (b) 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, and (c) any dealer to whom it may sell any
of the International Securities will represent that it is not purchasing for the
account of any United States or Canadian Person and agree that it will not offer
or resell, directly or indirectly, any of the International Securities in the
United States or Canada, or to any United States or Canadian Person or to any
other dealer who does not so represent and agree; provided, however, that the
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foregoing shall not restrict (1) purchases and sales between the International
Underwriters on the one hand and the U.S. Underwriters on the other hand
pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, (2) stabilization transactions contemplated under the Agreement
Between U.S. Underwriters and International Underwriters, conducted through
Salomon Brothers International Limited and UBS AG, acting through its division
Warburg Dillon Read (or through the U.S. Representatives and International
<PAGE>
11
Representatives) as part of the distribution of the Securities, and (3) sales to
or through (or distributions of International Prospectuses or International
Preliminary Prospectuses to) persons not United States or Canadian Persons who
are investment advisors, or who otherwise exercise investment discretion, and
who are [not] purchasing for the account of any United States or Canadian
Person.
(iii) The agreements of the International Underwriters set forth in
paragraph (ii) of this Section 5 shall terminate upon the earlier of the
following events:
(a) a mutual agreement of the U.S. Representatives and the
International Representatives to terminate the selling restrictions set
forth in paragraph (ii) of this Section 5 and in Section 5(ii) of the U.S.
Underwriting Agreement; or
(b) the expiration of a period of 30 days after the Closing Date,
unless (A) the International Representatives shall have given notice to the
Company and the U.S. Representatives that the distribution of the
International Securities by the International Underwriters has not yet been
completed, or (B) the U.S. Representatives shall have given notice to the
Company and the International Representatives that the distribution of the
U.S. Securities by the U.S. Underwriters has not yet been completed. If
such notice by the U.S. Representatives or the International
Representatives is given, the agreements set forth in such paragraph (ii)
shall survive until the earlier of (1) the event referred to in clause (a)
of this subsection (iii) or (2) the expiration of an additional period of
30 days from the date of any such notice.
(iv) Each International Underwriter severally represents and agrees
that:
(a) it has not offered or sold and, prior to the expiry of six months
from the Closing Date, will not offer or sell any International Securities
to persons in the United Kingdom except 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
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
(b) it 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
(c) it has only issued or passed on, and will only issue or pass on,
in the United Kingdom any document received by it in connection with the
issue of the International Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended), or a person to whom
the document may otherwise lawfully be issued or passed on.
6. Conditions to the Obligations of the International Underwriters.
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The obligations of the International Underwriters to purchase the International
Underwritten Securities and the International Option Securities, as the case may
be, shall be subject to the accuracy of the representations and warranties on
the part of the Company contained herein as of the Execution Time and the
Closing Date, to the accuracy of the statements
<PAGE>
12
of the Company made in any certificates pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the U.S. Representatives and the International
Representatives agree in writing to a later time, the Registration Statement
will become effective not later than (i) 6:00 PM New York City time on the date
of determination of the public offering price, if such determination occurred at
or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the
Business Day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City time on
such date; if filing of either of the Prospectuses, or any supplement thereto,
is required pursuant to Rule 424(b), the Prospectuses, and any such supplement,
will be filed in the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have requested King & Spalding, counsel for the
Company, to have furnished to the Representatives its opinion, dated the Closing
Date and addressed to the Representatives, to the effect set forth in Section
6(b) of the U.S. Underwriting Agreement.
(c) The Company shall have requested Don Jensen, Esq., in-house
counsel for the Company, to have furnished to the Representatives such counsel's
opinion, dated the Closing Date and addressed to the Representatives, to the
effect set forth in Section 6(c) of the U.S. Underwriting Agreement.
(d) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the Closing
Date and addressed to the Representatives, with respect to the issuance and sale
of the Securities, the Registration Statement, the Prospectuses (together with
any supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to pass
upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by an executive officer (meaning those
officers who file reports pursuant to Section 16(b) of the Exchange Act) and the
principal financial or accounting officer of the Company, dated the Closing
Date, to the effect set forth in Section 6(e) of the U.S. Underwriting
Agreement.
(f) The Company shall have requested Ernst & Young LLP to have
furnished to the Representatives letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance satisfactory to the
Representatives, to the effect set forth in Section 6(f) of the U.S.
Underwriting Agreement.
(g) The Company shall have requested Deloitte & Touche LLP to have
furnished to the Representatives letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance satisfactory to the
Representatives, to the effect of Section 6(g) of the U.S. Underwriting
Agreement.
<PAGE>
13
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement thereto),
there shall not have been (i) any change, increase or decrease specified in the
letter or letters referred to in paragraph (f) or (g) of this Section 6 or (ii)
any change, or any development involving a prospective change, in or affecting
the condition (financial or otherwise), earnings, business or properties of the
Company and its subsidiaries, taken as a whole, or the PCS Group, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectuses (exclusive of any supplement
thereto) the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the sole judgment of the International Representatives, so
material and adverse as to make it impractical or inadvisable to proceed with
the offering or delivery of the International Securities as contemplated by the
Registration Statement (exclusive of any amendment thereof) and the
International Prospectus (exclusive of any supplement thereto).
(i) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's or Sprint Spectrum's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act) or any notice given of any
intended or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(j) The Securities shall have been listed and admitted and authorized
for trading on the New York Stock Exchange, and satisfactory evidence of such
actions shall have been provided to the Representatives.
(k) At the Execution Time, the Company shall have furnished to the
Representatives a lock-up letter in form and substance satisfactory to the
International Representatives from each officer for purposes of Section 16 under
the Exchange Act and director of the Company and from each member of the
management of the PCS Group listed under the caption "Management of the PCS
Group" in the Prospectus addressed to the Representatives.
(l) The closing of the purchase of the International Underwritten
Securities pursuant to the International Underwriting Agreement shall occur
concurrently with the closing of the U.S. Underwritten Securities pursuant to
the U.S. Underwriting Agreement.
(m) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this
International Underwriting Agreement, or if any of the opinions and certificates
mentioned above or elsewhere in this International Underwriting Agreement shall
not be in all material respects reasonably satisfactory in form and substance to
the International Representatives and counsel for the Underwriters, this
International Underwriting Agreement and all obligations of the International
Underwriters under this International Underwriting Agreement may be canceled at,
or at any time prior to, the Closing Date by the International Representatives.
Notice of such cancelation shall be given to the Company in writing or by
telephone or facsimile confirmed in writing.
<PAGE>
14
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at 825 Eighth Avenue, Worldwide Plaza, New York, New York 10019,
on the Closing Date.
7. Reimbursement of International Underwriters' Expenses. If the
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sale of the International Securities provided for in this International
Underwriting Agreement is not consummated because any condition to the
obligations of the International Underwriters set forth in Section 6 hereof is
not satisfied (unless Section 6(l) is not satisfied due to a default by a U.S.
Underwriter under Section 9 of the U.S. Underwriting Agreement), because of any
termination pursuant to Section 10 hereof or because of any refusal, inability
or failure on the part of the Company to perform any agreement in this
International Underwriting Agreement or comply with any provision hereof other
than by reason of a default by any of the International Underwriters or the
International Underwriters, the Company will reimburse the International
Underwriters severally through Salomon Brothers International Limited or UBS AG,
acting through its division Warburg Dillon Read, on demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each International Underwriter, the directors,
officers, employees and agents of each International Underwriter and each person
who controls any International Underwriter within the meaning of either the Act
or the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement as originally filed or in any amendment thereof, or in
any U.S. or International Preliminary Prospectus or in either of the
Prospectuses, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
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any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through the Representatives specifically for inclusion therein.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each International Underwriter severally and not jointly agrees
to indemnify and hold harmless the Company, each of its directors and officers,
and each person who controls the Company within the meaning of either the Act or
the Exchange Act, to the same extent as the foregoing indemnity from the Company
to each International Underwriter, but only with reference to written
information furnished to the Company by or on behalf of such International
Underwriter through the International Representatives specifically for inclusion
in the documents referred to in the foregoing indemnity. This indemnity
agreement will be in addition to any liability which any International
<PAGE>
15
Underwriter may otherwise have. The Company acknowledges that the statements
set forth in the last paragraph of the cover page regarding delivery of the
International Securities, the legend in block capital letters on page 2 related
to stabilization, syndicate covering transactions and penalty bids and, under
the heading "Underwriting", (i) the list of International Underwriters and their
respective participations in the sale of the Securities, (ii) the description of
the Agreement between U.S. Underwriters and International Underwriters, (iii)
the paragraph related to offerings outside the United States by underwriters,
(iv) the sentence regarding sales in Canada, (v) the sentences related to
concessions and reallowances and (vi) the paragraph related to stabilization,
syndicate covering transactions and penalty bids in any U.S. or International
Preliminary Prospectus and the Prospectuses constitute the only information
furnished in writing by or on behalf of the several International Underwriters
for inclusion in any U.S. or International Preliminary Prospectus or the
Prospectuses.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or
(b) above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
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reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ one
separate counsel (plus local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel, if (i) the use of
counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought under this International Underwriting Agreement (whether or not
the indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
<PAGE>
16
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, and the International
Underwriters severally, agree to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively "Losses") to
which the Company and one or more of the International Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and by the International Underwriters on
the other from the offering of the International Securities. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the Company and the International Underwriters severally shall contribute in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and of the International
Underwriters on the other in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses) received by it, and
benefits received by the International Underwriters shall be deemed to be equal
to the total underwriting discounts and commissions, in each case as set forth
on the cover page of the International Prospectus. Relative fault shall be
determined by reference to, among other things, whether any untrue or any
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information provided by the Company on the
one hand or the International Underwriters on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
International Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, each person
who controls a International Underwriter within the meaning of either the Act or
the Exchange Act and each director, officer, employee and agent of a
International Underwriter shall have the same rights to contribution as such
International Underwriter, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the Company and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by a International Underwriter. If any one or more
---------------------------------------
International Underwriters shall fail to purchase and pay for any of the
International Securities agreed to be purchased by such International
Underwriter or International Underwriters under this International Underwriting
Agreement and such failure to purchase shall constitute a default in the
performance of its or their obligations under this International Underwriting
Agreement, the remaining International Underwriters shall be obligated severally
to take up and pay for (in the respective proportions which the amount of
International Securities set forth opposite their names in Schedule I hereto
bears to the aggregate amount of International Securities set forth opposite the
names of all the remaining International Underwriters) the International
Securities which the defaulting International Underwriter or International
Underwriters agreed but failed to purchase; provided, however, that in the event
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that the aggregate amount of International Securities which the defaulting
International Underwriter or International Underwriters agreed but failed to
purchase shall
<PAGE>
17
exceed 10% of the aggregate amount of International Securities
set forth in Schedule I hereto, the remaining International Underwriters shall
have the right to purchase all, but shall not be under any obligation to
purchase any, of the International Securities, and if such nondefaulting
International Underwriters do not purchase all the International Securi ties,
this International Underwriting Agreement will terminate without liability to
any nondefaulting International Underwriter or the Company. In the event of a
default by any International Underwriter as set forth in this Section 9, the
Closing Date shall be postponed for such period, not exceeding five Business
Days, as the International Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectuses or in any
other documents or arrangements may be effected. Nothing contained in this
International Underwriting Agreement shall relieve any defaulting International
Underwriter of its liability, if any, to the Company and any nondefaulting
International Underwriter for damages occasioned by its default under this
International Underwriting Agreement.
10. Termination. This International Underwriting Agreement shall be
------------
subject to termination in the absolute discretion of the International
Representatives, by notice given to the Company prior to delivery of and payment
for the International Securities, if at any time prior to such time (i) trading
in any class of the Company's capital stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on the New York Stock Exchange, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war, or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the sole judgment of the International Representatives, impractical
or inadvisable to proceed with the offering or delivery of the International
Securities as contemplated by the International Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the International Underwriters set forth in or
made pursuant to this International Underwriting Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
International Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the International Securities. The provisions of Sections 7
and 8 hereof shall survive the termination or cancelation of this International
Underwriting Agreement.
12. Notices. All communications under this International
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Underwriting Agreement will be in writing and effective only on receipt, and, if
sent to the International Representatives, will be mailed, delivered or
telefaxed to the Salomon Brothers International Limited General Counsel (fax no.
[ ]), and the UBS AG, acting through its division Warburg Dillon Read,
General Counsel (fax no. [ ] and confirmed to such General Counsel at
Salomon Brothers International Limited, Victoria Plaza, 111 Buckingham Palace
Road, London SW1W OSB England, Attention: General Counsel and at UBS AG, acting
through its division Warburg Dillon Read, [ ], Attention: General
Counsel]; or, if sent to the Company, will be mailed, delivered or tele faxed
to Sprint Corporation (fax no. (913) 624-2256) and confirmed to it at 2330
Shawnee Mission Parkway, Westwood, KS, 66205, attention of the Legal Department.
<PAGE>
18
13. Successors. This International Underwriting Agreement will inure
-----------
to the benefit of and be binding upon the parties hereto and their respective
successors and the officers and directors and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation under
this International Underwriting Agreement.
14. Applicable Law. This International Underwriting Agreement will
---------------
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made and to be performed within the State of New
York, without regard to the choice of law principles of any jurisdiction.
15. Counterparts. This International Underwriting Agreement may be
------------
signed in one or more counterparts, each of which shall constitute an original
and all of which together shall constitute one and the same agreement.
16. Headings. The section headings used in this International
---------
Underwriting Agreement are for convenience only and shall not affect the
construction hereof.
17. Third-Party Lock-Up Agreements. (a) The Company agrees to (i)
------------------------------
(A) take promptly any actions requested by the Representatives necessary to
enforce its rights under the Lock-Up Agreements and (B) not waive any right
granted to it under or amend or otherwise modify any provision of the Lock-Up
Agreements (unless the Representatives consent in writing to such waiver,
amendment or modification) and (ii) promptly notify the Representatives by
telephone (followed by written notice) if the Company becomes aware that a Cable
Parent, FT or DT has taken or proposes to take any action which violates or may
violate its Lock-Up Agreement.
(b) (i) Subject to the provisions of paragraph (b)(ii), the
International Underwriters, severally and not jointly, shall indemnify and hold
harmless the Company and its directors, officers, employees and agents from and
against any loss, claim, damage, liability or expense, joint or several, or any
action in respect thereof to which the they or any of them may become subject
insofar as such loss, claim, damage, liability, expense or action arises out of
or is based on the Company taking or refraining from taking any action required
by paragraph (a) of this section. The International Underwriters shall be
entitled to appoint counsel of their choice at their expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the International Underwriters shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by the indemnified party or
parties). No indemnified party will, without the prior consent of the
International Underwriters (which consent will not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought under this section (whether or not the indemnified
parties are actual or potential parties to such claim, action, suit or
proceeding).
(ii) If and to the extent it is finally determined that any loss,
claim, damage, liability, expense or action that is otherwise the subject of
paragraph (b)(i) would not have arisen or been incurred had the Underwriters
been party to a Lock-Up Agreement (in lieu of the Company) and exercising solely
their own rights thereunder, the Underwriters shall have no obligation under
paragraph (i) and the Company shall instead indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person who controls any Underwriter within the meaning of either
<PAGE>
19
the Act or the Exchange Act from and against such loss, claim, damage, liability
or expense, joint or several, or action in respect thereof to which they may
become subject on the terms set forth in paragraph (i).
(iii) The determination contemplated by paragraph (ii) shall be made
by binding arbitration, upon demand by the Representatives or the Company.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association and Title 9 of the U.S. Code. All arbitration hearings shall be
conducted in New York, New York. Notwithstanding anything foregoing to the
contrary, any arbitration proceeding demanded hereunder shall begin within 60
days after such demand thereof and shall be concluded within 90 days after such
demand. These time limitations may not be extended unless a party hereto shows
cause for extension and then such extension shall not exceed a total of 30 days.
The panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The parties hereto do not waive any applicable Federal or state
substantive law except as provided herein.
(iv) In the event the parties cannot agree on the extent to which a
loss, claim, damage, liability, expense or action would not have arisen or
incurred had the Representatives been party to a Lock-Up Agreement (in lieu of
the Company) and exercising solely their own rights thereunder, then pending the
determination of such issue by arbitration pursuant to paragraph (iii), the
Underwriters will continue to indemnify and hold harmless the Company and other
indemnified parties pursuant to paragraph (i). If it shall subsequently be
determined that the Company was not entitled to indemnification by reason of
paragraph (ii), it shall refund all amounts previously received by it or any
other indemnified party and promptly perform its obligations under paragraph
(ii).
18. Miscellaneous. [Warburg Dillon Read, an indirect, wholly owned
subsidiary of UBS AG, is not a bank and is separate from any affiliated bank,
including any branch or agency of UBS AG. Because Warburg Dillon Read is a
separately incorporated entity, it is solely responsible for its own contractual
obligations and commitments, including obligations with respect to sales and
purchases of securities. Securities sold, offered or recommended by Warburg
Dillon Read are not deposits, are not guaranteed by a branch or agency, and are
not otherwise an obligation or responsibility of a branch or agency.]
[A lending affiliate of Warburg Dillon Read may have lending
relationships with issuers of securities underwritten or privately placed by
Warburg Dillon Read. To the extent required under the securities laws,
prospectus and other disclosure documents for securities underwritten or
privately placed by Warburg Dillon Read will disclose the existence of any such
lending relationships and whether the proceeds of the issue will be used to
repay debts owed to affiliates of Warburg Dillon Read.]
[Without the Company's prior written approval, the branches and
agencies of UBS AG will not share with Warburg Dillon Read any non-public
information concerning the Company, and Warburg Dillon Read will not share any
non-public information received from the Company with any of such branches and
agencies of UBS AG.]
19. Definitions. The terms which follow, when used in this
------------
International Underwriting Agreement, shall have the meanings indicated.
<PAGE>
20
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Cable Parents" shall mean, collectively, Tele-Communications, Inc.,
Comcast Corporation and Cox Communications, Inc.
"Closing Date" shall mean the date referred to in Section 3 hereof.
"Commission" shall mean the Securities and Exchange Commission.
"DT" shall mean Deutsche Telekom AG.
"Effective Date" shall mean each date and time that the Registration
State ment, any post-effective amendment or amendments thereto and any
Rule 462(b) Registration Statement became or become effective.
"Equity Purchase Rights" shall have the meaning assigned thereto in
the Proxy Statement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this International
Underwriting Agreement is executed and delivered by the parties hereto.
"FT" shall mean France Telecom S.A.
"International Preliminary Prospectus" shall have the meaning set
forth under "U.S. Preliminary Prospectus".
"International Prospectus" shall mean such form of prospectus relating
to the International Securities as first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is made,
such form of prospectus included in the Registration Statement at the
Effective Date.
"International Representative" shall mean the addressees of this
International Underwriting Agreement.
"International Securities" shall mean the International Underwritten
Securities and the International Option Securities.
"International Underwriters" shall mean the several underwriters named
in Schedule I to the International Underwriting Agreement.
<PAGE>
21
"International Underwriting Agreement" shall mean this agreement
relating to the sale of the International Securities by the Company to the
International Underwriters.
"Lock-Up Agreements" means the agreements by the Cable Parents and FT
and DT to refrain from selling or distributing PCS Stock and certain other
securities, as more fully set forth in Section 6.2(c) of the Restructuring
Agreement and Section 5.2(d) of the Master Agreement, respectively.
"Material Adverse Effect" shall mean a material adverse effect on (i)
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole or (ii)
the Company's ability to perform the transactions contemplated by this
Agreement.
"Material Subsidiary" shall mean any subsidiary of the Company that
would be a "significant subsidiary" of the Company within the meaning of
Rule 1-02 under Regulation S-X promulgated by the Commission, substituting
five percent for 10 percent in the conditions specified therein and
substituting "proportionate share of the total net revenue (after
intercompany eliminations)" for "equity in the income from continuing
operations before income taxes, extraordinary items and cumulative effect
of a change in accounting principle" and "such revenue" for "such income"
in clause (3) of such definition.
"Option Securities" shall mean the U.S. Option Securities and the
International Option Securities.
"PCS Companies" shall mean, collectively, Sprint Spectrum Holding
Company L.P., American PCS, L.P., MinorCo L.P., PhillieCo Partners I, L.P.,
PhillieCo Partners II, L.P., Cox Communications PCS, L.P., SprintCom Inc.
and SprintCom Equipment Company L.P.
"PCS Group" shall have the meaning assigned thereto in the Proxy
Statement.
"PCS Restructuring" shall have the meaning assigned thereto in the
Proxy Statement.
"PCS Stock" shall mean, collectively, PCS Common Stock -- Series 1,
PCS Common Stock -- Series 2, PCS Common Stock -- Series 3 and any other
class or series of common stock that may be issued by the Company which is
intended to reflect separately the performance of the PCS Companies.
"Preliminary Prospectus" shall have the meaning set forth under "U.S.
Preliminary Prospectus" and "International Preliminary Prospectus".
"Prospectuses" and "each Prospectus" shall mean the U.S. Prospectus
and the International Prospectus.
"Proxy Statement" shall mean the Company's Proxy Statement/Prospectus
dated October 5, 1998 that forms a part of Registration Statement No. 333-
65173 on Form S-4.
<PAGE>
22
"Recapitalization" shall have the meaning assigned thereto in the
Proxy Statement.
"Registration Statement" shall mean the registration statement
referred to in Section 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Representatives" shall mean the U.S. Representatives and the
International Representatives.
"Restructuring Agreement" shall mean the Merger and Restructuring
Agreement dated as of May 26, 1998, among the Company, the Cable Parents
and various of their subsidiaries.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a)(i) above.
"Securities" shall mean the U.S. Securities and the International
Securities.
"Sprint Spectrum" shall mean, collectively, Sprint Spectrum Holding
Company, L.P., MinorCo L.P., PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P. and their respective subsidiaries.
"Underwriter" and "Underwriters" shall mean the U.S. Underwriters and
the International Underwriters.
"Underwriting Agreements" shall mean the U.S. Underwriting Agreement
and the International Underwriting Agreement.
"Underwritten Securities" shall mean the International Underwritten
Securities and the U.S. Underwritten Securities.
"U.S. Preliminary Prospectus" and the "International Preliminary
Prospectus", respectively, shall mean any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, referred to in Section 1(i)(a) above and
any preliminary prospectus with respect to the offering of the U.S.
Securities and the International Securities, as the case may be, included
in the Registration Statement at the Effective Date that omits
<PAGE>
23
Rule 430A Information; and the U.S. Preliminary Prospectus and the
International Preliminary Prospectus are herein collectively called the
"Preliminary Prospectuses".
"U.S. Prospectus" shall mean the prospectus relating to the U.S.
Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the U.S. Securities included in the
Registration Statement at the Effective Date.
"U.S. Representatives" shall mean the addressees of the U.S.
Underwriting Agreement.
"U.S. Securities" shall mean the U.S. Underwritten Securities and the
U.S. Option Securities.
"U.S. Underwriters" shall mean the several underwriters named in
Schedule I to the U.S. Underwriting Agreement.
"U.S. Underwriting Agreement" shall mean the U.S. Underwriting
Agreement dated the date hereof relating to the sale of the U.S. Securities
by the Company to the U.S. Underwriters./2/
"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, or 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. "U.S." or "United States"
shall mean the United States of America (including the states thereof and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this International Underwriting Agreement and your acceptance shall represent a
binding agreement between the Company and the several International
Underwriters.
Very truly yours,
Sprint Corporation
By:
------------------------------
Name:
Title:
- ------------------------
/2/
<PAGE>
24
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
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.
By: UBS AG, acting through its division Warburg Dillon Read
By: ............................
Name:
Title:
By: Salomon Brothers International Limited
By: ............................
Name:
Title:
For themselves and the other
several International Underwriters
named in Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
----------
Number of
Underwritten
Securities to be
Underwriters Purchased
- ------------ ---------
UBS AG, acting through its division Warburg Dillon
Read
Salomon Brothers International Limited
Merrill Lynch International
Donaldson, Lufkin & Jenrette International
Lehman Brothers International (Europe)
JP Morgan Securities Ltd.
________
Total.....................................
========
<PAGE>
Exhibit 5.1
January 22, 1999
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Gentlemen:
In connection with your proposed underwritten public offering, issuance and
sale of the shares of PCS Common Stock - Series 1, $1.00 par value ("PCS
Shares"), covered by your Registration Statement on Form S-3, File No. 333-64241
(the "Registration Statement"), I have examined the Registration Statement and
such other documents, records and matters I have considered necessary or
appropriate for the purpose of rendering this opinion.
Based upon such examination, I am of the opinion that:
1. Sprint Corporation is a corporation duly organized and validly existing
under the laws of the State of Kansas.
2. The PCS Shares have been duly and validly authorized and, when (i) the
Registration Statement has become effective under the Securities Act of 1933, as
amended (the "Act") and (ii) the PCS Shares are issued and sold in the manner
described in the Registration Statement, such PCS Shares will be legally issued,
fully paid and nonassessable.
<PAGE>
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference made to me under the caption "Legal
Matters" in the prospectuses forming a part of the Registration Statement. In
giving this consent, I do not thereby admit that I am in the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
Don A. Jensen
<PAGE>
Exhibit 8.1
[LETTERHEAD OF KING & SPALDING APPEARS HERE]
January 22, 1999
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Re: Certain Federal Income Tax Consequences of the Offerings of Series 1
--------------------------------------------------------------------
PCS Stock
---------
Ladies and Gentlemen:
We have acted as tax counsel to Sprint Corporation ("Sprint") in
connection with certain transactions contemplated in the Restructuring and
Merger Agreement dated May 26, 1998, by and among Sprint, Tele-Communications,
Inc., Comcast Corporation, Cox Communications, Inc., Sprint Enterprises, L.P.,
TCI Spectrum Holdings, Inc., Comcast Telephony Services, Cox Telephony
Partnership, TCI Philadelphia Holdings, Inc., Comcast Telephony Services, Inc.,
Com Telephony Services, Inc., Cox Telephony Partners, Inc., Cox Communications
Wireless, Inc., SWV One, Inc., SWV Two, Inc., SWV Three Inc., SWV Four, Inc.,
SWV Five, Inc., and SWV Six, Inc. (the "Restructuring Agreement"). In connection
with the filing of a registration statement on Form S-3 (the "Registration
Statement") containing a form of propectus (the "Prospectus") covering the PCS
Common Stock--Series 1 ("Series 1 PCS Stock") to be sold in the Offerings (as
defined in the Prospectus) pursuant to the Restructuring Agreement, you have
requested our opinion regarding (i) certain of the federal income tax
consequences to Sprint and its shareholders of the Offerings, and (ii) the
accuracy of the discussion included in the Prospectus under the caption "Certain
Federal Income Tax Consequences."
All terms used herein without definition shall have the respective
meanings specified in the Prospectus, or if not defined therein the respective
meanings specified in the Amended and Restated Articles of Incorporation of
Sprint (the "Articles of Incorporation"), or if not defined therein the
respective meanings specified in the Restructuring Agreement.
<PAGE>
Sprint Corporation
January 22, 1999
Page 2
INFORMATION RELIED UPON
-----------------------
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate. Specifically, we have examined, among
other documents, (i) the Restructuring Agreement and the exhibits attached
thereto, (ii) the Policy Statement Regarding Tracking Stock Matters of the
Sprint Board of Directors, (iii) the Articles of Incorporation, (iv) the Tax
Sharing Agreement, (v) the Registration Statement on Form S-3 as filed on or
about January 22, 1999, and (vi) all pertinent attachments and exhibits to all
of the foregoing (collectively, the "Transaction Documents").
In our examination of the Transaction Documents and in our reliance upon
them in issuing this opinion, we have assumed, with your consent, that all
Transaction Documents submitted to us as photocopies or by telecopy faithfully
reproduce the originals thereof; that the originals are authentic; that such
Transaction Documents submitted to us have been or will be duly executed and
validly signed (or filed, where applicable) to the extent required in
substantially the same form as they have been provided to us; that each executed
Transaction Document will constitute the legal, valid, binding, and enforceable
agreement of the signatory parties; that all representations and statements set
forth in the Transaction Documents are and will remain true, accurate, and
complete in all material respects; and that all obligations imposed on, or
covenants agreed to by, the parties pursuant to any of the Transaction Documents
have been or will be performed or satisfied in accordance with their terms in
all material respects.
We also have obtained such additional information, upon which we also
have relied in rendering this opinion, as we have deemed relevant and necessary
through consultations with various representatives of Sprint. Furthermore, we
have obtained a written certificate from an executive officer of Sprint to
verify certain relevant facts that have been represented to us or that we have
been authorized to assume and upon which we have relied in rendering this
opinion. Moreover, you have permitted us to rely on the opinion of Stinson, Mag
& Fizzell, dated May 26, 1998 regarding certain corporate law matters and the
reaffirmation thereof dated January 22, 1999. In addition, you have permitted us
to assume that issued and outstanding instruments designated as the stock of
Sprint will be treated under Kansas law as validly issued and outstanding shares
of Sprint stock.
<PAGE>
Sprint Corporation
January 22, 1999
Page 3
OPINION
-------
Based on the foregoing, it is opinion that:
(1) any outstanding stock which is designated as common stock of Sprint
in the Articles of Incorporation, including Series 1 PCS Stock, will constitute
voting stock of Sprint for federal income tax purposes; and
(2) the discussion contained in the Prospectus under the caption
"Certain Federal Income Tax Consequences" constitutes an accurate summary of the
material United States federal income tax consequences, under current law, of
the Offerings.
The opinions expressed herein are based upon existing statutory,
regulatory, administrative, and judicial authority in effect as of the date of
this letter, any of which may be changed at any time with retroactive effect.
Further, our opinions are based solely on the documents that we have examined,
the additional information that we have obtained, and the representations
referred to herein that we have assumed with your consent to be true, accurate,
and complete on the date hereof. Our opinions cannot be relied upon if any of
the material facts contained in such documents or any such additional
information is, or later becomes, materially inaccurate or if any of the
representations referred to herein is, or later becomes, materially inaccurate.
Our opinions represent our legal judgment, have no official status of
any kind, and are not binding upon the Internal Revenue Service or any court. In
this regard we note that no existing authority directly addresses the federal
income tax classification of multiple classes of stock of a single corporation,
each of which is intended to relate to and to track the economic performance of
separate businesses owned and operated (directly or indirectly) by the issuing
corporation. Moreover, the current policy of the Internal Revenue Service is to
refuse to issue private letter rulings as to the federal income tax
classification of stock such as Series 1 PCS Stock.
Finally, our opinion is limited to the tax matters specifically
addressed herein. We have not been asked to address, nor have we addressed, any
other tax consequences of the Offerings or other transactions described in the
Restructuring Agreement, including, but not limited to, any state, local, or
foreign tax consequences.
<PAGE>
Sprint Corporation
January 22, 1999
Page 4
This letter is furnished by us as counsel to Sprint solely in connection
with the Offerings and is for the benefit of Sprint and may not be relied upon
for any other purpose without our express written consent. We hereby consent,
however, to the filing of this opinion as an exhibit to the Registration
Statement and to reference of our name under the caption "Certain Federal Income
Tax Consequences" in the Prospectus. In giving such consent, we do not thereby
admit that we are included within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or rules and regulations
promulgated thereunder.
Very truly yours,
KING & SPALDING
<PAGE>
Exhibit 8.3
Stinson, Mag & Fizzell
A Professional Corporation
1201 Walnut Street
Kansas City, Missouri 64106-2150
Telephone 816.842.8600
Facsimile 816.691.3495
Mailing Address:
P.O. Box 419251
Kansas City, Missouri 64141-6251
John A. Granda
Direct Dial: (816) 691-3188
January 22, 1999
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Ladies and Gentlemen:
You have asked us to reaffirm our opinion letter, dated May 26, 1998 and
addressed to you, concerning certain perogatives of the Board of Directors of
Sprint Corporation, a Kansas corporation (the "Initial Opinion"). All
capitalized terms used in this letter, but not defined herein, shall have the
meanings ascribed to them in the Initial Opinion.
On the basis, and subject to the assumptions, limitations and
qualifications included in the Initial Opinion, which are incorporated herein by
this reference to the same extent as though made on the date hereof and set
forth in full herein, we hereby reaffirm, as of the date hereof, the opinions
given in the Initial Opinion. We further assume that the documents and
agreements which we examined and which are referred to in the second paragraph
of the Initial Opinion have not been amended, modified, terminated or
supplemented since the date of the Initial Opinion, other than the amendment to
Section 3.1 of the Amended and Restated Articles of Incorporation of Sprint
proposed by us. The Initial Opinion shall remain unaffected and unchanged by
this letter and nothing in this letter shall supplement, amend, replace, or
otherwise modify the opinions rendered in the Initial Opinion.
This letter is solely for your benefit, and the benefit of the Company
and its stockholders, in connection with the opinion you are filing with the
Securities and Exchange Commission in conjunction with a registration statement
under the Securities Act of 1933, as amended, on behalf of the Company. This
letter may neither be used, circulated, quoted or otherwise referred to for any
other purposes, nor filed with any governmental agency (other than the
Securities and Exchange Commission ("SEC") in connection with any registration
statement filed by or on behalf of the Company) or other person without our
prior written consent. Other than King & Spalding, the SEC and the Company and
its stockholders, no one is entitled to rely
<PAGE>
King & Spalding
January 22, 1999
Page 2
on this letter. The reaffirmation in this letter is as of the date hereof, and
nothing herein shall be deemed to extend the date of this reaffirmation or to be
an expression of our reaffirmation as of any date subsequent to the date of this
letter.
Very truly yours,
STINSON, MAG & FIZZELL, P.C.
By: /s/ John A. Granda
John A. Granda
cc: Michael T. Hyde
Craig L. Evans
<PAGE>
Exhibit 10.1
================================================================================
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMONG
FRANCE TELECOM S.A.,
DEUTSCHE TELEKOM AG
AND
SPRINT CORPORATION
Dated as of November 23, 1998
================================================================================
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of November
23, 1998 (the "Agreement"), among France Telecom S.A., a societe anonyme
---------------
organized under the laws of France ("FT"); Deutsche Telekom AG, an
Aktiengesellschaft organized under the laws of Germany ("DT"); and Sprint
- ------------------
Corporation, a corporation organized under the laws of Kansas (the "Company").
RECITALS
WHEREAS, Sprint, FT and DT entered into an Investment Agreement dated as of
July 31, 1995, as amended (the "Investment Agreement") pursuant to which FT and
DT purchased shares of capital stock of Sprint;
WHEREAS, in connection with the transactions contemplated by the Investment
Agreement, Sprint, FT and DT entered into a Registration Rights Agreement dated
as of January 31, 1996 (the "Original Registration Rights Agreement");
WHEREAS, Sprint, FT and DT entered into a Master Restructuring and
Investment Agreement dated as of May 26, 1998 (the "FT/DT Restructuring
Agreement"), which contemplates, among other things, the purchase by FT and DT
of shares of PCS Common Stock -- Series 3, par value $1.00 per share, of Sprint;
and
WHEREAS, as a condition precedent to and in consideration of the
transactions contemplated in the FT/DT Restructuring Agreement, Sprint, FT and
DT are required to enter into this Agreement and in reliance thereon Sprint, FT
and DT have entered into the FT/DT Restructuring Agreement;
NOW, THEREFORE, in consideration of these premises and the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each of FT, DT and
Sprint, intending to be legally bound, hereby agree that the Original
Registration Rights Agreement is hereby amended and restated in its entirety as
follows:
Section 1. Registration under the Securities Act.
-------------------------------------
Section 1.1 Registration on Request. (a) Request. Subject to Article
----------------------- -------
II of the Amended and Restated Stockholders' Agreement, at any time, upon the
written request of the holders of a majority of the Eligible Securities then
outstanding requesting that the Company effect the registration under the
Securities Act of a specified number of Eligible Securities, the Company shall
promptly give written notice of such requested registration to all holders of
Eligible Securities and thereupon the Company shall use its reasonable efforts
to effect the
<PAGE>
registration under the Securities Act of the Eligible Securities which the
Company has been so requested to register by the Selling Stockholders, for
disposition for cash in accordance with the intended method or methods of
disposition specified by the Selling Stockholders (which method of disposition
shall be in accordance with the registration requirements of the United States
securities laws), provided that (i) the Company shall not be required to effect
--------
any registration pursuant to this Section 1.1 if during the twelve-month period
immediately preceding such request for registration the Company has previously
effected a registration pursuant to this Section 1.1, (ii) subject to Section
1.1(g), the Company shall not be required to effect any registration pursuant to
this Section 1.1 after seven registrations requested by holders of Eligible
Securities pursuant to this Section 1.1 shall have been effected unless, as to
no more than three additional registrations, the holders of a majority of the
Eligible Securities then outstanding deliver at any time a notice to the effect
that such holders agree to pay all Registration Expenses in connection with such
additional three registrations; provided, however, that if the Company proposes
-------- -------
to redeem pursuant to ARTICLE SIXTH, Section 2.2 of the Articles shares of Class
A Stock from the Class A Holders in an amount in excess of 0.25% of the Voting
Securities of the Company, and the Selling Stockholders sell such shares
pursuant to Section 2.11 or 7.4 of the Amended and Restated Stockholders'
Agreement in a registered offering pursuant to which the Selling Stockholders
have exercised a demand registration right, such registration shall not count
toward the maximum number of registrations provided in this clause (ii) to the
proviso to Section 1.1(a), (iii) the Company shall not be obligated to cause any
- -------
special audit to be undertaken with any such registration, and (iv) the Company
shall not be required to effect any registration requested by holders of
Eligible Securities pursuant to this Section 1.1 unless either (A) the aggregate
market value of all Eligible Securities so requested to be registered exceeds
$200 million on the date of delivery of the request for registration based on
the average closing price per share on the preceding ten Business Days of the
Eligible Securities to be registered (the "Relevant Average Closing Price"), or
(B) the registration relates to the sale of Post-Restructuring Series 3 PCS
Shares and both (i) the aggregate market value of the Post-Restructuring Series
3 PCS Shares so requested to be registered exceeds $100 million on the date of
delivery of the request for registration based on the Relevant Average Closing
Price with respect to the Series 1 PCS Stock, and (ii) the registration involves
at least the lesser of (x) 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 based on the Relevant Average Closing Price with
respect to the Series 1 PCS Stock, and (y) all of the Post-Restructuring Series
3 PCS Shares owned by the Class A Holders.
(b) Withdrawal. The Selling Stockholders shall have the right to request
----------
withdrawal of any registration statement filed pursuant to this Section 1.1 (and
the Company shall so withdraw such registration statement) so long as such
registration statement has not become effective, provided that, in such case,
--------
such Selling Stockholder shall pay all related out-of-pocket Registration
Expenses reasonably incurred by the Company unless a registration statement
shall be effected pursuant to this Section 1.1 within 270 days after such
withdrawal. The Selling Stockholders, in accordance with Section 2.5 of the
Amended and Restated Stockholders' Agreement, at any time and from time to time,
may change the Planned Date of any registration
2
<PAGE>
statement to any date not more than 120 days after the original Planned Date
with respect to such registration statement.
(c) Effective Registration Statement. A registration requested pursuant to
--------------------------------
this Section 1.1 shall not be deemed to be effected (i) if a registration
statement with respect thereto shall not have become effective under the
Securities Act (including, without limitation, because of a withdrawal of such
registration statement by the Selling Stockholders prior to the effectiveness
thereof pursuant to Section 1.1(b) hereof), (ii) if, after it has become
effective, such registration is interfered with for any reason by any stop
order, injunction or other order or requirement of the Commission or any other
Governmental Authority, and the result of such interference is to prevent the
Selling Stockholders from disposing of more than one-third of the Eligible
Securities proposed to be sold in accordance with the intended methods of
disposition or the Company exercises its rights under Section 1.4 and the result
is a delay in the proposed distribution of any Eligible Securities in excess of
120 days and the Selling Stockholders determine not to sell Eligible Securities
pursuant to such registration as a result of such delay, or (iii) if the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with any underwritten offering shall not be
satisfied or waived with the consent of the Selling Stockholders holding two-
thirds of the Eligible Securities that were to have been sold thereunder, other
than as a result of any breach by any Selling Stockholder or any underwriter of
its obligations thereunder or hereunder.
(d) Registration Statement Form. Registration statements filed under this
---------------------------
Section 1.1 shall be on such form of the Commission as shall be selected by the
Company, and as shall permit the disposition of the subject Eligible Securities
for cash in accordance with the intended method or methods of disposition
specified by the Selling Stockholders. The Selling Stockholders may propose
that the Company include in a registration statement additional information or
material specified by any Selling Stockholder and the Company shall make a good
faith determination whether to include such information or material in such
registration statement.
(e) Expenses. Except as otherwise provided herein, the Company shall pay
--------
all Registration Expenses in connection with any registration requested pursuant
to this Section 1.1 and shall pay such other expenses if and to the extent
required by Section 2.5 of the Amended and Restated Stockholders' Agreement.
(f) Selection of Underwriters. If a registration pursuant to this Section
-------------------------
1.1 relates to an underwritten offering, the managing or lead underwriter or
underwriters shall be an underwriter or underwriters of internationally
recognized standing selected by the Selling Stockholders holding a majority of
the Eligible Securities proposed to be registered, with the approval of the
Company, which approval shall not be unreasonably withheld.
(g) Priority in Requested Registrations. If a registration pursuant to
-----------------------------------
this Section 1.1 involves an underwritten offering, and the managing or lead
underwriter or underwriters shall
3
<PAGE>
advise the Selling Stockholders in writing (a copy of which shall be provided to
the Company by the Selling Stockholders) that, in its or their opinion, the
number of securities requested to be included in such registration by the
Selling Stockholders, the Company and any other Person exceeds the number which
can be sold in such offering within a price range acceptable to the Selling
Stockholders, the Company shall include in such registration the number of
securities that the Selling Stockholders are so advised can be sold in such
offering, as follows: (i) (A) if the registration is effected during the CP
Preference Period and involves the sale of Sprint PCS Stock, unless the Company
exercises its option described in clause (ii) below, (w) first, the Eligible
Securities proposed to be included by the Selling Stockholders, (x) second, so
long as the Cable Partner Registration Rights Agreement is in effect, any
securities requested to be included in such registration by the Cable Partners,
(y) third, the securities requested to be included in such registration by the
Company, unless otherwise provided in an agreement between the Company and
another Person or Persons, and (z) fourth, the securities of any other Person or
Persons proposed to be included in such registration, in accordance, as to the
priorities among such other Persons, with the rights contained in the respective
agreements into which such Persons and the Company have entered, or (B) if the
registration is not effected during the CP Preference Period or does not involve
the sale of Sprint PCS Stock, unless the Company exercises its option described
in clause (ii) below, (x) first, the Eligible Securities proposed to be included
by the Selling Stockholders, (y) second, the securities requested to be included
in such registration by the Company and, so long as the Cable Partner
Registration Rights Agreement is in effect and the offering involves the
issuance of Sprint PCS Stock, the Cable Partners, unless otherwise provided in
an agreement between the Company and another Person or Persons, and (z) third,
the securities of any other Person or Persons proposed to be included in such
registration, in accordance, as to the priorities among such other Persons, with
the rights contained in the respective agreements into which such Persons and
the Company have entered (provided, however, in the case of this clause (B) if
-------- --------
the registration is during the CP Secondary Preference Period and the Cable
Partner Registration Rights Agreement is in effect, unless the Cable Partners
otherwise consent, any shares of PCS Stock proposed to be included in such
registration by the Company, 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 (ii) at the option of the
Company, (x) first, the Eligible Securities proposed to be included by the
Selling Stockholders and the securities requested to be included in such
registration by the Company and, so long as the Cable Partner Registration
Rights Agreement is in effect and the offering involves the sale of Sprint PCS
Stock, the Cable Partners, each pro rata in accordance with the number of
Eligible Securities proposed to be included by the Selling Stockholders and the
number of securities so proposed to be included by the Company and, if
applicable, the Cable Partners, respectively, and (y) second, the securities of
any other Person or Persons proposed to be included in such registration, in
accordance, as to the priorities among such other Persons, with the rights
contained in the respective agreements into which such Persons and the Company
have entered, provided, if the Company selects the option set forth in clause
(ii), such registration shall not count toward the maximum number of
registrations provided in Section 1.1(a)(ii) if due to the Company's (and, if
applicable, the Cable Partners') participation on a pro rata basis with the
Selling Stockholders, the managing or lead underwriter
4
<PAGE>
or underwriters determines in its good faith judgment that the number of
securities requested to be included in such registration by the Selling
Stockholders, the Company and, if applicable, the Cable Partners exceeds the
number which can be sold in such offering within a price range acceptable to the
Selling Stockholders.
(h) Inconsistent Rights. The Company shall not grant to any holder of its
-------------------
securities any registration rights inconsistent with the provisions of this
Section 1.1.
Section 1.2. Incidental Registration. (a) Right to Include Eligible
----------------------- -------------------------
Securities. If the Company at any time proposes to register any shares of its
- ----------
Common Stock, Series 1 FON Stock (including Series 2 FON Stock that, upon such
distribution would convert into Series 1 FON Stock), Series 1 PCS Stock
(including Series 2 PCS Stock that, upon such distribution would convert into
Series 1 PCS Stock) or other common equity securities under the Securities Act
(other than by a registration on Form S-4 or S-8 or any successor or similar
forms or filed in connection with an exchange offer or any offering of
securities solely to the Company's existing stockholders or otherwise pursuant
to a dividend reinvestment plan or a dividend reinvestment and stock purchase
plan, and other than pursuant to Section 1.1) for sale pursuant to an
underwritten public offering or other similarly organized selling effort,
whether or not for sale for its own account, the Company shall give prompt
written notice to each holder of Eligible Securities of its intention to do so
and of the rights of such holders under this Section 1.2. Upon the written
request of any holder of Eligible Securities made within 30 days after the
delivery of any such notice (which request shall specify the Eligible Securities
intended to be disposed of by any holder thereof), the Company shall use its
reasonable efforts to effect the registration under the Securities Act of all
Eligible Securities which the Company has been so requested to register by the
Selling Stockholders, to the extent required to permit the disposition for cash
(in accordance with the intended methods thereof specified by the Selling
Stockholders, which method of disposition shall be in accordance with United
States securities laws) of the Eligible Securities so to be registered. If, at
any time after giving written notice of its intention to register any such
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each Selling
Stockholder and, thereupon, (i) in the case of a determination not to register,
the Company need not register any Eligible Securities in connection with such
registration (but shall, in such case, pay the reasonable fees and expenses of
counsel to the Selling Stockholders (excluding the portion of any fees
determined pursuant to the German Fee Regulations) unless the Company effects a
similar registration to which Sections 1.1 or 1.2 applies within 270 days of the
Company's election not to register), without prejudice, however, to the rights
of the holders of Eligible Securities (including the Selling Stockholders) to
request that such registration be effected as a registration under Section 1.1,
and (ii) in the case of a determination to delay registering, the Company may
delay registering any Eligible Securities for the same period as the delay in
registering such other securities. No registration effected under this Section
1.2 shall relieve the Company of its obligation to effect any registration upon
request under Section 1.1.
5
<PAGE>
(b) Priority in Incidental Registrations. If a registration pursuant to
------------------------------------
this Section 1.2 involves an underwritten offering, and the managing or lead
underwriter or underwriters shall advise the Company in writing (a copy of which
shall be provided by the Company to each Person requesting registration of
Eligible Securities or other securities of the Company), that, in its or their
opinion, the number of securities requested and otherwise proposed to be
included in such registration exceeds the number that can be sold in such
offering within a price range acceptable to the Company, the Company shall
include in such registration, up to the number of securities that the Company is
so advised can be sold in such offering:
(i) if the registration is a primary registration on behalf of the
Company which is effected during the CP Preference Period and involves the sale
of Sprint PCS Stock, (w) first, the securities proposed to be included by the
Cable Partners pursuant to the Cable Partner Registration Rights Agreement (if
then in effect), (x) second, the securities proposed to be included by the
Company, (y) third, the Eligible Securities requested to be included in such
registration by the Selling Stockholders and (z) fourth, the securities of other
Persons requested to be included in such registration;
(ii) if the registration is a primary registration on behalf of the
Company which is effected after the CP Preference Period or does not involve the
sale of Sprint PCS Stock, (x) first, the securities proposed to be included by
the Company, (y) second, the Eligible Securities proposed to be included in
such registration by the Selling Stockholders and, if the registration involves
the sale of Sprint PCS Stock, the securities requested to be included by the
Cable Partners pursuant to the Cable Partner Registration Rights Agreement each
pro rata in accordance with the number of Eligible Securities so proposed to be
included (if then in effect), and (z) third, the securities of other Persons
requested to be included in such registration in accordance with the rights
contained in the respective agreements into which such Persons and the Company
have entered (provided, however, that if the registration is during the CP
-------- -------
Secondary Preference Period and the Cable Partner Registration Rights Agreement
is in effect, unless the Cable Partners otherwise consent, any shares of PCS
Stock proposed to be included in such registration by the Company, the proceeds
with respect to which will not be allocated to the PCS Group, shall be third in
priority, and the securities of such other persons shall be fourth in priority);
and
(iii) if the registration is a secondary registration on behalf of
a Person or Persons other than the Company or a holder of Eligible Securities
which is effected during the CP Preference Period and involves the sale of
Sprint PCS Stock, (w) first, the securities proposed to be included by such
other Person or Persons, (x) second, the securities proposed to be included by
the Cable Partners pursuant to the Cable Partner Registration Rights Agreement
(other than the Cable Partner or Cable Partners, if any, which initiated such
secondary registration), (y) third, the securities of the Company and the
Eligible 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 the Company and the number of Eligible Securities so
requested to be included, respectively, and (z) fourth, the securities of any
other Persons
6
<PAGE>
requested to be included in such registration in accordance with the rights
contained in the respective agreements into which such Persons and the Company
have entered; and
(iv) if the registration is a secondary registration on behalf of a
Person or Persons other than the Company or a holder of Eligible Securities
which is effected after the CP Preference Period or does not involve the sale of
Sprint PCS Stock, (w) first, the securities proposed to be included by such
other Person or Persons, (x) second, if such party exercising demand
registration rights is a Cable Partner, then any other Cable Partners exercising
incidental registration rights pursuant to the Cable Partner Registration Rights
Agreement, (y) third, the securities of the Company, the Eligible Securities
requested to be included in such registration by the Selling Stockholders and,
if the registration involves the sale of Sprint PCS Stock but the party
exercising demand registration rights is not a Cable Partner, the securities
requested to be included by the Cable Partners pursuant to the Cable Partner
Registration Rights Agreement, each pro rata in accordance with the number of
securities proposed to be registered by the Company and the number of Eligible
Securities and other securities so requested to be included, respectively, and
(z) fourth, the securities of any other Persons requested to be included in such
registration in accordance with the rights contained in the respective
agreements into which such Persons and the Company have entered (provided,
--------
however, that if the registration is during the CP Secondary Preference Period
- -------
and the Cable Partner Registration Rights Agreement is in effect, unless the
Cable Partners otherwise consent, any shares of PCS Stock proposed to be
included in such registration by the Company, 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).
Notwithstanding the aforesaid, if at any time the Company proposes to
effect a registration under this Section 1.2 the Selling Stockholders are
entitled to effect a disposition of Eligible Securities pursuant to Rule 144(k)
(or any successor provision) under the Securities Act, the aforesaid priorities
shall be changed so that the Eligible Securities proposed to be included by the
Selling Stockholders shall have the lowest priority of all securities proposed
to be registered in such registration.
(c) Inconsistent Rights. The Company shall not grant to any holder of its
-------------------
securities any registration rights inconsistent with the provisions of this
Section 1.2.
(d) Expenses. Except as otherwise provided in this Agreement, the Company
--------
shall pay all Registration Expenses in connection with any registration
requested pursuant to this Section 1.2.
(e) Selection of Underwriters. If an incidental registration pursuant to
-------------------------
this Section 1.2 involves an underwritten offering, the managing or lead
underwriter or underwriters shall be selected by the Company, unless otherwise
provided in an agreement between the Company and another Person or Persons.
7
<PAGE>
Section 1.3. Registration Procedures. If and whenever the Company is
-----------------------
required to use its reasonable efforts to effect the registration of any
Eligible Securities under the Securities Act as provided in Sections 1.1 and
1.2, the Company shall as expeditiously as possible:
(a) prepare and as soon thereafter as possible file with the Commission the
requisite registration statement to effect such registration and thereafter use
its reasonable efforts to cause such registration statement to become effective,
provided that before filing such registration statement or any amendments
- --------
thereto, the Company shall furnish to the counsel to the Selling Stockholders
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel;
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement continuously effective for
a period of either (i) not less than 120 days (subject to extension pursuant to
the last paragraph of this Section 1.3) or, if such registration statement
relates to an underwritten offering, such longer period as in the opinion of
counsel for the underwriters a prospectus is required by law to be delivered in
connection with sales of securities by an underwriter or dealer; or (ii) such
shorter period as is required for the disposition of all of the securities
covered by such registration statement in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such registration
statement (but in any event not before the expiration of any longer period of
effectiveness required under the Securities Act), and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of securities covered by such registration
statement such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents in order to facilitate the disposition of such securities owned by
such seller in accordance with such seller's intended method of disposition, as
such seller may reasonably request, but only during such time as the Company
shall be required under the provisions hereof to cause such registration
statement to remain current;
(d) use its reasonable efforts to register or qualify securities covered by
such registration statement under such other securities or blue sky laws of such
jurisdictions in the United States as each seller thereof shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and to take any other action
which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions in the United States of the securities owned
by such seller,
8
<PAGE>
provided that the Company shall not for any such purpose be required to (i)
- --------
qualify generally to do business as a foreign corporation in any jurisdiction
where it would not otherwise be required to qualify but for the requirements of
this subsection (d), (ii) consent to general service of process in any such
jurisdiction, (iii) subject itself to taxation in any such jurisdiction or (iv)
conform its capitalization or the composition of its assets at the time to the
securities or blue sky laws of such jurisdiction;
(e) use its reasonable efforts to cause all securities covered by such
registration statement to be registered with or approved by such other United
States Governmental Authorities as may be necessary by virtue of the business
and operations of the Company to enable the sellers to consummate the
disposition thereof;
(f) use its reasonable efforts to furnish to each Selling Stockholder a
signed counterpart, addressed to such Selling Stockholder (and the underwriters,
if any), of
(i) an opinion of counsel for the Company, dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), reasonably satisfactory in form and substance to such Selling
Stockholder, and
(ii) a "comfort" letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
dated the date of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such Selling Stockholder, signed by the
independent public accountants who have certified the Company's financial
statements included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities;
(g) furnish to each such Selling Stockholder at least five Business Days
prior to the filing thereof a copy of any amendment or supplement to such
registration statement or prospectus (other than any amendment or supplement in
the form of a filing which the Company is required to make pursuant to the
Exchange Act) and not file any such amendment or supplement to which any such
Selling Stockholder shall have reasonably objected on the grounds that, in the
opinion of counsel to such Selling Stockholder, such amendment or supplement
does not comply in all material respects with the requirements of the Securities
Act;
(h) notify each Selling Stockholder, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the discovery of the happening of any event as a result of which,
the prospectus included in such registration
9
<PAGE>
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made, and at the request of any such Selling Stockholder
promptly prepare and furnish to such Selling Stockholder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made;
(i) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of at least twelve months beginning after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(j) use its reasonable efforts to provide customary assistance to the
underwriters in their selling efforts and presentations to prospective
investors; and
(k) use its reasonable efforts to cause all such Eligible Securities
covered by such registration statement to be listed on a national securities
exchange or on the National Association of Securities Dealers, Inc. National
Market System (if such Eligible Securities are not already so listed), and on
each other securities exchange on which similar securities issued by the Company
are then listed, if the listing of such Eligible Securities is then permitted
under the rules of such exchange.
The Company may require each Selling Stockholder to furnish the Company in
writing for inclusion in the registration statement such information regarding
such Selling Stockholder and the distribution of such Eligible Securities being
sold as the Company may from time to time reasonably request.
Each Selling Stockholder agrees by becoming a holder of Eligible Securities
that upon receipt of any notice from the Company of the happening of any event
of the kind described in subsection (h) of this Section 1.3, such Selling
Stockholder shall forthwith discontinue such Selling Stockholder's disposition
of Eligible Securities pursuant to the registration statement relating to such
Eligible Securities until such Selling Stockholder's receipt of the copies of
the supplemented or amended prospectus contemplated by subsection (h) of this
Section 1.3 and, if so directed by the Company, such Selling Stockholder shall
use its reasonable efforts to deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Selling Stockholder's
possession, of the prospectus relating to such Eligible Securities current at
the time of receipt of such notice. If the Company shall give any such notice,
the applicable time period mentioned in subsection (b) of this Section 1.3
during which a registration statement is to remain effective shall be extended
by the number of days during the period from
10
<PAGE>
and including the date of the giving of such notice pursuant to subsection (h)
of this Section 1.3, to and including the date when each Selling Stockholder
shall have received the copies of the supplemented or amended prospectus
contemplated by subsection (h) of this Section 1.3.
Section 1.4. Delay of Filing or Sales. (a) The Company shall have the
------------------------
right, upon giving notice to the Selling Stockholders of the exercise of such
right, to delay filing a registration statement or to require such Selling
Stockholders not to sell any Eligible Securities pursuant to a registration
statement for a period of 270 days from the date on which such notice is given,
or such shorter period of time as may be specified in such notice or in a
subsequent notice delivered by the Company to such effect prior to or during the
effectiveness of the registration statement, if (i) the Company is engaged in or
proposes to engage in discussions or negotiations with respect to, or has
proposed or taken a substantial step to commence, or there otherwise is 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 the Company, in each case which is material to the Company (any such
negotiation, step, event or state of facts being herein called a "Material
Activity"), (ii) such Material Activity would, in the opinion of counsel for the
Company, require disclosure so as to permit the Eligible Securities to be sold
in compliance with law, and (iii) such disclosure would, in the reasonable
judgment of the Company, be adverse to its interests, provided that the Company
shall have no right to delay the filing of a registration statement or the
selling of Eligible Securities if at any time during the twelve months preceding
the date on which such notice was given the Company had delayed either the
filing of a registration statement that included Eligible Securities pursuant to
Section 1.1(a) or the selling of Eligible Securities pursuant to a registration
statement filed in accordance with Section 1.1(a).
(b) The Company shall have no obligation to include in any notice
contemplated by Section 1.4(a) any reference to or description of the facts
based upon which the Company is delivering such notice. The Company shall pay
all Registration Expenses and all reasonable fees and expenses of counsel for
the Selling Stockholders (excluding the portion of any fees determined pursuant
to the German Fee Regulations) with respect to any registration of Eligible
Securities or sales thereof that has been delayed for more than 90 days pursuant
to this Section 1.4, unless the Company effects a similar registration to which
Section 1.1 or 1.2 applies within 270 days of the first delivery of a notice
contemplated by Section 1.4(a).
Section 1.5. Underwritten Offerings. (a) Requested Underwritten
---------------------- ----------------------
Offerings. If requested by the underwriters of any underwritten offering of
- ---------
Eligible Securities pursuant to a registration requested under Section 1.1, the
Company shall enter into an underwriting agreement with such underwriters for
such offering. Such agreement shall be reasonably satisfactory in substance and
form to each Selling Stockholder, the Company and the underwriters and shall
contain representations, warranties, indemnities and agreements customarily
included by an issuer in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities to the effect and to
the extent provided in Section 1.7. The Selling Stockholders shall be parties to
such underwriting agreement and may, at their option, require
11
<PAGE>
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Selling Stockholders.
(b) Incidental Underwritten Offerings. If the Company at any time proposes
---------------------------------
to register any of its Common Stock, Series 1 FON Stock (including Series 2 FON
Stock that, upon such distribution would convert into Series 1 FON Stock),
Series 1 PCS Stock (including Series 2 PCS Stock that, upon such distribution
would convert into Series 1 PCS Stock) or other common equity securities under
the Securities Act as contemplated by Section 1.2 and such securities are to be
distributed by or through one or more underwriters, the Company shall, if
requested by the Selling Stockholders as provided in Section 1.2 and subject to
the provisions of Section 1.2(b), use its reasonable efforts to arrange for such
underwriters to include those Eligible Securities designated by the Selling
Stockholders among the securities to be distributed by such underwriters. The
Selling Stockholders shall be parties to the underwriting agreement between the
Company and such underwriters.
(c) Holdback Agreements. (i) Each holder of Eligible Securities agrees by
-------------------
becoming a holder of such Eligible Securities not to effect any public sale or
distribution of any equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 under the Securities Act (or any similar provision
then in force), during the ten days before and the 90 days after any
underwritten registration pursuant to Section 1.1 or 1.2 with respect to which
such holder has a right to participate has become effective, except as part of
such underwritten registration.
(ii) The Company agrees not to effect any public sale or distribution of
its equity securities or securities convertible into or exchangeable or
exercisable for any of such securities during the ten days before and the 90
days after any underwritten registration pursuant to Section 1.1 or 1.2 has
become effective, except as part of such underwritten registration and except
pursuant to (v) registrations on Form S-4 or S-8, or any successor or similar
forms thereto or otherwise pursuant to a dividend reinvestment plan or a
dividend reinvestment and stock purchase plan; (w) sales upon exercise or
exchange, by the holder thereof, of options, warrants or convertible securities;
(x) any other agreement to issue equity securities or securities convertible
into or exchangeable or exercisable for any of such securities in effect on the
date the Selling Stockholders deliver to the Company the request to register, or
include in a registration, Eligible Securities under Section 1.1 or Section 1.2,
as the case may be; (y) any acquisition or similar transaction; and (z) any
dividend reinvestment plan or employee benefit plan (if necessary for such plan
to fulfill its funding obligations in the ordinary course).
Section 1.6. Preparation; Reasonable Investigation. In connection with
-------------------------------------
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement in which the Selling Stockholders include
Eligible Securities in such registration, the Company shall (a) give the Selling
Stockholders, their underwriters, if any, and their respective advisors and
counsel the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or
12
<PAGE>
supplement thereto (other than any amendment or supplement in the form of a
filing which the Company is required to make pursuant to the Exchange Act), (b)
give the Selling Stockholders and their respective advisors and counsel such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Selling Stockholders' counsel, to conduct a reasonable investigation within the
meaning of the Securities Act, and (c) consult with the Selling Stockholders
concerning the selection of underwriter's counsel for such offering and
registration.
Section 1.7. Indemnification. (a) Indemnification by the Company. In
--------------- ------------------------------
the event of any registration of any securities of the Company under the
Securities Act pursuant to Section 1.1 or 1.2, the Company shall, and hereby
does, indemnify and hold harmless each Selling Stockholder, its directors,
officers, employees, agents and advisors, and each other Person, if any, who
controls such Selling Stockholder within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
each such Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon
(i) any untrue statement or alleged untrue statement of any material
fact contained (x) in any registration statement under which such securities
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein or used in connection with
the offering of securities covered thereby, or any amendment or supplement
thereto, or (y) in any application or other document or communication (in this
Section 1.7 collectively called an "application") executed by or on behalf of
the Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify any securities covered by
such registration statement under the "blue sky" or securities laws thereof, or
(ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company will reimburse such Person for any reasonable
legal or any other expenses (excluding the portion of any legal fees determined
pursuant to the German Fee Regulations) incurred by it in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided that the Company shall not be liable in any such case to
--------
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission, made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, or in any application, in reliance
upon and in conformity with written information prepared and furnished to the
Company by any Selling Stockholder or, in the case of a registration under
Section 1.1 hereof, any underwriter specifically for use in the preparation
thereof and provided, further, that the Company shall not
-------- -------
13
<PAGE>
be liable to any Person who participates as an underwriter (other than the
Selling Stockholders insofar as they may be deemed underwriters within the
meaning of the Securities Act) in any such registration or any other Person who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure to
send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of the securities to such Person if such statement or
omission was timely corrected in such final prospectus. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of any such Person and shall survive the transfer of such securities by
such Person. The Company shall not be obligated to pay the fees and expenses of
more than one counsel or firm of counsel for all parties indemnified in respect
of a claim for each jurisdiction in which such counsel is required unless a
conflict of interest exists between such indemnified party and any other
indemnified party in respect of such claim.
(b) Indemnification by the Selling Stockholders. The Company may require,
-------------------------------------------
as a condition to including any Eligible Securities held by a Selling
Stockholder in any registration statement filed pursuant to Sections 1.1 and
1.2, that the Company shall have received an undertaking satisfactory to it from
such Selling Stockholder, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subsection (a) of this Section 1.7) the
Company, each director, officer, employee, agent and advisor of the Company and
each other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any application, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information prepared and
furnished to the Company by such Selling Stockholder specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, or such application.
Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director, officer,
employee, agent, advisor or controlling Person and shall survive the transfer of
such securities by such Selling Stockholder. The indemnity provided by each
Selling Stockholder under this Section 1.7(b) shall be only with respect to its
own misstatements and omissions and not with respect to those of any other
seller or prospective seller of securities, and not jointly and severally, and
shall be limited in amount to the net amount of proceeds received by such
Selling Stockholder from the sale of Eligible Securities pursuant to such
registration statement.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
-----------------------
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subsections of this Section 1.7, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of
14
<PAGE>
such action, provided that the failure of any indemnified party to give notice
--------
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section 1.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless a conflict
of interest between such indemnified and indemnifying parties exists in respect
of such claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, if the
indemnifying party is entitled to do so hereunder, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) Other Remedies. If for any reason the indemnity set forth in the
--------------
preceding subsections of this Section 1.7 is unavailable, or is insufficient to
hold harmless an indemnified party, other than by reason of the exceptions
provided therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other hand in connection with the offering of securities and the
statements or omissions or alleged statements or omissions which resulted in
such loss, claim, damage, or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statements or omissions.
No party shall be liable for contribution under this subsection (d) except to
the extent and under such circumstances as such party would have been liable to
indemnify under this Section 1.7 if such indemnification were enforceable under
applicable law.
Section 1.8. Effect of Other Agreements Among the Parties Hereto.
---------------------------------------------------
Nothing in this Agreement shall be construed to alter in any manner whatsoever
any rights or obligations of the Company, FT, DT, any Qualified Subsidiary or
any Qualified Stock Purchaser contained in any other agreement among such
Persons entered into concurrently herewith, including, but not limited to, the
restrictions on transfer of shares of capital stock of the Company contained in
Article II of the Amended and Restated Stockholders' Agreement and the
provisions of Section 7.5(a) of the Amended and Restated Stockholders'
Agreement. In addition, any sales of Eligible Securities made pursuant to this
Agreement shall be effected only in strict accordance with Article II and
Section 7.5(a) of the Amended and Restated Stockholders Agreement.
15
<PAGE>
Section 2. Definitions. Capitalized terms used herein and not defined
-----------
in this Section 2 shall have the meanings set forth in the Amended and Restated
Stockholders' Agreement, dated as of the date hereof, by and among FT, DT and
the Company. As used herein, the following terms have the following respective
meanings:
Commission: The Securities and Exchange Commission or any other Federal
----------
agency at the time administering the Securities Act.
CP Preference Period: The period beginning on the CP Registration Rights
--------------------
Commencement Date and ending on the earlier of (i) the date upon which the Cable
Partners have completed registered public offerings of Registrable Securities
(as defined in the Cable Partner Registration Rights Agreement) with an
aggregate public offering price for such Registrable Securities of
$2,000,000,000 or (ii) the date which is 12 months after the CP Registration
Rights Commencement Date.
CP Registration Rights Commencement Date: (i) if the IPO (as defined in
----------------------------------------
the FT/DT Restructuring Agreement) is consummated concurrently with the CP
Closing, the date that is 180 days following the CP Closing, (ii) if the IPO is
not consummated concurrently with the CP Closing but is consummated within 120
days of the CP Closing, the date that is the later of the ninetieth day
following the IPO or 180 days following the CP Closing, or (iii) if the IPO is
not consummated concurrently with the CP Closing or within 120 days thereafter,
the date that is the 180th day following the CP Closing, unless any Cable
Partner shall decide to exercise one of its rights to a demand registration
after such 120th day following the CP Closing but prior to such 180th day
following the CP Closing, in which case it shall be the date the demand notice
is given pursuant to the Cable Partner Registration Rights Agreement.
CP Secondary Preference Period: 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 Partners have completed registered public
offerings of Registrable Securities with an aggregate public offering price for
such Registrable Securities of $3,000,000,000.
Eligible Securities: (a) shares of Non-Class A Common Stock held by a party
-------------------
to this Agreement (other than the Company) acquired prior to the conversion of
all shares of Class A Stock into shares of Non-Class A Common Stock, or
termination of the Fundamental Rights, in each case pursuant to ARTICLE SIXTH,
Section 8.5 of the Articles and without violating Article 2 of the Amended and
Restated Standstill Agreement; (b) shares of Non-Class A Common Stock into which
shares of Class A Stock held by a party to this Agreement (other than the
Company) may be converted, provided that for all purposes under this Agreement,
--------
the holders of such shares of Class A Stock shall be deemed to be the holders of
such shares of Non-Class A Common Stock into which such shares of Class A Stock
may be converted; and (c) any securities issued or issuable with respect to such
Class A Stock or such Non-Class A Common Stock by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
16
<PAGE>
Eligible Securities, once issued such securities shall cease to be Eligible
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of, (ii) they shall have been distributed to
the public pursuant to Rule 144 (or any successor provisions) under the
Securities Act, (iii) they shall have been otherwise transferred (except
transfers to a Qualified Subsidiary or Qualified Stock Purchaser), new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
state securities or blue sky law then in force, or (iv) they shall have ceased
to be outstanding.
Exchange Act: The Securities Exchange Act of 1934, or any similar Federal
------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
German Fee Regulations: The Bundesgebuhrenordnung fur Rechtsanwalte vom 26.
---------------------- -----------------------------------------------
Juli 1957 (BGBl. I S. 907) (as it or any successor provision may be in effect
- --------------------------
from time to time).
PCS Group: The meaning set forth in the Articles.
---------
Registration Expenses: All expenses incident to the Company's performance
---------------------
of or compliance with Sections 1.1, 1.2 and 1.3 hereof, including, without
limitation, (a) all registration, filing and NASD fees, (b) all fees and
expenses of complying with securities or blue sky laws, (c) all word processing,
duplicating and printing expenses, (d) messenger and delivery expenses, (e) the
reasonable fees and disbursements of counsel for the Company (excluding the
portion of any fees determined pursuant to the German Fee Regulations) and of
its independent public accountants, including the expenses of any "comfort"
letters required by or incident to such performance and compliance, (f) premiums
and other costs of policies of insurance against liabilities arising out of the
public offering of the Eligible Securities being registered (if the Company
elects to obtain any such insurance), and (g) any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions, provided, that (i) except as otherwise
--------
specifically provided herein, fees and disbursements of counsel to one or more
Selling Stockholders and (ii) transfer taxes shall not be included as
Registration Expenses and shall not be paid by the Company.
Securities Act: The Securities Act of 1933, or any similar Federal statute,
--------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
Selling Stockholders: Holders of Eligible Securities that with respect to a
--------------------
particular registration have delivered to the Company a request to register, or
include in a registration, Eligible Securities held by them under Section 1.1 or
Section 1.2 of this Agreement.
In addition, as used herein, the term "Cable Partners" shall have the
meaning given to such term in the FT/DT Restructuring Agreement, and the term
"Cable Partner Registration
17
<PAGE>
Rights Agreement" shall mean the Registration Rights Agreement dated as of the
date hereof among the Company and the Cable Partners.
Section 3. Miscellaneous.
-------------
Section 3.1. Rule 144. The Company shall file the reports required to be
--------
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, shall, upon the request of any holder of Eligible
Securities, make publicly available other information) and shall take such
further action as any holder of Eligible Securities may reasonably request, all
to the extent required from time to time to enable such holder to sell Eligible
Securities without registration under the Securities Act pursuant to (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Eligible Securities, the Company shall deliver to such
holder a written statement as to whether it has complied with such requirements.
Section 3.2. Additional Parties. Upon the Transfer of any shares of
------------------
Class A Stock to a Qualified Subsidiary or Qualified Stock Purchaser in
accordance with the terms of the Amended and Restated Stockholders' Agreement,
such Qualified Subsidiary or Qualified Stock Purchaser shall become a party to
this Agreement by agreeing in writing to be bound by the terms and conditions of
this Agreement pursuant to an instrument of assumption in the form of Exhibit B
to the Amended and Restated Stockholders' Agreement, in the case of a Qualified
Subsidiary, or an instrument of assumption in the form of Exhibit C to the
Amended and Restated Stockholders' Agreement, in the case of a Qualified Stock
Purchaser, and shall thereby be deemed a holder of Eligible Securities for the
purposes of this Agreement.
Section 3.3. Notices. All notices and other communications required or
-------
permitted by this Agreement shall be made in writing in the English language and
any such notice or communication shall be deemed delivered when delivered in
person, transmitted by telex or telecopier, or seven days after it has been sent
by air mail, as follows:
FT: 6 place d'Alleray
75505 Paris Cedex 15
France
Attn: Group Executive Vice President Resources
Tel: (33-1) 44-44-84-72
Fax: (33-1) 44-44-01-51
18
<PAGE>
with a copy to:
6 place d'Alleray
75505 Paris Cedex 15
France
Attn: General Counsel
Tel: (33-1) 44-44-84-76
Fax: (33-1) 44-44-02-13
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
U.S.A.
Attn: Alfred J. Ross, Jr., Esq.
Tel: (212) 848-4000
Fax: (212) 848-8434
DT: Friedrich-Ebert-Allee 140
D-53113 Bonn
Germany
Attn: Chief Executive Officer
Tel: 49-228-181-9000
Fax: 49-228-181-8970
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
U.S.A.
Attn: Robert P. Davis, Esq.
Tel: (212) 225-2000
Fax: (212) 225-3999
Company: 2330 Shawnee Mission
Parkway, East Wing
Westwood, Kansas 66205
U.S.A.
Attn: General Counsel
Tel: (913) 624-8440
Fax: (913) 624-8426
19
<PAGE>
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
U.S.A.
Attn: Bruce N. Hawthorne, Esq.
Tel: (404) 572-4903
Fax: (404) 572-5146
The parties to this Agreement shall promptly notify each other in the manner
provided in this Section 3.3 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 telex or telecopier also shall be
sent concurrently by mail, but shall in any event be effective as stated above.
Section 3.4. 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 hereto. 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 3.5. Binding Agreement; No Third Party Beneficiaries. This
-----------------------------------------------
Agreement will be binding upon and inure to the benefit of the parties hereto
and their successors and permitted assigns. Except as set forth herein and by
operation of law, no party to this Agreement may assign or delegate all or any
portion of its rights, obligations or liabilities under this Agreement without
the prior written consent of each other party to this Agreement. Nothing
expressed or implied herein is intended or shall be construed to confer upon or
give to any third party any rights or remedies by virtue hereof.
Section 3.6. 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 TO THIS AGREEMENT 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 BY SUCH PARTY
20
<PAGE>
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 NEW YORK CITY, AND EACH PARTY TO THIS AGREEMENT 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. EACH
PARTY HERETO 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. EACH OF FT AND DT HEREBY
IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM (IN SUCH CAPACITY, THE "PROCESS
AGENT"), WITH AN OFFICE AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, FOR AND ON ITS BEHALF SERVICE OF
PROCESS IN SUCH JURISDICTION IN ANY LEGAL ACTION OR PROCEEDINGS WITH RESPECT TO
THIS AGREEMENT, AND SUCH SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY THEREOF
TO THE PROCESS AGENT, PROVIDED THAT IN THE CASE OF ANY SUCH SERVICE UPON THE
--------
PROCESS AGENT, THE PARTY EFFECTING SUCH SERVICE SHALL ALSO DELIVER A COPY
THEREOF TO FT AND DT IN THE MANNER PROVIDED IN SECTION 3.3. FT AND DT SHALL TAKE
ALL SUCH ACTION AS MAY BE NECESSARY TO CONTINUE SAID APPOINTMENT IN FULL FORCE
AND EFFECT OR TO APPOINT ANOTHER AGENT SO THAT FT AND DT WILL AT ALL TIMES HAVE
AN AGENT FOR SERVICE OF PROCESS FOR THE ABOVE PURPOSES IN NEW YORK, NEW YORK. IN
THE EVENT OF THE TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS
OF THE PROCESS AGENT TO ANY OTHER CORPORATION BY CONSOLIDATION, MERGER, SALE OF
ASSETS OR OTHERWISE, SUCH OTHER CORPORATION SHALL BE SUBSTITUTED HEREUNDER FOR
THE PROCESS AGENT WITH THE SAME EFFECT AS IF NAMED HEREIN IN PLACE OF CT
CORPORATION SYSTEM. EACH OF FT AND DT FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED AIRMAIL, POSTAGE
PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, SUCH SERVICE
OF PROCESS TO BE EFFECTIVE UPON ACKNOWLEDGMENT OF RECEIPT OF SUCH REGISTERED
MAIL. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW. EACH OF FT AND DT EXPRESSLY
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS INTENDED TO BE IRREVOCABLE UNDER THE
LAWS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA.
(C) EACH PARTY HERETO AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTIES HERETO FOR ANY BREACH
21
<PAGE>
OF THIS AGREEMENT BY IT, AND THAT IN ADDITION TO ALL OTHER REMEDIES THE OTHER
PARTIES HERETO MAY HAVE, THEY SHALL BE ENTITLED TO SPECIFIC PERFORMANCE AND TO
INJUNCTIVE OR OTHER EQUITABLE RELIEF AS A REMEDY FOR ANY SUCH BREACH TO THE
EXTENT PERMITTED BY APPLICABLE LAW. EACH PARTY HERETO AGREES NOT TO OPPOSE THE
GRANTING OF SUCH RELIEF IN THE EVENT A COURT DETERMINES SUCH A BREACH HAS
OCCURRED, AND TO WAIVE ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND
IN CONNECTION WITH SUCH REMEDY.
Section 3.7. 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 hereto
waives any provision of 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 to the extent permitted by
applicable law rather than voided, if possible, in order to achieve the intent
of the parties to this Agreement to the extent possible.
Section 3.8. Translation. The parties have negotiated this Agreement in
-----------
the English language, and have prepared successive drafts and the definitive
text of this Agreement in the English language. For purposes of complying with
the loin 94-665 du 4 aout 1994 relative a l'emploi de la langue francaise,
------------------------------------------------------------------------
the parties hereto have prepared a French version of this Agreement, which
French version was executed and delivered simultaneously with the execution and
delivery of the English version hereof, such English version having likewise
been executed and delivered. The parties deem the French and English versions of
this Agreement to be equally authoritative.
Section 3.9. Table of Contents; Headings; Counterparts. The table of
-----------------------------------------
contents and the headings in this Agreement are for convenience of reference
only and will not affect the construction of any provisions hereof. 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 3.10. Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the parties hereto in respect of 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 3.11. Waiver of Immunity. Each of FT and DT agrees that, to the
------------------
extent that it or any of its property is or becomes entitled at any time to any
immunity on the grounds of sovereignty or otherwise based upon its status as an
agency or instrumentality of government from any legal action, suit or
proceeding or from set off or counterclaim relating to this
22
<PAGE>
Agreement from the jurisdiction of any competent court described in Section 3.6,
from service of process, from attachment prior to judgment, from attachment in
aid of execution of a judgment, from execution pursuant to a judgment or an
arbitral award or from any other legal process in any jurisdiction, it, for
itself and its property expressly, irrevocably and unconditionally waives, and
agrees not to plead or claim, any such immunity with respect to such matters
arising with respect to this Agreement or the subject matter hereof or thereof
(including any obligation for the payment of money). Each of FT and DT agrees
that the waiver in this provision is irrevocable and is not subject to
withdrawal in any jurisdiction or under any statute, including the
Foreign Sovereign Immunities Act, 28 U.S.C. (P) 1602 et seq. The foregoing
-- ---
waiver shall constitute a present waiver of immunity at any time any action is
initiated against FT or DT with respect to this Agreement.
Section 3.12. Currency. All amounts payable under this Agreement
--------
shall be payable in U.S. dollars.
[Signature page follows.]
23
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
SPRINT CORPORATION
By: /s/ Don A. Jensen
----------------------------------------------
Name: Don A. Jensen
Title: Vice President and Secretary
FRANCE TELECOM S.A.
By: /s/ Thierry Girard
----------------------------------------------
Name: Thierry Girard
Title: Senior Vice President
DEUTSCHE TELEKOM AG
By: /s/ Dr. Ron Sommer
----------------------------------------------
Name: Dr. Ron Sommer
Title: vorstandsvorsitzender
24
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of November
23, 1998, is entered into by and among Sprint Corporation, a Kansas corporation
("Sprint" or the "Company"), TCI Telephony Services, Inc., a Delaware
corporation ("TCI"), Cox Communications, Inc., a Delaware corporation ("Cox"),
and Comcast Corporation, a Pennsylvania corporation ("Comcast") (TCI, Cox and
Comcast, collectively, the "Cable Stockholders"). Capitalized terms not
otherwise defined herein will have the meaning given them in Section 1 of this
Agreement.
WHEREAS, in connection with the consummation of the transactions
contemplated by the Restructuring and Merger Agreement, dated as of May 26, 1998
(the "Restructuring Agreement"), by and among Sprint and certain Affiliates (as
defined below) of Sprint and the Cable Stockholders, each of the Cable
Stockholders and/or one or more of their respective Affiliates, will receive
shares of Series 2 PCS Stock (as defined below); and
WHEREAS, this is the Registration Rights Agreement provided for by the
Restructuring Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement and covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Certain Definitions.
-------------------
Affiliate: When used with respect to a specified Person, another
Person that directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with the Person specified. For
purposes of the foregoing, the term "controls" (including the correlative
meanings "controlled by" or under "common control with") means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
Agreement: This Registration Rights Agreement.
Board: As defined in Section 2(d).
Business Day: Any day other than a Saturday, Sunday or other day on
which commercial banking institutions in New York, New York are required or
authorized by law to remain closed.
Cable Stockholders: As defined in the Preamble.
Closing: As defined in the Restructuring Agreement.
<PAGE>
Closing Price: As to any security, on any Trading Day means (i) the
last reported sales price, regular way, for such Trading Day as reported on the
principal national securities exchange on which such security is listed or
admitted for trading or (ii) if such security is not listed or admitted for
trading on any national securities exchange, the last reported sales price,
regular way, for such Trading Day as reported on the National Market tier of The
Nasdaq Stock Market or, if such security is not quoted on such National Market
tier, the average of the highest bid and lowest asked prices on such Trading Day
as reported on The Nasdaq Stock Market, or (iii) if such security is not listed
or admitted to trading on any national securities exchange or The Nasdaq Stock
Market, the average of the highest bid and lowest asked prices on such Trading
Day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization.
Comcast: As defined in the Preamble.
Comcast Stockholder Group: The Stockholder Group of which Comcast is
a member.
Commission: The Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the Exchange Act.
Company: As defined in the Preamble.
Company Indemnified Parties: Sprint, its officers, directors,
employees and agents, and each Person, if any, who controls Sprint within the
meaning of either the Securities Act or the Exchange Act, and the officers,
directors, employees and agents of the foregoing parties.
Company Notice: As defined in Section 2(b)(i).
Cox: As defined in the Preamble.
Cox Stockholder Group: The Stockholder Group of which Cox is a
member.
Demand Notice: As defined in Section 2(b)(i).
Demand Registration: As defined in Section 2(a).
Derivative Security: As defined in the definition of "Registrable
Securities".
Designated Representative: As defined in Section 8(b).
DT: Deutsche Telekom AG, an Aktiengesellschaft organized under the
laws of Germany.
2
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, or any successor
federal statute, and the rules and regulations of the Commission promulgated
thereunder, in each case as amended from time to time.
FT: France Telecom S.A., a societe anonyme organized under the laws
of France.
FT/DT Incidental Registration Rights: The incidental registration
rights granted to FT and DT by Sprint in Section 1.2 of that certain
Registration Rights Agreement, dated as of January 31, 1996, among Sprint, FT
and DT (as amended by the Amended and Restated Registration Rights Agreement,
dated as of the date hereof (as so amended the "Amended FT/DT Agreement))".
FT/DT Registrable Securities: The securities of Sprint held by FT and
DT with respect to which Sprint has granted to both FT and DT the FT/DT
Incidental Registration Rights.
Incidental Registration: As defined in Section 3(a).
Incidental Registration Right: As defined in Section 3(a).
Indemnified Party: A Person claiming a right to indemnification
pursuant to Section 6 of this Agreement.
Indemnifying Party: A Person required to provide indemnification
pursuant to Section 6 of this Agreement.
Initial Registration Period: As defined in Section 2(b)(ii).
Initiating Holders: The Original Initiating Holder, together with any
other Stockholders joining in the Demand Registration initiated by the Original
Initiating Holder pursuant to Section 2(b) of this Agreement.
IPO: As defined in the Restructuring Agreement.
Losses: Any losses, claims, damages or liabilities, and any related
legal or other fees and expenses.
Material Activity: As defined in Section 2(d).
Minimum Condition: As defined in Section 2(b)(i).
Non FT/DT Demand Holder: Any Third Party Demand Holder other than FT
and DT (and their respective Affiliates).
3
<PAGE>
Original Initiating Holder: As defined in Section 2(b)(i).
Original Price: (i) if the IPO is consummated concurrently with the
Closing, the price per share of Series 1 PCS Stock in the IPO and (ii) if the
Recapitalization is effected concurrently with the Closing, the average of the
Closing Prices for the Series 1 PCS Stock for the first twenty Trading Days
commencing on the Fifth Trading Day following the Closing.
Other Stockholder Group: As defined in Section 2(b)(i).
PCS Group: As defined in the Amended and Restated Articles of
Incorporation of Sprint.
PCS Stock: The Series 1 PCS Stock, the Series 2 PCS Stock and the
Series 3 PCS Stock.
Person: Any individual, corporation, partnership, limited partnership,
limited liability partnership, limited liability company, trust, association,
organization or other entity.
Prospectus: The prospectus included in a Registration Statement as of
the date it becomes effective under the Securities Act and, in the case of
references to the Prospectus as of a date subsequent to the effective date of
the Registration Statement, as amended or supplemented as of such date,
including all documents incorporated by reference therein, each as amended, and
each applicable prospectus supplement relating to the offering and sale of any
of the Registrable Securities pursuant to such Registration Statement.
Recapitalization: As defined in the Restructuring Agreement.
Registrable Securities: All of (A) the shares of PCS Stock now owned
on the date hereof or hereafter 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 the Stockholder
Group of a Cable Stockholder other than shares acquired in violation of the
Standstill Agreement, (B) any securities of the Company or its successors issued
to Cox or any Affiliate of Cox pursuant to Section 13.6 of the Agreement of
Limited Partnership of Cox Communications PCS, L.P., as amended by an amendment
thereto dated as of the date of this Agreement, (C) any securities of the
Company or its successors issued or issuable with respect to any shares referred
to in subdivision (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 the Stockholder Group of a Cable Stockholder (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 the
Company in addition to registration of the
4
<PAGE>
Derivative Securities by the applicable issuer thereof. As to any particular
Registrable Securities, once acquired by a Stockholder, such securities shall
cease to be Registrable Securities (w) when a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (x) when they shall have been 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 for purposes of Rule 144 under
the Securities Act), (y) in the case of securities not acquired directly from
Sprint or another Stockholder (I) if such securities did not, as of the time of
the acquisition of such securities by such holder, constitute restricted
securities, when such securities are held by a Person that, is not an
"affiliate" (as such term is defined for purposes of Rule 144 under the
Securities Act) of Sprint and (II) if such securities did, as of the time of the
acquisition of securities by such holder, constitute restricted securities, when
such securities can be sold without regard to the volume and manner of sale
limitations set forth in Rule 144 (or any successor provision) or (z) when they
shall have ceased to be outstanding.
Registration Expenses: As defined in Section 5(a).
Registration Rights Commencement Date: (i) if the IPO is consummated
concurrently with the Closing, 180 days following the Closing, (ii) if the IPO
is not consummated concurrently with the Closing but is consummated within 120
days of the Closing, the later of the ninetieth day following the IPO or 180
days following the Closing, or (iii) if the IPO is not consummated concurrently
with the Closing or within 120 days thereafter, the 180th day following the
Closing unless any Stockholder Group shall decide to exercise one of its rights
to a Demand Registration after such 120th day following the Closing but prior to
such 180th day following the Closing in which case the date the Demand Notice is
given.
Registration Statement: A registration statement (including the
related Prospectus) of Sprint under the Securities Act on any form selected by
Sprint for which Sprint then qualifies and which permits the sale thereunder of
the number and type of Registrable Securities (and any other securities of
Sprint) to be included therein in accordance with this Agreement by the
applicable sellers in the manner described therein. The term "Registration
Statement" shall also include all exhibits and financial statements and
schedules and documents incorporated by reference in such Registration Statement
when it becomes effective under the Securities Act, and in the case of the
references to the Registration Statement as of a date subsequent to the
effective date, as amended or supplemented as of such date.
Restructuring Agreement: As defined in the Recitals.
Securities Act: The Securities Act of 1933, or any successor federal
statute, and the rules and regulations of the Commission promulgated thereunder,
in each case as amended from time to time.
5
<PAGE>
Selling Stockholder: Any Stockholder whose Registrable Securities are
included at the request of such Stockholder in any Registration Statement
pursuant to Section 2 or Section 3.
Series 1 PCS Stock: The PCS Common Stock--Series 1, par value $1.00
per share, of Sprint and any securities into or for which such securities are
converted or exchanged by Sprint.
Series 2 PCS Stock: The PCS Common Stock--Series 2, par value $1.00
per share, of Sprint and any securities into or for which such securities are
converted or exchanged by Sprint.
Series 3 PCS Stock: The PCS Common Stock--Series 3, par value $1.00
per share, of Sprint and any securities into or for which such securities are
converted or exchanged by Sprint.
Sprint: As defined in the Preamble.
Stockholder: Each of the members of the Stockholder Group of a Cable
Stockholder.
Stockholder Group: As to any Cable Stockholder, such Cable
Stockholder, any Affiliates of such Cable Stockholder who own Registrable
Securities and any other Person (w) to whom all or a portion of such Registrable
Securities are transferred by any Person that was, immediately prior to such
transfer, a Stockholder, (x) who continues to hold such Registrable Securities,
(y) to whom the transferring Stockholder has assigned any of its rights
hereunder, in whole or in part, in accordance with the provisions hereof with
respect to such Registrable Securities and (z) who has executed a counterpart
hereof in connection with the transfer of such Registrable Securities.
Stockholder Indemnified Parties: Each Selling Stockholder, its
officers, directors, employees and agents, each Person (if any) who controls
such Selling Stockholder within the meaning of either the Securities Act or the
Exchange Act, and the officers, directors, employees and agents of the foregoing
parties.
TCI: As defined in the Preamble.
TCI Stockholder Group: The Stockholder Group of which TCI is a
member.
Third Party Demand Holders: As defined in Section 3(b).
Trading Day: Means a day on which the principal national securities
exchange on which the Series 1 PCS Stock is listed or admitted to trading, or
The Nasdaq Stock Market, as
6
<PAGE>
applicable, if the Series 1 PCS Stock is not listed or admitted to trading on
any national securities exchange, is open for the transaction of business
(unless such trading shall have been suspended for the entire day) or, if the
Series 1 PCS Stock is not listed or admitted to trading on any national
securities exchange or The Nasdaq Stock Market, any Business Day.
2. Demand Registration.
-------------------
(a) Demand Registration Rights.
--------------------------
(i) Subject to Section 2(d) below, at any time on or after the
Registration Rights Commencement Date each Stockholder Group shall have the
right to require that Sprint register under the Securities Act the offer or sale
of all or a portion of the Registrable Securities held by members of such
Stockholder Group (including the offer or sale of Registered Securities upon
issuance or settlement of any Derivative Security) upon the terms and subject to
the conditions and limitations set forth herein (a "Demand Registration"). The
number of Demand Registrations to which each Stockholder Group shall be entitled
shall be as follows: the TCI Stockholder Group shall be entitled to six (6)
Demand Registrations, the Cox Stockholder Group shall be entitled to three (3)
Demand Registrations and the Comcast Stockholder Group shall be entitled to
three (3) Demand Registrations.
During the CP Preference Period (as defined in Section 3(b)(i)(z)), if
a Non FT/DT Demand Holder exercises a right to a demand registration, Sprint
shall deliver notice of such exercise to the Designated Representative of each
Stockholder Group as soon thereafter as practicable. Upon receipt of such
notice, a Stockholder Group shall 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 pursuant to the terms of this Section 2
and the exercise of the demand registration by the Non FT/DT Demand Holder shall
be treated for all purposes as though it had not occurred. If provided for in
the agreement between Sprint and such Non FT/DT Demand Holder, such Non FT/DT
Demand Holder may be treated as having exercised incidental registration rights
with respect to such Demand Registration without the taking of any further
action by any person.
(ii) In addition to the number of Demand Registrations granted to each
Stockholder Group pursuant to the other provisions of this paragraph, if Cox or
any Affiliate of Cox acquires Registrable Securities pursuant to Section 13.6 of
the Agreement of Limited Partnership of Cox Communications PCS, L.P., as amended
by an amendment thereto dated as of the date of this Agreement, the Cox
Stockholder Group shall be entitled to one (1) additional Demand Registration.
(iii) In addition to the number of Demand Registrations
granted to each Stockholder Group pursuant to paragraph (i) above, each
Stockholder Group shall have the right to a total of one (1) additional Demand
Registration to be used in connection with the delivery or
7
<PAGE>
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); provided, that such Stockholder Group shall pay all
Registration Expenses in connection with such additional Demand Registration.
Nothing in the immediately preceding sentence shall prevent a Stockholder Group
from using one or more of its Demand Registrations pursuant to paragraph (i)
above in connection with the settlement of a Derivative Security, in which case,
all Registration Expenses shall be paid as set forth in Section 5.
(b) Procedures for Demand Registrations.
-----------------------------------
(i) A Stockholder Group holding Registrable Securities (the "Original
Initiating Holder") may elect to exercise its right to a Demand Registration
pursuant to this Section 2 by furnishing Sprint and each other Cable Stockholder
with written notice of such request (a "Demand Notice") which sets forth the
number of Registrable Securities requested to be so registered and such
Stockholder Group's intended method or methods of distribution of such
Registrable Securities (including whether such Demand Registration is being
effected in connection with the issuance or settlement of a Derivative
Security). Upon receipt by Sprint of a Demand Notice, Sprint shall promptly
notify the Designated Representative of each other Stockholder Group (the "Other
Stockholder Groups") in writing of such request for registration and the
Original Initiating Holder's intended method or methods of distribution (and any
other information contained in the applicable Demand Notice). Upon receipt of
such notice from Sprint (the "Company Notice"), the Designated Representative of
each such Other Stockholder Group may simultaneously exercise any right to a
Demand Registration held by such party by giving Sprint a written request (each
such other Stockholder Group and the Original Initiating Holder making such a
request being an "Initiating Holder") to include in the registration described
in the Company Notice any or all of the Registrable Securities of the
Stockholders in such Other Stockholder Group; provided, that such written
request is given within ten (10) Business Days after the date on which the
Company Notice is given (with such request stating (A) the amount of Registrable
Securities to be so included, (B) such Other Stockholder Group's intended method
or methods of distribution of such Registrable Securities, and (C) any other
information that the Company Notice reasonably requests to be included in such
notice from such Other Stockholder Group). A Demand Registration must request
the registration of a total number 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 aggregate
market value on the date of the delivery of the first applicable Demand Notice
(before any underwriting or brokerage discounts and commissions) of not less
than $200,000,000 (or if lower, a number of Registrable Securities with an
aggregate value at the Original Price of not less than $200,000,000 but in no
event with an aggregate market value on the date of the delivery of the first
applicable Demand Notice of less than $175,000,000) (the "Minimum Condition").
Notwithstanding anything in this paragraph (i) to the contrary, if the Minimum
Condition would not otherwise be satisfied, the Initiating Holders may increase
the number of securities to be registered by them pursuant to this Section 2 in
order to satisfy the Minimum Condition.
8
<PAGE>
(ii) Following the effectiveness of any given Demand Registration
the Company shall not be obligated to register Registrable Securities pursuant
to another Demand Registration prior to: (A) for the period beginning on the
date hereof and ending at such time as the Selling Stockholders and their
respective Affiliates have sold Registrable Securities and/or Derivative
Securities having an aggregate offering price of $2,000,000,000 (excluding
transfers solely between or among the Cable Stockholders and their Affiliates)
(the "Initial Registration Period"), the three (3) month anniversary of the date
of the applicable Demand Notice which satisfied the Minimum Condition; and (B)
following the Initial Registration Period, the six month anniversary of the date
of the applicable Demand Notice; provided, however, that a registration which is
being effected for the settlement of Derivative Securities (not for the initial
issuance of such Derivative Securities), whether pursuant to 2(a)(iii) or
otherwise, shall not be considered a Demand Registration for purposes of this
Section 2(b)(ii).
(iii) As soon as reasonably practicable after the date 10 days
following the date on which the Company Notice is given or, if the Minimum
Condition is not initially satisfied after such 10 days, then as soon as
reasonably practicable after the date on which the applicable Initiating Holders
shall have notified Sprint of their election to register a number of Registrable
Securities which satisfy the Minimum Condition, Sprint shall file with the
Commission and use its commercially reasonable efforts to cause to become
effective as promptly as practicable (but in no event prior to any date
specified in writing to the Company by the Original Initiating Holder for
purposes of this clause (iii)) a Registration Statement which shall cover the
Registrable Securities requested to be registered in the manner set forth above.
Subject to the provisions of Section 2(c) below, each Registration Statement may
also include securities to be sold for the account of Sprint, for Stockholders
pursuant to Section 3 below who do not wish to join as Initiating Holders or for
any other stockholder of the Company not holding Registrable Securities. In the
case of the Registrable Securities referred to in clause (D) of the definition
of such term, the Company's obligation to effect any such registration shall
apply only to the Registrable Securities underlying the Derivative Securities to
be issued by any Stockholder, and the applicable Stockholder shall be
responsible for the separate registration of the securities to be issued by such
Stockholder or any Affiliate of such Stockholder.
(c) Underwriters; Limitation on Inclusion of Registrable Securities.
---------------------------------------------------------------
One or more Initiating Holders owning more than 50% of the Registrable
Securities to be included in such registration by all Initiating Holders shall
collectively have the right to select one co-lead joint book running managing
underwriter for any underwritten public offering in connection with a Demand
Registration, which co-lead joint book running managing underwriter shall be
reasonably acceptable to Sprint. Sprint shall have the right to select the
other co-lead joint book running managing underwriter. Notwithstanding the
foregoing, in the case of an offering of a Derivative Security, such Initiating
Holder(s) shall select the lead managing underwriter (who shall be the book
running manager), and, if there are co-managers, (i) there shall be at least one
non-book running co-lead manager selected by such Initial Holder(s) who is
reasonably acceptable to Sprint; or (ii) if the Initiating Holder(s) shall
require Sprint to participate in a "roadshow" pursuant to Section 4(a)(vii) in
connection with such offering of a Derivative
9
<PAGE>
Security, Sprint shall have the right to select a non-book running co-lead
manager. Each Initiating Holder electing to participate in a Demand Registration
involving an underwritten public offering shall, as a condition to Sprint's
obligation hereunder to include such Initiating Holder's Registrable Securities
in such Demand Registration, enter into and perform its obligations under an
underwriting agreement or other similar arrangement in customary form with the
lead managing underwriters of such offering. If the book running managing
underwriters of any underwritten public offering in connection with a Demand
Registration determine in good faith that the aggregate number of Registrable
Securities to be offered exceeds the number of shares 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 Registrable Securities
to be offered for the accounts of the Initiating Holders in such offering shall
be reduced or limited on a pro rata basis, in proportion to the respective
numbers of Registrable Securities requested to be included in such offering by
all Initiating Holders, to the extent necessary to reduce the total number of
shares to be included in such offering to the amount recommended by the co-lead
joint book running underwriters; provided, that if in connection with such
Demand Registration, (i) Registrable Securities of a Selling Stockholder are
being offered pursuant to such Selling Stockholder's Incidental Registration
Rights under Section 3 or (ii) securities other than Registrable Securities are
being offered (whether for the account of Sprint or for any stockholder of
Sprint not exercising rights under this Section 2), such reduction shall be
made: (w) first, from such securities held by Persons who are not Selling
Stockholders other than FT or DT; (x) second, from securities proposed to be
registered pursuant to FT/DT Incidental Registration Rights (together with
securities being offered for the account of Sprint); (y) third, from the number
of Registrable Securities requested to be included in such offering by Selling
Stockholders pursuant to their Incidental Registration Rights, on a pro rata
basis, based on the number of Registrable Securities requested to be included in
the registration by Selling Stockholders pursuant to Incidental Registration
Rights; and (z) last, from the number of Registrable Securities requested to be
included in such offering by the applicable Initiating Holders on a pro rata
basis, based on the number of Registrable Securities requested to be included in
the registration by Initiating Holders. The Initiating Holders shall not be
obligated to proceed with any Demand Registration if less than 75% of the
Registrable Securities requested to be registered by each of the Initiating
Holders are included in such registration. If the Initiating Holders so elect
not to proceed, no Initiating Holder shall be deemed to have requested a Demand
Registration in respect thereof, and the Initiating Holders shall pay all
related out-of-pocket Registration Expenses reasonably incurred by the Company
unless a registration statement shall be effected pursuant to Section 2(a)(i)
within 180 days after such withdrawal.
(d) Delay of Filing or Sales.
------------------------
(i) The Company shall have the right, exercisable by giving notice of
the exercise of such right to the Designated Representatives of the Stockholder
Groups of which the applicable Selling Stockholders are members, subject to the
proviso below at any time and from time to time, to delay filing or the
declaration of effectiveness of a registration statement or to require such
Selling Stockbrokers not to sell any Registrable Securities pursuant to an
10
<PAGE>
effective registration statement for not in excess of 90 days beginning on the
date on which such notice is given, or such shorter period of time as may be
specified in such notice or in a subsequent notice delivered by the Company to
such effect prior to or during the effectiveness of the registration statement,
if (a) the Company is engaged in or proposes to engage in discussions or
negotiations with respect to, or has proposed or taken a substantial step to
commence, or there otherwise is 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 the Company, in any such case
which is material to the Company (any such negotiation, step, event or state of
facts being herein called a "Material Activity"), (b) such Material Activity
would, in the reasonable opinion of counsel for the Company, require disclosure
so as to permit the Registrable Securities to be sold in compliance with law,
and (c) such disclosure would, in the reasonable judgment of the Company, be
adverse to its interests; provided, that the Company may not delay the filing of
a registration statement or the sale of any Registrable Securities whether
pursuant to one or more notices as set forth above for more than an aggregate of
90 days within any 12-month period.
(ii) The Company shall have no obligation to include in any notice
contemplated by paragraph (i) above any reference to or description of the facts
based upon which the Company is delivering such notice.
(iii) If Sprint shall postpone its obligations under this
Agreement by reason of a Material Activity as described above, any Initiating
Holder or other Selling Stockholder shall have the right to withdraw its request
for such Demand Registration or Incidental Registration, respectively, by giving
notice to Sprint at any time following said notice by Sprint and in the case of
an Initiating Holder such request will be deemed not to have been made for
purposes of determining the number of Demand Registrations which have been
utilized by such Initiating Holder. No Stockholder Group shall make a demand
for registration during the period of any such postponement until the Company
notifies all Designated Representatives of the end of such Material Activity or
the expiration of the 90 day period described above.
(e) Withdrawal. A Demand Registration shall not be deemed to have
----------
been effected for purposes of this Agreement (including the limitations on the
number of Demand Registrations of each Cable Stockholder set forth in Section
2(a) above) until the applicable Registration Statement shall have been declared
effective under the Securities Act by the Commission (and is not then subject to
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason) for the period specified in
Section 2(f). Each Selling Stockholder may, no less than five (5) Business Days
before any Registration Statement becomes effective, withdraw its Registrable
Securities from inclusion therein; provided, that if such withdrawals result in
the Minimum Condition not being satisfied, then the remaining Initiating Holders
may nonetheless require Sprint to continue such Demand Registration if such
remaining Initiating Holders (or Persons exercising incidental registration
rights) either agree to include additional securities in such registration such
that the Minimum Condition would be satisfied or agree to bear the Registration
Expenses incurred by Sprint in
11
<PAGE>
connection with such Demand Registration. If (i) the Registration Statement does
not remain effective under the Securities Act for the period specified in the
first sentence of this paragraph (e) due to a stop order, injunction or other
order of the Commission or other governmental agency, (ii) each of the
Initiating Holders 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 ten (10) days during such period, then the
Initiating Holders may elect to withdraw such Registration Statement by prompt
written notice to the Company; and in such an event, such registration shall not
be deemed to have been a Demand Registration by any Initiating Holder for
purposes of the limitations on the number of Demand Registrations hereunder
contained in Section 2(a), and the Company shall bear the Registration Expenses
incurred in connection with such registration.
(f) Effectiveness of Registration Statement. In connection with any
---------------------------------------
Demand Registration pursuant to this Section 2, subject to Section 2(d), Sprint
will use its best efforts to prepare and file with the Commission any amendments
and supplements to the Registration Statement and the Prospectus used in
connection therewith, and to take any other actions, as may be necessary to keep
the Registration Statement and the Prospectus effective, current and in
compliance with the provisions of the Securities Act, until the sooner to occur
of (i) the sale of all of the Registrable Securities covered by such
Registration Statement in accordance with the intended methods of distribution
thereof or (ii) the 90th day following the effective date of such Registration
Statement.
3. Incidental Registration.
-----------------------
(a) Notice of Incidental Registration. If at any time following the
---------------------------------
Registration Rights Commencement Date, Sprint proposes to register under the
Securities Act any shares of the same class as the Registrable Securities (for
purposes of this Agreement shares of Series 1 PCS Stock, Series 2 PCS Stock and
Series 3 PCS Stock shall be 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 Selling Stockholders
registering Registrable Shares in a Demand Registration pursuant to Section 2)
(other than a registration statement on Form S-4 (or any other registration
statement registering shares issued in a merger, consolidation, acquisition or
similar transaction) or Form S-8 or any successor or comparable forms, or a
registration statement filed in connection with an exchange offer or any
offering of securities solely to the Company's existing stockholders or
otherwise pursuant to a dividend reinvestment plan, stock purchase plan or other
employee benefit plan), in a manner which would permit the registration under
the Securities Act of Registrable Securities for sale to the public, Sprint
shall give written notice to the Designated Representative of each Stockholder
Group any of whose members hold Registrable Securities of such same class or
series of its intention to do so not later than ten (10) days prior to the
anticipated filing date of the applicable Registration Statement. If the
proposed registration is a Demand Registration, Sprint shall give the notice
described in the preceding sentence but, as to any of the Stockholders, only to
the Designated Representative of those Stockholder Groups that did not
previously elect to become Initiating
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<PAGE>
Holders pursuant to Section 2 with respect to such Demand Registration. Upon
receipt of any such notice by its respective Designated Representative each
Stockholder shall have the right (an "Incidental Registration Right") to
participate in such registration on the same basis as the planned method of
distribution contemplated by the proposed registration by giving Sprint a
written request to register any or all of such Stockholder's Registrable
Securities of such same class or series in connection with the registration
described in such written notice from Sprint within five (5) days after such
notice has been given by Sprint (with such request stating (i) the amount of
Registrable Securities to be included in such registration by such Stockholder
and (ii) any other information that Sprint reasonably requests be included in
such registration statement) (such registration, an "Incidental Registration").
Upon receipt of such request, Sprint will, subject to the provisions of Section
3(b) below, use its commercially reasonable efforts to cause all such
Registrable Securities of such same class or series requested to be included in
such Incidental Registration to be so included.
(b) Limitation on Inclusion of Registrable Securities; Priorities. If
-------------------------------------------------------------
the proposed method of distribution in connection with such an Incidental
Registration is an underwritten public offering and the lead or co-lead managing
underwriters thereof determines in good faith that the number of such
Registrable Securities to be included in such offering would adversely affect
such offering (including an adverse effect on the price at which the securities
proposed to be registered may be sold), the number of Registrable Securities to
be offered for the account of the Selling Stockholders may, subject to Section
2(c) be reduced or limited in proportion to the number of Registrable Securities
to be so offered by such Selling Stockholders to the extent necessary to reduce
the total number of shares to be included in such offering to the amount
recommended by such managing underwriter as follows:
(i) in connection with an offering initiated by Sprint, all of
the proceeds of which will be allocated to the PCS Group, if
securities are being offered for the account of other Persons
(including FT and/or DT and the Stockholders) 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 number of securities requested to
be included in such offering by the applicable Stockholders and
(B) the number of FT/DT Registrable Securities requested to be
included in such offering by FT and/or DT pursuant to the FT/DT
Incidental Registration Rights on a pro rata basis, based on the
number of Registrable Securities and FT/DT Registrable Securities
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
13
<PAGE>
shall be made from the securities of the Selling Stockholders
until the end of the period (the "CP Preference Period")
beginning on the Registration Rights Commencement Date and ending
on the earlier of (i) the date upon which the Stockholders have
sold Registrable Securities with an aggregate offering price for
such Registrable Securities of $2,000,000,000 or (ii) the date
which is 12 months after the Registration Rights Commencement
Date;
(ii) in connection with an offering initiated by any Person(s)
other than Sprint or a Stockholder 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 by Persons (other than those described
in clauses (ii)(x), (ii)(y) and (ii)(z) below) pursuant to
incidental registration rights of such Persons or otherwise;
(x) second, (A) during the period (the "CP Secondary
Preference Period") ending on the earlier of fourth anniversary
of the Registration Rights Commencement Date or the date upon
which the Stockholders have sold Registrable Securities with an
aggregate offering price for such Registrable Securities of
$3,000,000,000, from the number of securities to be included in
such offering for the account of Sprint the proceeds of which
will not be allocated to the PCS Group and (B) during the CP
Preference 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, (B) the number of FT/DT Registrable Securities
requested to be included in such offering by FT and/or DT
pursuant to the FT/DT Incidental Registration Rights and (C) (1),
following the CP Preference 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 CP Secondary Preference 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, FT/DT Registrable Securities 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
14
<PAGE>
(z) last, from securities being offered by the Third Party
Demand Holders; and
(iii) during the CP Secondary Preference 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 by such Persons
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 CP
Preference 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 FT/DT Registrable Securities
requested to be included in such offering by FT and/or DT
pursuant to the FT/DT Incidental Registration Rights, on a pro
rata basis, based on the number of Registrable Securities and
FT/DT Registrable Securities which are requested to be included
in the registration; and
(z) last, following the CP Preference 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 CP Secondary Preference 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.
(c) Delay or Withdrawal of Registration. Sprint may, without the
-----------------------------------
consent of any Stockholder, delay, suspend, abandon or withdraw any
proposed registration in which any Stockholder has requested inclusion of
such Stockholder's Registrable Securities pursuant to this Section 3;
provided, that one or more applicable Selling Stockholders shall be
entitled to continue such registration as a Demand Registration pursuant to
Section 2 following any such withdrawal by Sprint to the extent that such
registration by the Selling
15
<PAGE>
Stockholders making such election would otherwise satisfy the requirements
of Section 2.
(d) Withdrawal by Selling Stockholder. Any Selling Stockholder may
---------------------------------
elect to withdraw its respective Registrable Securities from inclusion in an
Incidental Registration at any time prior to five (5) Business Days prior to the
then anticipated effective date of the applicable Registration Statement. No
such withdrawal shall relieve any withdrawing Selling Stockholder of its
obligation to pay expenses under Section 5.
(e) 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 Selling Stockholder electing to participate in such Incidental
Registration shall, as a condition to Sprint's obligation hereunder with respect
to such Selling Stockholder's Registrable Securities, enter into and perform its
obligations under an underwriting agreement or other similar arrangement in
customary form with the managing underwriter of such offering.
4. Obligations with Respect to Registration.
----------------------------------------
(a) Obligations of Sprint. Whenever Sprint is obligated by the
---------------------
provisions of this Agreement to effect the registration of any Registrable
Securities under the Securities Act, Sprint shall:
(i) Subject to the provisions of Section 4(b), use its
commercially reasonable efforts to cause the applicable Registration
Statement to become effective as promptly as practicable, and to prepare
and file with the Commission any amendments and supplements to the
Registration Statement and to the Prospectus used in connection therewith
as may be necessary to keep the Registration Statement and the Prospectus
effective, current and in compliance with the provisions of the Securities
Act, during the periods when Sprint is required by this Agreement to keep
the Registration Statement effective and current.
(ii) Within a reasonable time not to exceed ten (10) Business
Days prior to filing a Registration Statement or Prospectus or any
amendment or supplement thereto (other than any amendment or supplement in
the form of a filing which the Company makes pursuant to the Exchange Act),
furnish to the Designated Representative of each Selling Stockholder and
each underwriter, if any, of the Registrable Securities covered by such
Registration Statement copies of such Registration Statement or Prospectus
as proposed to be filed, which documents will be subject to the reasonable
review and comments of the Designated Representative of such Selling
Stockholders (and their respective counsel) during such period, and Sprint
will not file any Registration
16
<PAGE>
Statement or any Prospectus or any amendment or supplement thereto
containing any statements with respect to such Selling Stockholders or the
distribution of the Registrable Securities to be including in such
Registration Statement for sale by such Selling Stockholders (or any
Derivative Securities to be issued in connection therewith) if the
Designated Representative of a Selling Stockholder shall reasonably object
in writing. Thereafter, Sprint will furnish to the Designated
Representative of such Selling Stockholder and each underwriter, if any,
such number of copies of such Registration Statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the
Prospectus included in such Registration Statement (including each
preliminary Prospectus), and such other documents as the Designated
Representative of such Selling Stockholder or underwriter may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such Selling Stockholder.
(iii) After the filing of the Registration Statement, promptly
notify each Selling Stockholder of Registrable Securities covered by such
Registration Statement (by notice to the Designated Representative of the
Stockholder Group of which such Selling Stockholder is a member) of the
effectiveness thereof and of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered and promptly notify such Selling
Stockholder of such lifting or withdrawal of such order.
(iv) Immediately notify each Selling Stockholder holding
Registrable Securities covered by the applicable Registration Statement (by
notice to the Designated Representative of the Stockholder Group of which
such Selling Stockholder is a member) at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act, of
(i) the determination that a Material Activity exists or (ii) the
occurrence of an event requiring the preparation of a supplement or
amendment to such Prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading and
promptly make available to the Designated Representative of each such
Selling Stockholder any such supplement or amendment, and subject to the
provisions of this Agreement regarding the existence of a Material
Activity, Sprint will promptly prepare and furnish to each such Selling
Stockholder a supplement to or an amendment of such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading.
(v) Enter into customary agreements (including an underwriting
agreement in customary form including customary indemnification provisions)
and perform its obligations under any such agreement(s) and shall take such
other actions as
17
<PAGE>
are reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities.
(vi) Make available for inspection by any Selling Stockholder
covered by such Registration Statement, any underwriter selected by a
Selling Stockholder pursuant to Section 2(c) participating in any
disposition pursuant to such Registration Statement and any attorney,
accountant or other professional retained by any such Selling Stockholder
or underwriter, all financial and other records, pertinent corporate
documents and properties of Sprint as shall be reasonably necessary to
enable them to exercise their due diligence responsibility in connection
therewith, and cause Sprint's officers, directors and employees to supply
all information reasonably requested by any of such persons in connection
with such Registration Statement. Information which Sprint determines, in
good faith, to be confidential and notifies such Persons is confidential
shall not be disclosed by such Persons unless (i) the release of such
information is ordered pursuant to a subpoena or other order from a court,
or other governmental agency or tribunal, of competent jurisdiction or (ii)
such information becomes public other than through a breach by such persons
of the confidentiality obligations of such Persons. Each such Selling
Stockholder agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any transactions in the securities of Sprint or for any other
purpose unless and until such information is made generally available to
the public.
(vii) Except with respect to a Demand Registration pursuant to
the first sentence of Section 2(a)(iii) to be effected solely for the
delivery of Registrable Securities to holders of Derivative Securities upon
settlement of a Derivative Security (as opposed to the sale of Registrable
Securities the proceeds of which are used to settle a Derivative Security),
provide, in the case of an underwritten public offering of Registrable
Securities (including upon issuance of a Derivative Security), regardless
of whether Registrable Securities are included therein pursuant to a
request for a Demand Registration or an Incidental Registration, for
participation by officers and employees of Sprint (including the management
of any subsidiaries, departments or divisions of Sprint whose businesses
comprise the PCS Group) in customary "road show" presentations as
reasonably requested by one or more of the proposed managing underwriters
for any such public offering.
(viii) Furnish, in the case of an underwritten public offering,
to the Designated Representative of each Selling Stockholder and to each
underwriter a signed counterpart of (A) an opinion or opinions of in-house
counsel or outside counsel to Sprint addressed to such Selling Stockholder
and underwriters (on which opinion both such Selling Stockholder and each
such underwriter shall be entitled to rely) and (B) a comfort letter or
comfort letters from Sprint's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the holders of a
majority of the Registrable Securities
18
<PAGE>
included in such Registration Statement or the managing underwriter
therefor reasonably requests.
(ix) Register or qualify the Registrable Securities covered by a
Registration Statement under the securities or blue sky laws of such United
States jurisdictions as the Designated Representatives shall reasonably
request, and do any and all other acts and things which may be necessary to
enable each Selling Stockholder to consummate the disposition in such
jurisdictions of such Registrable Securities in accordance with the method
of distribution described in such Registration Statement; provided, that
Sprint shall in no event be required (A) to qualify to do business as a
foreign corporation in any jurisdiction where it is not otherwise required
to be so qualified, (B) to conform its capitalization or the composition of
its assets at the time to the securities or blue sky laws of such
jurisdiction, (C) to execute or file any general consent to service of
process under the laws of any jurisdiction or (D) to subject itself to
taxation in any jurisdiction where it has not theretofore done so.
(x) Use its commercially reasonable efforts to cause such
Registrable Securities covered by a Registration Statement to be listed on
the principal exchange or exchanges or qualified for trading on the
principal over the counter market on which securities of the same class and
series as the Registrable Securities (or into which such Registrable
Securities will be or have been converted) are then listed or traded upon
the sale of such Registrable Securities pursuant to such Registration
Statement.
(xi) Make and keep information publicly available relating to
Sprint so as to satisfy the requirements of Rule 144 under the Securities
Act (or any successor or corresponding rule) and file with the Commission
all reports and other documents required of Sprint under the Securities Act
and the Exchange Act in a timely manner.
(xii) Make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act (provided that Sprint shall not be deemed in violation of this
paragraph so long as it files customary quarterly reports with the
Commission for such period), and not file any amendment or supplement to
such Registration Statement or Prospectus to which any of the Designated
Representatives of the Selling Stockholders shall have reasonably objected
on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act.
(b) Selling Stockholders' Obligations. Sprint's obligations under
---------------------------------
this Agreement to a Selling Stockholder shall be conditioned upon such Selling
Stockholder's compliance with the following:
19
<PAGE>
(i) Such Selling Stockholder shall cooperate with Sprint in
connection with the preparation of the Registration Statement, and for so
long as Sprint is obligated to keep the Registration Statement effective,
such Selling Stockholder will provide to Sprint, in writing, for use in the
Registration Statement, all information regarding such Selling Stockholder,
its intended method of disposition of the applicable Registrable
Securities, and such other information as Sprint may reasonably request to
prepare the Registration Statement and Prospectus covering the Registrable
Securities and to maintain the currency and effectiveness thereof.
(ii) Such Selling Stockholder agrees that, upon receipt of any
notice from its Designated Representative delivered by Sprint of the
happening of any event of the kind described in Section 4(a)(iv), such
Selling Stockholder will forthwith discontinue its offering and sale of
Registrable Securities pursuant to the applicable Registration Statement
until such Selling Stockholder's receipt of either (A) notice from Sprint
that a Material Activity no longer exists (but for no longer than the end
of the ninety (90) day period described in Section 2(d)) or (B) the copies
of the supplemented or amended Prospectus contemplated by Section 4(a)(iv),
and, in either case, if so directed by Sprint, such Stockholder will
deliver to Sprint all copies in its possession of the most recent
Prospectus covering such Registrable Securities at the time of receipt of
such notice.
(c) Mutual Obligation of Sprint and Selling Stockholders. Sprint and
----------------------------------------------------
each Selling Stockholder agree to cooperate to effect the conversion of all
shares of Series 2 PCS Stock to be sold by such Selling Stockholder pursuant to
any Registration Statement filed pursuant to this Agreement into shares of
Series 1 PCS Stock upon the closing of such sale (or any other securities of the
Company into which any Registrable Securities may become convertible as a result
of such sale). Such cooperation shall include, but not be limited to, the
endorsement and exchange of any certificates representing Series 2 PCS Stock for
certificates representing a like amount of Series 1 PCS Stock.
(d) Underwriting Agreement. Neither Sprint nor any other Person may
----------------------
participate in any underwritten public offering in connection with a Demand
Registration or an Incidental Registration unless such Person (i) agrees to sell
its securities on the basis provided in any underwriting arrangements approved
by the Person or Persons selecting the lead managing underwriter(s) for such
offering and (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and this Agreement.
20
<PAGE>
(e) Holdbacks.
---------
(i) If Sprint shall file a Registration Statement pursuant to Section
2 or covered by Section 3 in connection with an underwritten public offering by
a Selling Stockholder of Derivative Securities or Registrable Securities and the
lead managing underwriter or underwriters advise Sprint in writing (in which
case Sprint shall promptly notify the Stockholders) that a public sale or
distribution (including a sale pursuant to Rule 144 under the Securities Act) of
Registrable Securities other than pursuant to the underwritten public offering
contemplated by such Registration Statement would materially adversely impact
such underwritten public offering, then each Stockholder agrees to the extent
not inconsistent with applicable law, to 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 such Registration Statement 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; provided, that the limitation set forth in this paragraph (e)(i) shall 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 Stockholders.
(ii) Sprint agrees (A) not to 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 the
Amended FT/DT Agreement and any agreement entered into after May 26, 1998
pursuant to which Sprint agrees to register or to permit the participation in
the registration of any securities of Sprint shall contain a provision under
which holders of any such securities 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 the
limitation set forth in this paragraph (e)(ii) shall not apply to: (w)
registrations on Form S-4 or any other registration of shares issued in a
merger, consolidation, acquisition or similar transaction or on Form S-8, or any
successor or comparable forms or a registration statement filed in connection
with an exchange offer of securities of the Company made solely to the Company's
existing stockholders or otherwise pursuant to a dividend reinvestment plan,
21
<PAGE>
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 Selling Stockholders deliver the applicable request for registration to
Sprint pursuant to Section 2 or Section 3; and (z) any employee benefit plan (if
necessary to allow such plan to fulfill its funding obligations in the ordinary
course).
5. Expenses of Registration.
------------------------
(a) Registration Expenses. Except as provided in paragraphs (b) and
---------------------
(c) below, all Registration Expenses incurred in connection with any Demand
Registration or Incidental Registration and the distribution of any Registrable
Securities in connection therewith shall be borne by Sprint. For purposes of
this Agreement, the term "Registration Expenses" shall mean all (i)
registration, qualification and filing fees, (ii) fees and expenses of
compliance with securities or blue sky laws, (iii) printing expenses (or
comparable duplication expenses), delivery charges and escrow fees, (iv) fees
and disbursements of counsel for Sprint, (v) customary fees and expenses for
independent certified public accountants retained by Sprint (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort
letters), (vi) fees and expenses of any special experts retained by Sprint in
connection with such registration and (vii) fees and expenses of listing the
Registrable Securities on a securities exchange or over the counter market.
(b) Selling Stockholder Expenses. Each Selling Stockholder shall pay
----------------------------
all stock transfer fees or expenses (including the cost of all transfer tax
stamps), if any, all underwriting or brokerage discounts and commissions and all
fees and disbursements of counsel for such Selling Stockholder attributable to
the distribution of the Registrable Securities of such Selling Stockholder
included in such registration.
(c) Internal Expenses of Sprint. Notwithstanding any other provision
---------------------------
of this Agreement, Sprint shall be obligated to bear all internal expenses of
Sprint in connection with any Demand Registration or Incidental Registration
(including, without limitation, all salaries and expenses of its officers and
employees performing accounting and legal functions and related expenses).
6. Indemnification.
---------------
(a) By Sprint. Sprint agrees to indemnify and hold harmless each
---------
Stockholder Indemnified Party from and against any Losses, joint or several, to
which such Stockholder Indemnified Party may become subject under the Securities
Act, the Exchange Act, state securities or blue sky laws, common law or
otherwise, insofar as such Losses (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact contained in the applicable Registration Statement or Prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or
22
<PAGE>
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and Sprint will reimburse each such
Stockholder Indemnified Party for any reasonable fees and expenses of outside
legal counsel for such Stockholder Indemnified Parties, or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such claims; provided, that Sprint will not indemnify or hold
harmless any Stockholder Indemnified Party from or against any such Losses
(including any related expenses) to the extent such Losses (including any
related expenses) result from an untrue statement, omission or allegation
thereof which were (x) made in reliance upon and in conformity with written
information provided by or on behalf of the applicable Selling Stockholder
specifically for use or inclusion in the applicable Registration Statement or
Prospectus or (y) made in any Prospectus used after such time as Sprint advised
such Selling Stockholder that the filing of a post-effective amendment or
supplement thereto was required, except that this proviso shall not apply if the
untrue statement, omission or allegation thereof is contained in the Prospectus
as so amended or supplemented. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Stockholders
Indemnified Parties and shall survive the transfer of such securities by the
Selling Stockholders.
(b) By Selling Stockholders. Each Selling Stockholder, individually
-----------------------
and not jointly, agrees to indemnify and hold harmless each Company Indemnified
Party and each other Stockholder Indemnified Party from and against any Losses,
joint or several, to which such Company Indemnified Party or any other
Stockholder Indemnified Party may become subject, insofar as such Losses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the applicable
Registration Statement or the Prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, if the statement or omission was made in reliance upon and
in conformity with written information provided by or on behalf of such Selling
Stockholder or any person who controls such Selling Stockholder specifically for
use or inclusion in the applicable Registration Statement or Prospectus;
provided, that such Selling Stockholder will not indemnify or hold harmless any
Company Indemnified Party or other Stockholder Indemnified Party from or against
any such Losses (including any related expenses) (i) to the extent the untrue
statement, omission or allegation thereof upon which such Losses (including any
related expenses) are based was made in any Prospectus used after such time as
such Selling Stockholder advised Sprint that the filing of a post-effective
amendment or supplement thereto was required, except the Prospectus as so
amended or supplemented, or (ii) in an amount that exceeds the net proceeds
received by such Selling Stockholder from the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation by or on behalf of the Company
Indemnified Parties or the Stockholder Indemnified Parties, and shall survive
the transfer of such securities by the Selling Stockholder.
(c) Derivative Securities. In connection with the offering of any
---------------------
Derivative Securities:
23
<PAGE>
(i) In addition to any obligations that it may have with respect to
the applicable Registration Statement and Prospectus under (a) and (b)
above, Sprint agrees to indemnify and hold harmless each Stockholder
Indemnified Party from and against any Losses, joint or several, to which
such Stockholder Indemnified Party may become subject under the Securities
Act, the Exchange Act, state securities or blue sky laws, common law or
otherwise, insofar as such Losses (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the applicable registration statement or
prospectus for registering and offering such Derivative Securities, or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, but only to
the extent such Losses (including any related expenses) result from an
untrue statement, omission or allegation thereof which were made in
reliance upon and in conformity with written information provided by or on
behalf of Sprint specifically for use or inclusion in the applicable
registration statement or prospectus.
(ii) In addition to any obligations that it may have with respect to
the applicable Registration Statement and Prospectus under (a) and (b)
above, the applicable Selling Stockholder agrees to indemnify and hold
harmless each Company Indemnified Party from and against any Losses, joint
or several, to which such Company Indemnified Party may become subject
under the Securities Act, the Exchange Act, state securities or blue sky
laws, common law or otherwise, insofar as such Losses (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the applicable
registration statement or prospectus for registering and offering such
Derivative Securities, or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and such Selling Stockholder will reimburse each such
Company Indemnified Party for any reasonable fees and expenses of outside
legal counsel for such Company Indemnified Parties, or other expenses
reasonably incurred by them, as incurred, in connection with investigating
or defending any such claims; provided, that such Selling Stockholder will
not indemnify or hold harmless any Company Indemnified Party from or
against any such Losses (including any related expenses) to the extent such
Losses (including any related expenses) result from an untrue statement,
omission or allegation thereof which were made in reliance upon and in
conformity with written information provided by or on behalf of any Company
Indemnified Party specifically for use or inclusion in the applicable
registration statement or prospectus.
(iii) Any indemnity under this Section 6(c) shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Parties.
(d) Procedures. Each Indemnified Party shall give notice to each
----------
Indemnifying Party promptly after such Indemnified Party has actual knowledge of
any claim as
24
<PAGE>
to which indemnity may be sought, and the Indemnifying Party may participate at
its own expense in the defense, or if it so elects, assume the defense of any
such claim and any action or proceeding resulting therefrom, including the
employment of counsel and the payment of all expenses. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party from its obligations to indemnify such Indemnified Party,
except to the extent the Indemnified Party's failure to so notify actually
prejudices the Indemnifying Party's ability to defend against such claim, action
or proceeding. In the event that the Indemnifying Party elects to assume the
defense in any action or proceeding, an Indemnified Party shall have the right
to employ separate counsel in any such action or proceeding and to participate
in the defense thereof, but such Indemnified Party shall pay the fees and
expenses of such separate counsel unless (i) the Indemnifying Party has agreed
to pay such fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include such Indemnified Party and
the Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there is or would be a conflict of interest between such
Indemnified Party and the Indemnifying Party in the conduct of the defense of
such action (in which case, if such Indemnified Party notifies the Indemnifying
Party in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not assume the defense of such
action or proceeding on such Indemnified Party's behalf, it being understood,
however, that the Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all Indemnified Parties, which firm shall be designated in writing
by the applicable Indemnified Parties; provided, however, that the Indemnifying
Party shall be liable for up to two separate firms of attorneys for the
Indemnified Parties as are required if, as to any Indemnified Party, such
Indemnified Party shall have been advised by counsel that there is or would be a
conflict of interest between such Indemnified Party and any other Indemnified
Party in the conduct of the defense of such action). No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
the Indemnified Party, (which consent will not be unreasonably withheld) consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(e) Contribution. If the indemnification provided for under this
------------
Section 6 is unavailable to or insufficient to hold the Indemnified Party
harmless under subparagraphs (a), (b) or (c) above in respect of any Losses
referred to therein for any reason other than as specified therein, then the
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other, in connection with the
statements or omissions which resulted in such Losses. The relative fault of
each Indemnifying Party or Indemnified Party, as the case may be, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by
25
<PAGE>
(or which was failed to be supplied by) such Indemnifying Party or Indemnified
Party, such party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. If contribution
based upon the relative fault of the Indemnifying Party, on the one hand, and
the Indemnified Party, on the other hand, is not available, then the
Indemnifying Party shall contribute to the amount paid or payable by Indemnified
Party as a result of Losses in such proportion as is appropriate to reflect the
relative benefits received by the Indemnifying Party, on the one hand, and such
Indemnified Party, on the other, from the subject offering or distribution. The
relative benefits received by the Indemnifying Party, on the one hand, and the
Indemnified Party, on the other, shall be deemed to be in the same proportion as
the net proceeds of the offering or other distribution received by the
Indemnifying Party bears to the net proceeds of the offering or other
distribution received by the Indemnified Party. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) Derivative Security Offerings. In the case of any registration of
-----------------------------
Registrable Securities in connection with the issuance of Derivative Securities,
it shall be a condition to Sprint's obligation to proceed under this Agreement
that the appropriate Stockholder shall provide, in a manner reasonably
satisfactory to Sprint, indemnification, contribution and other rights in favor
of Sprint, each director and officer of Sprint and each other Person, if any,
who controls Sprint within the meaning of either of the Securities Act or the
Exchange Act with respect to the Derivative Securities issued by the applicable
Stockholder and the registration thereof, in the same manner and to the same
extent as those rights provided to the Selling Stockholders in the case of
registrations of other Registrable Securities hereunder.
7. Limitation on Other Registration Rights. Notwithstanding any other
---------------------------------------
provision of this Agreement, without the unanimous prior written consent of the
Stockholders, evidenced by the consent of each Designated Representative, 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 to Stockholders herein.
8. Miscellaneous.
-------------
(a) Notices. All notice, requests, demands, waivers and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if
26
<PAGE>
delivered personally, mailed, certified or registered mail with postage prepaid,
or sent by reliable overnight courier, or facsimile transmission, as follows:
(i) if to Sprint:
Sprint Corporation
2330 Shawnee Mission Parkway, East Wing
Westwood, Kansas 66205
Attention: General Counsel
Facsimile: (913) 624-8426
with a copy to :
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Bruce N. Hawthorne
Facsimile: (404) 572-5146
(ii) if to the Stockholders:
(A) TCI Telephony Services, Inc.
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Stephen M. Brett
Facsimile: (303) 488-3245
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Attention: John L. Graham
Facsimile: (212) 705-5125
(B) Comcast Corporation
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Attention: General Counsel
Facsimile: (215) 981-7794
27
<PAGE>
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch
Facsimile: (212) 450-4800
(C) Cox Communications, Inc.
1400 Lake Hearn Drive, NE
Atlanta, Georgia 30319
Attention: Dallas Clement
Facsimile: (404) 847-6336
with a copy to :
Dow Lohnes & Albertson, PLLC
1200 New Hampshire Ave., N.W.
Suite 800
Washington, D.C. 20036
Attention: David D. Wild
Facsimile: (202) 776-2222
or to such other person or address as any party shall specify by notice in
writing to the other party. All notices and other communications given to a
party in accordance with the provisions of this Agreement shall be deemed to
have been given (i) three (3) Business Days after the same are sent by certified
or registered mail, postage prepaid, return receipt requested, (ii) upon receipt
when delivered by hand or transmitted by facsimile (confirmation received) or
(iii) one (1) Business Day after the same are sent by a reliable overnight
courier service, with acknowledgment of receipt requested. Notwithstanding the
preceding sentence, notice of change of address shall be effective only upon
actual receipt thereof.
(b) Actions by Members of a Stockholder Group. All actions and
-----------------------------------------
determinations by, and all notices by or to, a Stockholder Group or any member
thereof shall be deemed validly taken or made (in the case of actions or
determinations) or given (in the case of notices), if taken, made or given, as
the case may be, by or to the Designated Representative of its Stockholder
Group, which shall initially be (i) TCI (in the case of the TCI Stockholder
Group), (ii) Cox (in the case of the Cox Stockholder Group) and (iii) Comcast
(in the case of the Comcast Stockholder Group), and such actions, determinations
and notices shall be binding upon all members of any such Stockholder Group for
all purposes of this Agreement. Any notice to a Stockholder shall be deemed
given if provided to the Designated Representative for such Stockholder and
after the giving of such notice to the applicable Designated Representative,
Sprint shall have no further duty to give such notice to such Stockholder. Upon
receipt of any
28
<PAGE>
such notice, the Designated Representative shall promptly forward such notice to
all members of its Stockholder Group who would have the right to receive such
notice. If any of TCI, Cox or Comcast (or any successor thereto pursuant to this
sentence) is no longer in existence or no longer beneficially owns any
Registrable Securities, but its Stockholder Group (or a successor or permitted
assign thereof) continues to have rights and/or obligations hereunder, then such
Stockholder shall appoint one such continuing entity as its replacement as
Designated Representative of its Stockholder Group; provided, that if no such
appointment is made, then Sprint may reasonably select such replacement. At such
time as no Affiliates of any of TCI, Cox or Comcast beneficially own any
Registrable Securities, but assignees of Registrable Securities originally owned
by such Cable Stockholder's Stockholder Group continue to have rights and/or
obligations hereunder, then such assignee Stockholder may designate itself or
one of its Affiliates as a Designated Representative by written notice to Sprint
and each of the other Stockholders. Each member of another Stockholder Group may
rely upon the notification or advice of a Designated Representative with respect
to any matter relating to the members of such Designated Representative's
Stockholder Group. To the extent any party to this Agreement is required to take
any action hereunder, it agrees to use its reasonable best efforts to cause the
other members of its Stockholder Group to take such action.
(c) Amendment. Any provision of this Agreement may be amended or
---------
modified in whole or in part at any time by an agreement in writing among Sprint
and the Designated Representatives of each of the parties hereto, executed in
the same manner as this Agreement. No consent, waiver or similar act shall be
effective unless in writing.
(d) Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties hereto and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(f) Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the internal laws of the State of New York,
without giving effect to principles of conflicts of laws.
(g) Assignment. Provided the terms of this Section 8(g) are followed,
----------
any holder of Registrable Securities may transfer any of its rights hereunder,
without the consent of Sprint, to any Person to whom such holder transfers any
Registrable Securities, whether such transfer is by sale, gift, assignment,
pledge or otherwise; provided, that 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
29
<PAGE>
as of the date of such transfer. The nature and extent of any rights assigned,
including the number of Demand Registration rights assigned to the applicable
assignee, shall be as agreed to between the assigning party and the assignee;
provided, that 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. No Person may be assigned any of the foregoing rights unless
the Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee, identifying the
securities of the Company 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. Any assignee hereunder shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including, without
limitation, the provisions of this Section 8(g). Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
(h) Binding Agreement; No Third Party Beneficiaries. This Agreement
-----------------------------------------------
will be binding upon and inure to the benefit of the parties hereto and their
successors and permitted assigns. Except as set forth herein and by operation
of law, no party to this Agreement may assign or delegate all or any portion of
its rights, obligations or liabilities under this Agreement without the prior
written consent of each other party to this Agreement.
(i) Termination. The Incidental Registration Rights of each
-----------
Stockholder hereunder shall terminate when all Demand Registrations of all
Stockholder Groups in the aggregate have been effected.
[Signature page follows.]
30
<PAGE>
IN WITNESS WHEREOF, Sprint and each of the required Designated
Representatives of the other parties hereto have executed this Agreement as of
the date first above written.
SPRINT CORPORATION
By: /s/ Don A. Jensen
---------------------------------------
Name: Don A. Jensen
Title: Vice President and Secretary
TCI TELEPHONY SERVICES, INC.
By: /s/ Gary S. Howard
---------------------------------------
Name: Gary S. Howard
Title: President
COX COMMUNICATIONS, INC.
By: /s/ David M. Woodrow
---------------------------------------
Name: David M. Woodrow
Title: Senior Vice President,
New Business Development
COMCAST CORPORATION
By: /s/ Arthur R. Block
---------------------------------------
Name: Arthur R. Block
Title: Vice President
31
<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 Amendment
No. 1 to this Registration Statement (Form S-3 No. 333-64241) and related
Prospectus of Sprint Corporation, 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 No. 333-65173) and
in Sprint's Current Report (Form 8-K) dated November 2, 1998, 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, all filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
January 20, 1999
<PAGE>
EXHIBIT 23.1.2
INDEPENDENT AUDITORS' CONSENTS
We consent to the use in Amendment No. 1 to Registration Statement No. 333-
64241 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 this Registration Statement and in Form 8-K
dated November 2, 1998, and Registration Statement No. 333-65173 which are
incorporated by reference in this Registration Statement, and of our report
dated May 26, 1998 (August 6, 1998 as to Note 4) relating to the combined
financial statement schedule appearing elsewhere in this Registration
Statement and Registration Statement No. 333-65173 which is incorporated by
reference in this Registration Statement. We also consent to the reference to
us under the heading "Experts" in this Prospectus, which is part of this
Registration Statement.
We consent to the use in Amendment No. 1 to Registration Statement No. 333-
64241 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, Form 8-K
dated November 2, 1998 and Registration Statement No. 333-65173 which are
incorporated by reference in this Registration Statement. We also consent to
the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
We consent to the use in Amendment No. 1 to Registration Statement No. 333-
64241 of Sprint Corporation on Form S-3 of our reports dated February 3, 1998,
on Sprint Spectrum L.P. and Sprint Spectrum Finance Corporation (which express
unqualified opinions and include explanatory paragraphs referring to the
emergence from the development stage) appearing in Registration Statement No.
333-65173 which is incorporated by reference in this Registration Statement.
We also consent 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
January 22, 1999
