<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File No. 1-4721
SPRINT CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-0457967
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 11315, 64112
Kansas City, Missouri (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, (913) 624-3000
including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Preferred Stock, without par
value
First series, $7.50 stated
value New York Stock Exchange
Second series, $6.25 stated
value New York Stock Exchange
FON Common Stock, Series 1,
$2.00
par value, and FON Group
Rights New York Stock Exchange
PCS Common Stock, Series 1,
$1.00
par value, and PCS Group
Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for these shorter period that the
registrant was required to file these reports), and (2) has been subject to
these filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
Aggregate market value of voting and non-voting stock held by non-affiliates at
February 26, 1999, was $42,048,340,359.
COMMON SHARES OUTSTANDING AT FEBRUARY 26, 1999:
FON COMMON STOCK 345,480,707
PCS COMMON STOCK 404,119,795
CLASS A COMMON STOCK 86,236,036
Documents incorporated by reference.
Registrant's definitive proxy statement filed under Regulation 14A promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, which definitive proxy statement is to be filed within 120 days after the
end of Registrant's fiscal year ended December 31, 1998, is incorporated by
reference in Part III hereof.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT ON FORM 10-K Sprint Corporation
Part I
- --------------------------------------------------------------------------------
Item 1. Business
- --------------------------------------------------------------------------------
The Corporation
Sprint Corporation, incorporated in 1938 under the laws of Kansas, is mainly a
holding company. In November 1998, Sprint's shareholders approved the formation
of the FON Group and the PCS Group and the creation of the FON stock and the
PCS stock. In addition, Sprint purchased the remaining ownership interests in
Sprint Spectrum Holding Company, L.P. and PhillieCo, L.P. (together, Sprint
PCS), other than a minority interest in Cox Communications PCS, L.P. (Cox PCS).
Sprint acquired these ownership interests from Tele-Communications, Inc. (TCI),
Comcast Corporation and Cox Communications, Inc. (the Cable Partners). In
exchange, Sprint issued the Cable Partners special low-vote PCS shares and
warrants to acquire additional PCS shares. Sprint also issued the Cable
Partners shares of a new class of preferred stock convertible into PCS shares.
The purchase of the Cable Partners' interests is referred to as the PCS
Restructuring.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares to maintain their combined 20% voting power in Sprint
(Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless personal communication services (PCS) operations. These operations are
referred to as the PCS Group.
The FON stock is intended to reflect the performance of all of Sprint's other
operations. These operations are referred to as the FON Group and include the
following:
. Core businesses
. Long distance division
. Local division
. Product distribution and directory publishing businesses
. Activities to develop and deploy Sprint ION(SM), Integrated On-Demand
Network
. Other ventures, including Sprint's investment in Global One.
Characteristics of Tracking Stock
FON and PCS shareholders are subject to the risks related to all of Sprint's
businesses, assets and liabilities. Owning FON or PCS shares does not represent
a direct legal interest in the assets and liabilities of the Groups. Rather,
shareholders remain invested in Sprint and continue to vote as a single voting
class for Board member elections (other than Class A directors elected by FT
and DT) and most other company matters.
The vote per share of the PCS stock is different from the vote of the FON
stock. The FON stock has one vote per share. The vote of the PCS stock is based
on the market price of a share of PCS stock relative to the market price of a
share of FON stock for a period of time prior to the record date for a
shareholders meeting. The shares of PCS stock held by the Cable Partners have
1/10 of the vote per share of the publicly traded PCS stock. The shares held by
the Cable Partners will convert into full voting PCS stock upon sale to the
public. Sprint anticipates that the FON stock will have greater voting power
than the PCS stock for the foreseeable future and therefore will be in a
position to control the outcome of shareholder votes.
The price of the FON stock may not accurately reflect the performance of the
FON Group and the price of the PCS stock may not accurately reflect the
performance of the PCS Group. Events affecting the results of one Group could
adversely affect the results and stock price of the other Group. Net losses of
either Group, and dividends or distributions on, or repurchases of, one stock
will reduce Sprint funds legally available for dividends on both stocks. Debt
incurred by either Group could affect the credit rating of Sprint as a whole
and increase borrowing costs for both Groups.
Holders of one of the stocks may have different or conflicting interests from
the holders of the other stock. For example, conflicts could arise with respect
to decisions by the Sprint Board to (1) allocate consideration in a merger of
Sprint among holders of FON stock and PCS stock, (2) convert the outstanding
shares of PCS stock into shares of FON stock, (3) sell assets of a Group,
either to the other Group or to a third party, (4) transfer assets from one
Group to the other Group, (5) formulate public policy positions which could
have an unequal effect on the interests of the FON Group and the PCS Group, and
(6) make operational and financial decisions with respect to one Group that
could be considered to be detrimental to the other Group. Material conflicts
are addressed in accordance with the Tracking Stock Policies adopted by the
Sprint Board. In addition, the Board has appointed a committee of its members
(the Capital Stock Committee) to interpret and oversee the implementation of
these policies.
Transfers of assets from the FON Group to the PCS Group treated as an equity
contribution will result in an
1
<PAGE>
increase in the intergroup interest of the FON Group in the PCS Group. This
interest is similar to the FON Group holding PCS stock. A transfer of funds
from the PCS Group to the FON Group would decrease the intergroup interest. An
intergroup interest of the PCS Group in the FON Group cannot be created.
If either the FON Group or the PCS Group were a stand-alone entity, a person
that does not wish to negotiate with management could seek to acquire such
Group by means of a tender offer or proxy contest involving only that entity's
shareholders. However, because the FON Group and the PCS Group are each part of
Sprint, acquiring either Group without negotiation with Sprint's management
would require a proxy contest or tender offer that yielded control of Sprint
generally and would likely require solicitations to shareholders of both
Groups.
The Clinton Administration's annual budget proposal included a recommendation
to tax the future issuance of tracking stocks. If enacted as proposed, the
recommendation could adversely affect Sprint's ability to use tracking stocks
to raise equity capital in the future.
Sprint FON Group
General Overview of the Sprint FON Group
The main activities of the FON Group include its core businesses, consisting of
domestic and international long distance communications, local exchange
communications, and product distribution and directory publishing activities.
The FON Group also includes results from Sprint ION(SM), and other ventures,
including Sprint's investment in Global One.
Core Businesses--Long Distance Division
General
The FON Group's long distance division (LDD) is the nation's third largest long
distance phone company. LDD operates a nationwide, all-digital long distance
telecommunications network using state-of-the-art fiber-optic and electronic
technology. LDD provides domestic and international voice, video and data
communications services as well as integration management and support services
for computer networks. It consists mainly of Sprint Communications Company L.P.
(the Limited Partnership).
LDD's financial performance for 1998, 1997 and 1996 is summarized as follows:
<TABLE>
- --------------------------------------------------
<CAPTION>
1998 1997 1996
- --------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $9,910.9 $8,994.0 $8,302.1
--------------------------
Operating income(/1/) $1,366.8 $1,025.3 $ 911.5
--------------------------
</TABLE>
(/1/)Includes nonrecurring litigation charges of $20 million in 1997 and $60
million in 1996.
Competition
The division competes with AT&T, MCI WorldCom and other telecommunications
providers in all segments of the long distance communications market. AT&T
continues to have the largest market share of the domestic long distance
communications market. MCI WorldCom is the nation's second largest long
distance phone company. Competition in long distance is based on price and
pricing plans, the types of services offered, customer service, and
communications quality, reliability and availability.
Strategy
In order to achieve profitable market share growth in an increasingly
competitive long distance communications environment, LDD intends to leverage
its principal strategic assets: its national brand, innovative marketing and
pricing plans, its reputation for superior customer service, its state-of-the-
art technology, and offerings available from other FON Group operating entities
and the PCS Group. LDD will focus on expanding its presence in the high-growth
data communications markets such as Asynchronous Transfer Mode (ATM) and Frame
Relay and intends to become the provider of choice for delivery of end-to-end
service to companies with complex distributed computing environments. The FON
Group continues to deploy network and systems infrastructure which provides
industry-leading reliability, cost effectiveness and technological
improvements. In order to create integrated product offerings for its
customers, the FON Group is solidifying the linkage of its long distance
division with Sprint's other operations such as the local division, the Global
One alliance and the PCS Group in the areas of sales support, marketing,
integration of systems and the development of common products and services. The
long distance division also supports Sprint ION(SM). See "Sprint ION--Strategy"
for more details.
Core Businesses--Local Division
General
The local division (LTD) consists of regulated local phone companies serving
more than 7.6 million access lines in 18 states. LTD provides local phone
services, access by phone customers and other carriers to LTD's local network,
sales of telecommunications equipment, and long distance services within
certain regional calling areas, or LATAs.
LTD's financial performance for 1998, 1997 and 1996 is summarized as follows:
<TABLE>
- -------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues(/1/) $5,371.4 $5,293.9 $5,127.0
--------------------------
Operating income $1,407.0 $1,390.7 $1,334.7
--------------------------
</TABLE>
(/1/Beginning)in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. For further discussion, see the FON Group's "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
2
<PAGE>
AT&T is LTD's largest customer for network access services. In 1998, 1997 and
1996, 13% of the division's net operating revenues were from services (mainly
network access services) provided to AT&T. Revenues from AT&T were 4% of the
FON Group's revenues in 1998 and 5% in 1997 and 1996. While AT&T is a
significant customer, LTD does not believe the division's revenues are
dependent on AT&T, since any long distance provider must pay access charges to
LTD related to interLATA long distance telephone service.
Competition
Because LTD operations are largely in rural markets, competition in its markets
is occurring more gradually. There is already some competition in urban areas
served by LTD and for business customers located in all areas. Certain proposed
combinations, such as the merger of AT&T and TCI, would likely accelerate
competition in the areas served by LTD. The merger with TCI would enable AT&T
to bypass the local phone company and reach local customers through the cable
of TCI. In addition, wireless services will continue to grow as an alternative
to wireline services as a means of reaching local customers.
Strategy
To continue to build on its successful track record, LTD has embarked on a
growth strategy whereby it will aggressively market Sprint's entire product
portfolio to its local customers as well as its core product line of advanced
network features and data products. LTD also supports the FON Group's
initiatives with Sprint ION(sm). See "Sprint ION--Strategy" for more details.
Core Businesses--Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
The financial performance for the product distribution and directory publishing
businesses for 1998, 1997 and 1996 is summarized as follows:
<TABLE>
- -------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues(/1/) $1,683.1 $1,454.3 $1,225.4
--------------------------
Operating income(/1/) $ 230.9 $ 179.9 $ 101.6
--------------------------
</TABLE>
(/1/Beginning)in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. For further discussion, see the FON Group's "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Sprint ION
Sprint ION extends Sprint's existing advanced network capabilities to the
customer and enables Sprint to provide the network infrastructure to meet
customers' demands for data, Internet, and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
The financial performance for Sprint ION for 1998 and 1997 is summarized as
follows:
<TABLE>
- ---------------------------------
<CAPTION>
1998 1997
- ---------------------------------
(in millions)
<S> <C> <C>
Operating expenses $ 143.1 $ 5.2
-------------
</TABLE>
Strategy
This integrated services capability is expected to generate increased demand
for Sprint's products and services, and at the same time reduce the costs to
provide those services. Cisco Systems, Inc. (Cisco) and Bell Communications
Research, Inc. are assisting in the Sprint ION development effort. Cisco will
be a major supplier of Sprint's equipment requirements for digital subscriber
line deployment.
Sprint ION intends to rely largely on the long distance division's transmission
infrastructure and, to a lesser extent, on the transmission infrastructure of
the local division. Sprint will evaluate whether facilities should be built,
leased or acquired where they currently do not exist. Because a great amount of
future investment will be related to specific customer contracts, Sprint
expects to manage its investment in Sprint ION consistent with customer demand.
Other Ventures
The "other ventures" segment includes the FON Group's investment in Global One,
a joint venture with FT and DT. Sprint is a 1/3 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. This segment also includes the FON Group's investments in
EarthLink Network, Inc., an Internet service provider; Call-Net, a long
distance provider in Canada operating under the Sprint brand name; and certain
other telecommunications investments and ventures. All of these investments are
accounted for on the equity basis.
The financial performance of the operations of other ventures for 1998, 1997
and 1996 is summarized as follows:
<TABLE>
- ---------------------------------------------------------
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Operating expenses $ 39.9 $ 83.8 $ 48.6
------------------------
Equity in losses of affiliates $(236.7) $(172.0) $(87.0)
------------------------
</TABLE>
Operating expenses mainly relate to the FON Group's offering of Internet
services. In June 1998, the FON Group completed the strategic alliance to
combine its
3
<PAGE>
Internet business with EarthLink. As part of the alliance, EarthLink obtained
the FON Group's Sprint Internet Passport customers and took over the day-to-day
operations of those services. In exchange, the FON Group owns an equity
interest in EarthLink.
"Equity in losses of affiliates" mainly consists of losses from Global One.
Global One's strategic objective is to be the premier provider of global
telecommunications services. To achieve this objective, the Global One business
strategy is designed to achieve maximum global coverage and seamless global
connectivity. Under a single global brand and through a single interface to
customers in each country, Global One offers a comprehensive array of state-of-
the-art telecommunications services, delivered through its advanced global
network infrastructure.
Sprint PCS Group
General Overview of the Sprint PCS Group
The PCS Group includes Sprint's domestic wireless mobile phone services. It
operates the only 100% digital PCS wireless network in the United States, with
licenses to provide nationwide service using a single frequency and a single
technology. At year-end 1998, the PCS Group, together with certain affiliates,
operated PCS systems in 45 of the 50 largest U.S. metropolitan areas. The PCS
Group has licenses to serve 270 million people in all 50 states, Puerto Rico
and the U.S. Virgin Islands. With market launches in January 1999, the PCS
Group's service now reaches nearly 170 million people. The PCS Group provides
nationwide service through:
. operating its own digital network in major U.S. metropolitan areas,
. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,
. roaming on other providers' analog cellular networks using Dual-
Band/Dual-Mode handsets, and
. roaming on other providers' digital PCS networks that use code division
multiple access (CDMA).
The financial performance for the PCS Group for 1998, 1997 and 1996 is
summarized as follows:
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues(/1/) $ 1,225.4 $ -- $ --
---------------------------
Operating loss(/1/),(/2/) $(2,569.4) $ (18.5) $ (0.5)
---------------------------
Other partners' loss in Sprint PCS $ 1,250.9 $ -- $ --
---------------------------
Equity in loss of Sprint PCS $ -- $(659.6) $(191.8)
---------------------------
</TABLE>
(/1/The)PCS Group's 1998 results of operations included SprintCom's operating
results as well as Sprint PCS' operating results on a consolidated basis
for the entire year. Before 1998, Sprint's investment in Sprint PCS was
accounted for using the equity method.
(/2/Includes)a nonrecurring charge to write-off $179 million of acquired in-
process research and development costs related to the PCS Restructuring in
1998. For further discussion, see the PCS Group's "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
License Coverage
The number of Pops (one person residing in a license area equals one Pop)
covered by licenses held by the PCS Group is set forth in the chart below:
<TABLE>
- --------------------------------------------------------
<CAPTION>
Sprint
Entity Pops(/1/) Ownership
- --------------------------------------------------------
(in millions)
<S> <C> <C>
Sprint Spectrum Holding Company
Sprint Spectrum 155.9 100.0%
Cox PCS(/2/) 21.0 59.2
American PCS 8.3 100.0
PhillieCo 9.2 100.0
SprintCom 74.9 100.0
<CAPTION>
- ----------------------------------------------
<S> <C> <C>
Total 269.3
<CAPTION>
-------------
</TABLE>
(/1/Based)on 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 Holding Company 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 Holding Company to
purchase Cox's remaining partnership interest in Cox PCS. Commencing in
2001, Sprint Spectrum Holding Company will have the right to require that
Cox sell all of its remaining partnership interest in Cox PCS to Sprint
Spectrum Holding Company.
Competition
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 the markets will have five or more commercial mobile radio
service (CMRS) providers and each of the top 50 metropolitan markets have at
least one other PCS competitor in addition to two cellular incumbents. Many of
these competitors have been operating for a number of years and currently
service a significant subscriber base.
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:
. Operating a nationwide digital wireless network
. Leveraging Sprint's national brand
. Utilizing state-of-the-art CDMA technology
. Delivering superior value to its customers
. Growing customer base using multiple distribution channels
. Continuing to expand coverage
4
<PAGE>
Regulatory Developments
Sprint FON Group
The Telecommunications Act of 1996 (Telecom Act) was designed to promote
competition in all aspects of telecommunications. It eliminated legal and
regulatory barriers to entry into local phone markets. It also required
incumbent local phone companies, among other things, to allow local resale at
wholesale rates, negotiate interconnection agreements, provide
nondiscriminatory access to unbundled network elements and allow collocation of
interconnection equipment by competitors. The Telecom Act also allows Regional
Bell Operating Companies (RBOCs) to provide in-region long distance service
once they obtain state certification of compliance with a competitive
"checklist," have a facilities-based competitor, and obtain a Federal
Communications Commission (FCC) ruling that the provision of in-region long
distance service is in the public interest. The Telecom Act's impact on Sprint
remains unclear because the rules for competition are still being decided by
regulators and the courts.
In accordance with the Telecom Act, the FCC adopted detailed rules in 1996 to
govern interconnection to incumbent local networks by new market entrants. Some
local phone companies and state public utility commissions appealed these rules
to the U.S. Court of Appeals. In 1997, the court struck down the FCC's pricing
rules. It ruled that the Telecom Act left jurisdiction over pricing matters to
the states. The U.S. Supreme Court, on January 25, 1999, reversed the appeals
court decision and reinstated the FCC's authority to establish rules and
prices. Further FCC action and court appeals are expected.
In 1997, the FCC issued important decisions on the structure and level of
access charges and universal service. These decisions were designed to remove
implicit subsidies from access charges and bring access rates closer to costs.
The decisions also called for establishing explicit universal service subsidies
for serving high cost areas and to fund additional telecommunications for
schools, libraries and rural health care providers.
It is too early to ascertain the impact of these matters on Sprint because
appeals and further regulatory proceedings are pending. Sprint's long distance
division benefits from lower access charges because access is the single
largest cost in providing long distance service. In addition, in 1998 Sprint
established charges to flow through certain access and universal service
payments to its customers. Reductions in access charges adversely affect
revenues of the local division.
Some RBOCs have challenged the Telecom Act restrictions on their entry into
long distance markets as unconstitutional. A federal district court in Texas
ruled the restrictions were unlawful because they constituted a legislative act
that imposed punishment without a judicial proceeding. However, that decision
was overturned by the Fifth Circuit Court of Appeals. Similar arguments have
also been rejected by the D.C. Circuit Court of Appeals. To date, the U.S.
Supreme Court has declined to review these decisions.
Since the Telecom Act was passed in 1996, several RBOCs have filed applications
with the FCC to provide in-region long distance service in certain states. None
have been approved. It is expected that more applications will be filed with
the FCC in 1999 and some may be approved. The entry of RBOCs into the long
distance market will impact competition, but the extent of the impact will
depend on many factors. These factors include the RBOCs' competitive ability,
the appeal of the RBOC brand to different market segments, and the response of
competitors. Some of the impact on Sprint may be offset by wholesale revenues
from those RBOCs that choose to resell Sprint services.
As a result of competition, a number of carriers have combined. Sprint has
raised concerns about some pending mergers (especially SBC Communications, Inc.
and Ameritech Corporation, and GTE Corporation and Bell Atlantic Corporation)
that appear to threaten competition. Federal regulators are closely
scrutinizing these mergers.
Sprint PCS Group
The FCC sets rules, regulations and policies to, among other things:
. grant licenses for PCS frequencies and license renewals,
. rule on assignments and transfers of control of PCS licenses,
. govern the interconnection of PCS networks with other wireless and
wireline carriers,
. establish access and universal service funding provisions,
. impose fines and forfeitures for violations of any of the FCC's rules,
and
. regulate the technical standards of PCS networks.
The FCC prohibits a single entity from having a combined attributable interest
(20% or greater interest in any license) in broadband PCS, cellular and
specialized mobile radio licenses totaling more than 45 megahertz (MHz) in any
geographic area.
PCS License Transfers and Assignments
The FCC must approve any substantial changes in ownership or control of a PCS
license. Noncontrolling interests in an entity that holds a PCS license or
operates PCS networks generally may be bought or sold without prior FCC
approval. In addition, a recent FCC order requires only post-consummation
notification of certain pro forma assignments or transfers of control.
5
<PAGE>
PCS License Conditions
All PCS licenses are granted for 10-year terms if the FCC's buildout
requirements are followed. Based on those requirements, all 30 MHz broadband
major trading area licensees must build networks offering coverage to 1/3 of
the population within five years and 2/3 within 10 years. All 10 MHz broadband
PCS licensees must build networks offering coverage to at least 1/4 of the
population within five years or make a showing of "substantial service" within
that five-year period. Licenses may be revoked if the rules are violated.
PCS licenses may be renewed for additional 10-year terms. Renewal applications
are not subject to auctions. However, third parties may oppose renewal
applications and/or file competing applications.
Other FCC Requirements
Broadband PCS providers cannot unreasonably restrict or prohibit other
companies from reselling their services. They also cannot unreasonably
discriminate against resellers. Resale obligations will automatically expire in
2002.
Local phone companies and most CMRS carriers (PCS and cellular providers) must
program their networks to allow customers to change service providers without
changing phone numbers. This is referred to as service provider number
portability. Most CMRS providers were required to deliver calls from their
networks to ported numbers anywhere in the country by year-end 1998. By
November 2002, CMRS providers must be able to offer their own customers number
portability in their switches in the 100 largest metropolitan areas. They also
must be able to support nationwide roaming.
Broadband PCS and other CMRS providers may provide wireless local loop and
other fixed services that would directly compete with the wireline services of
local phone companies. Broadband PCS and other CMRS providers must implement
enhanced emergency 911 capabilities to be completed in phases by October 2001.
The PCS Group and other wireless carriers complied with the first phase in
October 1998 and are currently analyzing various technical methods for
complying with the second phase.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act (CALEA) was enacted in
1994 to preserve electronic surveillance capabilities authorized by federal and
state law. CALEA requires telecommunications carriers to meet certain
"assistance capability requirements" by the end of June 2000. In 1997,
telecommunications industry standard-setting organizations agreed to a joint
standard to implement CALEA's capability requirements. The PCS Group is able to
offer traditional electronic surveillance capabilities to law enforcement and
is currently evaluating its ability to satisfy the CALEA requirements.
The FCC is also considering petitions from numerous parties to establish and
implement technical compliance standards required by CALEA.
Other Federal Regulations
Wireless systems must comply with certain FCC and Federal Aviation
Administration regulations about the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause certain cell site locations to come under National
Environmental Policy Act (NEPA) regulation. NEPA requires carriers to meet
certain land use and radio frequency standards.
Review of Universal Service Requirements
The FCC and the states established a "universal service" program to ensure
affordable, quality telecommunications services for all Americans. Although the
PCS Group is challenging in federal court the states' authority to collect
universal service contributions from CMRS providers, the PCS Group is required
to contribute to the federal program as well as existing state programs. The
PCS Group's "contribution" to the federal program is a percentage of end-user
revenues. Although many states are likely to adopt a similar assessment
methodology, the states may calculate the contributions in any manner as long
as the process is consistent with FCC rules. Currently, management cannot
predict the extent of the PCS Group's total federal and state universal service
assessments, or its ability to recover its contributions from the universal
service fund.
Environmental Compliance
Sprint's environmental compliance and remediation expenditures mainly result
from the operation of standby power generators for its telecommunications
equipment. The expenditures arise in connection with standards compliance,
permits or occasional remediation, which are usually related to generators,
batteries or fuel storage. Sprint has been identified as a potentially
responsible party at sites relating to either landfill contamination or
discontinued power generation operations. Sprint's environmental compliance and
remediation expenditures have not been material to its financial statements or
to its operations and are not expected to have any future material adverse
effects on the FON Group or the PCS Group.
Patents, Trademarks and Licenses
Sprint owns numerous patents, patent applications, service marks and trademarks
in the United States and other countries. Sprint expects to apply for and
develop trademarks, service marks and patents for the benefit of the Groups in
the ordinary course of business. Sprint is a registered trademark of Sprint and
Sprint PCS is a registered service mark of Sprint. Sprint is also licensed
under domestic and foreign patents and trademarks owned by others. In total,
these patents, patent
6
<PAGE>
applications, trademarks, service marks and licenses are of material importance
to the business. Generally, Sprint's trademarks, trademark licenses and service
marks have no limitation on duration; Sprint's patents and licensed patents
have lives generally ranging from one to 17 years.
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.
Employee Relations
At year-end 1998, Sprint had approximately 64,900 employees. Approximately
10,800 FON Group employees were represented by unions. During 1998, Sprint had
no material work stoppages caused by labor controversies.
Management
For information concerning the executive officers of Sprint, see "Executive
Officers of the Registrant" in this document.
Information as to Business Segments
For information required by this section, refer to Sprint's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the FON Group's "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Also refer to Note 14 of Sprint's "Notes to
Consolidated Financial Statements" and Note 12 of the FON Group's "Notes to
Combined Financial Statements" sections of the Financial Statements and
Financial Statement Schedules filed as part of this document.
- --------------------------------------------------------------------------------
Item 2. Properties
- --------------------------------------------------------------------------------
Sprint's gross property, plant and equipment totaled $32.1 billion at year-end
1998, of which $14.9 billion relates to the FON Group's local communications
services, $9.2 billion relates to the FON Group's long distance communications
services, and $7.0 billion relates to the PCS Group's PCS wireless services.
The FON Group's gross property, plant and equipment totaled $25.2 billion at
year-end 1998. These properties mainly consist of land, buildings, digital
fiber-optic network, switching equipment, microwave radio and cable and wire
facilities. Sprint leases certain switching equipment and several general
office facilities. The LDD has been granted easements, rights-of-way and
rights-of-occupancy, mainly by railroads and other private landowners, for its
fiber-optic network.
The product distribution and directory publishing businesses' properties mainly
consist of office and warehouse facilities to support the business units in the
distribution of telecommunications products and publication of telephone
directories.
The PCS Group's properties consist of leased and owned office space for its
corporate operations, network monitoring personnel, customer care centers and
retail stores. The PCS Group leases space for base station towers and switch
sites for its nationwide network. At year-end 1998, the PCS Group had under
lease (or options to lease) approximately 10,300 cell sites.
Sprint owns its corporate headquarters building and is in the process of
building a $700 million corporate campus in the greater Kansas City
metropolitan area.
Property, plant and equipment totaling $13.9 billion for the FON Group is
either pledged as security for first mortgage bonds and certain notes or is
restricted for use as mortgaged property. PCS Group property, plant and
equipment totaling $4.1 billion is pledged as security for certain notes.
- --------------------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------
The FON Group is involved in various legal proceedings arising in the ordinary
course of business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the FON Group believes that the
outcome of such proceedings, individually and in the aggregate, will not have a
material adverse effect on the FON Group's financial condition or results of
operations.
The PCS Group has been involved in legal proceedings in various states
concerning the suspension of the processing or approval of permits for wireless
telecommunications 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, significantly delay expansion of the PCS Group's network
coverage.
The PCS Group is involved in various other 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 PCS Group believes that the
outcome of such proceedings, individually or in the aggregate, will not have a
material adverse effect on the PCS Group's financial condition or results of
operations.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
On November 13, 1998, Sprint held a Special Meeting of Shareholders to vote on
its proposal (the "Tracking Stock Proposal") involving, among other things,
. the restructuring of Sprint's wireless operations,
. the creation of the PCS Group and the FON Group, and
. the tax-free recapitalization of Sprint's outstanding publicly traded
common stock into PCS stock and FON stock.
7
<PAGE>
In addition, the shareholders voted on a proposal (the "Incentive Plans
Proposal") to, among other things,
. authorize stock-based awards with respect to 10 million shares of PCS
stock to replace the Sprint Spectrum L.P. Long-Term Incentive
Compensation Plan and
. permit non-employee members of the Board of Directors to participate
with Sprint employees under the 1997 Long-Term Stock Incentive Program.
The shareholders approved both the Tracking Stock Proposal and the Incentive
Plans Proposal.
The following votes were cast with respect to the Tracking Stock Proposal:
<TABLE>
<S> <C>
FOR 315,477,746
AGAINST 4,007,712
ABSTAIN 2,253,484
</TABLE>
The following votes were cast by the common stock, voting as a separate class,
with respect to the Tracking Stock Proposal:
<TABLE>
<S> <C>
FOR 229,124,699
AGAINST 4,005,695
ABSTAIN 2,246,702
</TABLE>
The following votes were cast by the Class A common stock, voting as a separate
class, with respect to the Tracking Stock Proposal:
<TABLE>
<S> <C>
FOR 86,236,036
AGAINST --
ABSTAIN --
</TABLE>
The following votes were cast with respect to the Incentive Plans Proposal:
<TABLE>
<S> <C>
FOR 235,654,776
AGAINST 83,360,499
ABSTAIN 2,723,667
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
Item 10(b). Executive Officers of the Registrant
- --------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Office Name Age
- -------------------------------------------------------------------------------
<S> <C> <C>
Chairman and Chief Executive Officer William T. Esrey(/1/) 59
President and Chief Operating Officer Ronald T. LeMay(/2/) 53
President--Local Telecommunications Division Michael B. Fuller(/3/) 54
President--Long Distance Division Patti S. Manuel(/4/) 42
President--Sprint PCS Andrew J. Sukawaty(/5/) 43
President--Sprint International John E. Berndt(/6/) 58
President--National Integrated Services Kevin E. Brauer(/7/) 48
Executive Vice President--General Counsel and
External Affairs J. Richard Devlin(/8/) 48
Executive Vice President--Chief Financial Officer Arthur B. Krause(/9/) 57
Senior Vice President--Treasurer Gene M. Betts(/10/) 46
Senior Vice President--One Sprint Strategic
Development Arthur A. Kurtze(/11/) 54
Senior Vice President--Controller John P. Meyer(/12/) 48
Senior Vice President--Strategic Planning and
Corporate Development Theodore H. Schell(/13/) 54
Senior Vice President--Human Resources I. Benjamin Watson(/14/) 50
Senior Vice President--Consumer Market Strategy
and Communications Thomas E. Weigman(/15/) 51
Vice President--Secretary Don A. Jensen(/16/) 63
</TABLE>
(/1/Mr.)Esrey was elected Chairman in 1990. He was elected Chief Executive
Officer and a member of the Board of Directors in 1985.
(/2/Mr.)LeMay was first elected President and Chief Operating Officer in
February 1996. 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 Holding Company from 1995 to 1996.
From 1989 to 1995, he served as President and Chief Operating Officer--Long
Distance Division. Mr. LeMay served on Sprint's Board of Directors from
1993 until he went to work for Waste Management, Inc. He was re-elected to
Sprint's Board of Directors in December 1997.
(/3/Mr.)Fuller was elected President--Local Telecommunications Division in
October 1996. From 1990 to 1996, he served as President of United
Telephone--Midwest Group, an operating group of subsidiaries of Sprint.
(/4/Ms.)Manuel was elected President--Long Distance Division in February 1998.
She was also elected as President and Chief Operating Officer of the
Limited Partnership in February 1998. She had served as President of Sprint
Business, a division of the Limited Partnership, since May 1997. From 1994
to 1997, she was President of sales and marketing for Sprint Business. She
was named President of marketing for Sprint Business in 1993.
(/5/Mr.)Sukawaty was elected President--Sprint PCS in December 1998. He was
appointed Chief Executive Officer of Sprint Spectrum Holding Company in
September 1996. Prior to joining Sprint Spectrum Holding Company, 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 United Kingdom
in 1993.
(/6/Mr.)Berndt was elected President--Sprint International in April 1998.
Before that, Mr. Berndt was President of Fluor Daniel Telecommunications
since January 1997. He was President--Multimedia Ventures and Technologies
for AT&T and Lucent Technologies from 1995 to 1996. From 1993 to 1995, Mr.
Berndt was President of New Business Development for AT&T.
(/7/Mr.)Brauer was elected President--National Integrated Services in October
1997. He had served as Senior Vice President since June 1997. From 1994 to
1997, he was President of Sprint Business and from 1993 to 1994, he was
President of Sales of Sprint Business.
(/8/Mr.)Devlin was elected Executive Vice President--General Counsel and
External Affairs in 1989.
(/9/Mr.)Krause was elected Executive Vice President--Chief Financial Officer in
1988.
(/10/Mr.)Betts was elected Senior Vice President in 1990. He was elected
Treasurer in December 1998.
(/11/Mr.)Kurtze was appointed Senior Vice President--One Sprint Strategic
Development in February 1999. He had served as Chief Operating Officer of
Sprint Spectrum Holding Company since 1995. Prior to joining Sprint
Spectrum Holding Company, Mr. Kurtze was Senior Vice President--Operations
for Sprint's Local Division since 1993.
(/12/Mr.)Meyer was elected Senior Vice President--Controller in 1993.
(/13/Mr.)Schell was elected Senior Vice President--Strategic Planning and
Corporate Development in 1990.
(/14/Mr.)Watson was elected Senior Vice President--Human Resources in 1993.
(/15/Mr.)Weigman was appointed Senior Vice President--Consumer Market Strategy
and Communications in February 1999. He had served as President--Consumer
Services Group of Sprint's Long Distance Division since 1995. From 1993 to
1995, he served as President--Multimedia/Strategic Services of the Long
Distance Division. He joined the Long Distance Division as Chief Marketing
Officer in 1991.
(/16/Mr.)Jensen was elected Vice President--Secretary in 1975.
There are no known family relationships between any of the persons named above
or between any of these persons and any outside directors of Sprint. Officers
are elected annually.
9
<PAGE>
Part II
- --------------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------
Common Stock Data
<TABLE>
- ------------------------------------------------
<CAPTION>
1998 Market Price
---------------------------
End
of
High Low Period
- ------------------------------------------------
<S> <C> <C> <C>
Sprint Stock
First quarter $75 5/8 $55 1/4 $67 11/16
Second quarter 75 5/8 65 70 1/2
Third quarter 80 1/8 61 1/2 72
Fourth quarter(/1/) 82 7/8 69 1/16 81 5/16
FON Stock(/2/) 85 5/16 71 5/8 84 1/8
PCS Stock(/2/) 23 3/8 14 1/16 23 1/8
- ------------------------------------------------
<CAPTION>
1997 Market Price
---------------------------
End
of
High Low Period
- ------------------------------------------------
<S> <C> <C> <C>
Sprint Stock
First quarter $48 $38 3/8 $45 3/8
Second quarter 52 3/4 42 1/4 52 1/4
Third quarter 52 5/8 44 50
Fourth quarter 60 5/8 48 3/4 58 5/8
</TABLE>
(/1/Fourth)quarter per share market data is for the period October 1, 1998
through November 23, 1998.
(/2/FON)Stock and PCS Stock per share market data is for the period November
24, 1998 through December 31, 1998.
As of February 28, 1999, Sprint had approximately 78,000 FON stock record
holders, 75,000 PCS stock record holders and two Class A common stock record
holders. The principal trading market for Sprint's FON stock and PCS stock is
the New York Stock Exchange. The Class A common stock is not publicly traded.
Sprint paid a FON stock dividend of $0.25 per share in the fourth quarter of
1998. Sprint paid common stock dividends of $0.25 per share in the first three
quarters of 1998 and each quarter of 1997. Sprint paid Class A common stock
dividends of $0.25 per share in each quarter of 1998 and 1997. Sprint does not
intend to pay dividends on the PCS stock in the foreseeable future.
During 1998 and the first part of 1999, Sprint issued the following securities
which were not registered under the Securities Act of 1933, as amended.
In November 1998, Sprint issued an aggregate of 195,094,340 shares of Series 2
PCS low-vote stock, warrants to purchase an aggregate of 12,452,831 shares of
PCS Stock and 246,766 shares of Convertible Preferred Stock, Seventh Series
(PCS preferred stock) to the Cable Partners in connection with the PCS
Restructuring. The Series 2 PCS stock and the warrants were issued as
consideration for the Cable Partners' interests in Sprint PCS. The PCS
preferred stock was issued either to purchase certain debt loaned to Sprint PCS
by the Cable Partners or as consideration for their interests in Sprint PCS.
Each warrant is exercisable for a share of PCS stock at any time before
November 2003 at an exercise price with respect to each warrant equal to
approximately $24.02. Each share of PCS preferred stock is convertible into
approximately 32.5 shares of PCS stock.
In November 1998, in connection with the PCS Restructuring and the issuance of
PCS stock and PCS preferred stock to the Cable Partners, Sprint issued an
aggregate of 5,198,668 shares of Series 3 PCS stock to FT and DT for an
aggregate of $85 million. These shares were purchased by FT and DT in order to
maintain their aggregate voting power at 20% of Sprint's outstanding voting
power.
In February 1999, Sprint issued an aggregate of 6,100,750 shares of Series 3
PCS stock to FT and DT for an aggregate of $169 million in conjunction with the
registered public offering of 24,403,000 shares of Series 1 PCS stock. These
shares were also purchased by FT and DT in order to maintain their aggregate
voting power at 20% of Sprint's outstanding voting power.
All of the transactions described above were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act. No solicitation was made to sell such shares to the public, and the Cable
Partners, FT and DT were each provided with all material information that was
available regarding Sprint. All of the purchasers are accredited investors
having sufficient knowledge and experience in financial and business matters
necessary to evaluate the merits and risks of their investment. All of such
purchasers were informed that the transactions were being effected without
registration under the Securities Act and that the shares acquired could not be
resold without registration under the Securities Act unless the sale is
effected pursuant to an exemption from the registration requirements of the
Securities Act. The Cable Partners, FT and DT have been given certain
registration rights by Sprint.
- --------------------------------------------------------------------------------
Item 6. Selected Financial Data
- --------------------------------------------------------------------------------
For information required by Item 6, refer to the "Selected Financial Data"
sections of the Financial Statements and Financial Statement Schedules filed as
part of this document.
- --------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
For information required by Item 7, refer to the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections of the
Financial Statements and Financial Statement Schedules filed as part of this
document.
10
<PAGE>
- --------------------------------------------------------------------------------
Item 7A. 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.
- --------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
For information required by Item 8, refer to the "Consolidated Financial
Statements" and "Combined Financial Statements" sections of the Financial
Statements and Financial Statement Schedules filed as part of this document.
- --------------------------------------------------------------------------------
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
11
<PAGE>
Part III
- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information relating to
Directors of Sprint required by Item 10 is incorporated by reference from
Sprint's definitive proxy statement which is to be filed pursuant to Regulation
14A within 120 days after the end of Sprint's fiscal year ended December 31,
1998.
For information pertaining to Executive Officers of Sprint, as required by
Instruction 3 of Paragraph (b) of Item 401 of Regulation S-K, refer to the
"Executive Officers of the Registrant" section of Part I of this document.
Pursuant to Instruction G(3) to Form 10-K, the information relating to
compliance with Section 16(a) required by Item 10 is incorporated by reference
from Sprint's definitive proxy statement which is to be filed pursuant to
Regulation 14A within 120 days after the end of Sprint's fiscal year ended
December 31, 1998.
- --------------------------------------------------------------------------------
Item 11. Executive Compensation
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 11
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 1998.
- --------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 12
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 1998.
- --------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 13
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 1998.
12
<PAGE>
Part IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) 1. The consolidated financial statements of Sprint and the combined
financial statements of the FON Group and the PCS Group, filed as part
of this report, are listed in the Index to Financial Statements and
Financial Statement Schedules.
2. The consolidated financial statement schedule of Sprint and the combined
financial statement schedules of the FON Group and the PCS Group, filed
as part of this report, are listed in the Index to Financial Statements
and Financial Statement Schedules.
3. The following exhibits are filed as part of this report:
EXHIBITS
(3) Articles of Incorporation and Bylaws:
(a) Articles of Incorporation, as amended (filed as Exhibit 4A to
Post-Effective Amendment No. 2 to Sprint Corporation's
Registration Statement on Form S-3 (No. 33-58488) and
incorporated herein by reference).
(b) Bylaws, as amended (filed as Exhibit 4C to Post-Effective
Amendment No. 2 to Sprint Corporation's Registration Statement on
Form S-3 (No. 33-58488) and incorporated herein by reference).
(4) Instruments defining the Rights of Sprint's Security Holders:
(a) The rights of Sprint's equity security holders are defined in the
Fifth, Sixth, Seventh and Eighth Articles of Sprint's Articles of
Incorporation. See Exhibit 3(a).
(b) Rights Agreement dated as of November 23, 1998, between Sprint
Corporation and UMB Bank, n.a. (filed as Exhibit 4.1 to Amendment
No. 1 to Sprint Corporation's Registration Statement on Form 8-A
relating to Sprint's PCS Group Rights, filed November 25, 1998,
and incorporated herein by reference).
(c) Tracking Stock Policies of Sprint Corporation (filed as Exhibit
4D to Post-Effective Amendment No. 2 to Sprint Corporation's
Registration Statement on Form S-3 (No. 33-58488) and
incorporated herein by reference).
(d) Amended and Restated Standstill Agreement dated 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's Registration Statement on
Form S-3 (No. 33-58488) and incorporated herein by reference).
(e) Indenture, dated as of October 1, 1998, among Sprint Capital
Corporation, Sprint Corporation and Bank One, N.A., as Trustee
(filed as Exhibit 4(b) to Sprint Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998, and
incorporated herein by reference).
(f) First Supplemental Indenture, dated as of January 15, 1999, among
Sprint Capital Corporation, Sprint Corporation and Bank One,
N.A., as Trustee (filed as Exhibit 4(b) to Sprint Corporation
Current Report on Form 8-K dated February 2, 1999 and
incorporated herein by reference).
(g) Indenture, dated as of October 1, 1998, between Sprint
Corporation and Bank One, N.A., as Trustee (filed as Exhibit 4(a)
to Sprint Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, and incorporated herein by
reference).
(h) First Supplemental Indenture, dated as of January 15, 1999,
between Sprint Corporation and Bank One, N.A., as Trustee (filed
as Exhibit 4(a) to Sprint Corporation Current Report on Form 8-K
dated February 2, 1999 and incorporated herein by reference).
13
<PAGE>
(10) Material Agreements
(a) Joint Venture Agreement dated as of June 22, 1995 among Sprint
Corporation, Sprint Global Venture, Inc., France Telecom S.A. and
Deutsche Telekom AG (filed as Exhibit (10)(a) to Sprint
Corporation Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 and incorporated herein by reference).
(b) Amendment No. 1 to Joint Venture Agreement, dated as of January
31, 1996, among Sprint Corporation, Sprint Global Venture, Inc.,
France Telecom, Deutsche Telekom AG and Atlas Telecommunications,
S.A. (filed as Exhibit 99A to Sprint Corporation Current Report
on Form 8-K dated January 31, 1996 and incorporated herein by
reference).
(c) Amended and Restated Stockholders' Agreement among France Telecom
S.A., Deutsche Telekom AG and Sprint Corporation, dated as of
November 23, 1998.
(d) 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).
(e) Amended and Restated Registration Rights Agreement, dated as of
November 23, 1998, among Sprint Corporation, France Telecom S.A.
and Deutsche Telekom A.G. (filed as Exhibit 10.1 to Amendment No.
1 to Sprint Corporation Registration Statement on Form S-3 (No.
333-64241) and incorporated herein by reference).
(f) Registration Rights Agreement, dated as of November 23, 1998,
among Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc. (filed as Exhibit 10.2
to Amendment No. 1 to Sprint Corporation Registration Statement
on Form S-3 (No. 333-64241) and incorporated herein by
reference).
(g) Standstill Agreements, dated May 26, 1996, between Sprint
Corporation and each of Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc.
(h) 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 (filed as Exhibit 10.23
to Sprint Corporation Registration Statement on Form S-3 (No.
333-64241) and incorporated herein by reference).
(i) 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 (filed as Exhibit 10.24
to Sprint Corporation Registration Statement on Form S-3 (No.
333-64241) and incorporated herein by reference).
(10) Executive Compensation Plans and Arrangements:
(j) 1985 Stock Option Plan, as amended (filed as Exhibit (10)(a) to
Sprint Corporation Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by reference).
(k) 1990 Stock Option Plan, as amended.
(l) 1990 Restricted Stock Plan, as amended.
(m) Executive Deferred Compensation Plan, as amended (filed as
Exhibit (10)(k) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference). Summary of amendments (filed as Exhibit 10(c) to
Sprint Corporation Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference).
Summary of additional amendments.
(n) Management Incentive Stock Option Plan, as amended.
14
<PAGE>
(o) 1997 Long-Term Stock Incentive Program (filed as part of Annex
VII to the proxy statement/prospectus that forms a part of Sprint
Corporation's Registration Statement on Form S-4 (No. 333-65173)
and incorporated herein by reference).
(p) Sprint Supplemental Executive Retirement Plan (filed as Exhibit
(10)(i) to Sprint Corporation Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference).
(q) Amended and Restated Centel Directors Deferred Compensation Plan
(filed as Exhibit (10)(c) to Sprint Corporation Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
(r) Restated Memorandum Agreements Respecting Supplemental Pension
Benefits between Sprint Corporation (formerly United
Telecommunications, Inc.) and two of its current and former
executive officers (filed as Exhibit 10(i) to Sprint Corporation
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
(s) Executive Long-Term Incentive Plan (filed as Exhibit 10(j) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
(t) Executive Management Incentive Plan (filed as Exhibit 10(k) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
(u) Long-Term Incentive Compensation Plan, as amended (filed as
Exhibit 10(i) to Sprint Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, and incorporated herein
by reference).
(v) Short-Term Incentive Compensation Plan (filed as Exhibit 10(k) to
United Telecommunications, Inc. Annual Report on Form 10-K for
the year ended December 31, 1989, and incorporated herein by
reference).
(w) Retirement Plan for Directors, as amended (filed as Exhibit
(10)(u) to Sprint Corporation Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by
reference).
(x) Key Management Benefit Plan, as amended (filed as Exhibit 10(g)
to Sprint Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
(y) Agreements Regarding Special Compensation and Post Employment
Restrictive Covenants between Sprint Corporation and certain of
its Executive Officers (filed as Exhibit 10(d) to Sprint
Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, Exhibit 10(h) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, Exhibit
(10)(w) to Sprint Corporation Annual Report on Form 10-K for the
year ended December 31, 1996, Exhibit 10(w) to Sprint Corporation
Annual Report on Form 10-K for the year ended December 31, 1997,
and Exhibit 10 (b) to Sprint Corporation Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, and incorporated herein
by reference).
(z) Director's Deferred Fee Plan, as amended (filed as Exhibit
(10)(x) to Sprint Corporation Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by
reference). Summary of amendments (filed as Exhibit 10(c) to
Sprint Corporation Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference).
Summary of additional amendments (see Exhibit (10)(m)).
(aa) Form of Contingency Employment Agreements between Sprint
Corporation and certain of its executive officers (filed as
Exhibit 10(b) to Sprint Corporation Quarterly Report on Form 10-
Q for the quarter ended March 31, 1995, and incorporated herein
by reference).
(bb) Form of Indemnification Agreements between Sprint Corporation
(formerly United Telecommunications, Inc.) and its Directors and
Officers (filed as Exhibit 10(s) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference).
15
<PAGE>
(cc) Summary of Executive Officer and Board of Directors Benefits.
(dd) Amended and Restated Centel Director Stock Option Plan (filed as
Exhibit 10(aa) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein by
reference).
(ee) 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 (No. 333-06609) and incorporated herein by reference).
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of Registrant
(23) (a)Consent of Ernst & Young LLP
(b) Consent of Deloitte & Touche LLP
(27) Financial Data Schedules
(a) December 31, 1998
(b) September 30, 1998 Restated
(c) June 30, 1998 Restated
(d) March 31, 1998 Restated
(e) December 31, 1997 Restated
(f) December 31, 1996 Restated
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.
16
<PAGE>
(b)Reports on Form 8-K
Sprint filed a Current Report on Form 8-K dated October 28, 1998, in which it
reported that it had elected to delay a planned public offering of its PCS
stock and would, instead, proceed with the Recapitalization, subject to
shareholder approval.
Sprint filed a Current Report on Form 8-K dated November 2, 1998 in which it
reiterated that it had elected to proceed with the Recapitalization, subject to
shareholder approval, and that it would proceed with a debt offering. Sprint
included in this Current Report the audited consolidated financial results of
Sprint and the audited combined financial results of the FON Group, the PCS
Group and Sprint Spectrum Holding Company combined with MinorCo and PhillieCo
as well as certain other information contained in the proxy
statement/prospectus sent to Sprint shareholders in connection with the PCS
Restructuring and the Recapitalization, updated to reflect (1) financial
results and other information for the nine months ended September 30, 1998, (2)
the delay of the planned public offering of PCS Stock, and (3) the planned debt
offering. The financial statements included the following:
Annex I-Sprint Corporation Information
-Selected Financial Data
-Sprint Corporation Management's Discussion and Analysis of
Financial Condition and Results of Operations
-Report of Independent Auditors
-Independent Auditors' Report
-Sprint Corporation Consolidated Financial Statements and Notes
thereto
-Sprint Corporation Unaudited Pro Forma Condensed Combined
Financial Statements and Notes thereto
Annex II-PCS Group Information
-Business
-Historical PCS Group Selected Financial Data
-PCS Group Management's Discussion and Analysis of Financial
Condition and Results of Operations
-Report of Independent Auditors
-PCS Group Combined Financial Statements and Notes thereto
-Sprint Spectrum Holding Company Combined with MinorCo and
PhillieCo Selected Financial Data
-Sprint Spectrum Holding Company Combined with MinorCo and
PhillieCo Management's Discussion and Analysis of Financial
Condition and Results of Operations
-Independent Auditors' Report
-Sprint Spectrum Holding Company Combined with MinorCo and
PhillieCo Financial Statements and Notes thereto
-PCS Group Unaudited Pro Forma Condensed Combined Financial
Statements and Notes thereto
Annex III-FON Group Information
-Business
-FON Group Selected Financial Data
-FON Group Management's Discussion and Analysis of Financial
Condition and Results of Operations
-Report of Independent Auditors
-FON Group Combined Financial Statements and Notes thereto
Sprint filed a Current Report on Form 8-K dated November 12, 1998 in order to
file the Computation of Supplemental Pro Forma Ratios of Earnings to Fixed
Charges in connection with its $5.0 billion debt offering.
Sprint filed a Current Report on Form 8-K dated November 23, 1998 in which it
reported consummation of the PCS Restructuring.
(c)Exhibits are listed in Item 14(a).
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPRINT CORPORATION
(Registrant)
By /s/ W. T. Esrey
-------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
Date: March 5, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 5th day of March, 1999.
/s/ W. T. Esrey
-------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
-------------------------------------
Arthur B. Krause
Executive Vice President and Chief
Financial Officer
/s/ John P. Meyer
-------------------------------------
John P. Meyer
Senior Vice President and Controller
Principal Accounting Officer
18
<PAGE>
SIGNATURES
SPRINT CORPORATION
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 5th day of March, 1999.
/s/ DuBose Ausley /s/ Ronald T. LeMay
- ------------------------------------- -------------------------------------
DuBose Ausley, Director
Ronald T. LeMay, Director
/s/ Warren L. Batts /s/ Linda K. Lorimer
- ------------------------------------- -------------------------------------
Warren L. Batts, Director
Linda K. Lorimer, Director
/s/ Michel Bon /s/ Charles E. Rice
- ------------------------------------- -------------------------------------
Michel Bon, Director
Charles E. Rice, Director
/s/ W. T. Esrey /s/ Ron Sommer
- ------------------------------------- -------------------------------------
William T. Esrey, Director
Ron Sommer, Director
/s/ Irvine O. Hockaday Jr. /s/ Stewart Turley
- ------------------------------------- -------------------------------------
Irvine O. Hockaday Jr., Director
Stewart Turley, Director
/s/ Harold S. Hook
- -------------------------------------
Harold S. Hook, Director
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
Reference
ANNEX I ---------
<S> <C>
SPRINT CORPORATION
- ------------------
Selected Financial Data I-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations I-2
Consolidated Financial Statements
Management Report I-11
Report of Independent Auditors I-12
Consolidated Statements of Income for each of the three years ended
December 31, 1998 I-13
Consolidated Statements of Comprehensive Income for each of the
three years ended December 31, 1998 I-15
Consolidated Balance Sheets as of December 31, 1998 and 1997 I-16
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1998 I-17
Consolidated Statements of Shareholders' Equity for each of the
three years ended December 31, 1998 I-18
Notes to Consolidated Financial Statements I-19
Financial Statement Schedule
Schedule II--Consolidated Valuation and Qualifying Accounts for each
of the three years ended December 31, 1998 I-36
ANNEX II
SPRINT FON GROUP
- ----------------
Selected Financial Data II-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations II-2
Combined Financial Statements
Management Report II-9
Report of Independent Auditors II-9
Combined Statements of Income for each of the three years ended
December 31, 1998 II-10
Combined Statements of Comprehensive Income for each of the three
years ended December 31, 1998 II-11
Combined Balance Sheets as of December 31, 1998 and 1997 II-12
Combined Statements of Cash Flows for each of the three years ended
December 31, 1998 II-13
Notes to Combined Financial Statements II-14
Financial Statement Schedule
Schedule II--Combined Valuation and Qualifying Accounts for each of
the three years ended December 31, 1998 II-27
ANNEX III
SPRINT PCS GROUP
- ----------------
Selected Financial Data III-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations III-2
Combined Financial Statements
Management Report III-7
Report of Independent Auditors III-8
Combined Statements of Operations for each of the three years ended
December 31, 1998 III-10
Combined Balance Sheets as of December 31, 1998 and 1997 III-11
Combined Statements of Cash Flows for each of the three years ended
December 31, 1998 III-12
Notes to Combined Financial Statements III-13
Financial Statement Schedule
Schedule II--Combined Valuation and Qualifying Accounts for the year
ended December 31, 1998 III-24
</TABLE>
<PAGE>
Annex I
SPRINT CORPORATION
Consolidated Financial Information
<PAGE>
SELECTED FINANCIAL DATA Sprint Corporation
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------------------------------------------------------------------
Net operating revenues $17,134.3 $14,873.9 $13,887.5 $12,735.3 $11,964.8
Operating income(/1/),(/2/) 190.4 2,451.4 2,267.2 1,834.3 1,690.7
Income from continuing
operations(/1/),(/2/),(/3/) 450.5 952.5 1,190.9 946.1 899.2
Earnings per Share and Divi-
dends
- ---------------------------------------------------------------------------------
Earnings per common share
from continuing
operations:(/2/),(/3/)
Diluted $ NM $ 2.18 $ 2.79 $ 2.69 $ 2.56
Basic NM 2.21 2.82 2.71 2.59
Dividends per common share 1.00 1.00 1.00 1.00 1.00
Pro Forma Earnings (Loss)
per Share(/4/)
- ---------------------------------------------------------------------------------
Earnings (Loss) per common
share from continuing
operations:(/2/),(/3/)
Sprint FON Group (diluted) $ 3.55 $ 3.14 $ 3.07 $ 2.74 $ 2.56
Sprint FON Group (basic) 3.61 3.19 3.11 2.76 2.59
Sprint PCS Group (diluted
and basic) (4.42) (3.52) NA NA NA
Financial Position
- ---------------------------------------------------------------------------------
Total assets $33,231.1 $18,273.6 $16,915.2 $15,074.3 $14,425.2
Property, plant and
equipment, net 18,983.0 11,494.1 10,464.1 9,715.8 10,258.8
Total debt (including short-
term borrowings) 12,189.3 3,879.6 3,273.9 5,668.9 4,927.7
Shareholders' equity 12,448.3 9,025.2 8,519.9 4,642.6 4,524.8
Cash Flow Data
- ---------------------------------------------------------------------------------
Net cash provided by
operating activities--
continuing operations(/5/) $ 4,255.4 $ 3,379.0 $ 2,403.5 $ 2,609.6 $ 2,339.6
Capital expenditures 4,231.1 2,862.6 2,433.6 1,857.3 1,751.6
</TABLE>
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 shareholders' equity as previously reported.
Sprint's 1998 results of operations include Sprint PCS' operating results on a
consolidated basis for the entire year. The Cable Partners' share of losses
through the PCS Restructuring date has been reflected as "Other partners' loss
in Sprint PCS" in the Consolidated Statements of Income. Before 1998, Sprint's
investment in Sprint PCS was accounted for using the equity method. Sprint PCS'
financial position at year-end 1998 has also been reflected on a consolidated
basis. Cash flow data reflects Sprint PCS' cash flows only after the PCS
Restructuring date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General" for a more detailed description
of the PCS Restructuring, the Recapitalization and the Top-up.
(/1/In)1998, the PCS Group recorded a nonrecurring charge to write off $179
million of acquired in-process research and development costs related to
the PCS Restructuring. This charge reduced operating income and income from
continuing operations by $179 million.
(/2/The)FON Group recorded nonrecurring charges of $20 million in 1997 and $60
million in 1996 related to litigation within the long distance division.
These charges reduced income from continuing operations by $13 million in
1997 and $36 million in 1996. In 1995, The FON Group recorded a
nonrecurring charge of $88 million related to a restructuring within the
local division. This reduced income from continuing operations by $55
million.
(/3/In)1998, the FON Group recorded net nonrecurring gains of $104 million
mainly from the sale of local exchanges. This increased income from
continuing operations by $62 million. In 1997, The FON Group recorded
nonrecurring gains of $71 million mainly from sales of local exchanges and
certain investments. These gains increased income from continuing
operations by $44 million. In 1994, the FON Group recognized a $35 million
gain on the sale of equity securities, which increased income from
continuing operations by $22 million.
(/4/Pro)forma earnings per share for the FON Group assumes the FON shares
created in the Recapitalization existed for all periods presented.
Pro forma loss per share for the PCS Group assumes the PCS Restructuring,
the Recapitalization and the Top-up occurred at the beginning of 1997 and
excludes the PCS Group's write-off of $179 million of acquired in-process
research and development costs. These pro forma amounts are for comparative
purposes only and do not necessarily represent what actual results of
operations would have been had the transactions occurred at the beginning of
1997, nor do they indicate the results of future operations.
(/5/The)1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
NM = Not meaningful
NA = Not applicable
I-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sprint Corporation
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares to maintain their combined 20% voting power in Sprint
(Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless personal communication services (PCS) operations. These operations are
referred to as the PCS Group.
The FON stock is intended to reflect the performance of all of Sprint's other
operations. These operations are referred to as the FON Group and include the
following:
. Core businesses
. Long distance division
. Local division
. Product distribution and directory publishing businesses
. Activities to develop and deploy Sprint ION(SM), Integrated On-Demand
Network
. Other ventures, including Sprint's investment in Global One.
FON and PCS shareholders are subject to the risks related to all of Sprint's
businesses, assets and liabilities. Owning FON or PCS shares does not represent
a direct legal interest in the assets and liabilities of the Groups. Rather,
shareholders remain invested in Sprint and continue to vote as a single voting
class for Board member elections (other than Class A directors elected by FT
and DT) and most other company matters.
FON Group or PCS Group events affecting Sprint's consolidated income statements
and balance sheets could, in turn, affect the other Group's financial
statements or stock price.
Net losses of either Group, and dividends or distributions on, or repurchases
of, PCS stock or FON stock will reduce Sprint funds legally available for
dividends on both Groups' stock. Sprint does not expect to pay dividends on the
PCS shares in the foreseeable future.
Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (MD&A) should be read along with the FON Group's MD&A
and the PCS Group's MD&A.
- --------------------------------------------------------------------------------
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.
Some factors that could cause actual results to differ include:
. the effects of vigorous competition in the markets in which Sprint
operates;
. the costs and business risks related to entering and expanding new
markets necessary to provide seamless services and new services;
. the ability of the PCS Group to establish and grow a significant market
presence;
. the risks related to Sprint's investments in Global One and other joint
ventures;
. the impact of any unusual items resulting from ongoing evaluations of
Sprint's business strategies;
. requirements imposed on Sprint or latitude allowed its competitors by
the Federal Communications Commission (FCC) or state regulatory
commissions under the Telecommunications Act of 1996 (Telecom Act);
. unexpected results of litigation filed against Sprint;
. the impact of the Year 2000 issue and any related noncompliance; and
. 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.
I-2
<PAGE>
The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements. Forward-
looking statements are found throughout MD&A. The reader should not place undue
reliance on forward-looking statements, which speak only as of the date of this
report. Sprint is not obligated to publicly release any revisions to forward-
looking statements to reflect events after the date of this report or
unforeseen events.
- --------------------------------------------------------------------------------
General Overview of the Sprint FON Group
- --------------------------------------------------------------------------------
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network using state-of-the-art fiber-optic and electronic technology. The
division provides domestic and international voice, video and data
communications services as well as integration management and support services
for computer networks.
Local Division
The local division consists of regulated local phone companies serving more
than 7.6 million access lines in 18 states. It provides local phone services,
access by phone customers and other carriers to its local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas.
Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint ION extends Sprint's existing advanced network capabilities to the
customer and enables Sprint to provide the network infrastructure to meet
customers' demands for data, Internet, and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
Other Ventures
The "other ventures" segment includes the FON Group's investment in Global One,
a joint venture with FT and DT. Sprint is a 1/3 partner in Global One's
operating group serving Europe (excluding France and Germany) and is a 50%
partner in Global One's operating group for the worldwide activities outside
the United States and Europe. The segment also includes the FON Group's
investments in EarthLink Network, Inc., an Internet service provider; Call-Net,
a long distance provider in Canada operating under the Sprint brand name; and
certain other telecommunications investments and ventures. All of these
investments are accounted for on the equity basis.
- --------------------------------------------------------------------------------
General Overview of the Sprint PCS Group
- --------------------------------------------------------------------------------
The PCS Group includes Sprint's domestic wireless mobile phone services. It
operates the only 100% digital PCS wireless network in the United States, with
licenses to provide nationwide service using a single frequency and a single
technology. At year-end 1998, the PCS Group, together with certain affiliates,
operated PCS systems in 45 of the 50 largest U.S. metropolitan areas. The PCS
Group has licenses to serve nearly 270 million people in all 50 states, Puerto
Rico and the U.S. Virgin Islands. With market launches in January 1999, the PCS
Group's service now reaches nearly 170 million people across the nation. The
PCS Group provides nationwide service through:
. operating its own digital network in major U.S. metropolitan areas,
. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,
. roaming on other providers' analog cellular networks using Dual-
Band/Dual-Mode handsets, and
. roaming on other providers' digital PCS networks that use code division
multiple access (CDMA).
The PCS Group began commercial CDMA operations in certain markets late in the
1996 fourth quarter.
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
Consolidated
Total net operating revenues were as follows:
<TABLE>
- -------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------
(in millions)
<S> <C> <C> <C>
FON Group $16,016.9 $14,873.9 $13,887.5
PCS Group 1,225.4 -- --
Intergroup eliminations (108.0) -- --
- -------------------------------------------------------
Net operating revenues $17,134.3 $14,873.9 $13,887.5
---------------------------------------
</TABLE>
Income from continuing operations was as follows:
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
FON Group $1,540.1 $1,371.6 $1,310.6
PCS Group (1,089.6) (419.1) (119.7)
- ----------------------------------------------------------------
Income from continuing operations $ 450.5 $ 952.5 $1,190.9
----------------------------------------------
</TABLE>
I-3
<PAGE>
Sprint FON Group
<TABLE>
- --------------------------------------------------------
<CAPTION>
1998 1997 1996
- --------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $16,016.9 $14,873.9 $13,887.5
Operating expenses 13,257.1 12,404.0 11,619.8
- --------------------------------------------------------
Operating income $ 2,759.8 $ 2,469.9 $ 2,267.7
----------------------------------------
Operating margin 17.2% 16.6% 16.3%
----------------------------------------
Capital expenditures $ 3,159.2 $ 2,708.9 $ 2,433.6
----------------------------------------
</TABLE>
Net Operating Revenues
Net operating revenues increased 8% in 1998 and 7% in 1997. These increases
mainly reflect growth of the FON Group's long distance and local divisions.
Long Distance Division
All major market segments--business, residential and wholesale--contributed to
the increase in the long distance division's revenues in 1998 and 1997. The
increases mainly reflect strong data services revenue growth and strong minute
growth of 15% in 1998 and 14% in 1997, partly offset by a more competitive
pricing environment and a change in the mix of products sold.
Business and data market revenues increased 15% in 1998 and 10% in 1997. This
reflects growth in data services as well as toll-free inbound and outbound
calls.
Residential market revenues increased 5% in 1998 and 6% in 1997. These
increases reflect strong revenue and volume growth from long distance calls.
Growth was also enhanced by Sprint Sense Anytime(R) as well as increased
international revenues, prepaid card revenues and calling card calls made by
customers of local phone companies.
Wholesale market revenues increased 8% in 1998 and 22% in 1997. This reflects
strong minute growth mainly from increased outbound toll-free calls, partly
offset by a change in international mix to lower yielding, but higher margin,
countries.
Local Division
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. Sprint sold approximately 139,000 residential and business access
lines in Illinois in 1997 and the remaining 81,000 access lines were sold in
November 1998. For comparative purposes, the following discussion of local
division results assumes these transfer pricing changes and sales of exchanges
occurred at the beginning of 1996.
Local division revenues increased 5% in both 1998 and 1997, mainly reflecting
customer access line growth and increased sales of equipment and network-based
services, such as Caller ID and Call Waiting.
Local service revenues, which grew 9% in 1998 and 10% in 1997, increased due to
customer access line growth and continued demand for network-based services.
Revenues in 1998 also reflect increased sales of private line services and
revenues from maintaining customer wiring and equipment. The 1997 growth also
reflects expanded local calling areas.
Network access revenues increased 4% in 1998 and 3% in 1997 reflecting an 8%
increase in minutes of use in 1998 and a 7% increase in 1997, partly offset by
FCC-mandated access rate reductions. Access rate reductions took effect in July
1997 and January and July 1998.
Toll service revenues decreased 26% in 1998 and 20% in 1997, mainly due to
increased competition in the intraLATA long distance market, which is expected
to continue. In addition, toll service areas have been decreasing in size
because certain local calling areas are expanding. The reduced revenues were,
in part, offset by increases in local service revenues and by increases in
network access revenues paid by other carriers providing long distance services
to the local division's customers.
Other revenues increased 9% in 1998 and 11% in 1997 because of increased
equipment sales of business systems and data networks, growth in payphone and
commission revenues, and revenues from providing billing and collection
services.
Product Distribution & Directory Publishing Businesses
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The following discussion assumes these transfer pricing changes
occurred at the beginning of 1996.
The product distribution and directory publishing businesses' revenues
increased 16% in 1998 and 19% in 1997. Nonaffiliated revenues, which account
for roughly 60% of revenues in 1998 and 1997, increased 10% in 1998 and
remained flat in 1997 due to increased competition.
Operating Expenses
The FON Group's operating expenses increased 7% in both 1998 and 1997 mainly to
support revenue growth.
Long Distance Division
Long distance division operating expenses increased 7% in 1998 and 8% in 1997.
Interconnection costs decreased 2% in 1998 and increased 6% in 1997. Reductions
in per minute costs for both domestic and international access more than offset
the impact of increased calling volumes in 1998 versus 1997, and partly offset
the impact of increased calling volumes in 1997 versus 1996. The rate
reductions were generally due to domestic FCC-mandated access rate reductions
I-4
<PAGE>
that took effect in July 1997 and in January and July 1998. Operations expense
increased due to growth in data services as well as increases in network
equipment operating leases in both years. Operations expense in 1998 also
includes costs related to Sprint's efforts to achieve Year 2000 compliance for
its telecommunications network and operating systems. Operations expense in
1997 also reflects increased costs related to FCC-mandated payments to public
payphone providers. Selling, general and administrative (SG&A) expense
increased reflecting the overall growth of the business as well as increased
marketing and promotions to support products and services. SG&A for 1998 also
included costs related to Sprint's efforts to achieve Year 2000 compliance for
information systems and applications supporting such processes as billing,
customer service and other administrative support services.
Local Division
The following local division discussion assumes the transfer pricing changes
and sales of exchanges occurred at the beginning of 1996. See "Net Operating
Revenues--Local Division" for more details.
Local division operating expenses increased 3% in 1998 and 4% in 1997
reflecting increases in SG&A expenses and depreciation and amortization. SG&A
increased mainly because of increased customer service costs related to
customer access line growth and marketing costs to promote new products and
services. SG&A for 1998 also included costs related to Sprint's efforts to
achieve Year 2000 compliance. Depreciation and amortization expense increased
reflecting increased capital expenditures.
Product Distribution & Directory Publishing Businesses
The following PDDP discussion assumes the transfer pricing changes occurred at
the beginning of 1996. See "Net Operating Revenues--Product Distribution and
Directory Publishing Businesses" for more details.
The product distribution and directory publishing businesses' operating
expenses increased reflecting increased equipment sales. SG&A expense increased
because of costs related to the division's acquisition of a sales force from
another directory sales company.
Sprint ION(SM)
Operating expenses for Sprint ION in 1998 reflect its initial development and
deployment activities and include costs for network research and testing,
systems and operations development, product development, and advertising to
increase public awareness.
Other Ventures
The "other ventures" segment's operating expenses mainly reflect activities
related to offering Internet services. In June 1998, the FON Group completed
the strategic alliance to combine its Internet business with EarthLink. As part
of the alliance, EarthLink obtained the FON Group's Sprint Internet Passport
customers and took over the day-to-day operations of those services. In
exchange, Sprint acquired an equity interest in EarthLink.
Sprint PCS Group
<TABLE>
- -------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $ 1,225.4 $ -- $ --
Operating expenses 3,794.8 18.5 0.5
- -------------------------------------------------
Operating loss $(2,569.4) $(18.5) $(0.5)
-----------------------------
Capital expenditures $ 1,071.9 $153.7 $ --
-----------------------------
</TABLE>
The PCS Group's 1998 results of operations included SprintCom's operating
results as well as Sprint PCS' operating results on a consolidated basis for
the entire year. Before 1998, Sprint's investment in Sprint PCS was accounted
for using the equity method.
In 1998, the PCS Group recorded a one-time, non-cash charge of $179 million to
write off acquired in-process research and development costs related to the PCS
Restructuring.
The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail outlet, and service revenues generated by sales to its
customers, accounted for 25% of net operating revenues in 1998.
Pro Forma Sprint PCS Group
To provide a more meaningful analysis of the PCS Group's underlying operating
results, the following supplemental discussion assumes the PCS Restructuring
occurred at the beginning of 1997 and excludes the write-off of acquired in-
process research and development costs.
<TABLE>
- --------------------------------------------------------------------
<CAPTION>
1998 1997
- --------------------------------------------------------------------
(in millions)
<S> <C> <C>
Net operating revenues $ 1,225.4 $ 258.0
Operating expenses 3,865.4 2,360.7
- --------------------------------------------------------------------
Operating loss $(2,640.0) $(2,102.7)
--------------------------------------------
Capital expenditures (including capital lease
obligations) $ 2,903.6 $ 2,278.3
--------------------------------------------
</TABLE>
The PCS Group's net operating revenues include subscriber revenues (including
monthly recurring charges and usage charges), roaming revenues and sales of
handsets and accessory equipment. The PCS Group's net operating revenues were
$1.2 billion in 1998 versus $258 million in 1997, reflecting the launch of 91
new markets and the addition of 1.7 million customers in 1998. The PCS Group
ended 1998 with nearly 2.6 million customers in 225 markets nationwide.
Approximately 20% of 1998 net operating revenues, and
I-5
<PAGE>
nearly half of 1997 revenues, were from sales of handsets and accessories. As
part of the PCS Group's marketing plans, handsets are normally sold at prices
well below the PCS Group's cost.
The PCS Group's costs of services and products mainly includes handset and
accessory costs, interconnection costs, and switch and cell site expenses.
These costs increased $720 million in 1998 driven by the significant growth in
customers and the expanded market coverage.
The PCS Group's SG&A expense mainly includes marketing costs to promote
products and services, as well as salary and benefit costs. SG&A expense
increased $766 million in 1998 reflecting increased marketing and advertising
costs to promote products and services, as well as increased labor costs to
support increased subscriber activity.
Depreciation and amortization expense for the PCS Group consists of
depreciation of network assets and amortization of intangible assets acquired
in the PCS Restructuring. The intangible assets include goodwill, PCS licenses,
customer base, microwave relocation costs and assembled workforce, which are
being amortized over three to 40 years. Depreciation and amortization expense
increased $19 million in 1998.
- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------
Interest Expense
Interest costs in the following table only reflect interest costs on
borrowings. Interest costs related to deferred compensation plans and customer
deposits have been excluded so as not to distort the effective interest rate on
borrowings.
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Interest expense on outstanding debt(/1/) $ 672.2 $ 159.9 $ 182.7
Capitalized interest costs 167.1 93.0 104.0
- -------------------------------------------------------------------------
Total interest costs on outstanding debt $ 839.3 $ 252.9 $ 286.7
--------------------------------------------------------
Average debt outstanding(/2/) $10,019.0 $3,251.3 $3,604.9
--------------------------------------------------------
Effective interest rate 8.4% 7.8% 8.0%
--------------------------------------------------------
</TABLE>
(/1/Interest)expense for 1996 includes $21.5 million of interest expense
included in "Discontinued operation, net" on the Consolidated Statements of
Income.
(/2/Average)debt outstanding for 1998 is on a pro forma basis as if Sprint PCS
debt had been included in Sprint's outstanding debt balance all year.
The PCS Group capitalizes interest costs related to network buildout and PCS
licenses in markets that are not yet operational. Capitalization of interest
stops and amortization begins when the related markets are launched. The FON
Group capitalizes interest costs related to constructing capital assets.
Sprint capitalized interest costs related to its investment in Sprint PCS until
July 1997 when Sprint PCS emerged from the development stage. Amortization of
the capitalized balance began at that time.
Sprint's 1998 interest costs include an entire year of Sprint PCS' interest due
to the PCS Restructuring. The increase in the 1998 effective interest rate was
mainly due to Sprint PCS' borrowings made before the PCS Restructuring. These
borrowings had higher interest rates than Sprint's borrowings. The increase in
the effective interest rate was partly offset by an increase in Sprint's short-
term borrowings, which have lower interest rates compared to long-term
borrowings.
Global One
Sprint recorded losses related to Global One totaling $186 million in 1998,
$162 million in 1997 and $82 million in 1996. In an effort to improve
profitability, Global One is refocusing its efforts to place more emphasis on
multinational customers. The 1998 loss includes $37 million of nonrecurring
charges for business improvement and network rationalization initiatives.
Global One is continuing to implement these initiatives, which are expected to
result in additional charges.
Sprint PCS
Prior to the PCS Restructuring, Sprint's ownership interest in Sprint PCS was
accounted for using the equity method. Sprint's share of losses from Sprint PCS
was $660 million in 1997 and $192 million in 1996. The increased losses in 1997
reflect marketing and promotional costs, including losses on handset sales, to
support a growing customer base and service launches in additional markets. In
1998, the Cable Partners' share of losses through the PCS Restructuring date
has been reflected as "Other partners' loss in Sprint PCS" in the Consolidated
Statements of Income.
Other Income, Net
Other income consisted of the following:
<TABLE>
- --------------------------------------------------
<CAPTION>
1998 1997 1996
- --------------------------------------------------
(in millions)
<S> <C> <C> <C>
Dividend and interest income $ 92.8 $ 75.4 $ 99.7
Other, net 77.7 65.1 15.6
- --------------------------------------------------
Total $170.5 $140.5 $115.3
-----------------------------
</TABLE>
Dividend and interest income for all years reflects interest earned on
temporary investments. For 1998, it also reflects interest earned on loans to
unconsolidated affiliates and interest earned on short-term investments
following Sprint's $5.0 billion debt offering (see "Liquidity and Capital
Resources--Liquidity" for more details). "Other, net" for 1998 and 1997 mainly
reflects net gains on sales of local exchanges and certain other investments,
partly offset by losses from certain equity method investments.
I-6
<PAGE>
Income Taxes
Sprint's effective tax rates were 46.5% in 1998, 39.8% in 1997 and 37.7% in
1996. See Note 6 of Notes to Consolidated Financial Statements for information
about the differences that caused the effective income tax rates to vary from
the statutory federal rate.
Extraordinary Items, Net
In 1998, Sprint redeemed, prior to scheduled maturities, $138 million of FON
Group debt with interest rates ranging from 7.9% to 9.3%. This resulted in a $5
million after-tax extraordinary loss for the FON Group. Also in 1998, Sprint
redeemed, prior to scheduled maturities, $3.3 billion of PCS Group debt with a
weighted average interest rate of 8.3%. This resulted in a $31 million after-
tax extraordinary loss for the PCS Group. This debt was repaid with a portion
of the proceeds from Sprint's $5.0 billion debt offering in November 1998. In
1996, Sprint also redeemed, prior to scheduled maturities, $190 million of FON
Group debt with interest rates ranging from 6.0% to 9.5%. This resulted in a $5
million after-tax extraordinary loss for the FON Group.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
- ----------------------------------------
<CAPTION>
1998 1997
- ----------------------------------------
(in millions)
<S> <C> <C>
Consolidated assets $33,231.1 $18,273.6
-----------------
</TABLE>
Consolidated assets increased mainly due to the PCS Restructuring. Net
property, plant and equipment increased $7.5 billion in 1998 reflecting the PCS
Restructuring and capital expenditures to support the PCS network buildout. The
increase also reflects capital expenditures to support the core long distance
and local networks and expanded product and service offerings. Net intangibles
increased $6.8 billion reflecting goodwill, PCS licenses, microwave relocation
costs and customer base resulting from the PCS Restructuring. Sprint's debt-to-
capital ratio was 49.5% at year-end 1998 versus 30.0% at year-end 1997. See
"Liquidity and Capital Resources" for more information about changes in
Sprint's Consolidated Balance Sheets.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Consolidated cash flows include Sprint PCS' cash flows only after the PCS
Restructuring date.
Operating Activities
<TABLE>
- -----------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows provided by operating activities $4,255.4 $3,379.0 $2,403.5
-----------------------------------------------------
</TABLE>
Operating cash flows increased 26% in 1998 and 41% in 1997 mainly reflecting
improved operating results in the FON Group's core businesses and changes in
working capital in both the FON Group and the PCS Group. During 1996, the FON
Group terminated an accounts receivable sales agreement, which reduced cash
flows by $600 million.
Investing Activities
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows used by investing activities from
continuing operations $(4,485.4) $(4,499.5) $(3,115.5)
-------------------------------------------------------------
</TABLE>
The FON Group's capital expenditures totaled $3.2 billion in 1998, $2.7 billion
in 1997 and $2.4 billion in 1996. Long distance capital expenditures were
incurred mainly to enhance network reliability, meet increased demand for voice
and data-related services and upgrade capabilities for providing new products
and services. The local division incurred capital expenditures to accommodate
access line growth and expand capabilities for providing enhanced services. PCS
Group capital expenditures, totaling $1.1 billion in 1998 and $154 million in
1997, were incurred to support the PCS network buildout.
Investing activities also include proceeds from sales of assets (mainly sales
of local exchanges) totaling $230 million in 1998 and $292 million in 1997. In
addition, in 1997, Sprint paid $460 million toward the purchase of its PCS
licenses and purchased the net assets of Paranet, Inc. for $375 million.
"Investments in and loans to affiliates, net" consisted of the following:
<TABLE>
- -------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Sprint PCS
Capital contributions $ 33.5 $ 405.9 $297.6
Loans and advances, net 153.6 254.1 67.1
Capitalized interest -- 46.3 96.3
Investments in debt securities -- -- 100.0
- -------------------------------------------------------
187.1 706.3 561.0
- -------------------------------------------------------
Global One
Capital contributions 283.5 -- 39.5
Advances, net (15.7) 199.7 --
- -------------------------------------------------------
267.8 199.7 39.5
- -------------------------------------------------------
Other, net 235.8 185.8 41.9
- -------------------------------------------------------
Total $690.7 $1,091.8 $642.4
-----------------------------------
</TABLE>
Amounts for Sprint PCS in 1998 reflect contributions and advances prior to the
PCS Restructuring. These amounts, as well as capital contributions and net
advances to Sprint PCS prior to 1998, were used to fund capital and operating
requirements. Capital contributions and net advances to Global One in all years
were also mainly
I-7
<PAGE>
used to fund capital and operating requirements. "Other, net" includes the FON
Group's investment in EarthLink and an additional $148 million investment in
Call-Net in 1998 to retain the FON Group's approximate 25% interest after Call-
Net purchased Fonorola Inc.
Financing Activities
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows provided by financing activities $733.5 $71.6 $479.1
------------------------------------------
</TABLE>
Financing activities in 1998 reflect proceeds from long-term debt of $5.2
billion, partly offset by payments on long-term debt. Net proceeds from
borrowings in 1998 were mainly used to repay existing debt. In 1997, Sprint had
net borrowings of $532 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 cash from
Cellular's repayment of intercompany advances, to reduce outstanding debt.
Sprint paid dividends of $430 million in 1998 and 1997, and $420 million in
1996.
Capital Requirements
Sprint's 1999 investing activities, mainly consisting of capital expenditures
and investments in affiliates, are expected to require cash of $6.4 to $7.0
billion. FON Group capital expenditures are expected to range between $3.7 and
$4.0 billion, and PCS Group capital expenditures are expected to be between
$2.3 and $2.6 billion. Additional funds will be required to fund the PCS
Group's expected operating losses, working capital and debt service
requirements. Investments in affiliates are expected to require cash of
approximately $400 million. Dividend payments are expected to approximate $445
million in 1999.
In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement that provides for the allocation of income taxes between the FON
Group and the PCS Group. Sprint expects the FON Group to make significant
payments to the PCS Group under this agreement because of expected PCS Group
operating losses in the near future. These payments will reflect the PCS
Group's incremental cumulative effect on Sprint's consolidated federal and
state tax liability and tax credit position. During 1998, the PCS Group accrued
benefits under the agreement totaling $191 million and received related
payments from the FON Group totaling $20 million. The remaining $171 million
will be paid by the FON Group during the first half of 1999. See Note 2 of
Notes to Consolidated Financial Statements, "Allocation of Federal and State
Income Taxes," for more details.
Liquidity
Sprint mainly uses commercial paper to fund its short-term working capital
needs. Sprint also uses the long-term bond market as well as other debt markets
to fund its needs. Sprint intends to continue borrowing 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.
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 replaced its
previous $1.5 billion revolving credit facility. Sprint also has a separate
five-year revolving credit facility with a bank. At year-end 1998, Sprint had
total unused lines of credit of $4.8 billion under these facilities.
At year-end 1998, the PCS Group had borrowed $1.8 billion under revolving
credit facilities with banks totaling $2.1 billion.
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission for $8.0 billion of debt securities. This
replaced Sprint's existing shelf registration of $1.0 billion. In November
1998, Sprint issued $5.0 billion under the new shelf. Sprint may offer for sale
up to $3.0 billion under the new shelf. Sprint allocated $3.9 billion of the
debt proceeds to the PCS Group with a weighted average interest rate of
approximately 8.5%. The PCS Group used these funds to repay existing debt.
Any borrowings Sprint may incur are ultimately limited by certain debt
covenants. Sprint could borrow up to $14.1 billion at year-end 1998 under the
most restrictive of its debt covenants. For some borrowings, Sprint must
maintain certain levels of consolidated net worth.
In 1998, FT and DT purchased 5.1 million PCS shares as part of the PCS
Restructuring to maintain their combined 20% voting power. Proceeds from
exercising these equity purchase rights totaled $85 million and were used to
fund working capital needs and the continued buildout of the PCS Group's
network.
In February 1999, Sprint completed an offering of Series 1 PCS stock. In this
offering, Sprint sold 24.4 million shares at a price to the public of $28.75
per share. The net proceeds to Sprint totaled $672 million. In connection with
this offering, FT and DT purchased 6.1 million shares of Series 3 PCS stock.
The net proceeds to Sprint from the sale of this stock totaled $169 million.
The proceeds from the offering and purchase by FT and DT were attributed to the
PCS Group and will be used for the continued buildout of the PCS network and
working capital needs.
- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------
See "Regulatory Developments" in the FON Group's MD&A and the PCS Group's MD&A.
I-8
<PAGE>
- --------------------------------------------------------------------------------
Financial Strategies
- --------------------------------------------------------------------------------
General Hedging Policies
Sprint selectively enters into interest rate swap and cap agreements to manage
its exposure to interest rate changes on its debt. Sprint also enters into
forward contracts and options in foreign currencies to reduce the impact of
changes in foreign exchange rates. Sprint seeks to minimize counterparty credit
risk through stringent credit approval and review processes, the selection of
only the most creditworthy counterparties, continual review and monitoring of
all counterparties, and thorough legal review of contracts. Sprint also
controls exposure to market risk by regularly monitoring changes in foreign
exchange and interest rate positions under normal and stress conditions to
ensure they do not exceed established limits.
Sprint's derivative transactions are used for hedging purposes only and comply
with Board-approved policies. Senior management receives frequent 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. These international operations were not material
to the consolidated financial position, results of operations or cash flows at
year-end 1998. In addition, foreign currency transaction gains and losses were
not material to Sprint's 1998 results of operations. Sprint has not entered
into any significant foreign currency forward contracts or other derivative
instruments to hedge the effects of adverse fluctuations in foreign exchange
rates. As a result, Sprint was not subject to material foreign exchange risk.
- --------------------------------------------------------------------------------
Year 2000 Issue
- --------------------------------------------------------------------------------
The "Year 2000" issue affects Sprint's installed computer systems, network
elements, software applications and other business systems that have time-
sensitive programs that may not properly reflect or recognize the year 2000.
Because many computers and computer applications define dates by the last two
digits of the year, "00" may not be properly identified as the year 2000. This
error could result in miscalculations or systems errors. The Year 2000 issue
may also affect the systems and applications of Sprint's customers, vendors,
resellers or affiliates.
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 has also completed the renovation of these computer
systems, network elements, other business systems and more than 90% of its
software applications. Year 2000 testing began in the 1998 third quarter and
will be completed in 1999. The FON Group is using both internal and external
resources to identify, correct or reprogram, and test its systems for Year 2000
compliance. It is also contacting others with whom it conducts business to
receive the proper warranties and assurances that those third parties,
including affiliates, are or will be Year 2000 compliant.
The PCS Group has completed an inventory of its computer systems, network
elements, software applications, products and other business systems. The Year
2000 assessment of these items has begun and the PCS Group expects to complete
the assessment in the 1999 first quarter along with plans 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 expects Year 2000 compliance for these critical systems to be
achieved in 1999.
The PCS Group is also contacting others with whom it conducts business to
receive the proper warranties and assurances that those third parties,
including affiliates, are or will be Year 2000 compliant. The PCS Group relies
on third-party vendors for a significant portion of its important operating and
computer system functions and, therefore, is highly dependent on those third-
party vendors to remediate network elements, computer systems, software
applications and other business systems. In addition, the PCS Group uses
publicly available services that are acquired without contract, such as global
positioning system timing signal, that may be affected by 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 force compliance.
The FON Group incurred approximately $140 million in 1998 for its Year 2000
compliance program and expects to incur approximately $110 million in 1999. The
PCS Group expects to incur approximately $50 million in 1999 for its Year 2000
compliance program. If compliance is not achieved in a timely manner by Sprint,
its affiliates (including Global One), or any significant
I-9
<PAGE>
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. Sprint
is developing and will implement, if necessary, appropriate contingency plans
to mitigate to the extent possible the effects of any Year 2000 noncompliance.
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
See Note 15 of Notes to Consolidated Financial Statements for a discussion of a
recently issued accounting pronouncement.
I-10
<PAGE>
MANAGEMENT REPORT
Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this document. Management is
responsible for the consistency of reporting this information and for ensuring
that generally accepted accounting principles are used.
In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and codes of conduct are understood and practiced
by its employees.
The financial statements included in this document have been audited by Ernst &
Young LLP, independent auditors. Their audits were conducted using generally
accepted auditing standards and their reports are included herein.
The Board of Director's responsibility for these financial statements is
pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
- --------------------------------------------------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
- --------------------------------------------------------------------------------
Arthur B. Krause
Executive Vice President and Chief Financial Officer
I-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sprint Corporation
We have audited the accompanying consolidated balance sheets of Sprint
Corporation (Sprint) as of December 31, 1998 and 1997, and the related
consolidated statements of income, comprehensive income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1998. Our audits also included the financial statement schedule listed in
the Index to Financial Statements and Financial Statement Schedules. These
financial statements and the schedule are the responsibility of the management
of Sprint. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits. We did not audit the 1998 or
1997 consolidated financial statements of Sprint Spectrum Holding Company,
L.P., a wholly owned subsidiary of Sprint as of December 31, 1998 and an
investment in which Sprint had a 40% interest through November 23, 1998 (as
discussed in Note 1). Such financial statements reflect assets of $2.7 billion
as of December 31, 1998, and revenues of $1.2 billion for the year then ended
which we did not audit. 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. The consolidated financial statements and financial
statement schedule of Sprint Spectrum Holding Company, L.P. have been audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the 1998 assets and revenues and the 1997 equity
investment accounts which we did not audit, is based solely on the report of
the other auditors.
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, 1998 and 1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related 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.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1999
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Sprint Corporation and Partners of Sprint Spectrum
Holding Company, L.P.
We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries (Holdings) as of December 31, 1998 and 1997, and
the related consolidated statements of operations and cash flows for the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule (Schedule II). These financial statements and
Schedule II are the responsibility of Partnership management. Our
responsibility is to express an opinion on these consolidated financial
statements and Schedule II 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 financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31,1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule II, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Kansas City, Missouri
February 2, 1999
I-12
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME Sprint Corporation
(in millions)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Operating Revenues $17,134.3 $14,873.9 $13,887.5
- -------------------------------------------------------------------------------
Operating Expenses
Costs of services and products 8,787.2 7,451.0 6,912.9
Selling, general and administrative 5,272.8 3,245.2 3,116.4
Depreciation and amortization 2,704.8 1,726.3 1,591.0
Acquired in-process research and development
costs 179.1 -- --
- -------------------------------------------------------------------------------
Total operating expenses 16,943.9 12,422.5 11,620.3
- -------------------------------------------------------------------------------
Operating Income 190.4 2,451.4 2,267.2
Interest expense (728.2) (187.2) (196.7)
Equity in loss of Global One (186.0) (162.1) (82.1)
Other partners' loss in Sprint PCS 1,250.9 -- --
Equity in loss of Sprint PCS -- (659.6) (191.8)
Minority interest 144.8 -- --
Other income, net 170.5 140.5 115.3
- -------------------------------------------------------------------------------
Income from continuing operations before
income taxes 842.4 1,583.0 1,911.9
Income taxes (391.9) (630.5) (721.0)
- -------------------------------------------------------------------------------
Income from Continuing Operations 450.5 952.5 1,190.9
Discontinued operation, net -- -- (2.6)
Extraordinary items, net (36.0) -- (4.5)
- -------------------------------------------------------------------------------
Net Income 414.5 952.5 1,183.8
Preferred stock dividends (1.7) (1.0) (1.3)
- -------------------------------------------------------------------------------
Earnings applicable to common stock $ 412.8 $ 951.5 $ 1,182.5
---------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-13
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (continued) Sprint Corporation
(in millions, except per share data)
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
SPRINT COMMON STOCK(/1/)
Earnings applicable to common stock $ 852.9 $951.5 $1,182.5
--------------
Diluted Earnings per Common Share
Continuing operations $ 1.96 $ 2.18 $ 2.79
Discontinued operation -- -- (0.01)
Extraordinary items (0.01) -- (0.01)
- ----------------------------------------------------------------------------
Total $ 1.95 $ 2.18 $ 2.77
--------------
Diluted weighted average common shares 438.6 436.5 427.0
--------------
Basic Earnings per Common Share
Continuing operations $ 1.99 $ 2.21 $ 2.82
Discontinued operation -- -- (0.01)
Extraordinary items (0.01) -- (0.01)
- ----------------------------------------------------------------------------
Total $ 1.98 $ 2.21 $ 2.80
--------------
Basic weighted average common shares 430.8 430.2 421.7
--------------
FON COMMON STOCK(/1/)
Earnings applicable to common stock $ 118.3
-------
Diluted earnings per common share $ 0.27
-------
Diluted weighted average common shares 434.5
-------
Basic earnings per common share $ 0.28
-------
Basic weighted average common shares 427.6
-------
PCS COMMON STOCK(/1/)
Loss applicable to common stock $(558.4)
-------
Basic and Diluted Loss per Common Share
Continuing operations $ (1.26)
Extraordinary item (0.08)
- ----------------------------------------------------------------------------
Total $ (1.34)
-------
Basic and diluted weighted average common shares 415.8
-------
DIVIDENDS PER COMMON SHARE
Sprint common stock $ 0.75 $ 1.00 $ 1.00
--------------
FON common stock $ 0.25
-------
</TABLE>
(/1/As)discussed in Note 1 of Notes to Consolidated Financial Statements, the
Recapitalization occurred in November 1998. As a result, earnings per share
for Sprint common stock reflects earnings through the Recapitalization
date, while earnings (loss) per share for FON common stock and PCS common
stock reflects results from that date to year-end 1998.
See accompanying Notes to Consolidated Financial Statements.
I-14
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Sprint Corporation
(in millions)
<TABLE>
- ---------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $414.5 $952.5 $1,183.8
- ---------------------------------------------------------------------
Other Comprehensive Income
Unrealized holding gains on securities 21.0 11.7 4.6
Income tax expense (7.6) (4.4) (1.7)
- ---------------------------------------------------------------------
Net unrealized holding gains on securities 13.4 7.3 2.9
Foreign currency translation adjustments (2.1) 9.4 (0.8)
- ---------------------------------------------------------------------
Total other comprehensive income 11.3 16.7 2.1
- ---------------------------------------------------------------------
Comprehensive Income $425.8 $969.2 $1,185.9
-------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-15
<PAGE>
CONSOLIDATED BALANCE SHEETS Sprint Corporation
(in millions, except per share data)
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 605.2 $ 101.7
Accounts receivable, net of allowance for doubtful
accounts of $185.5 and $146.7 2,690.7 2,495.6
Inventories 477.1 352.0
Prepaid expenses 259.8 159.1
Notes and other receivables 118.2 464.6
Other 236.9 199.6
- ----------------------------------------------------------------------------
Total current assets 4,387.9 3,772.6
Investments in equity securities 489.2 303.0
Property, plant and equipment
FON Group 25,156.0 23,023.6
PCS Group 6,988.3 187.3
- ----------------------------------------------------------------------------
Total property, plant and equipment 32,144.3 23,210.9
Accumulated depreciation (13,161.3) (11,716.8)
- ----------------------------------------------------------------------------
Net property, plant and equipment 18,983.0 11,494.1
Investments in and advances to affiliates 645.0 1,243.0
Intangible assets
Goodwill 3,701.4 384.0
PCS licenses 3,036.6 544.5
Other 1,137.4 56.2
- ----------------------------------------------------------------------------
Total intangible assets 7,875.4 984.7
Accumulated amortization (182.4) (46.0)
- ----------------------------------------------------------------------------
Net intangible assets 7,693.0 938.7
Other 1,033.0 522.2
- ----------------------------------------------------------------------------
Total $33,231.1 $18,273.6
----------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 246.9 $ 131.0
Accounts payable 1,654.9 1,100.1
Construction obligations 978.9 --
Accrued interconnection costs 592.4 672.7
Accrued taxes 439.9 270.7
Advance billings 229.3 202.9
Other 1,298.8 699.4
- ----------------------------------------------------------------------------
Total current liabilities 5,441.1 3,076.8
- ----------------------------------------------------------------------------
Long-term debt 11,942.4 3,748.6
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 1,830.3 1,016.5
Postretirement and other benefit obligations 1,064.1 1,036.2
Other 504.9 370.3
- ----------------------------------------------------------------------------
Total deferred credits and other liabilities 3,399.3 2,423.0
Shareholders' equity
Common stock
Sprint, par value $2.50 per share, 1,000.0 shares
authorized, 350.3 shares issued and 343.8 shares
outstanding -- 875.7
Class A common stock, par value $2.50 per share,
200.0 shares authorized, 86.2 shares issued and
outstanding 215.6 215.6
FON, par value $2.00 per share, 4,200.0 shares
authorized, 350.3 shares issued and 344.5 shares
outstanding 700.5 --
PCS, par value $1.00 per share, 2,350.0 shares
authorized, 375.4 shares issued and 372.7 shares
outstanding 375.4 --
PCS preferred stock, no par, 0.3 shares authorized,
0.2 shares issued and outstanding 246.8 --
Capital in excess of par or stated value 7,586.2 4,457.7
Retained earnings 3,650.9 3,693.1
Treasury stock, at cost, 8.5 and 6.5 shares (426.0) (292.9)
Accumulated other comprehensive income 103.6 107.9
Other (4.7) (31.9)
- ----------------------------------------------------------------------------
Total shareholders' equity 12,448.3 9,025.2
- ----------------------------------------------------------------------------
Total $33,231.1 $18,273.6
----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Sprint Corporation
(in millions)
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 414.5 $ 952.5 $ 1,183.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net losses of affiliates 1,077.7 843.7 273.7
Extraordinary items, net 31.9 -- 4.9
Depreciation and amortization 2,036.0 1,726.3 1,591.0
Deferred income taxes and investment tax
credits 132.4 165.7 (10.3)
Acquired in-process research and
development costs 179.1 -- --
Net (gains) losses on sales of assets (103.8) (93.2) 7.5
Changes in assets and liabilities,
excluding the PCS Restructuring:
Accounts receivable, net 101.3 (127.0) (982.1)
Inventories and other current assets (188.9) (94.4) 15.7
Accounts payable and other current
liabilities 732.5 18.0 362.0
Noncurrent assets and liabilities, net (125.7) (18.4) (25.5)
Other, net (31.6) 5.8 (17.2)
- ----------------------------------------------------------------------------
Net cash provided by operating activities 4,255.4 3,379.0 2,403.5
- ----------------------------------------------------------------------------
Investing Activities
Capital expenditures (4,231.1) (2,862.6) (2,433.6)
PCS licenses purchased -- (460.1) (84.0)
Investments in and loans to affiliates,
net (690.7) (1,091.8) (642.4)
Cash acquired in the PCS Restructuring 244.3 -- --
Proceeds from sales of assets 230.0 292.3 2.1
Paranet acquisition -- (375.0) --
Other, net (37.9) (2.3) 42.4
- ----------------------------------------------------------------------------
Net cash used by continuing operations (4,485.4) (4,499.5) (3,115.5)
Repayment by cellular division of
intercompany advances -- -- 1,400.0
Net cash used by cellular division -- -- (140.7)
- ----------------------------------------------------------------------------
Net cash used by investing activities (4,485.4) (4,499.5) (1,856.2)
- ----------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 5,213.3 866.5 9.4
Payments on long-term debt (3,822.1) (135.0) (433.1)
Net change in short-term borrowings -- (200.0) (1,986.8)
Proceeds from sales of shares to FT and DT 84.6 -- 3,661.3
Dividends paid (430.3) (430.0) (419.6)
Treasury stock purchased (315.2) (144.5) (407.2)
Other, net 3.2 114.6 55.1
- ----------------------------------------------------------------------------
Net cash provided by financing activities 733.5 71.6 479.1
- ----------------------------------------------------------------------------
Increase (Decrease) in Cash and
Equivalents 503.5 (1,048.9) 1,026.4
Cash and Equivalents at Beginning of Year 101.7 1,150.6 124.2
- ----------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 605.2 $ 101.7 $ 1,150.6
-----------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions) Sprint Corporation
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
PCS
Common Capital in
Sprint FON and Excess of Par
Common Common Preferred or Retained Treasury
Stock Stock Stock Stated Value Earnings Stock Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning 1996 balance $ 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 2.5 -- -- 17.5 -- -- -- 20.0
Class A common stock
issued 215.6 -- -- 3,436.3 -- -- -- 3,651.9
Treasury stock purchased -- -- -- -- -- (407.2) -- (407.2)
Treasury stock issued -- -- -- -- (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 1,091.3 -- -- 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 -- -- -- -- -- (144.5) -- (144.5)
Treasury stock issued -- -- -- -- (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 1,091.3 -- -- 4,457.7 3,693.1 (292.9) 76.0 9,025.2
Net income -- -- -- -- 414.5 -- -- 414.5
Common stock dividends -- -- -- -- (344.9) -- -- (344.9)
Class A common stock
dividends -- -- -- -- (86.2) -- -- (86.2)
Sprint common stock
recapitalized (875.7) 700.5 175.2 -- -- -- -- --
PCS Series 2 common
stock issued -- -- 195.1 3,005.2 -- -- -- 3,200.3
PCS Series 3 common
stock issued -- -- 5.1 79.5 -- -- -- 84.6
PCS preferred stock
issued -- -- 246.8 -- -- -- -- 246.8
Treasury stock purchased -- -- -- -- -- (321.5) -- (321.5)
Treasury stock issued -- -- -- -- (23.9) 188.4 -- 164.5
Tax benefit from stock
options exercised -- -- -- 49.0 -- -- -- 49.0
Other, net -- -- -- (5.2) (1.7) -- 22.9 16.0
- --------------------------------------------------------------------------------------------------------
Ending 1998 balance $ 215.6 $700.5 $622.2 $7,586.2 $3,650.9 $(426.0) $98.9 $12,448.3
--------------------------------------------------------------------------------
Shares Outstanding
- -----------------------------------------------------------------------
Beginning 1996 balance 349.2 -- --
Common stock issued 1.1 -- --
Class A common stock
issued 86.2 -- --
Treasury stock purchased (10.1) -- --
Treasury stock issued 3.7 -- --
- -----------------------------------------------------------------------
Ending 1996 balance 430.1 -- --
Treasury stock purchased (3.0) -- --
Treasury stock issued 2.9 -- --
- -----------------------------------------------------------------------
Ending 1997 balance 430.0 -- --
Sprint common stock
recapitalized (350.3) 350.3 175.2
Treasury shares
recapitalized 5.4 (5.4) (2.7)
PCS Series 2 common
stock issued -- -- 195.1
PCS Series 3 common
stock issued -- -- 5.1
PCS preferred stock
issued -- -- 0.2
Treasury stock purchased (4.2) (0.5) --
Treasury stock issued 5.3 0.1 --
- -----------------------------------------------------------------------
Ending 1998 balance 86.2 344.5 372.9
--------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sprint Corporation
- --------------------------------------------------------------------------------
1. PCS Restructuring and Recapitalization
- --------------------------------------------------------------------------------
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares to maintain their combined 20% voting power in Sprint
(Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless personal communication services (PCS) operations. The FON stock is
intended to reflect the performance of all of Sprint's other operations.
- --------------------------------------------------------------------------------
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. Sprint PCS' results of operations
for 1998 have been consolidated for the entire year. The Cable Partners' share
of losses through the PCS Restructuring date has been reflected as "Other
partners' loss in Sprint PCS" in the Consolidated Statements of Income. Sprint
PCS' financial position has been reflected on a consolidated basis at year-end
1998. Before 1998, Sprint's investment in Sprint PCS was accounted for using
the equity method. Sprint's cash flows include Sprint PCS' cash flows only
after the PCS Restructuring date.
Investments in entities in which Sprint exercises significant influence, but
does not control, are accounted for using the equity method (see Note 4).
The consolidated financial statements are prepared using generally accepted
accounting principles. 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.
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 shareholders' equity as previously reported.
Classification of Operations
Sprint FON Group
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network using state-of-the-art fiber-optic and electronic technology. The
division provides domestic and international voice, video and data
communications services. It also provides integration management and support
services for computer networks.
Local Division
The local division consists of regulated local phone companies serving more
than 7.6 million access lines in 18 states. It provides local services, access
by phone customers and other carriers to the local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas, or local access transport areas. In early November
1998, Sprint sold its remaining 81,000 residential and business access lines in
Illinois.
Product Distribution & Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
I-19
<PAGE>
Sprint ION(SM)
Sprint ION extends Sprint's existing advanced network capabilities to the
customer and enables Sprint to provide the network infrastructure to meet
customers' demands for data, Internet, and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
Other Ventures
The "other ventures" segment includes the FON Group's investment in Global One.
Sprint is a 1/3 partner in Global One's operating group serving Europe
(excluding France and Germany) and is a 50% partner in Global One's operating
group for the worldwide activities outside the United States and Europe. The
segment also includes the FON Group's investments in EarthLink Network, Inc.,
an Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures. All of these investments are accounted for on the
equity basis.
Sprint PCS Group
The PCS Group includes Sprint's domestic wireless mobile phone services. It
operates the only 100% digital PCS wireless network in the United States, with
licenses to provide nationwide service using a single frequency and a single
technology. At year-end 1998, the PCS Group, together with certain affiliates,
operated PCS systems in 45 of the 50 largest U.S. metropolitan areas.
Allocation of Shared Services
Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses other methods to estimate the assignment of costs to each Group.
Allocation of Federal and State Income Taxes
Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provides
for the allocation of income taxes between the two Groups. The FON Group's
income taxes are calculated as if it files returns which exclude the PCS Group.
The PCS Group's income taxes reflect the PCS Group's incremental cumulative
impact on Sprint's consolidated income taxes. Intergroup tax payments are
satisfied on the date Sprint's related tax payment is due to or the refund is
received from the applicable tax authority. During 1998, the PCS Group accrued
income tax benefits in accordance with the tax sharing agreement totaling $191
million.
Allocation of Group Financing
Financing activities for the Groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the Groups is specifically
allocated to and reflected in the financial statements of the applicable Group.
Interest expense is allocated to the PCS Group based on an interest rate that
is largely equal to the rate it would be able to obtain from third parties as a
direct or indirect wholly owned Sprint subsidiary, but without the benefit of
any guaranty by Sprint or any member of the FON Group. That interest rate is
higher than the rate Sprint obtains on borrowings. The difference between
Sprint's actual interest rate and the rate charged to the PCS Group is
reflected as a reduction in the FON Group's interest expense.
Under Sprint's centralized cash management program, one Group may advance funds
to the other Group. These advances are accounted for as short-term borrowings
between the Groups and bear interest at a market rate that is substantially
equal to the rate that Group would be able to obtain from third parties on a
short-term basis.
Income Taxes
Sprint records deferred income taxes based on temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their tax bases.
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 $336 million at year-end 1998
and $225 million at year-end 1997. Sprint had sufficient funds available to
fund the outstanding checks when they were presented for payment.
Investments in Equity Securities
Investments in 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 in the Consolidated Balance
Sheets as adjustments to "Shareholders' equity--Accumulated other comprehensive
income," net of related income taxes.
Inventories
Inventories for the FON Group are stated at the lower of cost (principally
first-in, first-out method) or market value.
I-20
<PAGE>
Inventories for the PCS Group are stated at the lower of cost (principally
first-in, first-out) or replacement value.
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. The cost of property, plant and equipment is generally
depreciated on a straight-line basis over estimated economic useful lives.
Repairs and maintenance costs are expensed as incurred.
Capitalized Interest
Capitalized interest totaled $167 million in 1998, $93 million in 1997 and $104
million in 1996. In 1998, capitalized interest reflects capitalized costs
related to the PCS Group's network buildout and PCS licenses as well as the FON
Group's construction of capital assets. In 1997 and 1996, capitalized interest
mainly reflected interest related to Sprint's investment in Sprint PCS. Sprint
capitalized these costs until July 1997 when Sprint PCS emerged from the
development stage.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over eight to 40 years using the straight-line
method. Accumulated amortization totaled $63 million at year-end 1998 and $10
million at year-end 1997.
PCS Licenses
The PCS Group acquired licenses from the Federal Communications Commission to
operate as a PCS service provider. These licenses are granted for up to 10-year
terms with renewals for additional 10-year terms if license obligations are
met. These licenses are recorded at cost and are amortized on a straight-line
basis over 40 years when service begins in a specific geographic area.
Accumulated amortization totaled $51 million at year-end 1998.
Earnings per Share
Earnings per share (EPS) was calculated on a consolidated basis until the PCS
stock and FON stock were created as part of the November 1998 PCS Restructuring
and Recapitalization. From that time forward, EPS was computed individually for
the FON Group and PCS Group.
Sprint's convertible preferred dividends totaled $0.5 million through the
Recapitalization date and in 1997 and 1996. Dilutive securities, such as
options (see Note 9), included in the calculation of diluted weighted average
common shares totaled 7.8 million in 1998 through the Recapitalization, 6.3
million in 1997 and 5.3 million in 1996.
From the Recapitalization date to year-end 1998, the FON Group's convertible
preferred dividends totaled $0.1 million and dilutive securities (mainly
options) totaled 6.9 million shares. Dilutive securities for the PCS Group
mainly include options, warrants and convertible preferred stock. These
securities did not have a dilutive effect on loss per share because the PCS
Group incurred net losses for the year. As a result, diluted loss per share
equaled basic loss per share.
Stock-based Compensation
Sprint adopted the pro forma disclosure requirements under Statement of
Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation," and
continues to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to its stock option and employee stock purchase
plans.
- --------------------------------------------------------------------------------
3. Business Combination
- --------------------------------------------------------------------------------
In November 1998, Sprint acquired the remaining interest in Sprint PCS (except
for a minority interest in Cox PCS) from the Cable Partners. In exchange,
Sprint issued the Cable Partners 195.1 million low-vote shares of PCS stock and
12.5 million warrants to purchase additional shares of PCS stock. The purchase
price was $3.2 billion. In addition, Sprint issued the Cable Partners shares of
a new class of preferred stock convertible into PCS shares.
Sprint accounted for the transaction as a purchase. The excess of the purchase
price over the fair value of the net liabilities acquired was allocated as
follows:
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
(in millions)
<S> <C>
Purchase price including transaction costs $3,226.0
Net liabilities acquired 280.8
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 (203.1)
Mark-to-market of long-term debt 84.6
Deferred taxes on acquired assets and liabilities 678.3
In-process research and development costs (179.1)
- ----------------------------------------------------------------------
Goodwill $3,160.8
--------------------------------------
</TABLE>
With respect to the purchase price attributed to in-process research and
development (IPR&D), the acquired IPR&D was limited to significant new products
under development that were intended to address new and emerging market needs
and requirements, such as the rapid adoption of the Internet and the rapid
convergence of voice, data, and video. No routine research and development
projects, minor refinements, normal enhancements, or production activities were
included in the acquired IPR&D.
The income approach was the primary technique utilized in valuing the acquired
IPR&D. This approach included, but was not limited to, an analysis of (i) the
I-21
<PAGE>
markets for each product; (ii) the completion costs for projects; (iii) the
expected cash flows attributable to the IPR&D projects; (iv) the risks
associated with achieving these cash flows and; (v) the stage of development of
each project. The issue of alternative future use was extensively evaluated and
these technologies, once completed, could only be economically used for their
intended purposes.
Pro Forma Results
The following unaudited pro forma combined results of operations assume the PCS
Restructuring, Recapitalization and Top-up occurred at the beginning of 1997
and exclude the write-off of acquired IPR&D costs. These pro forma amounts are
for comparative purposes only and do not necessarily represent what actual
results of operations would have been had the transactions occurred at the
beginning of 1997, nor do they indicate the results of future operations. Pro
forma results were as follows:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1998 1997
- -------------------------------------------------------------------------
(in millions, except per
share data)
<S> <C> <C>
Net operating revenues $ 17,134.3 $ 15,131.9
--------------------------------------------------
Loss before extraordinary item $ (306.6) $ (94.6)
--------------------------------------------------
Net loss $ (342.6) $ (94.6)
--------------------------------------------------
Diluted and basic loss per PCS common share:
Loss before extraordinary item $ (4.42) $ (3.52)
Extraordinary item (0.08) --
- -------------------------------------------------------------------------
Total $ (4.50) $ (3.52)
--------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
4. Investments
- --------------------------------------------------------------------------------
Investments in Equity Securities
The cost of investments in equity securities was $105 million at year-end 1998
and 1997. Gross unrealized holding gains were $384 million at year-end 1998 and
$198 million at year-end 1997.
Investments in and Loans to Affiliates
At year-end 1998, investments accounted for using the equity method consisted
of the FON Group's investments in Global One, Call-Net, EarthLink and other
strategic investments.
In November 1998, Sprint assumed 100% ownership of Sprint PCS; as a result,
Sprint consolidated Sprint PCS' results in 1998. Prior to 1998, Sprint
accounted for its investment in Sprint PCS on the equity basis. Sprint PCS'
1997 results of operations are reflected in the unaudited pro forma disclosures
in Note 3. Its assets at year-end 1997 totaled $7.1 billion. At year-end 1997,
Sprint's investment in Sprint PCS, including advances and a vendor financing
loan, totaled $1.1 billion.
Combined, summarized financial information (100% basis) of other entities
accounted for using the equity method was as follows:
<TABLE>
- ------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Results of operations
Net operating revenues $2,386.1 $1,939.6 $1,725.4
------------------------------------
Operating loss $ (396.4) $ (780.7) $ (421.3)
------------------------------------
Net loss $ (695.9) $ (826.1) $ (362.0)
------------------------------------
Financial position
Current assets $1,748.0 $2,999.2
Noncurrent assets 3,089.1 4,221.0
--------------------
Total $4,837.1 $7,220.2
--------------------
Current liabilities $1,838.3 $2,073.2
Noncurrent liabilities 1,007.6 2,070.3
Owners' equity 1,991.2 3,076.7
--------------------
Total $4,837.1 $7,220.2
--------------------
</TABLE>
Sprint's investment in Global One, including advances, totaled $182 million at
year-end 1998 and $93 million at year-end 1997. At year-end 1998, Sprint's
share of underlying equity in Global One's net assets exceeded the carrying
value of its related investment by $100 million. This difference is being
amortized on a straight-line basis through January 2001.
- --------------------------------------------------------------------------------
5. Employee Benefit Plans
- --------------------------------------------------------------------------------
Defined Benefit Pension Plan
Most FON Group employees are covered by a noncontributory defined benefit
pension plan. Benefits for plan participants belonging to unions are based on
negotiated schedules. For non-union participants, pension benefits are based on
years of service and the participants' compensation. Effective January 1999,
most PCS Group employees will also be covered by this plan.
Sprint's policy is to make annual plan contributions equal to an actuarially
determined amount consistent with 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.
The following table shows the changes in the projected benefit obligation:
<TABLE>
- --------------------------------------
<CAPTION>
1998 1997
- --------------------------------------
(in millions)
<S> <C> <C>
Beginning balance $2,240.9 $1,967.0
Service cost 71.7 61.7
Interest cost 165.0 148.9
Amendments 9.7 14.7
Actuarial gain 202.2 151.9
Benefits paid (110.1) (103.3)
- --------------------------------------
Ending balance $2,579.4 $2,240.9
-------------
</TABLE>
I-22
<PAGE>
The following table shows the changes in plan assets:
<TABLE>
- -------------------------------------------------
<CAPTION>
1998 1997
- -------------------------------------------------
(in millions)
<S> <C> <C>
Beginning balance $2,929.4 $2,584.2
Actual return on plan assets 350.0 448.5
Benefits paid (110.1) (103.3)
- -------------------------------------------------
Ending balance $3,169.3 $2,929.4
------------------------
</TABLE>
At year-end, the funded status and amounts recognized in the Consolidated
Balance Sheets for the plan were as follows:
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Plan assets in excess of the projected benefit obligation $589.9 $688.5
Unrecognized net gains (375.3) (496.4)
Unrecognized prior service cost 104.3 105.4
Unamortized transition asset (97.1) (122.1)
- --------------------------------------------------------------------------
Prepaid pension cost $221.8 $175.4
-----------------------------------------------
Discount rate 7.00% 7.25%
-----------------------------------------------
Expected blended rate of future pay raises 4.00% 4.25%
-----------------------------------------------
</TABLE>
The net pension cost (credit) consisted of the following:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Service cost--benefits earned during the year $ 71.7 $ 61.7 $ 65.4
Interest on projected benefit obligation 165.0 148.9 138.5
Expected return on plan assets (265.2) (194.2) (181.2)
Amortization of unrecognized transition asset (25.0) (25.0) (25.0)
Recognition of prior service cost 10.9 9.6 9.0
Recognition of actuarial (gains) and losses (3.8) 1.1 3.6
- -------------------------------------------------------------------------
Net pension cost (credit) $(46.4) $ 2.1 $ 10.3
---------------------------------------------------
Discount rate 7.25% 7.75% 7.25%
---------------------------------------------------
Expected long-term rate of return on plan assets 10.00% 9.50% 9.50%
---------------------------------------------------
Expected blended rate of future pay raises 4.25% 4.75% 4.25%
---------------------------------------------------
</TABLE>
Defined Contribution Plans
Sprint sponsors defined contribution employee savings plans covering most FON
Group employees. Participants may contribute portions of their pay to the
plans. For union employees, Sprint matches contributions based on negotiated
amounts. Sprint also matches contributions of non-union employees in FON stock
and PCS 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 additional matching contributions based on the performance
of FON stock and PCS stock compared to other telecommunications companies'
stock. Sprint's matching contributions were $54 million in 1998 and 1997, and
$56 million in 1996. At year-end 1998, the plans held 16.7 million FON shares
and 10.4 million PCS shares.
Sprint PCS sponsored a savings and retirement program for certain employees.
Sprint PCS matched contributions equal to 50% of the contribution of each
participant, up to the first 6% that the employee elected to contribute.
Expense under the savings plan was $7 million in 1998. Effective January 1999,
the PCS Group employees began making contributions to Sprint's defined
contribution plan. The existing assets of the Sprint PCS savings plan will be
rolled over to that defined contribution plan in early 1999.
Postretirement Benefits
Sprint provides postretirement benefits (mainly medical and life insurance) to
most FON Group 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. In January 1999, PCS Group employees will
also be covered by this plan.
The following table shows the changes in the accumulated postretirement benefit
obligation:
<TABLE>
- ----------------------------------
<CAPTION>
1998 1997
- ----------------------------------
(in millions)
<S> <C> <C>
Beginning balance $832.2 $815.0
Service cost 20.2 20.8
Interest cost 57.8 52.3
Actuarial gains (6.3) (31.6)
Benefits paid (40.2) (24.3)
- ----------------------------------
Ending balance $863.7 $832.2
-------
</TABLE>
Amounts included in the Consolidated Balance Sheets at year-end were as
follows:
<TABLE>
- ------------------------------------------------------------------
<CAPTION>
1998 1997
- ------------------------------------------------------------------
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation $ 863.7 $ 832.2
Unrecognized prior service cost 60.8 5.4
Unrecognized net gains 124.7 190.0
- ------------------------------------------------------------------
Accrued postretirement benefits cost $1,049.2 $1,027.6
-----------------------------------------
Discount rate 7.00% 7.25%
-----------------------------------------
</TABLE>
The assumed 1999 annual health care cost trend rates are 7.6% before Medicare
eligibility and 8.1% after Medicare eligibility. Both rates gradually decrease
to an ultimate level of 5% by 2005. A 1% increase in the rates would have
increased the 1998 accumulated postretirement benefit obligation by an
estimated $111 million. A 1% decrease would have reduced the obligation by an
estimated $91 million.
I-23
<PAGE>
The net postretirement benefits cost consisted of the following:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Service cost--benefits earned during the year $20.2 $20.8 $21.7
Interest on accumulated postretirement benefit obligation 57.8 52.3 49.9
Recognition of prior service cost (6.2) (0.4) (0.4)
Recognition of actuarial gains (20.6) (19.0) (13.3)
- -------------------------------------------------------------------------------
Net postretirement benefits cost $51.2 $53.7 $57.9
--------------------------------------------------------
Discount rate 7.25% 7.75% 7.25%
--------------------------------------------------------
</TABLE>
For measurement purposes, the assumed 1998 weighted average annual health care
cost trend rates were 8.4% before Medicare eligibility and 8.5% after Medicare
eligibility. Both rates gradually decrease to an ultimate level of 5% by 2005.
A 1% increase in the rates would have increased the 1998 postretirement
benefits service and interest costs by an estimated $13 million. A 1% decrease
would have reduced the 1998 postretirement benefits service and interest costs
by an estimated $10 million.
- --------------------------------------------------------------------------------
6. Income Taxes
- --------------------------------------------------------------------------------
Income tax expense allocated to continuing operations consists of the
following:
<TABLE>
- -------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Current income tax expense
Federal $215.4 $385.9 $655.4
State 44.1 78.9 75.9
- -------------------------------------------------------------
Total current 259.5 464.8 731.3
- -------------------------------------------------------------
Deferred income tax expense (benefit)
Federal 126.1 170.5 (33.8)
State 6.3 (4.8) 23.5
- -------------------------------------------------------------
Total deferred 132.4 165.7 (10.3)
- -------------------------------------------------------------
Total $391.9 $630.5 $721.0
----------------------------------------
</TABLE>
The differences that caused Sprint's effective income tax rates to vary from
the 35% federal statutory rate were as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Income tax expense at the federal statutory rate $294.8 $554.1 $669.2
Effect of:
State income taxes, net of federal income tax effect 32.7 48.2 64.6
Equity in losses of foreign joint ventures 13.1 36.4 8.6
Write-off of in-process research and development costs 62.7 -- --
Other, net (11.4) (8.2) (21.4)
- -------------------------------------------------------------------------------
Income tax expense $391.9 $630.5 $721.0
----------------------------------------------------------
Effective income tax rate 46.5% 39.8% 37.7%
----------------------------------------------------------
</TABLE>
Income tax expense (benefit) allocated to other items was as follows:
<TABLE>
- -------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------
(in millions)
<S> <C> <C> <C>
Discontinued operation $ -- $ -- $ 7.0
Extraordinary items (22.9) -- (2.9)
Unrealized holding gains
on investments(/1/) 7.6 4.4 1.7
Stock ownership,
purchase and options
arrangements(/2/) (49.0) (26.2) (14.1)
- -------------------------------------------------
</TABLE>
(/1/These)amounts have been recorded directly to "Shareholders' equity--
Accumulated other comprehensive income" in the Consolidated Balance Sheets.
(/2/These)amounts have been recorded directly to "Shareholders' equity--Capital
in excess of par or stated value" in the Consolidated Balance Sheets.
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 1998 and 1997, along
with the income tax effect of each, were as follows:
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1998 Deferred Income Tax
----------------------------------------------
Assets Liabilities
- -------------------------------------------------------------------
(in millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 2,047.5
Intangibles -- 453.7
Postretirement and other benefits 418.8 --
Reserves and allowances 171.5 --
Unrealized holding gains on investments -- 60.4
Operating loss carryforwards 265.2 --
Other, net 141.6 --
- -------------------------------------------------------------------
997.1 2,561.6
Less valuation allowance 211.8 --
- -------------------------------------------------------------------
Total $ 785.3 $ 2,561.6
----------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1997 Deferred Income Tax
----------------------------------------------
Assets Liabilities
- -------------------------------------------------------------------
(in millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 1,436.5
Intangibles -- 52.3
Postretirement and other benefits 376.1 --
Reserves and allowances 111.3 --
Unrealized holding gains on investments -- 61.7
Other, net 108.5 --
- -------------------------------------------------------------------
595.9 1,550.5
Less valuation allowance 11.8 --
- -------------------------------------------------------------------
Total $ 584.1 $ 1,550.5
----------------------------------------------
</TABLE>
Management believes it is more likely than not that these deferred income tax
assets, net of the valuation allowance, will be realized based on current
income tax laws and expectations of future taxable income stemming from the
reversal of existing deferred tax
I-24
<PAGE>
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.
The valuation allowance related to deferred income tax assets increased $200
million in 1998 and decreased $2 million in 1997 and $4 million in 1996.
Sprint acquired approximately $192 million of potential tax benefits related to
net operating loss carryforwards in the PCS Restructuring which are subject to
certain realization restrictions under various tax laws. A valuation allowance
was provided for the total of these benefits. If these benefits are
subsequently recognized, they will reduce the goodwill or other noncurrent
intangible assets resulting from the PCS Restructuring.
In connection with the PCS Restructuring, the PCS Group is required to
reimburse the FON Group and the Cable Partners for net operating loss and tax
credit carryforward benefits generated prior to the PCS Restructuring if
realization by the PCS Group produces a cash benefit that would not otherwise
have been realized. The reimbursement will equal 60% of the net cash benefit
received by the PCS Group and will be made to the FON Group in cash and to the
Cable Partners in shares of Series 2 PCS stock. The carryforward benefits
subject to this requirement total $246 million, which includes the $192 million
acquired in the PCS Restructuring.
At year-end 1998, Sprint had federal operating loss carryforwards of
approximately $265 million and state operating loss carryforwards of
approximately $4.4 billion. In addition, Sprint had available for income tax
purposes, federal alternative minimum tax credit carryforwards of $27 million,
state alternative minimum tax credit carryforwards of $4 million, and federal
alternative minimum tax net operating loss carryforwards of $14 million. The
loss carryforwards expire in varying amounts through 2018.
- --------------------------------------------------------------------------------
7. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------
Sprint's consolidated long-term debt at year-end was as follows:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
1998
--------------------------------
Sprint Sprint
Maturing FON Group PCS Group Consolidated 1997
- ----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Senior notes
5.7% to 6.9%(/1/) 2003 to 2028 $1,059.4 $3,940.6 $ 5,000.0 $ --
8.1% to 9.8% 1998 to 2003 632.3 -- 632.3 675.3
11.0% to 12.5%(/2/) 2006 -- 698.6 565.5 --
Debentures and notes
5.8% to 9.6% 2000 to 2022 564.5 -- 564.5 587.0
Notes payable and
commercial paper -- 745.8 -- 745.8 866.5
First mortgage bonds
2.0% to 9.9% 1998 to 2025 1,312.0 -- 1,312.0 1,468.4
Capital lease
obligations
5.3% to 7.5% 1998 to 2006 31.7 452.0 483.7 35.3
Revolving credit
facilities
Variable rates 2005 to 2006 -- 1,800.0 1,800.0 --
Other(/2/)(/3/)
2.0% to 10.0% 1998 to 2007 370.4 1,029.8 1,085.5 247.1
- ----------------------------------------------------------------------------
4,716.1 7,921.0 12,189.3 3,879.6
Less: current
maturities(/2/) 33.3 348.3 246.9 131.0
- ----------------------------------------------------------------------------
Long-term debt and
capital lease
obligations $4,682.8 $7,572.7 $11,942.4 $3,748.6
------------------------------
</TABLE>
(/1/These)borrowings were incurred by Sprint and allocated to the applicable
Group. At year-end 1998, Sprint's weighted average interest rate related to
these borrowings was 6.4%. The weighted average interest rate related to
the borrowings allocated to the PCS Group was approximately 8.5%. See Note
2 for a more detailed description of how Sprint allocates financing to each
of the Groups.
(/2/Consolidated)debt does not equal the total of PCS Group and FON Group debt
due to intergroup debt eliminated in consolidation. At year-end 1998, the
FON Group had an investment in the PCS Group's Senior Discount notes
totaling $133 million. In addition, the PCS Group had other long-term debt
payable to the FON Group totaling $315 million, including $135 million
classified as current at year-end 1998.
(/3/Includes)$358 million of notes recorded by the FON Group that may be
exchanged at maturity for SBC Communications, Inc. (SBC) common shares
owned by the FON Group or for cash. Based on SBC's closing price, had the
notes matured at year-end 1998, they could have been exchanged for 6.6
million SBC shares. At year-end 1998, Sprint held 7.6 million SBC shares,
which have been included in "Investments in equity securities" in the FON
Group's Combined Balance Sheets.
I-25
<PAGE>
Long-term debt maturities, excluding reclassified short-term borrowings, during
each of the next five years are as follows:
<TABLE>
- ------------------------------
<CAPTION>
Sprint Sprint
FON PCS
Group Group Sprint
- ------------------------------
(in millions)
<S> <C> <C> <C>
1999 $ 33.3 $ 348.3 $ 246.9
2000 864.0 175.3 1,039.3
2001 41.1 407.1 217.0
2002 353.0 357.3 710.3
2003 774.8 1,115.0 1,889.8
- ------------------------------
</TABLE>
Sprint
Short-term Borrowings
Sprint had bank notes payable totaling $454 million at year-end 1998 and $618
million at year-end 1997. In addition, Sprint had commercial paper borrowings
totaling $292 million at year-end 1998 and $249 million at year-end 1997.
Though these borrowings are renewable at various dates throughout the year,
they were classified as long-term debt because of Sprint's intent and ability,
through unused credit facilities, to refinance these borrowings on a long-term
basis.
In 1998, Sprint replaced its previous $1.5 billion credit facility with new
facilities with syndicates of domestic and international banks. The new
facilities totaled $5.0 billion and expire in 1999 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility. At year-end 1998, Sprint had total unused lines of credit of $4.8
billion.
Bank notes outstanding had weighted average interest rates of 5.7% at year-end
1998 and 6.1% at year-end 1997. The weighted average interest rate of
commercial paper was 5.8% at year-end 1998 and 6.8% at year-end 1997.
Long-term Debt
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission for $8.0 billion of debt securities. This
replaced Sprint's previous shelf registration of $1.0 billion. In November
1998, Sprint issued $5.0 billion under the new shelf. Sprint allocated these
borrowings to the Groups, and the related proceeds were mainly used to repay
existing debt. See Note 2 for a more detailed description of how Sprint
allocates debt to the Groups.
Sprint FON Group
In 1998, Sprint redeemed, prior to scheduled maturities, $138 million of FON
Group debt with interest rates ranging from 7.9% to 9.3%. This resulted in a $5
million after-tax extraordinary loss for the FON Group. In 1996, Sprint also
redeemed, prior to scheduled maturities, $190 million of FON Group debt with
interest rates ranging from 6.0% to 9.5%. This resulted in a $5 million after-
tax extraordinary loss for the FON Group.
FON Group property, plant and equipment totaling $13.9 billion is either
pledged as security for first mortgage bonds and certain notes or is restricted
for use as mortgaged property.
Sprint PCS Group
At year-end 1998, the PCS Group had borrowed $1.8 billion under revolving
credit facilities with banks totaling $2.1 billion. These facilities had a
weighted average interest rate of 5.8% at year-end 1998.
At year-end 1998, the PCS Group had $265 million of outstanding debt payable to
the FCC related to the purchase of certain PCS licenses in 1996. These
borrowings have an interest rate of 7.8% and mature in 2001.
In 1998, Sprint redeemed, prior to scheduled maturities, $3.3 billion of PCS
Group debt with a weighted average interest rate of 8.3%. This resulted in a
$31 million after-tax extraordinary loss for the PCS Group. The debt was repaid
with a portion of the proceeds from Sprint's $5.0 billion debt offering in
November 1998.
PCS Group property, plant and equipment totaling $4.1 billion is pledged as
security for certain notes.
Other
Sprint, including the FON Group and the PCS Group, had complied with all
restrictive or financial covenants relating to its debt arrangements at year-
end 1998.
- --------------------------------------------------------------------------------
8. Common Stock
- --------------------------------------------------------------------------------
Sprint FON Stock and Sprint PCS Stock
In November 1998, Sprint recapitalized its common stock into FON stock and PCS
stock and restructured its interests in Sprint PCS. As a result, Sprint created
the following series of common stock:
. Series 1 FON stock and Series 1 PCS stock Existing Sprint common
shareholders received one share of FON stock and 1/2 share of PCS stock
for each Sprint share owned. Authorized shares totaled 2.5 billion for
the Series 1 FON stock and 1.25 billion for the Series 1 PCS stock.
I-26
<PAGE>
. Series 2 FON stock and Series 2 PCS stock The Cable Partners received
PCS shares for their ownership interests in Sprint PCS. These shares
have 1/10 the voting power of the Series 1 and Series 3 PCS shares.
Authorized shares totaled 500 million for both the Series 2 FON stock
and Series 2 PCS stock.
. Series 3 FON stock and Series 3 PCS stock To maintain their voting power
at 10% each, FT and DT purchased a combined total of 5.1 million Series
3 PCS shares for $85 million. Series 3 FON and PCS stock would also be
used if FT and DT were to elect to convert their Class A common shares
into FON and PCS stock. Authorized shares totaled 1.2 billion for the
Series 3 FON stock and 600 million for the Series 3 PCS stock.
At year-end 1998, Sprint had 8.5 million treasury shares, which were recorded
at cost. These shares consisted of 5.8 million FON shares and 2.7 million PCS
shares. The PCS shares are held by the FON Group and represent an intergroup
interest in the PCS Group.
Beginning in November 2001, Sprint has the option to convert PCS shares into
FON shares.
Class A Common Stock
FT and DT each own Class A common shares with 10% of Sprint's voting power.
During 1998 and 1997, Sprint declared and paid Class A common dividends of
$1.00 per share. During 1996, Sprint declared and paid Class A common dividends
of $0.75 per share.
In November 1998, the 86.2 million Class A common shares were reclassified to
represent an equity interest in the FON Group (86.2 million shares) and the PCS
Group (43.1 million shares). FT and DT maintained their combined 20% voting
power in Sprint by purchasing an additional 5.1 million Series 3 PCS shares for
$85 million.
FT and DT, as Class A common and Series 3 PCS shareholders, have the right in
most cases to pro rata representation on Sprint's Board of Directors. They may
also purchase additional shares of FON stock and PCS stock 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 agreements with Sprint). 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.
PCS Preferred Stock
As part of the PCS Restructuring, Sprint issued to the Cable Partners a new
class of convertible preferred stock convertible into PCS shares. This stock
was issued either to purchase certain debt loaned to Sprint PCS by the Cable
Partners or as consideration for their interests in Sprint PCS.
Common Stock Reserved for Future Grants
At year-end 1998, common stock reserved for future grants under stock option
plans or for future issuances under various other arrangements was as follows:
Sprint FON Group
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
Shares
- ----------------------------------------------------------------------
(in millions)
<S> <C>
Employees Stock Purchase Plan 7.0
Employee savings plans 3.4
Automatic Dividend Reinvestment Plan 1.2
Officer and key employees' and directors' stock options 9.4
Conversion of preferred stock and other 1.6
- ----------------------------------------------------------------------
22.6
----
</TABLE>
Sprint PCS Group
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
Shares
- ----------------------------------------------------------------------
(in millions)
<S> <C>
Employees Stock Purchase Plan 3.5
Employee savings plans 1.7
Officer and key employees' and directors' stock options 10.1
Warrants issued to Cable Partners 12.5
Conversion of preferred stock and other 10.7
- ----------------------------------------------------------------------
38.5
----
</TABLE>
Shareholder Rights Plan
Under a Shareholder Rights Plan, one preferred stock purchase right was
attached to each common and Class A common share. During 1998, Sprint amended
the plan to attach one preferred stock purchase right to each share of FON
stock, PCS stock and Class A common stock. The rights may be redeemed by Sprint
at $0.01 per right and will expire in June 2007, unless extended. The rights
are exercisable only if certain takeover events occur and are entitled to the
following:
. Each FON stock right will initially entitle the holder to purchase
1/1,000 of a share (Unit) of a no par Preferred Stock-Sixth Series at
$275 per Unit.
. Each PCS stock right will initially entitle the holder to purchase a
Unit of a no par Preferred Stock-Eighth Series at $150 per Unit.
. Each Class A right will initially entitle the holder to purchase a Unit
of Preferred Stock-Sixth Series at $275 per Unit and 1/2 Unit of
Preferred Stock-Eighth Series at $75 per 1/2 Unit.
Preferred Stock-Sixth Series 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 FON stock common dividends. Preferred Stock-
Eighth Series has the same features as
I-27
<PAGE>
the Sixth Series, but applies to PCS shares. No Preferred Stock-Sixth Series or
Preferred Stock-Eighth Series were issued or outstanding at year-end 1998.
Other
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, $576 million of those subsidiaries' $1.5 billion
total retained earnings was restricted at year-end 1998. The flow of cash in
the form of advances from the subsidiaries to Sprint is generally not
restricted.
- --------------------------------------------------------------------------------
9. Stock-based Compensation
- --------------------------------------------------------------------------------
Management Incentive Stock Option Plan
Under the Management Incentive Stock Option Plan (MISOP), Sprint has granted
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 the underlying common stock on the grant date. At
year-end 1998, authorized FON shares under this plan approximated 11.4 million
and authorized PCS shares approximated 5.7 million. These amounts increased by
approximately 3.1 million FON shares and 3.3 million PCS shares on January 1,
1999. PCS Group employees also became eligible to participate in this plan in
1999.
Stock Option Plan
Under the Sprint Stock Option Plan (SOP), Sprint has granted 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 the underlying common stock on the grant date. Authorized
FON shares under this plan approximated 21.0 million and authorized PCS shares
approximated 18.6 million. The PCS shares include 2.7 million shares granted
under this plan to certain PCS Group employees in December 1998.
In 1997, Sprint granted performance-based stock options to certain key
executives. In 1998, the FON Group expensed $14 million and the PCS Group
expensed $1 million related to these performance-based stock options.
Employees Stock Purchase Plan
Under Sprint's Employees Stock Purchase Plan (ESPP), employees may elect to
purchase FON common stock or PCS common stock at a price equal to 85% of the
market value on the grant or exercise date, whichever is less. At year-end
1998, authorized FON shares under this plan approximated 8.2 million and
authorized PCS shares approximated 4.1 million. PCS Group employees also became
eligible to participate in this plan in 1999.
Sprint PCS Long-term Incentive Plan
PCS Group employees meeting certain eligibility requirements were included in
Sprint PCS' long-term incentive plan (LTIP). Under this plan, participants
received appreciation units based on independent appraisals. Appreciation on
the units was based on annual independent appraisals. The 1997 plan year
appreciation units vest 25% per year beginning one year from the grant date and
also expire after 10 years. Under the 1996 plan, appreciation units vest 25%
per year, beginning two years from the grant date, and expire after 10 years.
In connection with the PCS Restructuring, Sprint discontinued the Sprint PCS
LTIP plan. The appreciation units were converted to PCS shares and options to
buy PCS shares based on a formula designed to replace the appreciated value of
the units at the beginning of July 1998. For vested units at year-end 1998,
participants could elect to receive the appreciation in cash, or in shares and
options. Most elected to receive shares and options.
Sprint will issue the shares, and the options will become exercisable, based on
the vesting requirements of the converted units. Assuming all participants stay
employed by Sprint until all replacement options and shares are vested, Sprint
would issue approximately 1.6 million PCS shares and 1.9 million PCS shares
under option.
Recapitalization
Due to the Recapitalization, the number of shares and the related exercise
prices have been adjusted to maintain both the total fair value of common stock
underlying the options and ESPP share elections, and the relationship between
the market value of the common stock and the exercise prices of the options and
ESPP share elections.
Pro Forma Disclosures
Pro forma net income (loss) and earnings (loss) per share 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 in 1995 (the year SFAS 123 was
effective) will continue to vest over the next year. In addition, compensation
expense resulting from the Recapitalization will decline over the next several
years.
I-28
<PAGE>
Sprint's pro forma net income and earnings per share were as follows:
<TABLE>
- ------------------------------------------------------------
<CAPTION>
1998(/1/) 1997 1996
- ------------------------------------------------------------
(in millions, except
per share data)
<S> <C> <C> <C>
Pro forma net income $ 785 $ 908 $1,158
--------------------------------------
Pro forma diluted earnings per share $1.79 $2.11 $ 2.74
--------------------------------------
</TABLE>
(/1/Reflects)consolidated pro forma net income and earnings per share until the
Recapitalization date.
From the Recapitalization date through year-end 1998, the FON Group's pro forma
net income was $103 million and pro forma diluted EPS was $0.24. The FON
Group's pro forma net income for 1998 was reduced by $19 million ($0.04 per FON
share) due to additional compensation resulting from modifications to terms of
options and ESPP share elections related to the Recapitalization.
The application of SFAS No. 123 did not have a material impact on the PCS
Group's pro forma net loss from the Recapitalization date through year-end
1998.
Fair Value Disclosures
MISOP and SOP
The following tables reflect the weighted average fair value per option
granted, as well as the significant weighted average assumptions used in
determining those fair values using the Black-Scholes pricing model:
Sprint Common Stock
<TABLE>
- -----------------------------------------
<CAPTION>
1998 MISOP SOP
- -----------------------------------------
<S> <C> <C>
Fair value on grant date $14.58 $16.00
Risk-free interest rate 5.5% 5.5%
Expected volatility 21.7% 21.7%
Expected dividend yield 1.7% 1.7%
Expected life (years) 5 6
- -----------------------------------------
<CAPTION>
1997 MISOP SOP
- -----------------------------------------
<S> <C> <C>
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
- -----------------------------------------
<CAPTION>
1996 MISOP SOP
- -----------------------------------------
<S> <C> <C>
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
</TABLE>
PCS Common Stock
<TABLE>
- ---------------------------------
<CAPTION>
1998 SOP
- ---------------------------------
<S> <C>
Fair value on grant date $10.88
Risk-free interest rate 4.4%
Expected volatility 75.0%
Expected dividend yield --
Expected life (years) 6
</TABLE>
Employees Stock Purchase Plan
During 1998, FON Group employees elected to purchase 2.1 million ESPP shares
with each election having a weighted average fair value (using the Black-
Scholes pricing model) of $13.90 per share. No ESPP shares were offered in
1997. During 1996, Sprint employees elected to purchase 2.8 million ESPP shares
with each election having a weighted average fair value of $10.06 per share.
Stock Options
Stock option plan activity was as follows:
Sprint Common Stock
<TABLE>
- -------------------------------------------------------
<CAPTION>
Weighted
Average
per Share
Sprint Exercise
Shares Price
- -------------------------------------------------------
(in millions)
<S> <C> <C>
Outstanding, beginning of 1996 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
Granted 9.1 59.73
Exercised (3.4) 33.54
Forfeited/Expired (0.6) 47.28
----
Converted in November 1998 23.8 $46.60
------------------------------
FON Common Stock
- -------------------------------------------------------
<CAPTION>
Weighted
Average
Sprint per Share
FON Exercise
Shares Price
- -------------------------------------------------------
(in millions)
<S> <C> <C>
Converted in November 1998 23.8 $42.02
Exercised (0.1) 31.90
----
Outstanding, year-end 1998 23.7 $42.06
------------------------------
PCS Common Stock
- -------------------------------------------------------
<CAPTION>
Weighted
Average
Sprint per Share
PCS Exercise
Shares Price
- -------------------------------------------------------
(in millions)
<S> <C> <C>
Converted in November 1998 11.9 $ 9.16
Granted 2.7 15.84
----
Outstanding, year-end 1998 14.6 $10.40
------------------------------
</TABLE>
I-29
<PAGE>
Options exercisable were 8.3 million at year-end 1997 and 8.4 million at year-
end 1996. At year-end 1997, the weighted average exercise price for exercisable
options was $32.65.
The following tables summarize outstanding and exercisable options at year-end
1998:
FON Common Stock
<TABLE>
- -------------------------------------------------
<CAPTION>
Options Outstanding
----------------------------------
Weighted
Weighted Average
Average per
Range of Remaining Share
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- -------------------------------------------------
(in millions) (in years)
<S> <C> <C> <C>
$10.00-$24.99 2.5 4.9 $21.27
25.00- 34.99 4.6 6.3 30.99
35.00- 44.99 6.3 8.1 40.64
45.00- 59.99 9.6 8.9 51.92
60.00- 84.99 0.7 5.0 65.67
- -------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------
<CAPTION>
Options Exercisable
----------------------
Weighted
Average
per
Range of Share
Exercise Number Exercise
Prices Exercisable Price
- -------------------------------------
(in millions)
<S> <C> <C>
$10.00-$24.99 2.0 $21.12
25.00- 34.99 3.2 30.68
35.00- 44.99 1.9 39.28
45.00- 59.99 3.5 52.66
- -------------------------------------
</TABLE>
PCS Common Stock
<TABLE>
- ---------------------------------------------------
<CAPTION>
Options Outstanding
----------------------------------
Weighted
Weighted Average
Average per
Remaining Share
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
- ---------------------------------------------------
(in millions) (in years)
<S> <C> <C> <C>
$ 2.50-$ 4.99 1.2 4.9 $ 4.64
5.00- 7.49 2.2 6.3 6.73
7.50- 9.99 3.2 8.1 8.85
10.00- 14.99 5.2 8.6 11.52
15.00- 19.99 2.8 8.6 15.84
- ---------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------
<CAPTION>
Options Exercisable
----------------------
Weighted
Average
per
Share
Range of Number Exercise
Exercise Prices Exercisable Price
- ---------------------------------------
(in millions)
<S> <C> <C>
$ 2.50-$ 4.99 1.0 $4.60
5.00- 7.49 1.6 6.66
7.50- 9.99 0.9 8.55
10.00- 14.99 1.8 11.49
15.00- 19.99 0.5 15.84
- ---------------------------------------
</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 on its breach of contract claim against
Sprint. The arbitrators directed Sprint to pay 50% 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.
In June 1997, Sprint recorded additional expense of $20 million. This charge
related to 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 small number
of potential class members chose not to be a part of that settlement and have
filed a separate lawsuit asserting their individual claims. Some potential
class members have appealed the approval of the settlement, which has delayed
final approval.
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 be material to Sprint's consolidated financial
statements.
Commitments
The PCS Group has procurement and service contracts with certain vendors. These
contracts are for the engineering and construction of the PCS network. The
contracts provide for initial terms of three to five years through 2002 with
renewals for additional one-year terms. At year-end 1998, $696 million of the
total commitment was satisfied, leaving a remaining commitment of $204 million.
The PCS Group has a purchase and supply contract with a vendor to purchase
handsets and other equipment totaling more than $600 million through April
2000. At year-end 1998, the remaining commitments totaled $163 million.
In June 1998, the PCS Group became the managing partner of Cox PCS. At year-end
1998, the PCS Group owned 59.2% of Cox PCS. Cox holds the minority interest in
the partnership. Under the partnership agreement, Cox has the right to require
the PCS Group to purchase, under certain circumstances, all or part of Cox's
interest in Cox PCS, which could involve significant cash requirements. Cox may
require the PCS Group to acquire an additional 10.2% interest in Cox PCS per
year through 2000. Beginning in 2001 through 2005, Cox may require the PCS
Group to acquire up to all of its interest in Cox PCS. Cox has given the PCS
Group notice to start the appraisal process related to a potential put of all
or a portion of Cox's remaining partnership interest to the PCS Group.
I-30
<PAGE>
Operating Leases
Sprint's minimum rental commitments at year-end 1998 for all noncancelable
operating leases, consisting mainly of leases for data processing equipment,
real estate, cell and switch sites, and office space are as follows:
<TABLE>
- -------------------------
<CAPTION>
(in millions)
<S> <C>
1999 $568.3
2000 463.0
2001 330.1
2002 214.1
2003 126.0
Thereafter 291.4
- -------------------------
</TABLE>
Sprint's gross rental expense totaled $730 million in 1998, $410 million in
1997 and $401 million in 1996. Rental commitments for subleases, contingent
rentals and executory costs were not significant. The table excludes renewal
options related to certain cell and switch site leases. These renewal options
generally have five-year terms and may be exercised from time to time.
- --------------------------------------------------------------------------------
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 year-end 1998 estimated fair values, those
amounts have not been comprehensively revalued for purposes of these financial
statements since that date. Therefore, estimates of fair value after year-end
1998 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>
1998
--------------------
Carrying Estimated
Amount Fair Value
- ------------------------------------------------------------------
(in millions)
<S> <C> <C>
Cash and equivalents $ 605.2 $ 605.2
Investments in equity securities 489.2 489.2
Long-term debt and capital lease obligations 12,189.3 12,771.0
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<CAPTION>
1997
--------------------
Carrying Estimated
Amount Fair Value
- ------------------------------------------------------------------
(in millions)
<S> <C> <C>
Cash and equivalents $ 101.7 $ 101.7
Investments in equity securities 303.0 303.0
Investment in affiliate debt securities(/1/) 142.4 142.4
Long-term debt and capital lease obligations 3,879.6 4,155.8
- ------------------------------------------------------------------
</TABLE>
(/1/At)year-end 1998, Sprint's investment in affiliate debt securities was
eliminated in consolidation.
The carrying values of Sprint's cash and equivalents approximate fair value at
year-end 1998 and 1997. The estimated fair value of investments in equity
securities is based on quoted market prices. The estimated fair value of 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.
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 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 $134 million outstanding at year-end 1998 and $150 million
outstanding at year-end 1997. Net interest expense (income) related to interest
rate swap agreements was $0.1 million in 1998, $(0.2) million in 1997 and $2
million in 1996.
In 1998, Sprint deferred losses from interest rate swap agreements used to
hedge a portion of a $5.0 billion debt offering. These losses, totaling $75
million, will be amortized to interest expense using the effective interest
method over the term of the debt. There were no deferred gains or losses
related to any terminated interest rate swap agreements at year-end 1997 or
1996.
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 open forward contracts to buy
various foreign currencies of $18 million at year-end 1998 and $29 million at
year-end 1997. Sprint had outstanding open purchase option contracts to call
various foreign currencies of $10 million at year-end 1998 and $14 million at
year-end 1997. The premium paid for an option is deferred and amortized over
the life of the option. The forward contracts and options open at year-end 1998
and 1997 all had original maturities of six months or less. The net gain or
loss recorded to reflect the fair value of these contracts is
I-31
<PAGE>
recorded in the period incurred. Total net losses, including hedge costs, of
$0.6 million in 1998, $0.1 million in 1997 and $0.4 million in 1996 were
recorded related to foreign currency transactions and contracts.
- --------------------------------------------------------------------------------
12. Paranet Acquisition
- --------------------------------------------------------------------------------
In September 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.
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
is being amortized on a straight-line basis over four to 10 years.
- --------------------------------------------------------------------------------
13. Spinoff of Cellular Division
- --------------------------------------------------------------------------------
Sprint completed the tax-free spinoff of its Cellular division (Cellular) to
Sprint common shareholders in 1996. To complete the spinoff, Sprint distributed
all Cellular common shares at a rate of one share for every three Sprint common
shares held. In addition, Cellular repaid $1.4 billion of its intercompany debt
owed to Sprint. Sprint also contributed to Cellular's equity capital $185
million of debt owed by Cellular in excess of the amount repaid.
Cellular's 1996 net operating results through the spinoff date, as summarized
in the following table, 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, were reallocated to Sprint's other operating entities.
<TABLE>
- ------------------------------------------
<CAPTION>
(in millions)
<S> <C>
Net operating revenues $190.2
Operating expenses 156.0
- ------------------------------------------
Operating income 34.2
Interest expense (21.5)
Other expense, net (8.3)
- ------------------------------------------
Income before income taxes 4.4
Income taxes (7.0)
- ------------------------------------------
Loss from cellular division $ (2.6)
----------
</TABLE>
- --------------------------------------------------------------------------------
14. Additional Financial Information
- --------------------------------------------------------------------------------
Segment Information
In 1998, Sprint adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information."
The FON Group operates in five business segments, based on services and
products: the long distance division, the local division, the product
distribution and directory publishing businesses, activities to develop and
deploy Sprint ION(SM) and other ventures. See Note 12 of Sprint FON Group Notes
to the Combined Financial Statements for more information about the FON Group's
business segments.
The PCS Group businesses operate in a single segment.
I-32
<PAGE>
Industry segment financial information was as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Sprint Sprint Intergroup
FON Group PCS Group Eliminations Consolidated
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
1998
Net operating revenues $16,016.9 $ 1,225.4 $ (108.0) $17,134.3
Intergroup revenues 107.7 0.3 (108.0) --
Depreciation and amortization 1,915.1 789.7 -- 2,704.8
Operating expenses 13,257.1 3,794.8 (108.0) 16,943.9
Operating income (loss) 2,759.8 (2,569.4) -- 190.4
Operating margin 17.2% NM -- NM
Other partners' loss in Sprint
PCS -- 1,250.9 -- 1,250.9
Equity in losses of affiliates (227.2) -- -- (227.2)
Capital expenditures 3,159.2 1,071.9 -- 4,231.1
Total assets 19,274.8 15,138.4 (1,182.1) 33,231.1
1997
Net operating revenues $14,873.9 $ -- $ -- $14,873.9
Depreciation and amortization 1,726.3 -- -- 1,726.3
Operating expenses 12,404.0 18.5 -- 12,422.5
Operating income (loss) 2,469.9 (18.5) -- 2,451.4
Operating margin 16.6% NM -- 16.5%
Equity in losses of affiliates (172.2) (659.6) -- (831.8)
Capital expenditures 2,708.9 153.7 -- 2,862.6
Total assets 16,580.5 1,703.1 (10.0) 18,273.6
1996
Net operating revenues $13,887.5 $ -- $ -- $13,887.5
Depreciation and amortization 1,591.0 -- -- 1,591.0
Operating expenses 11,619.8 0.5 -- 11,620.3
Operating income (loss) 2,267.7 (0.5) -- 2,267.2
Operating margin 16.3% NM -- 16.3%
Equity in losses of affiliates (74.2) (191.8) -- (266.0)
Capital expenditures 2,433.6 -- -- 2,433.6
Total assets 15,655.4 1,259.8 -- 16,915.2
</TABLE>
NM = Not meaningful
I-33
<PAGE>
Supplemental Cash Flows Information
Sprint's cash paid for interest and income taxes was as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Interest (net of capitalized interest)
Continuing operations $ 216.7 $197.9 $212.1
-----------------------------------------------------------
Cellular division $ -- $ -- $ 21.5
-----------------------------------------------------------
Income taxes $ 307.3 $365.8 $695.3
-----------------------------------------------------------
Sprint's noncash activities include the following:
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Common stock issued to the Cable Partners to purchase
Sprint PCS $3,200.3 $ -- $ --
-----------------------------------------------------------
Capital lease obligations $ 460.0 $ 30.1 $ --
-----------------------------------------------------------
Preferred stock issued to the Cable Partners in
exchange for interim financing $ 246.8 $ -- $ --
-----------------------------------------------------------
Common stock issued under Sprint's ESPP $ 95.1 $ 5.2 $ 65.2
-----------------------------------------------------------
Tax benefit from stock options exercised $ 49.0 $ 26.2 $ 14.1
-----------------------------------------------------------
Net book value of assets and liabilities contributed to
Global One $ -- $ -- $ 73.3
-----------------------------------------------------------
</TABLE>
See Note 3 for more details about the assets and liabilities acquired in the
PCS Restructuring.
Related Party Transactions
Sprint provided various voice, data and administrative services to Global One
totaling $277 million in 1998, $415 million in 1997 and $361 million in 1996.
In addition, Global One provided data and administrative services to Sprint
totaling $140 million in 1998, $114 million in 1997 and $130 million in 1996.
Sprint's receivable from Global One was $187 million at year-end 1998 and $154
million at year-end 1997. Sprint's payable to Global One was $42 million at
year-end 1998 and $104 million at year-end 1997.
The Cable Partners advanced PhillieCo $26 million in 1998 and $24 million in
1997. These advances, which accrue interest at prime, mature in the 1999 first
quarter.
- --------------------------------------------------------------------------------
15. Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires all derivatives to be recorded on the balance sheet as either assets
or liabilities and be measured at fair value. Gains or losses from changes in
the derivative values are to be accounted for based on how the derivative was
used and whether it qualifies for hedge accounting. When adopted in January
2000, this statement is not expected to have a material impact on Sprint's
consolidated financial statements.
I-34
<PAGE>
- --------------------------------------------------------------------------------
16. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
---------------------------------------
1998 1st(/1/) 2nd(/1/) 3rd(/1/) 4th(/1/)
- ----------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 4,075.5 $ 4,189.5 $ 4,334.5 $ 4,534.8
Operating income (loss)(/6/) 214.2 184.4 148.4 (356.6)
Income (Loss) before extraordinary
items(/2/),(/6/) 210.7 210.9 239.2 (210.3)
Net income (loss)(/2/) 206.3 210.9 239.2 (241.9)
Earnings (Loss) per common share
before extraordinary items(/5/)
Sprint common stock
Diluted 0.48 0.48 0.54 0.45
Basic 0.49 0.49 0.55 0.46
FON common stock
Diluted NA NA NA 0.27
Basic NA NA NA 0.28
PCS common stock
Diluted and basic NA NA NA (1.26)
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarter
---------------------------------------
1997 1st 2nd 3rd 4th
- -----------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 3,578.5 $ 3,667.5 $ 3,778.9 $ 3,849.0
Operating income(/3/) 604.7 595.5 640.7 610.5
Income before extraordinary
items(/3/),(/4/) 290.0 255.9 211.7 194.9
Net income(/3/),(/4/) 290.0 255.9 211.7 194.9
Earnings per common share before ex-
traordinary items
Diluted 0.67 0.59 0.49 0.45
Basic 0.67 0.59 0.49 0.45
- -----------------------------------------------------------------------------
</TABLE>
(/1/Amounts)for 1998 reflect certain reclassifications to conform to the
current-year presentation.
(/2/In)the 1998 fourth quarter, the FON Group recorded net nonrecurring gains
of $104 million, mainly from the sale of local exchanges. This increased
income before extraordinary items by $62 million.
(/3/In)the 1997 second quarter, the FON Group recorded nonrecurring charges of
$20 million related to litigation in the long distance division. These
charges reduced income before extraordinary items by $13 million (See Note
10).
(/4/In)the 1997 fourth quarter, the FON Group recognized gains of $71 million
from sales of local exchanges and certain investments. These gains
increased income before extraordinary items by $44 million.
(/5/Fourth)quarter 1998 reflects EPS for Sprint only through the date of the
November 1998 Recapitalization. EPS for the FON Group and the PCS Group
reflects EPS from the date of the Recapitalization through year-end 1998.
(/6/In)the 1998 fourth quarter, the PCS Group recorded a nonrecurring charge to
write off $179 million of acquired IPR&D related to the PCS Restructuring.
This charge increased operating loss and loss before extraordinary items by
$179 million.
NA = Not applicable
- --------------------------------------------------------------------------------
17. Subsequent Event (Unaudited)
- --------------------------------------------------------------------------------
In February 1999, Sprint completed an offering of Series 1 PCS stock. In this
offering, Sprint sold 24.4 million shares at a price to the public of $28.75
per share. The net proceeds to Sprint totaled $672 million. In connection with
this offering, FT and DT purchased 6.1 million shares of Series 3 PCS stock.
The net proceeds to Sprint from the sale of this stock totaled $169 million.
The proceeds from the offering and purchase by FT and DT were attributed to the
PCS Group and will be used for the continued buildout of the PCS network and
working capital needs.
I-35
<PAGE>
SPRINT CORPORATION
SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
-------------------------------------
Balance Charged to Balance
Beginning PCS Charged to Other Other End of
of Year Restructuring Income Accounts Deductions Year
- ------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $146.7 $ 7.79(/2/) $378.6 $ 2.6 $(350.1)(/1/) $185.5
----------------------------------------------------------------
Valuation allowance--
deferred income tax
assets $ 11.8 $192.0(/3/) $ -- $16.2 $ (8.2) $211.8
----------------------------------------------------------------
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
----------------------------------------------------------------
</TABLE>
(/1/Accounts)written off, net of recoveries.
(/2/As)discussed in Note 3, the PCS Group's assets and liabilities were
recorded at their fair values on the PCS Restructuring date. Therefore, the
data presented in this Schedule reflects activity since the PCS
Restructuring.
(/3/Represents)a valuation allowance for deferred income tax assets recorded in
the purchase price allocation related to the PCS Restructuring.
I-36
<PAGE>
Annex II
Sprint FON Group
Combined Financial Information
<PAGE>
SELECTED FINANCIAL DATA
Sprint FON Group
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
- -------------------------------------------------------------------------------
Net operating revenues $16,016.9 $14,873.9 $13,887.5 $12,735.3 $11,964.8
Operating income(/1/) 2,759.8 2,469.9 2,267.7 1,834.3 1,690.7
Income from continuing
operations(/1/),(/2/) 1,540.1 1,371.6 1,310.6 966.0 899.2
Pro Forma Earnings per Share
and Dividends(/3/)
- -------------------------------------------------------------------------------
Pro forma earnings per
common share from
continuing
operations(/1/),(/2/)
Diluted $ 3.55 $ 3.14 $ 3.07 $ 2.74 $ 2.56
Basic 3.61 3.19 3.11 2.76 2.59
Pro forma dividends per
common share 1.00 1.00 1.00 1.00 1.00
Financial Position
- -------------------------------------------------------------------------------
Total assets $19,274.8 $16,580.5 $15,655.4 $14,100.6 $14,374.1
Property, plant and
equipment, net 12,464.0 11,306.8 10,464.1 9,715.8 10,258.8
Total debt (including short-
term borrowings) 4,716.1 3,879.6 3,273.9 5,668.9 4,927.7
Group equity 9,024.5 7,639.3 7,332.3 3,676.9 4,473.7
Cash Flow Data
- -------------------------------------------------------------------------------
Net cash provided by
operating activities(/4/) $ 3,971.3 $ 2,906.8 $ 2,267.2 $ 2,590.1 $ 2,339.6
Capital expenditures 3,159.2 2,708.9 2,433.6 1,857.3 1,751.6
</TABLE>
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 group equity as previously reported.
The FON Group was created as a result of the PCS Restructuring and
Recapitalization. See Sprint's "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" for a more detailed
description of the PCS Restructuring and Recapitalization.
(/1/The)FON Group recorded nonrecurring charges of $20 million in 1997 and $60
million in 1996 related to litigation within the long distance division.
These charges reduced income from continuing operations by $13 million in
1997 and $36 million in 1996. In 1995, the FON Group recorded a
nonrecurring charge of $88 million related to a restructuring within the
local division. This reduced income from continuing operations by $55
million.
(/2/In)1998, the FON Group recorded net nonrecurring gains of $104 million
mainly from the sale of local exchanges. This increased income from
continuing operations by $62 million. In 1997, the FON Group recorded
nonrecurring gains of $71 million mainly from sales of local exchanges and
certain investments. These gains increased income from continuing
operations by $44 million. In 1994, the FON Group recognized a $35 million
gain on the sale of equity securities, which increased income from
continuing operations by $22 million.
(/3/Pro)forma earnings per share and dividends for the FON Group assume the FON
shares created in the Recapitalization existed for all periods presented.
(/4/The)1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
II-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Sprint FON Group
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" for a discussion of the PCS Restructuring, the
Recapitalization and the Top-up.
- --------------------------------------------------------------------------------
Forward-looking Information
- --------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-looking Information" for a discussion of
forward-looking information.
- --------------------------------------------------------------------------------
Sprint FON Group
- --------------------------------------------------------------------------------
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network using state-of-the-art fiber-optic and electronic technology. The
division provides domestic and international voice, video and data
communications services as well as integration management and support services
for computer networks.
Local Division
The local division consists of regulated local phone companies serving more
than 7.6 million access lines in 18 states. It provides local phone services,
access by phone customers and other carriers to its local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas.
Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint ION extends Sprint's existing advanced network capabilities to the
customer and enables Sprint to provide the network infrastructure to meet
customers' demands for data, Internet, and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
Other Ventures
The "other ventures" segment includes the FON Group's investment in Global One,
a joint venture with FT and DT. Sprint is a 1/3 partner in Global One's
operating group serving Europe (excluding France and Germany) and is a 50%
partner in Global One's operating group for the worldwide activities outside
the United States and Europe. This segment also includes the FON Group's
investments in EarthLink Network Inc., an Internet service provider; Call-Net,
a long distance provider in Canada operating under the Sprint brand name; and
certain other telecommunications investments and ventures. All of these
investments are accounted for on the equity basis.
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
Total net operating revenues for 1998 were $16.0 billion, an 8% increase from
$14.9 billion in 1997. Total net operating revenues for 1996 were $13.9
billion.
Income from continuing operations was $1.5 billion in 1998 compared with $1.4
billion in 1997 and $1.3 billion in 1996.
Core Businesses
In 1998, the FON Group's core businesses generated improved net operating
revenues and operating income from 1997. Long distance calling volumes
increased 15% in 1998 and 14% in 1997. Access lines served by the local
division increased 5.1% in 1998 and 5.6% in 1997, excluding sales of local
exchanges.
Core net income included net nonrecurring pretax gains of $104 million in 1998
and $51 million in 1997. These gains mainly consisted of sales of local
exchanges and certain investments, partly offset by litigation charges in 1997.
In 1996, core net income included pretax litigation charges within the long
distance division of $60 million.
Excluding these nonrecurring items, operating income from core operations was
$2.9 billion in 1998 versus $2.6 billion in 1997 and $2.4 billion in 1996.
II-2
<PAGE>
- --------------------------------------------------------------------------------
Segmental Results of Operations
- --------------------------------------------------------------------------------
Long Distance Division
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $9,910.9 $8,994.0 $8,302.1
- ------------------------------------------------------------------------
Operating expenses
Interconnection 3,860.1 3,949.3 3,722.7
Operations 1,453.2 1,257.1 1,051.8
Selling, general and administrative(/1/) 2,348.6 2,035.3 1,982.8
Depreciation and amortization 882.2 727.0 633.3
- ------------------------------------------------------------------------
Total operating expenses 8,544.1 7,968.7 7,390.6
- ------------------------------------------------------------------------
Operating income $1,366.8 $1,025.3 $ 911.5
----------------------------------------------------
Operating margin 13.8% 11.4% 11.0%
----------------------------------------------------
Capital expenditures $1,363.8 $1,223.2 $1,139.8
----------------------------------------------------
</TABLE>
(/1/The)FON Group recorded nonrecurring litigation charges of $20 million in
1997 and $60 million in 1996.
Net Operating Revenues
All major market segments--business, residential and wholesale--contributed to
the increase in net operating revenues in 1998 and 1997. The increases mainly
reflect strong data services revenue growth and strong minute growth of 15% in
1998 and 14% in 1997, partly offset by a more competitive pricing environment
and a change in the mix of products sold.
Business and Data Market
Business and data market revenues increased 15% in 1998 and 10% in 1997. Data
services, which includes sales of capacity on Sprint's network to Internet
service providers, showed strong growth because of accelerated use of the
Internet and expanded service offerings. The increases also reflect strong
calling volumes for inbound and outbound toll-free calls made within the United
States.
Residential Market
Residential market revenues increased 5% in 1998 and 6% in 1997. These
increases reflect strong revenue and volume growth from residential long
distance calls. Growth was also enhanced by the Sprint Sense Anytime(R) "10 by
24" product--dime-a-minute calls, 24 hours a day--which generated increased
sales in 1998. Other growth factors included increased international and
prepaid card revenues as well as calling card calls made by customers of local
phone companies. Through various agreements Sprint has with local phone
companies, their customers use the Sprint network when making long distance
calls.
Wholesale Market
Wholesale market revenues increased 8% in 1998 and 22% in 1997. This reflects
strong minute growth mainly from increased inbound and outbound toll-free
calls, partly offset by a change in international mix to lower yielding but
higher margin countries.
Interconnection Costs
Interconnection costs consist of amounts paid to local phone companies, other
domestic service providers and foreign phone companies to complete calls made
by the division's domestic customers. These costs decreased 2% in 1998 and
increased 6% in 1997. Reductions in per-minute costs for both domestic and
international access more than offset the impact of increased calling volumes
in 1998 versus 1997, and partially offset the impact of increased calling
volumes in 1997 versus 1996. The rate reductions were generally due to domestic
FCC-mandated access rate reductions that took effect in July 1997 and in
January and July 1998. Interconnection costs were 38.9% of net operating
revenues in 1998, 43.9% in 1997 and 44.8% in 1996.
Operations Expense
Operations expense includes costs to operate and maintain the long distance
network and costs of equipment sales. It also includes costs to provide
operator, public payphone and video teleconferencing services as well as
telecommunications services for the hearing-impaired. Operations expense
increased 16% in 1998 and 20% in 1997. These increases were driven by growth in
data services as well as increases in network equipment operating leases in
both years. Operations expense for 1998 also includes costs related to Sprint's
efforts to achieve Year 2000 compliance for its telecommunications network and
operating systems. The 1997 increase also reflects increased costs related to
FCC-mandated payments to public payphone providers. Operations expense was
14.7% of net operating revenues in 1998, 14.0% in 1997 and 12.7% in 1996.
Selling, General and Administrative Expense
Selling, general and administrative (SG&A) expense increased 15% in 1998 and 3%
in 1997. These increases mainly reflect the overall growth of the business as
well as increased marketing and promotions to support products and services.
SG&A for 1998 also includes costs related to Sprint's efforts to achieve Year
2000 compliance for information systems and applications supporting such
processes as billing, customer service and other administrative support
services. SG&A expense was 23.7% of net operating revenues in 1998, 22.6% in
1997 and 23.9% in 1996.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 21% in 1998 and 15% in 1997.
These increases were generally due to an increased asset base with shorter
average depreciable lives. Capital expenditures were incurred mainly to enhance
network reliability, meet increased demand for voice and data-related services
and upgrade
II-3
<PAGE>
capabilities for providing new products and services. Depreciation and
amortization expense was 8.9% of net operating revenues in 1998, 8.1% in 1997
and 7.6% in 1996.
Local Division
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $5,371.4 $5,293.9 $5,127.0
- -------------------------------------------------------------------
Operating expenses
Costs of services and products 1,855.1 1,892.1 1,843.2
Selling, general and administrative 1,150.6 1,075.6 1,039.5
Depreciation and amortization 958.7 935.5 909.6
- -------------------------------------------------------------------
Total operating expenses 3,964.4 3,903.2 3,792.3
- -------------------------------------------------------------------
Operating income $1,407.0 $1,390.7 $1,334.7
------------------------------------------------
Operating margin 26.2% 26.3% 26.0%
------------------------------------------------
Capital expenditures $1,374.4 $1,270.0 $1,149.7
------------------------------------------------
</TABLE>
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The main effect of this change was a reduction in the local division's
"Net Operating Revenues--Other Revenues." Sprint sold approximately 139,000
residential and business access lines in Illinois in 1997 and the remaining
81,000 access lines in November 1998. For comparative purposes, the following
discussion of local division results assumes these transfer pricing changes and
sales of exchanges occurred at the beginning of 1996. Adjusting for these
transfer pricing changes and sales of exchanges, operating margins would have
been 26.0% in 1998, 25.0% in 1997 and 24.3% in 1996.
Net Operating Revenues
Net operating revenues increased 5% in both 1998 and 1997. These increases
mainly reflect customer access line growth and increased sales of equipment and
network-based services such as Caller ID and Call Waiting. Customer access
lines increased 5.1% in 1998 and 5.6% in 1997. Net operating revenues were $5.3
billion in 1998, $5.1 billion in 1997, and $4.9 billion in 1996.
Local Service Revenues
Local service revenues, derived from local exchange services, grew 9% in 1998
and 10% in 1997 because of customer access line growth and continued demand for
network-based services. Revenue growth in 1998 also reflects increased sales of
private line services and revenues from maintaining customer wiring and
equipment. The 1997 growth also reflects extended area calling plans.
Network Access Revenues
Network access revenues, derived from long distance phone companies using the
local network to complete calls, increased 4% in 1998 and 3% in 1997. These
revenues reflect an 8% increase in minutes of use in 1998 and a 7% increase in
1997, partly offset by access rate reductions mandated by the FCC. Access rate
reductions took effect in July 1997 and January and July 1998.
Toll Service Revenues
Toll service revenues are mainly derived from providing long distance services
within specified regional calling areas, or LATAs, that are beyond the local
calling area. These revenues decreased 26% in 1998 and 20% in 1997, mainly
reflecting increased competition in the intraLATA long distance market, which
is expected to continue. In addition, toll service areas are decreasing in size
because certain local calling areas have been expanding. However, the reduced
revenues were, in part, offset by increases in local service revenues and by
increases in network access revenues paid by other carriers providing long
distance services to the local division's customers.
Other Revenues
Other revenues increased 9% in 1998 and 11% in 1997 reflecting increased
equipment sales of business systems and data networks, as well as growth in
payphone and commission revenues. It also reflects increased revenues from
providing billing and collection services.
Costs of Services and Products
Costs of services and products includes costs to operate and maintain the local
network and costs of equipment sales. These expenses remained flat in 1998 and
increased 4% in 1997. Efficiencies realized from streamlining and standardizing
business processes have allowed the division to control operating costs in both
1998 and 1997, while still supporting customer access line growth and increased
equipment sales. Also impacting costs of services and products for 1998 was a
reduction in pension costs due to increased returns on plan assets. Costs of
services and products for 1998 also includes costs related to Sprint's efforts
to achieve Year 2000 compliance for its telecommunications network and
operating systems. Costs of services and products was 34.5% of net operating
revenues in 1998, 36.1% in 1997 and 36.5% in 1996.
Selling, General and Administrative Expense
SG&A expenses increased 9% in 1998 and 4% in 1997. These increases were mainly
due to marketing costs to promote new products and services, and increased
customer service costs related to customer access line growth. Also impacting
SG&A for 1998 was a reduction in pension costs due to increased returns on plan
assets. SG&A for 1998 also includes costs related to Sprint's efforts to
achieve Year 2000 compliance for information systems and applications
supporting such processes as billing, customer service, and other
administrative support services. SG&A expense was 21.6% of net operating
revenues in 1998, 20.8% in 1997 and 21.0% in 1996.
II-4
<PAGE>
Depreciation and Amortization Expense
Depreciation and amortization expense increased 4% in both 1998 and 1997,
mainly because of increased capital expenditures, partly offset by lower
depreciation rates resulting from longer asset lives. Depreciation and
amortization expense was 17.9% of net operating revenues in 1998, 18.1% in 1997
and 18.2% in 1996.
Product Distribution and Directory Publishing Businesses
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $1,683.1 $1,454.3 $1,225.4
- -------------------------------------------------------------------
Operating expenses
Costs of services and products 1,329.7 1,172.9 1,025.7
Selling, general and administrative 109.6 93.3 90.9
Depreciation and amortization 12.9 8.2 7.2
- -------------------------------------------------------------------
Total operating expenses 1,452.2 1,274.4 1,123.8
- -------------------------------------------------------------------
Operating income $ 230.9 $ 179.9 $ 101.6
------------------------------------------------
Operating margin 13.7% 12.4% 8.3%
------------------------------------------------
Capital expenditures $ 8.7 $ 10.5 $ 9.4
------------------------------------------------
</TABLE>
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The following discussion assumes these transfer pricing changes
occurred at the beginning of 1996. Adjusting for these changes, the product
distribution and directory publishing businesses' operating margins would have
been 15.8% in 1997 and 16.3% in 1996.
Net operating revenues increased 16% in 1998 and 19% in 1997. Nonaffiliated
revenues accounted for roughly 60% of revenues in 1998 and 1997. These revenues
increased 10% in 1998 and remained flat in 1997 because of increased
competition. Sales to affiliates increased 27% in 1998 and 64% in 1997. Growth
in both years reflects the centralization of certain local division purchasing
and warehousing functions at North Supply in 1997. As a result, the affiliates
now purchase more through North Supply than third-party vendors.
Costs of services and products increased 19% in 1998 and 22% in 1997 reflecting
increased sales. SG&A expense increased 17% in 1998 and 3% in 1997 because of
costs related to the division's acquisition of a sales force from another
directory sales company.
Sprint ION(SM)
<TABLE>
- ------------------------------------
<CAPTION>
1998 1997
- ------------------------------------
(in millions)
<S> <C> <C>
Operating expenses $ 143.1 $ 5.2
--------
Capital expenditures $ 154.3 $ 45.8
--------
</TABLE>
Operating expenses for Sprint ION in 1998 reflect its initial development and
deployment activities and include costs for network research and testing,
systems and operations development, product development and advertising to
increase public awareness. Depreciation and amortization totaled $5 million in
1998 and $2 million in 1997.
Other Ventures
<TABLE>
- ---------------------------------------------------------
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Operating expenses $ 39.9 $ 83.8 $ 48.6
------------------------------------
Equity in losses of affiliates $(236.7) $(172.0) $(87.0)
------------------------------------
Capital expenditures $ -- $ 17.1 $ 36.7
------------------------------------
</TABLE>
Operating expenses and capital expenditures mainly relate to the FON Group's
offering of Internet services. In June 1998, the FON Group completed the
strategic alliance to combine its Internet business with EarthLink. As part of
the alliance, EarthLink obtained the FON Group's Sprint Internet Passport
customers and took over the day-to-day operations of those services. In
exchange, the FON Group acquired an equity interest in EarthLink. As a result,
beginning in 1998, the FON Group's share of EarthLink's losses has been
reflected in "Equity in losses of affiliates" above.
"Equity in losses of affiliates" mainly consists of losses from Global One
totaling $186 million in 1998, $162 million in 1997 and $82 million in 1996. In
an effort to improve profitability, Global One is refocusing its efforts to
place more emphasis on multinational customers. The 1998 loss includes $37
million of nonrecurring charges for business improvement and network
rationalization initiatives. Global One is continuing to implement these
initiatives, which are expected to result in additional charges.
- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------
Interest Expense
Interest costs in the following table only reflect interest costs on
borrowings. Interest costs related to deferred compensation plans and customer
deposits have been excluded so as not to distort the effective interest rate on
borrowings.
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Interest expense on outstanding debt(/1/) $ 269.5 $ 183.5 $ 182.7
Capitalized interest costs 41.5 69.4 104.0
- ------------------------------------------------------------------------
Total interest costs on outstanding debt $ 311.0 $ 252.9 $ 286.7
------------------------------------------------------
Average debt outstanding $4,340.1 $3,251.3 $3,604.9
------------------------------------------------------
Effective interest rate 7.2% 7.8% 8.0%
------------------------------------------------------
</TABLE>
(/1/Interest)expense for 1996 includes $21.5 million of interest expense
included in "Discontinued operation, net" on the Combined Statements of
Income.
II-5
<PAGE>
The FON Group capitalizes interest costs related to constructing capital
assets. Sprint capitalized interest costs related to its investment in Sprint
PCS until July 1997 when Sprint PCS emerged from the development stage. Sprint
also capitalized interest costs related to the PCS Group's network buildout and
PCS licenses that were not yet operational. As a result of the PCS
Restructuring, this capitalized interest was contributed to, and is being
amortized by, the PCS Group.
The decrease in the FON Group's effective interest rate for 1998 reflects an
increase in short-term borrowings, which have lower interest rates. Average
debt outstanding in 1998 increased to support Sprint ION(SM) and various other
FON Group initiatives.
Effective with the PCS Restructuring, interest expense on borrowings incurred
by Sprint and allocated to the PCS Group is based on rates the PCS Group would
be able to obtain from third parties. Those interest rates are higher than the
rates Sprint obtains on the borrowings. The difference between Sprint's actual
interest rates and the rates charged to the PCS Group is reflected as a
reduction in the FON Group's interest expense. See Note 2 of Notes to Combined
Financial Statements for a more detailed description of Sprint's policies about
the allocation of Group financing.
Other Income, Net
Other income consisted of the following:
<TABLE>
- --------------------------------------------------
<CAPTION>
1998 1997 1996
- --------------------------------------------------
(in millions)
<S> <C> <C> <C>
Dividend and interest income $139.5 $ 99.0 $ 99.7
Other, net 78.6 65.1 15.6
- --------------------------------------------------
Total $218.1 $164.1 $115.3
-----------------------------
</TABLE>
Dividend and interest income for all years reflects interest earned on
temporary investments. For 1998, it also reflects interest earned on loans to
unconsolidated affiliates and interest earned on short-term investments
following Sprint's $5.0 billion debt offering (see Sprint's "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Liquidity" for more details). "Other, net" for
1998 and 1997 mainly reflects net gains on sales of local exchanges and certain
investments, partly offset by losses from certain equity method investments.
Income Taxes
The FON Group's effective tax rates were 37.8% in 1998, 39.3% in 1997 and 37.7%
in 1996. See Note 5 of Notes to Combined Financial Statements for information
about the differences that caused the effective income tax rates to vary from
the statutory federal rate.
Extraordinary Items, Net
In 1998, Sprint redeemed, prior to scheduled maturities, $138 million of FON
Group debt with interest rates ranging from 7.9% to 9.3%. This resulted in a $5
million after-tax extraordinary loss. In 1996, Sprint also redeemed, prior to
scheduled maturities, $190 million of FON Group debt with interest rates
ranging from 6.0% to 9.5%. This resulted in a $5 million after-tax
extraordinary loss.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
- ------------------------------------
<CAPTION>
1998 1997
- ------------------------------------
(in millions)
<S> <C> <C>
Combined assets $19,274.8 $16,580.5
-------------
</TABLE>
The increase in assets was due to increased capital expenditures to support the
core long distance and local networks as well as increased advances and loans
to the PCS Group. See "Liquidity and Capital Resources" for more information
about changes in the Combined Balance Sheets.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Operating Activities
<TABLE>
- -----------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows provided by operating activities $3,971.3 $2,906.8 $2,267.2
-----------------------------------------------------
</TABLE>
The increase in 1998 operating cash flows mainly reflects improved operating
results in the FON Group's core businesses and changes in working capital.
During 1996, Sprint terminated an accounts receivable sales agreement, which
reduced cash flows by $600 million.
Investing Activities
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows used by investing activities from
continuing operations $(3,639.7) $(4,027.3) $(2,979.2)
-------------------------------------------------------------
</TABLE>
Capital expenditures, which are the FON Group's largest investing activity,
totaled $3.2 billion in 1998, $2.7 billion in 1997 and $2.4 billion in 1996.
Long distance capital expenditures were incurred mainly to enhance network
reliability, meet increased demand for voice and data-related services and
upgrade capabilities to accommodate growth and provide new products and
services. The local division incurred capital expenditures to accommodate
access line growth and expand capabilities for providing enhanced services.
The FON Group had advances to the PCS Group and loans to Sprint PCS to fund
capital and operating requirements. Loans to Sprint PCS in 1998 were partly
offset by the repayment of a vendor financing loan. Equity transfers to the PCS
Group were also used to fund its capital and operating requirements and were
offset by current tax benefits used by the FON Group.
II-6
<PAGE>
Investing activities also include proceeds from sales of assets (mainly sales
of local exchanges) totaling $230 million in 1998 and $292 million in 1997. In
addition, in 1997, the FON Group purchased the net assets of Paranet, Inc. for
$375 million (see Note 10 of Notes to Combined Financial Statements).
"Investments in and loans to other affiliates, net" consisted of the following:
<TABLE>
- -------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------
(in millions)
<S> <C> <C> <C>
Global One
Capital contributions $283.5 $ -- $39.5
Advances, net (15.7) 199.7 --
- -------------------------------------------
267.8 199.7 39.5
Other, net 235.8 185.8 41.9
- -------------------------------------------
Total $503.6 $385.5 $81.4
---------------------
</TABLE>
Capital contributions and net advances to Global One were mainly used to fund
capital and operating requirements. "Other, net" includes the FON Group's
investment in EarthLink and an additional $148 million investment in Call-Net
to retain the FON Group's approximate 25% interest after Call-Net purchased
Fonorola Inc.
Financing Activities
<TABLE>
- -----------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows provided (used) by financing activities $(0.8) $71.6 $479.1
------------------------------------------------
</TABLE>
Financing activities during 1998 mainly reflect long-term borrowings of $1.1
billion, partly offset by payments on long-term debt of $388 million. In 1997,
the FON Group had net borrowings of $532 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. The FON Group mainly used these proceeds, and
cash from the repayment of intercompany advances by its cellular division, to
reduce outstanding debt.
The FON Group paid dividends of $430 million in 1998 and 1997, and $420 million
in 1996. The indicated annual dividend rate on FON stock is $1.00 per share.
Capital Requirements
The FON Group's 1999 investing activities, mainly consisting of capital
expenditures and investments in affiliates, are expected to require cash of
$4.1 to $4.4 billion. FON Group capital expenditures are expected to range
between $3.7 and $4.0 billion in 1999. The long distance and local divisions
will require the majority of this total. Sprint ION is expected to require $600
to $800 million for capital expenditures in 1999. Dividend payments are
expected to approximate $435 million.
In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement that provides for the allocation of income taxes between the FON
Group and the PCS Group. Sprint expects the FON Group to make significant
payments to the PCS Group under this agreement because of expected PCS Group
operating losses in the near future. These payments will reflect the PCS
Group's incremental cumulative effect on Sprint's consolidated federal and
state tax liability and tax credit position. During 1998, the PCS Group accrued
benefits under the agreement totaling $191 million and received a related
payment from the FON Group totaling $20 million. The remaining $171 million
will be paid by the FON Group during the first half of 1999. See Note 2 of
Notes to Combined Financial Statements, "Allocation of Federal and State Income
Taxes" for more details.
Liquidity
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity" for a discussion of liquidity.
- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------
The Telecom Act was designed to promote competition in all aspects of
telecommunications. It eliminated legal and regulatory barriers to entry into
local phone markets. It also required incumbent local phone companies, among
other things, to allow local resale at wholesale rates, negotiate
interconnection agreements, provide nondiscriminatory access to unbundled
network elements and allow collocation of interconnection equipment by
competitors. The Telecom Act also allows Regional Bell Operating Companies
(RBOCs) to provide in-region long distance service once they obtain state
certification of compliance with a competitive "checklist," have a facilities-
based competitor and obtain an FCC ruling that the provision of in-region long
distance service is in the public interest. The Telecom Act's impact on Sprint
remains unclear because the rules for competition are still being decided by
regulators and the courts.
In accordance with the Telecom Act, the FCC adopted detailed rules in 1996 to
govern interconnection to incumbent local networks by new market entrants. Some
local phone companies and state public utility commissions appealed these rules
to the U.S. Court of Appeals. In 1997, the court struck down the FCC's pricing
rules. It ruled that the Telecom Act left jurisdiction over pricing matters to
the states. The U.S. Supreme Court, in January 1999, reversed the appeals court
decision and reinstated the FCC's authority to establish rules and prices.
Further FCC action and court appeals are expected.
In 1997, the FCC issued important decisions on the structure and level of
access charges and universal service. These decisions were designed to remove
implicit subsidies from access charges and bring access rates closer to costs.
The decisions also called for establishing explicit universal service subsidies
for serving high cost areas and to fund additional telecommunications for
schools, libraries and rural health care providers.
II-7
<PAGE>
It is too early to ascertain the impact of these matters on Sprint because
appeals and further regulatory proceedings are pending. Sprint benefits from
lower access charges as a provider of long distance services because access is
the single largest cost in providing long distance service. In addition, in
1998 Sprint's long distance division established charges to flow through
certain access and universal service payments to its customers. Reductions in
access charges adversely affect revenues of the local division.
Some RBOCs have challenged the Telecom Act restrictions on their entry into
long distance markets as unconstitutional. A federal district court in Texas
ruled the restrictions were unlawful because they constituted a legislative act
that imposed punishment without a judicial proceeding. However, that decision
was overturned by the Fifth Circuit Court of Appeals. Similar arguments have
also been rejected by the D.C. Circuit Court of Appeals. To date, the U.S.
Supreme Court has declined to review these decisions.
Since the Telecom Act was passed in 1996, several RBOCs have filed applications
with the FCC to provide in-region long distance service in certain states. None
have been approved. It is expected that more applications will be filed with
the FCC in 1999 and some may be approved. The entry of RBOCs into the long
distance market will impact competition, but the extent of the impact will
depend on many factors. These factors include the RBOCs' competitive ability,
the appeal of the RBOC brand to different market segments and the response of
competitors. Some of the impact on Sprint may be offset by wholesale revenues
from those RBOCs that choose to resell Sprint services.
As a result of competition, a number of carriers have combined. Sprint has
raised concerns about some pending mergers (especially SBC Communications, Inc.
and Ameritech Corporation, and GTE Corporation and Bell Atlantic Corporation)
that appear to threaten competition. Federal regulators are closely
scrutinizing these mergers.
- --------------------------------------------------------------------------------
Financial Strategies
- --------------------------------------------------------------------------------
Financial strategies are determined by Sprint on a centralized basis. See
Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Strategies."
- --------------------------------------------------------------------------------
Year 2000 Issue
- --------------------------------------------------------------------------------
The "Year 2000" issue affects the FON Group's installed computer systems,
network elements, software applications and other business systems that have
time-sensitive programs that may not properly reflect or recognize the year
2000. Because many computers and computer applications define dates by the last
two digits of the year, "00" may not be properly identified as the year 2000.
This error could result in miscalculations or system failures. The Year 2000
issue may also affect the systems and applications of the FON Group's
customers, vendors, resellers or affiliates.
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 has also completed the renovation of these computer
systems, network elements, other business systems and more than 90% of its
software applications. Year 2000 testing began in the 1998 third quarter and
will be completed during 1999. The FON Group is using both internal and
external sources to identify, correct or reprogram, and test its systems for
Year 2000 compliance. The FON Group is also contacting others with whom it
conducts business to receive the proper warranties and assurances that those
third parties are, or will be, Year 2000 compliant.
The FON Group incurred approximately $140 million in 1998 for its Year 2000
compliance program and expects to incur approximately $110 million in 1999. If
compliance is not achieved in a timely manner by the FON Group, its affiliates
(including Global One) or any significant related third party, the Year 2000
issue could have a material adverse effect on the FON Group's operations.
However, the FON Group is focusing on identifying and addressing all aspects of
its operations that may be affected by the Year 2000 issue. The FON Group is
developing and will implement, if necessary, appropriate contingency plans to
mitigate to the extent possible the effects of any Year 2000 noncompliance.
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
See Note 13 of Notes to Combined Financial Statements for a discussion of a
recently issued accounting pronouncement.
II-8
<PAGE>
MANAGEMENT REPORT
Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this annex. Management is
responsible for the consistency of reporting this information and for ensuring
that generally accepted accounting principles are used.
In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and codes of conduct are understood and practiced
by its employees.
The combined financial statements included in this annex have been audited by
Ernst & Young LLP, independent auditors. Their audits were conducted using
generally accepted auditing standards and their report is included herein.
The Board of Director's responsibility for these combined financial statements
is pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
- --------------------------------------------------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
- --------------------------------------------------------------------------------
Arthur B. Krause
Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sprint Corporation
We have audited the accompanying combined balance sheets of the Sprint FON
Group (as described in Note 2) as of December 31, 1998 and 1997, and the
related combined statements of income, comprehensive income and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index to Financial
Statements and Financial Statement Schedules. These financial statements and
the schedule are the responsibility of the management of Sprint Corporation
(Sprint). Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Sprint
FON Group at December 31, 1998 and 1997, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related 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.
As more fully discussed in Note 2, the combined financial statements of the
Sprint FON Group should be read together with the audited consolidated
financial statements of Sprint.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1999
II-9
<PAGE>
COMBINED STATEMENTS OF INCOME Sprint FON Group
(in millions)
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net Operating Revenues $16,016.9 $14,873.9 $13,887.5
- --------------------------------------------------------------------------
Operating Expenses
Costs of services and products 7,601.0 7,451.0 6,912.9
Selling, general and administrative 3,741.0 3,226.7 3,115.9
Depreciation and amortization 1,915.1 1,726.3 1,591.0
- --------------------------------------------------------------------------
Total operating expenses 13,257.1 12,404.0 11,619.8
- --------------------------------------------------------------------------
Operating Income 2,759.8 2,469.9 2,267.7
Interest expense (317.8) (210.8) (196.7)
Equity in loss of Global One (186.0) (162.1) (82.1)
Other income, net 218.1 164.1 115.3
- --------------------------------------------------------------------------
Income from continuing operations before
income taxes 2,474.1 2,261.1 2,104.2
Income taxes (934.0) (889.5) (793.6)
- --------------------------------------------------------------------------
Income from Continuing Operations 1,540.1 1,371.6 1,310.6
Discontinued operation, net -- -- (2.6)
Extraordinary items, net (4.8) -- (4.5)
- --------------------------------------------------------------------------
Net Income $ 1,535.3 $ 1,371.6 $ 1,303.5
----------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-10
<PAGE>
COMBINED STATEMENTS OF COMPREHENSIVE INCOME Sprint FON Group
(in millions)
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $1,535.3 $1,371.6 $1,303.5
- -------------------------------------------------------------------------
Other Comprehensive Income
Unrealized holding gains on securities 28.0 11.7 4.6
Income tax expense (10.1) (4.4) (1.7)
- -------------------------------------------------------------------------
Net unrealized holding gains on securities 17.9 7.3 2.9
Foreign currency translation adjustments (2.1) 9.4 (0.8)
- -------------------------------------------------------------------------
Total other comprehensive income 15.8 16.7 2.1
- -------------------------------------------------------------------------
Comprehensive Income $1,551.1 $1,388.3 $1,305.6
-------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-11
<PAGE>
COMBINED BALANCE SHEETS Sprint FON Group
(in millions)
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 432.5 $ 101.7
Accounts receivable, net of allowance for doubtful
accounts of $174.8 and $146.7 2,384.3 2,495.6
Inventories 349.7 352.0
Prepaid expenses 199.4 156.2
Notes and other receivables 118.2 443.4
Advances and loans to the PCS Group 483.9 31.5
Other 74.1 56.9
- ----------------------------------------------------------------------------
Total current assets 4,042.1 3,637.3
Investments in equity securities 489.2 303.0
Property, plant and equipment
Long distance division 9,241.3 8,249.1
Local division 14,858.5 14,034.5
Other 1,056.2 740.0
- ----------------------------------------------------------------------------
Total property, plant and equipment 25,156.0 23,023.6
Accumulated depreciation (12,692.0) (11,716.8)
- ----------------------------------------------------------------------------
Net property, plant and equipment 12,464.0 11,306.8
- ----------------------------------------------------------------------------
Investments in and loans to the PCS Group 656.1 142.4
Investments in and advances to other affiliates 645.0 459.1
Other assets 978.4 731.9
- ----------------------------------------------------------------------------
Total $19,274.8 $16,580.5
-----------
Liabilities and Group Equity
Current liabilities
Current maturities of long-term debt $ 33.3 $ 131.0
Accounts payable 1,283.7 1,082.3
Accrued interconnection costs 592.4 672.7
Accrued taxes 346.5 270.7
Advance billings 229.3 202.9
Other 808.2 659.6
- ----------------------------------------------------------------------------
Total current liabilities 3,293.4 3,019.2
Long-term debt 4,682.8 3,748.6
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 828.3 767.2
Postretirement and other benefit obligations 1,064.1 1,036.2
Other 381.7 370.0
- ----------------------------------------------------------------------------
Total deferred credits and other liabilities 2,274.1 2,173.4
Group equity 9,024.5 7,639.3
- ----------------------------------------------------------------------------
Total $19,274.8 $16,580.5
-----------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-12
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS Sprint FON Group
(in millions)
<TABLE>
- ---------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 1,535.3 $1,371.6 $1,303.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net losses of affiliates 237.5 184.1 81.9
Extraordinary items, net 0.7 -- 4.9
Depreciation and amortization 1,915.1 1,726.3 1,591.0
Deferred income taxes and investment tax
credits 64.9 (10.0) (74.5)
Net (gains) losses on sales of assets (103.8) (93.2) 7.5
Changes in assets and liabilities:
Accounts receivable, net 102.2 (127.0) (982.1)
Inventories and other current assets (18.8) (91.5) 15.7
Accounts payable and other current
liabilities 346.7 (39.6) 362.0
Affiliate receivables and payables (83.5) -- --
Noncurrent assets and liabilities, net (24.2) (19.7) (25.5)
Other, net (0.8) 5.8 (17.2)
- ---------------------------------------------------------------------------
Net cash provided by operating activities 3,971.3 2,906.8 2,267.2
- ---------------------------------------------------------------------------
Investing Activities
Capital expenditures (3,159.2) (2,708.9) (2,433.6)
Investments in and loans to Sprint PCS (153.6) (300.4) (263.5)
Advances to the PCS Group (338.1) -- --
Equity transfers from (to) the PCS Group 340.0 (547.5) (245.2)
Investments in and loans to other
affiliates, net (503.6) (385.5) (81.4)
Paranet acquisition -- (375.0) --
Proceeds from sales of assets 230.0 292.3 2.1
Other, net (55.2) (2.3) 42.4
- ---------------------------------------------------------------------------
Net cash used by continuing operations (3,639.7) (4,027.3) (2,979.2)
Repayment by cellular division of
intercompany advances -- -- 1,400.0
Net cash used by cellular division -- -- (140.7)
- ---------------------------------------------------------------------------
Net cash used by investing activities (3,639.7) (4,027.3) (1,719.9)
- ---------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 1,059.3 866.5 9.4
Payments on long-term debt (387.9) (135.0) (433.1)
Net change in short-term borrowings -- (200.0) (1,986.8)
Dividends paid (430.3) (430.0) (419.6)
Other net change in group equity (315.2) (144.5) 3,254.1
Other, net 73.3 114.6 55.1
- ---------------------------------------------------------------------------
Net cash provided (used) by financing
activities (0.8) 71.6 479.1
- ---------------------------------------------------------------------------
Increase (Decrease) in Cash and Equivalents 330.8 (1,048.9) 1,026.4
Cash and Equivalents at Beginning of Year 101.7 1,150.6 124.2
- ---------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 432.5 $ 101.7 $1,150.6
----------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS Sprint FON Group
- --------------------------------------------------------------------------------
1. PCS Restructuring and Recapitalization
- --------------------------------------------------------------------------------
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares to maintain their combined 20% voting power in Sprint
(Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless personal communication services (PCS) operations. The FON stock is
intended to reflect the performance of all of Sprint's other operations.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Combination and Presentation
The combined FON Group financial statements, together with the combined PCS
Group financial statements, include all the accounts in Sprint's consolidated
financial statements. The combined financial statements for each Group were
prepared on a basis that management believes is reasonable and proper and
include:
. the combined historical balance sheets, results of operations and cash
flows for each of the Groups, with all significant intragroup amounts
and transactions eliminated,
. an allocation of Sprint's debt, including the related effects on results
of operations and cash flows, and
. an allocation of corporate overhead after the PCS Restructuring date.
The FON Group entities are commonly controlled companies. Transactions between
the PCS Group and the FON Group have not been eliminated in the combined
financial statements of either Group.
The FON Group combined financial statements provide FON shareholders with
financial information about the FON Group operations. Investors in FON stock
and PCS stock are Sprint shareholders and are subject to risks related to all
of Sprint's businesses, assets and liabilities. Sprint retains ownership and
control of the assets and operations of each Group (subject to a minority
interest in Cox PCS). Financial effects of either Group that affect Sprint's
results of operations or financial condition could affect the results of
operations, financial position or market price of the other Group's stock. Net
losses of either Group, and dividends or distributions on, or repurchases of,
PCS stock or FON stock will reduce Sprint funds legally available for dividends
on both Groups' stock. As a result, the FON Group combined financial statements
should be read along with Sprint's consolidated financial statements and the
PCS Group's combined financial statements.
The FON Group combined financial statements are prepared using generally
accepted accounting principles. 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.
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 group equity as previously reported.
Investments in entities in which the FON Group exercises significant influence,
but does not control, are accounted for using the equity method (see Note 3).
Classification of Operations
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network using
II-14
<PAGE>
state-of-the-art fiber-optic and electronic technology. The division provides
domestic and international voice, video and data communications services. It
also provides integration management and support services for computer
networks.
Local Division
The local division consists of regulated local phone companies serving more
than 7.6 million access lines in 18 states. It provides local services, access
by phone customers and other carriers to its local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas, or local access transport areas. In early November
1998, Sprint sold its remaining 81,000 residential and business access lines in
Illinois.
Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint ION extends Sprint's existing advanced network capabilities to the
customer and enables Sprint to provide the network infrastructure to meet
customers' demands for data, Internet, and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
Other Ventures
The "other ventures" segment includes the FON Group's investment in Global One.
Sprint is a 1/3 partner in Global One's operating group serving Europe
(excluding France and Germany) and is a 50% partner in Global One's operating
group for the worldwide activities outside the United States and Europe. The
segment also includes the FON Group's investments in EarthLink Network, Inc.,
an Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures. All of these investments are accounted for on the
equity basis.
Allocation of Shared Services
Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses other methods to estimate the assignment of costs to each Group.
Allocation of Federal and State Income Taxes
Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provides
for the allocation of income taxes between the two Groups. The FON Group's
income taxes are calculated as if it files returns which exclude the PCS Group.
Intergroup tax payments are satisfied on the date Sprint's related tax payment
is due to or the refund is received from the applicable tax authority. During
1998, the FON Group accrued income taxes payable to the PCS Group in accordance
with the tax sharing agreement totaling $191 million.
Allocation of Group Financing
Financing activities for the Groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the Groups is specifically
allocated to and reflected in the financial statements of the applicable Group.
Interest expense is allocated to the PCS Group based on an interest rate that
is largely equal to the rate it would be able to obtain from third parties as a
direct or indirect wholly owned Sprint subsidiary, but without the benefit of
any guaranty by Sprint or any member of the FON Group. That interest rate is
higher than the rate Sprint obtains on borrowings. The difference between
Sprint's actual interest rate and the rate charged to the PCS Group is
reflected as a reduction in the FON Group's interest expense.
Under Sprint's centralized cash management program, one Group may advance funds
to the other Group. These advances are accounted for as short-term borrowings
between the Groups and bear interest at a market rate that is substantially
equal to the rate that Group would be able to obtain from third parties on a
short-term basis.
Income Taxes
The FON Group records deferred income taxes based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases.
Revenue Recognition
The FON Group recognizes operating revenues as services are rendered or as
products are delivered to customers. The FON Group records operating revenues
net of an estimate for uncollectible accounts.
Cash and Equivalents
Cash and 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
for the FON Group were included in accounts payable. These amounts totaled $263
million at year-end 1998 and $214 million at year-end 1997. The FON Group had
sufficient funds available to fund these outstanding checks when they were
presented for payment.
II-15
<PAGE>
Investments in Debt and Equity Securities
Investments in debt and equity securities are classified as available for sale
and reported at fair value (estimated based on quoted market prices). Gross
unrealized holding gains and losses are reflected as adjustments to "Group
equity," net of related income taxes.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market value.
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. The cost of property, plant and equipment is generally
depreciated on a straight-line basis over estimated economic useful lives.
Repair and maintenance costs are expensed as incurred.
Capitalized Interest
The FON Group capitalized interest costs related to constructing capital assets
of $42 million in 1998, $23 million in 1997 and $8 million in 1996. In
addition, Sprint capitalized interest costs related to the PCS Group's network
buildout. This capitalized interest totaled $61 million for 1998 and $24
million for 1997 and was contributed to, and will be amortized by, the PCS
Group. Sprint also capitalized interest costs related to its investment in
Sprint PCS until July 1997 when Sprint PCS emerged from the development stage.
This capitalized interest, totaling $46 million in 1997 and $96 million in
1996, was contributed to, and is being amortized by, the PCS Group.
Earnings per Share
As a result of the Recapitalization, earnings per share for the FON Group has
been calculated based on the Group's income from November 1998 through year-end
1998. It was not calculated on a Group basis in prior years because the FON
stock was not part of Sprint's capital structure at that time. During this 1998
period, the FON Group's convertible preferred dividends totaled $0.1 million,
and dilutive securities (mainly options) totaled 6.9 million shares.
The FON Group's earnings per common share after the Recapitalization date was
as follows:
<TABLE>
- -----------------------------------------------------
<CAPTION>
1998
- -----------------------------------------------------
<S> <C>
(in millions,
except per
share data)
Earnings applicable to common stock $ 118.3
----------------------
Diluted earnings per common share $ 0.27
----------------------
Diluted weighted average common shares 434.5
----------------------
Basic earnings per common share $ 0.28
----------------------
Basic weighted average common shares 427.6
----------------------
</TABLE>
Stock-based Compensation
The FON Group participates in the incentive-based stock option plans and
employee stock purchase plans administered by Sprint for executives and other
employees. Sprint adopted the pro forma disclosure requirements under Statement
of Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation,"
and continues to apply Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to its stock option and employee stock purchase
plans. Had the FON Group applied SFAS 123, pro forma net income would have been
$103 million from the Recapitalization date through year-end 1998. See Note 9
of Sprint's Notes to Consolidated Financial Statements for more information
about Sprint's stock-based compensation and the FON Group's pro forma net
income.
In 1997, Sprint granted performance-based stock options to certain key
executives. In 1998, the FON Group expensed $14 million related to these
performance-based stock options.
- --------------------------------------------------------------------------------
3. Investments
- --------------------------------------------------------------------------------
Investments in Equity Securities
The cost of investments in equity securities was $105 million at year-end 1998
and 1997. Gross unrealized holding gains were $384 million at year-end 1998 and
$198 million at year-end 1997.
Investments in and Advances to Other Affiliates
At year-end 1998, investments accounted for using the equity method consisted
of the FON Group's investments in Global One, Call-Net, EarthLink and other
strategic investments. Combined, summarized financial information (100% basis)
of these entities and others accounted for using the equity method was as
follows:
<TABLE>
- ------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Results of operations
Net operating revenues $2,386.1 $1,939.6 $1,725.4
------------------------------------
Operating loss $ (396.4) $ (780.7) $ (421.3)
------------------------------------
Net loss $ (695.9) $ (826.1) $ (362.0)
------------------------------------
Financial position
Current assets $1,748.0 $2,999.2
Noncurrent assets 3,089.1 4,221.0
----------------------------------------------
Total $4,837.1 $7,220.2
--------------------
Current liabilities $1,838.3 $2,073.2
Noncurrent liabilities 1,007.6 2,070.3
Owners' equity 1,991.2 3,076.7
----------------------------------------------
Total $4,837.1 $7,220.2
--------------------
</TABLE>
The FON Group's investment in Global One, including advances, totaled $182
million at year-end 1998 and $93 million at year-end 1997. At year-end 1998,
Sprint's share of underlying equity in Global One's net assets exceeded the
carrying value of its related investment by $100 million. This difference is
being amortized on a straight-line basis through January 2001.
II-16
<PAGE>
- --------------------------------------------------------------------------------
4. Employee Benefit Plans
- --------------------------------------------------------------------------------
Defined Benefit Pension Plan
Most FON Group employees are covered by a noncontributory defined benefit
pension plan. Benefits for plan participants belonging to unions are based on
negotiated schedules. For non-union participants, pension benefits are based on
years of service and the participants' compensation.
Sprint's policy is to make annual plan contributions equal to an actuarially
determined amount consistent with 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.
The following table shows the changes in the projected benefit obligation:
<TABLE>
- --------------------------------------
<CAPTION>
1998 1997
- --------------------------------------
(in millions)
<S> <C> <C>
Beginning balance $2,240.9 $1,967.0
Service cost 71.7 61.7
Interest cost 165.0 148.9
Amendments 9.7 14.7
Actuarial gain 202.2 151.9
Benefits paid (110.1) (103.3)
- --------------------------------------
Ending balance $2,579.4 $2,240.9
-------------
</TABLE>
The following table shows changes in plan assets:
<TABLE>
- -------------------------------------------------
<CAPTION>
1998 1997
- -------------------------------------------------
(in millions)
<S> <C> <C>
Beginning balance $2,929.4 $2,584.2
Actual return on plan assets 350.0 448.5
Benefits paid (110.1) (103.3)
- -------------------------------------------------
Ending balance $3,169.3 $2,929.4
------------------------
</TABLE>
At year-end, the funded status and amounts recognized in the Combined Balance
Sheets for the plan were as follows:
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Plan assets in excess of the projected benefit obligation $589.9 $688.5
Unrecognized net gains (375.3) (496.4)
Unrecognized prior service cost 104.3 105.4
Unamortized transition asset (97.1) (122.1)
- --------------------------------------------------------------------------
Prepaid pension cost $221.8 $175.4
-----------------------------------------------
Discount rate 7.00% 7.25%
-----------------------------------------------
Expected blended rate of future pay raises 4.00% 4.25%
-----------------------------------------------
</TABLE>
The net pension cost (credit) consisted of the following:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Service cost--benefits earned during the year $ 71.7 $ 61.7 $ 65.4
Interest on projected benefit obligation 165.0 148.9 138.5
Expected return on plan assets (265.2) (194.2) (181.2)
Amortization of unrecognized transition asset (25.0) (25.0) (25.0)
Recognition of prior service cost 10.9 9.6 9.0
Recognition of actuarial (gains) and losses (3.8) 1.1 3.6
- -------------------------------------------------------------------------
Net pension cost (credit) $(46.4) $ 2.1 $ 10.3
---------------------------------------------------
Discount rate 7.25% 7.75% 7.25%
---------------------------------------------------
Expected long-term rate of return on plan assets 10.00% 9.50% 9.50%
---------------------------------------------------
Expected blended rate of future pay raises 4.25% 4.75% 4.25%
---------------------------------------------------
</TABLE>
Defined Contribution Plans
Sprint sponsors defined contribution employee savings plans covering most FON
Group employees. Participants may contribute portions of their pay to the
plans. For union employees, Sprint matches contributions based on negotiated
amounts. Sprint also matches contributions of non-union employees in FON and
PCS 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 additional matching contributions based on the performance
of FON and PCS stock compared to other telecommunications companies' stock.
Sprint's matching contributions were $54 million in 1998 and 1997 and $56
million in 1996. At year-end 1998, the plans held 16.7 million FON shares and
10.4 million PCS shares.
Postretirement Benefits
Sprint provides postretirement benefits (principally medical and life insurance
benefits) to most FON Group 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 following table shows the changes in the accumulated postretirement benefit
obligation:
<TABLE>
- ----------------------------------
<CAPTION>
1998 1997
- ----------------------------------
(in millions)
<S> <C> <C>
Beginning balance $832.2 $815.0
Service cost 20.2 20.8
Interest cost 57.8 52.3
Actuarial gains (6.3) (31.6)
Benefits paid (40.2) (24.3)
- ----------------------------------
Ending balance $863.7 $832.2
-------
</TABLE>
II-17
<PAGE>
Amounts included in the Combined Balance Sheets at year-end were as follows:
<TABLE>
- ------------------------------------------------------------------
<CAPTION>
1998 1997
- ------------------------------------------------------------------
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation $ 863.7 $ 832.2
Unrecognized prior service cost 60.8 5.4
Unrecognized net gains 124.7 190.0
- ------------------------------------------------------------------
Accrued postretirement benefits cost $1,049.2 $1,027.6
-----------------------------------------
Discount rate 7.00% 7.25%
-----------------------------------------
</TABLE>
The assumed 1999 annual health care cost trend rates are 7.6% before Medicare
eligibility and 8.1% after Medicare eligibility. Both rates gradually decrease
to an ultimate level of 5% by 2005. A 1% increase in the rates would have
increased the 1998 accumulated postretirement benefit obligation by an
estimated $111 million. A 1% decrease would have reduced the obligation by an
estimated $91 million.
The net postretirement benefits cost consisted of the following:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Service cost--benefits earned during the year $20.2 $20.8 $21.7
Interest on accumulated postretirement benefit obligation 57.8 52.3 49.9
Recognition of prior service cost (6.2) (0.4) (0.4)
Recognition of actuarial gains (20.6) (19.0) (13.3)
- -------------------------------------------------------------------------------
Net postretirement benefits cost $51.2 $53.7 $57.9
--------------------------------------------------------
Discount rate 7.25% 7.75% 7.25%
--------------------------------------------------------
</TABLE>
For measurement purposes, the assumed 1998 weighted average annual health care
cost trend rates were 8.4% before Medicare eligibility and 8.5% after Medicare
eligibility. Both rates gradually decrease to an ultimate level of 5% by 2005.
A 1% increase in the rates would have increased the 1998 postretirement
benefits service and interest costs by an estimated $13 million. A 1% decrease
would have reduced the 1998 postretirement benefits service and interest costs
by an estimated $10 million.
- --------------------------------------------------------------------------------
5. Income Taxes
- --------------------------------------------------------------------------------
Income tax expense allocated to continuing operations consisted of the
following:
<TABLE>
- -------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Current income tax expense
Federal $794.6 $800.0 $778.2
State 74.5 99.5 89.9
- -------------------------------------------------------------
Total current 869.1 899.5 868.1
- -------------------------------------------------------------
Deferred income tax expense (benefit)
Federal 43.3 (16.5) (93.2)
State 21.6 6.5 18.7
- -------------------------------------------------------------
Total deferred 64.9 (10.0) (74.5)
- -------------------------------------------------------------
Total $934.0 $889.5 $793.6
----------------------------------------
</TABLE>
The differences that caused the FON Group's effective income tax rates to vary
from the 35% federal statutory rate were as follows:
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Income tax expense at the federal statutory rate $865.9 $791.4 $736.5
Effect of:
State income taxes, net of federal income tax effect 62.4 68.9 70.6
Equity in losses of foreign joint ventures 13.1 36.4 8.6
Other, net (7.4) (7.2) (22.1)
- -----------------------------------------------------------------------------
Income tax expense $934.0 $889.5 $793.6
--------------------------------------------------------
Effective income tax rate 37.8% 39.3% 37.7%
--------------------------------------------------------
</TABLE>
Income tax expense (benefit) allocated to other items was as follows:
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Discontinued operation $ -- $ -- $ 7.0
Extraordinary items (3.0) -- (2.9)
Unrealized holding gains on investments(/1/) 10.1 4.4 1.7
Stock ownership, purchase and options arrangements(/1/) (49.0) (26.2) (14.1)
- ------------------------------------------------------------------------------
</TABLE>
(/1/)These amounts have been recorded directly to "Group equity."
II-18
<PAGE>
The FON Group recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial
statement purposes and their tax bases. The sources of the differences that
give rise to the deferred income tax assets and liabilities at year-end 1998
and 1997, along with the income tax effect of each, were as follows:
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1998 Deferred Income Tax
--------------------------
Assets Liabilities
- -------------------------------------------------------------------
(in millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 1,402.1
Postretirement and other benefits 418.8 --
Reserves and allowances 149.2 --
Unrealized holding gains on investments -- 71.8
Other, net 116.8 --
- -------------------------------------------------------------------
684.8 1,473.9
Less valuation allowance 3.6 --
- -------------------------------------------------------------------
Total $ 681.2 $ 1,473.9
---------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1997 Deferred Income Tax
--------------------------
Assets Liabilities
- -------------------------------------------------------------------
(in millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 1,278.0
Postretirement and other benefits 376.1 --
Reserves and allowances 103.1 --
Unrealized holding gains on investments -- 61.7
Other, net 155.2 --
- -------------------------------------------------------------------
634.4 1,339.7
Less valuation allowance 11.8 --
- -------------------------------------------------------------------
Total $ 622.6 $ 1,339.7
---------------------------------------------
</TABLE>
Management believes it is more likely than not that these deferred income tax
assets, net of the valuation 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.
The valuation allowance related to deferred income tax assets decreased $8
million in 1998 and $2 million in 1997 and $4 million in 1996.
At year-end 1998, the FON Group had available for income tax purposes $4
million of state alternative minimum tax credit carryforwards to offset state
income tax payable in future years. In addition, the FON Group had state
operating loss carryforwards of $426 million. The tax benefits related to these
loss carryforwards are $11 million, which expire in varying amounts through
2018.
II-19
<PAGE>
- --------------------------------------------------------------------------------
6. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------
Sprint's consolidated long-term debt at year-end was as follows:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
1998
-----------------------------------------
Sprint Sprint
Maturing FON Group PCS Group Consolidated 1997
- ----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Senior notes
5.7% to 6.9%(/1/) 2003 to 2028 $1,059.4 $3,940.6 $5,000.0 $ --
8.1% to 9.8% 1998 to 2003 632.3 -- 632.3 675.3
11.0% to 12.5%(/2/) 2006 -- 698.6 565.5 --
Debentures and notes
5.8% to 9.6% 2000 to 2022 564.5 -- 564.5 587.0
Notes payable and
commercial paper -- 745.8 -- 745.8 866.5
First mortgage bonds
2.0% to 9.9% 1998 to 2025 1,312.0 -- 1,312.0 1,468.4
Capital lease
obligations
5.3% to 7.5% 1998 to 2006 31.7 452.0 483.7 35.3
Revolving credit
facilities
Variable rates 2005 to 2006 -- 1,800.0 1,800.0 --
Other(/2/),(/3/)
2.0% to 10.0% 1998 to 2007 370.4 1,029.8 1,085.5 247.1
- ----------------------------------------------------------------------------
4,716.1 7,921.0 12,189.3 3,879.6
Less: current
maturities(/2/) 33.3 348.3 246.9 131.0
- ----------------------------------------------------------------------------
Long-term debt and
capital lease
obligations $4,682.8 $7,572.7 $11,942.4 $3,748.6
----------------------------
</TABLE>
(/1/These)borrowings were incurred by Sprint and allocated to the applicable
Group. At year-end 1998, Sprint's weighted average interest rate related to
these borrowings was 6.4%. The weighted average interest rate related to
the borrowings allocated to the PCS Group was approximately 8.5%. See Note
2 for a more detailed description of how Sprint allocates financing to each
of the Groups.
(/2/Consolidated)debt does not equal the total of PCS Group and FON Group debt
due to intergroup debt eliminated in consolidation. At year-end 1998, the
FON Group had an investment in the PCS Group's Senior Discount notes
totaling $133 million. In addition, the PCS Group had other long-term debt
payable to the FON Group totaling $315 million, including $135 million
classified as current at year-end 1998.
(/3/Includes)$358 million of notes recorded by the FON Group that may be
exchanged at maturity for SBC Communications, Inc. (SBC) common shares
owned by the FON Group or for cash. Based on SBC's closing price, had the
notes matured at year-end 1998, they could have been exchanged for
6.6 million SBC shares. At year-end 1998, Sprint held 7.6 million SBC
shares, which have been included in "Investments in equity securities" in
the FON Group's Combined Balance Sheets.
II-20
<PAGE>
Long-term debt maturities, excluding reclassified short-term borrowings, during
each of the next five years are as follows:
<TABLE>
- ------------------------------
<CAPTION>
Sprint Sprint
FON PCS
Group Group Sprint
- ------------------------------
(in millions)
<S> <C> <C> <C>
1999 $ 33.3 $ 348.3 $ 246.9
2000 864.0 175.3 1,039.3
2001 41.1 407.1 217.0
2002 353.0 357.3 710.3
2003 774.8 1,115.0 1,889.8
- ------------------------------
</TABLE>
Sprint
Short-term Borrowings
Sprint had bank notes payable totaling $454 million at year-end 1998 and $618
million at year-end 1997. In addition, Sprint had commercial paper borrowings
totaling $292 million at year-end 1998 and $249 million at year-end 1997.
Though these borrowings are renewable at various dates throughout the year,
they were classified as long-term debt because of Sprint's intent and ability,
through unused credit facilities, to refinance these borrowings on a long-term
basis.
In 1998, Sprint replaced its previous $1.5 billion credit facility with new
facilities with syndicates of domestic and international banks. The new
facilities totaled $5.0 billion and expire in 1999 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility. At year-end 1998, Sprint had total unused lines of credit of $4.8
billion.
Bank notes outstanding had weighted average interest rates of 5.7% at year-end
1998 and 6.1% at year-end 1997. The weighted average interest rate of
commercial paper was 5.8% at year-end 1998 and 6.8% at year-end 1997.
Long-term Debt
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission for $8.0 billion of debt securities. This
replaced Sprint's previous shelf registration of $1.0 billion. In November
1998, Sprint issued $5.0 billion under the new shelf. Sprint allocated these
borrowings to the Groups, and the related proceeds were mainly used to repay
existing debt. See Note 2 for a more detailed description of how Sprint
allocates debt to the Groups.
Sprint FON Group
In 1998, Sprint redeemed, prior to scheduled maturities, $138 million of FON
Group debt with interest rates ranging from 7.9% to 9.3%. This resulted in a $5
million after-tax extraordinary loss. In 1996, Sprint also redeemed, prior to
scheduled maturities, $190 million of FON Group debt with interest rates
ranging from 6.0% to 9.5%. This resulted in a $5 million after-tax
extraordinary loss.
FON Group property, plant and equipment totaling $13.9 billion is either
pledged as security for first mortgage bonds and certain notes or is restricted
for use as mortgaged property.
Other
Sprint, including the FON Group, had complied with all restrictive or financial
covenants relating to its debt arrangements at year-end 1998.
- --------------------------------------------------------------------------------
7. Group Equity
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Beginning balance $7,639.3 $7,332.3 $3,676.9
Net income 1,535.3 1,371.6 1,303.5
Dividends (431.1) (429.5) (421.0)
Equity issued 164.5 65.0 3,764.0
Equity repurchased (283.1) (144.5) (407.2)
Spinoff of cellular division -- -- (260.2)
Contributions to the PCS Group (146.4) (1,052.1) (478.3)
Equity transfer from the PCS Group 460.4 434.7 136.8
Other comprehensive income 15.8 16.7 2.1
Other, net 69.8 45.1 15.7
- -----------------------------------------------------------------
Ending balance $9,024.5 $7,639.3 $7,332.3
-----------------------------------------------
</TABLE>
II-21
<PAGE>
- --------------------------------------------------------------------------------
8. Commitments and Contingencies
- --------------------------------------------------------------------------------
Litigation, Claims and Assessments
FON shareholders are subject to all of the risks related to an investment in
Sprint and the FON Group, including the effects of any legal proceedings and
claims against the PCS Group.
In December 1996, an arbitration panel entered a $61 million award in favor of
Network 2000 Communications Corporation on its breach of contract claim against
Sprint. The arbitrators directed Sprint to pay 50% 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.
In June 1997, the FON Group recorded additional expense of $20 million. This
charge related to 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 small
number of potential class members chose not to be a part of that settlement and
have filed a separate lawsuit asserting their individual claims. Some potential
class members have appealed the approval of the settlement, which has delayed
final approval.
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 be material to the FON Group's combined financial
statements.
Operating Leases
The FON Group's minimum rental commitments at year-end 1998 for all
noncancelable operating leases, consisting mainly of leases for data processing
equipment and real estate, are as follows:
<TABLE>
- -------------------------
<CAPTION>
(in millions)
<S> <C>
1999 $373.7
2000 276.8
2001 184.9
2002 126.7
2003 95.5
Thereafter 226.6
- -------------------------
</TABLE>
The FON Group's gross rental expense totaled $474 million in 1998, $406 million
in 1997 and $401 million in 1996. Rental commitments for subleases, contingent
rentals and executory costs were not significant.
- --------------------------------------------------------------------------------
9. Financial Instruments
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
Sprint estimates the fair value of the FON Group's financial instruments using
available market information and appropriate valuation methodologies. As a
result, the following estimates do not necessarily represent the values the FON
Group could realize in a current market exchange. Although management is not
aware of any factors that would affect the year-end 1998 estimated fair values,
those amounts have not been comprehensively revalued for purposes of these
financial statements since that date. Therefore, estimates of fair value after
year-end 1998 may differ significantly from the amounts presented below.
The carrying amounts and estimated fair values of the FON Group's financial
instruments at year-end were as follows:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1998
-------------------
Carrying Estimated
Amount Fair Value
- -----------------------------------------------------------------
(in millions)
<S> <C> <C>
Cash and equivalents $ 432.5 $ 432.5
Investment in affiliate debt securities 164.6 164.6
Investments in equity securities 489.2 489.2
Long-term debt and capital lease obligations 4,716.1 5,107.7
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<CAPTION>
1997
-------------------
Carrying Estimated
Amount Fair Value
- -----------------------------------------------------------------
(in millions)
<S> <C> <C>
Cash and equivalents 101.7 101.7
Investment in affiliate debt securities 142.4 142.4
Investments in equity securities 303.0 303.0
Long-term debt and capital lease obligations 3,879.6 4,155.8
- -----------------------------------------------------------------
</TABLE>
The carrying values of the FON Group's cash and equivalents approximate fair
value at year-end 1998 and 1997. The estimated fair value of investments in
debt and equity securities was based on quoted market prices. The estimated
fair value of long-term debt was based on quoted market prices for publicly
traded issues. The estimated fair value of all other issues was based on the
present value of estimated future cash flows using a discount rate based on the
risks involved.
Concentrations of Credit Risk
The FON Group's accounts receivable are not subject to any concentration of
credit risk.
Interest Rate Swap Agreements
In 1998, Sprint deferred losses from interest rate swap agreements used to
hedge a portion of a $5.0 billion debt offering. These losses were allocated to
the FON Group and the PCS Group. The FON Group's share of
II-22
<PAGE>
these deferred losses totaled $16 million and will be amortized to interest
expense using the effective interest method over the term of the debt. There
were no deferred gains or losses related to any terminated interest rate swap
agreements at year-end 1997 or 1996.
- --------------------------------------------------------------------------------
10. Paranet Acquisition
- --------------------------------------------------------------------------------
In September 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.
The transaction was accounted for using the purchase method of accounting. As a
result, the FON Group's combined financial statements reflect Sprint Paranet's
results of operations beginning in October 1997.
The excess of the purchase price over the tangible net assets acquired was $357
million. This excess was allocated to noncompete agreements and goodwill, and
is being amortized on a straight-line basis over four to 10 years.
- --------------------------------------------------------------------------------
11. Spinoff of Cellular Division
- --------------------------------------------------------------------------------
Sprint completed the tax-free spinoff of Cellular to Sprint common shareholders
in 1996. To complete the spinoff, Sprint distributed all Cellular common shares
at a rate of one share for every three Sprint common shares held. In addition,
Cellular repaid $1.4 billion of its intercompany debt owed to Sprint. Sprint
also contributed to Cellular's equity capital $185 million of debt owed by
Cellular in excess of the amount repaid.
Cellular's 1996 net operating results through the spinoff date, as summarized
below, were separately classified as a discontinued operation in the Combined
Statements of Income. Interest expense was allocated to Cellular based on the
assumed repayment of intercompany debt to Sprint by Cellular. The operating
expenses as presented below do not include Cellular's share of Sprint's general
corporate overhead expenses. These expenses, totaling $2 million in 1996, were
reallocated to the FON Group's other operating entities.
<TABLE>
- ------------------------------------------
<CAPTION>
(in millions)
<S> <C>
Net operating revenues $190.2
Operating expenses 156.0
- ------------------------------------------
Operating income 34.2
Interest expense (21.5)
Other expense, net (8.3)
- ------------------------------------------
Income before income taxes 4.4
Income taxes (7.0)
- ------------------------------------------
Loss from cellular division $ (2.6)
----------
</TABLE>
- --------------------------------------------------------------------------------
12. Additional Financial Information
- --------------------------------------------------------------------------------
Segment Information
In 1998, Sprint adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information."
The FON Group operates in five business segments, based on services and
products: the long distance division, the local division, the product
distribution and directory publishing businesses, activities to develop and
deploy Sprint IONSM and other ventures.
II-23
<PAGE>
Industry segment financial information was as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Product Corporate
Long Distribution and Sprint
Distance Local & Directory Sprint Other Elim- FON
Division Division Publishing ION(SM) Ventures(/1/) inations Group
- ------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Net operating revenues $9,910.9 $5,371.4 $1,683.1 $ -- $ -- $ (948.5) $16,016.9
Intercompany revenues 137.3 207.4 711.5 -- -- (948.5) 107.7
Depreciation and
amortization 882.2 958.7 12.9 4.7 7.2 49.4 1,915.1
Operating expenses 8,544.1 3,964.4 1,452.2 143.1 39.9 (886.6) 13,257.1
Operating income (loss) 1,366.8 1,407.0 230.9 (143.1) (39.9) (61.9) 2,759.8
Operating margin 13.8% 26.2% 13.7% NM NM -- 17.2%
Capital expenditures 1,363.8 1,374.4 8.7 154.3 -- 258.0 3,159.2
Total assets 6,445.1 7,044.4 726.7 199.4 446.0 4,413.2 19,274.8
1997
Net operating revenues $8,994.0 $5,293.9 $1,454.3 $ -- $ -- $ (868.3) $14,873.9
Intercompany revenues 3.3 294.5 570.5 -- -- (868.3) --
Depreciation and
amortization 727.0 935.5 8.2 2.2 9.4 44.0 1,726.3
Operating expenses 7,968.7 3,903.2 1,274.4 5.2 83.8 (831.3) 12,404.0
Operating income (loss) 1,025.3 1,390.7 179.9 (5.2) (83.8) (37.0) 2,469.9
Operating margin 11.4% 26.3% 12.4% NM NM -- 16.6%
Capital expenditures 1,223.2 1,270.0 10.5 45.8 17.1 142.3 2,708.9
Total assets 6,828.2 7,933.0 601.4 49.8 228.0 940.1 16,580.5
1996
Net operating revenues $8,302.1 $5,127.0 $1,225.4 $ -- $ -- $ (767.0) $13,887.5
Intercompany revenues 30.9 410.2 325.9 -- -- (767.0) --
Depreciation and
amortization 633.3 909.6 7.2 -- -- 40.9 1,591.0
Operating expenses 7,390.6 3,792.3 1,123.8 -- 48.6 (735.5) 11,619.8
Operating income (loss) 911.5 1,334.7 101.6 -- (48.6) (31.5) 2,267.7
Operating margin 11.0% 26.0% 8.3% -- NM -- 16.3%
Capital expenditures 1,139.8 1,149.7 9.4 -- 36.7 98.0 2,433.6
Total assets 6,199.3 7,690.8 487.0 -- 148.9 1,129.4 15,655.4
</TABLE>
NM = Not meaningful
(/1/The)"other ventures" segment's equity in losses of affiliates totaled $237
million in 1998, $172 million in 1997 and $87 million in 1996.
II-24
<PAGE>
Supplemental Cash Flows Information
The FON Group's cash paid for interest and income taxes was as follows:
<TABLE>
- ------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Interest (net of capitalized interest)
Continuing operations $216.7 $197.9 $212.1
--------------------------------------
Cellular division $ -- $ -- $ 21.5
--------------------------------------
Income taxes $327.5 $365.8 $695.3
--------------------------------------
</TABLE>
Noncash activities for the FON Group consisted of the following:
<TABLE>
- ---------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Noncash activity in Group equity $144.1 $31.4 $79.3
----------------------------------------------------
Capital lease obligations $ -- $30.1 $ --
----------------------------------------------------
Net book value of assets and liabilities contributed to
Global One $ -- $ -- $73.3
----------------------------------------------------
</TABLE>
Intergroup Investments and Transactions
Sprint FON Group Investments in the Sprint PCS Group
The following table reflects the FON Group's noncurrent investments in the PCS
Group, which have been eliminated in Sprint's consolidated financial
statements:
<TABLE>
- --------------------------------------------
<CAPTION>
1998 1997
- --------------------------------------------
(in millions)
<S> <C> <C>
Preferred intergroup interest $279.2 $ --
Long-term loans 180.0 --
Investment in debt securities 164.6 142.4
Common intergroup interest 32.3 --
- --------------------------------------------
Total $656.1 $142.4
-----------------
</TABLE>
Preferred Intergroup Interest
The FON Group provided Sprint PCS and the PCS Group with interim financing from
the date the PCS Restructuring agreement was signed in May 1998 until it was
completed in November 1998. As part of the PCS Restructuring, Sprint converted
this financing, totaling $279 million, into an intergroup interest representing
0.3 million shares of 10-year PCS preferred stock convertible into a PCS common
intergroup interest.
Long-term Loans
Sprint provided Sprint PCS with additional interim financing of $180 million
from May 1998 through November 1998.
Investment in Debt Securities
In 1996, Sprint purchased $183 million (face value) of Sprint PCS Senior
Discount notes for $100 million.
Common Intergroup Interest
The FON Group holds a 1% intergroup interest in the PCS Group. This interest
represents 4.5 million notional PCS shares, and includes 2.7 million shares
held in treasury by the FON Group. These shares do not carry any vote.
The FON Group's 1% share of the PCS Group's net loss since the date of the PCS
Restructuring totaled $6.1 million and was included in "Other income, net" in
the Combined Statements of Income.
Intergroup Interest Income
The FON Group earned intergroup interest income of $92 million in 1998 and $24
million in 1997 related to loans and advances to the PCS Group. See Note 2 for
a more detailed description of how Sprint allocates interest expense to each of
the Groups.
Related Party Transactions
Global One
The FON Group provided various voice, data and administrative services to
Global One totaling $277 million in 1998, $415 million in 1997 and $361 million
in 1996. In addition, Global One provided data and administrative services to
the FON Group totaling $140 million in 1998, $114 million in 1997 and $130
million in 1996. The FON Group's receivable from Global One was $187 million at
year-end 1998 and $154 million at year-end 1997. The FON Group's payable to
Global One was $42 million at year-end 1998 and $104 million at year-end 1997.
Sprint PCS
The following discussion reflects related party transactions between Sprint and
Sprint PCS prior to the PCS Restructuring:
Sprint provided Sprint PCS with invoicing and operator services, and switching
equipment. Sprint PCS is also using the long distance division as its
interexchange carrier. Charges to Sprint PCS for these services totaled $125
million in 1998, $61 million in 1997 and $1 million in 1996.
Sprint provided management, printing, mailing and warehousing services to
Sprint PCS. Charges to Sprint PCS for these services totaled $30 million in
1998, $11 million in 1997, and $12 million in 1996.
Sprint had a vendor financing loan to Sprint PCS for $300 million at year-end
1997 which was repaid in 1998. Sprint also had advances to Sprint PCS of $114
million in 1998 and $21 million in 1997 which will be repaid in the 1999 first
quarter.
II-25
<PAGE>
- --------------------------------------------------------------------------------
13. Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires all derivatives to be recorded on the balance sheet as either assets
or liabilities and be measured at fair value. Gains or losses from changes in
the derivative values are to be accounted for based on how the derivative was
used and whether it qualifies for hedge accounting. When adopted in January
2000, this statement is not expected to have a material impact on the FON
Group's combined financial statements.
- --------------------------------------------------------------------------------
14. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
---------------------------------------
1998 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 3,891.7 $ 3,944.7 $ 4,039.4 $ 4,141.1
Operating income 683.0 691.7 713.3 671.8
Income before extraordinary items(/1/) 355.9 363.8 415.4 405.0
Net income(/1/) 351.5 363.8 415.4 404.6
Pro forma earnings per common share
before extraordinary items(/4/)
Diluted 0.81 0.83 0.94 0.93
Basic 0.83 0.84 0.96 0.95
- -------------------------------------------------------------------------------
<CAPTION>
Quarter
---------------------------------------
1997 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 3,578.5 $ 3,667.5 $ 3,778.9 $ 3,849.0
Operating income(/2/) 605.4 598.0 643.3 623.2
Income before extraordinary
items(/2/),(/3/) 343.0 342.6 329.3 356.7
Net income(/2/),(/3/) 343.0 342.6 329.3 356.7
Pro forma earnings per common share
before extraordinary items(/4/)
Diluted 0.79 0.78 0.76 0.82
Basic 0.80 0.80 0.77 0.83
- -------------------------------------------------------------------------------
</TABLE>
(/1/In)the 1998 fourth quarter, the FON Group recorded net nonrecurring gains
of $104 million, mainly from the sale of local exchanges. This increased
income before extraordinary items by $62 million.
(/2/In)the 1997 second quarter, the FON Group recorded nonrecurring charges of
$20 million related to litigation in the long distance division. These
charges reduced income before extraordinary items by $13 million (See Note
8).
(/3/In)the 1997 fourth quarter, the FON Group recognized gains of $71 million
from sales of local exchanges and certain investments. These gains
increased income before extraordinary items by $44 million.
(/4/Pro)forma earnings per share assumes the FON shares created in the
Recapitalization existed for all periods presented.
II-26
<PAGE>
SPRINT FON GROUP
SCHEDULE II--COMBINED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Additions
---------------------
Balance Charged to Balance
Beginning Charged to Other Other End of
of Year Income Accounts Deductions Year
- --------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $146.7 $364.9 $ 2.6 $(339.4)(/1/) $174.8
-----------------------------------------------
Valuation allowance--
deferred income tax
assets $ 11.8 $ -- $ -- $ (8.2) $ 3.6
-----------------------------------------------
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
-----------------------------------------------
</TABLE>
(/1/Accounts)written off, net of recoveries.
II-27
<PAGE>
Annex III
Sprint PCS Group
Combined Financial Information
<PAGE>
SELECTED FINANCIAL DATA
Sprint PCS Group
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
- -----------------------------------------------------------------------------
Net operating revenues $ 1,225.4 $ -- $ -- $ -- $ --
Operating loss(/1/) (2,569.4) (18.5) (0.5) -- --
Other partners' loss in Sprint
PCS 1,250.9 -- -- -- --
Equity in loss of Sprint PCS -- (659.6) (191.8) (31.4) (1.3)
Loss before extraordinary
item(/1/) (1,089.6) (419.1) (119.7) (19.9) --
Net loss (1,120.8) (419.1) (119.7) (19.9) --
Pro Forma Loss per Share(/2/)
- -----------------------------------------------------------------------------
Diluted and basic loss per
common share before
extraordinary item $ (4.42) $ (3.52) NA NA NA
Financial Position
- -----------------------------------------------------------------------------
Total assets $15,138.4 $1,703.1 $1,259.8 $973.7 $51.1
Property, plant and equipment,
net 6,534.9 187.3 -- -- --
Investment in Sprint PCS -- 783.9 1,175.8 973.7 51.1
Total debt 7,921.0 -- -- -- --
Group equity 3,755.5 1,385.9 1,187.6 965.7 51.1
Cash Flow Data
- -----------------------------------------------------------------------------
Net cash provided (used) by
operating activities $ (158.9) $ 37.5 $ (0.5) $ -- $ --
Capital expenditures 1,071.9 153.7 -- -- --
PCS license purchases -- 460.1 84.0 -- --
Investments in Sprint PCS 33.5 405.9 297.5 910.9 51.1
</TABLE>
Results of operations for 1998 include Sprint PCS' operating results on a
consolidated basis for the entire year. The Cable Partners' share of losses
through the PCS Restructuring date has been reflected as "Other partners' loss
in Sprint PCS" in the Combined Statements of Operations. Before 1998, the PCS
Group's investment in Sprint PCS was accounted for using the equity method.
Sprint PCS' financial position at year-end 1998 has also been reflected on a
consolidated basis. Cash flow data reflects Sprint PCS' cash flows only after
the PCS Restructuring date. See Sprint's "Management's Discussion and Analysis
of Financial Condition and Results of Operations--General" for a more detailed
description of the PCS Restructuring, the Recapitalization and the Top-up.
(/1/In)1998, the PCS Group recorded a nonrecurring charge to write off $179
million of acquired in-process research and development costs related to
the PCS Restructuring. This charge increased operating loss and loss before
extraordinary item by $179 million.
(/2/Pro)forma loss per share for the PCS Group assumes the PCS Restructuring,
the Recapitalization and the Top-up occurred at the beginning of 1997 and
excludes the PCS Group's write-off of $179 million of acquired in-process
research and development costs. These pro forma amounts are for comparative
purposes only and do not necessarily represent what actual results of
operations would have been had the transactions occurred at the beginning
of 1997, nor do they indicate the results of future operations.
NA = not applicable
III-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sprint PCS Group
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" for a discussion of the PCS Restructuring, the
Recapitalization and the Top-up.
- --------------------------------------------------------------------------------
Forward-looking Information
- --------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-looking Information" for a discussion of
forward-looking information.
- --------------------------------------------------------------------------------
Sprint PCS Group
- --------------------------------------------------------------------------------
The PCS Group includes Sprint's domestic wireless mobile phone services. It
operates the only 100% digital PCS wireless network in the United States, with
licenses to provide nationwide service using a single frequency and a single
technology. At year-end 1998, the PCS Group, together with certain affiliates,
operated PCS systems in 45 of the 50 largest U.S. metropolitan areas. The PCS
Group has licenses to serve nearly 270 million people in all 50 states, Puerto
Rico and the U.S. Virgin Islands. With market launches in January 1999, the PCS
Group's service now reaches nearly 170 million people. The PCS Group provides
nationwide service through:
. operating its own digital network in major U.S. metropolitan areas,
. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,
. roaming on other providers' analog cellular networks using Dual-
Band/Dual-Mode handsets, and
. roaming on other providers' digital PCS networks that use code division
multiple access (CDMA).
The PCS Group began commercial CDMA operations in certain markets late in the
1996 fourth quarter. The wireless industry typically generates a significantly
higher number of subscriber additions and handset sales in the fourth quarter
of each year versus the remaining quarters. This is due to the use of retail
distribution, which is dependent on the holiday shopping season; the timing of
new products and service introductions; and aggressive marketing and sales
promotions.
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------
(in millions)
<S> <C> <C> <C>
Net operating revenues $ 1,225.4 $ -- $ --
Operating expenses 3,794.8 18.5 0.5
- -------------------------------------------------
Operating loss $(2,569.4) $(18.5) $(0.5)
----------------------------
</TABLE>
The PCS Group's 1998 results of operations included SprintCom's operating
results as well as Sprint PCS' operating results on a consolidated basis for
the entire year. Before 1998, Sprint's investment in Sprint PCS was accounted
for using the equity method.
In 1998, the PCS Group recorded a one-time, non-cash charge of $179 million to
write off acquired in-process research and development costs related to the PCS
Restructuring.
The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail outlet, and service revenues generated by sales to its
customers, accounted for 25% of net operating revenues in 1998.
Pro Forma Sprint PCS Group
To provide a more meaningful analysis of the PCS Group's underlying operating
results, the following supplemental discussion assumes the PCS Restructuring
occurred at the beginning of 1997 and excludes the write-off of acquired in-
process research and development costs.
<TABLE>
- --------------------------------------------------------------------
<CAPTION>
1998 1997
- --------------------------------------------------------------------
(in millions)
<S> <C> <C>
Net operating revenues $ 1,225.4 $ 258.0
- --------------------------------------------------------------------
Operating expenses
Costs of services and products 1,294.2 574.3
Selling, general and administrative 1,531.8 765.6
Depreciation and amortization 1,039.4 1,020.8
- --------------------------------------------------------------------
Total operating expenses 3,865.4 2,360.7
- --------------------------------------------------------------------
Operating loss $(2,640.0) $(2,102.7)
--------------------------------------------
Capital expenditures (including capital lease
obligations) $ 2,903.6 $ 2,278.3
--------------------------------------------
</TABLE>
Net operating revenues include subscriber revenues (including monthly recurring
charges and usage charges), roaming revenues and sales of handsets and
accessory equipment. The PCS Group's net operating revenues were $1.2 billion
in 1998 versus $258 million in 1997, reflecting the launch of 91 new markets
and the addition of 1.7 million customers in 1998. The PCS Group ended 1998
with nearly 2.6 million customers in
III-2
<PAGE>
225 markets nationwide. Approximately 20% of 1998 net operating revenues, and
nearly half of 1997 revenues, were from sales of handsets and accessories. As
part of the PCS Group's marketing plans, handsets are normally sold at prices
well below the PCS Group's cost.
Costs of services and products mainly includes handset and accessory costs,
interconnection costs, and switch and cell site expenses. These costs increased
$720 million in 1998 driven by the significant growth in customers and the
expanded market coverage.
Selling, general and administrative (SG&A) expense mainly includes marketing
costs to promote products and services, as well as salary and benefit costs.
SG&A expense increased $766 million in 1998 reflecting increased marketing and
advertising costs to promote products and services, as well as increased labor
costs to support increased subscriber activity.
Depreciation and amortization expense, which increased $19 million in 1998,
consists of depreciation of network assets and amortization of intangible
assets. The intangible assets include goodwill, PCS licenses, customer base,
microwave relocation costs and assembled workforce, which are being amortized
over three to 40 years.
- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------
Interest Expense
<TABLE>
- -------------------------------------------------------
<CAPTION>
1998
- -------------------------------------------------------
(in millions)
<S> <C>
Interest expense on outstanding debt $ 484.1
Capitalized interest costs 125.4
- -------------------------------------------------------
Total interest costs on outstanding debt $ 609.5
------------------------
Average debt outstanding(/1/) $6,152.7
------------------------
Effective interest rate 9.9%
------------------------
</TABLE>
(/1/Average)debt outstanding for 1998 is on a pro forma basis as if Sprint PCS
debt had been included in the PCS Group's outstanding debt balance all
year.
The PCS Group capitalizes interest costs related to network buildout and PCS
licenses in markets that are not yet operational. Capitalization of interest
stops and amortization begins when the related markets are launched.
Sprint PCS
Prior to the PCS Restructuring, the PCS Group's ownership interest in Sprint
PCS was accounted for using the equity method. The PCS Group's share of losses
from Sprint PCS was $660 million in 1997 and $192 million in 1996. The
increased losses in 1997 reflected marketing and promotional costs, including
losses on handset sales, to support a growing customer base and service
launches in additional markets. In 1998, the Cable Partners' share of losses
through the PCS Restructuring date has been reflected as "Other partners' loss
in Sprint PCS" in the Combined Statements of Operations.
Other Income, Net
Other income for 1998 consisted mainly of interest income totaling $34 million,
reflecting interest earned on partner contributions from the Sprint PCS
partners prior to the PCS Restructuring.
Income Taxes
The PCS Group's effective tax rates were 33.2% in 1998, 38.2% in 1997 and 37.8%
in 1996. See Note 5 of Notes to Combined Financial Statements for information
about the differences that caused the effective tax rates to vary from the
statutory federal rate.
Extraordinary Item, Net
In 1998, Sprint redeemed, prior to scheduled maturities, $3.3 billion of PCS
Group debt with a weighted average interest rate of 8.3%. This resulted in a
$31 million after-tax extraordinary loss. This debt was repaid with a portion
of the proceeds from Sprint's $5.0 billion debt offering in November 1998.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------
<CAPTION>
1998 1997
- -----------------------------------
(in millions)
<S> <C> <C>
Combined assets $15,138.4 $1,703.1
-----------
</TABLE>
Because of the PCS Restructuring, Sprint PCS' 1998 financial position was
reflected on a consolidated basis. Before 1998, the PCS Group's investment in
Sprint PCS was accounted for using the equity method.
Net property, plant and equipment increased $6.3 billion in 1998 reflecting the
PCS Restructuring and capital expenditures to support the PCS network buildout.
Net intangibles increased $6.8 billion reflecting goodwill, PCS licenses,
microwave relocation costs and customer base resulting from the PCS
Restructuring.
III-3
<PAGE>
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
The PCS Group's cash flows include Sprint PCS' cash flows only after the date
of the PCS Restructuring.
Operating Activities
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows provided (used) by operating activities $(158.9) $37.5 $(0.5)
--------------------------------------------------
</TABLE>
Operating cash flows decreased $196 million from 1997 mainly reflecting
increased losses for the PCS Group. The losses were due to increased marketing
and promotional costs and operating costs to support a growing customer base.
Investing Activities
<TABLE>
- ---------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows used by investing activities $(861.1) $(1,019.7) $(381.5)
--------------------------------------------------
</TABLE>
The PCS Group's main use of cash has been to fund initial operating losses of
Sprint PCS, capital expenditures and PCS license acquisitions. Capital
expenditures for the PCS Group totaled $1.1 billion in 1998 and $154 million in
1997.
Financing Activities
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Cash flows provided by financing activities $1,192.7 $982.2 $382.0
-----------------------------------------------
</TABLE>
In 1998, the PCS Group used their allocated portion of the proceeds from
Sprint's $5.0 billion debt offering mainly to repay existing debt.
In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement that provides for the allocation of income taxes between the FON
Group and PCS Group. Sprint expects the FON Group to make significant payments
to the PCS Group under this agreement because of expected PCS Group operating
losses in the near future. These payments will reflect the PCS Group's
incremental cumulative effect on Sprint's consolidated federal and state tax
liability and tax credit position. During 1998, the PCS Group accrued benefits
under the agreement totaling $191 million and received related payments from
the FON Group totaling $20 million. The remaining $171 million will be paid by
the FON Group during the first half of 1999. See Note 2 of Notes to Combined
Financial Statements, "Allocation of Federal and State Income Taxes," for more
details.
Capital Requirements
The PCS Group's 1999 investing activities, mainly consisting of capital
expenditures, are expected to be between $2.3 and $2.6 billion. Additional
funds will be required to fund expected operating losses, working capital and
debt service requirements of the PCS Group.
In June 1998, the PCS Group became the managing partner of Cox PCS. At year-end
1998, the PCS Group owned 59.2% of Cox PCS. Cox holds the minority interest in
the partnership. Under the partnership agreement, Cox has the right to require
the PCS Group to purchase, under certain circumstances, all or part of Cox's
interest in Cox PCS, which could involve significant cash requirements. Cox may
require the PCS Group to acquire an additional 10.2% interest in Cox PCS per
year through 2000. Beginning in 2001 through 2005, Cox may require the PCS
Group to acquire up to all of its interest in Cox PCS. Cox has given the PCS
Group notice to start the appraisal process related to a potential put of all
or a portion of Cox's remaining partnership interest to the PCS Group.
PCS preferred stock dividend payments are expected to total $15 million,
including payments to the FON Group for its preferred intergroup interest. See
Note 10 of Notes to Combined Financial Statements for a more detailed
discussion of the FON Group's preferred intergroup interest in the PCS Group.
Liquidity
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity" for a discussion of liquidity.
- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------
The FCC sets rules, regulations and policies to, among other things:
. grant licenses for PCS frequencies and PCS license renewals,
. rule on assignments and transfers of control of PCS licenses,
. govern the interconnection of PCS networks with other wireless and
wireline carriers,
. establish access and universal service funding provisions,
. impose fines and forfeitures for violations of any of the FCC's rules,
and
. regulate the technical standards of PCS networks.
The FCC prohibits a single entity from having a combined attributable interest
(20% or greater interest in any license) in broadband PCS, cellular and
specialized mobile radio licenses totaling more than 45 megahertz (MHz) in any
geographic area.
PCS License Transfers and Assignments
The FCC must approve any substantial changes in ownership or control of a PCS
license. Noncontrolling
III-4
<PAGE>
interests in an entity that holds a PCS license or operates PCS networks
generally may be bought or sold without prior FCC approval. In addition, a
recent FCC order requires only post-consummation notification of certain pro
forma assignments or transfers of control.
PCS License Conditions
All PCS licenses are granted for 10-year terms if the FCC's buildout
requirements are followed. Based on those requirements, all 30 MHz broadband
major trading area licensees must build networks offering coverage to 1/3 of
the population within five years and 2/3 within 10 years. All 10 MHz broadband
PCS licensees must build networks offering coverage to at least 1/4 of the
population within five years or make a showing of "substantial service" within
that five-year period. Licenses may be revoked if the rules are violated.
PCS licenses may be renewed for additional 10-year terms. Renewal applications
are not subject to auctions. However, third parties may oppose renewal
applications and/or file competing applications.
Other FCC Requirements
Broadband PCS providers cannot unreasonably restrict or prohibit other
companies from reselling their services. They also cannot unreasonably
discriminate against resellers. Resale obligations will automatically expire in
2002.
Local phone companies and most commercial mobile radio service (CMRS) carriers
(PCS and cellular providers) must program their networks to allow customers to
change service providers without changing phone numbers. This is referred to as
service provider number portability. Most CMRS providers were required to
deliver calls from their networks to ported numbers anywhere in the country by
year-end 1998. By the end of November 2002, CMRS providers must be able to
offer their own customers number portability in their switches in the 100
largest metropolitan areas. They also must be able to support nationwide
roaming.
Broadband PCS and other CMRS providers may provide wireless local loop and
other fixed services that would directly compete with the wireline services of
local phone companies. Broadband PCS and other CMRS providers must implement
enhanced emergency 911 capabilities to be completed in phases by October 2001.
The PCS Group and other wireless carriers complied with the first phase in
October 1998 and are currently analyzing various technical methods for
complying with the second phase.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act (CALEA) was enacted in
1994 to preserve electronic surveillance capabilities authorized by federal and
state law. CALEA requires telecommunications carriers to meet certain
"assistance capability requirements" by the end of June 2000. In 1997,
telecommunications industry standard-setting organizations agreed to a joint
standard to implement CALEA's capability requirements. The PCS Group is able to
offer traditional electronic surveillance capabilities to law enforcement and
is currently evaluating its ability to satisfy the CALEA requirements.
The FCC is also considering petitions from numerous parties to establish and
implement technical compliance standards required by CALEA.
Other Federal Regulations
Wireless systems must comply with certain FCC and Federal Aviation
Administration regulations about the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause certain cell site locations to come under National
Environmental Policy Act (NEPA) regulation. NEPA requires carriers to meet
certain land use and radio frequency standards.
Review of Universal Service Requirements
The FCC and the states established a "universal service" program to ensure
affordable, quality telecommunications services for all Americans. Although the
PCS Group is challenging in federal court the states' authority to collect
universal service contributions from CMRS providers, the PCS Group is required
to contribute to the federal program as well as existing state programs. The
PCS Group's "contribution" to the federal program is a percentage of end-user
revenues. Although many states are likely to adopt a similar assessment
methodology, the states may calculate the contributions in any manner as long
as the process is consistent with FCC rules. Currently, management cannot
predict the extent of the PCS Group's total federal and state universal service
assessments, or its ability to recover its contributions from the universal
service fund.
- --------------------------------------------------------------------------------
Financial Strategies
- --------------------------------------------------------------------------------
Financial strategies are determined by Sprint on a centralized basis. See
Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Strategies."
III-5
<PAGE>
- --------------------------------------------------------------------------------
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, resellers or affiliates.
The PCS Group has completed an inventory of its computer systems, network
elements, software applications, products and other business systems. The Year
2000 assessment of these items has begun and the PCS Group expects to complete
this assessment in the 1999 first quarter, along with plans 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 expects Year 2000 compliance for these critical systems to be
achieved in 1999.
The PCS Group is also contacting others with whom it conducts business to
receive the appropriate warranties and assurances that those third parties are
or will be Year 2000 compliant. The PCS Group relies on third-party vendors for
a significant portion of its important operating and computer system functions
and, therefore, is highly dependent on those vendors to remediate network
elements, computer systems, software applications and other business systems.
In addition, the PCS Group uses publicly available services that are acquired
without contract, such as global positioning system timing signal, that may be
affected by the Year 2000 issue. While the PCS Group believes these systems
will be Year 2000 compliant, it has no contractual or other right to force
compliance.
The PCS Group expects to incur approximately $50 million in 1999 for its Year
2000 compliance program. If compliance is not achieved in a timely manner by
the PCS Group, its affiliates or any significant third party, the Year 2000
issue could have a material adverse effect on the PCS Group's operations. The
PCS Group is focusing on identifying and addressing all aspects of its
operations that may be affected by the Year 2000 issue. The PCS Group is
developing and will implement, if necessary, appropriate contingency plans to
mitigate, to the extent possible, the effects of any Year 2000 noncompliance.
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
See Note 11 of Notes to Combined Financial Statements for a discussion of a
recently issued accounting pronouncement.
III-6
<PAGE>
MANAGEMENT REPORT
Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this annex. Management is
responsible for the consistency of reporting this information and for ensuring
that generally accepted accounting principles are used.
In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and codes of conduct are understood and practiced
by its employees.
The combined financial statements included in this annex have been audited by
Ernst & Young LLP, independent auditors. Their audits were conducted using
generally accepted auditing standards and their report is included herein.
The Board of Director's responsibility for these combined financial statements
is pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
- --------------------------------------------------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
- --------------------------------------------------------------------------------
Arthur B. Krause
Executive Vice President and Chief Financial Officer
III-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders Sprint Corporation
We have audited the accompanying combined balance sheets of the Sprint PCS
Group (as described in Note 2) as of December 31, 1998 and 1997, and the
related combined statements of operations and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index to Financial Statements and
Financial Statement Schedules. These financial statements and the schedule are
the responsibility of the management of Sprint Corporation (Sprint). Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits. We did not audit the consolidated financial
statements of Sprint Spectrum Holding Company, L.P., a wholly owned subsidiary
of Sprint as of December 31, 1998 and an investment in which Sprint had a 40%
interest through November 23, 1998 (as discussed in Note 1). Such financial
statements reflect assets of $2.7 billion as of December 31, 1998 and revenues
of $1.2 billion for the year then ended which we did not audit. The PCS Group's
equity in Sprint Spectrum Holding Company, L.P. is stated at $749 million at
December 31, 1997, and the PCS Group's equity in the net loss of Sprint
Spectrum Holding Company, L.P. is stated at $625 million and $191 million for
the years ended December 31, 1997 and 1996, respectively. The consolidated
financial statements and financial statement schedule of Sprint Spectrum
Holding Company, L.P. have been audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the 1998 assets and
revenues and the 1997 and 1996 equity investment accounts which we did not
audit, is based solely on the report of the other auditors.
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 Sprint PCS Group at December
31, 1998 and 1997, and the combined results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related 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.
As more fully discussed in Note 2, the combined financial statements of the
Sprint PCS Group should be read together with the audited consolidated
financial statements of Sprint.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1999
III-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Sprint Corporation and Partners of Sprint Spectrum
Holding Company, L.P.
We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries (Holdings) as of December 31, 1998 and 1997, and
the related consolidated statements of operations and cash flows for the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule (Schedule II). These financial statements and
Schedule II are the responsibility of Partnership management. Our
responsibility is to express an opinion on these consolidated financial
statements and Schedule II 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 financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule II, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects the
information set forth therein.
Deloitte & Touche LLP
Kansas City, Missouri
February 2, 1999
III-9
<PAGE>
COMBINED STATEMENTS OF OPERATIONS Sprint PCS Group
(in millions)
<TABLE>
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------
Net Operating Revenues $ 1,225.4 $ -- $ --
- ---------------------------------------------------------------------------
Operating Expenses
Costs of services and products 1,294.2 -- --
Selling, general and administrative 1,531.8 18.5 0.5
Depreciation and amortization 789.7 -- --
Acquired in-process research and development
costs 179.1 -- --
- ---------------------------------------------------------------------------
Total operating expenses 3,794.8 18.5 0.5
- ---------------------------------------------------------------------------
Operating Loss (2,569.4) (18.5) (0.5)
Interest expense (491.6) -- --
Other partners' loss in Sprint PCS 1,250.9 -- --
Equity in loss of Sprint PCS -- (659.6) (191.8)
Minority interest 144.8 -- --
Other income, net 33.6 -- --
- ---------------------------------------------------------------------------
Loss before income tax benefit (1,631.7) (678.1) (192.3)
Income tax benefit 542.1 259.0 72.6
- ---------------------------------------------------------------------------
Loss before Extraordinary Item (1,089.6) (419.1) (119.7)
Extraordinary item, net (31.2) -- --
- ---------------------------------------------------------------------------
Net Loss $(1,120.8) $(419.1) $(119.7)
--------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-10
<PAGE>
COMBINED BALANCE SHEETS
(in millions) Sprint PCS Group
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 172.7 $ --
Accounts receivable, net of allowance for doubtful
accounts of $10.7 in 1998 306.4 --
Inventories 127.4 --
Prepaid expenses 60.4 2.9
Current tax benefit receivable from the FON Group 170.5 --
Deferred income taxes 18.4 --
- -------------------------------------------------------------------------
Total current assets 855.8 2.9
Property, plant and equipment
Network equipment 3,998.8 --
Construction work in progress 1,607.2 187.3
Buildings and leasehold improvements 1,026.3 --
Other 356.0 --
- -------------------------------------------------------------------------
Total property, plant and equipment 6,988.3 187.3
Accumulated depreciation (453.4) --
- -------------------------------------------------------------------------
Net property, plant and equipment 6,534.9 187.3
Investment in Sprint PCS -- 783.9
Intangible assets
Goodwill 3,313.4 --
PCS licenses 3,036.6 544.5
Customer base 681.4 --
Microwave relocation costs 354.5 --
Other 45.4 --
- -------------------------------------------------------------------------
Total intangible assets 7,431.3 544.5
Accumulated amortization (93.5) --
- -------------------------------------------------------------------------
Net intangible assets 7,337.8 544.5
Other assets 409.9 184.5
- -------------------------------------------------------------------------
Total $15,138.4 $1,703.1
-------
Liabilities and Group Equity
Current liabilities
Current maturities of long-term debt $ 348.3 $ --
Accounts payable 371.2 17.8
Construction obligations 978.9 --
Advances from the FON Group 349.2 10.0
Accrued expenses and other current liabilities 626.1 39.8
- -------------------------------------------------------------------------
Total current liabilities 2,673.7 67.6
Long-term debt and capital lease obligations 7,572.7 --
Deferred credits and other liabilities
Deferred income taxes 1,013.3 249.3
Other 123.2 0.3
- -------------------------------------------------------------------------
Total deferred credits and other liabilities 1,136.5 249.6
Group equity 3,755.5 1,385.9
- -------------------------------------------------------------------------
Total $15,138.4 $1,703.1
-------
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-11
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS
(in millions) Sprint PCS Group
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net loss $(1,120.8) $ (419.1) $(119.7)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Equity in net losses of affiliates 840.2 659.6 191.8
Acquired in-process research and development
costs 179.1 -- --
Deferred income taxes 67.5 175.7 64.2
Depreciation and amortization 120.9 -- --
Extraordinary item, net 31.2 -- --
Current tax benefit used by the FON Group (460.4) (434.7) (136.8)
Changes in assets and liabilities, excluding
the PCS Restructuring:
Accounts receivable, net (0.9) -- --
Inventories and other current assets (170.1) (2.9) --
Accounts payable and other current
liabilities 385.8 57.6 --
Affiliate receivables and payables 100.9 -- --
Noncurrent assets and liabilities, net (101.5) 1.3 --
Other, net (30.8) -- --
- -----------------------------------------------------------------------------
Net cash provided (used) by operating
activities (158.9) 37.5 (0.5)
- -----------------------------------------------------------------------------
Investing Activities
Capital expenditures (1,071.9) (153.7) --
PCS licenses purchased -- (460.1) (84.0)
Cash acquired in the PCS Restructuring 244.3 -- --
Investments in Sprint PCS (33.5) (405.9) (297.5)
- -----------------------------------------------------------------------------
Net cash used by investing activities (861.1) (1,019.7) (381.5)
- -----------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 4,154.0 -- --
Payments on long-term debt (3,434.2) -- --
Advances from the FON Group 338.1 -- --
Equity transfer (to) from the FON Group (340.0) 547.5 245.2
Current tax benefit used by the FON Group 460.4 434.7 136.8
Proceeds from PCS stock issued 84.6 -- --
Other, net (70.2) -- --
- -----------------------------------------------------------------------------
Net cash provided by financing activities 1,192.7 982.2 382.0
- -----------------------------------------------------------------------------
Increase in Cash and Equivalents 172.7 -- --
Cash and Equivalents at Beginning of Year -- -- --
- -----------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 172.7 $ -- $ --
-----------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS Sprint PCS Group
- --------------------------------------------------------------------------------
1. PCS Restructuring and Recapitalization
- --------------------------------------------------------------------------------
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares to maintain their combined 20% voting power in Sprint
(Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless personal communication services (PCS) operations. The FON stock is
intended to reflect the performance of all of Sprint's other operations.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Combination and Presentation
The combined PCS Group financial statements, together with the combined FON
Group financial statements, include all the accounts included in Sprint's
consolidated financial statements. The combined financial statements for each
Group were prepared on a basis that management believes is reasonable and
proper and include:
. the combined historical balance sheets, results of operations and cash
flows for each of the Groups, with all significant intragroup amounts
and transactions eliminated,
. an allocation of Sprint's debt, including the related effects on results
of operations and cash flows, and
. an allocation of corporate overhead after the PCS Restructuring date.
The PCS Group entities are commonly controlled companies and, with the
exception of Cox PCS, are wholly owned by Sprint. Transactions between the PCS
Group and the FON Group have not been eliminated in the combined financial
statements of either Group.
The PCS Group combined financial statements provide PCS shareholders with
financial information about the PCS Group operations. Investors in FON stock
and PCS stock are Sprint shareholders and are subject to risks related to all
of Sprint's businesses, assets and liabilities. Sprint retains ownership and
control of the assets and operations of each Group (subject to a minority
interest in Cox PCS). Financial effects of either Group that affect Sprint's
results of operations or financial condition could affect the results of
operations, financial position or market price of the other Group's stock. Net
losses of either Group, and dividends or distributions on, or repurchases of,
PCS stock or FON stock will reduce Sprint funds legally available for dividends
on both Groups' stock. As a result, the PCS Group combined financial statements
should be read along with Sprint's consolidated financial statements and the
FON Group's combined financial statements.
Sprint PCS' results of operations for 1998 have been consolidated for the
entire year. The Cable Partners' share of losses through the PCS Restructuring
date has been reflected as "Other partners' loss in Sprint PCS" in the Combined
Statements of Operations. Sprint PCS financial position has been reflected on a
consolidated basis at year-end 1998. Before 1998, Sprint's investment in Sprint
PCS was accounted for using the equity method. The PCS Group's cash flows
include Sprint PCS' cash flows only after the PCS Restructuring date.
III-13
<PAGE>
The PCS Group combined financial statements are prepared using generally
accepted accounting principles. 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.
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 group equity as previously reported.
Classification of Operations
The PCS Group includes Sprint's domestic wireless mobile phone services. It
operates the only 100% digital PCS wireless network in the United States, with
licenses to provide nationwide service using a single frequency and a single
technology. At year-end 1998, the PCS Group, together with certain affiliates,
operated PCS systems in 45 of the 50 largest U.S. metropolitan areas.
Allocation of Shared Services
Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses other methods to estimate the assignment of costs to each Group.
Allocation of Federal and State Income Taxes
Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provides
for the allocation of income taxes between the two Groups. The PCS Group's
income taxes reflect the PCS Group's incremental cumulative impact on Sprint's
consolidated income taxes. Intergroup tax payments are satisfied on the date
Sprint's related tax payment is due to or the refund is received from the
applicable tax authority. During 1998, the PCS Group accrued income tax
benefits in accordance with the tax sharing agreement totaling $191 million.
Allocation of Group Financing
Financing activities for the Groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the Groups is specifically
allocated to and reflected in the financial statements of the applicable Group.
Interest expense is allocated to the PCS Group based on an interest rate that
is largely equal to the rate it would be able to obtain from third parties as a
direct or indirect wholly owned Sprint subsidiary, but without the benefit of
any guaranty by Sprint or any member of the FON Group. That interest rate is
higher than the rate Sprint obtains on borrowings. The difference between
Sprint's actual interest rate and the rate charged to the PCS Group is
reflected as a reduction in the FON Group's interest expense.
Under Sprint's centralized cash management program, one Group may advance funds
to the other Group. These advances are accounted for as short-term borrowings
between the Groups and bear interest at a market rate that is substantially
equal to the rate that Group would be able to obtain from third parties on a
short-term basis.
Income Taxes
The PCS Group records deferred income taxes based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases.
Revenue Recognition
The PCS Group recognizes operating revenues as services are rendered or as
products are delivered to customers. The PCS Group 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
for the PCS Group were included in accounts payable. These amounts totaled $73
million at year-end 1998 and $11 million at year-end 1997. The PCS Group had
sufficient funds available to fund these outstanding checks when they were
presented for payment.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or replacement value.
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. Property, plant and equipment is depreciated on a
straight-line basis over estimated economic useful lives. Repair and
maintenance costs are expensed as incurred.
Capitalized Interest
The PCS Group capitalizes interest costs related to network buildout and PCS
licenses, which totaled $64 million in 1998. In addition, Sprint capitalized
interest costs related to the PCS Group's network buildout. This capitalized
interest totaled $61 million for 1998 and $24 million for 1997 and was
contributed to, and will be amortized by, the PCS Group. Sprint also
capitalized interest costs related to its investment in Sprint PCS until July
1997 when Sprint PCS emerged from the development stage. This capitalized
interest, totaling $46 million in 1997 and $96 million in 1996, was contributed
to, and is being amortized by, the PCS Group.
III-14
<PAGE>
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over 40 years using the straight-line method.
Accumulated amortization totaled $11 million at year-end 1998.
PCS Licenses
The PCS Group acquired licenses from the Federal Communications Commission
(FCC) to operate as a PCS service provider. These licenses are granted for up
to 10-year terms with renewals for additional 10-year terms if license
obligations are met. These licenses are recorded at cost and are amortized on a
straight-line basis over 40 years when service begins in a specific geographic
area. Accumulated amortization totaled $51 million at year-end 1998.
Customer Base
The PCS Group capitalized the fair value of Sprint PCS' customer base acquired
in the PCS Restructuring. The customer base is being amortized over three years
using the straight-line method. Accumulated amortization totaled $23 million at
year-end 1998.
Microwave Relocation Costs
The PCS Group has incurred costs related to microwave relocation in
constructing the PCS network. Microwave relocation costs are being amortized
over the remaining lives of the PCS licenses. Accumulated amortization totaled
$6 million at year-end 1998.
Loss per Share
As a result of the PCS Restructuring and the Recapitalization, loss per share
for the PCS Group has been calculated based on the Group's net loss from
November 1998 through year-end 1998. It was not calculated on a Group basis in
prior years because the PCS stock was not part of Sprint's capital structure at
that time.
Dilutive securities for the PCS Group mainly include options, warrants and
convertible preferred stock. These securities did not have a dilutive effect on
loss per share because the PCS Group incurred net losses for 1998. As a result,
diluted loss per share equaled basic loss per share.
The PCS Group's basic and diluted loss per common share after the PCS
Restructuring and Recapitalization date was as follows:
<TABLE>
- --------------------------------------------------------
<CAPTION>
1998
- --------------------------------------------------------
(in millions,
except per
share data)
<S> <C>
Loss applicable to common stock $(558.4)
--------------------------
Basic and diluted loss per common share:
Loss before extraordinary item $ (1.26)
Extraordinary item (0.08)
- --------------------------------------------------------
Total $ (1.34)
--------------------------
Basic and diluted weighted average shares 415.8
--------------------------
</TABLE>
Stock-based Compensation
The PCS Group participates in the incentive-based stock option plans and
employee stock purchase plans administered by Sprint for executives and other
employees. Sprint adopted the pro forma disclosure requirements under Statement
of Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation,"
and continues to apply Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to its stock option and employee stock purchase
plans. Had the PCS Group applied SFAS 123, pro forma net loss would not have
changed materially. See Note 9 of Sprint's Notes to Consolidated Financial
Statements for more information about Sprint's stock-based compensation and the
PCS Group's pro forma net loss.
In 1997, Sprint granted performance-based stock options to certain key
executives. In 1998, the PCS Group expensed $1 million related to these
performance-based stock options.
- --------------------------------------------------------------------------------
3. Business Combination
- --------------------------------------------------------------------------------
In November 1998, Sprint acquired the remaining interest in Sprint PCS (except
for a minority interest in Cox PCS) from the Cable Partners. In exchange,
Sprint issued the Cable Partners 195.1 million low-vote shares of PCS stock and
12.5 million warrants to purchase additional shares of PCS stock. The purchase
price was $3.2 billion. In addition, Sprint issued the Cable Partners shares of
a new class of preferred stock convertible into PCS shares.
Sprint accounted for the transaction as a purchase. The excess of the purchase
price over the fair value of the net liabilities acquired was allocated as
follows:
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
(in millions)
<S> <C>
Purchase price including transaction costs $3,226.0
Net liabilities acquired 280.8
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 (203.1)
Mark-to-market of long-term debt 84.6
Deferred taxes on acquired assets and liabilities 678.3
In-process research and development costs (179.1)
- ----------------------------------------------------------------------
Goodwill $3,160.8
---------------------------------------
</TABLE>
III-15
<PAGE>
With respect to the purchase price attributed to in- process research and
development (IPR&D), the acquired IPR&D was limited to significant new products
under development that were intended to address new and emerging market needs
and requirements, such as the rapid adoption of the Internet and the rapid
convergence of voice, data, and video. No routine research and development
projects, minor requirements, normal enhancements, or production activities
were included in the acquired IPR&D.
The income approach was the primary technique utilized in valuing the acquired
IPR&D. This approach included, but was not limited to, an analysis of (i) the
markets for each product; (ii) the completion costs for projects; (iii) the
expected cash flows attributable to the IPR&D projects; (iv) the risks
associated with achieving these cash flows; and (v) the stage of development of
each project. The issue of alternative future use was extensively evaluated and
these technologies, once completed, could only be economically used for their
intended purposes.
Sprint PCS Pro Forma Results
The following unaudited pro forma combined results of operations for the PCS
Group assume the PCS Restructuring, Recapitalization and Top-up occurred at the
beginning of 1997 and exclude the write-off of acquired in-process research and
development costs. These pro forma amounts are for comparative purposes only
and do not necessarily represent what actual results of operations would have
been had the transactions occurred at the beginning of 1997, nor do they
indicate the results of future operations. Pro forma results were as follows:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1998 1997
- -----------------------------------------------------------------
(in millions, except
per share data)
<S> <C> <C>
Net operating revenues $ 1,225.4 $ 258.0
-----------------------------------------
Loss before extraordinary item $ (1,846.7) $ (1,466.2)
-----------------------------------------
Net loss $ (1,877.9) $ (1,466.2)
-----------------------------------------
Basic and diluted loss per common share:
Loss before extraordinary item $ (4.42) $ (3.52)
Extraordinary item (0.08) --
- -----------------------------------------------------------------
Total $ (4.50) $ (3.52)
-----------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
4. Employee Benefit Plans
- --------------------------------------------------------------------------------
Defined Contribution Plan
Sprint PCS sponsored a savings and retirement program for certain employees.
Sprint PCS matched contributions equal to 50% of the contribution of each
participant, up to the first 6% that the employee elected to contribute.
Expense under the savings plan was $7 million in 1998. Effective January 1999,
the PCS Group employees began making contributions to Sprint's defined
contribution plan. The existing assets of the Sprint PCS savings plan will be
rolled over to Sprint's defined contribution plan in early 1999.
Defined Benefit Pension Plan
Effective January 1999, PCS Group employees also became eligible to participate
in Sprint's pension and postretirement plans.
- --------------------------------------------------------------------------------
5. Income Taxes
- --------------------------------------------------------------------------------
Income tax benefit allocated to continuing operations consisted of the
following:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Current income tax benefit
Federal $(579.2) $(414.1) $(122.8)
State (30.4) (20.6) (14.0)
- -----------------------------------------------------------------
Total current (609.6) (434.7) (136.8)
- -----------------------------------------------------------------
Deferred income tax expense (benefit)
Federal 82.8 187.0 59.4
State (15.3) (11.3) 4.8
---------------------------------------------
Total deferred 67.5 175.7 64.2
---------------------------------------------
Total $(542.1) $(259.0) $ (72.6)
---------------------------------------------
</TABLE>
The differences that caused the PCS Group's effective income tax rates to vary
from the 35% statutory federal rate were as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Income tax benefit at the statutory rate $(571.1) $(237.3) $(67.3)
Effect of:
State income taxes, net of federal income tax effect (29.7) (20.7) (6.0)
Write-off of in-process research and development
costs 62.7 -- --
Other, net (4.0) (1.0) 0.7
- -------------------------------------------------------------------------------
Income tax benefit $(542.1) $(259.0) $(72.6)
- -------------------------------------------------------------------------------
Effective income tax rate 33.2% 38.2% 37.8%
----------------------------------------------------------
</TABLE>
In 1998, the income tax benefit allocated to the PCS Group's extraordinary loss
totaled $20 million.
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. The sources of the differences that
give rise to the deferred income tax assets and liabilities at year-end 1998
and 1997, along with the income tax effect of each, were as follows:
<TABLE>
- ---------------------------------------------------------
<CAPTION>
1998 Deferred Income Tax
--------------------------
Assets Liabilities
- ---------------------------------------------------------
(in millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 542.8
Intangibles -- 453.7
Capitalized interest -- 102.6
Reserves and allowances 22.3 --
Operating loss carryforwards 257.9 --
Other, net 32.2 --
- ---------------------------------------------------------
312.4 1,099.1
Less valuation allowance 208.2 --
- ---------------------------------------------------------
Total $ 104.2 $ 1,099.1
-----------------------------------
</TABLE>
III-16
<PAGE>
<TABLE>
- ----------------------------------------------------------
<CAPTION>
1997 Deferred Income Tax
---------------------------
Assets Liabilities
- ----------------------------------------------------------
(in millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 130.7
Intangibles -- 52.3
Capitalized interest -- 83.6
Reserves and allowances 8.2 --
Operating loss carryforwards 24.1 --
Other, net -- 15.0
- ----------------------------------------------------------
Total $ 32.3 $ 281.6
------------------------------------
</TABLE>
Management believes it is more likely than not that these deferred income tax
assets, net of the valuation 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.
The PCS Group acquired approximately $192 million of potential tax benefits
related to net operating loss carryforwards in the PCS Restructuring which are
subject to certain realization restrictions under various tax laws. A valuation
allowance was provided for the total of these benefits. If these benefits are
subsequently recognized, they will reduce the goodwill or other noncurrent
intangible assets resulting from the PCS Restructuring.
In connection with the PCS Restructuring, the PCS Group is required to
reimburse the FON Group and the Cable Partners for net operating loss and tax
credit carryforward benefits generated prior to the PCS Restructuring if
realization by the PCS Group produces a cash benefit that would not otherwise
have been realized. The reimbursement will equal 60% of the net cash benefit
received by the PCS Group and will be made to the FON Group in cash and to the
Cable Partners in shares of Series 2 PCS stock. The carryforward benefits
subject to this requirement totaled $246 million, which includes the $192
million acquired in the PCS Restructuring.
At year-end 1998, the PCS Group had federal operating loss carryforwards of
approximately $265 million and state operating loss carryforwards of
approximately $4.0 billion. In addition, the PCS Group had available for income
tax purposes federal alternative minimum tax credit carryforwards of $27
million and federal alternative minimum tax net operating loss carryforwards of
$14 million. The loss carryforwards expire in varying amounts through 2018.
III-17
<PAGE>
- --------------------------------------------------------------------------------
6. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------
Sprint's consolidated long-term debt at year-end was as follows:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
1998
--------------------------------
Sprint Sprint
Maturing FON Group PCS Group Consolidated 1997
- ----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Senior notes
5.7% to 6.9%(/1/) 2003 to 2028 $1,059.4 $3,940.6 $ 5,000.0 $ --
8.1% to 9.8% 1998 to 2003 632.3 -- 632.3 675.3
11.0% to 12.5%(/2/) 2006 -- 698.6 565.5 --
Debentures and notes
5.8% to 9.6% 2000 to 2022 564.5 -- 564.5 587.0
Notes payable and
commercial paper -- 745.8 -- 745.8 866.5
First mortgage bonds
2.0% to 9.9% 1998 to 2025 1,312.0 -- 1,312.0 1,468.4
Capital lease
obligations
5.3% to 7.5% 1998 to 2006 31.7 452.0 483.7 35.3
Revolving credit
facilities
Variable rates 2005 to 2006 -- 1,800.0 1,800.0 --
Other(/2/),(/3/)
2.0% to 10.0% 1998 to 2007 370.4 1,029.8 1,085.5 247.1
- ----------------------------------------------------------------------------
4,716.1 7,921.0 12,189.3 3,879.6
Less: current
maturities(/2/) 33.3 348.3 246.9 131.0
- ----------------------------------------------------------------------------
Long-term debt and
capital lease
obligations $4,682.8 $7,572.7 $11,942.4 $3,748.6
---------------------------
</TABLE>
(/1/These)borrowings were incurred by Sprint and allocated to the applicable
Group. At year-end 1998, Sprint's weighted average interest rate related to
these borrowings was 6.4%. The weighted average interest rate related to
the borrowings allocated to the PCS Group was approximately 8.5%. See Note
2 for a more detailed description of how Sprint allocates financing to each
of the Groups.
(/2/Consolidated)debt does not equal the total of PCS Group and FON Group debt
due to intergroup debt eliminated in consolidation. At year-end 1998, the
FON Group had an investment in the PCS Group's Senior Discount notes
totaling $133 million. In addition, the PCS Group had other long-term debt
payable to the FON Group totaling $315 million, including $135 million
classified as current at year-end 1998.
(/3/Includes)$358 million of notes recorded by the FON Group that may be
exchanged at maturity for SBC Communications, Inc. (SBC) common shares
owned by the FON Group or for cash. Based on SBC's closing price, had the
notes matured at year-end 1998, they could have been exchanged for
6.6 million SBC shares. At year-end 1998, Sprint held 7.6 million SBC
shares, which have been included in "Investments in equity securities" in
the FON Group's Combined Balance Sheets.
III-18
<PAGE>
Long-term debt maturities, excluding reclassified short-term borrowings, during
each of the next five years are as follows:
<TABLE>
- ------------------------------
<CAPTION>
Sprint Sprint
FON PCS
Group Group Sprint
- ------------------------------
(in millions)
<S> <C> <C> <C>
1999 $ 33.3 $ 348.3 $ 246.9
2000 864.0 175.3 1,039.3
2001 41.1 407.1 217.0
2002 353.0 357.3 710.3
2003 774.8 1,115.0 1,889.8
- ------------------------------
</TABLE>
Sprint
Short-term Borrowings
Sprint had bank notes payable totaling $454 million at year-end 1998 and $618
million at year-end 1997. In addition, Sprint had commercial paper borrowings
totaling $292 million at year-end 1998 and $249 million at year-end 1997.
Though these borrowings are renewable at various dates throughout the year,
they were classified as long-term debt because of Sprint's intent and ability,
through unused credit facilities, to refinance these borrowings on a long-term
basis.
In 1998, Sprint replaced its previous $1.5 billion credit facility with new
facilities with syndicates of domestic and international banks. The new
facilities totaled $5.0 billion and expire in 1999 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility. At year-end 1998, Sprint had total unused lines of credit of $4.8
billion.
Bank notes outstanding had weighted average interest rates of 5.7% at year-end
1998 and 6.1% at year-end 1997. The weighted average interest rate of
commercial paper was 5.8% at year-end 1998 and 6.8% at year-end 1997.
Long-term Debt
In October 1998, Sprint filed a shelf registration statement with the
Securities and Exchange Commission for $8.0 billion of debt securities. This
replaced Sprint's previous shelf registration of $1.0 billion. In November
1998, Sprint issued $5.0 billion under the new shelf. Sprint allocated these
borrowings to the Groups, and the related proceeds were mainly used to repay
existing debt. See Note 2 for a more detailed description of how Sprint
allocates debt to the Groups.
Sprint PCS Group
At year-end 1998, the PCS Group had borrowed $1.8 billion under revolving
credit facilities with banks totaling $2.1 billion. These facilities had a
weighted average interest rate of 5.8% at year-end 1998.
At year-end 1998, the PCS Group had $265 million of outstanding debt payable to
the FCC related to the purchase of certain PCS licenses in 1996. These
borrowings have an interest rate of 7.8% and mature in 2001.
In 1998, Sprint redeemed, prior to scheduled maturities, $3.3 billion of PCS
Group debt with a weighted average interest rate of 8.3%. This resulted in a
$31 million after-tax extraordinary loss. The debt was repaid with a portion of
the proceeds from Sprint's $5.0 billion debt offering in November 1998.
PCS Group property, plant and equipment totaling $4.1 billion is pledged as
security for certain notes.
Other
Sprint, including the PCS Group, had complied with all restrictive or financial
covenants relating to its debt arrangements at year-end 1998.
- --------------------------------------------------------------------------------
7. Group Equity
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Beginning balance $ 1,385.9 $1,187.6 $ 965.8
Net loss (1,120.8) (419.1) (119.7)
Common stock issued 3,284.9 -- --
Preferred stock issued 246.8 -- --
Preferred intergroup interest 279.2 -- --
Contributions from the FON Group 146.4 1,052.1 478.3
Equity transfers to the FON Group (460.4) (434.7) (136.8)
Other, net (6.5) -- --
- -----------------------------------------------------------------
Ending balance $ 3,755.5 $1,385.9 $1,187.6
-----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8. Commitments and Contingencies
- --------------------------------------------------------------------------------
Litigation, Claims and Assessments
PCS shareholders are subject to all of the risks related to an investment in
Sprint and the PCS Group, including the effects of any legal proceedings and
claims against 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 be material to the PCS Group combined financial
statements.
Commitments
The PCS Group has procurement and service contracts with certain vendors. These
contracts are for the engineering and construction of the PCS network. The
III-19
<PAGE>
contracts provide for initial terms of three to five years through 2002 with
renewals for additional one-year terms. At year-end 1998, $696 million of the
total commitment was satisfied, leaving a remaining commitment of $204 million.
The PCS Group has a purchase and supply contract with a vendor to purchase
handsets and other equipment totaling more than $600 million through April
2000. At year-end 1998, the remaining commitments totaled $163 million.
In June 1998, the PCS Group became the managing partner of Cox PCS. At year-end
1998, the PCS Group owned 59.2% of Cox PCS. Cox holds the minority interest in
the partnership. Under the partnership agreement, Cox has the right to require
the PCS Group to purchase, under certain circumstances, all or part of Cox's
interest in Cox PCS, which could involve significant cash requirements. Cox may
require the PCS Group to acquire an additional 10.2% interest in Cox PCS per
year through 2000. Beginning in 2001 through 2005, Cox may require the PCS
Group to acquire up to all of its interest in Cox PCS. Cox has given the PCS
Group notice to start the appraisal process related to a potential put of all
or a portion of Cox's remaining partnership interest to the PCS Group.
Operating Leases
The PCS Group's minimum rental commitments at year-end 1998 for all
noncancelable operating leases, consisting mainly of leases for cell and switch
sites and office space, are as follows:
<TABLE>
- -------------------------
<CAPTION>
(in millions)
<S> <C>
1999 $194.6
2000 186.2
2001 145.2
2002 87.4
2003 30.5
Thereafter 64.8
- -------------------------
</TABLE>
The PCS Group's gross rental expense totaled $256 million in 1998 and $4
million in 1997. The table excludes renewal options related to certain cell and
switch site leases. These renewal options generally have five-year terms and
may be exercised from time to time.
- --------------------------------------------------------------------------------
9. Financial Instruments
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
Sprint estimates the fair value of the PCS Group's financial instruments using
available market information and appropriate valuation methodologies. As a
result, the following estimates do not necessarily represent the values the PCS
Group could realize in a current market exchange. Although management is not
aware of any factors that would affect the estimated fair values presented at
year-end 1998, those amounts have not been comprehensively revalued for
purposes of these financial statements since that date. Therefore, estimates of
fair value after year-end 1998 may differ significantly from the amounts
presented below.
The carrying amounts and estimated fair values of the PCS Group's financial
instruments at year-end 1998 were as follows:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1998
-------------------
Carrying Estimated
Amount Fair Value
- -----------------------------------------------------------------
(in millions)
<S> <C> <C>
Cash and equivalents $ 172.7 $ 172.7
Long-term debt and capital lease obligations 7,921.0 8,111.1
- -----------------------------------------------------------------
</TABLE>
The PCS Group did not have any financial instruments at year-end 1997.
The carrying values of the PCS Group's cash and equivalents approximate fair
value. The estimated fair value of the PCS Group's long-term debt is based on
quoted market prices for publicly traded issues. The estimated fair value of
all other issues is based on the present value of estimated future cash flows
using a discount rate based on the risks involved.
Concentrations of Credit Risk
The PCS Group's accounts receivable are not subject to any concentration of
credit risk.
Interest Rate Swap Agreements
In 1998, Sprint deferred losses from interest rate swap agreements used to
hedge a portion of a $5.0 billion debt offering. These losses were allocated to
the FON Group and the PCS Group. The PCS Group's share of these deferred losses
totaled $59 million and will be amortized to interest expense using the
effective interest method over the term of the debt. There were no deferred
gains or losses related to any terminated interest rate swap agreements at
year-end 1997 or 1996.
III-20
<PAGE>
- --------------------------------------------------------------------------------
10. Additional Financial Information
- --------------------------------------------------------------------------------
Supplemental Cash Flows Information
The PCS Group received cash from the FON Group of $20 million related to income
taxes in 1998.
Noncash activities for the PCS Group included the following:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1998
- -------------------------------------------------------------------------------
(in millions)
<S> <C>
Common stock issued to the Cable Partners to purchase Sprint PCS $3,200.3
------------------------------------------------
Capital lease obligations $ 460.0
------------------------------------------------
Conversion of interim financing to preferred intergroup interest $ 279.2
------------------------------------------------
Preferred stock issued to the Cable Partners in exchange for
interim financing $ 246.8
------------------------------------------------
</TABLE>
See Note 3 for more details about the assets and liabilities acquired in the
PCS Restructuring.
Intergroup Investments and Transactions
Sprint FON Group Investments in the Sprint PCS Group
The following table reflects the FON Group's noncurrent investments in the PCS
Group, which have been eliminated in Sprint's consolidated financial
statements:
<TABLE>
- --------------------------------------------
<CAPTION>
1998 1997
- --------------------------------------------
(in millions)
<S> <C> <C>
Preferred intergroup interest $279.2 $ --
Long-term loans 180.0 --
Investment in debt securities 164.6 142.4
Common intergroup interest 32.3 --
- --------------------------------------------
Total $656.1 $142.4
-----------------
</TABLE>
Preferred Intergroup Interest
The FON Group provided Sprint PCS and the PCS Group with interim financing from
the date the PCS Restructuring agreement was signed in May 1998 until it was
completed in November 1998. As part of the PCS Restructuring, Sprint converted
this financing, totaling $279 million, into an intergroup interest representing
0.3 million shares of 10-year PCS preferred stock convertible into a PCS common
intergroup interest.
Long-term Loans
Sprint provided Sprint PCS with additional interim financing of $180 million
from May 1998 through November 1998.
Investment in Debt Securities
In 1996, Sprint purchased $183 million (face value) of Sprint PCS Senior
Discount notes for $100 million. The bonds mature in 2006. The accreted cost of
the notes was $133 million at year-end 1998 and $118 million at year-end 1997.
Gross unrealized holding gains totaled $32 million at year-end 1998 and $24
million at year-end 1997.
Common Intergroup Interest
The FON Group holds a 1% intergroup interest in the PCS Group. This interest
represents 4.5 million notional PCS shares, and includes 2.7 million shares
held in treasury by the FON Group. These shares do not carry any vote.
The FON Group's 1% share of the PCS Group's net loss since the date of the PCS
Restructuring totaled $6.1 million and was included in "Other income, net" in
the Sprint FON Group Combined Statements of Income.
Intergroup Interest Expense
The PCS Group incurred intergroup interest expense of $92 million in 1998 and
$24 million in 1997 related to advances and loans from the FON Group. See Note
2 for a more detailed description of how Sprint allocates interest expense to
each of the Groups.
Related Party Transactions
Sprint PCS Group
The Cable Partners advanced PhillieCo $26 million in 1998 and $24 million in
1997. These advances, which accrue interest at prime, mature in the 1999 first
quarter.
Sprint PCS
The following discussion reflects related party transactions between Sprint and
Sprint PCS prior to the PCS Restructuring:
Sprint provided Sprint PCS with invoicing and operator services, and switching
equipment. Sprint PCS is also using the long distance division as its
interexchange carrier. Charges to Sprint PCS for these services totaled $125
million in 1998, $61 million in 1997 and $1 million in 1996.
Sprint provided management, printing, mailing and warehousing services to
Sprint PCS. Charges to Sprint PCS for these services totaled $30 million in
1998, $11 million in 1997, and $12 million in 1996.
Sprint had a vendor financing loan to Sprint PCS for $300 million at year-end
1997 which was repaid in 1998. Sprint also loaned Sprint PCS $114 million in
1998 and $21 million in 1997, which will be repaid in the 1999 first quarter.
III-21
<PAGE>
Major Customer
The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail outlet, and service revenues generated by sales to its
customers, accounted for 25% of net operating revenues in 1998.
- --------------------------------------------------------------------------------
11. Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires all derivatives to be recorded on the balance sheet as either assets
or liabilities and be measured at fair value. Gains or losses from changes in
the derivative values are to be accounted for based on how the derivative was
used and whether it qualified for hedge accounting. When adopted in January
2000, this statement is not expected to have a material impact on the PCS
Group's combined financial statements.
III-22
<PAGE>
- --------------------------------------------------------------------------------
12. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
----------------------------------------
1998 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 203.3 $ 264.8 $ 319.9 $ 437.4
Operating loss(/1/) (468.8) (507.3) (564.9) (1,028.4)
Loss before extraordinary item(/1/) (145.2) (152.9) (176.2) (615.3)
Net loss(/1/) (145.2) (152.9) (176.2) (646.5)
Pro forma diluted and basic loss per
common share before extraordinary
item(/2/) (0.97) (0.98) (1.04) (1.43)
<CAPTION>
Quarter
----------------------------------------
1997 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Operating loss $ (0.7) $ (2.5) $ (2.6) $ (12.7)
Loss before extraordinary items (53.0) (86.7) (117.6) (161.8)
Net loss (53.0) (86.7) (117.6) (161.8)
Pro forma diluted and basic loss per
common share before extraordinary
item(/2/) (0.66) (0.79) (0.95) (1.12)
</TABLE>
(/1/In)the 1998 fourth quarter, the PCS Group recorded a nonrecurring charge to
write off $179 million of acquired IPR&D costs related to the PCS
Restructuring. This charge increased operating loss and loss before
extraordinary item by $179 million.
(/2/Pro)forma loss per share assumes the PCS Restructuring, Recapitalization
and Top-up occurred at the beginning of 1997 and excludes the PCS Group's
write-off of $179 million of acquired IPR&D. These pro forma amounts are
for comparative purposes only and do not necessarily represent what actual
results of operations would have been had the transactions occurred at the
beginning of 1997, nor do they indicate the results of future operations.
- --------------------------------------------------------------------------------
13. Subsequent Event (Unaudited)
- --------------------------------------------------------------------------------
In February 1999, Sprint completed an offering of Series 1 PCS Stock. In this
offering, Sprint sold 24.4 million shares at a price to the public of $28.75
per share. The net proceeds to Sprint totaled $672 million. In connection with
this offering, FT and DT purchased 6.1 million shares of Series 3 PCS stock.
The net proceeds to Sprint from the sale of this stock totaled $169 million.
The proceeds from the offering and purchase by FT and DT were attributed to the
PCS Group and will be used for the continued buildout of the PCS network and
working capital needs.
III-23
<PAGE>
SPRINT PCS GROUP
SCHEDULE II--COMBINED VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Additions
------------------------------
Balance Charged Charged Balance
Beginning PCS to to Other Other End of
of Year Restructuring Income Accounts Deductions Year
- ----------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $-- $ 7.7(/1/) $13.7 $ -- $(10.7)(/3/) $ 10.7
-----------------------------------------------------
Valuation allowance--
deferred income tax
assets $-- $192.0(/2/) $ -- $16.2 $ -- $208.2
-----------------------------------------------------
</TABLE>
There was no activity in the valuation and qualifying accounts for 1997 and
1996.
(/1/As)discussed in Note 3, the PCS Group's assets and liabilities were
recorded at their fair values on the PCS Restructuring date. Therefore, the
data presented in this schedule reflects activity since the PCS
Restructuring.
(/2/Represents)a valuation allowance for deferred income tax assets recorded in
the purchase price allocation related to the PCS Restructuring.
(/3/Accounts)written off, net of recoveries.
III-24
<PAGE>
Exhibit (10)(c)
================================================================================
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
Among
FRANCE TELECOM S.A.,
DEUTSCHE TELEKOM AG
and
SPRINT CORPORATION
Dated as of November 23, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS.............................................................................. 2
ARTICLE II RESTRICTIONS ON TRANSFER OF SHARES....................................................... 32
Section 2.1. General Transfer Restrictions...................................................... 32
Section 2.2. Transfers to Qualified Subsidiaries................................................ 32
Section 2.3. Other Transfers Prior to January 31, 2001.......................................... 33
Section 2.4. Other Transfers.................................................................... 33
Section 2.5. Company Rights to Purchase......................................................... 34
Section 2.6. Termination of Transfer Restrictions............................................... 40
Section 2.7. Notice of Certain Actions.......................................................... 42
Section 2.8. Restrictive Legends................................................................ 42
Section 2.9. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Shares.......................................................... 44
Section 2.10. Strategic Mergers; Business Combinations; Company Tender for Shares................ 44
Section 2.11. Effect of Proposed Redemption...................................................... 44
ARTICLE III PROVISIONS CONCERNING DISPOSITION OF LONG DISTANCE ASSETS................................ 45
Section 3.1. Offers to FT and DT................................................................ 45
Section 3.2. Assignment of Rights............................................................... 47
Section 3.3. Timing of Disposition.............................................................. 48
Section 3.4. Method of Purchase................................................................. 48
Section 3.5. Termination of Rights.............................................................. 49
ARTICLE IV PROVISIONS CONCERNING CHANGE OF CONTROL.................................................. 49
Section 4.1. Sale of Assets or Control.......................................................... 49
Section 4.2. Required Share Purchases........................................................... 50
ARTICLE V EQUITY PURCHASE RIGHTS................................................................... 51
Section 5.1. Right to Purchase.................................................................. 51
Section 5.2. Notice............................................................................. 53
Section 5.3. Manner of Exercise; Manner of Payment.............................................. 54
Section 5.4. Adjustments........................................................................ 54
Section 5.5. Closing of Purchases............................................................... 54
Section 5.6. Terms of Payment................................................................... 55
Section 5.7. Suspension of Equity Purchase Rights............................................... 56
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 5.8. Record Date Blackout Purchases..................................................... 56
ARTICLE VI HOLDINGS BY MAJOR COMPETITORS............................................................ 58
ARTICLE VII COVENANTS................................................................................ 58
Section 7.1. Reservation and Availability of Capital Stock...................................... 58
Section 7.2. Assignee Purchasers................................................................ 59
Section 7.3. Automatic Exercise of Rights with Respect to Option Shares; Method
of Purchase....................................................................... 59
Section 7.4. Procedures for Redemption.......................................................... 61
Section 7.5. Joint Action by FT and DT.......................................................... 63
Section 7.6. Compliance with Tax Laws........................................................... 63
Section 7.7. Compliance with Security Requirements.............................................. 63
Section 7.8. Major Issuances.................................................................... 64
Section 7.9. Participation by Class A Directors in Certain Circumstances........................ 64
Section 7.10. Spin-offs.......................................................................... 65
Section 7.11. FCC Licenses....................................................................... 66
Section 7.12. Issuance of Class A Stock.......................................................... 66
Section 7.13. Defeasance of Fifth Series......................................................... 66
Section 7.14. Continuing Directors............................................................... 66
Section 7.15. Long Distance Business............................................................. 66
Section 7.16. Intellectual Property.............................................................. 66
Section 7.17. Automatic Exercise of Rights with Respect to CP Conversion Shares,
etc.; Method of Purchase.......................................................... 66
Section 7.18. Notice of Record Dates............................................................. 68
ARTICLE VIII TERMINATION OF CERTAIN RIGHTS............................................................ 68
ARTICLE IX TAX INDEMNIFICATION...................................................................... 69
Section 9.1. Indemnification for Company Purchase............................................... 69
Section 9.2. Indemnification for Supplementary Payments......................................... 70
Section 9.3. Rebate of Indemnity................................................................ 70
Section 9.4. Exclusions from Indemnity.......................................................... 71
Section 9.5. Consequences of Assignment......................................................... 72
Section 9.6. Verification....................................................................... 72
Section 9.7. Contest Rights..................................................................... 73
ARTICLE X U.S. REAL PROPERTY TAX MATTERS........................................................... 74
Section 10.1. Notification....................................................................... 74
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 10.2. Control of FIRPTA Determination.................................................... 74
Section 10.3. Issuance of Certification; Related Matters......................................... 74
Section 10.4. Advisory Costs..................................................................... 75
Section 10.5. Indemnity.......................................................................... 75
Section 10.6. Contest Rights..................................................................... 75
ARTICLE XI MISCELLANEOUS............................................................................ 76
Section 11.1. Notices............................................................................ 76
Section 11.2. Waiver, Amendment, etc............................................................. 78
Section 11.3. No Partnership..................................................................... 78
Section 11.4. Binding Agreement; Assignment; No Third Party Beneficiaries........................ 78
Section 11.5. GOVERNING LAW; DISPUTE RESOLUTION; EQUITABLE RELIEF................................ 78
Section 11.6. Severability....................................................................... 80
Section 11.7. Translation........................................................................ 80
Section 11.8. Table of Contents; Headings; Counterparts.......................................... 80
Section 11.9. Entire Agreement................................................................... 81
Section 11.10.Waiver of Immunity................................................................. 81
Section 11.11.Acquisitions by FT and DT of Stock from Third Parties.............................. 81
Section 11.12.Effect of Conversion............................................................... 81
Section 11.13.Continuing Director Approval....................................................... 82
</TABLE>
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<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, dated as of November 23,
1998 (this "Agreement"), by and among SPRINT CORPORATION, a corporation formed
under the laws of Kansas (the "Company"), FRANCE TELECOM S.A., a societe anonyme
formed under the laws of France ("FT"), and DEUTSCHE TELEKOM AG, an
Aktiengesellschaft formed under the laws of Germany ("DT");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, 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 the Company;
WHEREAS, in connection with the transactions contemplated by the Investment
Agreement, the Company, FT and DT entered into a Stockholders' Agreement dated
as of January 31, 1996, which agreement was amended on June 24, 1997 (the "1996
Stockholders' Agreement");
WHEREAS, the Company, 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 Series 3 PCS Stock;
WHEREAS, as a condition precedent to and in consideration of the
transactions contemplated in the FT/DT Restructuring Agreement, the Company, FT
and DT are required to enter into this Agreement and in reliance thereon the
Company, FT and DT have has entered into the FT/DT Restructuring Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the FT/DT
Restructuring Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each of FT, DT and the
Company (each a "Party and collectively the "Parties"), intending to be legally
bound, hereby agrees that the 1996 Stockholders' Agreement is hereby amended and
restated in its entirety as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
The following capitalized terms used in this Agreement will have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person, provided that (a)
no JV Entity shall be deemed an Affiliate of any party hereto unless (i) FT, DT
and Atlas own a majority of the Voting Power of such JV Entity and the Company
does not have the Tie-Breaking Vote, or (ii) FT, DT or Atlas has the Tie-
Breaking Vote; (b) FT, DT and the Company shall not be deemed Affiliates of each
other; (c) Atlas shall be deemed an Affiliate of FT and DT; and (d) the term
"Affiliate" shall not include any Governmental Authority of France or Germany or
any other Person Controlled, directly or indirectly, by any such Governmental
Authority, in each case except for FT, DT, Atlas and any other Person directly,
or indirectly through one or more intermediaries, Controlled by FT, DT or Atlas.
"Alien" means "aliens", "their representatives", "a foreign government
or representatives thereof" or "any corporation organized under the laws of a
foreign country" as such terms are used in Section 310(b)(4) of the
Communications Act of 1934, as amended, or as hereafter may be amended, or any
successor provision of law.
"Amended and Restated Confidentiality Agreements" means the Amended
and Restated DT Investor Confidentiality Agreement and the Amended and Restated
FT Investor Confidentiality Agreement.
"Amended and Restated DT Investor Confidentiality Agreement" means the
Amended and Restated Investor Confidentiality Agreement between the Company and
DT dated as of the date hereof.
"Amended and Restated FT Investor Confidentiality Agreement" means the
Amended and Restated Investor Confidentiality Agreement between the Company and
FT dated as of the date hereof.
"Amended and Restated Registration Rights Agreement" means the Amended
and Restated Registration Rights Agreement among the Company, FT and DT, dated
as of the date hereof, as it may be amended or supplemented from time to time.
"Amended and Restated Standstill Agreement" means the Amended and
Restated Standstill Agreement among the Company, FT and DT, dated as of the date
hereof, as it may be amended or supplemented from time to time.
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<PAGE>
"Applicable Law" means all applicable provisions of all (a)
constitutions, treaties, statutes, laws (including common law), rules,
regulations, ordinances or codes of any Governmental Authority, and (b) orders,
decisions, injunctions, judgments, awards and decrees of any Governmental
Authority.
"Applicable CP Period" means a period beginning on the fifth day prior
to a record date relating to a vote of the stockholders of the Company or the
payment of dividends to the stockholders of the Company and ending on the day
following such record date.
"Applicable FON Ratio" shall have the meaning set forth in Section
7.5(b) hereof.
"Applicable Overall Ratio" shall have the meaning set forth in Section
7.5(a) hereof.
"Applicable PCS Ratio" shall have the meaning set forth in Section
7.5(b) hereof.
"Articles" means the Articles of Incorporation of the Company, as
amended or supplemented from time to time.
"Assignment Notice" shall have the meaning set forth in Section 3.2
hereof.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under
the Exchange Act, provided that when used to indicate a relationship with FT or
DT or their respective Subsidiaries or Affiliates, the term "Associate" shall
mean (a) in the case of FT, any Person occupying any of the positions listed on
Schedule A hereto, and (b) in the case of DT, any Person occupying any of the
positions listed on Schedule B hereto, provided, further, that, in each case, no
Person occupying any such position described in clause (a) or (b) hereof shall
be deemed an "Associate" of FT or DT, as the case may be, unless the Persons
occupying all such positions described in clauses (a) and (b) hereof
Beneficially Own, in the aggregate, more than 0.2% of the Voting Power of the
Company.
"Atlas" means the company formed as a societe anonyme under the laws
---------------
of Belgium pursuant to the Joint Venture Agreement, dated as of December 15,
1994, between FT and DT, as amended.
"Available Record Date Blackout Shares," with respect to any Record
Date Blackout Period, means a number of shares of Series 3 FON Stock and/or
Series 3 PCS Stock, the allocation of which is determined by Section 5.8, which
after giving effect to the issuance of such shares represents Votes in an amount
equal to the lesser of (i) 20% of the Voting Power of the Company minus the sum
of (x) the Percentage Ownership Interest of the Class A Holders as of the
beginning of such Record Date Blackout Period, and (y) the Percentage Ownership
Interest which would be represented by shares with respect to which the Class A
Holders have Equity Purchase Rights, after giving effect to the issuance of such
shares, (ii) 0.75% of the outstanding
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<PAGE>
Voting Power of Sprint as of the first day of the Record Date Blackout Period,
and (iii) 1.25% of the outstanding Voting Power of Sprint as of the first day of
the Record Date Blackout Period, less the Percentage Ownership Interest
represented by the number of Shares purchased pursuant to Section 5.8 during the
preceding 12 months.
"Basis Windfall" shall have the meaning set forth in Section 9.3
hereof.
"Beneficial Owner" (including, with its correlative meanings,
"Beneficially Own" and "Beneficial Ownership"), with respect to any securities,
means any Person which:
(a) has, or any of whose Affiliates or Associates has, directly or
indirectly, the right to acquire (whether such right is exercisable
immediately or only after the passage of time) such securities pursuant to
any agreement, arrangement or understanding (whether or not in writing)
including, without limitation, pursuant to the Investment Agreement, the
FT/DT Restructuring Agreement and this Agreement, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
(b) has, or any of whose Affiliates or Associates has, directly or
indirectly, the right to vote or dispose of (whether such right is
exercisable immediately or only after the passage of time) or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 under the
Exchange Act but including all such securities which a Person has the right
to acquire beneficial ownership of whether or not such right is exercisable
within the 60-day period specified therein) such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); or
(c) has, or any of whose Affiliates or Associates has, any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting or disposing of any securities which are
Beneficially Owned, directly or indirectly, by any other Person (or any
Affiliate thereof),
provided that (i) Class A Common Stock, Sprint FON Stock and Sprint PCS Stock
- --------
held by one of FT or DT or its Affiliates or Associates shall not also be deemed
to be Beneficially Owned by the other of FT or DT or its Affiliates or
Associates; (ii) Sprint FON Stock and Sprint PCS Stock shall not be deemed to be
Beneficially Owned by FT, DT or their Affiliates or Associates by virtue of the
top up rights and standby commitments granted under the Purchase Rights
Agreement except to the extent that FT, DT or their Affiliates or Associates
have (A) acquired shares of Sprint FON Stock or Sprint PCS Stock pursuant to the
Purchase Rights Agreement, or (B) become irrevocably committed to acquire, and
the Cable Partners have become irrevocably committed to sell, shares of Sprint
FON Stock or Sprint PCS Stock pursuant to the Purchase Rights Agreement (with
such Beneficial Ownership being determined on a full-voting basis), subject only
to customary closing conditions, if any; and (iii) FT, DT and their Affiliates
and Associates shall not be deemed to Beneficially Own any incremental Voting
Power resulting
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<PAGE>
solely from the increase in Voting Power provided for by the application of
Section 7.5(d) of the Articles.
"Board of Directors" means the board of directors of the Company.
"Brokers' Transactions" means brokers' transactions within the meaning
of Rule 144 of the Securities Act, or any successor rule.
"Business Day" means any day other than a day on which commercial
banks in The City of New York, Paris, France, or Frankfurt am Main, Germany, are
required or authorized by law to be closed.
"Buyers" shall have the meaning set forth in the FT/DT Restructuring
Agreement.
"Buy Notice" shall have the meaning set forth in Section 2.5(b)
hereof.
"Bylaws" means the Bylaws of the Company, as amended or supplemented
from time to time.
"Cable Partners" means Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. and any of their respective successors (by merger,
consolidation, transfer or otherwise) to all or substantially all of their
respective businesses or assets.
"Cellular and Wireless Division" means the former Cellular and
Wireless Communications Services Division of the Company.
"Change in Law" shall have the meaning set forth in Section 10.2(b)
hereof.
"Change of Control" means a:
(a) decision by the Board of Directors to sell Control of the Company
or not to oppose a third party tender offer for Voting Securities of the
Company representing more than 35% of the Voting Power of the Company; 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 the Company and FT and DT
or otherwise involving FT and DT and any of their direct or indirect
Subsidiaries which are parties to a Contract therefor shall not be deemed
to be a Change of Control.
-5-
<PAGE>
"Class A Common Stock" means the Class A Common Stock of the Company,
including the Old Class A Common Stock and the Class A Common Stock -- Series DT
(each as described in the Articles).
"Class A Director" means any Director elected by the Class A Holders
pursuant to Section 2(a) of ARTICLE FIFTH of the Articles or appointed by Class
A Directors pursuant to Section 4(b) of ARTICLE FIFTH of the Articles.
"Class A FON Shares" means shares of Series 3 FON Stock and Shares
Issuable With Respect To The Class A Equity Interest In The FON Group.
"Class A Holder Eligible Notes" means notes of a Class A Holder issued
pursuant to Section 5.6, substantially in the form of Exhibit A attached hereto,
made payable to the Company which, in the written opinion of an investment
banking firm of recognized international standing addressed to the Company and
reasonably satisfactory to the Company, would sell, at the date of their
issuance, at a price equal to their principal amount (taking into account the
likely manner and timing of resale by the Company), provided that no note of any
Class A Holder shall be deemed to be a Class A Holder Eligible Note (a) if such
Class A Holder's debt instruments are at that time rated by Moody's Investors
Service, Inc., Standard and Poor's Corporation or Duff & Phelps Credit Rating
Co., and if it is to be issued at a time when such Class A Holder's debt
instruments comparable to the note proposed to be a Class A Holder Eligible Note
(or, if rated, such note itself) do not possess at least two of the three
following ratings: Baa3 or better (or a comparable rating if the rating system
is changed) by Moody's Investors Service, Inc.; BBB- or better (or a comparable
rating if the rating system is changed) by Standard and Poor's Corporation; and
BBB- or better (or a comparable rating if the rating system is changed) by Duff
& Phelps Credit Rating Co., and (b) unless nationally-recognized counsel shall
have delivered an opinion in form and substance reasonably satisfactory to each
payee that such notes are enforceable obligations of such Class A Holder in
accordance with the terms thereof, and provided, further, that no note issued by
any Qualified Subsidiary shall be deemed to be a Class A Holder Eligible Note
unless FT or DT, as the case may be, shall have executed a guarantee with
respect to the obligations of such Qualified Subsidiary thereunder, satisfactory
in form and substance to the Company.
"Class A Holders" means FT, DT and any Qualified Subsidiary to which
shares of Class A Stock or Non-Class A Common Stock have been transferred in
accordance with Section 2.2 hereof, and any Qualified Stock Purchaser that
acquires shares of Class A Stock or Non-Class A Common Stock pursuant to Article
VI or Section 5.1 of this Agreement or pursuant to Section 2.2(b) of the Amended
and Restated Standstill Agreement (and shall include such Persons even after all
of the shares of Class A Stock have been converted into Non-Class A Common Stock
of the Company).
"Class A PCS Shares" means shares of Series 3 PCS Stock and Shares
Issuable With Respect To The Class A Equity Interest In The PCS Group.
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<PAGE>
"Class A Provisions" means Section 5 (but only with respect to those
provisions addressing the Class A Stock), Section 6 (but only with respect to
those provisions addressing the Class A Stock), Section 8, Section 9 (but only
with respect to those provisions addressing the Class A Stock), Section 10,
Section 11 and Section 12 of ARTICLE SIXTH of the Company's Articles of
Incorporation, as amended from time to time.
"Class A Stock" means the Class A Common Stock, the Series 3 FON Stock
and the Series 3 PCS Stock.
"Closing Price" means, with respect to a security on any day, the last
sale price, regular way, or in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on The New York Stock Exchange, Inc.
or, if such security is not listed or admitted to trading on such exchange as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
security is listed or admitted to trading or, if the security is not listed or
admitted to trading on any national securities exchange, the last quoted sale
price or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by 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 Board of Directors. If the security is not publicly held or so listed or
publicly traded, "Closing Price" means the Fair Market Value of such security.
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Committed Percentage" means, as to any Class A Holder, the percentage
obtained by dividing the aggregate number of Votes represented or to be
represented by the Voting Securities of the Company (a) owned of record by such
Class A Holder or by its nominees, and (b) which such Class A Holder has
committed to the Company to purchase pursuant to Sections 7.3 and 7.8 or
Articles V and VI hereof (but not pursuant to the FT/DT Restructuring Agreement
until such shares are acquired pursuant to such agreement), by the sum of (i)
the Voting Power of the Company and (ii) the Votes to be represented by any
Voting Securities of the Company such Class A Holder has committed to the
Company to purchase from the Company pursuant to Article V or VI or Section 7.3
hereof (but not pursuant to the FT/DT Restructuring Agreement until such shares
are acquired pursuant to such agreement).
"Company" shall have the meaning set forth in the preamble.
"Company Eligible Notes" means notes of the Company (or its permitted
assignee pursuant to Section 2.5), satisfactory in form and substance to the
Company, FT and DT, made payable to the Transferring Stockholder, or Class A
Holder as provided in Section 2.6(b)(ii) hereof, which, in the written opinion
of an investment banking firm of recognized international
-7-
<PAGE>
standing addressed to the Transferring Stockholder, or Class A Holder as
provided in Section 2.6(b)(ii) hereof, and reasonably satisfactory to such
Transferring Stockholder or Class A Holder, as the case may be, would sell, at
the date of their issuance, at a price equal to their principal amount (taking
into account the likely manner and timing of resale by such Transferring
Stockholder or Class A Holder, as the case may be), provided that no note of the
Company (or its permitted assignee pursuant to Section 2.5) shall be deemed to
be a Company Eligible Note (a) if it is to be issued at a time when the
Company's (or such assignee's) debt instruments comparable to the notes proposed
to be a Company Eligible Note (or such note itself) do not possess at least two
of the three following ratings: Baa3 or better (or a comparable rating if the
rating system is changed) by Moody's Investors Service, Inc.; BBB- or better (or
a comparable rating if the rating system is changed) by Standard and Poor's
Corporation; and BBB- or better (or a comparable rating if the rating system is
changed) by Duff & Phelps Credit Rating Co., and (b) unless nationally-
recognized counsel shall have delivered an opinion in form and substance
reasonably satisfactory to each payee that such notes are enforceable
obligations of the Company (or such assignee) in accordance with the terms
thereof.
"Company Purchase" shall have the meaning set forth in Section 9.1
hereof.
"Company Stock Payment Notes" shall have the meaning set forth in
Section 7.3 hereof.
"Company Tax Payment" shall have the meaning set forth in Section 9.3
hereof.
"Continuing Director" means any Director who is unaffiliated with the
Buyers and their "affiliates" and "associates" (as each such term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on October 1,
1982) and was a Director prior to the time that any Buyer or any such affiliate
or associate became an Interested Stockholder (as such term is defined in the
Fair Price Provisions), and any successor of a Continuing Director if such
successor is not affiliated with any such Interested Stockholder and is
recommended or elected to succeed a Continuing Director by a majority of
Continuing Directors, provided that such recommendation or election shall only
be effective if made at a meeting of Directors at which at least seven
Continuing Directors are present.
"Contract" means any loan or credit agreement, note, bond, indenture,
mortgage, deed of trust, lease, franchise, contract, or other agreement,
obligation, instrument or binding commitment of any nature.
"Control" means, with respect to a Person or Group, any of the
following:
(a) ownership by such Person or Group of Votes entitling it to
exercise in the aggregate more than 35 percent of the Voting Power of the
entity in question; or
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<PAGE>
(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.
"Corporation Joint Venture Termination" means any of the following:
(a) the sale of Venture Interests by a Sprint Party pursuant to
Section 20.5(a) of the Joint Venture Agreement; or
(b) the receipt by the FT/DT Parties of the Tie-Breaking Vote due to
a Funding Default, Material Non-Funding Default or Bankruptcy (as such
terms are defined in the Joint Venture Agreement) on the part of any of the
Sprint Parties.
"CP Closing" shall have the meaning set forth in Article VIII of the
FT/DT Restructuring Agreement.
"CP Conversion Shares" shall mean shares of Series 1 PCS Stock issued
upon the conversion of shares of Series 2 PCS Stock.
"Director" means a member of the Board of Directors.
"DT" shall have the meaning specified in the preamble.
"Eligible Purchaser" shall have the meaning set forth in Section
2.5(c)(i) hereof.
"Equity Purchase Price" shall have the meaning set forth in Section
5.5(b) hereof.
"Equity Purchase Right" shall have the meaning set forth in Section
5.1 hereof.
"ESMR" means any commercial mobile radio service, and the resale of
such service, of the type authorized under the rules for Specialized Mobile
Radio Services designated under Subpart S of Part 90 of the FCC's rules or
similar Applicable Laws of any other country in effect on the date hereof,
including the networking, marketing, distribution, sales, customer interface and
operations functions relating thereto.
"Europe" means the current geographic area covered by the following
countries and territories located on the European continent, plus in the case of
France, its territories and possessions located outside the European continent:
Albania, Andorra, Austria, Belgium, Bosnia-Hercegovina, Bulgaria, Croatia,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar,
Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania,
Luxembourg, Macedonia, Malta, Monaco, Montenegro, Netherlands, Norway, Poland,
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<PAGE>
Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden,
Switzerland, Turkey, Ukraine, United Kingdom, and Vatican City.
"Excess Taxes" shall have the meaning set forth in Section 9.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC from time to time promulgated
thereunder.
"Exempt Asset Divestitures" mean, with respect to the Company and its
Subsidiaries:
(a) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) to joint ventures approved by FT and DT prior to
January 31, 1996;
(b) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) to (i) any entity in exchange for equity interests in
such entity if, after such transaction, the Company owns at least 51
percent of both the Voting Power and equity interests in such entity or
(ii) any joint venture that is an operating joint venture not controlled by
any of its principals and in which (x) the Company has the right, acting
alone, to disapprove (and thereby prohibit) decisions relating to
acquisitions and divestitures involving more than 20 percent of the Fair
Market Value of such entity's assets, mergers, consolidations and
dissolution or liquidation of such entity and the adoption of such entity's
business plan and (y) Major Competitors of the Joint Venture do not in the
aggregate own more than 20% of the equity interests or Voting Power;
(c) Transactions in which the Company exchanges one or more (i) local
exchange telephone businesses for one or more such businesses or (ii)
public cellular or wireless radio telecommunications service systems for
one or more such systems, provided that the Company shall not, directly or
indirectly, receive cash in any such transaction in an amount greater than
20 percent of the Fair Market Value of the property or properties
Transferred by it;
(d) Transfers of assets, shares or other equity interests (other than
Long Distance Assets) by the Company to any of its Subsidiaries, or by any
of its Subsidiaries to the Company or any other Subsidiary of the Company;
(e) any Spin-off of equity interests of a wholly-owned Subsidiary
that is not a Subsidiary which, directly or indirectly, owns Long Distance
Assets (for purposes of this definition, the "Spun-off Entity"), provided
that the Class A Holders receive securities in the Spun-off Entity of a
separate class with rights no less favorable to the Class A Holders than
those applicable to the Class A Stock set forth in the Articles and the
Bylaws;
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<PAGE>
(f) Transfers of assets (other than Long Distance Assets) of the
Company or any of its Subsidiaries that are primarily or exclusively used
in connection with providing information technology or data processing
functions or services (collectively, for purposes of this definition, the
"IT Assets"), to any Person that regularly provides information technology
or data processing functions or services on a commercial basis, in
connection with a contractual arrangement (for purposes of this definition,
an "IT Service Contract") pursuant to which such Person undertakes to
provide information technology or data processing functions or services to
the Company or any of its Subsidiaries of substantially the same nature as
the services associated with the use of such assets prior to such Transfer
and upon commercially reasonable terms to the Company as determined in good
faith by the Company, provided that (i) the term of such IT Service
Contract shall be for a period at least as long as the weighted average
useful life of such assets, or the Company or such Subsidiary shall have
the right to cause such IT Service Contract to be renewed or extended for a
period at least as long as such weighted average useful life upon
commercially reasonable terms to the Company as determined in good faith by
the Company, and (ii) the Transfer of such assets will not materially and
adversely affect the operation of the Company; or
(g) Transfers of assets (other than Long Distance Assets or IT
Assets) of the Company or any of its Subsidiaries to any Person in
connection with any contractual arrangement (for purposes of this
definition, a "Non-IT Service Contract") pursuant to which such Person
undertakes to provide services to the Company or any of its Subsidiaries of
substantially the same nature as the services associated with the use of
such assets prior to such Transfer and upon commercially reasonable terms
to the Company as determined in good faith by the Company, provided, that
(i) the Fair Market Value of such assets, together with the Fair Market
Value of assets of the Company Transferred to such Person or other Persons
in related transactions, do not represent more than five percent of the
Fair Market Value of the assets of the Company, (ii) the Transfer of such
assets will not materially and adversely affect the operation of the
Company, and (iii) the term of such Non-IT Service Contract shall be for a
period at least as long as the weighted average useful life of the assets
so Transferred or the Company or such Subsidiary has the right to cause
such Non-IT Service Contract to be renewed or extended for a period at
least as long as such weighted average useful life upon commercially
reasonable terms to the Company as determined in good faith by the Company.
"Exempt Long Distance Asset Divestitures" mean, with respect to the
Company and its Subsidiaries:
(a) Transfers of Long Distance Assets to a Qualified Joint Venture;
(b) Transfers of Long Distance Assets to any entity if the Company
and its Subsidiaries after such transaction own at least 70 percent of both
the Voting Power and equity interests of such entity, provided that if a
Major Competitor of FT or DT or the
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<PAGE>
Joint Venture holds equity interests in such entity, such Major
Competitor's equity interests and Votes in such entity as a percentage of
the Voting Power of such entity shall not, directly or indirectly, exceed
20 percent;
(c) Transfers of Long Distance Assets pursuant to an underwritten,
widely-distributed public offering at the conclusion of which the Company
and its Subsidiaries shall own at least 51 percent of both the Voting Power
and equity interests in the entity that owns such Long Distance Assets;
(d) Transfers in the ordinary course of business of Long Distance
Assets determined by the Company to be unnecessary for the orderly
operation of the Company's business, and sale-leasebacks of Long Distance
Assets and similar financing transactions after which the Company and its
Subsidiaries continue in possession and control of the Long Distance Assets
involved in such transaction;
(e) Transfers of Long Distance Assets by the Company to any of its
Subsidiaries, or by any of its Subsidiaries to the Company or any other
Subsidiary of the Company;
(f) Transfers of Long Distance Assets to FT or DT or any assignee
thereof pursuant to this Agreement;
(g) any Spin-off of equity interests of a wholly-owned Subsidiary
which, directly or indirectly, owns Long Distance Assets (for purposes of
this definition, the "Spun-off Entity"), provided that the Class A Holders
receive securities in the Spun-off Entity of a separate class with rights
no less favorable to the Class A Holders than those applicable to the Class
A Stock set forth in the Articles and the Bylaws;
(h) Transfers of Long Distance Assets of the Company or any of its
Subsidiaries that are primarily or exclusively used in connection with
providing information technology or data processing functions or services
(collectively, for purposes of this definition, the "IT Assets"), to any
Person that regularly provides information technology or data processing
functions or services on a commercial basis, in connection with a
contractual arrangement (for purposes of this definition, an "IT Service
Contract") pursuant to which such Person undertakes to provide information
technology or data processing functions or services to the Company or any
of its Subsidiaries of substantially the same nature as the services
associated with the use of such Long Distance Assets prior to such Transfer
and upon commercially reasonable terms to the Company as determined in good
faith by the Company, provided that (i) the term of such IT Service
Contract shall be for a period at least as long as the weighted average
useful life of such Long Distance Assets, or the Company or such Subsidiary
shall have the right to cause such IT Service Contract to be renewed or
extended for a period at least as long as such weighted average useful life
upon commercially reasonable terms to the
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Company as determined in good faith by the Company, and (ii) the Transfer
of such Long Distance Assets will not materially and adversely affect the
operation of the Long Distance Business. Any such IT Service Contract
involving Transfers of Long Distance Assets, including any renewal or
extension thereof, shall be deemed to be a Long Distance Asset; or
(i) Transfers of Long Distance Assets (other than IT Assets) of the
Company or any of its Subsidiaries to any Person in connection with any
contractual arrangement (for purposes of this definition "Non-IT Service
Contract") pursuant to which such Person undertakes to provide services to
the Company or any of its Subsidiaries of substantially the same nature as
the services associated with the use of such Long Distance Assets prior to
such Transfer and upon commercially reasonable terms to the Company as
determined in good faith by the Company, provided, that (i) the Fair Market
Value of such Long Distance Assets, together with the Fair Market Value of
Long Distance Assets Transferred to such Person or other Persons in related
transactions, do not represent more than three percent of the Fair Market
Value of the Long Distance Assets of the Company, (ii) the Transfer of such
Long Distance Assets will not materially and adversely affect the operation
of the Long Distance Business, and (iii) the term of such Non-IT Service
Contract shall be for a period at least as long as the weighted average
useful life of the Long Distance Assets so Transferred or the Company or
such Subsidiary has the right to cause such Service Contract to be renewed
or extended for a period at least as long as such weighted average useful
life upon commercially reasonable terms to the Company as determined in
good faith by the Company. Any such Non-IT Service Contract involving
Transfers of Long Distance Assets, including any renewal or extension
thereof, shall be deemed to be a Long Distance Asset.
"Exercise Amount" shall have the meaning set forth in Section 7.3
hereof.
"Fair Market Value" means, with respect to any asset, shares or other
property, the cash price at which a willing seller would sell and a willing
buyer would buy such asset, shares or other property in an arms-length
negotiated transaction without undue time restraints, as determined in good
faith by a majority of the Independent Directors as certified in a resolution
delivered to all of the Class A Holders.
"Fair Price Provisions" means ARTICLE SEVENTH of the Articles, and any
successor provision thereto.
"FCC" means the Federal Communications Commission.
"FCC Order" means, with respect to any proposed Transfer of Long
Distance Assets by the Company, either:
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(a) an effective written order or other final action from the FCC
(either in the first instance or upon review or reconsideration) either
declaring that FT and DT are not prohibited by Section 310 from owning such
Long Distance Assets or stating that no such declaration is required, and
as to which no Proceeding shall be pending or threatened that presents a
substantial possibility of resulting in a reversal thereof; or
(b) an effective written order from, or other final action taken by,
the FCC pursuant to delegated authority (either in the first instance or
upon review or reconsideration) either declaring that FT and DT are not
prohibited by Section 310 from owning such Long Distance Assets, or stating
that no such declaration is required, which order or final action shall no
longer be subject to further administrative review, and as to which no
Proceeding shall be pending or threatened that presents a substantial
possibility of resulting in a reversal thereof;
For purposes of clause (b) of this definition, an order from, or other final
action taken by, the FCC pursuant to delegated authority shall be deemed no
longer subject to further administrative review:
(x) if no petition for reconsideration or application for review by
the FCC of such order or final action has been filed within
thirty days after the date of public notice of such order or
final action, as such 30-day period is computed and as such date
is defined in Sections 1.104 and 1.4 (or any successor
provisions), as applicable, of the FCC's rules, and the FCC has
not initiated review of such order or final action on its own
motion within forty days after the date of public notice of the
order or final action, as such 40-day period is computed and such
date is defined in Sections 1.117 and 1.4 (or any successor
provisions) of the FCC's rules; or
(y) if any such petition for reconsideration or application for
review has been filed, or, if the FCC has initiated review of
such order or final action on its own motion, the FCC has issued
an effective written order or taken final action to the effect
set forth in clause (a) above.
"FIRPTA Determination" means with respect to any sale, exchange
(including a deemed exchange) or other disposition by a Class A Holder of
Shares, a determination as to whether the Company is a "United States Real
Property Holding Corporation" within the meaning of Section 897 of the Code and
the regulations thereunder (or any successor provision).
"FIRPTA Tax" shall have the meaning set forth in Section 10.5 hereof.
"First Notice Period" shall have the meaning set forth in Section
2.5(a) hereof.
"First Offer Price" shall have the meaning set forth in Section 2.5(a)
hereof.
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<PAGE>
"FON Trading Average" means (i) the Volume Weighted Trading Average of
the Series 1 FON Stock for the ten consecutive Trading Days following the date
of the Recapitalization, divided by (ii) a fraction, the numerator of which is
the number of shares of Sprint FON Common Stock which are outstanding
immediately prior to the Recapitalization and the denominator of which is the
number of shares of Series 1 FON Stock issued in the Recapitalization.
"Formula Price" means (i) prior to the Recapitalization, as to a share
of Class A Common Stock, a per share price equal to the greater of (a) the
Market Price of a share of Sprint FON Common Stock on the date of the sale of
such share of Class A Common Stock, and (b) an amount equal to the Weighted
Average Price paid by the Class A Holders for the share of Class A Common Stock,
together with a stock appreciation factor thereon (calculated on the basis of a
365-day year) at the rate of 3.88% through and including the date of such
redemption, such stock appreciation factor to be calculated, on an annual
compounding basis, from the date of the purchase of such share of Class A Common
Stock until the date of redemption, (ii) after the Recapitalization, as to a
Class A FON Share, a per share price equal to the greater of (a) the Market
Price of a share of Series 1 FON Stock on the date of the sale of such Class A
FON Share, and (b) an amount equal to the Weighted Average Price paid by the
Class A Holders for the Class A FON Share, together with a stock appreciation
factor thereon (calculated on the basis of a 365-day year) at the rate of 3.88%
through and including the date of such redemption, such stock appreciation
factor to be calculated, on an annual compounding basis, from the date of the
purchase of such Class A FON Share until the date of redemption, and (iii) as to
a Class A PCS Share, a per share price equal to the greater of (a) the Market
Price of a share of Series 1 PCS Stock on the date of the sale of such Class A
PCS Share, and (b) an amount equal to the Weighted Average Price paid by the
Class A Holders for the Class A PCS Share, together with a stock appreciation
factor thereon (calculated on the basis of a 365-day year) at the rate of 3.88%
through and including the date of such redemption, such stock appreciation
factor to be calculated, on an annual compounding basis, from the date of
purchase of such Class A PCS Share until the date of redemption. In determining
the Weighted Average Price paid by the Class A Holders for purposes of this
definition following the Recapitalization, the original purchase price paid by
the Class A Holders for shares of Class A Common Stock acquired by the Class A
Holders prior to the Recapitalization shall be allocated among the Class A FON
Shares and the Class A PCS Shares as follows: (i) the amount allocated to the
Class A FON Shares shall be equal to the aggregate amount paid by the Class A
Holders for Class A Common Stock prior to the Recapitalization, multiplied by
(A) the FON Trading Average, divided by (B) the sum of the FON Trading Average
and the PCS Trading Average, and (ii) the amount allocated to the Class A PCS
Shares shall be equal to the aggregate amount paid by the Class A Holders for
Class A Common Stock prior to the Recapitalization, multiplied by (A) the PCS
Trading Average, divided by (B) the sum of the FON Trading Average and the PCS
Trading Average.
"France" means the Republic of France, including French Guiana,
Guadeloupe, Martinique and Reunion, and its territories and possessions.
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"FT" shall have the meaning specified in the preamble.
"FT/DT Joint Venture Termination" means any of the following:
(a) the sale of Venture Interests by an FT/DT Party pursuant to
Section 20.5(b), 20.5(c) or 20.5(d) of the Joint Venture Agreement; or
(b) the receipt by the Sprint Parties of the Tie-Breaking Vote due to
a Funding Default, Material Non-Funding Default or Bankruptcy (as such
terms are defined in the Joint Venture Agreement) on the part of any of the
FT/DT Parties.
"FT/DT Party" shall have the meaning set forth in the Joint Venture
Agreement.
"FT/DT Restructuring Agreement" shall have the meaning set forth in
the Recitals.
"FT/DT Stock Payment Notes" means notes of FT and DT in substantially
the form of Exhibit E.
"FT/DT Weighted Purchase Price" means the Weighted Average Price paid
by FT, DT, their respective Qualified Subsidiaries and any Qualified Stock
Purchasers for Class A Common Stock, Class A FON Shares or Class A PCS Shares,
as the case may be, calculated solely with respect to Class A Common Stock,
Class A FON Shares or Class A PCS Shares, as the case may be, purchased from the
Company pursuant to this Agreement, the Investment Agreement or the FT/DT
Restructuring Agreement. In determining the FT/DT Weighted Purchase Price paid
by the Class A Holders for purposes of this definition following the
Recapitalization, the original purchase price paid by the Class A Holders for
shares of Class A Common Stock prior to the Recapitalization shall be allocated
among the Class A FON Shares and the Class A PCS Shares as follows: (i) the
amount allocated to the Class A FON Shares shall be equal to the aggregate
amount paid by the Class A Holders for Class A Common Stock purchased from the
Company prior to the Recapitalization, multiplied by (A) the FON Trading
Average, divided by (B) the sum of the FON Trading Average and the PCS Trading
Average, and (ii) the amount allocated to the Class A PCS Shares shall be equal
to the aggregate amount paid by the Class A Holders for Class A Common Stock
purchased from the Company prior to the Recapitalization, multiplied by (A) the
PCS Trading Average, divided by (B) the sum of FON Trading Average and the PCS
Trading Average.
"Germany" means the Federal Republic of Germany.
"Governmental Approval" means any consent, waiver, grant, concession
or License of, registration or filing with, or declaration, report or notice to,
any Governmental Authority.
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"Governmental Authority" means any federation, nation, state,
sovereign, or government, any federal, supranational, regional, state or local
political subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission or other similar dispute resolving panel or body,
and any other entity exercising executive, legislative, judicial, regulatory or
administrative functions of a government, provided that the term "Governmental
Authority" shall not include FT, DT, Atlas or any of their respective
Subsidiaries.
"Group" means any group within the meaning of Section 13(d)(3) of the
Exchange Act.
"Indemnitee" shall have the meaning set forth in Section 9.1 hereof.
"Independent Director" means any member of the Board of Directors who
(a) is not an officer or employee of the Company, or any Class A Holder, or any
of their respective Subsidiaries, (b) is not a former officer of the Company, or
any Class A Holder, or any of their respective Subsidiaries, (c) does not, in
addition to such person's role as a Director, act on a regular basis, either
individually or as a member or representative of an organization, serving as a
professional adviser, legal counsel or consultant to the Company, or any Class A
Holder, or their respective Subsidiaries, if, in the opinion of the Nominating
Committee of the Board of Directors of the Company (the "Nominating Committee")
or the Board of Directors if a Nominating Committee is not in existence, such
relationship is material to the Company, any Class A Holder, or the organization
so represented or such person, and (d) does not represent, and is not a member
of the immediate family of, a person who would not satisfy the requirements of
the preceding clauses (a), (b) and (c) of this sentence. A person who has been
or is a partner, officer or director of an organization that has customary
commercial, industrial, banking or underwriting relationships with the Company,
any Class A Holder, or any of their respective Subsidiaries, that are carried on
in the ordinary course of business on an arms-length basis and who otherwise
satisfies the requirements set forth in clauses (a), (b), (c) and (d) of the
first sentence of this definition, may qualify as an Independent Director,
unless, in the opinion of the Nominating Committee or the Board of Directors if
a Nominating Committee is not in existence, such person is not independent of
the management of the Company, or any Class A Holder, or any of their respective
Subsidiaries, or the relationship would interfere with the exercise of
independent judgment as a member of the Board of Directors. A person who
otherwise satisfies the requirements set forth in clauses (a), (b), (c) and (d)
of the first sentence of this definition and who, in addition to fulfilling the
customary director's role, also provides additional services directly for the
Board of Directors and is separately compensated therefor, would nonetheless
qualify as an Independent Director. Notwithstanding anything to the contrary
contained in this definition, each Director as of July 31, 1995 who was not an
executive officer of the Company shall be deemed to be an Independent Director
hereunder.
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"Initial Charter Amendment" means the Amended and Restated Articles of
Incorporation of Sprint filed with the Secretary of State of the State of Kansas
on November 23, 1998 effecting the creation of the PCS Stock, among other
things.
"Investment Agreement" shall have the meaning set forth in the
Recitals.
"Joint Venture" means the joint venture formed by FT, DT, Sprint Sub
and the Company as provided in the Joint Venture Agreement.
"Joint Venture Agreement" means the Joint Venture Agreement dated as
of June 22, 1995, as amended on January 31, 1996, and on June 30, 1997, by and
among the Company, Sprint Sub, FT, DT and Atlas.
"Joint Venture Documents" shall have the meaning set forth in the
Joint Venture Agreement.
"JV Entity" shall have the meaning set forth in the Joint Venture
Agreement.
"LD Disapproval Notice" shall have the meaning set forth in Section
3.1(d) hereof.
"LD Option Period" shall have the meaning set forth in Section 3.1(d)
hereof.
"LD Sale Notice" shall have the meaning set forth in Section 3.1(c)
hereof.
"License" means any license, ordinance, authorization, permit,
certificate, variance, exemption, order, franchise or approval, domestic or
foreign.
"Lien" means any mortgage, pledge, security interest, adverse claim,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
similar Applicable Law of any jurisdiction) or any other type of preferential
arrangement for the purpose, or having the effect, of protecting a creditor
against loss or securing the payment or performance of an obligation.
"Lien Transfer" shall mean the granting of any Lien on any Long
Distance Asset, other than:
(a) a Lien securing purchase money indebtedness that does not have a
term longer than the estimated useful life of the Long Distance Asset
subject to such Lien;
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(b) Liens or other comparable arrangements relating to the financing
of accounts receivable; and
(c) Liens securing any other indebtedness for borrowed money,
provided that (i) the amount of such indebtedness, when added to the
aggregate amount of purchase money indebtedness referred to in clause (a)
above, does not exceed 30% of the total book value of the Long Distance
Assets as at the date of the most recently published balance sheet of the
Company, (ii) the indebtedness secured by such Liens is secured only by
Liens on Long Distance Assets, (iii) the face amount of such indebtedness
does not exceed the book value of the Long Distance Assets subject to such
Liens, and (iv) such indebtedness is for a term no longer than the
estimated useful life of the Long Distance Assets subject to such Liens.
"Local Exchange Division" means the Local Division of the Company.
"Long Distance Assets" means:
(a) the assets reflected in the Company's balance sheet for the year
ended December 31, 1994 as included in the Long Distance Division;
(b) any assets acquired by the Company or any of its Subsidiaries
following December 31, 1994 that are reflected in the Company's balance
sheet as included in the Long Distance Division;
(c) any assets of the Company or any of its Subsidiaries that are not
reflected in the Company's balance sheet for the year ended December 31,
1994 as included in the Long Distance Division, which after December 31,
1994 are transferred by the Company or any of its Subsidiaries to, or
reclassified by the Company or any of its Subsidiaries as part of, the Long
Distance Division;
(d) any assets acquired by the Company after December 31, 1994 that
are used or held for use primarily for the benefit of the Long Distance
Business; and
(e) any assets referred to in clauses (a) through (c) above that are
used or held for use primarily for the benefit of the Long Distance
Business which are transferred or reclassified by the Company or any of its
Subsidiaries outside of the Long Distance Division, but which continue to
be owned by the Company or any of its Subsidiaries;
provided that the term "Long Distance Assets" shall not include (i) any assets
- --------
that are used or held for use primarily for the benefit of any Non-Long Distance
Business, or (ii) any other assets reflected in the Company's balance sheet for
the year ended December 31, 1994 as included in the Cellular and Wireless
Division or the Local Exchange Division (other than as such assets in
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the Cellular and Wireless Division or the Local Exchange Division may be
transferred or reclassified in accordance with paragraph (c) of this
definition).
"Long Distance Business" means all long distance telecommunications
activities and services of the Company and its Subsidiaries at the relevant
time, including (but not limited to) all long distance transport services,
switching and value-added services for voice, data, video and multimedia
transmission, migration paths and intelligent overlapping architectures,
provided that the term "Long Distance Business" shall not include any activities
or services primarily related to any Non-Long Distance Business.
"Long Distance Division" means the Long Distance Division of the
Company.
"Major Competitor" means (a) with respect to FT or DT, a Person that
materially competes with a major portion of the telecommunications services
business of FT or DT in Europe, or a Person that has taken substantial steps to
become such a Major Competitor and which FT or DT has reasonably concluded, in
its good faith judgment, will be such a competitor in the near future in France
or Germany, provided that FT and/or DT furnish in writing to the Company
reasonable evidence of the occurrence of such steps; (b) with respect to the
Company, a Person that materially competes with a major portion of the
telecommunications services business of the Company in North America, or a
Person that has taken substantial steps to become such a Major Competitor and
which the Company has reasonably concluded, in its good faith judgment, will be
such a competitor in the near future in the United States of America, provided
that the Company furnish in writing to each Class A Holder reasonable evidence
of the occurrence of such steps; and (c) with respect to the Joint Venture, a
Person that materially competes with a major portion of the telecommunications
services business of the Joint Venture, or a Person that has taken substantial
steps to become such a Major Competitor and which FT, DT or the Company has
reasonably concluded, in its good faith judgment, will be such a competitor in
the near future, provided that FT, DT or the Company furnish in writing to each
other party hereto reasonable evidence of the occurrence of such steps.
"Major Issuance" means any transaction, including, but not limited to,
a merger or business combination, resulting, directly or indirectly, in the
issuance (or sale from treasury) in connection with such transaction of Voting
Securities of the Company with a number of Votes equal to or greater than the
Major Issuance Threshold, as measured on the date of such issuance or sale.
"Major Issuance Threshold" means, with respect to an issuance of
Voting Securities, 30 percent of the Voting Power of the Company immediately
prior to such issuance.
"Mandatory Payment Amount" shall have the meaning set forth in Section
7.3(c)(ii) hereof.
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"Market Price" means, with respect to a security on any date, the
Closing Price of such security on the Trading Day immediately prior to such
date. The Market Price shall be deemed to be equal to (a) in the case of a Class
A FON Share, the Market Price of a share of Series 1 FON Stock; and (b) in the
case of a Class A PCS Share, the Market Price of a share of Series 1 PCS Stock.
The Market Price of any options, warrants, rights or other securities
convertible into or exercisable for a Class A FON Share or a Class A PCS Share,
as the case may be, shall be equal to the Market Price of options, warrants,
rights or other securities convertible into or exercisable for Series 1 FON
Stock or Series 1 PCS Stock, respectively, upon the same terms and otherwise
containing the same terms as such options, warrants, rights or other securities
convertible into or exercisable for a Class A FON Share or a Class PCS Share, as
the case may be.
"Material Adverse Effect" means, with respect to any Person, the
effect of any event, occurrence, fact, condition or change that is materially
adverse to the business, operations, results of operations, financial condition,
assets or liabilities of such Person.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotations System.
"1996 Stockholders' Agreement" shall have the meaning set forth in the
Recitals.
"Non-Class A Common Stock" means the Sprint FON Common Stock and the
Sprint PCS Common Stock.
"Non-Long Distance Business" means (a) the ownership of any equity or
other interests in the Joint Venture or any of the JV Entities; the enforcement
or performance of any of the rights or obligations of the Company or any
Subsidiary of the Company pursuant to the Joint Venture Agreement; or any
activities or services of the Joint Venture or any of the JV Entities; (b) the
interests, assets, properties and businesses attributed to the PCS Group (as
defined in the Articles) in accordance with ARTICLE SIXTH, Section 10 of the
Articles; (c) any activities or services primarily related to the provision of
subscriber connections to a local exchange or switch providing access to the
public switched telephone network; (d) any activities or services primarily
related to the provision of exchange access services for the purpose of
originating or terminating long distance telecommunications services; (e) any
activities or services primarily related to the resale by the Local Exchange
Division of long distance telecommunications services of the Company or other
carriers; (f) any activities or services primarily related to the provision of
inter-LATA long distance telecommunications services that are incidental to the
local exchange services business of the Local Exchange Division; (g) any
activities or services primarily related to the provision of intra-LATA long
distance telecommunications services; (h) any activities or services (whether
local, intra-LATA or inter-LATA) primarily related to the provision of cellular,
PCS, ESMR or paging services, mobile telecommunications services or any other
voice, data or voice/data wireless services, whether fixed or mobile, or related
to telecommunications services provided through communications satellite systems
(whether low,
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medium or high orbit systems); and (i) the use of the "Sprint" brand name or any
other brand names, trade names or trademarks owned or licensed by the Company or
any of its Subsidiaries.
"North America" means the current geographic area covered by the
following countries: Canada, Mexico and the United States of America.
"Notifying Class A Holder" shall have the meaning set forth in Section
10.2 hereof.
"Offered Shares" shall have the meaning set forth in Section 2.5(a)
hereof.
"Option Shares" shall have the meaning set forth in Section 5.2
hereof.
"Other Investment Documents" means the Investment Agreement, the FT/DT
Restructuring Agreement, the Amended and Restated Standstill Agreement, the
Amended and Restated Confidentiality Agreements, any Qualified Subsidiary
Standstill Agreement, the Amended and Restated Registration Rights Agreement,
any Qualified Subsidiary Confidentiality Agreement, any standstill agreement
entered into by a holder of equity interests of a Qualified Subsidiary pursuant
to the Amended and Restated Standstill Agreement or any confidentiality
agreement entered into by a holder of equity interests of a Qualified Subsidiary
pursuant to the Amended and Restated Confidentiality Agreements.
"Other Purchaser" shall have the meaning set forth in Section 2.5(c)
(ii) hereof.
"Passive Financial Institution" means a bank (or comparable financial
institution), insurance company, pension or retirement fund that acquires Voting
Securities or other equity interests in a Qualified Subsidiary without the
purpose or effect of changing or influencing the control of the Qualified
Subsidiary or the Company, nor in connection with or as a participant in any
transaction having such purpose or effect, provided that the term "Passive
Financial Institution" shall not include any Major Competitor of the Company or
the Joint Venture.
"PCS" means a radio communications system of the type authorized under
the rules for broadband personal communications services designated as Subpart E
of Part 24 of the FCC's rules or similar Applicable Laws of any other country,
including the network, marketing, distribution, sales, customer interface and
operations functions relating thereto.
"PCS Preferred Stock" means the Preferred Stock -- Seventh Series,
Convertible, no par value, of Sprint, which is to be created prior to the CP
Closing.
"PCS Trading Average" means (i) the Volume Weighted Trading Average of
the Series 1 PCS Stock for the ten consecutive Trading Days following the date
of the Recapitalization, divided by (ii) a fraction, the numerator of which is
the number of shares of Sprint FON Common Stock which are outstanding
immediately prior to the Recapitalization and
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the denominator of which is the number of shares of Series 1 PCS Stock issued in
the Recapitalization.
"Percentage Ownership Interest" means, with respect to any Person,
that percentage of the Voting Power of the Company represented by Votes
associated with the Voting Securities of the Company owned of record by such
Person or by its nominees.
"Person" means an individual, a partnership, an association, a joint
venture, a corporation, a business, a trust, any entity organized or existing
under Applicable Law, an unincorporated organization or any Governmental
Authority.
"Planned Date" means the planned date for the initial filing of a
registration statement with the SEC relating to a proposed Public Offering or
the first date on which it is proposed that a Class A Holder consummate Brokers'
Transactions as to any securities.
"Post-Restructuring Series 3 PCS Shares" shall mean (i) the shares of
Series 3 PCS Stock issued or to be issued to FT and DT under the FT/DT
Restructuring Agreement in respect of the CP/FT-DT Top Up Purchase, the CP/IPO
Top Up Purchase and the CP/Greenshoe Top Up Purchase (each as defined in the
FT/DT Restructuring Agreement), (ii) the shares of Series 3 PCS Stock to be
issued to FT and DT after the date of this Agreement pursuant to the Equity
Purchase Rights to be exercised by FT and DT under Article V of this Agreement,
(iii) shares of Series 3 PCS Stock issued to FT or DT upon conversion of Sprint
PCS Common Stock acquired in purchases by FT and DT from third parties and not
in violation of the Amended and Restated Standstill Agreement, and (iv) shares
into which such shares described in clauses (i), (ii) and (iii) are converted
pursuant to any recapitalization, it being understood that such term shall not
include any Sprint PCS Stock acquired by FT or DT in the Recapitalization or
pursuant to the FT/DT Restructuring Agreement other than shares acquired in
respect of the CP/FT- DT Top Up Purchase, the CP/IPO Top Up Purchase and the
CP/Greenshoe Top Up Purchase.
"Preferred Stock" means any series of Preferred Stock of the Company.
"Principal Investment Documents" shall have the meaning set forth in
Section 7.10 hereof.
"Private Offer Notice Period" shall have the meaning set forth in
Section 2.5(c)(i) hereof.
"Private Sale Notice" shall have the meaning set forth in Section
2.5(c)(i) hereof.
"Proceeding" means any action, litigation, suit, proceeding or formal
investigation or review of any nature, civil, criminal, regulatory or otherwise,
before any Governmental Authority.
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"Proposed Price" shall have the meaning set forth in Section 2.5(c)
(i) hereof.
"Proposed Terms" shall have the meaning set forth in Section 2.5(c)
(i) hereof.
"Public Offering" means an underwritten public offering of securities
of the Company pursuant to an effective registration statement under the
Securities Act.
"Public Sale Notice" shall have the meaning set forth in Section
2.5(a) hereof.
"Purchase Rights Agreement" means the Top Up Right Agreement dated as
of May 26, 1998 among FT, DT and the Cable Partners as in effect on such date.
"Qualified Joint Venture" means any operating joint venture of which
not more than 20% in the aggregate of the Voting Power or outstanding equity
interests thereof are owned by Major Competitors of FT or DT or of the Joint
Venture, and that
(a) has received contributions of assets by the other participants
therein which are predominately of a nature similar or complementary to the
Long Distance Assets contributed by the Company;
(b) owns assets that are available for use by the Company on a basis
which is no less favorable than that which is afforded to other
participants in such joint venture;
(c) would treat the Joint Venture, as a customer of the joint
venture, no less favorably than other similarly situated customers;
(d) is operated in a manner not inconsistent with the policies of the
Joint Venture; and
(e) as to which the Company undertakes to use commercially reasonable
efforts to align the activities of such joint venture with those of the
Joint Venture, including, without limitation, to use commercially
reasonable efforts to cause such joint venture to become a distributor of
the services falling within the scope of the Joint Venture (if so selected
by the Joint Venture), to align the joint venture's network technology with
the network technology of the Joint Venture, and to use the Joint Venture's
services to the maximum extent practicable,
provided that, in addition to the requirements set forth above, a joint venture
- --------
shall not be deemed to be a Qualified Joint Venture if the predominant
contribution of the Company to such joint venture is Long Distance Assets
comprising the transport media, associated switching, electronic transmissions
equipment, systems and operating software comprising the Company's long distance
telecommunications network ("Critical Long Distance Assets"), unless the Company
owns a majority of the equity interests and the Voting Power of such joint
venture; and
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provided, further, that with respect to a joint venture in which the predominant
- -------- -------
contribution of the Company is Long Distance Assets that are not Critical Long
Distance Assets, such joint venture shall not be deemed to be a Qualified Joint
Venture unless such joint venture is either (i) Controlled by the Company or
(ii) not Controlled by any of its participants, but in which the Company has the
contractual or other legal right, acting alone, to disapprove (and thereby
prohibit) decisions relating to acquisitions and divestitures involving more
than 20 percent of the Fair Market Value of such joint venture's assets,
mergers, consolidations and dissolution or liquidation of such joint venture,
and the adoption of such joint venture's business plan.
"Qualified LD Purchaser" means, for any Transfer of Long Distance
Assets, a purchaser that (a) has the legal and financial ability to buy such
-
Long Distance Assets proposed to be sold and (b) would not be a Major Competitor
-
of the Company based on the businesses to be retained by the Company following
the Transfer of such Long Distance Assets.
"Qualified Stock Purchaser" means a Person that (a) FT and DT
-
reasonably believe has the legal and financial ability to purchase shares of
Class A Stock from the Company in accordance with Article VI of this Agreement
or to purchase shares in accordance with Section 2.2 of the Amended and Restated
Standstill Agreement and (b) would not be a Major Competitor of the Company or
-
of the Joint Venture immediately following such purchase.
"Qualified Stock Purchaser Standstill Agreement" shall mean a
standstill agreement between the Company, the Qualified Stock Purchaser and the
Person or Persons, if any, which, directly or indirectly, ultimately Control a
Qualified Stock Purchaser, satisfactory in form and substance to each party
hereto.
"Qualified Subsidiary" means any Person which
(a) is a Subsidiary of either FT or DT or an entity that would be
such a Subsidiary if FT's and DT's aggregate ownership in such entity were
held individually by one of FT or DT, provided that no Major Competitor or
--------
Major Competitors of the Company or of the Joint Venture may, individually
or in the aggregate, Beneficially Own Voting Securities representing ten
percent or more of the Voting Power of such entity, and provided, further,
-------- -------
that if the Voting Securities of such entity owned directly by FT and DT or
indirectly through Wholly-Owned Subsidiaries of either of them are entitled
to a number of Votes representing in the aggregate less than 80 percent of
the Voting Power of such entity, then:
(i) the Voting Securities owned by FT and DT and Wholly-Owned
Subsidiaries, plus Voting Securities, if any, owned by Passive
Financial Institutions must in the aggregate be entitled to a number
of Votes representing at least 80 percent of the Voting Power of such
entity; and
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<PAGE>
(ii) FT and DT and Wholly-Owned Subsidiaries must in the
aggregate own Voting Securities entitled to a number of Votes
representing more than 50 percent of the Voting Power of, and more
than 50 percent of the outstanding equity interests in, such entity;
and
(b) has (i) entered into a Qualified Subsidiary Standstill Agreement
and a confidentiality agreement satisfactory in form and substance to each
party hereto and (ii) (x) caused all holders of any of its equity interests
-
(other than FT, DT and Passive Financial Institutions) (each such other
holder being a "Strategic Investor") to enter into a Strategic Investor
Standstill Agreement and (y) caused all holders of any of its equity
-
interests (other than FT and DT) to enter into a confidentiality agreement
satisfactory in form and substance to each party hereto.
"Qualified Subsidiary Standstill Agreement" shall have the meaning set
forth in the Investment Agreement.
"Recapitalization" shall have the meaning set forth in Article VIII of
the FT/DT Restructuring Agreement.
"Record Date Blackout Period" means a period of ten Trading Days
beginning on the ninth Trading Day before a record date for a meeting of the
Company's stockholders or for the payment of dividends with respect to Class A
Stock and ending on (and including) such record date (which shall be a Trading
Day), if during such period the Class A Holders are prohibited from purchasing
shares of Sprint FON Stock and Sprint PCS Stock from third parties in the open
market due to applicable anti-fraud rules.
"Redemption Securities" means any debt or equity securities of the
Company, any of its Subsidiaries, or any combination thereof having such terms
and conditions as shall be approved by the Board of Directors and which,
together with any cash to be paid as part of the redemption price pursuant to
Section 2.2(b) of ARTICLE SIXTH of the Company's Articles, in the opinion of an
investment banking firm of recognized national standing selected by the Board of
Directors (which may be a firm which provides other investment banking,
brokerage or other services to the Company), have a Market Price, at the time
notice of redemption is given pursuant to Section 2.2(d) of the Company's
Articles, at least equal to the redemption price required to be paid by such
Section 2.2.
"Refusal Notice" shall have the meaning set forth in Section 2.5(c)
(ii) hereof.
"Refusal Price" shall have the meaning set forth in Section 2.5(c)
(ii) hereof.
"Refusal Shares" shall have the meaning set forth in Section 2.5(c)
(ii ) hereof.
"Refusal Terms" shall have the meaning set forth in Section 2.5(c)
(ii) hereof.
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<PAGE>
"Required Sale Notice" shall have the meaning set forth in Section
7.4(d)(i) hereof.
"Restricted Period" shall have the meaning set forth in Section 3.1(a)
hereof.
"Rights" shall have the meaning set forth in Section 5.1(c) hereof.
"Rights Agreement" means the Rights Agreement, dated as of the date
hereof, between the Company and UMB Bank, N.A., as it may be further amended or
supplemented from time to time.
"SEC" means the United States Securities and Exchange Commission.
"Second Notice Period" shall have the meaning set forth in Section
2.5(b) hereof.
"Second Offer" shall have the meaning set forth in Section 2.5(b)
hereof.
"Second Offer Price" shall have the meaning set forth in Section
2.5(b) hereof.
"Section 310" means Section 310(b) of the Communications Act of 1934,
as amended (or any successor provision of law).
"Section 9.2 Excess Taxes" shall have the meaning set forth in Section
9.2 hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Series 1 FON Stock" means the FON Common Stock -- Series 1, par value
U.S. $2.00 per share, of Sprint to be created in the Subsequent Charter
Amendment.
"Series 1 PCS Stock" means the PCS Common Stock -- Series 1, par value
U.S. $1.00 per share, of Sprint to be created by the Initial Charter Amendment.
"Series 2 FON Stock" means the FON Common Stock -- Series 2, par value
U.S. $2.00 per share, of Sprint to be created by the Subsequent Charter
Amendment.
"Series 2 PCS Stock" means the PCS Common Stock -- Series 2, par value
U.S. $1.00 per share, of Sprint to be created by the Initial Charter Amendment.
"Series 3 FON Stock" means the FON Common Stock -- Series 3, par value
U.S. $2.00 per share, of Sprint to be created by the Subsequent Charter
Amendment.
-27-
<PAGE>
"Series 3 PCS Stock" means the PCS Common Stock -- Series 3, par value
U.S. $1.00 per share, of Sprint to be created by the Initial Charter Amendment.
"Shares" means (a) shares of Class A Stock, Non-Class A Common Stock,
PCS Preferred Stock or any other Voting Securities of the Company, (b)
securities of the Company convertible into Voting Securities of the Company and
(c) options, warrants or other rights to acquire such Voting Securities, but in
the case of this clause (c) excluding any rights of the Class A Holders or FT
and DT to acquire Voting Securities of the Company pursuant to the FT/DT
Restructuring Agreement, the Purchase Rights Agreement and this Agreement (but
not excluding any Voting Securities received upon the exercise of such rights).
"Shares Issuable With Respect To The Class A Equity Interest In The
FON Group" shall have the meaning set forth in ARTICLE SIXTH, Section 10 of the
Articles.
"Shares Issuable With Respect To The Class A Equity Interest In The
PCS Group" shall have the meaning set forth in ARTICLE SIXTH, Section 10 of the
Articles.
"Sprint FON Common Stock" means (i) prior to the Recapitalization, the
Common Stock, par value U.S. $2.50 per share, of the Company, and (ii) following
the Recapitalization, the Series 1 FON Stock and the Series 2 FON Stock.
"Sprint FON Stock" means the Sprint FON Common Stock and the Series 3
FON Stock.
"Sprint PCS Common Stock" means the Series 1 PCS Stock and the Series
2 PCS Stock.
"Sprint PCS Stock" shall mean the Sprint PCS Common Stock and the
Series 3 PCS Stock.
"Specified Long Distance Assets" shall have the meaning set forth in
Section 3.1(c) hereof.
"Spin-off" means any spin-off or other pro rata distribution of equity
interests of a wholly-owned direct or indirect Subsidiary of the Company to the
stockholders of the Company.
"Sprint Party" shall have the meaning set forth in the Joint Venture
Agreement.
"Sprint Sub" shall have the meaning set forth in the Joint Venture
Agreement.
"Strategic Investor Standstill Agreement" shall have the meaning set
forth in the Investment Agreement.
-28-
<PAGE>
"Strategic Merger" means a merger or other business combination
involving the Company (a) in which the Class A Holders are entitled to retain or
receive, as the case may be, voting equity securities of the surviving parent
entity in exchange for or in respect of (by conversion or otherwise) such Class
A Stock, with an aggregate Fair Market Value equal to at least 75% of the sum of
(i) the Fair Market Value of all consideration which such Class A Holders have a
right to receive with respect to such merger or other business combination, and
(ii) if the Company is the surviving parent entity, the Fair Market Value of the
equity securities of the surviving parent entity which the Class A Holders are
entitled to retain, (b) immediately after which the surviving parent entity is
an entity whose voting equity securities are registered pursuant to Section
12(b) or Section 12(g) of the Exchange Act or which otherwise has any class or
series of its voting equity securities held by at least 500 holders and (c)
immediately after which no Person or Group (other than the Class A Holders) owns
Voting Securities of such surviving parent entity with Votes equal to more than
35 percent of the Voting Power of such surviving parent entity.
"Subject Shares" shall have the meaning set forth in Section 2.5(c)(I)
hereof.
"Subsidiary" means, with respect to any Person (the "Parent"), any
other Person in which the Parent, one or more direct or indirect Subsidiaries of
the Parent, or the Parent and one or more of its direct or indirect Subsidiaries
(a) have the ability, through ownership of securities individually or as a
group, ordinarily, in the absence of contingencies, to elect a majority of the
directors (or individuals performing similar functions) of such other Person,
and (b) own more than 50% of the equity interests, provided that Atlas shall be
--------
deemed to be a Subsidiary of each of FT and DT.
"Supervisory Board" means, as the case may be, the board of directors
of FT, the Aufsichtsrat of DT, or an analogous body in the case of a Qualified
------------
Stock Purchaser or Qualified LD Purchaser.
"Supplementary Payment" shall have the meaning set forth in Section
7.4(d)(iii) hereof.
"Surplus Shares" shall have the meaning set forth in Section
7.4(d)(i) hereof.
"Surplus Shares Sale" shall have the meaning set forth in Section
7.4(d)(i) hereof.
"Third Party Approval" means any consent, waiver, grant, concession,
license, authorization, permit, certificate, exemption, franchise or approval
of, registration or filing with, or declaration, report or notice to any Person
other than a Governmental Authority.
"Tie-Breaking Vote" shall have the meaning set forth in Section
18.1(a) of the Joint Venture Agreement and shall include any successor provision
thereto.
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<PAGE>
"Total Realized Amount" shall have the meaning set forth in Section
7.4(d)(iii) hereof.
"Trading Day" means, with respect to any security, a 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.
"Transfer" means any act pursuant to which, directly or indirectly,
the ownership of the assets or securities in question is sold, transferred,
conveyed, delivered or otherwise disposed, but shall not include (a) any grant
of Liens, (b) any conversion or exchange of any security of the Company pursuant
to a merger or other business combination involving the Company, (c) any
transfer of ownership of assets to the surviving entity in a Strategic Merger,
or pursuant to any other merger or other business combination not prohibited by
the Class A Provisions, or (d) any foreclosure or other execution upon any of
the assets of the Company or any of its Subsidiaries other than foreclosures
resulting from Lien Transfers.
"Transfer Restrictions" means those restrictions on Transfer of Shares
set forth in Sections 2.2, 2.3 and 2.5 hereof.
"Transferring Stockholder" shall have the meaning set forth in
Section 2.4 hereof.
"Treaty Benefit" means:
(a) the 5% rate of dividend withholding (or any successor rate
applicable to non-portfolio investments);
(b) the exemption from income tax with respect to dividends paid or
profits distributed by the Company;
(c) the exemption from income tax with respect to gains or profits
derived from the sale, exchange, or disposal of stock in the Company; or
(d) the exemption from taxes on capital with respect to stock in the
Company;
under, in the case of (a), (b), (c) and (d) above, either (i) the
relevant income tax treaty between the United States and France, in
the case of FT, and the United States and Germany, in the case of DT,
or (ii) any provisions of French statutory law, in the case of FT, or
German statutory law, in the case of DT, which refers to, or is based
on or derived from, any provision of such treaty, or
-30-
<PAGE>
(e) any favorable treaty benefit or statutory benefit, that
specifically requires the ownership of a certain amount of voting
power or voting interest in the Company, under a provision of the
relevant income tax treaty between the United States and France or the
statutory laws of France, in the case of FT, or the relevant income
tax treaty between the United States and Germany or the statutory laws
of Germany, in the case of DT, provided that the chief tax officer of
FT or DT certifies that such benefit is reasonably expected to provide
to FT or DT, as the case may be, combined tax savings in the year such
certification is made and in future years of at least U.S. $15
million.
"Unrelated Party Sale" shall have the meaning set forth in Section 9.1
hereof.
"Venture Interests" shall have the meaning set forth in the Joint
Venture Agreement.
"Volume Weighted Trading Average" means, with respect to any share of
capital stock as of a specific date, the volume-weighted average Closing Prices
of such security for the relevant trading period.
"Vote" means, with respect to any entity, the ability to cast a vote
at a stockholders', members' or comparable meeting of such entity with respect
to the election of directors, managers or other members of such entity's
governing body, or the ability to cast a general partnership or comparable vote,
provided that with respect to the Company only, 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 Class A Provisions)
with respect to matters other than the election of directors at a meeting of the
stockholders of the Company.
"Voting Power" means, with respect to any entity as at any date, the
aggregate number of Votes outstanding as at such date in respect of such entity.
"Voting Securities" means, with respect to an entity, any capital
stock or debt securities of such entity if the holders thereof are ordinarily,
in the absence of contingencies, entitled to a Vote, even though the right to
such Vote has been suspended by the happening of such a contingency, and in the
case of the Company, shall include, without limitation, the Non-Class A Common
Stock, the Class A Stock and the PCS Preferred Stock, but shall not include any
shares issued pursuant to the Rights Agreement to the extent such issuance is
caused by action of a Class A Holder.
"Weighted Average Price" means the weighted average per unit price
paid by the purchasers of any capital stock, debt instrument or security of the
Company. In determining the price of shares of Non-Class A Common Stock or Class
A Stock issued upon the conversion or exchange of securities or issued upon the
exercise of options, warrants or other rights, the consideration for such shares
shall be deemed to include the price paid to purchase the convertible security
or the warrant, option or other right, plus any additional consideration paid
-31-
<PAGE>
upon conversion or exercise. If any portion of the price paid is not cash, the
Independent Directors (acting by majority vote) shall determine in good faith
the Fair Market Value of such non-cash consideration. If any new shares of Non-
Class A Common Stock are issued together with other shares or securities or
distributions of other assets of the Company for consideration which covers both
the new shares and such other shares, securities or other assets, the portion of
such consideration allocable to such new shares shall be determined in good
faith by the Independent Directors (acting by majority vote), in each case as
certified in a resolution sent to all Class A Holders.
"Wholly-Owned Subsidiaries" means companies or other business
organizations all of the outstanding Voting Securities of which are owned,
directly or indirectly, by either or both of FT and DT, other than any de
minimis ownership required by Applicable Law.
"Windfall Benefit" shall have the meaning set forth in Section 9.2
hereof.
ARTICLE II
RESTRICTIONS ON TRANSFER OF SHARES
----------------------------------
Section 2.1. General Transfer Restrictions. The right of Class A Holders to
-----------------------------
Transfer any Shares is restricted as provided in Article II of this Agreement,
and no Transfer of Shares by any Class A Holder may be effected except in
compliance with this Article II. Any attempted or actual Transfer by a Class A
Holder of Shares in violation of this Agreement shall be of no effect and null
and void and shall not be recorded on the stock transfer books of the Company.
Section 2.2. Transfers to Qualified Subsidiaries. Subject in each case to
-----------------------------------
compliance with Applicable Law and the receipt of any necessary material
Governmental Approvals, a Class A Holder may without restriction Transfer Shares
to Qualified Subsidiaries or FT or DT (each, for the purposes of this Section
2.2, a "Transferee") in accordance with this Section 2.2, provided that, in the
case of each Transfer to a Qualified Subsidiary, each Class A Holder having an
equity interest in such Qualified Subsidiary shall (a) be liable for the
performance by such Qualified Subsidiary of its obligations under this Agreement
and any Other Investment Documents to which such Qualified Subsidiary is or
becomes a party, (b) act as agent for such Qualified Subsidiary in connection
with the receipt or giving of any and all notices or approvals under this
Agreement and any such Other Investment Documents and (c) not cause or permit
any such Subsidiary to lose its status as a Qualified Subsidiary at any time
when such Subsidiary owns Shares. At least ten days prior to any proposed
Transfer to a Transferee, the transferring Class A Holder shall notify the
Company of its intent to make such Transfer, such notice to state the name and
address of the Transferee (and the identity of the shareholders of such
Transferee and the relationship of the Transferee to the transferring Class A
Holder), the proposed date of such Transfer, the number and class of Shares to
be Transferred and the proposed terms of such Transfer. Any Transfer made
pursuant to this Section 2.2 shall be effective only if the Transferee
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<PAGE>
shall agree in writing to be bound by the terms and conditions of this Agreement
pursuant to an instrument of assumption substantially in the form of Exhibit B
hereto and such Transferee thereby shall become a party to this Agreement.
Section 2.3. Other Transfers Prior to January 31, 2001. Until January 31,
-----------------------------------------
2001, Shares shall not be Transferred by a Class A Holder except as provided in
Section 2.2, provided that Post-Restructuring Series 3 PCS Shares shall not be
subject to the restriction set forth in this Section 2.3, but shall be subject
to the restrictions and limitations set forth in Sections 2.4 and 2.8.
Section 2.4. Other Transfers. If Section 2.3 hereof does not apply or is
---------------
terminated pursuant to Section 2.6, but subject to the Company's rights under
Section 2.5, each Class A Holder may Transfer Shares (each such Class A Holder
being a "Transferring Stockholder") without restriction, provided that, with
respect to any such Transfer (including any Transfer of Post-Restructuring
Series 3 PCS Shares):
(a) a Transfer in a single transaction or a series of related
transactions of Shares may be made to a Person or Group (other than a
Qualified Subsidiary or Subsidiaries or FT or DT) that Beneficially Owns
Voting Securities with a number of Votes representing greater than five
percent of the Voting Power of the Company immediately following such
Transfer or Transfers only in connection with a Public Offering in which:
(i) the Transferring Stockholder does not, to the best of its
knowledge, Transfer a number of Shares representing more than two
percent of the Voting Power of the Company to a Person or Group that,
prior to such Transfer, Beneficially Owned Voting Securities entitled
to a number of Votes representing three percent or more of the Voting
Power of the Company;
(ii) the Transferring Stockholder does not, to the best of its
knowledge, Transfer in a single transaction or a series of related
transactions to a Person or Group a number of Shares representing more
than five percent of the Voting Power of the Company; and
(iii) the Transferring Stockholder does not, to the best of its
knowledge, Transfer in a single transaction or series of related
transactions Shares to a Person or Group that is required under
Section 13(d) of the Exchange Act to file a Schedule 13D with respect
to the Company (a "Schedule 13D Filer") or, as a result of such
Transfer, will become a Schedule 13D Filer,
provided that such Transferring Stockholder shall have notified the managing or
- --------
coordinating underwriter or underwriters participating in such Public Offering
of the restrictions set forth in clauses (i), (ii) and (iii) and provided,
further, that, in determining the best knowledge of a
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<PAGE>
Transferring Stockholder, such holder may rely on written certification received
from such managing or coordinating underwriters or from purchasers of shares in
such Public Offering, unless such holder has actual knowledge to the contrary;
(b) the restrictions contained in Section 2.4(a) shall continue until
such time as the sum of (A) the aggregate Committed Percentage of the Class
A Holders, and (B) the percentage of Voting Power of the Company
represented by Voting Securities which the Class A Holders have the right
to commit to purchase pursuant to Sections 7.3 and 7.8 and Articles V and
VI of this Agreement, falls below three and one-half percent for more than
150 consecutive days after the rights to commit to purchase provided in
Article V have expired; and
(c) For so long as the sum of (i) the aggregate Committed Percentage
of the Class A Holders, and (ii) the percentage of Voting Power of the
Company which the Class A Holders have the right to commit to purchase
pursuant to Sections 7.3 and 7.8 and Articles V and VI of this Agreement is
greater than five percent, but less than nine percent (if the events
described in clause (2) of Section 2.6(a)(v) shall have occurred) or ten
percent (if the events described in clause (1) of Section 2.6(a)(v) shall
have occurred), no Class A Holder or Holders may Transfer Shares
representing in excess of one percent of the outstanding Voting Power of
the Company to any one Person or Group (other than a Qualified Subsidiary
or Subsidiaries or FT or DT) in any transaction or series of related
transactions, except in connection with a Public Offering as provided in
Section 2.4(a), or Transfer Shares other than in a Public Offering to any
Major Competitor of the Company.
Section 2.5. Company Rights to Purchase. (a) If a Transferring Stockholder
-------------------------- -
proposes to Transfer Shares (other than any Post-Restructuring Series 3 PCS
Shares) in a Public Offering or in Brokers Transactions, such Transferring
Stockholder shall first deliver written notice (the "Public Sale Notice") to the
Company of such Transferring Stockholder's desire to effect such Transfer
setting forth in reasonable detail (i) the number and class of Shares to be sold
-
(the "Offered Shares"), (ii) the Market Price per share on the date of the
--
Public Sale Notice (the "First Offer Price"), (iii) the Planned Date of such
---
Transfer, and (iv) any other material proposed terms of the Transfer. Upon
--
receipt of the Public Sale Notice, the Company shall have the right to purchase
all, but not less than all, of the Offered Shares at the First Offer Price, as
adjusted to comply with the requirements of Article IX, such right to be
exercised within ten Business Days following delivery of the Public Sale Notice
to the Company (the "First Notice Period"). The Public Sale Notice shall
constitute an offer to the Company (or its assignee, as provided below), which
shall be irrevocable during the First Notice Period, to sell to the Company or
its assignee the Offered Shares upon the terms provided in this Section 2.5(a)
and the Public Sale Notice. The Company shall exercise such right to purchase by
delivering written notice to such Transferring Stockholder at any time during
the First Notice Period setting forth its irrevocable commitment to purchase
such Offered Shares subject to receipt of any required material Third Party
Approvals or Governmental Approvals (the same to be specified in reasonable
detail in such notice), compliance with Applicable Law and the absence of any
injunction or similar legal
-34-
<PAGE>
order preventing such transaction, provided that the Company shall not be
--------
permitted to deliver such notice (and accordingly may not purchase the Offered
Shares) unless a majority of the Continuing Directors shall have first approved
(unless such approval is not required under Section 11.13), at a meeting of
Directors at which at least seven Continuing Directors are present, such
purchase of the Offered Shares. The Company may assign its rights to purchase
the Offered Shares under this Section 2.5(a) to any Person who is not a Major
Competitor of FT or DT or of the Joint Venture. If the Company does not exercise
such right, or the Company or its assignee does not close the purchase of the
Offered Shares within the time periods provided in Section 2.5(d), such
Transferring Stockholder may, to the extent not otherwise prohibited under this
Article II, sell the Offered Shares, subject to compliance with Applicable Law
and receipt of any required material Third Party Approvals or Governmental
Approvals (x) in the case of a Public Offering, subject to subsection (b) of
this Section 2.5, or (y) in the case of Brokers' Transactions within 45 days
after the end of the First Notice Period or 45 days after the applicable date
provided in Section 2.5(d) if the Company has exercised its rights under this
Section 2.5(a) and the Company or its assignee has failed to close the purchase
of the Offered Shares within the time periods provided in Section 2.5(d). Any
Offered Shares to have been sold in Brokers' Transactions that continue to be
held by the Transferring Stockholder following the expiration of such period
shall again be subject to the provisions of this Article II.
(b) If a Transferring Stockholder proposes to Transfer Shares (other than
any Post-Restructuring Series 3 PCS Shares) in a Public Offering, on the seventh
Business Day prior to the Planned Date, such Transferring Stockholder shall
deliver to the Company a written offer (the "Second Offer") to sell to the
Company the Offered Shares at the Market Price per share, as adjusted to comply
with the requirements of Article IX, of the Series 1 FON Stock or Series 1 PCS
Stock, as the case may be, on the Business Day immediately preceding such
seventh Business Day (such Market Price, the "Second Offer Price"), provided
--------
that no Second Offer need be made if the Second Offer Price would be more than
90 percent of the First Offer Price and provided, further, that, prior to making
-------- -------
a Second Offer, any Transferring Stockholder may, in its complete discretion,
change the Planned Date to a date not later than 120 days after the original
Planned Date. The Company shall have 24 hours (the "Second Notice Period") in
which to deliver to such Transferring Stockholder written notice of its decision
to accept the Second Offer (a "Buy Notice"), provided that the Company shall not
--------
be permitted to deliver such Buy Notice (and accordingly may not purchase the
Offered Shares) unless a majority of the Continuing Directors shall have first
approved (unless such approval is not required under Section 11.13), at a
meeting of Directors at which at least seven Continuing Directors are present,
such purchase of the Offered Shares. The Second Offer shall constitute an offer
to the Company or its assignee, as provided below, which shall be irrevocable
during such Second Notice Period, to sell to the Company or its assignee such
Offered Shares upon the terms set forth in this Section 2.5(b) and the Second
Offer. Delivery of a Buy Notice to such Transferring Stockholder shall
constitute an irrevocable commitment on the part of the Company to purchase such
Offered Shares upon the terms set forth in this Section 2.5(b) (subject to the
receipt of any required material Third Party Approvals or Governmental Approvals
(the same to be specified in reasonable detail in such Buy Notice), compliance
with Applicable Law and the absence of any injunction or similar legal
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<PAGE>
order preventing such transaction), and to reimburse such Transferring
Stockholder for all of its reasonable out-of-pocket expenses incurred in
connection with such Transfer, including the reasonable fees and expenses of its
advisors and legal counsel, upon receipt of a certificate of such Transferring
Stockholder setting forth in reasonable detail such out-of-pocket expenses. The
Company may assign its rights to purchase the Offered Shares under this Section
2.5(b) to any Person who is not a Major Competitor of FT or DT or the Joint
Venture. If a Buy Notice is not timely delivered to such Transferring
Stockholder, or the Company or its assignee does not close the purchase of the
Offered Shares within the applicable time period provided in Section 2.5(d),
such Transferring Stockholder shall have no obligation to sell the Offered
Shares to the Company, and subject to compliance with Applicable Law and the
receipt of any required material Third Party Approvals or Governmental
Approvals, may, to the extent not otherwise prohibited under this Article II,
Transfer the Offered Shares at any time prior to 45 days after the Planned Date
or the applicable date provided in Section 2.5(d) if the Company has accepted
the Second Offer and the Company or its assignee has failed to close the
purchase of the Offered Shares within the time period provided in Section
2.5(d), provided that the Transferring Stockholder may delay for a reasonable
--------
period its offering beyond such 45th date if it determines in good faith that
such a delay is advisable because of marketing considerations or because the
registration statement pursuant to which such Offered Shares are registered has
not yet been declared effective, provided, further, that, if such offering is
-------- -------
delayed for longer than ten Business Days after such 45th date, the Offered
Shares shall again be subject to the Company's purchase rights under this
paragraph (b) and the obligations of the Class A Holders to make a Second Offer.
Any Offered Shares which continue to be held by the Transferring Stockholder
following the applicable period shall again be subject to the provisions of this
Article II.
(c) If a Transferring Stockholder proposes to Transfer Shares (other than
any Post-Restructuring Series 3 PCS Shares) in a transaction not covered by
Section 2.2, 2.5(a) or 2.5(b) and otherwise permitted by this Article II,
(i) such Transferring Stockholder shall first deliver written notice
(a "Private Sale Notice") to the Company stating that such Transferring
Stockholder proposes to effect such Transfer, such notice to describe in
reasonable detail (x) the number and class of Shares to be Transferred (the
-
"Subject Shares"), (y) a price per share (the "Proposed Price") and (z)
-
other material terms of such Transfer determined by such Transferring
Stockholder in its sole discretion (the "Proposed Terms"). Upon receipt of
the Private Sale Notice, the Company shall have the right to purchase all,
but not less than all, of the Subject Shares at the Proposed Price, as
adjusted to comply with the requirements of Article IX, and in accordance
with the Proposed Terms for a period of ten Business Days (the "Private
Offer Notice Period"). The Private Sale Notice shall constitute an offer to
the Company or its assignee, as provided below, which is irrevocable during
such Private Offer Notice Period, to sell to the Company or its assignee
such Subject Shares upon the terms set forth in this Section 2.5(c)(i) and
the Private Sale Notice. The Company may exercise such right by delivering
written notice to such Transferring Stockholder at any time during the
Private Offer Notice Period setting forth its irrevocable commitment to
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<PAGE>
purchase such Subject Shares at the Proposed Price, as adjusted to comply
with the requirements of Article IX, in accordance with the Proposed Terms
subject to receipt of any required material Third Party Approvals or
Governmental Approvals (the same to be specified in reasonable detail in
such notice), compliance with Applicable Law and the absence of any
injunction or similar order preventing such transaction, provided that the
--------
Company shall not be permitted to deliver such notice (and accordingly may
not purchase the Subject Shares) unless a majority of the Continuing
Directors shall have first approved (unless such approval is not required
under Section 11.13), at a meeting of Directors at which at least seven
Continuing Directors are present, such purchase of the Subject Shares. The
Company may assign its rights to purchase the Subject Shares under this
Section 2.5(c)(i) to any Person who is not a Major Competitor of FT or DT
or of the Joint Venture. If the Company fails to exercise such right, or
the Company or its assignee does not close the purchase of the Subject
Shares within the applicable time period provided in Section 2.5(d), then
such Transferring Stockholder, subject to compliance with Applicable Law
and receipt of any required material Third Party Approvals or Governmental
Approvals, may, to the extent not otherwise prohibited under this Article
II, sell all of the Subject Shares to any one or more Eligible Purchasers
at the Proposed Price (taking into account any adjustments thereto which
may have been made to comply with the requirements of Article IX) and in
accordance with the Proposed Terms (or at a better price and on terms more
favorable to such Transferring Stockholder) within 180 days after delivery
of the Private Sale Notice to the Company or 180 days after the applicable
date provided in Section 2.5(d) if the Company has exercised its rights
under this Section 2.5(c)(i) and the Company or its assignee has failed to
close the purchase of the Subject Shares within the time period provided in
Section 2.5(d). Any Subject Shares which continue to be held by the
Transferring Stockholder following such periods shall again be subject to
the provisions of this Article II. For purposes of this Section 2.5, the
term "Eligible Purchaser" shall mean a Person or Group that would be
eligible pursuant to Rule 13d-1(b) under the Exchange Act to file a
Schedule 13G with respect to the Company if such Person or Group
Beneficially Owned Voting Securities representing five percent or more of
the Voting Power of the Company; and
(ii) if a Transferring Stockholder proposes to Transfer Shares (other
than any Post-Restructuring Series 3 PCS Shares) pursuant to a bona fide
---- ----
offer to purchase Shares from a purchaser that is not an Eligible Purchaser
(an "Other Purchaser"), prior to such Transferring Stockholder's accepting
such offer, such Transferring Stockholder shall first deliver notice
thereof (a "Refusal Notice") to the Company and to each other Class A
Holder, setting forth in reasonable detail, (w) the number and class of
-
Shares to be Transferred (the "Refusal Shares"), (x) the price per share of
-
such bona fide offer (the "Refusal Price"), (y) the other material terms of
---- ---- -
such bona fide offer (the "Refusal Terms"), and (z) the identity of the
---- ---- -
offeror. Upon receipt of such notice, the Company shall have the right to
purchase all, but not less than all, of the Refusal Shares upon the Refusal
Terms, subject to receipt of any required material Third Party Approvals or
Governmental Approvals (the same to be specified in reasonable detail in
the Company's
-37-
<PAGE>
notice described in this paragraph), compliance with Applicable Law and the
absence of any injunction or similar legal order preventing such
transaction, at the Refusal Price, as adjusted to comply with the
requirements of Article IX. The Refusal Notice shall constitute an offer to
the Company or its assignee, as provided below, which is irrevocable during
the period described in the next sentence, to sell to the Company or its
assignee the Refusal Shares upon the terms set forth in this Section
2.5(c)(ii) and the Refusal Notice. The Company shall have ten Business Days
after receipt of such notice in which to exercise such right by delivering
written notice stating its irrevocable commitment to so exercise to the
Transferring Stockholder, provided that the Company shall not be permitted
--------
to deliver such notice (and accordingly may not purchase the Refusal
Shares) unless a majority of the Continuing Directors shall have first
approved (unless such approval is not required under Section 11.13), at a
meeting of Directors at which at least seven Continuing Directors are
present, such purchase of the Refusal Shares. The Company may assign its
rights to purchase the Refusal Shares under this Section 2.5(c)(ii) to any
Person who is not a Major Competitor of FT or DT or of the Joint Venture.
If the Company fails to exercise such right, or the Company or its assignee
does not close the purchase of the Refusal Shares within the applicable
time period provided in Section 2.5(d), then such Transferring Stockholder,
subject to compliance with Applicable Law and receipt of any required
material Third Party Approvals or Governmental Approvals, may, to the
extent not otherwise prohibited under this Article II, sell all of the
Refusal Shares to the Other Purchaser at the Refusal Price (taking into
account any adjustments thereto which may have been made to comply with the
requirements of Article IX) and in accordance with the Refusal Terms (or at
a better price and upon terms more favorable to such Transferring
Stockholder) within 180 days following delivery of such notice to the
Company or 180 days after the date provided in Section 2.5(d) if the
Company has exercised its rights under this Section 2.5(c)(ii) and the
Company or its assignee has failed to close the purchase of the Refusal
Shares within the applicable time period provided in Section 2.5(d). Any
Refusal Shares which continue to be held by the Transferring Stockholder
following such period shall again be subject to the provisions of this
Article II.
(d) The closing of purchases of Shares pursuant to this Section 2.5 shall
take place within (i) 45 days in the case of purchases by the Company or an
-
assignee, or (ii) 180 days in the case of purchases by an assignee if all
--
required Governmental Approvals necessary to permit such closing by such
assignee have not been obtained within such 45-day period, after the exercise of
the Company's right to purchase at the offices of King & Spalding, 1185 Avenue
of the Americas, New York, New York, or at such other date, time or place as the
Company and the Transferring Stockholder may otherwise agree.
(i) At such closing,
(x) the Transferring Stockholder shall (A) sell, transfer and
-
deliver to the Company or its assignee all of its right, title and
interest in and to the Shares
-38-
<PAGE>
to be purchased by the Company or its assignee free and clear of
Liens, (B) deliver to the Company or its assignee a certificate or
-
certificates representing such Shares duly endorsed in blank or
accompanied by stock transfer powers duly endorsed in blank together
with evidence of payment of any applicable stock transfer taxes and
(C) deliver to the Company or its assignee an executed written
-
representation of such Transferring Stockholder, in form and substance
reasonably satisfactory to the Company or its assignee, representing
that (1) such Transferring Stockholder is validly existing and has
-
validly authorized such Transfer, (2) such Transfer does not violate
-
or otherwise conflict with the organizational documents of such
Transferring Stockholder or require any material Third Party Approval
or Governmental Approval on the part of such Transferring Stockholder
which has not yet been obtained and (3) the Transferring Stockholder
-
shall Transfer the Shares to be purchased free and clear of all Liens
arising due to the action or inaction of such Transferring
Stockholder; and
(y) the Company or its assignee shall deliver to such
Transferring Stockholder an amount (the "Purchase Price") in cash or
in cash and securities of the Company, as hereinafter provided, equal
to the product of (A) the First Offer Price, the Second Offer Price,
-
the Proposed Price or the Refusal Price, as the case may be, in each
case as adjusted to comply with the requirements of Article IX; and
(B) the number of Shares to be acquired by the Company or its
-
assignee.
(ii) Payment of the Purchase Price shall be made as follows:
(x) If the Purchase Price is less than $200 million, payment of
the entire Purchase Price shall be made by wire transfer of
immediately available funds to such bank and account as such
Transferring Stockholder shall designate.
(y) If the Purchase Price is $200 million or greater, but less
than or equal to $500 million, payment of $200 million of the Purchase
Price shall be made by wire transfer of immediately available funds to
such bank and account as such Transferring Stockholder shall
designate, an amount equal to one-half of the difference between the
Purchase Price and $200 million (for purposes of this Section 2.5, the
"One-Half Quantity") shall be paid in Company Eligible Notes maturing
one year from the date of such closing; and an amount equal to the
One-Half Quantity shall be paid in Company Eligible Notes maturing two
years from the date of such closing. The principal of any such Company
Eligible Notes shall be adjusted to comply with the requirements of
Article IX such that the Transferring Stockholder receives principal
in an amount equal to the One-Half Quantity on each of the first and
second anniversaries of such closing.
(z) If the Purchase Price exceeds $500 million, payment of $200
million of the Purchase Price shall be made by wire transfer of
immediately
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<PAGE>
available funds to such bank and account as such Transferring
Stockholder shall designate, an amount equal to one-third of the
difference between the Purchase Price and $200 million (for purposes
of this Section 2.5, the "One-Third Quantity") shall be paid in
Company Eligible Notes maturing one year from the date of such
closing; an amount equal to the One-Third Quantity shall be paid in
Company Eligible Notes maturing two years from the date of such
closing; and an amount equal to the One-Third Quantity shall be paid
in Company Eligible Notes maturing three years from the date of such
closing. The principal of any such Company Eligible Notes shall be
adjusted to comply with the requirements of Article IX such that the
Transferring Stockholder receives principal in an amount equal to the
One-Third Quantity on each of the first, second and third
anniversaries of such closing.
Section 2.6. Termination of Transfer Restrictions. (a) The Transfer
------------------------------------
Restrictions shall terminate and cease to be of further force and effect
hereunder (but the provisions of Section 2.4 shall continue):
(i) if there is a Corporation Joint Venture Termination;
(ii) upon the first anniversary of a sale of all of the
Venture Interests of the Sprint Parties or the FT/DT Parties pursuant
to Section 17.2, 17.3, 17.4, 19.3, 20.6 or 20.11 of the Joint Venture
Agreement or upon the first anniversary of the date on which the Joint
Venture is otherwise terminated, in each case, other than pursuant to
(x) an FT/DT Joint Venture Termination or (y) a Corporation Joint
Venture Termination;
(iii) if the Company has breached in any material respect
its obligations under Article III, IV, V and VI, Section 7.1, 7.4,
7.8, 7.10 or 7.11 of this Agreement; Article FIFTH of the Articles (to
the extent such Article relates to the rights of the holders of Class
A Stock); or the Class A Provisions, provided, that, if the Company so
--------
breaches any of these obligations, and such breach is capable of being
cured without adversely affecting in any material respect the Class A
Holders or their rights hereunder or under the Other Investment
Documents, the Articles or the Bylaws, (x) the date of termination of
the Transfer Restrictions shall be delayed for a period of not more
than 180 days from the date of such breach, or, in the case of a
dispute as to whether such a breach has occurred, for 90 days
following the rendering of an order of a court of competent
jurisdiction in connection therewith, in either case if during such
time the Company is attempting in a diligent manner to cause such
breach to be cured and (y) the Transfer Restrictions shall not
terminate if such breach is cured within the applicable period;
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<PAGE>
(iv) if the Company shall have determined to proceed with a
transaction described in Section 4.1 hereof;
(v) if the sum of (x) the aggregate Committed Percentage of
the Class A Holders, and (y) the percentage of Voting Power of the
Company represented by Voting Securities which the Class A Holders
have the right to commit to purchase pursuant to Sections 7.3 and 7.8
and Articles V and VI of this Agreement falls below (1) ten percent
for more than 150 consecutive days, immediately after the issuance of
additional Voting Securities of the Company other than pursuant to a
Major Issuance; or (2) nine percent, immediately after a Transfer of
Shares by Class A Holders, provided that the rights of the Company
--------
contained in Sections 2.5(a) and 2.5(b) hereof shall, in either case,
continue until the sum of (I) the aggregate Committed Percentage of
the Class A Holders, and (II) the percentage of Voting Power of the
Company represented by Voting Securities which the Class A Holders
have the right to commit to purchase pursuant to Sections 7.3 and 7.8
and Articles V and VI of this Agreement, falls below five percent;
(vi) if the sum of (x) the aggregate Committed Percentage of
the Class A Holders, and (y) the percentage of Voting Power of the
Company represented by Voting Securities which the Class A Holders
have the right to commit to purchase pursuant to Sections 7.3 and 7.8
and Articles V and VI of this Agreement falls below ten percent as a
result of a Major Issuance and the Class A Holders (1) furnish in
writing to the Company a written binding election not to exercise
their rights to purchase Class A Stock from the Company pursuant to
Section 7.8 with respect to such transaction and, for 180 days
following the date of such Major Issuance, not to make open market
purchases pursuant to Section 7.8 that would result in the Class A
Holders having an aggregate Committed Percentage of ten percent or
more, or (2) fail to exercise their rights to purchase Class A Stock
from the Company pursuant to Section 7.8 with respect to such
transaction and to exercise their rights to commit to make open market
purchases pursuant to Section 7.8, within the prescribed time periods;
(vii) if a Person other than a Class A Holder shall acquire a
Percentage Ownership Interest greater than 20 percent or there is a
Change of Control within the meaning of clause (b) of such definition;
(viii) unless all of the outstanding shares of Class A Stock have
been converted into shares of Non-Class A Common Stock or the rights
of the Class A Holders under Section 8.2 of ARTICLE SIXTH of the
Articles are suspended pursuant to clauses (ii) or (iii) of Section
8.5(b) of ARTICLE SIXTH of the Articles, if, between January 31, 1998
and January 31, 2001, the Company or any of its Subsidiaries, as the
case may be, shall take or engage in, directly or
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<PAGE>
indirectly, any of the actions described in Section 8.2(a)(i),
8.2(a)(ii), 8.2(a)(iii) or 8.2(a)(iv) of ARTICLE SIXTH of the
Articles, notwithstanding a written notice signed by FT and DT
expressing disapproval thereof delivered to the Company within 30 days
of delivery of the notice from the Company relating thereto as
provided in Section 2.7; or
(ix) if the Class A Holders elect to be released from the
Transfer Restrictions pursuant to Section 7.8(a) hereof.
(b) [Reserved]
Section 2.7. Notice of Certain Actions. Unless all of the outstanding
-------------------------
shares of Class A Stock have been converted into shares of Non-Class A Common
Stock or the rights of the Class A Holders under Section 8.2 of ARTICLE SIXTH of
the Articles are suspended pursuant to clause (ii) or (iii) of Section 8.5(b) of
ARTICLE SIXTH of the Articles, until January 31, 2001, at least 40 days prior to
(a) the Company or any of its Subsidiaries taking or engaging in, directly or
indirectly, any of the actions described in Sections 8.2(a)(i) and 8.2(a)(ii) of
ARTICLE SIXTH of the Articles, or (b) the Company taking or engaging in,
directly or indirectly, any of the transactions described in Sections
8.2(a)(iii) and 8.2(a)(iv) of ARTICLE SIXTH of the Articles, the Company shall
provide each Class A Holder with notice of such proposed transaction.
Section 2.8 Restrictive Legends. (a) A copy of this Agreement shall be
-------------------
filed with the Secretary of the Company and kept with the records of the
Company. Upon original issuance thereof and until such time as the same is no
longer required hereunder or under Applicable Law, any certificate issued
representing any of the shares of Class A Stock or any other Shares held by the
Class A Holders (including, without limitation, all certificates issued upon
Transfer or in exchange thereof or substitution therefor) shall bear the
following restrictive legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF ("TRANSFERRED") UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS SUCH TRANSFER IS EXEMPT
FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT.
THE TRANSFER OF THE SHARES EVIDENCED BY THIS CERTIFICATE IS
SUBJECT TO THE RESTRICTIONS ON TRANSFER PROVIDED FOR IN THE
STOCKHOLDERS' AGREEMENT, DATED JANUARY 31, 1996, AMONG SPRINT
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<PAGE>
CORPORATION, FRANCE TELECOM AND DEUTSCHE TELEKOM AG, AS FROM
TIME TO TIME IN EFFECT, A COPY OF WHICH IS ON FILE AT THE
EXECUTIVE OFFICES OF SPRINT CORPORATION AND WILL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SHARES UPON
WRITTEN REQUEST TO SPRINT CORPORATION. NO SUCH TRANSFER WILL
BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS OF
SUCH STOCKHOLDERS' AGREEMENT HAVE BEEN COMPLIED WITH IN FULL
AND NO PERSON MAY REQUEST SPRINT CORPORATION TO RECORD THE
TRANSFER OF ANY SHARES IF SUCH TRANSFER IS IN VIOLATION OF
SUCH STOCKHOLDERS' AGREEMENT.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON VOTING PROVIDED FOR IN THE STOCKHOLDERS'
AGREEMENT AND NO VOTE OF SUCH SHARES THAT CONTRAVENES SUCH
AGREEMENT SHALL BE EFFECTIVE.
(b) The certificates representing Shares owned by the Class A Holders
(including, without limitation, all certificates issued upon Transfer or in
exchange thereof or substitution therefor) shall also bear any legend required
under any other Applicable Laws, including state securities or blue sky laws.
(c) The Company may make a notation on its records or give
instructions to any transfer agents or registrars for the Shares owned by the
Class A Holders in order to implement the restrictions on Transfer set forth in
this Article II .
(d) FT and DT shall submit all certificates representing Shares held
by FT, DT or any of their respective Affiliates, and shall use commercially
reasonable efforts to cause all other Class A Holders to submit all such
certificates, to the Company so that the legend or legends required by this
Section 2.8 may be placed thereon.
(e) The Company shall not incur any liability for any delay in
recognizing any Transfer of Shares if the Company in good faith reasonably
believes that such Transfer may have been or would be in violation of the
provisions of Applicable Law or this Agreement.
(f) After such time any of the legends described in this Section 2.8
are no longer required on any certificate or certificates representing Shares
owned by the Class A Holders, upon the request of FT or DT or such other Class A
Holder the Company will cause such certificate or certificates to be exchanged
for a certificate or certificates that do not bear such legend.
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<PAGE>
(g) No Class A Holder may pledge Shares (other than Post-
Restructuring Series 3 PCS Shares) except to a Person that is a bona fide
financial institution. Prior to the consummation of a pledge of Shares (other
than Post-Restructuring Series 3 PCS Shares) by a Class A Holder, such Class A
Holder shall deliver, or shall cause such prospective pledgee to deliver, an
acknowledgment that such pledgee has examined the legend set forth in Section
2.8(a) and understands and agrees that any rights it has with respect to such
Shares are subject to those of the Company set forth in this Agreement,
including agreeing that (i) no foreclosure on such Shares shall be effected
except as permitted by, and in accordance with, the terms of this Agreement, and
(ii) under no circumstances shall such pledgee be entitled to exercise voting
rights, consent rights or disapproval rights with respect to such Shares, except
for the right to vote as a holder of shares of Series 1 FON Stock or Series 1
PCS Stock, as the case may be, if such pledgee owns such Shares after a
foreclosure conducted in accordance with the terms hereof.
Section 2.9. Reorganization, Reclassification, Merger, Consolidation or
----------------------------------------------------------
Disposition of Shares. The provisions of this Article II shall apply, to the
- ---------------------
fullest extent set forth herein, with respect to the Shares and to any and all
equity securities of the Company or any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise), or any other
securities of such entity which have, or which may be converted or exercised to
acquire securities which will have, a Vote, that in each case may be issued in
respect of, in exchange for, or in substitution of such Shares, including,
without limitation, in connection with any stock dividends, splits, reverse
splits, combinations, reclassifications, recapitalizations (including the
Recapitalization), mergers, consolidations and the like occurring after the date
hereof.
Section 2.10. Strategic Mergers; Business Combinations; Company Tender for
------------------------------------------------------------
Shares. Notwithstanding anything in this Article II to the contrary, the
- ------
restrictions on Transfer set forth in this Article II (not including Section
2.9) shall not apply to any conversion or exchange of Shares in connection with
a Strategic Merger or any other merger or other business combination not
prohibited by the Class A Provisions or a Transfer into a tender offer made by
the Company for Shares.
Section 2.11. Effect of Proposed Redemption. Following April intention to
-----------------------------
so redeem such Shares, which notice shall set forth the number of such Shares
held by the Class A Holders which are proposed to be redeemed. For a period of
120 days thereafter (as extended day for day for each day that such sales are
actually delayed during such time period because (i) the Shares proposed to be
redeemed cannot be sold due to the anti-fraud rules of the U.S. securities laws,
or (ii) the Company has delayed a proposed registration of such Shares in
accordance with Section 1.4 of the Amended and Restated Registration Rights
Agreement), the Class A Holders shall be entitled, on a pro rata basis in
accordance with their respective Committed Percentages, to sell free of the
restrictions on Transfer set forth in Section 2.3 hereof (but subject to the
provisions of Sections 2.4 and 2.5 hereof) that number of Shares in the
aggregate which the Company has
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<PAGE>
proposed to redeem from the Class A Holders. Notwithstanding the foregoing, the
Company may elect to redeem Shares held by the Class A Holders during such 120-
day period (as so extended) by paying to the Class A Holders the Market Price
(as defined in Section 2.2 of ARTICLE SIXTH of the Articles) (which if the
Company has so elected to redeem during such 120-day period (as so extended)
shall be modified in accordance with Article IX).
ARTICLE III
PROVISIONS CONCERNING DISPOSITION OF LONG DISTANCE ASSETS
---------------------------------------------------------
Section 3.1 Offers to FT and DT. (a) Subject to Section 3.5 of this
-------------------
Agreement, (i) after the first to occur of (x) January 31, 2001 and (y) such
- - -
time as (I) legislation shall have been enacted repealing Section 310, (II) an
- --
FCC Order shall have been issued or (III) outside counsel to the Company with a
---
nationally-recognized expertise in telecommunications regulatory matters
delivers to each of FT and DT a legal opinion in form and substance reasonably
satisfactory to each of FT and DT to the effect that Section 310 does not
prohibit FT or DT from owning the Long Distance Assets proposed to be
Transferred by the Company, and prior to the earliest to occur of (x) January
-
31, 2006, (y) the delivery by FT, DT or any of their Affiliates (or a Permitted
-
Designee (as such term is defined in the Joint Venture Agreement)) of a notice
pursuant to Section 17.2(b) of the Joint Venture Agreement indicating the
agreement to purchase all of the Sprint Venture Interests (as such term is
defined in the Joint Venture Agreement) following an offer by the Company or
Sprint Sub pursuant to Section 17.2(a) of the Joint Venture Agreement, and (z)
the delivery by the Company and/or Sprint Sub of a notice pursuant to Section
17.3(a) of the Joint Venture Agreement exercising the put right to sell all of
their Sprint Venture Interests (as such term is defined in the Joint Venture
Agreement) to FT, DT and Atlas (or a Permitted Designee (as such term is defined
in the Joint Venture Agreement)), or (ii) during any time in which the rights
--
provided to the Class A Holders under Section 8.2(b) of ARTICLE SIXTH of the
Articles would be in effect but for the fact that they have been suspended
pursuant to Sections 8.5(b)(ii) or (iii) of ARTICLE SIXTH of the Articles (each
such period described in clause (i) and clause (ii) being a "Restricted
Period"), and subject to the right of first offer in favor of FT and DT set
forth in Section 3.1(c) hereof, if the Company or any of its Subsidiaries
proposes to Transfer (except in a Lien Transfer, an Exempt Long Distance Asset
Divestiture or in a sale of all or substantially all of the Company's assets),
in a transaction or a series of related transactions, Long Distance Assets with
the effect that the Company and its Subsidiaries would no longer own 51 percent
or more of the Fair Market Value of the Long Distance Assets owned by them prior
thereto (calculated as at the date the Company or such Subsidiary enters into a
definitive agreement to effect such Transfer), then the Company must deliver an
LD Sale Notice in which it offers to sell at least 51 percent of the Fair Market
Value of the Long Distance Assets (calculated as of such date) (and any
liabilities to be assumed by the transferee in connection therewith) to FT and
DT, in the manner provided in Section 3.1(c), provided that the Company shall
--------
not be permitted to deliver such LD Sale Notice (and accordingly may not proceed
with such Transfer) unless a majority of the Continuing Directors shall have
first approved (unless such approval is not required pursuant to Section 11.13),
at a
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<PAGE>
meeting of Directors at which at least seven Continuing Directors are present, a
Transfer to FT and DT of the Specified Long Distance Assets at the price and
upon the terms and conditions set forth in the LD Sale Notice.
(b) Subject to Section 3.5 of this Agreement, during a Restricted Period,
the Company and its Subsidiaries shall not undertake a Lien Transfer unless each
creditor or other party which is the beneficiary of any Lien relating to such
Lien Transfer (a "Lien Creditor") and the Company execute a legally binding
instrument in favor of each of FT and DT in form and substance reasonably
satisfactory to each of FT and DT providing that at least 45 days prior to any
foreclosure or other execution upon the Long Distance Assets subject to such
Lien, such Lien Creditor and the Company shall provide each of FT and DT with
notice of such foreclosure or other execution, such notice to constitute an
exclusive and, subject to Section 3.2, irrevocable offer (i) for the Company to
sell to FT and DT all of such Long Distance Assets at a price equal to the Fair
Market Value of such assets, free and clear of any Lien relating to such Lien
Transfer, and upon other customary terms and conditions, or (ii) at FT's and
DT's option, to permit FT and/or DT to pay to such Lien Creditor all amounts due
to it which are secured by such Lien, in which case (x) such Lien Creditor shall
release such Lien, (y) FT and DT shall be subrogated to the claims of the Lien
Creditor against the Company and shall have all rights of such Lien Creditor
against the Company and in respect of such Lien, and (z) the Company shall
grant, and take all action necessary to perfect, a Lien in favor of FT and DT in
the Long Distance Assets subject to such Lien Transfer, securing the Company's
obligations subrogated to FT and DT, provided that the Company shall not be
--------
permitted to undertake any such Lien Transfer unless a majority of the
Continuing Directors shall have first approved (unless such approval is not
required under Section 11.13), at a meeting of Directors at which at least seven
Continuing Directors are present, each of the documents and transactions
contemplated by this sentence. FT and DT may exercise their rights hereunder by
delivering a notice to the Company at any time prior to any such foreclosure or
execution, setting forth which right it wishes to exercise. If FT and DT
exercise their rights under clause (i) of the preceding sentence, the provisions
of Sections 3.2 and 3.4 of this Agreement shall apply mutatis mutandis. For
------- --------
purposes of this Section 3.1(b), the Fair Market Value of any Long Distance
Assets shall be the value of such assets, without regard to the effect of the
Liens constituting the Lien Transfer in question, but considering all other
Liens on such assets and any other relevant factors, as determined by an
investment banking or appraisal firm of internationally recognized standing
reasonably satisfactory to the Company and FT and DT, the cost of which shall be
borne by the Company.
(c) Subject to Section 3.5 of this Agreement, during a Restricted Period,
if the Company or any of its Subsidiaries shall propose to Transfer (other than
in a Lien Transfer, an Exempt Long Distance Asset Divestiture or in a sale of
all or substantially all of the Company's assets), in a transaction or a series
of related transactions, Long Distance Assets with a Fair Market Value
(calculated as at the date the Company or such Subsidiary enters into a
definitive agreement to effect such Transfer) that, when aggregated with the
Fair Market Value of all Long Distance Assets previously so Transferred after
July 31, 1995 (calculated in each case as of the date the Company or such
Subsidiary entered into a definitive agreement to Transfer such Long
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Distance Assets), equals or exceeds 30 percent of the Fair Market Value of the
Long Distance Assets of the Company and its Subsidiaries taken as a whole
(calculated as at the date the Company or such Subsidiary enters into a
definitive agreement to effect such Transfer), the Company shall first deliver
written notice (the "LD Sale Notice") to each of FT and DT stating that the
Company proposes to effect such a Transfer and setting forth in reasonable
detail (i) the Long Distance Assets proposed to be Transferred (the "Specified
Long Distance Assets"), (ii) the price which the Company expects to receive for
such assets and (iii) the other material terms and conditions of Transfer
---
(including the assumption of liabilities, if any, by the transferee in
connection therewith), provided that the Company shall not be permitted to
--------
deliver such LD Sale Notice (and accordingly may not proceed with such Transfer)
unless a majority of the Continuing Directors shall have first approved (unless
such approval is not required pursuant to Section 11.13), at a meeting of
Directors at which at least seven Continuing Directors are present, a Transfer
to FT and DT of the Specified Long Distance Assets at the price and upon the
terms and conditions set forth in the LD Sale Notice. The Company shall be
entitled to effect such proposed Transfer on terms no less favorable to the
Company than as set forth in the LD Sale Notice unless within 30 days of the
delivery of the LD Sale Notice to FT and DT, both FT and DT notify the Company
in writing of their disapproval of such Transfer.
(d) Upon receipt of notice to the Company that both FT and DT have
disapproved of such Transfer (an "LD Disapproval Notice"), unless the Company
abandons the proposed Transfer and notifies each of FT and DT of such
abandonment within thirty Business Days of delivery of an LD Disapproval Notice
(in which case the provisions of this Article III shall apply to any subsequent
Transfer of the Specified Long Distance Assets), FT and DT, or a Qualified LD
Purchaser (in the case of an assignment pursuant to Section 3.2) shall have the
exclusive and, subject to Section 3.2, irrevocable right to purchase all, but
not less than all, of the Specified Long Distance Assets at the price and upon
the terms and conditions (including the assumption of liabilities, if any, by
the transferee in connection therewith) set forth in the LD Sale Notice. FT and
DT, or a Qualified LD Purchaser (in case of an assignment pursuant to Section
3.2), may exercise the right described in this Section 3.1(d) by delivering
notice to the Company setting forth their irrevocable binding commitment to
purchase the Specified Long Distance Assets at the price and on the terms and
conditions set forth in the LD Sale Notice, subject to compliance with
Applicable Laws and the receipt of all required material Third Party Approvals
and Governmental Approvals. Such notice must be delivered within 90 days after
the date of receipt of the LD Sale Notice, such period to be extended to the
earlier to occur of (i) five Business Days following the latest to occur of the
next regularly scheduled meetings of the Supervisory Boards of FT, DT and any
Qualified LD Purchaser (in case of such an assignment), and (ii) 150 days
following the date of receipt of the LD Sale Notice described above (such
period, the "LD Option Period").
Section 3.2. Assignment of Rights. At any time during the LD Option
--------------------
Period, upon 45 days' notice (an "Assignment Notice") to the Company, FT and DT
may assign the rights described in Section 3.1(c) to one or more Qualified LD
Purchasers, provided that FT and DT shall disclose to the Company the identity
of each Qualified LD Purchaser and such other
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<PAGE>
relevant information regarding each such Qualified LD Purchaser as the Company
may reasonably request prior to assignment of such right. The Company, in its
sole discretion, may abandon any Transfer described in its LD Sale Notice
delivered pursuant to Section 3.1(c) upon notice to each of FT and DT within 15
days after delivery of an Assignment Notice, in which case the rights described
in Sections 3.1(c) and (d) shall automatically be rescinded and of no effect
notwithstanding FT's and DT's acceptance thereof, but in such event the Company
may not thereafter sell the Specified Long Distance Assets to such Qualified LD
Purchaser and may not offer to engage in a transaction involving Long Distance
Assets substantially identical to the Specified Long Distance Assets for a
period of one year following such abandonment. Any such subsequent transaction
within a Restricted Period shall be subject to this Article III.
Section 3.3. Timing of Disposition. If FT and DT fail to exercise the
---------------------
rights described in Sections 3.1(c) and (d), the Company may proceed to Transfer
the Specified Long Distance Assets, provided that it enters into a legally
--------
binding agreement, subject to standard terms and conditions for a purchase
contract for assets of the type to be Transferred, to Transfer the Specified
Long Distance Assets upon terms no less favorable to the Company than those
described in the LD Sale Notice delivered pursuant to Section 3.1 within 150
days after the end of the LD Option Period. If the Company does not obtain such
a binding agreement within such time (or if it abandons such Transfer pursuant
to Section 3.2), the Company may not engage in a transaction involving
substantially identical Long Distance Assets for one year from the date of the
LD Sale Notice. Any such subsequent transaction within a Restricted Period shall
be subject to this Article III.
Section 3.4. Method of Purchase. If FT and DT, or a Qualified LD
------------------
Purchaser, as the case may be, exercise the right provided in Section 3.1, the
closing of the purchase of the Specified Long Distance Assets shall take place
within 90 days after the date of exercise of such option, at the offices of King
& Spalding, 1185 Avenue of the Americas, New York, New York at 10:00 a.m., New
York time, or at such other date, time or place as the Company and FT and DT, or
the Qualified LD Purchaser, as the case may be, may agree, subject to the
receipt of all necessary material Governmental Approvals, material Third Party
Approvals and, if required by Applicable Law, approval of the stockholders of
the Company. At such closing, the Company shall deliver to FT and DT, or the
Qualified LD Purchaser, as the case may be, bills of sale, assignments,
endorsements, releases and such other documents and instruments as may be
necessary, or, as determined by counsel to FT and DT, or the Qualified LD
Purchaser, as the case may be, appropriate, to convey and vest in the buyer,
title to each of the Specified Long Distance Assets to the extent, and in
conformity with the terms of such sale, each as specified in the LD Sale Notice.
Simultaneously therewith, FT and DT, or the Qualified LD Purchaser, as the case
may be, shall deliver to the Company, by wire transfer of immediately available
funds to such bank and account as the Company may designate, a cash amount equal
to the purchase price of the Specified Long Distance Assets, as set forth in the
Company's LD Sale Notice delivered pursuant to Section 3.1(b). In addition to
any other obligations which FT and DT may have at such closing, if a Qualified
LD Purchaser is to purchase Specified Long Distance Assets at such closing, FT
and DT shall certify to the Company that such Qualified LD Purchaser meets the
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<PAGE>
qualifications set forth in this Agreement for being a Qualified LD Purchaser as
of the date of such closing. If, notwithstanding the relevant parties'
reasonable efforts, the required approvals described in this Section 3.4 have
not been received or the parties have not waived the requirement for any such
approvals at the time the closing is scheduled to occur hereunder, the closing
shall be postponed up to 180 days following the date of such originally
scheduled closing or such other time as the parties to such transaction may
agree. If by such time all such approvals have not been obtained or the
requirement for any such approvals waived by the parties to such transaction,
the rights of FT, DT and any Qualified LD Purchaser to purchase such Specified
Long Distance Assets shall terminate and the Company shall be entitled to
proceed with the proposed Transfer of such assets on the terms set forth in the
LD Sale Notice.
Section 3.5. Termination of Rights. Unless earlier terminated pursuant to
---------------------
Article VIII(b) hereof, the rights provided in this Article III and Section 7.15
hereof shall terminate, and cease to be of any further force or effect, (a) upon
the conversion of all of the outstanding shares of Class A Stock into Non-Class
A Common Stock pursuant to Sections 8.5(a), 8.5(b), 8.5(c) or 8.5(g) of ARTICLE
SIXTH of the Articles, (b) if the aggregate Committed Percentage of the Class A
Holders shall be below ten percent for more than 180 consecutive days following
a Major Issuance, or (c) upon a sale of all of the Venture Interests of the
Sprint Parties or the FT/DT Parties pursuant to Section 17.2, 17.3, 17.4, 19.3,
20.6 or 20.11 of the Joint Venture Agreement or on the date the Joint Venture is
otherwise terminated, in each case other than due to an FT/DT Joint Venture
Termination or a Corporation Joint Venture Termination. In addition, any rights
provided in this Article III and Section 7.15 hereof shall be suspended and may
not be exercised during any period of time in which the rights provided to the
Class A Holders under Section 8.2(b) of ARTICLE SIXTH of the Articles are
suspended pursuant to Section 8.5(b)(iv) of ARTICLE SIXTH of the Articles.
ARTICLE IV
PROVISIONS CONCERNING CHANGE OF CONTROL
---------------------------------------
Section 4.1. Sale of Assets or Control. So long as shares of Class A
-------------------------
Stock are outstanding, but subject to Article VIII of this Agreement, if the
Company determines to sell all or substantially all of the assets of the Company
or not to oppose a tender offer by a Person other than any Class A Holder or
Holders for Voting Securities of the Company representing more than 35 percent
of the Voting Power of the Company or to sell Control of the Company or to
effect a merger or other business combination, which would result in a Person
(other than FT or DT or any of their Qualified Subsidiaries) holding Voting
Securities of the resulting entity representing 35 percent or more of the Voting
Power of such entity, the Company shall conduct such transaction in accordance
with reasonable procedures to be determined by the Board of Directors, and
permit FT and DT to participate in that process on a basis no less favorable
than that granted any other participant.
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<PAGE>
Section 4.2. Required Share Purchases. If a Person other than FT, DT or
------------------------
any of their respective Affiliates makes a tender offer for Voting Securities of
the Company representing not less than 35 percent of the Voting Power of the
Company and the terms of such tender offer do not permit the Class A Holders to
sell an equal or greater percentage of:
(i) if the tender offer involves only Series 1 FON Stock,
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,
Class A PCS Shares as the holders of Series 1 PCS Stock are permitted
to sell taking into account any proration, or
(iii) if the tender offer involves both Series 1 FON Stock and
Series 1 PCS Stock, 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,
then upon the purchase by such Person of securities representing not less than
35 percent of the Voting Power of the Company in such tender offer, FT, DT and
their Qualified Subsidiaries, as a group, shall have the option, exercisable
upon delivery of written notice to the Company (or its successor) at any time
within 30 days after the termination of the period during which tenders may be
made into such tender offer, to sell to the Company all but not less than all,
of the Shares that they were unable to tender on the same basis as the other
shareholders, 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.
Notwithstanding the preceding sentence, the Class A Holders shall have no rights
pursuant to this Section 4.2 if, at the date of termination of the period during
which tenders may be made into such tender offer, the Class A Holders 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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<PAGE>
ARTICLE V
EQUITY PURCHASE RIGHTS
----------------------
Section 5.1. Right to Purchase. Except as provided in Section 5.7 hereof,
-----------------
and except to the extent that the Class A Holders have acquired shares pursuant
to the FT/DT Restructuring Agreement which otherwise would have given rise to
Equity Purchase Rights hereunder, each Class A Holder shall have the right (an
"Equity Purchase Right") to purchase from the Company (on a pro rata basis
reflecting the respective ownership of shares of the applicable series or class
of Class A Stock corresponding to the underlying series or class of Non-Class A
Common Stock being issued, unless in the case of Section 5.1(d) all of the Class
A Holders provide the Company prior to such purchase with written instructions
to the contrary and such instructions are not inconsistent with Section 7.5
hereof or the Amended and Restated Standstill Agreement):
(a) except under the circumstances described in clauses (e) and (f)
below, if the Company shall issue (or sell from treasury) shares of Sprint
FON Common Stock prior to the Recapitalization (including, without
limitation, any shares issued upon (i) the exercise of stock options,
warrants or other rights not issued pursuant to the Rights Agreement or in
respect of options or other contractually binding rights under employee
benefit plans, arrangements or contracts or (ii) the conversion or exchange
of any securities) other than upon the conversion or exchange of Class A
Common Stock, that number of additional shares of Class A Common Stock
sufficient for the Class A Holders to maintain their aggregate Committed
Percentage as in effect immediately prior to the issuance of such shares,
such Shares to be purchased at a per share purchase price equal to the
Weighted Average Price paid for such shares of Sprint FON Common Stock
whose issuance gave rise to such Equity Purchase Right;
(b) except under the circumstances described in clauses (e) and (f)
below, if after the Recapitalization the Company shall issue (or sell from
treasury) shares of Sprint FON Common Stock (including, without limitation,
any shares issued upon (i) the exercise of stock options, warrants or other
rights not issued pursuant to the Rights Agreement or in respect of options
or other contractually binding rights under employee benefit plans,
arrangements or contracts or (ii) the conversion or exchange of any
securities) other than upon the conversion or exchange of the Series 3 FON
Stock or Class A Common Stock, that number of additional shares of Series 3
FON Stock sufficient for the Class A Holders to maintain their aggregate
Committed Percentage as in effect immediately prior to the issuance of such
shares, such Shares to be purchased at a per share purchase price equal to
the Weighted Average Price paid for such shares of Sprint FON Common Stock
whose issuance gave rise to such Equity Purchase Right;
(c) except to the extent the Class A Holders exercise their rights
provided in clause (d) below and except under the circumstances described
in clauses (e) and (f)
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<PAGE>
below, if the Company shall issue (or sell from treasury) shares of Sprint
PCS Common Stock (including, without limitation, any CP Conversion Shares
or any shares issued upon (i) the exercise of stock options, warrants or
-
other rights not issued pursuant to the Rights Agreement or in respect of
options or other contractually binding rights under employee benefit plans,
arrangements or contracts or (ii) the conversion or exchange of any
--
securities) other than upon the conversion or exchange of the Series 3 PCS
Stock or Class A Common Stock, that number of additional shares of Series 3
PCS Stock sufficient for the Class A Holders to maintain their aggregate
Committed Percentage as in effect immediately prior to the issuance of such
shares, such Shares to be purchased at a per share purchase price equal to
(x) if the Class A Holders exercise such Equity Purchase Rights during the
-
45 day period after the date of issuance (or sale from treasury) of such
shares of Sprint PCS Common Stock (the "Initial Decision Period") giving
rise to the Equity Purchase Right, the Market Price of a share of Series 1
PCS Stock on the date of such issuance, or (y) if the Class A Holders
-
exercise such Equity Purchase Right after the Initial Decision Period, the
higher of (I) 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 (II) the
--
Market Price of a share of Series 1 PCS Stock on the date of such exercise
by FT and DT of the Equity Purchase Right;
(d) except to the extent the Class A Holders exercise their rights
provided in clause (c) above, if (i) the Company shall issue (or sell from
treasury) CP Conversion Shares, (ii) the Series 2 PCS Stock shall convert
into Series 1 PCS Stock pursuant to Section 7.5(a) of Article SIXTH of the
Articles, (iii) the Voting Power of the PCS Preferred Stock shall increase
due to a transfer of the PCS Preferred Stock, or (iv) the CP Warrants shall
be exercised in exchange for the issuance of Sprint PCS Stock, that number
of additional shares of Series 3 FON Stock sufficient for the Class A
Holders to maintain their aggregate Committed Percentage as in effect
immediately prior to such event, such Shares to be purchased at a per share
purchase price equal to the Market Price of a share of Series 1 FON Stock
on the date of such issuance giving rise to the Equity Purchase Right;
provided, that (x) the Equity Purchase Rights under this Section 5.1(d) may
not be exercised unless prior to exercising such rights the Class A Holders
deliver a written certificate signed by their respective chief financial
officers to the effect that such Class A Holders have made a good faith
determination that it is not practicable or advisable at such time to
acquire shares of Series 1 FON Stock through open market purchases or other
purchases from third parties, and (y) the maximum aggregate amount of
Series 3 FON Stock which may be purchased pursuant to this Section 5.1(d)
(either in a single purchase or in the aggregate through purchases over
time) shall not exceed $300 million;
(e) if the Company shall issue (or sell from treasury) Voting
Securities other than Sprint FON Common Stock or Sprint PCS Common Stock,
or issue shares of Sprint FON Common Stock or Sprint PCS Common Stock
pursuant to employee benefit plans, arrangements or contracts (other than
in respect of the exercise of stock options, warrants
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or other rights (except rights issued pursuant to the Rights Agreement) in
existence at any time on or before April 26, 1996 (including pursuant to
employee benefit plans) or upon the conversion of any securities
outstanding on or before April 26, 1996) other than upon the conversion or
exchange of the Class A Stock or the Series 2 PCS Stock, that number of
additional shares of Series 3 FON Stock and/or Series 3 PCS Common Stock,
as the case may be, sufficient for the Class A Holders to maintain their
aggregate Committed Percentage (and relative proportionate holdings of
Series 3 FON Stock and Series 3 PCS Stock) as in effect immediately prior
to the issuance of such Voting Securities, such Shares to be purchased at a
per share purchase price equal to (i) in the case of the Series 3 FON
-
Stock, the Market Price of a share of Series 1 FON Stock on the date of the
issuance which gave rise to such Equity Purchase Right and (ii) in the case
--
of the Series 3 PCS Stock, the Market Price of a share of Series 1 PCS
Stock on the date of the issuance which gave rise to such Equity Purchase
Right; and
(f) if the Company shall issue (or sell from treasury) shares of
Sprint FON Common Stock or Sprint PCS Common Stock in respect of the
exercise of stock options, warrants or other rights (except rights issued
pursuant to the Rights Agreement) in existence at any time on or before
April 26, 1996 (including pursuant to employee benefit plans) or upon the
conversion of any securities outstanding on or before April 26, 1996, other
than upon the conversion or exchange of the Class A Stock, that number of
additional shares of Series 3 FON Stock or Series 3 PCS Stock, as the case
may be, sufficient for the Class A Holders to maintain their aggregate
Committed Percentage as in effect immediately prior to the issuance of such
Voting Securities, such Shares to be purchased at a per share purchase
price equal to the applicable FT/DT Weighted Purchase Price.
Section 5.2. Notice. The Company shall deliver to each Class A Holder (a)
------ -
written notice of the proposed issuance of any Voting Securities not less than
15 days prior to such issuance, such notice to describe in reasonable detail the
expected Weighted Average Price for such Voting Securities and contain the
calculation thereof and (b) written notice of the issuance of such Voting
-
Securities within five days after such issuance, such notice to describe in
reasonable detail the Weighted Average Price, Market Price or FT/DT Weighted
Purchase Price for such Voting Securities and contain the calculation thereof,
provided that no such notices need be given in respect of (x) the issuance of CP
- -------- -
Conversion Shares or a transfer of shares of PCS Preferred Stock (provided that
--------
the Company shall give notice to the Class A Holders of the issuance of CP
Conversion Shares or a transfer of PCS Preferred Stock as soon as practicable
after the surrender of the related shares of Series 2 PCS Stock for conversion
or PCS Preferred Stock for transfer) or (y) in respect of the issuance of shares
-
of Sprint FON Stock or Sprint PCS Stock, as the case may be, to the holders of
securities of the Company in accordance with the terms thereof or grants or
exercises pursuant to qualified or non-qualified employee benefit plans,
arrangements or contracts, in each case as outstanding on January 31, 1996, or
dividend reinvestment plans or dividend reinvestment and stock purchase plans
or, in the case of securities issued after, and qualified or non-qualified
employee benefit plans, arrangements and contracts
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<PAGE>
adopted after, such date, if and only if the Class A Holders have been given
written notice of the issuance of such securities or the adoption of such plans,
arrangements and contracts thirty days prior to the date of such issuance or
adoption (such shares of Sprint FON Stock or Sprint PCS Stock, as applicable,
are collectively hereinafter referred to as the "Option Shares"). The Company
shall deliver to each Class A Holder, on the tenth Business Day of each calendar
quarter, written notice of the issuance during the preceding calendar quarter of
(i) Option Shares, such notice to describe in reasonable detail the Weighted
-
Average Price, Market Price or FT/DT Weighted Purchase Price for such Option
Shares and contain the calculation thereof and the securities or plans,
arrangements or contracts to which they relate and (ii) shares of Class A Stock
--
to each Class A Holder pursuant to Section 7.3(c) hereof, such notice to set
forth the purchase price for such shares of Class A Stock and the calculation
thereof.
Section 5.3. Manner of Exercise; Manner of Payment. The Class A Holders
-------------------------------------
may exercise their Equity Purchase Rights by written notice to the Company
delivered prior to the thirtieth day after the date of the related post-issuance
notice provided for in Section 5.2 hereof, or as provided in Section 7.3 or
7.17, as the case may be; provided that the Class A Holders may exercise their
Equity Purchase Rights arising under Section 5.1(c) with respect to an issuance
of Shares by written notice to the Company delivered prior to the second
anniversary of the date of such issuance. Payment for the additional Shares
purchased or subscribed for by Class A Holders which exercise their Equity
Purchase Rights shall be made as provided in Section 5.6 hereof or as otherwise
may be agreed by the Company and the exercising Class A Holder or Holders. The
total number of Shares issuable upon such exercise shall be issued and delivered
to the appropriate Class A Holder against delivery to the Company of the cash
and any notes therefor as provided in Section 5.6 hereof or as otherwise may be
agreed by the Company and the exercising Class A Holder or Holders. In
connection with the occurrence of any issuance that gives rise to Equity
Purchase Rights and to purchase rights of the Cable Partners under the PCS
Restructuring Agreement, Sprint shall use its reasonable efforts to coordinate
the exercise of purchase rights by the Cable Partners and FT and DT to avoid a
series of successive exercises of purchase rights triggered by a single
issuance.
Section 5.4. Adjustments. If the Class A Holders, upon exercise of their
-----------
Equity Purchase Rights, are issued Shares on a date after the date the related
Voting Securities are issued (a) the per share purchase price paid by the Class
-
A Holders shall be reduced to reflect the Fair Market Value of any dividend or
distribution made in respect of each such Voting Security prior to such issuance
and (b) such purchase price and the number of Shares purchased shall be
-
appropriately adjusted to reflect any stock split, stock dividend or other
combination or reclassification of the Class A Stock or Non-Class A Common
Stock, as the case may be, during such time, including the Recapitalization.
Section 5.5. Closing of Purchases. The closing of purchases of Shares
--------------------
pursuant to the exercise of Equity Purchase Rights by the exercising Class A
Holder shall take place on a date specified by the exercising Class A Holder,
which date shall be within 30 days after the exercise of such Equity Purchase
Rights, at the offices of King & Spalding, 1185 Avenue of the
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Americas, New York, New York, at 10:00 a.m., New York City time, or at such
other date, time or place as the Company and such exercising Class A Holder may
otherwise agree. At such closing:
(a) the Company shall deliver, or cause to be delivered, to such
exercising Class A Holder, certificates representing the shares of Class A
Stock to be purchased by such exercising Class A Holder, in the name of
such holder, against payment of the purchase price therefor, as provided
below;
(b) such exercising Class A Holder shall deliver to the Company an
amount (the "Equity Purchase Price") equal to the product of (i) the
applicable price per share determined pursuant to Section 5.1 of this
Agreement and (ii) the number of Shares to be acquired by such exercising
Class A Holder.
Section 5.6. Terms of Payment. Payment for Shares purchased from the
----------------
Company pursuant to Section 5.1 hereof or Article VI hereof shall be made as
follows:
(a) if (i) the aggregate amount to be paid to the Company is less
than $200 million, (ii) the Equity Purchase Rights relating to such
purchase have arisen under Section 5.1(c) and such rights were exercised
after the Initial Decision Period or (iii) the Equity Purchase Rights
relating to such purchase have arisen under Section 5.1(d), payment shall
be made by the Class A Holder, or Qualified Stock Purchaser or Purchasers,
as the case may be, in cash by wire transfer to such account as the Company
may reasonably designate;
(b) if the amount to be paid to the Company is equal to or greater
than $200 million and less than $500 million, unless the Equity Purchase
Rights relating to such purchase have arisen under Section 5.1(c) and such
rights were exercised after the Initial Decision Period or the Equity
Purchase Rights relating to such purchase have arisen under Section 5.1(d),
not less than $200 million shall be paid in cash by the Class A Holders, or
Qualified Stock Purchaser or Purchasers, as the case may be, by wire
transfer to such account as the Company may reasonably designate and the
remainder, if any, shall be paid in two equal annual installments beginning
on the first anniversary of the date of such purchase, the respective
obligations of the Class A Holders, or Qualified Stock Purchaser or
Purchasers, as the case may be, to pay such installments to be evidenced by
Class A Holder Eligible Notes; or
(c) if the amount to be paid to the Company is equal to or greater
than $500 million, unless the Equity Purchase Rights relating to such
purchase have arisen under Section 5.1(c) and such rights were exercised
after the Initial Decision Period or the Equity Purchase Rights relating to
such purchase have arisen under Section 5.1(d), not less than $200 million
shall be paid in cash by the Class A Holders, or Qualified Stock Purchaser
or Purchasers, as the case may be, by wire transfer to such account as the
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Company may reasonably designate within 30 days after such date of notice,
and the remainder shall be paid in Class A Holder Eligible Notes of the
Class A Holders, or Qualified Stock Purchaser or Purchasers, as the case
may be, one-third of such amount in Class A Holder Eligible Notes maturing
within one year after the date of such purchase, one-third of such amount
in Class A Holder Eligible Notes maturing within two years of such date,
and one-third of such amount in Class A Holder Eligible Notes maturing
within three years of such date.
Section 5.7. Suspension of Equity Purchase Rights. If at any time (a) the
------------------------------------
number of Voting Securities of the Company Beneficially Owned in the aggregate
by FT, DT and their Affiliates and Associates exceeds any of the applicable
Percentage Limitations as set forth in the Amended and Restated Standstill
Agreement (without regard to Section 2.3 of such agreement), or (b) the number
of Voting Securities of the Company Beneficially Owned in the aggregate by any
Qualified Stock Purchaser and its Affiliates and Associates exceeds any of the
applicable Percentage Limitations as set forth in the Qualified Stock Purchaser
Standstill Agreement applicable to such Qualified Stock Purchaser (without
regard to Section 2.2 of such agreement), the Company may by giving notice to
the Class A Holders whose aggregate Beneficial Ownership exceeds any of such
applicable Percentage Limitations specified in clauses (a) and (b) of this
Section 5.7 suspend the right of such Class A Holders to purchase additional
shares of any class or series of capital stock of the Company pursuant to this
Agreement or otherwise unless and until such purchase (including any purchase
pursuant to Section 7.3 or 7.17 hereof) would not result in the aggregate
Beneficial Ownership of the affected Class A Holders exceeding any of such
Percentage Limitations applicable to such Class A Holders.
Section 5.8. Record Date Blackout Purchases.
------------------------------
(a) During a Record Date Blackout Period, if a Class A Holder held a
Percentage Ownership Interest equal to at least 10% on the record date for
a stockholders' meeting or dividend payment which immediately preceded the
Record Date Blackout Period, such Class A Holders shall be entitled on a
pro rata basis with the other Class A Holders in accordance with their
respective Committed Percentages to purchase from the Company shares of
capital stock of the Company in an aggregate amount for all Class A Holders
equal to the Available Record Date Blackout Shares for such Record Date
Blackout Period. The class of shares to be purchased (i.e., Series 3 FON
Stock or Series 3 PCS Stock) shall be determined as set in Section 5.8(b)
below, and the price to be paid for such shares shall be (i) with respect
to Series 3 FON Stock, the Market Price of the Series 1 FON Stock as of the
date of purchase of the Series 3 FON Stock, and (ii) with respect to Series
3 PCS Stock, the Market Price of the Series 1 PCS Stock as of the date of
purchase of the Series 3 PCS Stock. Each Class A Holder shall be entitled
to exercise the rights under this Section 5.8(a) by written notice to the
Company delivered prior to the second Business Day before the record date
relating to such Record Date Blackout Period.
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(b) The class of shares (i.e., Series 3 FON Stock or Series 3 PCS
Stock) to be issued to a Class A Holder under Section 5.8(a) with respect
to any Record Date Blackout Period shall be determined as follows:
(i) if the ratio of the Class A FON Shares owned by such Class
A Holder to the Class A PCS Shares owned by such Class A Holder
exceeds the then applicable ratio of the Votes attributable to all
outstanding Sprint FON Stock to the Votes attributable to all
outstanding Sprint PCS Stock, the Company shall issue shares of Series
3 PCS Stock pursuant to Section 5.8(a) until such time as the ratios
are equal, at which time the Company shall issue shares of Series 3
FON Stock and Series 3 PCS Stock in the same proportions as the then
applicable ratio of the Votes attributable to all outstanding Sprint
FON Stock to the Votes attributable to all outstanding Sprint PCS
Stock;
(ii) if the ratio of the Class A PCS Shares owned by such Class
A Holder to the Class A FON Shares owned by such Class A Holder
exceeds the then applicable ratio of the Votes attributable to all
outstanding Sprint PCS Stock to the Votes attributable to all
outstanding Sprint FON Stock, the Company shall issue shares of Series
3 FON Stock pursuant to Section 5.8(a) until such time as the ratios
are equal, at which time the Company shall issue shares of Series 3
FON Stock and Series 3 PCS Stock in the same proportions as the then
applicable ratio of the Votes attributable to all outstanding Sprint
FON Stock to the Votes attributable to all outstanding Sprint PCS
Stock; and
(iii) if the ratio of the Class A PCS Shares owned by such Class
A Holder to the Class A FON Shares owned by such Class A Holder equals
the then applicable ratio of the Votes attributable to all outstanding
Sprint PCS Stock to the Votes attributable to all outstanding Sprint
FON Stock, the Company shall issue shares of Series 3 FON Stock and
Series 3 PCS Stock in the same proportions as the then applicable
ratio of the Votes attributable to all outstanding Sprint FON Stock to
the Votes attributable to all outstanding Sprint PCS Stock.
(c) Shares purchased from the Company pursuant to this Section 5.8 shall
be purchased and paid for in accordance with Sections 5.4 and 5.5 (but not
Section 5.6) of this Agreement, mutatis mutandis, except that the closing of
------- --------
such purchase shall occur on the Business Day immediately preceding the record
date relating to such Record Date Blackout Period and at the closing the Class A
Holders shall pay the purchase price for the Shares so purchased in cash in
immediately available funds.
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ARTICLE VI
HOLDINGS BY MAJOR COMPETITORS
-----------------------------
Until January 31, 2006, if a Major Competitor of FT or DT or of the Joint
Venture obtains a Percentage Ownership Interest of 20 percent or more as a
result of a Strategic Merger, the Class A Holders shall have the right to commit
within 30 days following the consummation of such Strategic Merger to purchase
from the Company (or its successor in such Strategic Merger) and, upon such
commitment, the Company or such successor shall be obligated to sell to the
Class A Holders, subject to Applicable Law and the receipt of any required
material Governmental Approvals, a number of shares of Class A Stock (which
shall consist of Series 3 FON Stock and Series 3 PCS Stock in the same
proportions as the Class A FON Shares and the Class A PCS Shares are owned by
the Class A Holders at the time of the event giving rise to the Class A Holders'
right to so commit) such that the aggregate Committed Percentage of the Class A
Holders shall be equal to the Percentage Ownership Interest of such Major
Competitor of FT or DT following consummation of such Strategic Merger, such
Shares to be purchased at a per share price equal to the applicable Weighted
Average Price paid by such Major Competitor, unless the Major Competitor has
only purchased Sprint FON Stock or Sprint PCS Stock (but not both), in which
event the Shares relating to the class not so purchased by the Major Competitor
shall be purchased at the Market Price on the date of the event giving rise to
the Class A Holders' right to so commit; provided that to the extent the
--------
purchase of Shares pursuant to this Article VI would violate the provisions of
Section 310, the Class A Holders shall have the right to assign to one or more
non-Alien Qualified Stock Purchasers the right to purchase such Shares from the
Company if such Class A Holders assigning such rights to a non-Alien Qualified
Stock Purchaser cause such Qualified Stock Purchaser to execute an undertaking
in accordance with Section 7.2 of this Agreement. Shares purchased from the
Company pursuant to this Article VI shall be purchased and paid in accordance
with Sections 5.4, 5.5 and 5.6 of this Agreement, mutatis mutandis.
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ARTICLE VII
COVENANTS
Section 7.1. Reservation and Availability of Capital Stock. The Company
---------------------------------------------
covenants and agrees that it will cause to be reserved and kept available, out
of the aggregate of its authorized but unissued shares of capital stock and its
issued shares of capital stock held in its treasury, the full number of shares
of
(a) Series 1 FON Stock then deliverable upon the conversion of
all outstanding Class A FON Shares,
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(b) Series 1 PCS Stock then deliverable upon the conversion of
all outstanding Class A PCS Shares,
(c) Series 3 FON Stock then deliverable upon conversion of all
of the shares of Sprint FON Common Stock, and
(d) Series 3 PCS Stock then deliverable upon conversion of all
of the shares of Sprint PCS Common Stock,
in the case of each of clauses (a), (b), (c), (d), (e) and (f) that the Class A
Holders are permitted to acquire hereunder and under the FT/DT Restructuring
Agreement, the Articles and the Amended and Restated Standstill Agreement.
Section 7.2. Assignee Purchasers. As a condition to the assignment of
-------------------
rights to purchase shares of Class A Stock to a Qualified Stock Purchaser
pursuant to Article VI hereof or pursuant to the Amended and Restated Standstill
Agreement, FT and DT shall cause such Qualified Stock Purchaser to agree in
writing to be bound by the terms and conditions of this Agreement and a
Qualified Stock Purchaser Standstill Agreement pursuant to an instrument of
assumption substantially in the form of Exhibit C hereto and such Qualified
Stock Purchaser thereby shall become a party to this Agreement.
Section 7.3. Automatic Exercise of Rights with Respect to Option Shares;
----------------------------------------------------------
Method of Purchase.
- ------------------
(a) The Class A Holders, at their option, may lend to the
Company, and the Company shall borrow, in the aggregate up to an amount
specified in writing from time to time to the Company by the Class A
Holders, which amount has been determined in good faith by the Class A
Holders to be reasonably necessary to cover the purchase price payable by
them in connection with their exercise of equity purchase rights pursuant
to Section 5.1 with respect to Option Shares to be issued during the
succeeding three-month period (the "Exercise Amount"), and from time to
time at the option of the Class A Holders, the Class A Holders may lend to
the Company, and the Company shall borrow from the Class A Holders in the
aggregate (pro rata from each Class A Holder in accordance with its
relative Committed Percentage at the time of such borrowing), an amount
equal to the difference between the Exercise Amount and the amount then
outstanding on such loans from the Class A Holders. All loans hereunder
shall be evidenced by notes ("Company Stock Payment Notes") satisfactory in
form and substance to each party hereto.
(b) For so long as the Class A Holders are entitled to purchase
Shares pursuant to Section 5.1, subject to subsections (c), (e) and (f) of
this Section 7.3, each Class A Holder holding a Company Stock Payment Note
hereby agrees to exercise its rights to purchase from the Company, and
shall so purchase and the Company shall sell,
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shares of Class A Common Stock, Series 3 FON Stock or Series 3 PCS Stock,
as the case may be, pursuant to Section 5.1 hereof upon, and simultaneously
with, any issuance of Option Shares.
(c) For so long as the Class A Holders are entitled to purchase
Shares pursuant to Section 5.1, subject to subsections (e) and (f) of this
Section 7.3, contemporaneously with each issuance of Option Shares,
(i) the Company shall either (A) deliver, or cause to be
delivered, to each Class A Holder a stock certificate bearing the
legends set forth in Section 2.8 of this Agreement, registered in
the name of such Class A Holder on the stock ledger of the
Company and representing the number of Shares which such Class A
Holder is entitled to purchase pursuant to Section 5.1 hereof as
a result of such issuance of Option Shares, or (B) cause the
Company's transfer agent to reflect on its books and records the
ownership by such Class A Holder of an additional number of
Shares representing the number of Shares which such Class A
Holder is entitled to purchase pursuant to Section 5.1 hereof as
a result of such issuance of Option Shares; and
(ii) pursuant to the terms of the Company Stock Payment
Notes, (x) the Company shall repay (in accordance with the
procedures set forth in clause (y), below) a portion of the
principal of such Company Stock Payment Notes equal to the amount
of the purchase price for such Shares (as determined in
accordance with Section 5.1 hereof) (a "Mandatory Payment
Amount"), provided that the Company shall hold such Mandatory
Payment Amount in trust for the benefit of such exercising Class
A Holder, subject to clause (y) below, and (y) simultaneously
with such payment, the Company shall apply such Mandatory Payment
Amount to the payment of such purchase price,
provided that no such purchase of Shares shall occur if the unpaid
principal amount of Company Stock Payment Notes held by the exercising
Class A Holder represents insufficient funds to pay such purchase price in
its entirety, in which case no reduction in the unpaid principal amount of
the Company Stock Payment Notes held by such exercising Class A Holder
shall occur.
(d) Subject to subsections (c), (e) and (f), the provisions of
this Section 7.3 shall be deemed to comply with all the requirements of
Article V hereof with respect to the exercise of such rights relating to
the issuance by the Company of Option Shares and no further notices must be
delivered or action be taken pursuant to this Agreement on the part of any
of the Class A Holders or the Company in order to effectuate the exercise
of such rights.
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(e) This Section 7.3 shall become immediately inoperative and of
no force and effect with respect to any Class A Holder (i) upon delivery by
such Class A Holder to the Company of a notice to that effect, or (ii) if,
with respect to such Class A Holder, ownership of at least 10% of the
Voting Securities of the Company by such Class A Holder is not a necessary
condition or sufficient condition to obtaining a Treaty Benefit, as
determined in a manner identical to that set forth in Sections
2(a)(iii)(2), (3), (4) and (5) of ARTICLE FIFTH of the Articles with
respect to the termination of the provisions of Section 2(a)(iii)(1) of
such ARTICLE FIFTH provided that this Section 7.3 thereafter shall become
--------
operative and of full force and effect with respect to such Class A Holder
(i) if this Section 7.3 is not at that time of no force and effect pursuant
to clause (ii) of this Section 7.3(e), upon delivery by such Class A Holder
to the Company of a notice to that effect or (ii) if, with respect to such
Class A Holder, ownership of at least 10% of the Voting Securities of the
Company by such Class A Holder is a necessary condition or sufficient
condition to obtaining a Treaty Benefit, as determined in a manner
identical to that set forth in Sections 2(a)(iii)(2), (3), (4) and (5) of
ARTICLE FIFTH of the Articles with respect to the termination of the
provisions of Section 2(a)(iii)(1) of such ARTICLE FIFTH.
(f) The rights and obligations of the Class A Holders and the
Company under this Section 7.3 shall terminate upon the conversion of all
outstanding shares of Class A Stock as provided in Section 8.5 of ARTICLE
SIXTH of the Articles, provided that such termination shall not affect any
rights of the Class A Holders to payment under any Company Stock Payment
Notes then outstanding.
Section 7.4. Procedures for Redemption.
-------------------------
(a) If the aggregate percentage of Shares Beneficially Owned by
the Class A Holders is less than the percentage permitted under Section 310
to be Beneficially Owned by Aliens, the Company will not redeem any Shares
Beneficially Owned by the Class A Holders pursuant to Section 2.2 of
ARTICLE SIXTH of the Articles, provided that notwithstanding the foregoing,
the Company may, after consultation in good faith with each of the Class A
Holders to consider alternatives to such redemption, redeem Shares
Beneficially Owned by the Class A Holders if and to the extent that the
outstanding shares of Class A Stock represent Votes constituting greater
than 20% of the aggregate Voting Power of the Company, in each case at such
time, and if, after considering all reasonable alternatives, the failure to
redeem such Shares would have a material adverse effect on the Company as
reflected in a resolution certified to the Class A Holders by a
determination made in good faith by the Independent Directors.
(b)(i) If at any time the Company should invoke its right to
redeem its capital stock, the Company shall unless prohibited by Applicable
Law first designate for redemption capital stock other than shares of Class
A Stock, before designating for redemption any shares of Class A Stock.
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(ii) If the Company issues Redemption Securities in full or partial
payment of the redemption price for shares of Class A Stock in a
circumstance in which Section 7.4(b)(i) hereof or Section 2.2(f) of ARTICLE
SIXTH of the Articles requires adjustment under Article IX of this
Agreement, then principal payments under such Redemption Securities shall
be adjusted to comply with the requirements of Article IX such that the
Class A Holders shall receive an amount equal to the principal amount of
such Redemption Securities.
(c) The Company shall take all reasonable measures to permit the
Class A Holders to obtain or maintain their Percentage Ownership Interest
in accordance with Applicable Laws of the United States, including applying
for a waiver of the restrictions on Alien ownership set forth in Section
310 if there is a reasonable possibility of obtaining such a waiver.
(d) (i) On or prior to April 26, 1999, the Company shall have the
right, at any time during which the Company has the right pursuant to
Section 7.4(a) hereof to redeem shares of Class A Stock in accordance with
Section 2.2 of ARTICLE SIXTH of the Articles and following a determination
by the Board of Directors that such redemption is necessary or advisable to
comply with the requirements of Section 310, to deliver a notice (a
"Required Sale Notice") to the Class A Holders requiring them to sell (a
"Surplus Shares Sale") that number of shares of Class A Stock (the "Surplus
Shares") necessary so that, immediately following such Surplus Shares Sale,
the aggregate Percentage Ownership Interest of the Class A Holders shall be
20% or such greater percentage specified in such notice as being necessary
or advisable for the Class A Holders to attain in order to comply with the
requirements of Section 310.
(ii) Upon receipt of the Required Sale Notice, the Class A Holders
shall sell the Surplus Shares in third party or open market sales. The
Surplus Shares Sale shall be conducted as promptly as practicable following
receipt of the Required Sale Notice, but in no event later than 120 days
following the date of receipt thereof, as extended day for day for each day
that such sales are actually delayed during such time period because (i)
the Surplus Shares cannot be sold due to the anti-fraud rules of the U.S.
securities laws, or (ii) the Company has delayed a proposed registration of
the Surplus Shares in accordance with Section 1.4 of the Amended and
Restated Registration Rights Agreement.
(iii) Each Class A Holder selling Surplus Shares shall, promptly upon
the conclusion of the Surplus Shares Sale, deliver to the Company a notice
stating that such Surplus Shares Sale has been concluded and indicating the
total amount of consideration received therefrom (the "Total Realized
Amount") for the Surplus Shares sold in such sale. Following receipt of
such notice, the Company shall pay (a "Supplementary Payment") to each
Class A Holder selling Surplus Shares the excess, if any, of the
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aggregate Formula Price applicable to such Surplus Shares over the Total
Realized Amount (in each case as modified to comply with the requirements
of Section 9.2).
Section 7.5. Joint Action by FT and DT.
-------------------------
(a) The ratio of the aggregate Percentage Ownership Interest of
the overall Voting Power of the Company of one of FT or DT (and its
Qualified Subsidiaries) to the aggregate Percentage Ownership Interest of
the overall Voting Power of the Company of the other of FT or DT (and its
Qualified Subsidiaries) shall not be greater than 3 to 2 (the "Applicable
Overall Ratio").
(b) 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 (the "Applicable FON Ratio"). In addition, 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 (the "Applicable
PCS Ratio")
(c) FT and DT shall vote, and shall cause each of their
respective Qualified Subsidiaries to vote, all shares of Class A Stock held
by them as a single block on all matters.
Section 7.6. Compliance with Tax Laws. FT and DT shall furnish the
------------------------
Company or its paying agent any certification, information return, documentation
or other form that they are entitled to furnish and that is required under
Applicable Law to establish the applicability of, or relief or exemption from,
United States withholding taxes.
Section 7.7. Compliance with Security Requirements. To the extent that,
-------------------------------------
in connection with a United States government contract, an agency of the United
States government or a contractor requires the Company to restrict access to any
properties or information reasonably related to such contract on the basis of
Applicable Law with respect to United States national security matters and to
the extent that other Applicable Law requires the Company to restrict access to
any properties or information and, in accordance with such restrictions, access
to certain properties or information may not be given to any Director elected by
the Class A Holders without appropriate security clearance, such Director will
not be given access to such properties or information and may not participate in
deliberations of the Board of Directors or the board of directors of any of the
Company's Subsidiaries in which such information with respect to such properties
is disclosed. Any such exclusion shall be reflected accurately in the minutes of
such deliberations. Without limiting the generality of the foregoing, no Class A
Director shall (i)
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have access to classified information or controlled unclassified information
entrusted to the Company except as permissible under the United States
Department of Defense Industrial Security Program (the "DISP") and applicable
United States laws and regulations, (ii) either seek or accept classified
information or controlled unclassified information entrusted to the Company,
except as permissible under the DISP or applicable United States laws and
regulations, or (iii) fail to advise any committee established by the Company to
monitor compliance with national security matters promptly if such Class A
Director reasonably believes any violations or attempted violations of, or
actions inconsistent with, Applicable Laws or contractual provisions relating to
national security matters have occurred.
Section 7.8. Major Issuances.
---------------
(a) At least 90 days before the consummation, directly or
indirectly, by the Company of any Major Issuance to be effected prior to
January 31, 2001, the Company shall deliver to each Class A Holder a notice
of such proposed Major Issuance. If there is a written notice signed by FT
and DT disapproving such proposed Major Issuance within 75 days of the
delivery of such notice and the Company nevertheless effects such Major
Issuance, the Class A Holders may elect to be released from the Transfer
Restrictions or elect to maintain an aggregate Committed Percentage of at
least ten percent as provided in subsection (b) of this Section 7.8.
(b) If the aggregate Committed Percentage of the Class A Holders
falls below ten percent because of a Major Issuance, in addition to Equity
Purchase Rights (if applicable), within 180 days after such Major Issuance
the Class A Holders may deliver to the Company a written notice in which
each Class A Holder commits to the Company to purchase from third parties,
within three years after such notice, a number of shares of Series 1 FON
Stock and/or Series 1 PCS Stock, as the case may be, sufficient to increase
the aggregate Committed Percentage of all Class A Holders to at least ten
percent based on the Voting Power of the Company as at the date of such
notice.
(c) Upon delivery of notice to the Company by each of the Class
A Holders following a Major Issuance committing each such Class A Holder
not to exercise its Equity Purchase Rights in respect of a Major Issuance
or its related rights provided in subsection (b) of this Section 7.8, the
Class A Holders shall automatically and without any further action on their
part be released from the Transfer Restrictions.
Section 7.9. Participation by Class A Directors in Certain Circumstances.
-----------------------------------------------------------
If the Joint Venture Agreement is terminated, the Company may exclude the Class
A Directors from deliberations of the Board of Directors that a majority of the
Independent Directors, in their good faith judgment, believe involve (a)
sensitive information relating to the Company and its relationship to FT or DT
or the Company's activities that are competitive with the activities of FT or
DT, or (b) matters in which such Class A Directors or the Class A Holders
otherwise have
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conflicts of interest with the Company. Any such exclusion shall be reflected
accurately in the minutes of such deliberations.
Section 7.10. Spin-offs. Prior to consummating any Exempt Long Distance
---------
Asset Divestiture (before the end of the Restricted Period described in Section
3.1(a)(i) hereof) involving a Spin-off,
(a) the Company shall cause the entity whose equity interests
are to be distributed in such Spin-off to
(i) execute agreements with each of FT, DT and their
respective Qualified Subsidiaries at the time of such Spin-off no less
favorable to FT and DT than this Agreement, the Amended and Restated
Registration Rights Agreement, the Amended and Restated Standstill
Agreement, and the Amended and Restated Confidentiality Agreements
(the "Principal Investment Documents"); and
(ii) adopt bylaws no less favorable to FT and DT than the
Bylaws.
(b) each of FT, DT and their respective Qualified Subsidiaries that
are Class A Holders shall have been afforded a reasonable opportunity (and
in no event less than 90 days) to review and approve such Principal
Investment Documents, following delivery of such documents prepared in
substantial conformity with the requirements of this Section 7.10, provided
--------
that, unless FT, DT and their respective Qualified Subsidiaries shall have
delivered a notice to the Company, prior to the end of the forty-fifth day
following delivery of such documents, stating that such documents were not
prepared in substantial conformity with the requirements of this Section
7.10, such documents shall be deemed to have been prepared in substantial
conformity with this Section 7.10.
Following the expiration of the period provided in clause (b) of this Section
7.10, each of FT, DT and their respective Qualified Subsidiaries shall execute
and deliver the Principal Investment Documents, provided that if each such party
--------
does not so execute and deliver such Principal Investment Documents, the Company
shall nonetheless have the right to proceed with such Spin-off and the Company
shall have no obligation to provide to such Class A Holders securities of such
Spin-off Entity with rights no less favorable to the Class A Holders than those
applicable to the Class A Stock set forth in the Articles and the Bylaws. The
rights and obligations of the parties hereto under this Section 7.10 shall be
suspended or terminate, and cease to be of any further force or effect, (a) with
respect to any proposed Spin-off of a Subsidiary of the Company which, directly
or indirectly, owns Long Distance Assets, upon the suspension or termination, as
the case may be, of the rights of the Class A Holders under Article III hereof;
and (b) with respect to any proposed Spin-off of a Subsidiary of the Company
other than a Subsidiary which, directly or indirectly, owns Long Distance
Assets, upon the suspension or termination, as the case may be, of the rights of
the Class A Holders pursuant to Article VIII hereof.
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Section 7.11. FCC Licenses. The Company shall not hold directly any
------------
Licenses from the FCC, if the holding of such Licenses by the Company would
result in a Material Adverse Effect on the Company and its Subsidiaries taken as
a whole.
Section 7.12. Issuance of Class A Stock. So long as the Class A Holders
-------------------------
own any shares of Class A Stock, the Company shall not issue any shares of Class
A Stock to any Person other than FT, DT, their respective Qualified Subsidiaries
and Qualified Stock Purchasers.
Section 7.13. Defeasance of Fifth Series. If at any time the consolidated
--------------------------
net worth of the Company and its Subsidiaries taken as a whole, determined in
accordance with Generally Accepted Accounting Principles as applied in the
Company's most recent financial statements included in a filing with the SEC,
shall be less than $1 billion, the Company shall defease the Fifth Series of the
Preferred Stock, by any means reasonably acceptable to FT and DT.
Section 7.14. Continuing Directors. The Company shall maintain at least
--------------------
seven Continuing Directors on the Board of Directors at all times.
Section 7.15. Long Distance Business. Except as otherwise required or
----------------------
permitted by this Agreement, the Other Investment Documents, the Articles or the
Joint Venture Documents, the Company shall not hold in the Local Exchange
Division, or any other division of the Company other than the Long Distance
Division assets which are primarily used, or held primarily for use, in or for
the benefit of the Long Distance Business, except for assets that in the
aggregate are not material to the operation of the Long Distance Business.
Section 7.16. Intellectual Property. In any sale of 51% of the Fair Market
---------------------
Value of the Long Distance Assets required by the last sentence of Section
3.1(a) hereof, the Company shall use its reasonable efforts to grant to such
Person a non-exclusive, perpetual and worldwide license upon commercially
reasonable terms to use all intellectual property not included in the definition
of Long Distance Assets owned or licensed by the Company which is reasonably
necessary to utilize fully the Long Distance Assets so purchased; provided,
however, that the Company shall have no obligation to license the "Sprint" brand
name or any other brand names, tradenames or trademarks owned or licensed by the
Company or any of its Subsidiaries.
Section 7.17. Automatic Exercise of Rights with Respect to CP Conversion
----------------------------------------------------------
Shares, etc.; Method of Purchase.
- --------------------------------
(a) For so long as the Class A Holders are entitled to purchase
Shares pursuant to Section 5.1, subject to subsections (b), (d) and (e) of
this Section 7.17, each Class A Holder hereby agrees to exercise its rights
to purchase from the Company, and shall so purchase and the Company shall
sell, shares of Series 3 PCS Stock pursuant to Section 5.1 hereof upon, and
simultaneously with, an Issuance Event that occurs during an Applicable CP
Period. For purposes of this Section 7.17, an "Issuance Event" means (i)
any issuance of CP Conversion Shares and (ii) an increase in the per share
vote of any
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shares of PCS Preferred Stock upon a Transfer of such Shares, provided the
Company receives notice or otherwise learns of such Transfer.
(b) For so long as the Class A Holders are entitled to purchase
Shares pursuant to Section 5.1, subject to subsections (d) and (e) of this
Section 7.17, contemporaneously with each Issuance Event during an
Applicable CP Period,
(i) the Company shall either (A) deliver, or cause to be
delivered, to each Class A Holder a stock certificate bearing the
legends set forth in Section 2.8 of this Agreement, registered in the
name of such Class A Holder on the stock ledger of the Company and
representing the number of Shares which such Class A Holder is
entitled to purchase pursuant to Section 5.1 hereof as a result of
such Issuance Event, or (B) cause the Company's transfer agent to
reflect on its books and records the ownership by such Class A Holder
of an additional number of Shares representing the number of Shares
which such Class A Holder is entitled to purchase pursuant to Section
5.1 hereof as a result of such Issuance Event; and
(ii) the principal amount of the applicable FT/DT Stock Payment
Note shall be increased by the amount of the purchase price for such
Shares (as determined in accordance with Section 5.1 hereof), which
principal amount shall be repaid in accordance with the terms of such
FT/DT Stock Payment Note.
(c) Subject to subsections (b), (d) and (e), the provisions of this
Section 7.17 shall be deemed to comply with all the requirements of Article
V hereof with respect to the exercise of such rights relating to the
Issuance Event and no further notices must be delivered or action be taken
pursuant to this Agreement on the part of any of the Class A Holders or the
Company in order to effectuate the exercise of such rights.
(d) This Section 7.17 shall become immediately inoperative and of no
force and effect with respect to any Class A Holder (i) upon delivery by
such Class A Holder to the Company of a notice to that effect, or (ii) if,
with respect to such Class A Holder, ownership of at least 10% of the
Voting Securities of the Company by such Class A Holder is not a necessary
condition or sufficient condition to obtaining a Treaty Benefit, as
determined in a manner identical to that set forth in Sections
2(a)(iii)(2), (3), (4) and (5) of ARTICLE FIFTH of the Articles with
respect to the termination of the provisions of Section 2(a)(iii)(1) of
such ARTICLE FIFTH, provided that this Section 7.17 thereafter shall become
--------
operative and of full force and effect with respect to such Class A Holder
(i) if this Section 7.17 is not at that time of no force and effect
pursuant to clause (ii) of this Section 7.17(d), upon delivery by such
Class A Holder to the Company of a notice to that effect or (ii) if, with
respect to such Class A Holder, ownership of at least 10% of the Voting
Securities of the Company by such Class A Holder is a necessary condition
or sufficient condition to obtaining a Treaty Benefit, as determined in a
manner identical to that set forth in Sections 2(a)(iii)(2), (3), (4) and
(5) of ARTICLE FIFTH of
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the Articles with respect to the termination of the provisions of Section
2(a)(iii)(1) of such ARTICLE FIFTH.
(e) The rights and obligations of the Class A Holders and the Company
under this Section 7.17 shall terminate upon the conversion of all
outstanding shares of Class A Stock as provided in Section 8.5 of ARTICLE
SIXTH of the Articles, provided that such termination shall not affect any
rights of the Company to payment under any FT/DT Stock Payment Notes then
outstanding.
Section 7.18. Notice of Record Dates. Unless the aggregate Committed
----------------------
Percentage of the Class A Holders falls below ten percent, (i) at least ten
Trading Days prior to the date so fixed, the Company shall give written notice
to FT and DT of each date fixed by the Board of Directors as the record date
(which shall be a Trading Day) for a meeting of the stockholders of the Company
or for the payment of dividends in respect of the Sprint FON Stock, the Sprint
PCS Stock or the Class A Common Stock, and (ii) at least ten Trading Days before
such a record date for a meeting of the stockholders of the Company or for the
payment of dividends, the Company shall provide FT and DT with a calculation
setting forth the respective votes to which each class and series of Sprint FON
Stock, Sprint PCS Stock and Class A Common Stock shall be entitled in connection
with such meeting of stockholders (or, with respect to a record date for the
payment of dividends, would be entitled if such record date were a record date
for a meeting of stockholders and not a record date for the payment of
dividends).
ARTICLE VIII
TERMINATION OF CERTAIN RIGHTS
-----------------------------
(a) The rights of the Class A Holders under Articles IV, V and VI
and Sections 7.3, 7.4, 7.8, 7.11 and 7.13 hereof shall terminate:
(i) if at any time the aggregate Committed Percentage of the Class A
Holders is below ten percent (x) for more than 180 consecutive days or (y)
immediately following a Transfer of Class A Stock by a Class A Holder;
(ii) upon the conversion of all of the outstanding shares of Class A
Stock into shares of Non-Class A Common Stock pursuant to Sections 8.5(b),
8.5(d) or 8.5(g) of ARTICLE SIXTH of the Articles;
(iii) upon a sale of all of the Venture Interests of the Sprint
Parties or the FT/DT Parties pursuant to Section 17.2, 17.3, 17.4, 19.3,
20.6 or 20.11 of the Joint Venture Agreement or on the date on which the
Joint Venture is otherwise terminated, in each case other than due to an
FT/DT Joint Venture Termination or a Corporation Joint Venture Termination,
provided that the rights of the Class A Holders under Sections 7.3,
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7.8(b) and 7.13 hereof and Article V hereof shall terminate on the third
anniversary of the date of such sale or termination; or
(iv) upon the consummation of a transaction involving a Change of
Control within the meaning of clause (a) of the definition of Change of
Control.
(b) The rights of the Class A Holders under Articles III, IV, V and
VI hereof, and Sections 7.3, 7.8, 7.13, 7.15 and 7.17 hereof, shall terminate
upon (i) the conversion of all of the outstanding shares of Class A Stock into
shares of Non-Class A Common Stock, pursuant to Section 8.5(h) of ARTICLE SIXTH
of the Articles.
(c) The rights of the Class A Holders under Articles IV and VI hereof
and Sections 7.4, 7.8, 7.11 and 7.13 hereof shall be suspended and may not be
exercised during any period of time in which the rights provided to the Class A
Holders under Sections 8.2 (except Sections 8.2(a)(iii) and 8.2(c)), 8.3, 8.4,
8.5 and 8.6 of ARTICLE SIXTH of the Articles are suspended pursuant to Section
8.5(b) of ARTICLE SIXTH of the Articles.
(d) The rights of a Qualified Stock Purchaser under Articles IV, V
and VI hereof and Sections 7.3, 7.4, 7.8, 7.11, 7.13 and 7.17 hereof shall
terminate upon (i) the conversion of the outstanding shares of Class A Stock
owned by such Qualified Stock Purchaser into Non-Class A Common Stock, pursuant
to Section 8.5(k) of ARTICLE SIXTH of the Articles, and the rights of a
Qualified Stock Purchaser under Articles IV and VI hereof and Sections 7.4, 7.8,
7.11, 7.13 and 7.17 hereof shall be suspended and may not be exercised during
any period of time in which the rights provided to such Qualified Stock
Purchaser under Sections 8.2 (except Sections 8.2(a)(iii) and 8.2(c)), 8.3, 8.4,
8.5 and 8.6 of ARTICLE SIXTH of the Articles are suspended pursuant to Section
8.5(k) of ARTICLE SIXTH of the Articles.
ARTICLE IX
TAX INDEMNIFICATION
-------------------
Section 9.1. Indemnification for Company Purchase. If the Company
------------------------------------
purchases Shares held by a Class A Holder under Section 2.5 or 7.4 of this
Agreement or Section 2.2(f) of ARTICLE SIXTH of the Articles (a "Company
Purchase") in the context where such Sections provide that such purchase price
or redemption price be modified in accordance with this Article IX and as a
result thereof such Class A Holder (together with any Class A Holder described
in Section 9.2, an "Indemnitee") incurs U.S. federal income taxes in excess of
the U.S. federal income taxes it would have incurred had it sold such Shares to
a third party unrelated to the Company or its Affiliates at the applicable price
set forth in such Section or Article (such sale to an unrelated third party, an
"Unrelated Party Sale" and such excess U.S. federal income taxes, "Excess
Taxes"), the Company shall indemnify and hold harmless such Indemnitee on an
after-tax basis from and against such Excess Taxes. For purposes of the
preceding sentence, the
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taxes that would have been incurred in an Unrelated Party Sale shall be net of
any refund of Taxes that would have been obtained had withholding under Section
1445 of the Code (or any successor provision) applied to such Unrelated Party
Sale. If Excess Taxes are imposed through withholding at the source, the Company
shall pay, in connection with the applicable Company Purchase, such additional
amounts as may be necessary such that after deduction or withholding of all such
Excess Taxes (including taxes imposed on such additional amounts), the
Indemnitee receives the amount it would have received had no such Excess Taxes
been imposed. The Company shall promptly furnish to the applicable Indemnitee an
appropriate receipt for the payment of any taxes imposed through withholding.
Section 9.2. Indemnification for Supplementary Payments. If the Company
------------------------------------------
makes a Supplementary Payment to a Class A Holder in respect of Shares disposed
of pursuant to Section 7.4(d) of this Agreement and as a result thereof such
Class A Holder incurs taxes in connection with the transaction contemplated in
such Section 7.4(d) in excess of the taxes it would have incurred had such Class
A Holder sold such Shares in an Unrelated Party Sale for the Formula Price in
the case of a transaction contemplated by Section 7.4 (such excess taxes,
"Section 9.2 Excess Taxes"), the Company shall indemnify and hold harmless such
Class A Holder on an after-tax basis from and against such Section 9.2 Excess
Taxes. For purposes of the preceding sentence, the taxes that would have been
incurred in an Unrelated Party Sale at the Formula Price shall be net of any
refund of taxes that would have been obtained had withholding under Section 1445
of the Code (or any successor provision) applied to such Unrelated Party Sale.
Section 9.3. Rebate of Indemnity. Within nine months after the end of
-------------------
each of the five consecutive taxable years of an Indemnitee starting with the
taxable year in which the Company has paid any amounts pursuant to Sections 9.1
or 9.2 in respect of such Indemnitee (a "Company Tax Payment"), such Indemnitee
shall determine whether it is in a better after-tax economic position as a
result of such Company Tax Payment than it would have been in had such
Indemnitee (a) in the case of a Company Tax Payment pursuant to Section 9.1,
sold the Shares purchased by the Company in an Unrelated Party Sale or (b) in
the case of a Company Tax Payment pursuant to Section 9.2, sold the Shares
disposed of pursuant to Section 7.4(d) of this Agreement in an Unrelated Party
Sale at the Formula Price (the amount of such difference in after-tax economic
positions under the preceding clauses (a) or (b), a "Windfall Benefit"). The
applicable Indemnitee shall promptly thereafter pay to the Company all or a
portion of such Windfall Benefit so that, after taking into account all prior
such payments and the tax consequences of making all such payments, such
Indemnitee is in the same after-tax economic position that it would have been in
had it (a) in the case of a Company Tax Payment pursuant to Section 9.1, sold
the Shares purchased by the Company in an Unrelated Party Sale or (b) in the
case of a Company Tax Payment pursuant to Section 9.2, sold the Shares disposed
of pursuant to Section 7.4(d) of this Agreement in an Unrelated Party Sale at
the Formula Price. In the case of a Windfall Benefit relating to an increase in
the tax basis in shares of Class A Stock of an Indemnitee attributable to a
Company Tax Payment (such Windfall Benefit, a "Basis Windfall"), the preceding
sentence shall be applied without regard to the five year time limitation
contained in the first sentence of this paragraph, provided, however, that no
-------- -------
Indemnitee shall be required
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after the five year limit contained in the first sentence of this paragraph to
pay any amount to the Company on account of such Basis Windfall unless the
Company notifies such Indemnitee in writing of the existence of such Basis
Windfall within three months after the date such Indemnitee disposes of Shares
in a transaction in which such Basis Windfall results in a savings of U.S.
taxes. In no event shall the amount payable by any Indemnitee to the Company
under this paragraph exceed the amount of the Company Tax Payment. If any
applicable Indemnitee subsequently determines (within five years after the end
of the taxable year of the Company in which the Indemnitee has paid a Windfall
Benefit to the Company) that the amount of such Windfall Benefit has been
reduced because of an audit adjustment, disallowance of tax credits, a carryback
or carryforward of losses or credits or for any other reason, the Company shall
promptly after notification thereof make a reconciling payment to such
Indemnitee in an amount necessary so that such Indemnitee is in the same after-
tax economic position, after taking into account the tax consequences of such
reconciling payment, that such Indemnitee would have been in had it (a) in the
case of a Company Tax Payment pursuant to Section 9.1, sold the Shares purchased
by the Company in an Unrelated Party Sale or (b) in the case of a Company Tax
Payment pursuant to Section 9.2, sold the Shares disposed of pursuant to Section
7.4(d) of this Agreement in an Unrelated Party Sale at the Formula Price.
Section 9.4. Exclusions from Indemnity. Notwithstanding Sections 9.1 and
-------------------------
9.2, the Company shall not be required to indemnify an Indemnitee under this
Agreement for any portion of Excess Taxes or Section 9.2 Excess Taxes to the
extent that such portion would not be imposed on such Indemnitee but for one or
more of the following events:
(a) the failure of such Indemnitee to qualify for the benefits
of the applicable income tax treaty between the United
States and the country of the Indemnitee's residence;
(b) the failure of such Indemnitee to supply the Company with
any form or other similar document that it is entitled to
supply and that is required to obtain or claim available
benefits of an applicable income tax treaty or relief that
may be provided under the Code with respect to Excess Taxes
or Section 9.2 Excess Taxes, provided, that this Section
9.4(b) shall not apply unless the Company requests from such
Indemnitee such form or similar document in writing within a
reasonable period of time before the relevant Company
Purchase or Supplementary Payment takes place;
(c) the imposition of Excess Taxes or Section 9.2 Excess Taxes
on a transferee or assignee of an original Class A Holder's
Shares, but only to the extent the amount of Excess Taxes or
Section 9.2 Excess Taxes required to be paid by the Company
exceeds the amount of Excess Taxes or Section 9.2 Excess
Taxes that would have been required to be paid by the
Company absent any transfer of such original Class A
Holder's Shares, provided, that this Section 9.4(c) shall
--------
not apply if the transferee or
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<PAGE>
assignee is a Qualified Subsidiary and has held such Shares
for at least six months prior to the date such Qualified
Subsidiary first undertook those discussions or negotiations
that resulted in the Company's right to purchase such Shares
pursuant to Section 2.5, has held such Shares prior to the
date that the FCC has requested that the Company reduce its
foreign ownership pursuant to Section 310 in the case of a
transaction under Section 7.4;
(d) penalties arising solely from actions taken by such
Indemnitee in connection with unrelated transactions; and
(e) the Excess Taxes or Section 9.2 Excess Taxes are imposed on
the Company Purchase or Supplementary Payment solely because
such Indemnitee conducts unrelated activities in the United
States sufficient to cause such Indemnitee to be treated as
engaged in a trade or business in the United States for U.S.
federal income tax purposes and such Indemnitee's income or
gain from the Company Purchase or Supplementary Payment to
be treated as effectively connected with that U.S. trade or
business.
Section 9.5. Consequences of Assignment. If the Company assigns to a
--------------------------
third party its rights hereunder to effect a Company Purchase, the Company shall
remain liable (and such third party shall not be liable) under the provisions of
this Article with respect to the purchase or Supplementary Payment by the third
party (taking into account the actual tax effect to the Indemnitee of such third
party purchase or Supplementary Payment in determining the taxes incurred in
excess of the taxes the Indemnitee would have incurred had the shares been sold
in an Unrelated Party Sale), and the "Excess Taxes" and Section 9.2 Excess Taxes
in such determination shall be computed by taking into account not only U.S.
taxes but also any taxes imposed by any other jurisdiction to the extent such
taxes would not have been imposed absent such an assignment.
Section 9.6. Verification. The chief tax officer of any party hereto
------------
making or seeking a payment pursuant to this Article IX shall furnish to the
other applicable party hereto a written statement describing in reasonable
detail the taxes which are the subject of such payment and the computation of
the amount so payable. In case of any dispute among the applicable parties
hereto regarding the amount of any payment under this Article IX, the applicable
parties shall negotiate in good faith to resolve such dispute. Notwithstanding
Section 11.5(b) of this Agreement, if such dispute cannot be resolved by the
parties hereto, then such dispute shall be referred to an independent accounting
firm of international standing reasonably acceptable to the parties hereto in
question. The decision of such accounting firm shall be conclusive absent
manifest error. The cost of employing such accounting firm shall be borne in
equal parts by the parties to such dispute.
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Section 9.7. Contest Rights. (a) Each Indemnitee shall exert its best
--------------
efforts to inform the Company, either orally or in writing, of any requests
received by such Indemnitee for information from, or potential claims by, the
U.S. Internal Revenue Service regarding the U.S. taxation of a Company Purchase
or Supplementary Payment.
(b) If the Company provides an Indemnitee with a written statement
regarding the manner in which the Company shall characterize a Company Purchase
or Supplementary Payment for U.S. Federal income tax purposes, such Indemnitee
shall thereafter treat such Company Purchase or Supplementary Payment for U.S.
Federal income tax purposes in a manner consistent with such characterization by
the Company, provided that such Indemnitee shall have no such obligation of
consistent characterization if such Indemnitee receives an opinion from U.S. tax
counsel of national standing to the effect that such characterization by the
Indemnitee lacks substantial authority.
(c) If an Indemnitee receives written notice from the U.S. Internal
Revenue Service (including, without limitation, in a preliminary or "30-day"
letter) that such Indemnitee is liable for Excess Taxes or Section 9.2 Excess
Taxes, such Indemnitee shall promptly notify the Company in writing of such fact
and shall permit the Company to assume control over the handling, disposition
and settlement of the Excess Taxes issue or Section 9.2 Excess Taxes issue at
the examination, administrative and judicial levels in the U.S. Such Indemnitee
shall be entitled to participate in all meetings with the U.S. Internal Revenue
Service relating to the Excess Taxes issue or Section 9.2 Excess Taxes issue and
to review and consult on all submissions to the U.S. Internal Revenue Service or
any court with respect to the Excess Taxes issue or Section 9.2 Excess Taxes
issue. Such Indemnitee shall cooperate with the Company, as reasonably
requested, in connection with any such examination or administrative or judicial
proceedings, including, without limitation, by way of signing and filing
protests, petitions, notices of appeal and court pleadings and executing powers
of attorney to enable the Company to represent the interests of the Indemnitee
in, and to assume control over, relevant examinations or proceedings insofar as
they relate to Excess Taxes or Section 9.2 Excess Taxes; provided, however, that
expenses incurred by such Indemnitee in connection with actions taken at the
request of the Company shall be reimbursed to such Indemnitee by the Company on
an after-tax basis. The Company shall be entitled to employ counsel of its
choice in connection with any of the matters described in this Article and shall
bear all expenses associated with the employment of such counsel. The provisions
of this paragraph shall also apply to a claim for refund of Excess Taxes or
Section 9.2 Excess Taxes paid or withheld. Notwithstanding the foregoing
provisions of this Section 9.7(c), if the Company assumes control over an Excess
Taxes issue or Section 9.2 Excess Taxes issue at the examination, administrative
or judicial levels, the Company shall not be entitled to settle or compromise
any such claim except upon the written consent of the applicable Indemnitee. If
an applicable Indemnitee fails to grant such consent, the Company shall not be
required to pay any amounts in excess of the amount it would have paid had such
Indemnitee consented to such settlement or compromise, and such Indemnitee shall
bear any further cost or expense of contesting such Excess Taxes issue or
Section 9.2 Excess Taxes issue.
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ARTICLE X
U.S. REAL PROPERTY TAX MATTERS
------------------------------
Section 10.1. Notification. The Company shall notify each Class A Holder
------------
whenever a FIRPTA Determination shall be required under the applicable rules of
the Code and regulations thereunder. Such notification shall, to the extent
practical, be made sufficiently far in advance of any date on which the actions
described in Section 10.3 will be necessary so as to allow for reasonable time
for the performance of the legal, accounting and valuation analyses described in
this Article X.
Section 10.2. Control of FIRPTA Determination. If one or more Class A
-------------------------------
Holders notify the Company that they desire to control a FIRPTA Determination
(each a "Notifying Class A Holder"):
(a) the Company shall cooperate fully with such Notifying
Class A Holders and their legal, accounting and valuation advisors with
respect to such FIRPTA Determination. Such cooperation shall include
making available information and knowledgeable personnel as reasonably
requested as well as making reasonable representations necessary for such
advisors to render their opinions and judgments described in this Article
X, to the extent that the Company may make such representations in its
good faith judgment. The Company shall not, however, be obligated to make
any representations as to the fair market value of assets; and
(b) the Company shall for purposes of such FIRPTA
Determination classify as non-real property each of the assets identified
as non-real property on Exhibit D to the 1996 Stockholders' Agreement,
provided that there has been no change in law, official interpretation or
guidance (a "Change in Law") with respect to such classification occurring
after the date hereof. The Company and the Notifying Class A Holders shall
endeavor to agree as to the classification of any assets not described as
non-real property on Exhibit D to the 1996 Stockholders' Agreement (and as
to any assets so described but as to which there has been a Change in Law)
but, in the absence of such agreement, the Company shall accept the
reasonable opinion (containing analysis, if appropriate) of nationally
recognized accountants or tax counsel chosen by such Notifying Class A
Holders as to whether it is reasonable to assert that a given asset should
or should not be considered to constitute real property for purposes of
such FIRPTA Determination.
Section 10.3. Issuance of Certification; Related Matters. In connection
------------------------------------------
with any FIRPTA Determination referred to in Section 10.2, the Company shall,
upon the presentation by the Notifying Class A Holders of a reasonable opinion
(containing analysis, if appropriate) of nationally recognized accountants or
tax counsel to the effect that it is reasonable to assert that the Company is
not, and has not at any time during the preceding five years (or shorter period
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during which any such Notifying Class A Holders held Shares) been, a U.S. real
property holding corporation as defined under the Code and the regulations
thereunder and as tested on the determination dates described in U.S. Treasury
Regulation (S) 1.897-2(c) (or any successor provision):
(a) in the case of a disposition by a Notifying Class A Holder of
Shares to a third party (related or unrelated), issue the statement
described in U.S. Treasury Regulation (S) 1.897-2 (or any successor
provision) indicating that the Shares do not constitute a U.S. real
property interest (as defined in the Code and the regulations thereunder)
and timely provide appropriate notice to the U.S. Internal Revenue Service;
and
(b) in the case of any redemption or exchange (including a deemed
exchange) by the Company of Shares held by any such Notifying Class A
Holders, comply with all requirements described in this Article X and
refrain from withholding any U.S. tax from the proceeds of such redemption
or exchange pursuant to Section 1445 of the Code (or any successor
provision).
In rendering any opinion described in this Section 10.3, the
accountants or tax counsel for the Notifying Class A Holders shall be entitled
to rely in their discretion upon advice of nationally recognized valuation
experts as they deem appropriate and upon information and representations
provided by the Company pursuant to this Article X.
Section 10.4. Advisory Costs. The Company shall pay 50% of all reasonable
--------------
costs of legal, accounting and valuation services incurred by any Notifying
Class A Holder in connection with any FIRPTA Determination.
Section 10.5. Indemnity. Each Notifying Class A Holder with respect to any
---------
FIRPTA Determination shall severally, but not jointly, reimburse the Company on
an after-tax basis for (a) any tax under Section 897 of the Code or any
successor provision (a "FIRPTA Tax") of such Notifying Class A Holder that the
U.S. Internal Revenue Service collects from the Company, including any
applicable interest and penalties imposed with respect to such FIRPTA Tax, and
(b) any FIRPTA Tax (including applicable interest and penalties) of the third
party described in Section 10.3(a) collected from or imposed on the Company, or
any penalties or interest imposed directly on the Company, with respect to such
Notifying Class A Holder, but in the case of clause (b) of this Section 10.5,
such reimbursement obligation shall apply only to taxes, interest and penalties
arising as a result of the Company's taking any action under Section 10.2(b) or
Section 10.3 hereof with respect to such Notifying Class A Holder based upon the
opinion provided by such Notifying Class A Holder pursuant to Section 10.2 or
10.3.
Section 10.6. Contest Rights. (a) The Company shall exert its best efforts
--------------
to inform each Class A Holder, either orally or in writing, of any requests
received by the Company for
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information from, or potential claims by, the U.S. Internal Revenue Service
regarding any matter that could result in liability to any Class A Holder under
Section 10.5 hereof.
(b) If the Company receives written notice from the U.S. Internal
Revenue Service (including, without limitation, in a preliminary or "30-
day" letter) regarding any item for which any Class A Holder may be liable
under Section 10.5 hereof, the Company shall promptly notify such Class A
Holder in writing of such fact and shall permit the Class A Holders so
notified to assume control over the handling, disposition and settlement of
any such matter at the examination, administrative and judicial levels. The
Company shall be entitled to participate in all meetings with the U.S.
Internal Revenue Service relating to such issue and to review and consult
on all submissions to the U.S. Internal Revenue Service or any court with
respect to any such issue. The Company shall cooperate with such Class A
Holders, as reasonably requested, in connection with any such examination
or administrative or judicial proceedings, including, without limitation,
by way of signing and filing protests, petitions, notices of appeal and
court pleadings and executing powers of attorney to enable such Class A
Holders to represent the interests of the Company in, and to assume control
over, relevant examinations or proceedings insofar as they relate to the
issues described in this Article; provided, however, that expenses incurred
by the Company in connection with actions taken at the request of the Class
A Holders shall be reimbursed to the Company by such Class A Holders on an
after-tax basis. The Class A Holders shall be entitled to employ counsel of
their choice in connection with any of the matters described in this
Article X and shall bear all expenses associated with the employment of
such counsel. The provisions of this paragraph shall also apply to any
claim for a refund of taxes paid or withheld in connection with the matters
described in this Article X. Notwithstanding the foregoing provisions of
this Section 10.6(b), if any Class A Holders assume control over any issue
concerning the liability of the Company described in this Article at the
examination, administrative or judicial levels, such Class A Holders shall
not be entitled to settle or compromise any such claim except upon the
written consent of the Company. If the Company fails to grant such consent,
such Class A Holders shall not be required to pay any amounts pursuant to
Section 10.5 in excess of the amounts they would have paid had the Company
consented to such settlement or compromise, and the Company shall bear any
further cost or expense of contesting any such issue.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1. 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:
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<PAGE>
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
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
and 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
Tel: 49-228-181-9000
Fax: 49-228-181-8970
Attn: Chief Executive Officer
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
Sprint: 2330 Shawnee Mission
Parkway, East Wing
Westwood, Kansas 66205
U.S.A.
Attn: General Counsel
-77-
<PAGE>
Tel: (913) 624-8440
Fax: (913) 624-8426
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 11.1 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 11.2. 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 11.3. No Partnership. This Agreement is not intended, nor should
--------------
anything herein be construed, to create the relationship of partners, joint
venturers, principal and agent, or other fiduciary relationship among the Class
A Holders and the Company. Except as expressly set forth herein, none of the
Class A Holders will have any authority to represent or to bind the other Class
A Holder or Holders or the Company in any manner whatsoever, and each Class A
Holder will be solely responsible and liable for its own acts.
Section 11.4. Binding Agreement; Assignment; 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 will be construed to confer upon or
to give to any third party any rights or remedies by virtue hereof.
Section 11.5. 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
-78-
<PAGE>
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW).
(b) EXCEPT AS PROVIDED IN ARTICLE IX HEREOF, EACH PARTY TO THIS AGREEMENT
IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION, SUIT OR PROCEEDING BY IT
AGAINST ANY OF THE OTHER PARTIES WITH RESPECT TO ITS RIGHTS, OBLIGATIONS OR
LIABILITIES UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL
BE BROUGHT BY SUCH PARTY 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 (INCLUDING, WITHOUT LIMITATION, CLAIMS FOR
INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS IN
WHICH SUCH PARTY IS IMPLED). 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
11.1. 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
-79-
<PAGE>
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 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 THAT SUCH A BREACH HAS OCCURRED, AND TO WAIVE ANY
REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH SUCH
REMEDY.
Section 11.6. 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 Applicable Law that renders any provision hereof
prohibited or unenforceable in any respect. If any provision of this Agreement
is held to be unenforceable for any reason, to the extent permitted by
applicable Law it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to this Agreement to the extent possible.
Section 11.7. Translation. The parties hereto have negotiated this
-----------
Agreement in the English language, and have prepared successive drafts and the
definitive texts of this Agreement in the English language. For purposes of
complying with the loi n 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 11.8. 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.
-80-
<PAGE>
Section 11.9. Entire Agreement. This Agreement and the Other Investment
----------------
Documents embody the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein, provided that this provision
shall not abrogate (a) any other written agreement between the parties hereto,
executed simultaneously with this Agreement, or (b) the understanding set forth
in Item 1 of Schedule 2 to that certain memorandum dated June 22, 1995 among the
Company, FT and DT. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter, except
as so provided in the preceding sentence.
Section 11.10. 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 Agreement from the
jurisdiction of any competent court described in Section 11.5, 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 11.11. Acquisitions by FT and DT of Stock from Third Parties.
-----------------------------------------------------
Except as provided by Section 5.7, nothing in this Agreement shall prohibit FT
or DT from acquiring shares of Sprint PCS Common Stock or Sprint FON Common
Stock from third parties other than the Company; provided, however, that such
-------- -------
purchases may be made only if permitted by the Amended and Restated Standstill
Agreement.
Section 11.12. Effect of Conversion. (a) If all of the shares of Class A
--------------------
Stock shall have been converted into Non-Class A Common Stock, pursuant to
Section 8.5 of ARTICLE SIXTH of the Articles, each share of Class A Stock to
have been issued by the Company thereafter pursuant to this Agreement shall (i)
in the case of Class A Common Stock, instead be issued as one duly issued, fully
paid and nonassessable share of Sprint FON Common Stock, (ii) in the case of
Series 3 FON Stock, instead be issued as one duly issued, fully paid and
nonassessable share of Series 1 FON Stock, and (iii) in the case of Series 3 PCS
Stock, instead be issued as one duly issued, fully paid and nonassessable share
of Series 1 PCS Stock.
(b) If all of the shares of Class A Stock held by a Qualified Stock
Purchaser shall have been converted into Non-Class A Common Stock, pursuant to
Section 8.5 of ARTICLE SIXTH of the Articles, each share of Class A Stock to
have been issued by the Company to such
-81-
<PAGE>
Qualified Stock Purchaser pursuant to this Agreement shall (i) in the case of
Class A Common Stock, instead be issued as one duly issued, fully paid and
nonassessable share of Sprint FON Common Stock, (ii) in the case of Series 3 FON
Stock, instead be issued as one duly issued, fully paid and nonassessable shares
of Series 1 FON Stock, and (iii) in the case of Series 3 PCS Stock, instead be
issued as one duly issued, fully paid and nonassessable shares of Series 1 PCS
Stock.
Section 11.13. Continuing Director Approval. Where Continuing Director
----------------------------
approval is otherwise explicitly required under this Agreement with respect to a
transaction or determination on the part of the Company, such approval shall not
be required if (a) the Fair Price Provisions have been deleted in their
entirety, (b) the Fair Price Provisions have been modified so as explicitly not
to apply to any Class A Holder, or they have been modified in a manner
reasonably satisfactory to FT and DT so as explicitly not to apply to any
transactions with any Class A Holder contemplated by this Agreement or by the
Other Investment Documents or the Articles, (c) the transaction in question is
not a "Business Combination" within the meaning of the Fair Price Provisions, or
(d) the Class A Holder that is a party to the transaction, along with its
Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as in effect on October 1, 1982) and Associates (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on
October 1, 1982), is not an "Interested Stockholder" or an "Affiliate" of an
"Interested Stockholder" within the meaning of the Fair Price Provisions. Where
this Agreement provides that Continuing Director approval is explicitly required
to undertake a transaction or make a determination on the part of the Company,
the Company shall not undertake such transaction or make such determination
unless it first delivers a certificate, signed by a duly authorized officer of
the Company, to each of FT and DT, certifying that such approval either has been
obtained or is not required as set forth in the preceding sentence, and FT and
DT shall be entitled to rely on such certificate.
-82-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed 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:_____________________________________
Name:
Title:
DEUTSCHE TELEKOM AG
By:_____________________________________
Name:
Title:
-83-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date above written.
SPRINT CORPORATION
By:_______________________________
Name:
Title:
FRANCE TELECOM S.A.
By: /s/ [SIGNATURE ILLEGIBLE]^^
-------------------------------
Name: [ ILLEGIBLE]
Title: Senior Vice President
DEUTSCHE TELEKOM AG
By:_______________________________
Name:
Title:
-84-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date above written.
SPRINT CORPORATION
By:_______________________________
Name:
Title:
FRANCE TELECOM S.A.
By:
_______________________________
Name:
Title:
DEUTSCHE TELEKOM AG
By: /s/ DR. RON SOMMER
-------------------------------
Name: DR. RON SOMMER
Title: Vorstandsvorsitsender
-85-
<PAGE>
Exhibit 10(cc)
SUMMARY OF EXECUTIVE OFFICER AND BOARD OF DIRECTORS BENEFITS
------------------------------------------------------------
<TABLE>
<CAPTION>
Description of Benefit Eligible Positions Amount/Schedule
- ---------------------- ------------------ ---------------
<S> <C> <C>
Automobile Allowance Chief Executive Officer $ 1,500/month
Chief Operating Officer $ 1,300/month
Division Presidents and Executive Vice $ 1,100/month
Presidents
Senior Vice Presidents $ 1,000/month
Vice Presidents $ 900/month
Assistant Vice Presidents $ 700/month
- ------------------------------------------------------------------------------------------------------------------------
Club Membership Chief Executive Officer, Chief Operating Dues approved at discretion
Officer, Division Presidents and Executive of CEO
Vice Presidents
Senior Vice Presidents Dues approved at discretion
of Executive Vice Presidents
- ------------------------------------------------------------------------------------------------------------------------
Sprint Long-Distance Board of Directors $ 6,000/year (continues after
Telephone Service retirement for up to 120 months)
Chief Executive Officer, Chief Operating Unlimited (continues after
Officer, Division Presidents, Executive retirement)
and Senior Vice Presidents
- ------------------------------------------------------------------------------------------------------------------------
Sprint PCS Service Board of Directors $2,000/year
Use of PCS handset
- ------------------------------------------------------------------------------------------------------------------------
Miscellaneous services Chief Executive Officer and Chief Operating $15,000/year
(e.g., investment/tax Officer
counseling, income tax Division Presidents and Executive Vice $12,000/year
preparation, estate Presidents
planning) Senior Vice Presidents $10,000/year
Vice Presidents and Assistant Vice Presidents $3,500 initially and
$1,500/year
- ------------------------------------------------------------------------------------------------------------------------
Disability Chief Executive Officer, Chief Operating 52 weeks at full base pay
Officer, Division Presidents, Executive and
Senior Vice Presidents, Vice Presidents and
Assistant Vice Presidents
</TABLE>
<PAGE>
Exhibit 10(cc)
(continued)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Separation Chief Executive Officer, Chief Operating Less than 5 years'services:
Officer, Division Presidents, Executive and 17 weeks' salary
Senior Vice Presidents, Vice Presidents and continutation
Assistant Vice Presidents 5 to 10 years' service
35 weeks' salary
continuation
11 to 18 years' service
43 weeks' salary
continuation
More than 19 years' service:
1 year salary continuation
</TABLE>
<PAGE>
Exhibit (10)(g)
STANDSTILL AGREEMENT
--------------------
THIS STANDSTILL AGREEMENT (this "Agreement") dated as of May 26, 1998 is
---------
entered into between Sprint Corporation, a Kansas corporation ("Sprint") and
------
Tele-Communications, Inc., a Delaware corporation (the "Holder").
------
RECITALS:
--------
WHEREAS, Sprint, the Holder, Comcast Corporation, a Pennsylvania
corporation ("Comcast") and Cox Communications, Inc., a Delaware corporation
-------
("Cox," and together with the Holder and Comcast, the "Cable Holders") and
--- -------------
certain of their respective subsidiaries have entered into the Restructuring and
Merger Agreement, dated as of the date hereof (the "Restructuring Agreement"),
-----------------------
pursuant to which the Cable Holders, either directly or indirectly through one
or more subsidiaries, will acquire shares of Series 2 PCS Stock (as defined
herein), on the terms set forth in the Restructuring Agreement; and
WHEREAS, as a condition to its entering into the Restructuring Agreement,
Sprint has required that each of the Cable Holders enter into a Standstill
Agreement in the form hereof, which contains certain restrictions on purchases
of Sprint capital stock by the Cable Holders and their respective Affiliates and
certain other limitations on the Cable Holders and their respective Affiliates;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Other
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Holder and Sprint (each a
"Party"), intending to be legally bound, hereby agree as follows:
-----
ARTICLE 1.
RESTRICTIONS ON ACQUISITION OF VOTING SECURITIES BY
THE HOLDER AND ITS AFFILIATES
-----------------------------
Section 1.1 Acquisition Restrictions.
------------------------
(a) Subject to Section 1.2, the Holder agrees that it will not, and it
will cause each of its Affiliates not to, directly or indirectly, either
individually or as part of a Group, acquire, offer to acquire, or agree to
acquire, by purchase or otherwise, Beneficial Ownership of:
<PAGE>
(i) any Sprint Voting Securities at any time prior to the
Closing Date, other than as a result of purchases from Sprint pursuant to
the Restructuring Agreement; or
(ii) any Sprint Voting Securities on or following the Closing
Date and prior to the tenth anniversary of the date hereof (or the earlier
termination of this Agreement), if as a result the Votes represented by the
Sprint Voting Securities Beneficially Owned by the Holder and its
Affiliates would represent in the aggregate more than one and one half
percent (1.5%) of the Voting Power represented by the Outstanding Sprint
Voting Securities (assuming for purposes of this paragraph (ii) that all
shares of Series 2 PCS Stock have the same voting rights as the Series 1
PCS Stock) (the "Percentage Limitation"); provided, however, that nothing
--------------------- -------- -------
in this Agreement shall prohibit or restrict the Holder or an Affiliate of
the Holder from (A) exercising the equity purchase rights provided for in
Section 6.8 of the Restructuring Agreement, including paragraphs (h) and
(i) of such Section 6.8, (B) acquiring additional shares of Series 2 PCS
Stock upon conversion of shares of PCS Preferred or (C) acquiring
additional shares of Series 2 PCS Stock upon exercise of the Warrants.
Section 1.2 Effect of Action by Sprint. The Holder shall not be
--------------------------
deemed in violation of this Article 1 if the Beneficial Ownership of Sprint
Voting Securities by the Holder and its Affiliates exceeds the Percentage
Limitation (i) solely as a result of an increase in the Votes per share
attributed by the Board of Directors of Sprint to shares of PCS Stock, (ii)
solely as a result of an acquisition of Sprint Voting Securities by Sprint that,
by reducing the number of Outstanding Sprint Voting Securities, increases the
proportionate number of Sprint Voting Securities Beneficially Owned by the
Holder and its Affiliates, or (iii) because the Holder or its Affiliates
mistakenly purchase shares in excess of the Percentage Limitation in reliance on
information provided in writing by Sprint regarding the number of shares
permitted to be purchased under Section 6.8 of the Restructuring Agreement.
ARTICLE 2.
CERTAIN ADDITIONAL AGREEMENTS
-----------------------------
Section 2.1 Further Restrictions. Subject to Section 2.2, the Holder
--------------------
agrees that it will not, and it will cause each of its Affiliates not to,
directly or indirectly, alone or in concert with others (including with any of
the other Cable Holders or their respective Affiliates), unless specifically
requested in writing by the Chairman of Sprint or by a resolution of a majority
of the directors of Sprint, take any of the actions set forth below:
(a) effect, seek, offer, propose (whether publicly or otherwise) or
cause or participate in (whether by purchasing or offering to purchase
securities or by
<PAGE>
taking any other action, including communicating with stockholders of Sprint),
or assist any other Person to effect, seek, offer or propose (whether publicly
or otherwise) or participate in:
(i) any acquisition of Beneficial Ownership of Sprint Voting
Securities or other equity interests in Sprint which would result in a
breach of Section 1.1 of this Agreement;
(ii) any tender or exchange offer for Sprint Voting Securities;
(iii) any merger, consolidation, share exchange or business
combination involving Sprint or any material portion of its business or any
purchase of all or any substantial part of the assets of Sprint or any
material portion of its business;
(iv) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to Sprint or
any material portion of its business; or
(v) any "solicitation" of "proxies" (as such terms are used in
the proxy rules under the Exchange Act promulgated by the United States
Securities and Exchange Commission but without regard to the exclusion set
forth in Section 14a-1(l)(2)(iv) from the definition of "solicitation")
with respect to Sprint or any of its Affiliates or any action resulting in
such Person becoming a "participant" in any "election contest" (as such
terms are used in such proxy rules) with respect to Sprint or any of its
Affiliates;
(b) propose any matter for submission to a vote of stockholders of
Sprint or any of its Affiliates;
(c) except as may result from the transactions contemplated by the
Other Agreements, form, join or participate in a Group with respect to any
Sprint Voting Securities;
(d) grant any proxy with respect to any Sprint Voting Securities to
any Person not designated by Sprint, except for proxies granted to individuals
who are officers, employees or regular agents or advisors of the Holder who have
received specific instructions from the Holder as to the voting of such Sprint
Voting Securities with respect to the matter or matters for which the proxy is
granted;
(e) except as provided for in such Holder's Voting Agreement, deposit
any Sprint Voting Securities in a voting trust or subject any Sprint Voting
Securities to any arrangement or agreement with respect to the voting of such
Sprint Voting Securities or other agreement having similar effect;
<PAGE>
(f) execute any written stockholder consent with respect to Sprint,
except for written consents executed by such Persons as holders of Series 2 PCS
Stock in connection with any vote by the holders of the PCS Stock with respect
to which such holders are entitled to vote as a class;
(g) take any other action to seek to affect the control of the
management or Board of Directors of Sprint or any of its Affiliates;
(h) enter into any discussions, negotiations, arrangements or
understandings with any Person with respect to any of the foregoing, or advise,
assist, encourage or seek to persuade others to take any action with respect to
any of the foregoing;
(i) disclose to any Person any intention, plan or arrangement
inconsistent with the foregoing or form any such intention which would result in
the Holder or any of its Affiliates being required to make any such disclosure
in any filing with a Governmental Authority or being required by applicable law
to make a public announcement with respect thereto; or
(j) request Sprint or any of its Affiliates, directors, officers,
employees, representatives, advisors or agents, directly or indirectly, to amend
or waive in any material respect this Agreement (including this Section 2.1(j)),
the Sprint Rights Plan, the Articles or the bylaws of Sprint or any of its
Affiliates.
Section 2.2 Actions in Opposition. Notwithstanding anything in this
---------------------
Article 2 to the contrary, in the event that Sprint shall submit to a vote of
its stockholders any Covered Proposal with which the Holder disagrees (a
"Rejected Proposal"), the Holder and its Affiliates shall be free to:
-----------------
(a) either alone or acting in concert with others, make a
"solicitation" of "proxies" with respect to Sprint or any of its Affiliates in
response or opposition to such Rejected Proposal;
(b) make a proposal in opposition to such Rejected Proposal for
submission to a vote of stockholders of Sprint or any of its Affiliates;
(c) form, join in or participate in a Group with respect to any
Sprint Voting Securities for the sole purpose of responding to or opposing such
Rejected Proposal;
(d) grant a proxy with respect to any Sprint Voting Securities to any
Person with specific instructions from the Holder as to the voting of such
Sprint Voting Securities with respect to such Rejected Proposal; and
<PAGE>
(e) subject any Sprint Voting Securities to an arrangement or
agreement with respect to the voting of such Sprint Voting Securities with
respect to such Rejected Proposal.
Section 2.3 Press Releases, Etc. by the Holder.
----------------------------------
(a) Subject to Section 2.3(b), the Holder may issue such press
releases and make such other public communications to the financial community
and to its stockholders and such other public statements made in the ordinary
course of business relating to its investment in Sprint, in each case as it
reasonably deems appropriate and customary. Prior to making any such press
release or other communication, the Holder will use reasonable efforts to
consult with Sprint in good faith regarding the form and content of any such
communication, and the Holder will use reasonable efforts to coordinate any such
communication with any decisions reached by Sprint with respect to disclosures
relating to such matters.
(b) Notwithstanding the provisions of Section 2.3(a), unless required
by applicable law or permitted by Section 2.2, neither the Holder nor any of its
Affiliates may make any press release, public announcement or other public
communication with respect to any of the matters described in Section 2.1
without the prior written consent of the Chairman of Sprint or by a resolution
of a majority of the directors of Sprint. Nothing in this Section 2.3 shall
permit the taking of any action which would otherwise violate any provision
contained in Section 2.1; provided that the Holder and its Affiliates shall be
--------
permitted to make such public communications as may be required by law, except
for public communications required as a result of, or relating to, activities
undertaken by the Holder or any of its Affiliates in violation of this
Agreement. Nothing in this Section 2.3 shall prevent the taking of any actions
permitted by Section 2.2.
Section 2.4 Transfers to Affiliates and Associates.
--------------------------------------
(a) The Holder may Transfer shares of capital stock of Sprint to its
Affiliates only if, prior to such Transfer, such transferee executes and
delivers to Sprint (in accordance with Section 4.2) a Standstill Agreement in
the form hereof.
(b) If and to the extent that the Holder elects to Transfer shares of
Series 2 PCS Stock to one of its Associates without such shares automatically
converting into shares of Series 1 PCS Stock, the Holder may effect such
Transfer only if, prior to such Transfer, such transferee executes and delivers
to Sprint (in accordance with Section 4.2) a Standstill Agreement in the form
hereof.
Section 2.5 Voting of Sprint Voting Securities. Except as set forth
----------------------------------
in Sections 2.1(d), 2.1(e) and 2.1(f) (each to the extent limited by Section
2.2), nothing in Section 2.1 shall restrict the manner in which the Holder and
its Affiliates may vote their Sprint Voting Securities.
<PAGE>
Section 2.6 No Modification of Sprint Rights Plan. Nothing in this
-------------------------------------
Agreement shall be deemed to modify, amend, supersede or grant or imply any
waiver with respect to the Sprint Rights Plan.
Section 2.7 Permitted Activities. Nothing in this Agreement shall
--------------------
prevent the Holder from (i) selling, transferring, tendering or otherwise
disposing of shares of capital stock of Sprint to any Person at any time or from
voting on, tendering into or receiving the benefit of any transaction described
in clauses (ii), (iii), (iv) and (v) of Section 2.1(a), in the same manner as
any other non- initiating holder of Sprint Voting Securities or (ii) taking any
actions necessary or appropriate for the Holder and its Affiliates to exercise
their rights under any of the Other Agreements.
ARTICLE 3.
DEFINITIONS AND CONSTRUCTION
----------------------------
Section 3.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the meanings specified below:
"Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person. For purposes of
Section 2.4 only, "Affiliate" of the Holder includes any Person that is jointly
Controlled, directly, or indirectly through one or more intermediaries, by one
or more Cable Holders, or Affiliates of one or more Cable Holders, without
regard to whether such Person would be an Affiliate of the Holder pursuant to
the first sentence of this definition.
"Agreement" has the meaning set forth in the Preamble.
---------
"Articles" means the Articles of Incorporation of Sprint, as amended or
--------
supplemented from time to time.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under the
---------
Exchange Act.
"Beneficial Owner" (including, with its correlative meanings, "Beneficially
---------------- ------------
Own" and "Beneficial Ownership"), with respect to any securities, means any
- --- --------------------
Person which:
(a) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to acquire (whether such right is exercisable immediately
or only after the passage of time) such securities pursuant to any agreement,
arrangement or understanding (whether or not in writing), including pursuant to
the Restructuring Agreement, or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise;
<PAGE>
(b) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to vote or dispose of (whether such right is exercisable
immediately or only after the passage of time) or "beneficial ownership" of (as
determined pursuant to Rule 13d-3 under the Exchange Act as in effect on the
date hereof but including all such securities which a Person has the right to
acquire beneficial ownership of, whether or not such right is exercisable within
the 60-day period specified therein) such securities, including pursuant to any
agreement, arrangement or understanding (whether or not in writing); or
(c) has, or any of whose Affiliates has, any agreement, arrangement
or understanding (whether or not in writing) for the purpose of acquiring,
holding, voting or disposing of any securities which are Beneficially Owned,
directly or indirectly, by any other Person (or any Affiliate thereof), provided
--------
that the Restructuring Agreement shall not be deemed an agreement, arrangement
or understanding contemplated by this paragraph (c).
"Cable Holders" has the meaning set forth in the Recitals.
-------------
"Change of Control" means the consummation of:
-----------------
(a) a third party tender offer for Voting Securities of Sprint
representing more than 35% of the Voting Power of Sprint;
(b) a sale of all or substantially all of the assets of Sprint in one
transaction or in a series of related transactions;
(c) a merger or other business combination that would result in (a) a
Person holding Voting Securities of the resulting entity representing 35% or
more of the Voting Power of Sprint or (ii) the stockholders of Sprint
immediately prior to the record date for such transaction owning less than 50%
of the outstanding equity securities of the surviving Person following such
combination; or
(d) a change in the identity of a majority of the Directors due to
(i) a proxy contest (or the threat to engage in a proxy contest) or the election
of Directors by the holders of Preferred Stock; or (ii) any unsolicited tender,
exchange or other purchase offer which has not been approved by a majority of
the Independent Directors;
provided that a Strategic Merger shall not be deemed a Change of Control.
- --------
"Class A Stock" means the Class A Common Stock, par value $2.50 per share,
-------------
of Sprint.
"Closing Date" means the Closing Date as defined in the Restructuring
------------
Agreement.
<PAGE>
"Common Stock" means the Common Stock, par value $2.50 per share, of
------------
Sprint.
"Control" (including, with its correlative meanings, "Controlled by" and
------- -------------
"under common Control with") means, with respect to a Person or Group:
-------------------------
(a) ownership by such Person or Group of Votes entitling it to
exercise in the aggregate more than 50 percent of the Voting Power of the entity
in question; or
(b) possession by such Person or Group of the power, directly or
indirectly, (i) to elect a majority of the board of directors (or equivalent
governing body) of the entity in question; (ii) to direct or cause the direction
of the management and policies of or with respect to the entity in question,
whether through ownership of securities, by contract or otherwise; or (iii) with
respect to a particular action or agreement, to direct or cause the direction of
decisions, or veto or otherwise prevent decisions, of or with respect to the
entity in question relating to such action or agreement.
"Covered Proposal" means any proposal by Sprint (i) for a merger,
----------------
consolidation, business combination, recapitalization or similar transaction,
(ii) to modify or amend either the Articles or the provisions of the Bylaws
relating to the Capital Stock Committee of the Board of Directors of Sprint in a
manner that would adversely affect the rights of the holders of the Series 1 PCS
Stock or the Series 2 PCS Stock, (iii) for the issuance of Sprint Voting
Securities, (iv) for the sale of substantially all assets or a dissolution or
liquidation of Sprint, or (v) for any other matter that would require approval
of the holders of PCS Stock, voting as a separate class.
"Exchange Act" means the United States Securities Exchange Act of 1934 and
------------
the rules and regulations thereunder.
"FON Stock" means the Sprint FON Group Common Stock that will be created on
---------
the Closing Date, as defined in the Restructuring Agreement.
"Group" means any group within the meaning of Section 13(d)(3) of the
-----
Exchange Act as in effect on the date hereof.
"Governmental Authority" means any federation, nation, state, sovereign, or
----------------------
government, any federal, supranational, regional, state, local or political
subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, administrative hearing body, arbitration
tribunal, commission or other similar dispute resolving panel or body, and any
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of a government.
"Holder" has the meaning set forth in the Preamble.
------
"Other Agreements" means (i) the Restructuring Agreement, (ii) the
----------------
Registration Rights Agreement, (iii) the Tax Sharing Agreement, (iv) the Cox
L.A. Amendments, (v)
<PAGE>
the Warrant Agreements, together with the Warrants, (vi) the Mutual Release and
Waiver, (vii) the FT/DT Purchase Rights Agreement and (viii) the Voting
Agreements, each as defined in the Restructuring Agreement.
"Other Termination Event" means (i) a redemption of all of the outstanding
-----------------------
shares of PCS Stock for the common equity securities of one or more wholly owned
subsidiaries of Sprint that hold all or substantially all of the assets
attributed to the PCS Group (as such term is defined in the Restructuring
Agreement), (ii) a redemption of all or a substantial portion of the outstanding
shares of PCS Stock upon the sale of all or substantially all of the assets of
the PCS Group, or (iii) a conversion of all of the outstanding shares of PCS
Stock into any class of Sprint common stock that is not a common equity tracking
security that continues to reflect substantially all of the business, assets and
liabilities comprising the PCS Group immediately prior to such conversion, but
which shall not represent any business, assets or liabilities comprising any
part of the FON Group immediately prior to such conversion.
"Outstanding Sprint Voting Securities" means the Sprint Voting Securities
------------------------------------
outstanding as of any particular date.
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock and the
---------
Series 3 PCS Stock.
"PCS Preferred Stock" means the Series 7 Preferred Stock of Sprint, no par
-------------------
value per share, which shall be created by the filing of a Certificate of
Designations as described in Section 6.2(d) of the Restructuring Agreement.
"Percentage Limitation" has the meaning set forth in Section 1.1(a)(ii).
---------------------
"Person" means an individual, a partnership, an association, a joint
------
venture, a corporation, a business, a trust, an unincorporated organization, or
any other entity organized under applicable law.
"Preferred Stock" means any class or series of the Preferred Stock, no par
---------------
value, of Sprint, including the PCS Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated as of the date hereof among Sprint and the Cable Holders.
"Restructuring Agreement" has the meaning set forth in the Recitals.
-----------------------
"Series 1 PCS Stock" means the Series 1 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment, as defined in the Restructuring
Agreement.
<PAGE>
"Series 2 PCS Stock" means the Series 2 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment.
"Series 3 PCS Stock" means the Series 3 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment.
"Sprint Rights Plan" means the Rights Agreement dated as of June 9, 1997,
------------------
as amended, between Sprint and UMB Bank, n.a., as rights agent, as amended or
modified from time to time, or any successor or similar Plan.
"Sprint Voting Securities" means the Common Stock, the Class A Stock, the
------------------------
FON Stock, the PCS Stock, the Preferred Stock and any other securities of Sprint
having the right to Vote.
"Strategic Merger" means a merger or other business combination involving
----------------
Sprint (a) in which the Holder is entitled to retain or receive, as the case may
be, voting equity securities of the surviving parent entity in exchange for or
in respect of (by conversion or otherwise) its shares of PCS Stock, with an
aggregate fair market value equal to the sum of (i) the fair market value of all
consideration that the Holder has a right to receive with respect to such merger
or other business combination, and (ii) if Sprint is the surviving parent
entity, the fair market value of the equity securities of the surviving parent
entity that the Holder is entitled to retain, (b) immediately after which the
surviving parent entity is an entity whose voting equity securities are
registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act or
which otherwise has any class or series of its voting equity securities held by
at least 500 holders, (c) immediately after which no person or Group (other than
the Cable Holders) owns Voting Securities of such surviving parent entity with
Votes equal to more than 35 percent of the Voting Power of such surviving parent
entity and (d) in which holders of PCS Stock receive a common equity tracking
security that continues to reflect substantially all of the business, assets and
liabilities comprising the PCS Group immediately prior to such merger or other
business combination together with such additional wireless business, assets and
liabilities which may be included in the PCS Group of the surviving parent
entity, but which shall not represent any business, assets or liabilities
comprising any part of the other businesses, assets or liabilities of the
surviving parent entity or its subsidiaries, including businesses, assets or
liabilities of the FON Group immediately prior to such merger or business
combination, it being understood that no merger or business combination shall be
deemed to meet the requirements of this definition unless the requirements of
each of clauses (a) through (d) above have been met. "Fair market value" with
respect to any property, for purposes of this definition, shall be as determined
in writing in good faith by a majority of the independent directors of Sprint.
"Subsidiary" means, with respect to any Person (the "Parent"), any other
----------
Person in which the Parent, one or more Subsidiaries of the Parent, or the
Parent and one or more of
<PAGE>
its Subsidiaries (a) have the ability, through ownership of securities
individually or as a group, ordinarily, in the absence of contingencies, to
elect a majority of the directors (or individuals performing similar functions)
of such other Person, and (b) own more than 50% of the equity interests.
"Transfer" means any act pursuant to which, directly or indirectly, the
--------
ownership of assets or securities in question is sold, transferred, conveyed,
delivered or otherwise disposed of.
"Vote" means, as to any entity, the ability to cast a vote at a
----
stockholders' or comparable meeting of such entity with respect to the election
of directors or other members of such entity's governing body; provided that
--------
with respect to Sprint only, "Vote" means the ability to exercise general voting
power (as opposed to the exercise of special voting or disapproval rights) with
respect to matters other than the election of directors at a meeting of the
stockholders of Sprint.
"Voting Agreement" has the meaning assigned to such term in the
----------------
Restructuring Agreement.
"Voting Power" means, as to any entity as of any date, the aggregate number
------------
of Votes outstanding as of such date in respect of such entity; provided that,
--------
with respect to PCS Stock, the Vote per share used to calculate such aggregate
number of Votes shall be the Vote per share most recently established by the
Board of Directors of Sprint, whether for the most recent vote of stockholders
or for a vote of stockholders to be conducted in the future.
"Warrant" has the meaning set forth in the Restructuring Agreement.
-------
Section 3.2 Interpretation and Construction of this Agreement. The
--------------------------------------------------
definitions in Section 3.1 shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." All references herein to Articles, Sections and
Exhibits shall be deemed to be references to Articles and Sections of, and
Exhibits to, this Agreement unless the context shall otherwise require. The
headings of the Articles and Sections are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. Unless the context shall otherwise require or
provide, any reference to any agreement or other instrument or statute or
regulation is to such agreement, instrument, statute or regulation as amended
and supplemented from time to time (and, in the case of a statute or regulation,
to any successor provision).
<PAGE>
ARTICLE 4.
MISCELLANEOUS
-------------
Section 4.1 Termination. The provisions of this Agreement shall
-----------
terminate (a) upon the consent in writing of all of the Parties, (b) upon a
Change of Control, (c) if the Restructuring Agreement is terminated prior to the
Closing thereunder, (d) following the Closing under the Restructuring Agreement,
if the Votes represented by the Sprint Voting Securities Beneficially Owned by
the Holder and its Affiliates, directly or indirectly, either individually or as
part of a Group, in the aggregate no longer exceed the Percentage Limitation
(assuming for purposes of this clause (d) that all shares of Series 2 PCS Stock
have the same voting rights as the shares of Series 1 PCS Stock), or (e) upon
the occurrence of an Other Termination Event. As to a Holder that is an
Affiliate or an Associate of a Cable Holder and that has executed this Agreement
in accordance with Section 2.4, the provisions of this Agreement shall
terminate, in addition to the above circumstances, when such Holder ceases to be
an Affiliate (or Associate, as applicable) of a Cable Holder and all shares of
Series 2 PCS Stock held by such party shall have converted to Series 1 PCS
Stock. Any termination of this Agreement as provided herein shall be without
prejudice to the rights of any Party arising out of the breach by any other
Party of any provision of this Agreement.
Section 4.2 Notices. Except as expressly provided herein, all
-------
notices, consents, waivers and other communications required or permitted to be
given by any provision of this Agreement shall be in writing and mailed
(certified or registered mail, postage prepaid, return receipt requested) or
sent by hand or overnight courier, or by facsimile transmission (with
acknowledgment received and confirmation sent as provided below), charges
prepaid and addressed to the intended recipient as follows, or to such other
address or number as such Person may from time to time specify by like notice to
the parties:
Holder: Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Telecopy: (303) 488-3245
Attention: General Counsel
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Te1ecopy: (212) 705-5125
Attention: John L. Graham
Sprint: 2330 Shawnee Mission Parkway
<PAGE>
East Wing
Westwood, Kansas 66205
Attention: General Counsel
Tel: (913) 624-8440
Fax: (913) 624-8426
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Bruce N. Hawthorne, Esq.
Tel: (404) 572-4903
Fax: (404) 572-5146
The Parties shall promptly notify each other in the manner provided in this
Section 4.2 of any change in their respective addresses. A notice of change of
address shall not be deemed to have been given until received by the addressee.
Communications by facsimile also shall be sent concurrently by mail, but shall
in any event be effective as stated above.
Section 4.3 Assignment. No Party will assign this Agreement or any
----------
rights, interests or obligations hereunder, or delegate performance of any of
its obligations hereunder, without the prior written consent of each other
Party.
Section 4.4 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the Parties with respect to the subject matter
contained herein, provided that this provision shall not abrogate any other
--------
written agreement between the Parties executed simultaneously with this
Agreement. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to such subject matter.
Section 4.5 Waiver, Amendment, etc. This Agreement may not be amended
----------------------
or supplemented, and no waivers of or consents to departures from the provisions
hereof shall be effective, unless set forth in a writing signed by, and
delivered to, all the Parties. No failure or delay of any Party in exercising
any power or right under this Agreement will operate as a waiver thereof, nor
will any single or partial exercise of any right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.
Section 4.6 Binding Agreement; No Third Party Beneficiaries. This
-----------------------------------------------
Agreement will be binding upon and inure to the benefit of the Parties and their
successors and permitted assigns. Nothing expressed or implied herein is
intended or will
<PAGE>
be construed to confer upon or to give to any third party any rights or remedies
by virtue hereof.
Section 4.7 Governing Law; Dispute Resolution; Equitable Relief.
---------------------------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW).
(b) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION,
SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR LIABILITIES
UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
OR, IN THE EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE STATE OF
NEW YORK SITTING IN THE COUNTY OF NEW YORK, AND EACH PARTY HEREBY IRREVOCABLY
ACCEPTS AND SUBMITS TO THE JURISDICTION OF EACH OF THE AFORESAID COURTS IN
PERSONAM, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING (INCLUDING CLAIMS
FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS
IN WHICH SUCH PARTY IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR
PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
(c) EACH PARTY AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTY FOR ANY BREACH OF THIS AGREEMENT BY IT, AND THAT IN
ADDITION TO ALL OTHER REMEDIES THE OTHER PARTIES MAY HAVE, IT SHALL BE ENTITLED
TO SPECIFIC PERFORMANCE AND TO INJUNCTIVE OR OTHER EQUITABLE RELIEF AS A REMEDY
FOR ANY SUCH BREACH. EACH PARTY AGREES NOT TO OPPOSE THE GRANTING OF SUCH RELIEF
IN THE EVENT A COURT DETERMINES THAT SUCH BREACH HAS OCCURRED, AND AGREES TO
WAIVE ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH
SUCH REMEDY.
Section 4.8 Severability. The invalidity or unenforceability of any
------------
provision hereof in any jurisdiction will not affect the validity or
enforceability of the remainder hereof in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction. To the extent permitted by applicable law, each Party waives any
provision of applicable law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement is held to
<PAGE>
be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the Parties to the extent possible.
Section 4.9 Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which when so executed and delivered will be deemed an
original but all of which will constitute one and the same Agreement.
Section 4.10 Remedies. In addition to any other remedies which may be
--------
available to Sprint (including any remedies which Sprint may have at law or in
equity):
(a) If the Holder breaches this Agreement in any material respect,
then unless and until such breach is cured in all material respects, the Holder
shall not be entitled to vote any of its shares of capital stock of Sprint (or
any shares into which such shares of capital stock are converted) with respect
to any matter or proposal arising from, relating to or involving such breach,
and no such purported vote by the Holder on such matter shall be effective or
shall be counted; and
(b) The Holder agrees that Sprint shall have no obligation to honor
Transfers of Sprint Voting Securities or other equity interests in Sprint to the
Holder or any of its Affiliates that would cause the Holder and its Affiliates
to Beneficially Own Sprint Voting Securities or other equity interests in Sprint
in violation of this Agreement, any such Transfers shall be void and of no
effect, and Sprint shall be entitled to instruct any transfer agent or agents
for the equity interests in Sprint to refuse to honor such Transfers.
<PAGE>
IN WITNESS WHEREOF, Sprint and the Holder have caused their respective duly
authorized officers to execute this Standstill Agreement as of the day and year
first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
---------------------
Title: Vice President
---------------
SPRINT CORPORATION
By: /s/ Don A. Jensen
------------------
Title: Vice President
---------------
<PAGE>
STANDSTILL AGREEMENT
--------------------
THIS STANDSTILL AGREEMENT (this "Agreement") dated as of May 26, 1998 is
---------
entered into between Sprint Corporation, a Kansas corporation ("Sprint") and Cox
------
Communications, Inc., a Delaware corporation (the "Holder").
------
RECITALS:
--------
WHEREAS, Sprint, Tele-Communications, Inc., a Delaware corporation ("TCI"),
---
Comcast Corporation, a Pennsylvania corporation ("Comcast") and the Holder
-------
(together with TCI and Comcast, the "Cable Holders") and certain of their
-------------
respective subsidiaries have entered into the Restructuring and Merger
Agreement, dated as of the date hereof (the "Restructuring Agreement"), pursuant
-----------------------
to which the Cable Holders, either directly or indirectly through one or more
subsidiaries, will acquire shares of Series 2 PCS Stock (as defined herein), on
the terms set forth in the Restructuring Agreement; and
WHEREAS, as a condition to its entering into the Restructuring Agreement,
Sprint has required that each of the Cable Holders enter into a Standstill
Agreement in the form hereof, which contains certain restrictions on purchases
of Sprint capital stock by the Cable Holders and their respective Affiliates and
certain other limitations on the Cable Holders and their respective Affiliates;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Other
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Holder and Sprint (each a
"Party"), intending to be legally bound, hereby agree as follows:
-----
ARTICLE I.
RESTRICTIONS ON ACQUISITION OF VOTING SECURITIES BY
THE HOLDER AND ITS AFFILIATES
-----------------------------
Section 1.1 Acquisition Restrictions.
------------------------
(a) Subject to Section 1.2, the Holder agrees that it will not, and
it will cause each of its Affiliates not to, directly or indirectly, either
individually or as part of a Group, acquire, offer to acquire, or agree to
acquire, by purchase or otherwise, Beneficial Ownership of:
<PAGE>
(i) any Sprint Voting Securities at any time prior to the
Closing Date, other than as a result of purchases from Sprint pursuant to
the Restructuring Agreement; or
(ii) any Sprint Voting Securities on or following the Closing
Date and prior to the tenth anniversary of the date hereof (or the earlier
termination of this Agreement), if as a result the Votes represented by the
Sprint Voting Securities Beneficially Owned by the Holder and its
Affiliates would represent in the aggregate more than one and one half
percent (1.5%) of the Voting Power represented by the Outstanding Sprint
Voting Securities (assuming for purposes of this paragraph (ii) that all
shares of Series 2 PCS Stock have the same voting rights as the Series 1
PCS Stock) (the "Percentage Limitation"); provided, however, that nothing
--------------------- -----------------
in this Agreement shall prohibit or restrict the Holder or an Affiliate of
the Holder from (A) exercising the equity purchase rights provided for in
Section 6.8 of the Restructuring Agreement, including paragraphs (h) and
(i) of such Section 6.8, (B) acquiring additional shares of Series 2 PCS
Stock upon conversion of shares of PCS Preferred, (C) acquiring additional
shares of Series 2 PCS Stock upon exercise of the Warrants or (D)
exercising its rights under Section 13.6 of the Amended Cox PCS Agreement.
Section 1.2 Effect of Action by Sprint. The Holder shall not be deemed
--------------------------
in violation of this Article 1 if the Beneficial Ownership of Sprint Voting
Securities by the Holder and its Affiliates exceeds the Percentage Limitation
(i) solely as a result of an increase in the Votes per share attributed by the
Board of Directors of Sprint to shares of PCS Stock, (ii) solely as a result of
an acquisition of Sprint Voting Securities by Sprint that, by reducing the
number of Outstanding Sprint Voting Securities, increases the proportionate
number of Sprint Voting Securities Beneficially Owned by the Holder and its
Affiliates, or (iii) because the Holder or its Affiliates mistakenly purchase
shares in excess of the Percentage Limitation in reliance on information
provided in writing by Sprint regarding the number of shares permitted to be
purchased under Section 6.8 of the Restructuring Agreement.
ARTICLE 2.
CERTAIN ADDITIONAL AGREEMENTS
-----------------------------
Section 2.1 Further Restrictions. Subject to Section 2.2, the Holder
--------------------
agrees that it will not, and it will cause each of its Affiliates not to,
directly or indirectly, alone or in concert with others (including with any of
the other Cable Holders or their respective Affiliates), unless specifically
requested in writing by the Chairman of Sprint or by a resolution of a majority
of the directors of Sprint, take any of the actions set forth below:
<PAGE>
(a) effect, seek, offer, propose (whether publicly or otherwise) or
cause or participate in (whether by purchasing or offering to purchase
securities or by taking any other action, including communicating with
stockholders of Sprint), or assist any other Person to effect, seek, offer or
propose (whether publicly or otherwise) or participate in:
(i) any acquisition of Beneficial Ownership of Sprint Voting
Securities or other equity interests in Sprint which would result in a
breach of Section 1.1 of this Agreement;
(ii) any tender or exchange offer for Sprint Voting Securities;
(iii) any merger, consolidation, share exchange or business
combination involving Sprint or any material portion of its business or any
purchase of all or any substantial part of the assets of Sprint or any
material portion of its business;
(iv) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to Sprint or
any material portion of its business; or
(v) any "solicitation" of "proxies" (as such terms are used in
the proxy rules under the Exchange Act promulgated by the United States
Securities and Exchange Commission but without regard to the exclusion set
forth in Section 14a-1(l)(2)(iv) from the definition of "solicitation")
with respect to Sprint or any of its Affiliates or any action resulting in
such Person becoming a "participant" in any "election contest" (as such
terms are used in such proxy rules) with respect to Sprint or any of its
Affiliates;
(b) propose any matter for submission to a vote of stockholders of
Sprint or any of its Affiliates;
(c) except as may result from the transactions contemplated by the
Other Agreements, form, join or participate in a Group with respect to any
Sprint Voting Securities;
(d) grant any proxy with respect to any Sprint Voting Securities to
any Person not designated by Sprint, except for proxies granted to individuals
who are officers, employees or regular agents or advisors of the Holder who have
received specific instructions from the Holder as to the voting of such Sprint
Voting Securities with respect to the matter or matters for which the proxy is
granted;
(e) except as provided for in such Holder's Voting Agreement, deposit
any Sprint Voting Securities in a voting trust or subject any Sprint Voting
Securities to
<PAGE>
any arrangement or agreement with respect to the voting of such Sprint Voting
Securities or other agreement having similar effect;
(f) execute any written stockholder consent with respect to Sprint,
except for written consents executed by such Persons as holders of Series 2 PCS
Stock in connection with any vote by the holders of the PCS Stock with respect
to which such holders are entitled to vote as a class;
(g) take any other action to seek to affect the control of the
management or Board of Directors of Sprint or any of its Affiliates;
(h) enter into any discussions, negotiations, arrangements or
understandings with any Person with respect to any of the foregoing, or advise,
assist, encourage or seek to persuade others to take any action with respect to
any of the foregoing;
(i) disclose to any Person any intention, plan or arrangement
inconsistent with the foregoing or form any such intention which would result in
the Holder or any of its Affiliates being required to make any such disclosure
in any filing with a Governmental Authority or being required by applicable law
to make a public announcement with respect thereto; or
(j) request Sprint or any of its Affiliates, directors, officers,
employees, representatives, advisors or agents, directly or indirectly, to amend
or waive in any material respect this Agreement (including this Section 2.1(j)),
the Sprint Rights Plan, the Articles or the bylaws of Sprint or any of its
Affiliates.
Section 2.2 Actions in Opposition. Notwithstanding anything in this
---------------------
Article 2 to the contrary, in the event that Sprint shall submit to a vote of
its stockholders any Covered Proposal with which the Holder disagrees (a
"Rejected Proposal"), the Holder and its Affiliates shall be free to:
-----------------
(a) either alone or acting in concert with others, make a
"solicitation" of "proxies" with respect to Sprint or any of its Affiliates in
response or opposition to such Rejected Proposal;
(b) make a proposal in opposition to such Rejected Proposal for
submission to a vote of stockholders of Sprint or any of its Affiliates;
(c) form, join in or participate in a Group with respect to any
Sprint Voting Securities for the sole purpose of responding to or opposing such
Rejected Proposal;
<PAGE>
(d) grant a proxy with respect to any Sprint Voting Securities to any
Person with specific instructions from the Holder as to the voting of such
Sprint Voting Securities with respect to such Rejected Proposal; and
(e) subject any Sprint Voting Securities to an arrangement or
agreement with respect to the voting of such Sprint Voting Securities with
respect to such Rejected Proposal.
Section 2.3 Press Releases, Etc. by the Holder.
----------------------------------
(a) Subject to Section 2.3(b), the Holder may issue such press
releases and make such other public communications to the financial community
and to its stockholders and such other public statements made in the ordinary
course of business relating to its investment in Sprint, in each case as it
reasonably deems appropriate and customary. Prior to making any such press
release or other communication, the Holder will use reasonable efforts to
consult with Sprint in good faith regarding the form and content of any such
communication, and the Holder will use reasonable efforts to coordinate any such
communication with any decisions reached by Sprint with respect to disclosures
relating to such matters.
(b) Notwithstanding the provisions of Section 2.3(a), unless required
by applicable law or permitted by Section 2.2, neither the Holder nor any of its
Affiliates may make any press release, public announcement or other public
communication with respect to any of the matters described in Section 2.1
without the prior written consent of the Chairman of Sprint or by a resolution
of a majority of the directors of Sprint. Nothing in this Section 2.3 shall
permit the taking of any action which would otherwise violate any provision
contained in Section 2.1; provided that the Holder and its Affiliates shall be
--------
permitted to make such public communications as may be required by law, except
for public communications required as a result of, or relating to, activities
undertaken by the Holder or any of its Affiliates in violation of this
Agreement. Nothing in this Section 2.3 shall prevent the taking of any actions
permitted by Section 2.2.
Section 2.4 Transfers to Affiliates and Associates.
--------------------------------------
(a) The Holder may Transfer shares of capital stock of Sprint to its
Affiliates only if, prior to such Transfer, such transferee executes and
delivers to Sprint (in accordance with Section 4.2) a Standstill Agreement in
the form hereof .
(b) If and to the extent that the Holder elects to Transfer shares of
Series 2 PCS Stock to one of its Associates without such shares automatically
converting into shares of Series 1 PCS Stock, the Holder may effect such
Transfer only if, prior to such Transfer, such transferee executes and delivers
to Sprint (in accordance with Section 4.2) a Standstill Agreement in the form
hereof.
<PAGE>
Section 2.5 Voting of Sprint Voting Securities. Except as set forth
----------------------------------
in Sections 2.1(d), 2.1(e) and 2.1(f) (each to the extent limited by Section
2.2), nothing in Section 2.1 shall restrict the manner in which the Holder and
its Affiliates may vote their Sprint Voting Securities.
Section 2.6 No Modification of Sprint Rights Plan. Nothing in this
-------------------------------------
Agreement shall be deemed to modify, amend, supersede or grant or imply any
waiver with respect to the Sprint Rights Plan.
Section 2.7 Permitted Activities. Nothing in this Agreement shall
--------------------
prevent the Holder from (i) selling, transferring, tendering or otherwise
disposing of shares of capital stock of Sprint to any Person at any time or from
voting on, tendering into or receiving the benefit of any transaction described
in clauses (ii), (iii), (iv) and (v) of Section 2.1(a), in the same manner as
any other non- initiating holder of Sprint Voting Securities or (ii) taking any
actions necessary or appropriate for the Holder and its Affiliates to exercise
their rights under any of the Other Agreements.
ARTICLE 3.
DEFINITIONS AND CONSTRUCTION
----------------------------
Section 3.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the meanings specified below:
"Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person. For purposes of
Section 2.4 only, "Affiliate" of the Holder includes any Person that is jointly
Controlled, directly, or indirectly through one or more intermediaries, by one
or more Cable Holders, or Affiliates of one or more Cable Holders, without
regard to whether such Person would be an Affiliate of the Holder pursuant to
the first sentence of this definition.
"Agreement" has the meaning set forth in the Preamble.
---------
"Amended Cox PCS Agreement" means the Agreement of Limited Partnership of
-------------------------
Cox Communications PCS, L.P., as amended by an amendment thereto to be entered
into and dated as of the Closing Date.
"Articles" means the Articles of Incorporation of Sprint, as amended or
--------
supplemented from time to time.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under the
---------
Exchange Act.
<PAGE>
"Beneficial Owner" (including, with its correlative meanings, "Beneficially
---------------- ------------
Own" and "Beneficial Ownership"), with respect to any securities, means any
- --- --------------------
Person which:
(a) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to acquire (whether such right is exercisable immediately
or only after the passage of time) such securities pursuant to any agreement,
arrangement or understanding (whether or not in writing), including pursuant to
the Restructuring Agreement, or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise;
(b) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to vote or dispose of (whether such right is exercisable
immediately or only after the passage of time) or "beneficial ownership" of (as
determined pursuant to Rule 13d-3 under the Exchange Act as in effect on the
date hereof but including all such securities which a Person has the right to
acquire beneficial ownership of, whether or not such right is exercisable within
the 60-day period specified therein) such securities, including pursuant to any
agreement, arrangement or understanding (whether or not in writing); or
(c) has, or any of whose Affiliates has, any agreement, arrangement
or understanding (whether or not in writing) for the purpose of acquiring,
holding, voting or disposing of any securities which are Beneficially Owned,
directly or indirectly, by any other Person (or any Affiliate thereof), provided
--------
that the Restructuring Agreement shall not be deemed an agreement, arrangement
or understanding contemplated by this paragraph (c).
"Cable Holders" has the meaning set forth in the Recitals.
-------------
"Change of Control" means the consummation of:
-----------------
(a) a third party tender offer for Voting Securities of Sprint
representing more than 35% of the Voting Power of Sprint;
(b) a sale of all or substantially all of the assets of Sprint in one
transaction or in a series of related transactions;
(c) a merger or other business combination that would result in (a) a
Person holding Voting Securities of the resulting entity representing 35% or
more of the Voting Power of Sprint or (ii) the stockholders of Sprint
immediately prior to the record date for such transaction owning less than 50%
of the outstanding equity securities of the surviving Person following such
combination; or
(d) a change in the identity of a majority of the Directors due to
(i) a proxy contest (or the threat to engage in a proxy contest) or the election
of Directors by the holders of Preferred Stock; or (ii) any unsolicited tender,
exchange or other purchase offer which has not been approved by a majority of
the Independent Directors;
<PAGE>
provided that a Strategic Merger shall not be deemed a Change of Control.
- --------
"Class A Stock" means the Class A Common Stock, par value $2.50 per share,
-------------
of Sprint.
"Closing Date" means the Closing Date as defined in the Restructuring
------------
Agreement.
"Common Stock" means the Common Stock, par value $2.50 per share, of
------------
Sprint.
"Control" (including, with its correlative meanings, "Controlled by" and
-------
"under common Control with") means, with respect to a Person or Group:
(a) ownership by such Person or Group of Votes entitling it to
exercise in the aggregate more than 50 percent of the Voting Power of the entity
in question; or
(b) possession by such Person or Group of the power, directly or
indirectly, (i) to elect a majority of the board of directors (or equivalent
governing body) of the entity in question; (ii) to direct or cause the direction
of the management and policies of or with respect to the entity in question,
whether through ownership of securities, by contract or otherwise; or (iii) with
respect to a particular action or agreement, to direct or cause the direction of
decisions, or veto or otherwise prevent decisions, of or with respect to the
entity in question relating to such action or agreement.
"Covered Proposal" means any proposal by Sprint (i) for a merger,
----------------
consolidation, business combination, recapitalization or similar transaction,
(ii) to modify or amend either the Articles or the provisions of the Bylaws
relating to the Capital Stock Committee of the Board of Directors of Sprint in a
manner that would adversely affect the rights of the holders of the Series 1 PCS
Stock or the Series 2 PCS Stock, (iii) for the issuance of Sprint Voting
Securities, (iv) for the sale of substantially all assets or a dissolution or
liquidation of Sprint, or (v) for any other matter that would require approval
of the holders of PCS Stock, voting as a separate class.
"Exchange Act" means the United States Securities Exchange Act of 1934 and
------------
the rules and regulations thereunder.
"FON Stock" means the Sprint FON Group Common Stock that will be created on
---------
the Closing Date, as defined in the Restructuring Agreement.
"Group" means any group within the meaning of Section 13(d)(3) of the
-----
Exchange Act as in effect on the date hereof.
"Governmental Authority" means any federation, nation, state, sovereign, or
----------------------
government, any federal, supranational, regional, state, local or political
subdivision, any
<PAGE>
governmental or administrative body, instrumentality, department or agency or
any court, administrative hearing body, arbitration tribunal, commission or
other similar dispute resolving panel or body, and any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of a
government.
"Holder" has the meaning set forth in the Preamble.
------
"Other Agreements" means (i) the Restructuring Agreement, (ii) the
----------------
Registration Rights Agreement, (iii) the Tax Sharing Agreement, (iv) the Cox
L.A. Amendments, (v) the Warrant Agreements, together with the Warrants, (vi)
the Mutual Release and Waiver, (vii) the FT/DT Purchase Rights Agreement and
(viii) the Voting Agreements, each as defined in the Restructuring Agreement.
"Other Termination Event" means (i) a redemption of all of the outstanding
-----------------------
shares of PCS Stock for the common equity securities of one or more wholly owned
subsidiaries of Sprint that hold all or substantially all of the assets
attributed to the PCS Group (as such term is defined in the Restructuring
Agreement), (ii) a redemption of all or a substantial portion of the outstanding
shares of PCS Stock upon the sale of all or substantially all of the assets of
the PCS Group, or (iii) a conversion of all of the outstanding shares of PCS
Stock into any class of Sprint common stock that is not a common equity tracking
security that continues to reflect substantially all of the business, assets and
liabilities comprising the PCS Group immediately prior to such conversion, but
which shall not represent any business, assets or liabilities comprising any
part of the FON Group immediately prior to such conversion.
"Outstanding Sprint Voting Securities" means the Sprint Voting Securities
------------------------------------
outstanding as of any particular date.
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock and the
---------
Series 3 PCS Stock.
"PCS Preferred Stock" means the Series 7 Preferred Stock of Sprint, no par
-------------------
value per share, which shall be created by the filing of a Certificate of
Designations as described in Section 6.2(d) of the Restructuring Agreement.
"Percentage Limitation" has the meaning set forth in Section 1.1(a)(ii).
---------------------
"Person" means an individual, a partnership, an association, a joint
------
venture, a corporation, a business, a trust, an unincorporated organization, or
any other entity organized under applicable law.
"Preferred Stock" means any class or series of the Preferred Stock, no par
---------------
value, of Sprint, including the PCS Preferred Stock.
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated as of the date hereof among Sprint and the Cable Holders.
"Restructuring Agreement" has the meaning set forth in the Recitals.
-----------------------
"Series 1 PCS Stock" means the Series 1 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment, as defined in the Restructuring
Agreement.
"Series 2 PCS Stock" means the Series 2 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment.
"Series 3 PCS Stock" means the Series 3 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment.
"Sprint Rights Plan" means the Rights Agreement dated as of June 9, 1997,
------------------
as amended, between Sprint and UMB Bank, n.a., as rights agent, as amended or
modified from time to time, or any successor or similar Plan.
"Sprint Voting Securities" means the Common Stock, the Class A Stock, the
------------------------
FON Stock, the PCS Stock, the Preferred Stock and any other securities of Sprint
having the right to Vote.
"Strategic Merger" means a merger or other business combination involving
----------------
Sprint (a) in which the Holder is entitled to retain or receive, as the case may
be, voting equity securities of the surviving parent entity in exchange for or
in respect of (by conversion or otherwise) its shares of PCS Stock, with an
aggregate fair market value equal to the sum of (i) the fair market value of all
consideration that the Holder has a right to receive with respect to such merger
or other business combination, and (ii) if Sprint is the surviving parent
entity, the fair market value of the equity securities of the surviving parent
entity that the Holder is entitled to retain, (b) immediately after which the
surviving parent entity is an entity whose voting equity securities are
registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act or
which otherwise has any class or series of its voting equity securities held by
at least 500 holders, (c) immediately after which no person or Group (other than
the Cable Holders) owns Voting Securities of such surviving parent entity with
Votes equal to more than 35 percent of the Voting Power of such surviving parent
entity and (d) in which holders of PCS Stock receive a common equity tracking
security that continues to reflect substantially all of the business, assets and
liabilities comprising the PCS Group immediately prior to such merger or other
business combination together with such additional wireless business, assets and
liabilities which may be included in the PCS Group of the surviving parent
entity, but which shall not represent any business, assets or liabilities
comprising any part of the other businesses, assets or liabilities of the
surviving parent entity or its subsidiaries,
<PAGE>
including businesses, assets or liabilities of the FON Group immediately prior
to such merger or business combination, it being understood that no merger or
business combination shall be deemed to meet the requirements of this definition
unless the requirements of each of clauses (a) through (d) above have been met.
"Fair market value" with respect to any property, for purposes of this
-----------------
definition, shall be as determined in writing in good faith by a majority of the
independent directors of Sprint.
"Subsidiary" means, with respect to any Person (the "Parent"), any other
---------- ------
Person in which the Parent, one or more Subsidiaries of the Parent, or the
Parent and one or more of its Subsidiaries (a) have the ability, through
ownership of securities individually or as a group, ordinarily, in the absence
of contingencies, to elect a majority of the directors (or individuals
performing similar functions) of such other Person, and (b) own more than 50% of
the equity interests.
"Transfer" means any act pursuant to which, directly or indirectly, the
--------
ownership of assets or securities in question is sold, transferred, conveyed,
delivered or otherwise disposed of.
"Vote" means, as to any entity, the ability to cast a vote at a
----
stockholders' or comparable meeting of such entity with respect to the election
of directors or other members of such entity's governing body; provided that
--------
with respect to Sprint only, "Vote" means the ability to exercise general voting
power (as opposed to the exercise of special voting or disapproval rights) with
respect to matters other than the election of directors at a meeting of the
stockholders of Sprint.
"Voting Agreement" has the meaning assigned to such term in the
----------------
Restructuring Agreement.
"Voting Power" means, as to any entity as of any date, the aggregate number
------------
of Votes outstanding as of such date in respect of such entity; provided that,
--------
with respect to PCS Stock, the Vote per share used to calculate such aggregate
number of Votes shall be the Vote per share most recently established by the
Board of Directors of Sprint, whether for the most recent vote of stockholders
or for a vote of stockholders to be conducted in the future.
"Warrant" has the meaning set forth in the Restructuring Agreement.
-------
Section 3.2 Interpretation and Construction of this Agreement. The
-------------------------------------------------
definitions in Section 3.1 shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." All references herein to Articles, Sections and
Exhibits shall be deemed to be references to Articles and Sections of, and
Exhibits to, this Agreement unless the context shall otherwise require. The
headings of the Articles and Sections are inserted for convenience
<PAGE>
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement. Unless the context shall otherwise require
or provide, any reference to any agreement or other instrument or statute or
regulation is to such agreement, instrument, statute or regulation as amended
and supplemented from time to time (and, in the case of a statute or regulation,
to any successor provision).
ARTICLE 4
MISCELLANEOUS
-------------
Section 4.1 Termination. The provisions of this Agreement shall
-----------
terminate (a) upon the consent in writing of all of the Parties, (b) upon a
Change of Control, (c) if the Restructuring Agreement is terminated prior to the
Closing thereunder, (d) following the Closing under the Restructuring Agreement,
if the Votes represented by the Sprint Voting Securities Beneficially Owned by
the Holder and its Affiliates, directly or indirectly, either individually or as
part of a Group, in the aggregate no longer exceed the Percentage Limitation
(assuming for purposes of this clause (d) that all shares of Series 2 PCS Stock
have the same voting rights as the shares of Series 1 PCS Stock), or (e) upon
the occurrence of an Other Termination Event. As to a Holder that is an
Affiliate or an Associate of a Cable Holder and that has executed this Agreement
in accordance with Section 2.4, the provisions of this Agreement shall
terminate, in addition to the above circumstances, when such Holder ceases to be
an Affiliate (or Associate, as applicable) of a Cable Holder and all shares of
Series 2 PCS Stock held by such party shall have converted to Series 1 PCS
Stock. Any termination of this Agreement as provided herein shall be without
prejudice to the rights of any Party arising out of the breach by any other
Party of any provision of this Agreement.
Section 4.2 Notices. Except as expressly provided herein, all
-------
notices, consents, waivers and other communications required or permitted to be
given by any provision of this Agreement shall be in writing and mailed
(certified or registered mail, postage prepaid, return receipt requested) or
sent by hand or overnight courier, or by facsimile transmission (with
acknowledgment received and confirmation sent as provided below), charges
prepaid and addressed to the intended recipient as follows, or to such other
address or number as such Person may from time to time specify by like notice to
the parties:
Holder: Cox Communications, Inc.
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Telecopy: (404) 847-6336
Attention: Dallas Clement
with a copy to:
<PAGE>
Dow, Lohnes & Albertson
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Telecopy: (202) 776-2222
Attention: David D. Wild
Sprint: 2330 Shawnee Mission Parkway
East Wing
Westwood, Kansas 66205
Attention: General Counsel
Tel: (913) 624-8440
Fax: (913) 624-8426
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Bruce N. Hawthorne, Esq.
Tel: (404) 572-4903
Fax: (404) 572-5146
The Parties shall promptly notify each other in the manner provided in this
Section 4.2 of any change in their respective addresses. A notice of change of
address shall not be deemed to have been given until received by the addressee.
Communications by facsimile also shall be sent concurrently by mail, but shall
in any event be effective as stated above.
Section 4.3 Assignment. No Party will assign this Agreement or any
----------
rights, interests or obligations hereunder, or delegate performance of any of
its obligations hereunder, without the prior written consent of each other
Party.
Section 4.4 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the Parties with respect to the subject matter
contained herein, provided that this provision shall not abrogate any other
written agreement between the Parties executed simultaneously with this
Agreement. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to such subject matter.
Section 4.5 Waiver, Amendment, etc. This Agreement may not be
----------------------
amended or supplemented, and no waivers of or consents to departures from the
provisions hereof shall be effective, unless set forth in a writing signed by,
and delivered to, all the Parties. No failure or delay of any Party in
exercising any power or right under this Agreement will operate as a waiver
thereof, nor will any single or partial exercise of
<PAGE>
any right or power, or any abandonment or discontinuance of steps to enforce
such right or power, preclude any other or further exercise thereof or the
exercise of any other right or power.
Section 4.6 Binding Agreement; No Third Party Beneficiaries. This
-----------------------------------------------
Agreement will be binding upon and inure to the benefit of the Parties and their
successors and permitted assigns. Nothing expressed or implied herein is
intended or will be construed to confer upon or to give to any third party any
rights or remedies by virtue hereof.
Section 4.7 Governing Law; Dispute Resolution; Equitable Relief.
---------------------------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW).
(b) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION,
SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR LIABILITIES
UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
OR, IN THE EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE STATE OF
NEW YORK SITTING IN THE COUNTY OF NEW YORK, AND EACH PARTY HEREBY IRREVOCABLY
ACCEPTS AND SUBMITS TO THE JURISDICTION OF EACH OF THE AFORESAID COURTS IN
PERSONAM, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING (INCLUDING CLAIMS
FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS
IN WHICH SUCH PARTY IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR
PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
(c) EACH PARTY AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTY FOR ANY BREACH OF THIS AGREEMENT BY IT, AND THAT IN
ADDITION TO ALL OTHER REMEDIES THE OTHER PARTIES MAY HAVE, IT SHALL BE ENTITLED
TO SPECIFIC PERFORMANCE AND TO INJUNCTIVE OR OTHER EQUITABLE RELIEF AS A REMEDY
FOR ANY SUCH BREACH. EACH PARTY AGREES NOT TO OPPOSE THE GRANTING OF SUCH RELIEF
IN THE EVENT A COURT DETERMINES THAT SUCH BREACH HAS OCCURRED, AND AGREES TO
WAIVE ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH
SUCH REMEDY.
<PAGE>
Section 4.8 Severability. The invalidity or unenforceability of any
------------
provision hereof in any jurisdiction will not affect the validity or
enforceability of the remainder hereof in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction. To the extent permitted by applicable law, each Party waives any
provision of applicable law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the Parties to the extent possible.
Section 4.9 Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which when so executed and delivered will be deemed an
original but all of which will constitute one and the same Agreement.
Section 4.10 Remedies. In addition to any other remedies which may
--------
be available to Sprint (including any remedies which Sprint may have at law or
in equity):
(a) If the Holder breaches this Agreement in any material respect,
then unless and until such breach is cured in all material respects, the Holder
shall not be entitled to vote any of its shares of capital stock of Sprint (or
any shares into which such shares of capital stock are converted) with respect
to any matter or proposal arising from, relating to or involving such breach,
and no such purported vote by the Holder on such matter shall be effective or
shall be counted; and
(b) The Holder agrees that Sprint shall have no obligation to honor
Transfers of Sprint Voting Securities or other equity interests in Sprint to the
Holder or any of its Affiliates that would cause the Holder and its Affiliates
to Beneficially Own Sprint Voting Securities or other equity interests in Sprint
in violation of this Agreement, any such Transfers shall be void and of no
effect, and Sprint shall be entitled to instruct any transfer agent or agents
for the equity interests in Sprint to refuse to honor such Transfers.
IN WITNESS WHEREOF, Sprint and the Holder have caused their respective duly
authorized officers to execute this Standstill Agreement as of the day and year
first above written.
COX COMMUNICATIONS, INC.
By: /s/ James O. Robbins
--------------------------
Title: President and CEO
---------------------
SPRINT CORPORATION
<PAGE>
By: /s/ Don A. Jensen
-----------------------
Title: Vice President
-------------------
<PAGE>
STANDSTILL AGREEMENT
--------------------
THIS STANDSTILL AGREEMENT (this "Agreement") dated as of May 26, 1998 is
---------
entered into between Sprint Corporation, a Kansas corporation ("Sprint") and
------
Comcast Corporation, a Pennsylvania corporation ("the "Holder").
------
RECITALS:
--------
WHEREAS, Sprint, Tele-Communications, Inc., a Delaware corporation ("TCI"),
---
the Holder and Cox Communications, Inc., a Delaware corporation ("Cox," and
---
together with TCI and the Holder, the "Cable Holders") and certain of their
-------------
respective subsidiaries have entered into the Restructuring and Merger
Agreement, dated as of the date hereof (the "Restructuring Agreement"), pursuant
-----------------------
to which the Cable Holders, either directly or indirectly through one or more
subsidiaries, will acquire shares of Series 2 PCS Stock (as defined herein), on
the terms set forth in the Restructuring Agreement; and
WHEREAS, as a condition to its entering into the Restructuring Agreement,
Sprint has required that each of the Cable Holders enter into a Standstill
Agreement in the form hereof, which contains certain restrictions on purchases
of Sprint capital stock by the Cable Holders and their respective Affiliates and
certain other limitations on the Cable Holders and their respective Affiliates;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Other
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Holder and Sprint (each a
"Party"), intending to be legally bound, hereby agree as follows:
-----
ARTICLE I.
RESTRICTIONS ON ACQUISITION OF VOTING SECURITIES BY
THE HOLDER AND ITS AFFILIATES
-----------------------------
Section 1.1 Acquisition Restrictions.
------------------------
(a) Subject to Section 1.2, the Holder agrees that it will not, and
it will cause each of its Affiliates not to, directly or indirectly, either
individually or as part of a Group, acquire, offer to acquire, or agree to
acquire, by purchase or otherwise, Beneficial Ownership of:
<PAGE>
(i) any Sprint Voting Securities at any time prior to the
Closing Date, other than as a result of purchases from Sprint pursuant to
the Restructuring Agreement; or
(ii) any Sprint Voting Securities on or following the Closing
Date and prior to the tenth anniversary of the date hereof (or the earlier
termination of this Agreement), if as a result the Votes represented by the
Sprint Voting Securities Beneficially Owned by the Holder and its
Affiliates would represent in the aggregate more than one and one half
percent (1.5%) of the Voting Power represented by the Outstanding Sprint
Voting Securities (assuming for purposes of this paragraph (ii) that all
shares of Series 2 PCS Stock have the same voting rights as the Series 1
PCS Stock) (the "Percentage Limitation"); provided, however, that nothing
--------------------- -------- -------
in this Agreement shall prohibit or restrict the Holder or an Affiliate of
the Holder from (A) exercising the equity purchase rights provided for in
Section 6.8 of the Restructuring Agreement, including paragraphs (h) and
(i) of such Section 6.8, (B) acquiring additional shares of Series 2 PCS
Stock upon conversion of shares of PCS Preferred, or (C) acquiring
additional shares of Series 2 PCS Stock upon exercise of the Warrants.
Section 1.2 Effect of Action by Sprint. The Holder shall not be deemed
--------------------------
in violation of this Article 1 if the Beneficial Ownership of Sprint Voting
Securities by the Holder and its Affiliates exceeds the Percentage Limitation
(i) solely as a result of an increase in the Votes per share attributed by the
Board of Directors of Sprint to shares of PCS Stock, (ii) solely as a result of
an acquisition of Sprint Voting Securities by Sprint that, by reducing the
number of Outstanding Sprint Voting Securities, increases the proportionate
number of Sprint Voting Securities Beneficially Owned by the Holder and its
Affiliates, or (iii) because the Holder or its Affiliates mistakenly purchase
shares in excess of the Percentage Limitation in reliance on information
provided in writing by Sprint regarding the number of shares permitted to be
purchased under Section 6.8 of the Restructuring Agreement.
ARTICLE 2.
CERTAIN ADDITIONAL AGREEMENTS
-----------------------------
Section 2.1 Further Restrictions. Subject to Section 2.2, the Holder
--------------------
agrees that it will not, and it will cause each of its Affiliates not to,
directly or indirectly, alone or in concert with others (including with any of
the other Cable Holders or their respective Affiliates), unless specifically
requested in writing by the Chairman of Sprint or by a resolution of a majority
of the directors of Sprint, take any of the actions set forth below:
(a) effect, seek, offer, propose (whether publicly or otherwise) or
cause or participate in (whether by purchasing or offering to purchase
securities or by
<PAGE>
taking any other action, including communicating with stockholders of Sprint),
or assist any other Person to effect, seek, offer or propose (whether publicly
or otherwise) or participate in:
(i) any acquisition of Beneficial Ownership of Sprint Voting
Securities or other equity interests in Sprint which would result in a
breach of Section 1.1 of this Agreement;
(ii) any tender or exchange offer for Sprint Voting Securities;
(iii) any merger, consolidation, share exchange or business
combination involving Sprint or any material portion of its business or any
purchase of all or any substantial part of the assets of Sprint or any
material portion of its business;
(iv) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to Sprint or
any material portion of its business; or
(v) any "solicitation" of "proxies" (as such terms are used
in the proxy rules under the Exchange Act promulgated by the United States
Securities and Exchange Commission but without regard to the exclusion set
forth in Section 14a-1(l)(2)(iv) from the definition of "solicitation")
with respect to Sprint or any of its Affiliates or any action resulting in
such Person becoming a "participant" in any "election contest" (as such
terms are used in such proxy rules) with respect to Sprint or any of its
Affiliates;
(b) propose any matter for submission to a vote of stockholders of
Sprint or any of its Affiliates;
(c) except as may result from the transactions contemplated by the
Other Agreements, form, join or participate in a Group with respect to any
Sprint Voting Securities;
(d) grant any proxy with respect to any Sprint Voting Securities to
any Person not designated by Sprint, except for proxies granted to individuals
who are officers, employees or regular agents or advisors of the Holder who have
received specific instructions from the Holder as to the voting of such Sprint
Voting Securities with respect to the matter or matters for which the proxy is
granted;
(e) except as provided for in such Holder's Voting Agreement, deposit
any Sprint Voting Securities in a voting trust or subject any Sprint Voting
Securities to any arrangement or agreement with respect to the voting of such
Sprint Voting Securities or other agreement having similar effect;
<PAGE>
(f) execute any written stockholder consent with respect to Sprint,
except for written consents executed by such Persons as holders of Series 2 PCS
Stock in connection with any vote by the holders of the PCS Stock with respect
to which such holders are entitled to vote as a class;
(g) take any other action to seek to affect the control of the
management or Board of Directors of Sprint or any of its Affiliates;
(h) enter into any discussions, negotiations, arrangements or
understandings with any Person with respect to any of the foregoing, or advise,
assist, encourage or seek to persuade others to take any action with respect to
any of the foregoing;
(i) disclose to any Person any intention, plan or arrangement
inconsistent with the foregoing or form any such intention which would result in
the Holder or any of its Affiliates being required to make any such disclosure
in any filing with a Governmental Authority or being required by applicable law
to make a public announcement with respect thereto; or
(j) request Sprint or any of its Affiliates, directors, officers,
employees, representatives, advisors or agents, directly or indirectly, to amend
or waive in any material respect this Agreement (including this Section 2.1(j)),
the Sprint Rights Plan, the Articles or the bylaws of Sprint or any of its
Affiliates.
Section 2.2 Actions in Opposition. Notwithstanding anything in this
---------------------
Article 2 to the contrary, in the event that Sprint shall submit to a vote of
its stockholders any Covered Proposal with which the Holder disagrees (a
"Rejected Proposal"), the Holder and its Affiliates shall be free to:
------------------
(a) either alone or acting in concert with others, make a
"solicitation" of "proxies" with respect to Sprint or any of its Affiliates in
response or opposition to such Rejected Proposal;
(b) make a proposal in opposition to such Rejected Proposal for
submission to a vote of stockholders of Sprint or any of its Affiliates;
(c) form, join in or participate in a Group with respect to any
Sprint Voting Securities for the sole purpose of responding to or opposing such
Rejected Proposal;
(d) grant a proxy with respect to any Sprint Voting Securities to any
Person with specific instructions from the Holder as to the voting of such
Sprint Voting Securities with respect to such Rejected Proposal; and
<PAGE>
(e) subject any Sprint Voting Securities to an arrangement or
agreement with respect to the voting of such Sprint Voting Securities with
respect to such Rejected Proposal.
Section 2.3 Press Releases, Etc. by the Holder.
----------------------------------
(a) Subject to Section 2.3(b), the Holder may issue such press
releases and make such other public communications to the financial community
and to its stockholders and such other public statements made in the ordinary
course of business relating to its investment in Sprint, in each case as it
reasonably deems appropriate and customary. Prior to making any such press
release or other communication, the Holder will use reasonable efforts to
consult with Sprint in good faith regarding the form and content of any such
communication, and the Holder will use reasonable efforts to coordinate any such
communication with any decisions reached by Sprint with respect to disclosures
relating to such matters.
(b) Notwithstanding the provisions of Section 2.3(a), unless required
by applicable law or permitted by Section 2.2, neither the Holder nor any of its
Affiliates may make any press release, public announcement or other public
communication with respect to any of the matters described in Section 2.1
without the prior written consent of the Chairman of Sprint or by a resolution
of a majority of the directors of Sprint. Nothing in this Section 2.3 shall
permit the taking of any action which would otherwise violate any provision
contained in Section 2.1; provided that the Holder and its Affiliates shall be
--------
permitted to make such public communications as may be required by law, except
for public communications required as a result of, or relating to, activities
undertaken by the Holder or any of its Affiliates in violation of this
Agreement. Nothing in this Section 2.3 shall prevent the taking of any actions
permitted by Section 2.2.
Section 2.4 Transfers to Affiliates and Associates.
--------------------------------------
(a) The Holder may Transfer shares of capital stock of Sprint to its
Affiliates only if, prior to such Transfer, such transferee executes and
delivers to Sprint (in accordance with Section 4.2) a Standstill Agreement in
the form hereof.
(b) If and to the extent that the Holder elects to Transfer shares of
Series 2 PCS Stock to one of its Associates without such shares automatically
converting into shares of Series 1 PCS Stock, the Holder may effect such
Transfer only if, prior to such Transfer, such transferee executes and delivers
to Sprint (in accordance with Section 4.2) a Standstill Agreement in the form
hereof.
Section 2.5 Voting of Sprint Voting Securities. Except as set forth
----------------------------------
in Sections 2.1(d), 2.1(e) and 2.1(f) (each to the extent limited by Section
2.2), nothing in Section 2.1 shall restrict the manner in which the Holder and
its Affiliates may vote their Sprint Voting Securities.
<PAGE>
Section 2.6 No Modification of Sprint Rights Plan. Nothing in this
-------------------------------------
Agreement shall be deemed to modify, amend, supersede or grant or imply any
waiver with respect to the Sprint Rights Plan.
Section 2.7 Permitted Activities. Nothing in this Agreement shall
--------------------
prevent the Holder from (i) selling, transferring, tendering or otherwise
disposing of shares of capital stock of Sprint to any Person at any time or from
voting on, tendering into or receiving the benefit of any transaction described
in clauses (ii), (iii), (iv) and (v) of Section 2.1(a), in the same manner as
any other non- initiating holder of Sprint Voting Securities or (ii) taking any
actions necessary or appropriate for the Holder and its Affiliates to exercise
their rights under any of the Other Agreements.
ARTICLE 3.
DEFINITIONS AND CONSTRUCTION
----------------------------
Section 3.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the meanings specified below:
"Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person. For purposes of
Section 2.4 only, "Affiliate" of the Holder includes any Person that is jointly
Controlled, directly, or indirectly through one or more intermediaries, by one
or more Cable Holders, or Affiliates of one or more Cable Holders, without
regard to whether such Person would be an Affiliate of the Holder pursuant to
the first sentence of this definition.
"Agreement" has the meaning set forth in the Preamble.
---------
"Articles" means the Articles of Incorporation of Sprint, as amended or
--------
supplemented from time to time.
"Associate" has the meaning ascribed to such term in Rule 12b-2 under the
---------
Exchange Act.
"Beneficial Owner" (including, with its correlative meanings, "Beneficially
---------------- ------------
Own" and "Beneficial Ownership"), with respect to any securities, means any
- ---
Person which:
(a) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to acquire (whether such right is exercisable immediately
or only after the passage of time) such securities pursuant to any agreement,
arrangement or understanding (whether or not in writing), including pursuant to
the Restructuring Agreement, or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise;
<PAGE>
(b) has, or any of whose Affiliates has, directly or indirectly, the
sole or shared right to vote or dispose of (whether such right is exercisable
immediately or only after the passage of time) or "beneficial ownership" of (as
determined pursuant to Rule 13d-3 under the Exchange Act as in effect on the
date hereof but including all such securities which a Person has the right to
acquire beneficial ownership of, whether or not such right is exercisable within
the 60-day period specified therein) such securities, including pursuant to any
agreement, arrangement or understanding (whether or not in writing); or
(c) has, or any of whose Affiliates has, any agreement, arrangement
or understanding (whether or not in writing) for the purpose of acquiring,
holding, voting or disposing of any securities which are Beneficially Owned,
directly or indirectly, by any other Person (or any Affiliate thereof), provided
--------
that the Restructuring Agreement shall not be deemed an agreement, arrangement
or understanding contemplated by this paragraph (c).
"Cable Holders" has the meaning set forth in the Recitals.
-------------
"Change of Control" means the consummation of:
-----------------
(a) a third party tender offer for Voting Securities of Sprint
representing more than 35% of the Voting Power of Sprint;
(b) a sale of all or substantially all of the assets of Sprint in one
transaction or in a series of related transactions;
(c) a merger or other business combination that would result in (a) a
Person holding Voting Securities of the resulting entity representing 35% or
more of the Voting Power of Sprint or (ii) the stockholders of Sprint
immediately prior to the record date for such transaction owning less than 50%
of the outstanding equity securities of the surviving Person following such
combination; or
(d) a change in the identity of a majority of the Directors due to
(i) a proxy contest (or the threat to engage in a proxy contest) or the election
of Directors by the holders of Preferred Stock; or (ii) any unsolicited tender,
exchange or other purchase offer which has not been approved by a majority of
the Independent Directors;
provided that a Strategic Merger shall not be deemed a Change of Control.
- --------
"Class A Stock" means the Class A Common Stock, par value $2.50 per share,
-------------
of Sprint.
"Closing Date" means the Closing Date as defined in the Restructuring
------------
Agreement.
<PAGE>
"Common Stock" means the Common Stock, par value $2.50 per share, of
------------
Sprint.
"Control" (including, with its correlative meanings, "Controlled by" and
------- -------------
"under common Control with") means, with respect to a Person or Group:
-------------------------
(a) ownership by such Person or Group of Votes entitling it to
exercise in the aggregate more than 50 percent of the Voting Power of the entity
in question; or
(b) possession by such Person or Group of the power, directly or
indirectly, (i) to elect a majority of the board of directors (or equivalent
governing body) of the entity in question; (ii) to direct or cause the direction
of the management and policies of or with respect to the entity in question,
whether through ownership of securities, by contract or otherwise; or (iii) with
respect to a particular action or agreement, to direct or cause the direction of
decisions, or veto or otherwise prevent decisions, of or with respect to the
entity in question relating to such action or agreement.
"Covered Proposal" means any proposal by Sprint (i) for a merger,
----------------
consolidation, business combination, recapitalization or similar transaction,
(ii) to modify or amend either the Articles or the provisions of the Bylaws
relating to the Capital Stock Committee of the Board of Directors of Sprint in a
manner that would adversely affect the rights of the holders of the Series 1 PCS
Stock or the Series 2 PCS Stock, (iii) for the issuance of Sprint Voting
Securities, (iv) for the sale of substantially all assets or a dissolution or
liquidation of Sprint, or (v) for any other matter that would require approval
of the holders of PCS Stock, voting as a separate class.
"Exchange Act" means the United States Securities Exchange Act of 1934 and
------------
the rules and regulations thereunder.
"FON Stock" means the Sprint FON Group Common Stock that will be created on
---------
the Closing Date, as defined in the Restructuring Agreement.
"Group" means any group within the meaning of Section 13(d)(3) of the
-----
Exchange Act as in effect on the date hereof.
"Governmental Authority" means any federation, nation, state, sovereign, or
----------------------
government, any federal, supranational, regional, state, local or political
subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, administrative hearing body, arbitration
tribunal, commission or other similar dispute resolving panel or body, and any
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of a government.
"Holder" has the meaning set forth in the Preamble.
------
"Other Agreements" means (i) the Restructuring Agreement, (ii) the
----------------
Registration Rights Agreement, (iii) the Tax Sharing Agreement, (iv) the Cox
L.A. Amendments, (v)
<PAGE>
the Warrant Agreements, together with the Warrants, (vi) the Mutual Release and
Waiver, (vii) the FT/DT Purchase Rights Agreement and (viii) the Voting
Agreements, each as defined in the Restructuring Agreement.
"Other Termination Event" means (i) a redemption of all of the outstanding
-----------------------
shares of PCS Stock for the common equity securities of one or more wholly owned
subsidiaries of Sprint that hold all or substantially all of the assets
attributed to the PCS Group (as such term is defined in the Restructuring
Agreement), (ii) a redemption of all or a substantial portion of the outstanding
shares of PCS Stock upon the sale of all or substantially all of the assets of
the PCS Group, or (iii) a conversion of all of the outstanding shares of PCS
Stock into any class of Sprint common stock that is not a common equity tracking
security that continues to reflect substantially all of the business, assets and
liabilities comprising the PCS Group immediately prior to such conversion, but
which shall not represent any business, assets or liabilities comprising any
part of the FON Group immediately prior to such conversion.
"Outstanding Sprint Voting Securities" means the Sprint Voting Securities
------------------------------------
outstanding as of any particular date.
"PCS Stock" means the Series 1 PCS Stock, the Series 2 PCS Stock and the
---------
Series 3 PCS Stock.
"PCS Preferred Stock" means the Series 7 Preferred Stock of Sprint, no par
-------------------
value per share, which shall be created by the filing of a Certificate of
Designations as described in Section 6.2(d) of the Restructuring Agreement.
"Percentage Limitation" has the meaning set forth in Section 1.1(a)(ii).
---------------------
"Person" means an individual, a partnership, an association, a joint
------
venture, a corporation, a business, a trust, an unincorporated organization, or
any other entity organized under applicable law.
"Preferred Stock" means any class or series of the Preferred Stock, no par
---------------
value, of Sprint, including the PCS Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated as of the date hereof among Sprint and the Cable Holders.
"Restructuring Agreement" has the meaning set forth in the Recitals.
-----------------------
"Series 1 PCS Stock" means the Series 1 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment, as defined in the Restructuring
Agreement.
<PAGE>
"Series 2 PCS Stock" means the Series 2 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment.
"Series 3 PCS Stock" means the Series 3 PCS Group Common Stock, par value
------------------
$1.00 per share, of Sprint, which will be created on the Closing Date by the
filing of the Initial Charter Amendment.
"Sprint Rights Plan" means the Rights Agreement dated as of June 9, 1997,
------------------
as amended, between Sprint and UMB Bank, n.a., as rights agent, as amended or
modified from time to time, or any successor or similar Plan.
"Sprint Voting Securities" means the Common Stock, the Class A Stock, the
------------------------
FON Stock, the PCS Stock, the Preferred Stock and any other securities of Sprint
having the right to Vote.
"Strategic Merger" means a merger or other business combination involving
----------------
Sprint (a) in which the Holder is entitled to retain or receive, as the case may
be, voting equity securities of the surviving parent entity in exchange for or
in respect of (by conversion or otherwise) its shares of PCS Stock, with an
aggregate fair market value equal to the sum of (i) the fair market value of all
consideration that the Holder has a right to receive with respect to such merger
or other business combination, and (ii) if Sprint is the surviving parent
entity, the fair market value of the equity securities of the surviving parent
entity that the Holder is entitled to retain, (b) immediately after which the
surviving parent entity is an entity whose voting equity securities are
registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act or
which otherwise has any class or series of its voting equity securities held by
at least 500 holders, (c) immediately after which no person or Group (other than
the Cable Holders) owns Voting Securities of such surviving parent entity with
Votes equal to more than 35 percent of the Voting Power of such surviving parent
entity and (d) in which holders of PCS Stock receive a common equity tracking
security that continues to reflect substantially all of the business, assets and
liabilities comprising the PCS Group immediately prior to such merger or other
business combination together with such additional wireless business, assets and
liabilities which may be included in the PCS Group of the surviving parent
entity, but which shall not represent any business, assets or liabilities
comprising any part of the other businesses, assets or liabilities of the
surviving parent entity or its subsidiaries, including businesses, assets or
liabilities of the FON Group immediately prior to such merger or business
combination, it being understood that no merger or business combination shall be
deemed to meet the requirements of this definition unless the requirements of
each of clauses (a) through (d) above have been met. "Fair market value" with
-----------------
respect to any property, for purposes of this definition, shall be as determined
in writing in good faith by a majority of the independent directors of Sprint.
"Subsidiary" means, with respect to any Person (the "Parent"), any other
---------- ------
Person in which the Parent, one or more of Subsidiaries of the Parent, or the
Parent and one or more of
<PAGE>
its Subsidiaries (a) have the ability, through ownership of securities
individually or as a group, ordinarily, in the absence of contingencies, to
elect a majority of the directors (or individuals performing similar functions)
of such other Person, and (b) own more than 50% of the equity interests.
"Transfer" means any act pursuant to which, directly or indirectly, the
--------
ownership of assets or securities in question is sold, transferred, conveyed,
delivered or otherwise disposed of.
"Vote" means, as to any entity, the ability to cast a vote at a
----
stockholders' or comparable meeting of such entity with respect to the election
of directors or other members of such entity's governing body; provided that
--------
with respect to Sprint only, "Vote" means the ability to exercise general voting
power (as opposed to the exercise of special voting or disapproval rights) with
respect to matters other than the election of directors at a meeting of the
stockholders of Sprint.
"Voting Agreement" has the meaning assigned to such term in the
----------------
Restructuring Agreement.
"Voting Power" means, as to any entity as of any date, the aggregate number
------------
of Votes outstanding as of such date in respect of such entity; provided that,
--------
with respect to PCS Stock, the Vote per share used to calculate such aggregate
number of Votes shall be the Vote per share most recently established by the
Board of Directors of Sprint, whether for the most recent vote of stockholders
or for a vote of stockholders to be conducted in the future.
"Warrant" has the meaning set forth in the Restructuring Agreement.
-------
Section 3.2 Interpretation and Construction of this Agreement. The
-------------------------------------------------
definitions in Section 3.1 shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." All references herein to Articles, Sections and
Exhibits shall be deemed to be references to Articles and Sections of, and
Exhibits to, this Agreement unless the context shall otherwise require. The
headings of the Articles and Sections are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. Unless the context shall otherwise require or
provide, any reference to any agreement or other instrument or statute or
regulation is to such agreement, instrument, statute or regulation as amended
and supplemented from time to time (and, in the case of a statute or regulation,
to any successor provision).
<PAGE>
ARTICLE 4
MISCELLANEOUS
-------------
Section 4.1 Termination. The provisions of this Agreement shall
-----------
terminate (a) upon the consent in writing of all of the Parties, (b) upon a
Change of Control, (c) if the Restructuring Agreement is terminated prior to the
Closing thereunder, (d) following the Closing under the Restructuring Agreement,
if the Votes represented by the Sprint Voting Securities Beneficially Owned by
the Holder and its Affiliates, directly or indirectly, either individually or as
part of a Group, in the aggregate no longer exceed the Percentage Limitation
(assuming for purposes of this clause (d) that all shares of Series 2 PCS Stock
have the same voting rights as the shares of Series 1 PCS Stock), or (e) upon
the occurrence of an Other Termination Event. As to a Holder that is an
Affiliate or an Associate of a Cable Holder and that has executed this Agreement
in accordance with Section 2.4, the provisions of this Agreement shall
terminate, in addition to the above circumstances, when such Holder ceases to be
an Affiliate (or Associate, as applicable) of a Cable Holder and all shares of
Series 2 PCS Stock held by such party shall have converted to Series 1 PCS
Stock. Any termination of this Agreement as provided herein shall be without
prejudice to the rights of any Party arising out of the breach by any other
Party of any provision of this Agreement.
Section 4.2 Notices. Except as expressly provided herein, all
-------
notices, consents, waivers and other communications required or permitted to be
given by any provision of this Agreement shall be in writing and mailed
(certified or registered mail, postage prepaid, return receipt requested) or
sent by hand or overnight courier, or by facsimile transmission (with
acknowledgment received and confirmation sent as provided below), charges
prepaid and addressed to the intended recipient as follows, or to such other
address or number as such Person may from time to time specify by like notice to
the parties:
Holder: Comcast Corporation
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Telecopy: (215) 981-7794
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
<PAGE>
Sprint: 2330 Shawnee Mission Parkway
East Wing
Westwood, Kansas 66205
Attention: General Counsel
Tel: (913) 624-8440
Fax: (913) 624-8426
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Bruce N. Hawthorne, Esq.
Tel: (404) 572-4903
Fax: (404) 572-5146
The Parties shall promptly notify each other in the manner provided in this
Section 4.2 of any change in their respective addresses. A notice of change of
address shall not be deemed to have been given until received by the addressee.
Communications by facsimile also shall be sent concurrently by mail, but shall
in any event be effective as stated above.
Section 4.3 Assignment. No Party will assign this Agreement or any
----------
rights, interests or obligations hereunder, or delegate performance of any of
its obligations hereunder, without the prior written consent of each other
Party.
Section 4.4 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the Parties with respect to the subject matter
contained herein, provided that this provision shall not abrogate any other
written agreement between the Parties executed simultaneously with this
Agreement. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to such subject matter.
Section 4.5 Waiver, Amendment, etc. This Agreement may not be amended
-----------------------
or supplemented, and no waivers of or consents to departures from the provisions
hereof shall be effective, unless set forth in a writing signed by, and
delivered to, all the Parties. No failure or delay of any Party in exercising
any power or right under this Agreement will operate as a waiver thereof, nor
will any single or partial exercise of any right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.
Section 4.6 Binding Agreement; No Third Party Beneficiaries. This
-----------------------------------------------
Agreement will be binding upon and inure to the benefit of the Parties and their
successors and permitted assigns. Nothing expressed or implied herein is
intended or will
<PAGE>
be construed to confer upon or to give to any third party any rights or remedies
by virtue hereof.
Section 4.7 Governing Law; Dispute Resolution; Equitable Relief.
---------------------------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW).
(b) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION,
SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR LIABILITIES
UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
OR, IN THE EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE STATE OF
NEW YORK SITTING IN THE COUNTY OF NEW YORK, AND EACH PARTY HEREBY IRREVOCABLY
ACCEPTS AND SUBMITS TO THE JURISDICTION OF EACH OF THE AFORESAID COURTS IN
PERSONAM, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING (INCLUDING CLAIMS
FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS
IN WHICH SUCH PARTY IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR
PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
(c) EACH PARTY AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTY FOR ANY BREACH OF THIS AGREEMENT BY IT, AND THAT IN
ADDITION TO ALL OTHER REMEDIES THE OTHER PARTIES MAY HAVE, IT SHALL BE ENTITLED
TO SPECIFIC PERFORMANCE AND TO INJUNCTIVE OR OTHER EQUITABLE RELIEF AS A REMEDY
FOR ANY SUCH BREACH. EACH PARTY AGREES NOT TO OPPOSE THE GRANTING OF SUCH RELIEF
IN THE EVENT A COURT DETERMINES THAT SUCH BREACH HAS OCCURRED, AND AGREES TO
WAIVE ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH
SUCH REMEDY.
Section 4.8 Severability. The invalidity or unenforceability of any
------------
provision hereof in any jurisdiction will not affect the validity or
enforceability of the remainder hereof in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction. To the extent permitted by applicable law, each Party waives any
provision of applicable law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement is held to
<PAGE>
be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the Parties to the extent possible.
Section 4.9 Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which when so executed and delivered will be deemed an
original but all of which will constitute one and the same Agreement.
Section 4.10 Remedies. In addition to any other remedies which may be
--------
available to Sprint (including any remedies which Sprint may have at law or in
equity):
(a) If the Holder breaches this Agreement in any material respect,
then unless and until such breach is cured in all material respects, the Holder
shall not be entitled to vote any of its shares of capital stock of Sprint (or
any shares into which such shares of capital stock are converted) with respect
to any matter or proposal arising from, relating to or involving such breach,
and no such purported vote by the Holder on such matter shall be effective or
shall be counted; and
(b) The Holder agrees that Sprint shall have no obligation to honor
Transfers of Sprint Voting Securities or other equity interests in Sprint to the
Holder or any of its Affiliates that would cause the Holder and its Affiliates
to Beneficially Own Sprint Voting Securities or other equity interests in Sprint
in violation of this Agreement, any such Transfers shall be void and of no
effect, and Sprint shall be entitled to instruct any transfer agent or agents
for the equity interests in Sprint to refuse to honor such Transfers.
<PAGE>
IN WITNESS WHEREOF, Sprint and the Holder have caused their respective duly
authorized officers to execute this Standstill Agreement as of the day and year
first above written.
COMCAST CORPORATION
By: /s/ Arthur R. Block
-------------------------------
Title: Vice President
------------------------
SPRINT CORPORATION
By: /s/ Don A Jensen
-------------------------------
Title: Vice President
------------------------
<PAGE>
EXHIBIT (10) (K)
==============================================================
SPRINT CORPORATION
1990 STOCK OPTION PLAN
Adopted as a Stock Option Plan under the
1997 Sprint Corporation Long-Term Stock Incentive Program.
As Amended and Restated
by the Board Effective
on the Recapitalization Date
(November 24, 1998)
=============================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 ESTABLISHMENT 1
2 DEFINED TERMS 1
3 PURPOSE 1
4 ADMINISTRATION 1
4.01 Interpretation of the Plan................................... 1
4.02 Abstention in Certain Cases by Committee Members............. 2
5 NUMBER OF SHARES AUTHORIZED TO BE ISSUED 2
6 GRANT OF OPTIONS 2
6.01 Eligibility for Grants....................................... 2
6.02 Committee Grants............................................. 3
6.03 Interim Grants............................................... 3
6.04 Limitation on Discretion of Committee and Authorized
Officers..................................................... 4
7 TERMS OF OPTIONS 4
7.01 Standard Terms of Options.................................... 4
7.02 Mandatory Terms of Incentive Stock Options................... 7
7.03 Standard Terms of Incentive Stock Options.................... 8
7.04 Stock Option Agreement....................................... 8
8 EXERCISE OF OPTIONS 9
8.01 Notice of Exercise........................................... 9
8.02 Form of Payment of Exercise Price............................ 9
9 WITHHOLDING OF PAYROLL TAXES ON EXERCISE 10
9.01 Obligation to Pay Payroll Taxes.............................. 10
9.02 Amount to Be Withheld........................................ 11
9.03 Eligibility to Elect Stock Withholding....................... 11
9.04 Manner of Withholding........................................ 11
10 ISSUANCE OF SHARES ON EXERCISE 12
10.01 Generally.................................................... 12
10.02 Elective Issuance of Restricted Shares....................... 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
10.03 Mandatory Issuance of Restricted Shares..................... 12
10.04 Issuance of Restricted Shares Not Available to
Transferred Options......................................... 13
10.05 Terms of Restricted Shares Issued on Exercise............... 13
11 RELOAD RIGHTS 15
11.01 Grant of Reload Rights on Outstanding Non-Qualified
Options..................................................... 15
11.02 Terms of Reload Options..................................... 15
11.03 Variant Reload Rights....................................... 17
12 CHANGE IN STOCK, ADJUSTMENTS, ETC 17
13 AMENDMENT AND TERMINATION 18
14 EFFECTIVE DATE AND DURATION OF THE PLAN 18
15 DEFINITIONS 18
15.01 1989 Program................................................ 18
15.02 1997 Program................................................ 18
15.03 Affiliate................................................... 18
15.04 Authorized Officer.......................................... 18
15.05 Board....................................................... 18
15.06 Change in Control........................................... 18
15.07 Code........................................................ 19
15.08 Code Section................................................ 19
15.09 Committee................................................... 19
15.10 Common Stock................................................ 19
15.11 Company..................................................... 19
15.12 Corporate Secretary......................................... 20
15.13 Director.................................................... 20
15.14 Employee.................................................... 20
15.15 Equity Security............................................. 20
15.16 Exchange Act................................................ 20
15.17 Exchange Act Section 16..................................... 20
15.18 Executive Officer........................................... 20
15.19 Exercise Date............................................... 20
15.20 Exercise Price.............................................. 20
15.21 Expiration Date............................................. 20
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
15.22 Fair Market Value........................................... 20
15.23 FON Stock................................................... 21
15.24 Grant Date.................................................. 21
15.25 Grantee..................................................... 21
15.26 Incentive Stock Option...................................... 21
15.27 Minimum Withholding Amount.................................. 21
15.28 Non-Qualified Option........................................ 21
15.29 Normal Retirement........................................... 21
15.30 Notice of Exercise.......................................... 21
15.31 Option...................................................... 21
15.32 Option Class................................................ 22
15.33 Optionee.................................................... 22
15.34 Payroll Tax................................................. 22
15.35 Payroll Taxpayer............................................ 22
15.36 PCS Stock................................................... 22
15.37 Person...................................................... 22
15.38 Program Adoption Date....................................... 22
15.39 Plan........................................................ 22
15.40 Qualified Transferee........................................ 22
15.41 Qualified Trust............................................. 22
15.42 Reload Option............................................... 23
15.43 Restricted Shares........................................... 23
15.44 Retirement.................................................. 23
15.45 Seasoned Shares............................................. 23
15.46 Securities Act.............................................. 23
15.47 Strike Price................................................ 23
15.48 Subsidiary.................................................. 23
15.49 Tax Date.................................................... 23
15.50 Termination Date............................................ 23
15.51 Termination for Cause....................................... 24
15.52 Total Disability............................................ 24
15.53 Underlying Option........................................... 24
15.54 Vesting Period.............................................. 24
15.55 Withholding Amount.......................................... 25
</TABLE>
iii
<PAGE>
Article 1
Establishment
Pursuant to the 1989 Program the Company established a stock option plan named
the 1990 Stock Option Plan (the "Plan") for officers and key employees of the
Company and its subsidiaries. The 1989 Program has been replaced by the 1997
Program, and this Plan is now established pursuant to the 1997 Program.
Article 2
Defined Terms
Capitalized words used throughout this Plan have the meanings assigned to them
parenthetically throughout the Plan or in Article 15.
Article 3
Purpose
The purposes of the Plan are to induce officers and key employees of the Company
or its Subsidiaries who are in a position to contribute materially to the
Company's prosperity to remain with the Company or its Subsidiaries, to offer
them incentives and rewards in recognition of their share in the Company's
progress, to encourage them to continue to promote the best interests of the
Company and its stockholders, and to allow the Company and its Subsidiaries to
successfully compete with other enterprises in the recruitment of new officers
and key employees.
Article 4
Administration
The Committee shall administer the Plan as set forth in this Section.
4.01. INTERPRETATION OF THE PLAN.
The Committee may from time to time adopt, and thereafter amend or rescind, such
rules and regulations for carrying out the Plan and take such action in the
administration of the Plan, not inconsistent with the provisions of the Plan and
the 1997 Program, as it considers proper. The interpretation and construction of
any provisions of the Plan by the Committee shall be final. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
The Corporate Secretary shall have the discretion and authority to establish any
and all procedures, forms, and rules of a ministerial nature that the Corporate
Secretary considers necessary or desirable for the orderly administration of the
1
<PAGE>
Plan and shall have other administrative responsibilities as set forth elsewhere
in this Plan.
The Committee may designate one or more Employees to hear and resolve disputes
arising under the Plan.
4.02. ABSTENTION IN CERTAIN CASES BY COMMITTEE MEMBERS.
If any Committee member's participation in an action to approve the acquisition
or disposition of an Equity Security by an Executive Officer would prevent the
Executive Officer's acquisition or disposition of the Equity Security from being
exempt from the liability provisions of Exchange Act Section 16, the member
shall abstain from voting on the transaction if doing so would cause the
acquisition or disposition to be exempt.
Article 5
Number of Shares Authorized to be Issued
The number of shares of Common Stock that may be issued upon exercise of Options
granted under the Plan may not exceed 27,000,000/1//2/ shares of FON Stock or
21,600,000/2/ shares of PCS Stock, subject to adjustment as provided in Article
12 hereof. The shares issued under the Plan may be either treasury shares or
authorized but unissued shares.
The number of shares of Common Stock that may be issued upon exercise of Options
granted pursuant to this Plan after April 15, 1997, together with shares of
Common Stock subject to other awards under the 1997 Program, may not exceed the
limits set forth in Section 4(a) of the 1997 Program.
The number of shares of Common Stock that may be issued upon exercise of
Incentive Stock Options granted pursuant to this Plan after April 15, 1997, may
not exceed 4,000,000 shares of FON Stock or 2,000,000 shares of PCS Stock.
The shares of Common Stock allocable to the unexercised portion of any Option
that for any reason expires or is forfeited may again be subject to an Option
under the Plan.
Article 6
Grant of Options
6.01. ELIGIBILITY FOR GRANTS.
The Committee or an Authorized Officer may grant Options under this Plan to any
Grantee who is a Director or Employee of the Company or a Subsidiary of the
Company on the Grant Date of the Option and to whom the granting of Options and
the exercise thereof would not be in violation of the laws of
________________________
/1/ Increased from 20,441,564 shares on February 10, 1998.
/2/ Includes shares issued upon exercise of Options prior to the November 23,
1998 recapitalization of common stock into FON Stock and PCS Stock.
2
<PAGE>
the jurisdiction, foreign or domestic, having legal authority over the issuance
of Options to, or the exercise thereof by, Directors or Employees working or
residing in such jurisdiction.
No Incentive Stock Option may be granted to any Grantee who owns directly or
indirectly shares of Common Stock or options to purchase shares of Common Stock,
together possessing more than 10% of the total combined voting power or value of
all classes of stock of the Company or any of its Subsidiaries.
6.02. COMMITTEE GRANTS.
The Committee shall determine which Directors or Employees among those eligible
shall be granted Options and, with respect to each Option, shall specify the
Option Class and number of shares of Common Stock subject to the Option. The
Committee may designate Grantees, the Option Class, and the number of shares
subject to each Option by any objectively determinable description. The
Committee may also specify the Grant Date of the Option, the Strike Price, the
Expiration Date of the Option, the rate at which the Option may be exercised,
and such other terms of the Option as the Committee may consider appropriate. In
making its determinations, the Committee shall take into consideration the value
of the services rendered by the Grantees, their present and potential
contribution to the success of the Company and its Subsidiaries, and such other
factors the Committee may consider relevant in accomplishing the purposes of the
Plan.
6.03. INTERIM GRANTS.
Between meetings of the Committee, any of the Authorized Officers may grant an
Option to any eligible Employee other than a Director or an Executive Officer.
The number of shares subject to Options granted pursuant to this Section 6.03
may not exceed a total of 10,000 shares of all Classes of Common Stock for any
single Grantee between any two meetings of the Committee.
In making such grants, the Authorized Officer shall specify in a writing,
executed by the Authorized Officer and setting forth the actual date of
execution, which Employees among those eligible shall be granted Options and,
with respect to each Option, shall specify the Option Class and number of shares
of Common Stock subject to the Option. The Authorized Officer may designate
Grantees, the Option Class, and the number of shares subject to each Option by
any objectively determinable description. The Authorized Officer may also
specify the Grant Date of the Option, the Strike Price, the Expiration Date of
the Option, the rate at which the Option may be exercised, and such other terms
of the Option as the Authorized Officer may consider appropriate. In making its
determinations, the Authorized Officer shall take into consideration the value
of the services rendered by the Grantees, their present and potential
contribution to the success of the Company and its Subsidiaries, and such other
factors the Authorized Officer may consider relevant in accomplishing the
purposes of the Plan.
3
<PAGE>
The Authorized Officer shall report/1/ to the Committee the Grantees and terms
of all Options granted pursuant to this Section 6.03 at the next meeting of the
Committee following such grants.
6.04. LIMITATION ON DISCRETION OF COMMITTEE AND AUTHORIZED OFFICERS.
Neither the Committee nor the Authorized Officer may
(i) set the Grant Date of any Option to any date earlier than the date of the
action granting the Option;
(ii) establish the Strike Price of any Option at a price lower than the
greater of (a) the Fair Market Value of one share of the Option Class of
Common Stock on the Grant Date of the Option or (b) the par value on the
Grant Date of the Option Class of the Common Stock; or
(iii) subject more than 3,000,000 shares to Options in the FON Stock Option
Class nor more than 1,500,000 shares to Options in the PCS Stock Option
Class granted to any single Director or Employee in any calendar year.
Article 7
Terms of Options
7.01. STANDARD TERMS OF OPTIONS.
Unless the Committee or Authorized Officer specifies otherwise, the terms set
forth in this Section 7.01 shall apply to all Options granted under this Plan.
Any Stock Option Agreement that incorporates the terms of the Plan by reference
shall be deemed to have incorporated the terms set forth in this Section 7.01 to
the extent that these terms are not in conflict with those explicitly set forth
in the Stock Option Agreement.
(a) Non-Qualified Options. Each Option shall be a Non-Qualified Option.
(b) Grant Date. The Grant Date of each Option shall be the date of the
Committee's or Authorized Officer's action granting the Option.
(c) Strike Price. The Strike Price of each Option shall be the Fair Market
Value of one share of the Option Class of Common Stock on the Grant Date.
(d) Expiration Date. The Expiration Date of each Option shall be the close of
business on the tenth anniversary of the Option's Grant Date. The Option
shall not be exercisable after its Expiration Date.
(e) Rate of Exercisability. Each Option shall become exercisable with respect
to 25% of the number of shares of the Option Class of Common Stock subject
to the Option on each of the first four anniversaries of the Grant
________________
/1/ Does Kansas law require the Committee to have the ultimate power to reject
grants of options? John Granda?
4
<PAGE>
Date if, on such anniversary date, the Grantee shall have been continuously
employed by or served as a Director of the Company, a Subsidiary of the
Company, or an Affiliate from the Grant Date.
(f) Reload Rights. Each Non-Qualified Option, other than Options granted
pursuant to Reload Rights, shall be granted with Reload Rights.
(g) Limitations on Transfer. No Option may, during the lifetime of the Grantee,
be transferred, levied, garnished, executed upon, subjected to a security
interest, or assigned to any person other than the Grantee, except that a
Grantee may transfer an Option to a Qualified Transferee if the transfer is
made without payment of consideration being paid to the Grantee. Documents
evidencing the transfer of any Option and the identity of the Qualified
Transferee shall be in such form as may be required by the Corporate
Secretary. No such Qualified Transferee may dispose of shares issued upon
exercise of an Option, other than to the Company, until such shares are
validly registered or, in the opinion of the Corporate Secretary, exempt
from registration under the Securities Act.
(h) Post-Employment Exercise of Options. Each Option may be exercised after the
Grantee's Termination Date only with respect to the number of shares of
Common Stock that were exercisable on the Grantee's Termination Date. An
Optionee may exercise an Option before its Expiration Date with respect to
those shares during a limited period beginning on the Grantee's Termination
Date and ending.
(i) on the fifth anniversary of the Grantee's Termination Date, if the
Grantee's service as Director or employment terminated by reason of
his Retirement or Total Disability;
(ii) on the first anniversary of the Grantee's Termination Date if the
Grantee's employment or service as Director terminated by reason of
his death;
(iii) on the day three months following the Grantee's Termination Date if
the Grantee terminated his employment or service as Director
voluntarily, for a reason other than Retirement, or involuntarily
for a reason not constituting Termination for Cause.
If a Grantee's employment has been Terminated for Cause, the Optionee shall
forfeit all outstanding Options immediately on the Grantee's Termination
Date.
(i) Acceleration on Termination of Employment for Certain Reasons.
(1) Death or Total Disability. Each Option shall become exercisable
immediately on the Grantee's Termination Date if the reason for
termination was the Grantee's death or Total Disability.
(2) Normal Retirement. Each Option shall become exercisable immediately
on the Grantee's Termination Date if (i) the reason for termina-
5
<PAGE>
tion was the Grantee's Normal Retirement and (ii) the Option's Grant
Date was at least one year before the Grantee's Termination Date.
(j) Acceleration on Change in Control.
(1) Acceleration. Each Option shall become immediately exercisable in full
upon a Change in Control if
(i) the Change in Control occurs at least one year after the
Option's Grant Date and
(ii) the Grantee of the Option has been a Director, Employee, or an
employee of an Affiliate continuously from the Option's Grant
Date to the date of the Change in Control.
(2) Limitation on Acceleration. If the acceleration of exercisability
under Section 7.01(j)(1), together with all other payments or benefits
contingent on the Change in Control with the meaning of Code Section
280G, results in any portion of such payments or benefits not being
deductible by the Company as a result of the application of Code
Section 280G, the benefits shall be reduced until the entire amount of
the benefits is deductible. The reduction shall be effected by the
exclusion of grants of options or portions thereof in reverse
chronological order of their respective Grant Dates from the
application of Section 7.01(j)(1) until no portion of such benefits is
rendered non-deductible by application of Code Section 280G.
(k) Exercise After Death of Optionee. Upon the death of an Optionee, all
Options held by the Optionee on the Optionee's date of death, to the extent
exercisable under their terms, may be exercised by
(i) the executor or administrator of the Optionee's estate,
(ii) the Person or Persons to whom the Optionee's rights under the
Options pass by the Optionee's will or the laws of descent and
distribution, or
(iii) the beneficiary or beneficiaries designated by the Optionee in
accordance with Section 7.01(l).
(l) Designation of Beneficiaries. An Optionee may designate a beneficiary or
beneficiaries to exercise unexpired Options and to own shares issued upon
any such exercise after the Optionee's death without order of any probate
court or otherwise. A beneficiary so designated may exercise an Option upon
presentation to the Company of evidence satisfactory to the Corporate
Secretary of the beneficiary's identity and the death of the Optionee. An
Optionee may change any beneficiary designation at any time before his
death but may not do so by testamentary designation in his will or
otherwise. Beneficiary designations must be made in writing on a form
provided by the Corporate Secretary. Beneficiary designations shall become
effective on the date that the form, properly completed, signed, and
notarized, is
6
<PAGE>
received by the Corporate Secretary. Any designation of a beneficiary by an
Optionee with respect to any Option shall be canceled upon the transfer of
such Option by the Optionee in accordance with the terms of the Plan.
(m) Agreement to Remain Employed. Each Grantee other than Directors shall, as
consideration for the grant of each Option, agree in the Stock Option
Agreement to remain in the employ of the Company, its Subsidiaries, or an
Affiliate at the pleasure of the Company, such Subsidiary, or Affiliate for
at least one year from the Option's Grant Date or the earlier termination
of the Grantee's employment effected or approved by the Company, the
Subsidiary, or Affiliate. If the Grantee violates the agreement, the
Optionee shall forfeit the Option.
Nothing contained in the Plan or in any Option granted pursuant to the Plan
shall confer upon any Grantee any right to continue employment with the
Company, its Subsidiaries, or Affiliates nor interfere in any way with the
right of the Company, its Subsidiaries, or Affiliates to terminate the
Grantee's employment or change the Grantee's compensation at any time.
(n) Forfeiture Upon Conflict of Interest. If any Grantee, without the consent
of the Committee, becomes associated with, employed by, renders services
to, or owns any significant interest in any business that is in competition
with the Company, its Subsidiaries, or Affiliates, any outstanding Option
granted to such Grantee shall be forfeited.
7.02. MANDATORY TERMS OF INCENTIVE STOCK OPTIONS.
If the Committee or Authorized Officer specifies that an Option is an Incentive
Stock Option, the terms set forth in this Section 7.02 shall be incorporated
into the terms of the Option in preference to any conflicting terms set forth in
Section 7.01. If the Stock Option Agreement setting forth the terms of any
Option contradict the terms set forth in this Section 7.02, such Option shall be
treated as a Non-Qualified Stock Option, notwithstanding its designation as an
Incentive Stock Option.
(a) Grant Date within 10 Years of Program Adoption. No Incentive Stock Option
may be granted under the Plan after the tenth anniversary of the Program
Adoption Date.
(b) Limitation on Option Term. No Incentive Stock Option may be exercised after
the tenth anniversary of its Grant Date.
(c) Strike Price. No Incentive Stock Option may have a Strike Price less than
the Fair Market Value of one share of the Option Class of Common Stock on
the Grant Date of the Incentive Stock Option.
(d) Non-Transferability. No Incentive Stock Option may be transferred by the
Grantee except by the Grantee's will or the laws of descent and
distribution. An Incentive Stock Option may be exercised during the
Grantee's lifetime only by the Grantee, and after the Grantee's death only
by a beneficiary designated by the Grantee pursuant to the terms of the
Plan, or otherwise
7
<PAGE>
by the executor or administrator of the Grantee's estate or the Person
succeeding to the Grantee's interest in the Incentive Stock Option under
the Grantee's will or the applicable laws of intestacy.
7.03. STANDARD TERMS OF INCENTIVE STOCK OPTIONS.
Unless the Committee or Authorized Officer specifies otherwise in the action
granting the Option, the following terms shall apply to all Incentive Stock
Options granted under the Plan. To the extent the terms set forth in this
Section 7.03 conflict with the standard terms applicable to Options generally
set forth in Section 7.01, the terms of this section shall control the terms of
any Options designated as Incentive Stock Options at the time of grant.
(a) Maximum Rate of Exercisability. The Fair Market Value on the Grant Date of
the shares of Common Stock subject to any Incentive Stock Option with
respect to which the Incentive Stock Option becomes exercisable for the
first time during any calendar year, together with the Fair Market Value of
shares of Common Stock subject to other Incentive Stock Options on their
respective Grant Dates owned by the Optionee under all plans of the Company
and its Subsidiaries and first becoming exercisable in the same calendar
year, shall not exceed $100,000 or, if different, the maximum limitation in
effect under Code Section 422 for Incentive Stock Options on the Grant Date
of such Incentive Stock Option. To the extent the terms of the Option
permit the exercise of an Option for more shares than permitted by this
Section 7.03(a), each Option or portion of an Option, in reverse
chronological order of their Grant Dates, shall be treated as Non-Qualified
Options until the remaining Options or portions of Options meet the
limitations set forth in this Section 7.03(a).
(b) Post-Termination Exercise. Any Incentive Stock Option exercised after the
end of the 12-month period beginning on the Grantee's Termination Date
shall, to that extent, be treated as a Non-Qualified Option.
7.04. STOCK OPTION AGREEMENT.
The terms of each Option shall be set forth in a Stock Option Agreement executed
by the Company and the Grantee. The Stock Option Agreement must set forth those
terms that are not made standard terms of the Option pursuant to this Plan.
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Article 8
Exercise of Options
8.01. NOTICE OF EXERCISE.
An Optionee may exercise his Option to purchase shares of Common Stock by
written notice to the Corporate Secretary
(i) unambiguously identifying the Option that he is exercising;
(ii) stating the number of shares with respect to which he is exercising the
Option;
(iii) accompanied by payment of the Exercise Price in cash or any other form
permitted by Section 8.02;
(iv) if the Optionee wants to have the shares issued to be registered jointly
with the Optionee's spouse, a statement to that effect;
(v) if the Optionee is electing to have any Payroll Tax withholding
obligation discharged by delivery of Seasoned Shares or withholding of
shares from shares issuable upon the exercise pursuant to Section 9.04,
a statement to that effect, and, if the Optionee elects to have more
than the required minimum percentage of Payroll Taxes withheld, a
statement of the percentage to be withheld, not exceeding, if the
Grantee is an Executive Officer, the applicable marginal tax rate;
(vi) if the Optionee is electing to receive Restricted Shares pursuant to
Section 10.02, a statement of the Vesting Period the Optionee is
electing;
(vii) if the Optionee is delivering or attesting to ownership of Restricted
Shares in payment of the Exercise Price and desires to elect a more
extended Vesting Period pursuant to Section 10.03, a statement of the
extended Vesting Period the Optionee is electing.
The Corporate Secretary may dispense with a written Notice of Exercise in the
case of certain exercises in which he considers a written Notice of Exercise
unnecessary.
The Exercise Date shall be the date on which the Notice of Exercise, together
with the payment of the Exercise Price, is received by the Corporate Secretary
or his designee. The Optionee may not, after the Exercise Date, change the form
of payment of the Exercise Price, the election regarding stock withholding, or
other aspects of the exercise dependent on the Fair Market Value of the Common
Stock.
The Corporate Secretary may condition the exercise of an Option on the
Optionee's filing with the Company a representation in writing that at the time
of such exercise it is the Optionee's then present intent to hold the shares
being purchased for investment and not for resale, or on the completion of any
registration or other qualification of shares under any state or federal laws or
rulings or regulations of any government regulatory body that the Corporate
Secretary may determine to be necessary or advisable.
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8.02. FORM OF PAYMENT OF EXERCISE PRICE.
(a) Payment in Cash. Unless the Optionee elects in the Notice of Exercise to
make payment in another form authorized by the Plan, payment of the
Exercise Price shall be in United States dollars, payable in cash or by
check. The Corporate Secretary may establish procedures to delay the
processing of any Option exercise until any check delivered in payment of
the Exercise Price has cleared, and, if a check fails to clear, cancel the
exercise.
(b) Payment in Shares of Common Stock. On exercise of any Option, the Optionee
may elect in the Notice of Exercise to pay the Exercise Price by surrender
of stock certificates in transferable form representing Seasoned Shares of
the Option Class having an aggregate Fair Market Value, determined as of
the Exercise Date, at least equal to the Exercise Price.
(c) Payment by Attestation. In lieu of the delivery of physical certificates,
an Optionee may deliver shares in payment of the Exercise Price by
attesting, on a form established by the Corporate Secretary, to the
ownership, either outright or through ownership of a broker account, of a
sufficient number of Seasoned Shares of the Option Class to pay the
Exercise Price. The attestation must be notarized and signed by the
Optionee and any co-owners with the Optionee of the shares with respect to
which the attestation is being made. The form of attestation must be
accompanied by any other documentation the Corporate Secretary considers
necessary to evidence actual ownership of such shares or otherwise preserve
the integrity of the Plan. Shares, the ownership of which is so attested to
by the Optionee, shall be deemed to have been re-issued to the Optionee on
the Exercise Date in partial satisfaction of the Company's obligation to
issue shares of the Option Class of Common Stock pursuant to the Option
exercise to which it relates.
(d) Fractional Shares. If an Optionee pays the Exercise Price of an Option by
delivery or attestation of Seasoned Shares, the Company shall apply to
payment of the Exercise Price from the shares delivered or attested the
highest number of whole shares having a Fair Market Value on the Exercise
Date less than or equal to the Exercise Price, and the Optionee shall be
required to pay in cash the Fair Market Value of the fractional share
resulting from truncating the number of shares to a whole number of shares.
Article 9
Withholding of Payroll Taxes on Exercise
9.01. OBLIGATION TO PAY PAYROLL TAXES.
Any Optionee, Grantee, or other Person (the "Payroll Taxpayer") with respect to
whom the Company or a Subsidiary of the Company has an obligation under any
Payroll Tax law to withhold amounts with respect to income arising from the
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exercise of any Option must pay to the Company or Subsidiary of the Company the
Minimum Withholding Amount.
9.02. AMOUNT TO BE WITHHELD.
The Payroll Taxpayer may elect in the Notice of Exercise or on another form
specified by the Corporate Secretary for such purpose an amount to be withheld
(the "Withholding Amount") with respect to the exercise of any Option. The
Withholding Amount must be greater than or equal to the Minimum Withholding
Amount and, if the Payroll Taxpayer is an Executive Officer, less than or equal
to the Payroll Taxpayer's combined marginal tax rate for all Payroll Taxes. In
the absence of such an election, the Withholding Amount shall be the Minimum
Withholding Amount.
If all amounts withheld in payment of Payroll taxes are reported to the
appropriate taxing jurisdiction as amounts withheld from the Payroll Taxpayer,
the Company or Subsidiary may, in cases where the Corporate Secretary considers
it necessary, set the Withholding Amount to an amount in excess of the Minimum
Withholding Amount based on assumptions about the amount required by law to be
withheld.
9.03. ELIGIBILITY TO ELECT STOCK WITHHOLDING.
A Payroll Taxpayer may elect to pay all or part of the Withholding Amount in
shares of the Option Class of Common Stock if the Optionee pays the Exercise
Price by delivering or attesting to ownership of shares of the Option Class of
Common Stock pursuant to Sections 8.02(b) or 8.02(c).
9.04. MANNER OF WITHHOLDING.
If the Payroll Taxpayer is eligible to satisfy his obligation to pay the
Withholding Amount by payment of shares of the Option Class of the Common Stock
pursuant to Section 9.03, he may pay the Withholding Amount by one or more of
the following methods:
(i) delivering Seasoned Shares of the Option Class; or
(ii) directing the Company to withhold from those shares that would otherwise
be received upon exercise of the Option or upon the vesting of Restricted
Shares, shares of the Option Class of the Common Stock having a Fair
Market Value on the Tax Date of no more than the Minimum Withholding
Amount; or
(iii) paying cash to the Company.
If the Payroll Taxpayer is not eligible to elect stock withholding, the
Withholding Amount must be paid entirely in cash. Any portion of the
Withholding Amount that would require withholding or delivery of a fractional
share and any portion of the Withholding Amount not paid by the withholding or
surrender of Common Stock must be paid in cash.
(a) Limit on Use of Unvested Restricted Shares. If the Option exercise
resulted in the issuance of Restricted Shares and the Vesting Period with
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respect to the Restricted Shares has not ended on or before the Tax Date,
method (ii) described in Section 9.04 shall not be available as a means of
stock withholding.
(b) Limit with Respect to Transferred Options. If an Option was transferred by
the Grantee or the tax liability resulting from the exercise of the Option
is otherwise not imposed on the Optionee, method (ii) described in Section
9.04 shall not be available as a means of stock withholding.
Article 10
Issuance of Shares on Exercise
10.01. GENERALLY.
No Optionee will be considered a holder of any shares of Common Stock subject to
an Option until a stock certificate or certificates for such shares are issued
to the Optionee after an exercise of the Option under the terms of the Plan. No
Optionee shall be entitled to dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions, or other rights with respect
to the shares subject to purchase under the Option unless the record date for
any such dividend, distribution, or other right falls on or after the date the
Optionee becomes a record holder of such shares.
All shares of Common Stock issued pursuant to an exercise of an Option shall be
issued in the name of the Optionee, or in the name of the Optionee and the
Optionee's spouse, and shall, except as otherwise provided in Article 8, be
freely transferable by the registered owners upon issuance.
10.02. ELECTIVE ISSUANCE OF RESTRICTED SHARES.
Certain Optionees, as determined by the Committee, may elect to receive
Restricted Shares upon the exercise of an Option if the Optionee so states in
the Notice of Exercise and has paid the Exercise Price of the Option by
attesting to or by delivering shares of unrestricted Common Stock pursuant to
Sections 8.02(b) or 8.02(c).
If an Optionee elects on exercise of any Option to receive Restricted Shares,
the Company shall issue to the Optionee
(i) a number of unrestricted shares of the Option Class of Common Stock equal
to the number of unrestricted shares the Optionee used to pay the Exercise
Price plus
(ii) all other shares issuable pursuant to the exercise of the Option as
Restricted Shares, having the Vesting Period specified by the Optionee in
the Notice of Exercise and otherwise subject to the restrictions on
transfer and other terms set forth in Section 10.05.
10.03. MANDATORY ISSUANCE OF RESTRICTED SHARES.
Certain Optionees, as determined by the Committee, may in the exercise of an
Option deliver or attest to ownership of Restricted Shares of the Option Class
of
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Common Stock in payment of the Exercise Price, notwithstanding restrictions on
transferability to which such shares are subject. If an Optionee elects to so
pay the Exercise Price of an Option, the Company shall issue to the Optionee
(i) a number of shares of the Option Class equal to the number of Restricted
Shares used to pay the Exercise Price as Restricted Shares having a
Vesting Period identical to the Vesting Period of the shares so used in
payment of the Exercise Price and
(ii) all other shares of the Option Class issuable pursuant to the exercise of
the Options as Restricted Shares having a Vesting Period identical to the
Vesting Period of the shares so used to pay the Exercise Price, or if the
Optionee elects in the Notice of Exercise, a Vesting Period extending
beyond the end of the Vesting Period of the shares so used.
10.04. ISSUANCE OF RESTRICTED SHARES NOT AVAILABLE TO TRANSFERRED OPTIONS.
Neither the Optionee nor the Grantee of an Option transferred by the Grantee
pursuant to the provisions of this Plan may use Restricted Shares in payment of
the Exercise Price nor elect to receive Restricted Shares on exercise of the
Option.
10.05. TERMS OF RESTRICTED SHARES ISSUED ON EXERCISE.
Subject to the right of the Optionee to elect the length of the Vesting Period
applicable to Restricted Shares issued pursuant to an Option exercise under the
Plan, all Restricted Shares issued pursuant to the Plan shall be subject to the
terms and conditions set forth in this Section 10.05.
(a) Restriction on Transfer. An Optionee who receives Restricted Shares may not
sell, transfer, assign, pledge or otherwise encumber or dispose of the
Restricted Shares until the end of the Vesting Period for such shares,
except:
(i) to the Company in payment of the exercise price of a stock option
issued by the Company under any director or employee stock option
plan adopted by the Company that provides for payment of the exercise
price in the form of restricted stock or
(ii) to a trust that is a Qualified Trust upon the following terms:
(A) the Company receives, before the transfer, a true copy of the
trust agreement of the Qualified Trust and an opinion from
Optionee's counsel that (1) the trust will be treated as a
grantor trust owned by the Optionee under Subchapter J of the
Code at all times until the restrictions on such stock lapse or
the stock is forfeited under the terms of their grant, (2) the
terms of the trust provide that upon the forfeiture of the
Restricted Shares under the terms of its grant or the earlier
termination of the trust for whatever reason, ownership of the
Restricted Shares shall revert to the Optionee or to the Company,
(3) the trustee of such trust
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may not, prior to the lapsing of restrictions on such stock,
sell, transfer, assign, pledge, or otherwise encumber or dispose
of the Restricted Shares except to the Company or to the
Optionee, subject to the restrictions provided for in this Plan,
and (4) until the restrictions lapse, the trustee is not
authorized to incur liabilities on behalf of the trust, other
than to the beneficiaries of the trust; and
(B) the Corporate Secretary, in his discretion, may require the
Optionee and the trustee to execute other documents as a pre-
condition to such transfer to insure enforcement of the terms of
the Restricted Shares or otherwise.
(b) Enforcement of Transfer Restrictions. Unless the Corporate Secretary
establishes alternative procedures, certificates representing Restricted
Shares shall be registered in the name of the Optionee (or the Qualified
Transferee trust in the case of shares transferred to such a trust pursuant
to Section 10.05(a)) and shall be held by the Company in escrow, together
with a stock power assigning the Restricted Shares back to the Company, to
be used only in the event of the forfeiture of any of the Restricted
Shares.
(c) Vesting Period. When an Optionee elects a Vesting Period to apply to
Restricted Shares issued under the Plan, the Optionee shall elect a Vesting
Period ending at least six months and no more than ten years after the
Exercise Date of the Option with respect to which the Restricted Shares
were issued, but in no event may the Optionee elect a Vesting Period ending
before the end of the Vesting Period of any Restricted Shares used to pay
the Exercise Price of the Option pursuant to Section 10.03.
The Corporate Secretary may establish restrictions on the dates during the
year on which Vesting Periods electable pursuant to this Article 10 may end
for the convenient administration of Restricted Shares issued under the
Plan.
At any time on or before the last day of the 13th calendar month that ends
on or before the last day of the Vesting Period for any Restricted Shares,
the Optionee may elect to extend the Vesting Period on all but not a
portion of the Restricted Shares by any multiple of six months.
(d) Forfeiture and Vesting of Restricted Shares.
(1) Vesting at End of Vesting Period. Any Restricted Shares not forfeited
by the end of the Vesting Period shall vest, and the Company shall
issue a certificate evidencing the shares to the registered owner
thereof promptly after the end of the Vesting Period.
(2) Restricted Shares Issued Mandatorily. Unless the Committee determines
otherwise, Restricted Shares issued mandatorily pursuant to the
exercise of an Option under Section 10.03 shall inherit the vesting
conditions of the Restricted Shares used to pay the Exercise Price. If
the
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Restricted Shares used to pay the Exercise Price would be forfeited
upon the Grantee's termination of service or employment before the end
of the Vesting Period, the Restricted Shares issued pursuant to such
exercise shall be forfeited; if the Restricted Shares used to pay the
Exercise Price would be vested upon the Grantee's termination of
service or employment before the end of the Vesting Period, the
Restricted Shares issued pursuant to such exercise shall vest and the
Company shall issue a certificate representing the shares to the
registered owner thereof. Likewise, Restricted Shares issued under the
Plan shall be forfeited or shall vest upon the occurrence of any other
event that would cause the forfeiture or vesting of the Restricted
Shares used to pay the Exercise Price under Section 10.03.
(3) Restricted Shares Issued Electively. Unless the Committee determines
otherwise, restrictions on Restricted Shares issued at the election of
the Optionee under Section 10.02 shall lapse if the Grantee terminates
his service or employment at any time before the end of the Vesting
Period for the Restricted Shares if
(i) the Grantee terminated service or employment by reason of the
Grantee's Death or Total Disability,
(ii) the Grantee terminated service or employment by reason of the
Grantee's Normal Retirement, or
(iii) the Grantee's employment was terminated involuntarily other
than as a Termination for Cause,
in which cases, the Company shall issue a certificate representing the
shares to the registered owner thereof; otherwise the Restricted
Shares shall be forfeited.
(e) Acceleration on Change in Control. Unless the Committee determines
otherwise, Restricted Shares issued at the election of the Optionee under
Section 10.02 shall vest on a Change in Control if the Change in Control
occurs at least one year after the Exercise Date on which the Restricted
Shares were issued.
(f) Rights of Grantee in Restricted Stock. The registered owner of Restricted
Shares shall have the right to vote the shares of stock and to receive
dividends or other distributions with respect to the shares.
Article 11
Reload Rights
11.01. GRANT OF RELOAD RIGHTS ON OUTSTANDING NON-QUALIFIED OPTIONS.
The Committee may grant Reload Rights with respect to any outstanding
NonQualified Options issued under any stock option plan of the Company, whether
originally granted with Reload Rights or not.
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11.02. TERMS OF RELOAD OPTIONS.
Any Underlying Option granted Reload Rights shall, unless the Committee
specifies other terms at the time the Reload Rights are granted, entitle the
Grantee to receive a new Option (a "Reload Option") to purchase shares of the
same Option Class as the Underlying Option upon the Optionee's exercise of the
Underlying Option by delivery or attestation of shares of Common Stock in
payment of the Exercise Price on the terms set forth in this Article 11.
(a) Conditions to the Grant of Reload Options. No Reload Option shall be
granted on the exercise of the Underlying Option unless
(i) a sufficient number of shares remain authorized and not issued or
subject to purchase under outstanding Options granted under the
Plan;
(ii) the Grantee of the Option is an Director or Employee on the
Exercise Date of the Underlying Option;
(iii) the exercise of the Underlying Option is for the purchase of a
number of shares of Common Stock at least equal to the lesser of
(a) 25% of the total number of shares subject to purchase under the
Underlying Option or (b) 100% of the shares with respect to which
the Underlying Option is then exercisable;
(iv) the Grant Date of the Reload Option would be at least one year
before the Expiration Date of the Underlying Option; and
(v) the Fair Market Value of one share of the Underlying Option's
Option Class on the Exercise Date is greater than or equal to the
Strike Price of the Underlying Option.
(b) Number of Shares Subject to Purchase; Grant Date. Each Reload Option shall
entitle the Optionee to purchase a number of shares equal to the sum of
(i) the number of shares of the Option Class used to pay the Exercise
Price of the Underlying Option pursuant to Sections 8.02(b) or
8.02(c) on the Exercise Date and
(ii) the number of shares of the Option Class delivered or withheld in
payment of the Withholding Amount pursuant to Section 9.04.
If the Exercise Date and the Tax Date do not coincide, the Reload Option
shall be issued as two separate Options to purchase the number of shares
set forth in (i) and (ii) above and having Grant Dates on the Exercise Date
and the Tax Date, respectively.
(c) Strike Price. Each Reload Option shall have a Strike Price equal to the
Fair Market Value of one share of the Option Class of the Common Stock on
the Grant Date of the Reload Option.
(d) Expiration Date. Each Reload Option shall have the same Expiration Date as
the Underlying Option.
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(e) No Reload Rights. No Reload Option shall have Reload Rights.
(f) Rate of Exercisability. Each Reload Option shall become exercisable in full
on the first anniversary of the Grant Date of the Reload Option.
(g) Forfeiture on Disposition of Shares Acquired in Exercise of Underlying
Option. Each Reload Option shall be forfeited if the Optionee disposes of
any of the shares issued on exercise of the Underlying Option before the
date six months after the Exercise Date to any Person other than the
Company in the payment of Payroll Taxes on exercise of the Underlying
Option.
(h) Other Terms and Conditions. Except to the extent in conflict with the terms
set forth in this Article 11, the terms for Options granted under the Plan
as set forth in Section 7.01 shall apply to each Reload Option.
11.03. VARIANT RELOAD RIGHTS.
Any terms of Reload Rights or Reload Options different from those set forth in
this Article 11 must be set forth in the Stock Option Agreement for the
Underlying Option.
Article 12
Change in Stock, Adjustments, Etc
If the outstanding Common Stock of the Company is increased or decreased or
changed into or exchanged for a different number of shares or kind of shares or
other securities of the Company or of another Person by reason of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or a dividend payable in capital stock
(including a spin-off ), or otherwise, the Committee shall make an appropriate
adjustment to the number and kind of shares for the purchase of which Options
may be granted under the Plan including the maximum number that may be granted
to any one person.
In addition, the Committee shall make appropriate adjustment to the number and
kind of shares as to which outstanding Options, or portions thereof then
unexercised, shall be exercisable and to the Strike Price of the Options. Each
such adjustment to outstanding Incentive Stock Options shall be made in such a
manner as not to constitute a modification as defined in Code Section 424. If
any outstanding Options are subject to any conditions affected by the event, the
Committee shall also make appropriate adjustments to such conditions. Any such
adjustments made by the Committee shall be conclusive.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate, or to sell or transfer all or any part
of its business or assets.
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Article 13
Amendment and Termination
The Board may at any time amend or terminate the Plan as it considers advisable
and in the best interests of the Company, but no such termination or amendment
may
(i) without the consent of the Optionee, adversely affect or impair the rights
of the Optionee under any outstanding Option; or
(ii) be inconsistent with the provisions of the 1997 Program.
Article 14
Effective Date and Duration of the Plan
This Plan was initially effective as of February 17, 1990, and was continued as
a plan under the 1997 Program on the Program Adoption Date. No Option shall be
granted under the Plan after the last permissible date for the granting of
Options under the 1997 Program, but Options granted before that date may have
Expiration Dates that extend beyond such date.
Article 15
Definitions
15.01. 1989 PROGRAM.
"1989 Program" means the Company's Long-Term Stock Incentive Program, approved
by the Company's shareholders on April 18, 1989.
15.02. 1997 PROGRAM.
"1997 Program" means the Company's 1997 Long-Term Stock Incentive Program,
approved by the Company's shareholders on April 15, 1997, as amended from time
to time.
15.03. AFFILIATE.
"Affiliate" means those Persons, other than Subsidiaries of the Company,
designated from time to time by the Committee as such./1/
15.04. AUTHORIZED OFFICER.
"Authorized Officer" means the Chief Executive Officer of the Company.
15.05. BOARD.
"Board" means the board of directors of the Company.
15.06. CHANGE IN CONTROL.
"Change in Control" means the occurrence of any of the following events
___________________
/1/ Currently, Global One only, together with its Subsidiaries.
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(i) the acquisition of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities by
any "person" or "group" as such terms are defined in Sections 13(d) and
14(d) of the Exchange Act, other than
(A) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company;
(B) the Company or a Person (or one of its Subsidiaries) owned by the
stockholders of the Company in substantially the same proportions
as their ownership of the stock of the Company; or
(C) Deutsche Telekom AG or France Telecom, individually or
collectively;
(ii) at the end of any two-year period, less than a majority of the directors
of the Company are directors
(A) who were directors of the Company at the beginning of the two-year
period or
(B) whose election as director was approved by a vote of two-thirds of
the then directors described in the preceding clause (A) or this
clause (B) by prior election;
(iii) the Company's shareholders approve a merger or consolidation in which the
Company is not the surviving entity, or a liquidation or dissolution of
the Company, or a sale of all or substantially all of the Company's
assets; or
(iv) the acquisition by Deutsche Telekom AG or France Telecom, individually or
collectively, of additional securities of the Company that would result
in their possessing in the aggregate 35% or more of the combined voting
power of the Company's then outstanding securities.
15.07. CODE.
"Code" means the Internal Revenue Code of 1986, as amended, or any successor
statute.
15.08. CODE SECTION.
"Code Section" is a reference to a particular section of the Code, and includes
any successor provision or the same or a successor provision as renumbered at
any time.
15.09. COMMITTEE.
"Committee" means the Organization, Compensation, and Nominating Committee of
the Board.
15.10. COMMON STOCK.
"Common Stock" means any class of the Company's publicly-traded common stock as
the Committee may determine to issue under the Plan, including the FON Stock and
the PCS Stock.
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15.11. COMPANY.
"Company" means Sprint Corporation, a Kansas corporation, or its successor.
15.12. CORPORATE SECRETARY.
"Corporate Secretary" means the secretary of the Company.
15.13. DIRECTOR.
"Director" means a member of the Board or a member of the board of directors of
a Subsidiary of the Company.
15.14. EMPLOYEE.
"Employee" means an employee of the Company or a Subsidiary of the Company.
15.15. EQUITY SECURITY.
"Equity Security" means an equity security as defined by the Exchange Act for
purposes of Exchange Act Section 16.
15.16. EXCHANGE ACT.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time and as interpreted and implemented by the rules and regulations issued
thereunder.
15.17. EXCHANGE ACT SECTION 16.
"Exchange Act Section 16" means section 16 of the Exchange Act.
15.18. EXECUTIVE OFFICER.
"Executive Officer" means an officer of the Company that is subject to the
liability provisions of Exchange Act Section 16.
15.19. EXERCISE DATE.
"Exercise Date" has the meaning indicated in Section 8.01.
15.20. EXERCISE PRICE.
"Exercise Price" means, with respect to the exercise of an Option, the Strike
Price of the Option multiplied by the number of shares with respect to which the
Option is being exercised.
15.21. EXPIRATION DATE.
"Expiration Date" means, with respect to any Option, the last date on which the
Option may be exercised in the absence of an earlier forfeiture of the Option.
15.22. FAIR MARKET VALUE.
"Fair Market Value" means, with respect to any class of the Common Stock on any
date, the average of the high and low prices per share of that class of Common
Stock for composite transactions on that date, unless there was no trading in
that class of Common Stock on that date, in which case, on the most
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recent day before that date on which that class of Common Stock was traded. The
Fair Market Value of shares of Restricted Stock shall be determined without
taking into account any restrictions.
"Fair Market Value" means, with respect to other property, the value of the
property as determined by the Committee.
15.23. FON STOCK.
"FON Stock" means the Series 1 FON Stock as described in the Company's articles
of incorporation.
15.24. GRANT DATE.
"Grant Date" means, with respect to any Option, the date on which the term of
the Option begins, as determined in Article 7 and Article 11.
15.25. GRANTEE.
"Grantee" means, with respect to any Option, the Director or Employee to whom
the Option was originally granted, notwithstanding any subsequent transfer of
the Option under the terms of the Plan.
15.26. INCENTIVE STOCK OPTION.
"Incentive Stock Option" means an Option designated as such in the action
granting the Option. This Plan's intent is that Incentive Stock Options meet the
requirements of Code Section 422.
15.27. MINIMUM WITHHOLDING AMOUNT.
"Minimum Withholding Amount" means, with respect to any Option exercise, the
amount the employer is required to withhold from the income of the Payroll
Taxpayer under the Payroll Tax laws.
15.28. NON-QUALIFIED OPTION.
"Non-Qualified Option" means any Option that is not an Incentive Stock Option.
15.29. NORMAL RETIREMENT.
"Normal Retirement" means, with respect to any Employee, Retirement at or later
than an age qualifying as "normal retirement" under the Company's defined
benefit pension plan, whether or not the person is a participant in the plan
and, with respect to any Director, termination of service as a Director at the
mandatory retirement age for members of the Board under its policies, as amended
from time to time, even if the Director serves on the board of a Subsidiary or
Affiliate.
15.30. NOTICE OF EXERCISE.
"Notice of Exercise" means the notice by an Optionee of the exercise of an
Option as set forth in Section 8.01.
15.31. OPTION.
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"Option" means the right, set forth in a written agreement between the Company
and an Optionee, authorized by this Plan to acquire a determinable number of
shares of the Option Class of Common Stock at a determinable price for a
determinable period of time and having such other terms as may be determined by
the Committee or Authorized Officer or as set forth in this Plan.
15.32. OPTION CLASS.
"Option Class" means, with respect to any Option, the class of Common Stock
subject to purchase pursuant to the terms of the Option.
15.33. OPTIONEE.
"Optionee" means, with respect to any Option at any particular time, the holder
of the Option at that time.
15.34. PAYROLL TAX.
"Payroll Tax" means any tax required by an employer to be withheld from wages
paid to its employees, including but not limited to federal income tax
withholding, Social Security and Medicare withholding taxes, and state and local
income tax withholding.
15.35. PAYROLL TAXPAYER.
"Payroll Taxpayer" has the meaning specified in Section 9.01.
15.36. PCS STOCK.
"PCS Stock" means the Series 1 PCS Stock as defined in the Company's articles of
incorporation.
15.37. PERSON.
"Person" means any individual, corporation, partnership, limited liability
company, business trust, or other entity.
15.38. PROGRAM ADOPTION DATE.
"Program Adoption Date" means April 15, 1997.
15.39. PLAN.
"Plan" means the 1990 Stock Option Plan, the terms of which are set forth in
this document.
15.40. QUALIFIED TRANSFEREE.
"Qualified Transferee" means a Qualified Trust.
15.41. QUALIFIED TRUST.
"Qualified Trust" means a trust
(i) that is a grantor trust treated as owned by the Grantee under Subchapter J
of the Code;
(ii) of which the Grantee, the Grantee's spouse, or the Grantee's descendants
by blood, adoption, or marriage, are the sole beneficiaries; and
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<PAGE>
(iii) that, by its terms, may not be amended to violate the foregoing
restrictions so long as the trust is an Optionee under this Plan.
15.42. RELOAD OPTION.
"Reload Option" means an Option granted upon exercise of an Option having Reload
Rights under the terms and conditions set forth in Article 11
15.43. RESTRICTED SHARES.
"Restricted Shares" means shares of Common Stock subject to restrictions on
transfer and the possibility of forfeiture for any period of time.
15.44. RETIREMENT.
"Retirement" means, in the case of an Employee, termination of employment by an
employee who is entitled to receive payment of pension benefits in accordance
with the Sprint Retirement Pension Plan or his employer's defined benefit
pension plan, if any, immediately after the employee's Termination Date and, in
the case of a Director, termination of service as a Director after five years of
service as a Director.
15.45. SEASONED SHARES.
"Seasoned Shares" means, with respect to any Person, shares of Common Stock
(i) acquired by such Person from the Company and owned by such Person for a
period of at least six months; or
(ii) acquired by such Person other than from the Company.
15.46. SECURITIES ACT.
"Securities Act" means the Securities Act of 1933, as amended from time to time
and as interpreted and implemented by the rules and regulations issued
thereunder.
15.47. STRIKE PRICE.
"Strike Price" means, with respect to any Option, the price per share at which
the Optionee is entitled to purchase shares of Common Stock.
15.48. SUBSIDIARY.
"Subsidiary" means, with respect to any Person (the "Controlling Person"),
(i) all Persons (the "Controlled Persons") in whom the Controlling Person,
together with its Subsidiaries, directly owns more than 50% of the voting
rights, and
(ii) all Subsidiaries of the Controlled Persons.
15.49. TAX DATE.
"Tax Date" means, with respect to any Option exercise, the date on which the
shares issued pursuant to the Option exercise become subject to federal income
taxation.
23
<PAGE>
15.50. TERMINATION DATE.
"Termination Date" means,
(i) with respect to any Employee, the date on which the Employee ceases to be
employed by the Company, any of its Subsidiaries, or any Affiliate, and
ceases to receive severance benefits under any applicable plans for the
payment of severance benefits by the employing entity, or
(ii) with respect to any Director, the date on which the Director's service as
a director ends.
15.51. TERMINATION FOR CAUSE.
In the case of an Employee, "Termination for Cause" means an involuntary
termination of employment because
(i) the employee has materially breached the Company's Code of Ethics, or the
code of ethics of the employer;
(ii) the employee has materially breached the Sprint Employee Agreement
Regarding Property Rights and Business Practices;
(iii) the employee has engaged in acts or omissions constituting dishonesty,
intentional breach of a fiduciary obligation, or intentional acts of
wrongdoing or misfeasance; or
(iv) the employee has acted intentionally and in bad faith in a manner that
results in a material detriment to the assets, business, or prospects of
the employer.
In determining whether any particular employee was Terminated for Cause, the
characterization of the reason for termination used for purposes of other
employee benefit plans of the Company or other employer shall apply to this
Plan.
In the case of a Director, "Termination for Cause" means removal for cause from
service as a director.
15.52. TOTAL DISABILITY.
"Total Disability" means, in the case of employees, termination of employment
under circumstances that would make the employee eligible to receive benefits
under the employer's long-term disability plan and, in the case of Directors,
termination of service as a Director under circumstances that would make the
Director eligible to receive Social Security disability benefits.
15.53. UNDERLYING OPTION.
"Underlying Option" means, with respect to any Reload Option, the Option to
which the Reload Rights were attached and the exercise of which resulted in the
grant of the Reload Option.
15.54. VESTING PERIOD.
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<PAGE>
"Vesting Period" means, with respect to any Restricted Shares, the period of
time during which the Restricted Shares (i) are subject to limitations on
transfer and (ii) may be divested from the owner upon failure to meet any
applicable conditions to vesting.
15.55. WITHHOLDING AMOUNT.
"Withholding Amount" has the meaning specified in Section 9.02.
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<PAGE>
Exhibit (10)(L)
1990 RESTRICTED STOCK PLAN
Section 1. Establishment.
Pursuant to the Sprint Long-Term Stock Incentive Program (the "Program"),
Sprint Corporation, a Kansas corporation (the "Company"), hereby establishes a
restricted stock plan to be named the 1990 Restricted Stock Plan (the "Plan").
Section 2. Purpose.
The purpose of the Plan is to aid the Company and its subsidiaries in
competing with other enterprises for the services of new key personnel needed to
help ensure their continued development. The Plan will also help the Company and
its subsidiaries retain key personnel.
Section 3. Administration.
The Plan shall be administered by the Organization and Compensation
Committee (the "Compensation Committee") of the Board of Directors of the
Company. Members of the Compensation Committee shall be Disinterested Persons as
defined in the Program. The Compensation Committee shall hold its meetings at
such times and places as it may determine. A majority of the Compensation
Committee shall constitute a quorum and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by a majority of the Compensation Committee, shall be deemed the acts of the
Compensation Committee. The Compensation Committee may delegate to the Chief
Executive Officer of the Company (the "CEO") the right to grant awards of
restricted stock to employees of the Company and its subsidiaries who are not
officers or directors of the Company and to cancel or suspend such awards. The
CEO may not make awards of restricted stock to any one individual in excess of
15,000 shares of FON Stock nor 7,500 shares of PCS Stock and may not make awards
of restricted stock aggregating in excess of 50,000 shares of FON Stock nor
25,000 shares of PCS Stock between meetings of the Compensation Committee. The
awards made by the CEO shall be reported to the Compensation Committee at each
of its meetings.
The Company shall issue shares of restricted stock under the Plan in
accordance with determinations made by the Compensation Committee or the CEO
pursuant to the provisions of the Plan and the Program. The Compensation
Committee from time to time may adopt (and thereafter amend and rescind) such
rules and regulations for carrying out the Plan and take such action in the
administration of the Plan, not inconsistent with the provisions of the Plan and
the Program, as it shall deem proper. Except as set forth in Section 6(a)
hereof, the Compensation Committee may accelerate the time or times at which
restrictions lapse and may waive any forfeiture of restricted stock. The
interpretation and construction of any provisions of the Plan by the
Compensation Committee shall, unless otherwise determined by the Board of
Directors of the Company, be final and conclusive. No member of the Board of
Directors or the
<PAGE>
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any grant under it.
Section 4. Total Number of Shares Subject to Grant.
The maximum number of shares of FON Stock that may be issued under the Plan
shall not exceed 877,482(1), and the maximum number of shares of PCS Stock that
may be issued under the Plan shall not exceed 438,741(1), in both cases subject
to adjustment as provided in Section 7 hereof. The shares issued under the Plan
may be either treasury shares or authorized but unissued shares, as the Board of
Directors from time to time may determine. The maximum number of shares of
common stock which may be issued in any calendar year, together with shares of
common stock subject to other awards under the Program, shall not exceed the
limits set forth in Section 4(a) of the Program.
In the event that any outstanding shares of restricted stock under the Plan
are forfeited for any reason, such shares of common stock may again be subject
to grant under the Plan.
Section 5. Eligibility.
Restricted stock shall be granted only to key employees of the Company or
its subsidiaries, including new hires. No grants shall be made by the CEO to any
individual who is an officer or director of the Company or who will be proposed
to be elected as an officer or director at the next meeting of the Board of
Directors or Stockholders of the Company. The Compensation Committee or the CEO
will, in its discretion, determine the key employees to be granted restricted
stock, the time or times at which restricted stock shall be granted, the number
of shares to be granted and the duration of restrictions on the shares granted.
In making such determination, the Compensation Committee and the CEO may take
into consideration the value of the services rendered or to be rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its affiliates and such other factors which the Compensation
Committee or the CEO may deem relevant in accomplishing the purposes of the
Plan.
No restricted stock may be granted to any individual who immediately after
the grant owns directly or indirectly stock possessing more than five percent
(5%) of the total combined voting power or value of all classes of stock of the
Company or any subsidiary. No person shall be eligible to receive a larger
number of shares of restricted stock than is recommended for such individual by
the Compensation Committee or the CEO.
Section 6. Terms and Conditions of Grants.
Each grant under the Plan shall be evidenced by an Agreement in such form
not inconsistent with the Plan as the Compensation Committee or the CEO shall
determine; provided that the substance of the following terms and conditions be
included therein:
____________________
/1/ Includes shares issued under the Plan prior to the November 23, 1998
recapitalization of common stock into FON Stock and PCS Stock.
2
<PAGE>
(a) Duration of Restrictions. The restrictions on restricted stock shall
lapse at such time or times as determined by the Compensation
Committee or the CEO; provided, however, that no restricted stock
shall become free of restrictions prior to the first anniversary date
of the granting of the restricted stock. At any time on or before the
13th calendar month preceding the date on which restrictions on shares
of restricted stock would otherwise lapse, the grantee may elect to
extend the period of restriction on all but not a portion of such
shares by six months or any multiple of six months.
(b) Nontransferable. The employee who receives restricted stock (the
"Grantee") may not sell, transfer, assign, pledge or otherwise
encumber or dispose of shares of restricted stock until such time as
all restrictions on such stock have lapsed except: (i) to the Company
in payment of the exercise price of a stock option issued by the
Company under any employee stock option plan adopted by the Company
that provides for payment of the exercise price in the form of
restricted stock, provided that such payment is made in accordance
with the terms of such plan; or (ii) to a trust of which the Grantee,
the Grantee's spouse, or descendants of the Grantee are the primary
beneficiaries and which is a grantor trust treated as owned by the
Grantee under Subchapter J of the Internal Revenue Code, upon the
following terms:
(A) the Company receives, prior to such transfer, a true copy of the
trust agreement and an opinion from Grantee's counsel (1) that the
trust will be treated as a grantor trust owned by the Grantee under
Subchapter J of the Internal Revenue Code at all times until the
restrictions on such stock lapse or the stock is forfeited under the
terms of its grant, (2) that the terms of the trust provide that upon
the forfeiture of the restricted stock under the terms of its grant or
the earlier termination of the trust for whatever reason, ownership of
the restricted stock shall revert to the Grantee or to the Company,
(3) that the trustee of such trust may not, prior to the lapsing of
restrictions on such stock, sell, transfer, assign, pledge, or
otherwise encumber or dispose of shares of restricted stock except to
the Company or to the Grantee, subject to the restrictions provided
for in this Plan, and (4) that, until the restrictions lapse, the
trustee is not authorized to incur liabilities on behalf of the trust,
other than to the beneficiaries of the trust; and
(B) the Grantee and the trustee of the trust shall execute stock
powers in blank to be held in the custody of the Company; and
(C) the Corporate Secretary of the Company may, in his discretion,
enforce the foregoing transfer restrictions by maintaining physical
custody of the certificate or certificates representing such shares of
restricted stock, by placing a restrictive legend on such
certificates, by requiring the Grantee and the trustee to execute
other documents as a pre-condition to such transfer, or otherwise.
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<PAGE>
(c) Termination of Employment. If, before the restrictions on shares of
restricted stock lapse, the Grantee ceases to be employed by the
Company or a subsidiary of the Company for any reason (other than
death, disability, or normal retirement), the shares of restricted
stock that continue to be restricted shall be forfeited and the
Grantee or his representative shall sign any document and take any
other action required to assign said restricted shares back to the
Company. If the Grantee ceases to be employed by reason of the
grantee's death, total disability, or normal retirement, restrictions
on the restricted stock shall lapse as of the grantee's termination
date and the Company shall release restrictions on the restricted
shares as soon as practicable thereafter. For purposes of this Plan,
unless the Committee determines otherwise at the time of grant, an
employee who becomes employed by Global One. (together with its
subsidiaries, an "Affiliated Entity"), shall not, except with respect
to incentive stock options, be considered to have terminated
employment with the Company or a subsidiary of the Company until his
employment is terminated with all Affiliated Entities without becoming
employed by the Company or its subsidiaries.
(d) Consideration. Each Grantee shall, as consideration for the grant of
restricted stock, agree in writing to remain in the employ of the
Company or of one of its subsidiaries, at the pleasure of the Company
or of such subsidiary, for the period of time until the restrictions
on the restricted stock lapse. Nothing contained in the Plan or in any
Agreement shall confer upon any Grantee any right with respect to
continuance of employment by the Company or its subsidiaries, nor
interfere in any way with the right of the Company or its subsidiaries
to terminate the Grantee's employment or change the Grantee's
compensation at any time.
(e) Interest in Competitor. In the event that any Grantee, without the
consent of the Compensation Committee, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined
by the Compensation Committee) any business that is in competition
with the Company or with any business in which the Company has a
substantial interest, as determined by the Compensation Committee, any
restricted stock shall automatically be forfeited. The decision of the
Compensation Committee on any such matters shall be final and binding
upon all concerned.
(f) Rights as Stockholder. Except as set forth in the Plan, a Grantee will
have all rights of a stockholder with respect to shares of restricted
stock, including the right to vote the shares of stock and the right
to dividends on the stock. The shares of restricted stock will be
registered in the name of the Grantee and the certificates evidencing
such shares shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to the award and shall be held
in escrow by the Company. The Grantee shall execute a stock power or
powers assigning the shares of restricted stock back to the Company,
which stock powers shall be held in escrow by the Company and used
only in
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<PAGE>
the event of the forfeiture of any of the shares of restricted stock.
A certificate evidencing unrestricted shares of common stock shall be
issued to the Grantee promptly after the restrictions lapse on any
restricted shares.
(g) Stock Withholding Election. When taxes are withheld upon the lapse of
restrictions on restricted stock (the date on which such restrictions
lapse hereinafter referred to as the "Tax Date"), the Grantee may
elect to make payment for the withholding of federal, state and local
taxes, including Social Security and Medicare ("FICA") taxes, up to
the Grantee's marginal tax rate, by one or both of the following
methods:
(i) delivering part or all of the payment in previously-owned
shares of the same class as the restricted shares (which shall be
valued at fair market, as defined herein, on the Tax Date) which
shares, if acquired from the Company, must have been held for at least
six months; or
(ii) requesting the Company to withhold from those shares that
would otherwise be received upon the lapse of restrictions, a number
of shares having a fair market value (as defined herein) on the Tax
Date equal to the amount to be withheld. The amount of tax withholding
to be satisfied by withholding shares is limited to the minimum amount
of taxes, including FICA taxes, required to be withheld under federal,
state and local law.
Any fractional share amount and any additional withholding not paid by
the withholding or surrender of shares must be paid in cash. If no
timely election is made, cash must be delivered to satisfy all tax
withholding requirements.
Section 7. Change in Stock, Adjustments, Etc.
In the event that the outstanding shares of common stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number of shares or kind of shares or other securities of the Company or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or a
dividend payable in capital stock, outstanding shares of restricted stock shall
be treated the same as other outstanding shares of common stock and appropriate
adjustment shall be made by the Compensation Committee in the number and kind of
shares that may be granted under the Plan and that may be granted by the CEO
under the Plan.
The grant of restricted stock pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate, or sell or transfer all or any part of
its business or assets.
5
<PAGE>
Section 8. Duration, Amendment and Termination.
The Board of Directors of the Company may at any time terminate the Plan or
make such amendments thereof as it shall deem advisable and in the best
interests of the Company; provided, however, that no such termination or
amendment shall, without the consent of the individual to whom any restricted
stock shall theretofore have been granted, affect or impair the rights of such
individual with respect to such restricted stock; and provided further, that any
such amendment shall be consistent with the provisions of the Program, as it may
be amended from time to time.
No restricted stock shall be granted under the Plan after April 15, 2007.
Section 9. Effectiveness of Plan.
This Plan shall be effective as of February 17, 1990.
Section 10. Date of Granting of Restricted Stock.
The granting of restricted stock pursuant to the Plan shall take place on
the date the Compensation Committee or the CEO decides to grant the restricted
stock. As soon as practicable but no later than twenty (20) days after the
granting of the restricted stock, the Company shall notify the employee of the
grant and, within sixty (60) days of the granting of the restricted stock, the
Company shall submit to the employee an Agreement duly executed by and on behalf
of the Company, and a stock power or powers with respect to the restricted
stock, with the request that the employee execute the Agreement and stock powers
within sixty (60) days after the mailing by the Company of the notice to the
employee. The employee shall execute the written Agreement and stock powers
within said 60-day period.
6
<PAGE>
Exhibit 10(m)
Summary of Additional Amendments to the Executive
-------------------------------------------------
Deferred Compensation Plan and the Directors' Deferred Fee Plan
---------------------------------------------------------------
The Executive Deferred Compensation Plan and the Directors' Deferred Fee
Plan were amended, effective November 23, 1998, to provide that each share unit
in Accounts B or BB represents a measure of participation thereunder having a
value equivalent to the value of (i) one share of FON Common Stock plus (ii)
one-half share of PCS Common Stock, and all references to Sprint's "common
stock" or to share units shall be treated as references to such measure of
participation.
The Executive Deferred Compensation Plan and the Directors' Deferred Fee
Plan were also amended to permit investment by participants in share units
representing either FON Common Stock (Accounts B and BB) or in share units
representing PCS Common Stock (Accounts D and DD) and, effective for the 1999
plan year, to permit participants to transfer balances between such funds in the
same manner and to the same extent as such transfers are allowed between
Accounts A and AA and Accounts B and BB.
<PAGE>
EXHIBIT (10)(n)
MANAGEMENT INCENTIVE STOCK OPTION PLAN
1. Establishment and Purpose. Sprint Corporation, a Kansas corporation (the
"Company"), hereby establishes a stock option plan to be named the
Management Incentive Stock Option Plan (the "Plan") The purpose of the Plan
is to permit employees of the Company and its subsidiaries who are eligible
to receive annual incentive compensation to receive nonqualified stock
options in lieu of a portion of the target incentive under the Company's
management incentive plans ("MIPs"), thereby encouraging the employees to
focus on the growth and profitability of the Company and the performance of
its common stock. Subject to approval of the Company's stockholders, the
Plan provides for options to be granted beginning March 15, 1995, and
ending April 18, 2005. Stock options granted prior to or as of April 18,
2005, may extend beyond that date.
2. Administration. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors (the "Committee"). The
Company shall grant options under the Plan in accordance with
determinations made by the Committee pursuant to the provisions of the
Plan. The Committee from time to time may adopt (and thereafter amend and
rescind) such rules and regulations for carrying out the Plan and take such
action in the administration of the Plan, not inconsistent with the
provisions of the Plan, as it shall deem proper. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan,
or in any option or restricted shares of common stock granted or issued
pursuant to the Plan, in the manner and to the extent it shall deem
desirable to effect the terms of the Plan. With respect to any option or
restricted stock issued under the Plan, the Committee may determine the
option may become exercisable or the restrictions on restricted stock shall
lapse, as the case may be, whenever, in the judgement of the committee,
doing so would be in the best interest of the Corporation. The
interpretation and construction of any provisions of the Plan by the
Committee shall, unless otherwise determined by the Board of Directors of
the Company, be final and conclusive. No member of the Board of Directors
or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any option granted under it. The
Corporate Secretary shall act as Plan Administrator carrying out the
day-to-day administration of the Plan unless the Committee appoints another
officer or employee of the Company as Plan Administrator.
3. Eligibility. The Committee will determine each year whether options will be
granted in such year, whether participation will be elective or automatic,
which class or classes of common stock will be subject to purchase by
participants (which may different for different groups of employees) and
the amount of incentive compensation to be given up for each stock option.
Any salaried employee of the Company and its subsidiaries shall be eligible
to be selected for participation in the MIPs. The Committee will, in its
discretion, determine the employees who participate in the MIPs and,
therefore, who will be eligible for
<PAGE>
options, the dates on which options shall be granted, and any conditions on
the exercise of the options.
No option may be granted to any individual who immediately after the option
grant owns directly or indirectly stock possessing more than five percent
(5%) of the total combined voting power or value of all classes of stock of
the Company or any subsidiary.
4. Common Stock Subject to the Plan. The shares of any class of publicly
traded common stock of the Company to be issued upon the exercise of a
nonqualified option to purchase such common stock granted in lieu of MIP
payout may be made available from the authorized but unissued common stock
of the Company, shares of common stock held in the treasury, or common
stock purchased on the open market or otherwise.
Approval of the Plan by the Stockholders of the Company shall constitute
authorization to use such shares for the Plan subject to the discretion of
the Board or as such discretion may be delegated to the Committee.
Subject to the provisions of the following paragraph, the total number of
shares for which options may be granted under the Plan each year shall be
0.9% of the total outstanding shares of each class of common stock of the
Company (including, with respect to the PCS Stock, both Series 1 and Series
2 PCS Stock) as of the first day of such year; provided, however, that such
number shall be increased in any year by the number of shares available in
previous years for which options have not been granted. If and when an
option granted under the Plan is terminated without having been exercised
in full, the unpurchased or forfeited shares shall become available for
grant to other employees.
The number and kind of shares subject to the Plan may be appropriately
adjusted by the Committee in the circumstances outlined in Section 5(k).
5. Stock Options; Terms and Conditions. Each option will represent the right
to purchase a specific class and number of shares of common stock of the
Company and shall be subject to the following terms and conditions and to
such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem desirable:
a. Consideration for and Class and Number of Options. Each option shall
be granted in lieu of a portion of the optionee's cash payout under
the MIPs. The Committee shall determine the class and the number of
shares or the manner of determining the class and number of shares
available for each option each year, subject to the total number of
shares available under the Plan for such year, and the amount or the
method of determining the amount of annual incentive compensation to
be given up by each participant in return for an option, taking into
consideration appropriate factors in making such determinations, such
as interest rates, volatility of the market price of the class of
common stock of the Company and the term of the option, provided,
however that shares subject to options granted to any individual
employee during any calendar year shall not exceed a total of 500,000
shares of
2
<PAGE>
FON Stock (as defined in the Company's articles of incorporation) or
250,000 shares of Series 1 PCS Stock (as defined in the Company's
articles of incorporation).
b. Participation in the Plan. Participation in the Plan may be voluntary
or automatic, as determined by the Committee. The rules and procedures
for voluntary participation, when applicable, shall be established and
implemented by the Plan Administrator.
c. Exercise Price. The price at which each share covered by an option may
be purchased shall be one hundred percent (100%) of the fair market
value of the Company's common stock on the date the option is granted.
Fair market value shall be deemed to be the average of the high and
low prices of the Company's common stock for composite transactions as
published by major newspapers for the date the option is granted or,
if no sale of the Company's common stock shall have been made on that
day, the next preceding day on which there was a sale of such stock.
d. Vesting. Unless the Committee determines otherwise, stock option
grants shall provide: (i) with respect to options issued in lieu of
annual management incentive compensation, that the total number of
shares subject to an option shall become exercisable December 31 in
the year of the date of grant and (ii) with respect to options issued
in lieu of or as part of long-term incentive compensation ("LTIP
Options") that the total number of shares subject to the option shall
become exercisable in full on the third December 31 following the
grant date. Unless the Committee provides otherwise, if the grantee of
an LTIP Option terminates employment by reason of the grantee's death,
total disability, or normal retirement, the LTIP Option shall become
exercisable in full on the grantee's termination date. Unless the
Committee provides otherwise, if the grantee of any other option
terminates employment for any reason other than termination for good
cause, the option shall be forfeited and any incentive compensation
foregone to acquire the options shall be restored to the grantee as if
an election to acquire options were not made.
e. Term of Option. Options shall not be exercisable after the expiration
of ten (10) years from the date of grant.
f. Payment of Exercise Price. Options shall be exercisable only upon
payment to the Company of the full purchase price of the shares with
respect to which options are exercised. Payment for the shares shall
be either in United States dollars, payable in cash or by check, or by
surrender of stock certificates representing the same class of common
stock of the Company having an aggregate fair market value, determined
as of the date of exercise, equal to the number of shares with respect
to which such options are exercised multiplied by the Certain
optionees may use restricted stock as
3
<PAGE>
payment for the exercise price in accordance with Section 6 hereof. In
that event, fair market value of the shares of restricted stock will
be determined as if the shares were not restricted. In lieu of the
delivery of physical certificates, the optionee may deliver shares in
payment of the exercise price by attesting, on a form established for
such purpose by the Secretary, to the ownership, either outright or
through ownership of a broker account, of a sufficient number of
shares held for a period of at least six months to pay the exercise
price. The attestation must be notarized andsigned by the optionee's
spouse if the spouse is a joint owner of the shares with respect to
which such attestation is made and must be accompanied by such
documentation as the Corporate Secretary may consider necessary to
evidence actual ownership of such shares.
g. Manner of Exercise. A completed exercise form and the exercise price,
whether in the form of cash or stock, must be delivered to the Plan
Administrator in order to exercise an option. An option shall be
deemed exercised on the date such exercise form and payment are
received by the Plan Administrator.
h. Time for Exercise. Each option expires if it has not been exercised
within its term. Once an option has expired for any reason, it can no
longer be exercised. If the grantee's employment with the Company or a
subsidiary of the Company is terminated, the optionee may exercise
options that are exercisable on the date of termination of employment
until the earlier of (1) the date on which the option expires and (2)
the end of the applicable period below, beginning on the grantee's:
(i) retirement: five years after the grantee's retirement date.
(ii) disability (qualifying for long-term disability benefits under
the Company's Basic Long-Term Disability Plan): five years after
the grantee's qualification date.
(iii) death: one year after the grantee's death for the estate or
designated beneficiary to exercise the decedent's options.
(iv) involuntary termination other than for cause: the date on which
the option expires.
(v) voluntary termination: three months from the grantee's date of
termination of employment.
If a grantee's employment is terminated for a reason constituting good
cause, any outstanding options granted under the Plan shall
automatically terminate. "Good cause" means conduct by the grantee
that reflects adversely on the grantee's honesty, trustworthiness or
fitness as an employee, or the grantee's willful engagement in conduct
which is demonstrably and materially injurious to the Company.
4
<PAGE>
If a grantee becomes associated with, becomes employed by, renders
services to, or owns any interest in (other than an insubstantial
interest, as determined by the Committee) any business in competition
with the Company, all outstanding options granted to the grantee
whether vested or unvested shall automatically terminate and shares of
restricted stock received upon the exercise of an option pursuant to
Section 6 hereof that continue to be restricted shall be forfeited.
For purposes of this Plan, an employee who becomes employed by certain
non- subsidiary affiliates designated by the Committee (each, together
with their subsidiaries, an "Affiliated Entity"), shall not, except
with respect to incentive stock options, be considered to have
terminated employment with the Company or a subsidiary of the Company
until his employment is terminated with all Affiliated Entities
without becoming re-employed by the Company or its subsidiaries.
i. Restricted Stock. Certain grantees may elect to deliver restricted
shares or receive restricted shares in connection with an exercise of
an option by the grantee, as provided in Section 6 hereof.
j. Beneficiary Designations. The grantee of an option may designate a
beneficiary or beneficiaries to exercise unexpired options held by the
grantee and to own shares issued upon any such exercise after the
grantee's death without order of any probate court or otherwise. A
beneficiary so designated may exercise an option upon presentation to
the Company of evidence satisfactory to the Corporate Secretary of (1)
the beneficiary's identity and (2) the death of the grantee. A
grantee may change any beneficiary designation of options held by the
grantee at anytime before his death but may not do so by testamentary
designation in his will or otherwise. Beneficiary designations
must be made in writing on a form provided by the Corporate Secretary.
Beneficiary designations shall become effective on the date that the
form, properly completed, signed and notarized, is received by the
Secretary. Any designation of a beneficiary with respect to any option
shall be deemed canceled upon the transfer of such option to a trust
in accordance with the terms of the Plan.
k. Change in Stock, Adjustments. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend,
spin-off, or other change in the corporate structure affecting the
shares, such adjustment shall be made in the aggregate number and
class of shares that may be delivered under the Plan, in the number
and class of shares that may be subject to an option granted to any
individual in any year under the Plan, and in the number, class, and
option price of shares subject to outstanding options granted under
the Plan, as may be determined to be appropriate by the Committee, in
its sole discretion, provided that the number of shares subject to
any option shall always be a whole number.
l. Limitations on Transfer. Options may not be transferred, levied,
garnished, executed upon, subjected to a security interest, or
assigned to any person other than the grantee, except that the
grantee may
5
<PAGE>
transfer an option to a trust of the kind described in Section 6(b).
Any such trust as transferee of an option may not (1) dispose of
shares received in an exercise of such options until such shares are
validly registered or exempt from registration under any applicable
exemption from registration under the Securities Act of 1933, as
amended, in the opinion of the Corporate Secretary or (2) while
continuing to hold options issued under this plan, be amended to
change beneficiaries to persons other than those permissible under
Section 6(b). Documents evidencing the transfer of any option and the
identity of the transferee shall be in such form as may be required by
the Corporate Secretary.
6. Restricted Stock. Certain grantees, as determined by the Committee, may
elect to receive restricted shares upon payment for the exercise of an
option in the form of unrestricted common stock. The grantee will
receive the same number of unrestricted shares as the number of shares
surrendered to pay the exercise price, while the shares received in excess
of the number surrendered to pay the exercise price may be restricted.
Such grantees may also elect to deliver restricted shares of the Company's
common stock in payment of the exercise price notwithstanding restrictions
on transferability to which such shares are subject. The Company shall be
authorized to issue restricted shares of common stock upon such exercises
of stock options, subject to the following conditions:
a. The grantee shall elect a vesting period for the restricted common
stock to be received upon exercise of the option of between 6 months
and 10 years, subject to rules and procedures established by the Plan
Administrator, but in no event may a grantee elect a vesting period
shorter than the period provided in paragraph (d) of this Section 6.
At any time on or before the 13th calendar month preceding the date on
which restrictions on shares of restricted stock would otherwise
lapse, the grantee may elect to extend the vesting period on all but
not a portion of such shares by six months or any multiple of six
months.
b. The grantee who receives restricted stock may not sell, transfer,
assign, pledge or otherwise encumber or dispose of shares of
restricted stock until such time as all restrictions on such stock
have lapsed except: (i) to the Company in payment of the exercise
price of a stock option issued by the Company under any employee
stock option plan adopted by the Company that provides for payment
of the exercise price in the form of restricted stock, provided that
such payment is made in accordance with the terms of such plan; or
(ii) to a trust of which the grantee, the grantee's spouse, or
descendants (by blood, adoption, or marriage) of the grantee are the
primary beneficiaries and which is a grantor trust treated as owned by
the grantee under Subchapter J of the Internal Revenue Code, upon the
following terms:
(A) the Company receives, prior to such transfer, a true copy of the
trust agreement and an opinion from grantee's counsel (1) that
the trust will be treated as a grantor trust owned by the grantee
under Subchapter J of the Internal Revenue Code at all times
until the restrictions on such stock lapse or the stock is
forfeited under the terms of its grant, (2) that the terms of the
6
<PAGE>
trust provide that upon the forfeiture of the restricted stock
under the terms of its grant or the earlier termination of the
trust for whatever reason, ownership of the restricted stock
shall revert to the grantee or to the Company, (3) that the
trustee of such trust may not, prior to the lapsing of
restrictions on such stock, sell, transfer, assign, pledge, or
otherwise encumber or dispose of shares of restricted stock
except to the Company or to the grantee, subject to the
restrictions provided for in this Plan, and (4) that, until the
restrictions lapse, the trustee is not authorized to incur
liabilities on behalf of the trust, other than to the
beneficiaries of the trust; and
(B) the grantee and the trustee of the trust shall execute stock
powers in blank to be held in the custody of the Company; and
(C) the Corporate Secretary of the Company may, in his discretion,
enforce the foregoing transfer restrictions by maintaining
physical custody of the certificate or certificates representing
such shares of restricted stock, by placing a restrictive legend
on such certificates, by requiring the grantee and the trustee to
execute other documents as a pre-condition to such transfer, or
otherwise.
c. A grantee who elects to receive restricted common stock upon an
exercise shall have the right to satisfy tax withholding obligations
in the manner provided in Section 8 hereof.
d. Restricted common stock received in such an exercise or from other
plans of the Company may be used for payment of the exercise price of
a stock option to purchase shares of the same class, so long as all
the shares received as a result of such an exercise are restricted for
a period at least as long as, and shall have other terms consistent
with the terms of, the restricted common stock used in payment.
e. The shares of restricted common stock received in an exercise of a
stock option that continue to be restricted shall be forfeited in the
event that vesting conditions are not satisfied, subject to the
discretion of the Committee, except in the case of death, disability,
normal retirement, or involuntary termination for reasons other than
for good cause, in which case all restrictions lapse; provided,
however, that in no event shall restrictions lapse if the restrictions
on shares used to pay for the exercise price pursuant to Section 6(d)
would not have lapsed under the same conditions. If restricted shares
are forfeited, the grantee or his representative shall sign any
document and take any other action required to assign said restricted
shares back to the Company.
f. The grantee will have all the rights of a stockholder with respect to
shares of restricted stock received upon the exercise of an option,
including the right to vote the shares of stock and the right to
dividends
7
<PAGE>
on the stock. Unless the Plan Administrator establishes alternative
procedures, the shares of restricted stock will be registered in the
name of the grantee and the certificates evidencing such shares shall
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to the award and shall be held in escrow by
the Company. The grantee shall execute a stock power or powers
assigning the shares of restricted stock back to the Company, which
stock powers shall be held in escrow by the Company and used only in
the event of the forfeiture of any of the shares of restricted stock.
A certificate evidencing unrestricted shares of common stock shall be
issued to the grantee promptly after the restrictions lapse on any
restricted shares.
g. The Plan Administrator shall have the discretion and authority to
establish any rules in connection with the use of restricted stock,
including but not limited to regulating the timing of the lapse of
restrictions within the six-month to ten-year period and prescribing
election forms as the Plan Administrator deems necessary or desirable
for the orderly administration of such exercises.
7. Reload Options. The Committee may provide that optionees have the right to
a reload option, which shall be subject to the following terms and
conditions:
a. Grant of the Reload Option; Number of Shares; Price. Subject to
subsections (b) and (c) of this Section 7 and to the availability of
shares to be optioned under the Plan, if an optionee has an option to
purchase shares of any class of common stock (the "original option")
with reload rights and pays for the exercise of the original option by
surrendering common stock of the same class, the optionee shall
receive a new option ("reload option") to purchase the number and
class of shares so surrendered (or, if applicable, the number of
shares provided for in paragraph (h) of this Section 7) at an exercise
price equal to the fair market value of the class of stock on the date
of the exercise of the original option.
b. Minimum Purchase Required. A reload option will be granted only if the
exercise of the original option is an exercise of at least 25% of the
total number of shares granted under the original option (or an
exercise of all the shares remaining under the original option if less
than 25% of the shares remain to be exercised).
c. Other Requirements. A reload option: (1) will not be granted if the
market value of the common stock of the Company on the date of
exercise of the original option is less than the exercise price of the
original option; (2) will not be granted if the grantee is not, on the
exercise date, an employee of Sprint or a Sprint subsidiary; (3) will
not be granted if the original option is exercised less than one year
before the expiration of the original option; and (4) with respect to
options transferred by the grantee to another person in accordance
with this Plan, reload options shall be granted to the grantee upon a
stock-for-stock exercise by the optionee to the same extent as if the
grantee had exercised the option in a similar manner.
8
<PAGE>
d. Term of Option. The reload option shall expire on the same date as the
original option.
e. Type of Option. The reload option shall be a nonqualified option to
purchase shares of the same class of shares as the original option.
f. No Additional Reload Options. The reload options shall not include any
right to a second reload option.
g. Date of Grant, Vesting. The date of grant of the reload option shall
be the date of the exercise of the original option. The reload options
shall be exercisable in full beginning one year from date of grant;
provided, however, that all shares purchased upon the exercise of the
original option (except for any shares withheld for tax withholding
obligations) shall not be sold, transferred or pledged within six
months from the date of exercise of the original option. The reload
option shall become exercisable in full if the optionee terminates
employment by reason of the grantee's death, disability, or normal
retirement. In no event shall a reload option be exercised after the
original option expires as provided in subsection (d) of this Section
7.
h. Stock Withholding; Grants of Reload Options. If the other requirements
of this Section 7 are satisfied, and if shares are withheld or shares
surrendered for tax withholding, a reload option will be granted for
the number of shares surrendered as payment for the exercise of the
original option plus the number of shares surrendered or withheld to
satisfy tax withholding. In connection with reload options for
officers who are subject to Section 16 of the Securities Exchange Act
of 1934, the Committee may at any time impose any limitations which,
in the Committee's sole discretion, are necessary or desirable in
order to comply with Section 16(b) of the Securities Exchange Act of
1934 and the rules and regulations thereunder, or in order to obtain
any exemption therefrom.
i. Other Terms and Conditions. Except as otherwise provided in this
Section 7, all the provisions of the Plan shall apply to reload
options.
8. Stock Withholding Election. When taxes are withheld in connection with the
exercise of a stock option by delivering shares of stock in payment of the
exercise price, or upon the lapse of restrictions on restricted stock
received upon the exercise of an option (the date on which such exercise
occurs or such restrictions lapse hereinafter referred to as the "Tax
Date"), the optionee may elect to make payment for the withholding of
federal, state and local taxes, including Social Security and Medicare
("FICA") taxes, up to the optionee's marginal tax rate, by one or both of
the following methods:
(i) delivering part or all of the payment in previously-owned shares of
the same class (which shall be valued at fair market, as defined
herein, on the Tax Date) which shares, if acquired from the Company,
must have been held for at least six months;
9
<PAGE>
(ii) requesting the Company to withhold from those shares that would
otherwise be received upon exercise of the option or upon the lapse of
restrictions, a number of shares having a fair market value (as
defined herein) on the Tax Date equal to the amount to be withheld.
The amount of tax withholding to be satisfied by withholding shares
from the option exercise is limited to the minimum amount of taxes,
including FICA taxes, required to be withheld under federal, state and
local law.
Such election is irrevocable after the Tax Date. Any fractional share
amount and any additional withholding not paid by the withholding or
surrender of shares must be paid in cash. If no timely election is made,
cash must be delivered to satisfy all tax withholding requirements.
If the exercise of an option by an optionee other than the grantee after
transfer of the option pursuant to this plan from the grantee to the
optionee results in a withholding obligation on the part of the grantee,
the grantee may elect to satisfy his withholding obligation by delivery of
shares to the Company as permitted in clause (i) above.
9. Acceleration on a Change in Control
a. With respect to any LTIP Option outstanding for at least one year or
any restricted shares issued under the Plan other than pursuant to
Section 6(d), the options shall become exercisable in full and the
restrictions shall lapse, as the case may be, upon a change in control
of the Company.
b. For purposes of this Plan, a "change in control of the Company" shall
be deemed to have occurred whenever a "Change in Control" occurs for
purposes of the Company's 1990 Stock Option Plan, as amended from time
to time.
10. Miscellaneous.
a. Amendment. The Company reserves the right to amend the Plan at any
time by action of the Board of Directors provided that no such
amendment may materially and adversely affect any outstanding stock
options without the consent of the optionee, and provided that,
without the approval of the stockholders, no such amendment may
increase the total number of shares reserved for the purposes of the
Plan.
b. Effectiveness of Plan. This Plan shall be effective as of February 18,
1995, subject to approval of Stockholders of the Company prior to
February 18, 1996.
c. Rights in Securities. All certificates for shares delivered under the
Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any
10
<PAGE>
stock exchange upon which the shares are then listed, and any
applicable federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. No optionee or optionee's
beneficiary, executor or administrator, legatees or distributees, as
the case may be, will be, or will be deemed to be, a holder of any
shares subject to an option unless and until a stock certificate or
certificates for such shares are issued to such person or persons
under the terms of the Plan. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date
is prior to the date such stock certificate is issued, except as
provided in Section 5(k) hereof.
d. Date of Grant. The grant of an option shall be effective no earlier
than the date the Committee decides to grant the option, except that
grants of reload options shall be effective as provided in Section
7(g) hereof.
e. Application of Funds. The proceeds received by the Company from the
sale of stock subject to option are to be added to the general funds
of the Company and used for its corporate purposes.
f. No Obligation to Exercise Option. Granting of an option shall impose
no obligation on the optionee to exercise such option.
11
<PAGE>
EXHIBIT (12)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Earnings
Income before income
taxes and
extraordinary items... $ 842.4 $1,583.0 $1,911.9 $1,480.4 $1,387.9
Capitalized interest... (167.1) (93.0) (104.0) (57.0) (7.5)
Equity in losses of
less than 50% owned
entities.............. 92.5 768.4 269.0 32.9 --
- ------------------------------------------------------------------------------------------
Subtotal................ 767.8 2,258.4 2,076.9 1,456.3 1,380.4
- ------------------------------------------------------------------------------------------
Fixed charges
Interest charges....... 895.3 280.2 300.7 317.7 308.2
Interest factor of
operating rents....... 274.4 134.5 120.1 119.4 110.4
Pre-tax cost of
preferred stock
dividends of
subsidiaries.......... 0.4 0.3 0.4 0.7 0.9
- ------------------------------------------------------------------------------------------
Total fixed charges..... 1,170.1 415.0 421.2 437.8 419.5
- ------------------------------------------------------------------------------------------
Earnings, as adjusted... $1,937.9 $2,673.4 $2,498.1 $1,894.1 $1,799.9
----------------------------------------------------------------
Ratio of earnings to
fixed charges.......... 1.66(/1/) 6.44(/2/) 5.93(/3/) 4.33(/4/) 4.29
----------------------------------------------------------------
</TABLE>
(/1/Earnings)as computed for the ratio of earnings to fixed charges includes
nonrecurring net gains of $104 million mainly relating to sales of local
exchanges and a nonrecurring charge to write off $179 million of acquired
in-process research and development costs related to the PCS Restructuring.
Excluding these items, the ratio of earnings to fixed charges would have
been 1.72 for 1998.
(/2/Earnings)as computed for the ratio of earnings to fixed charges includes
nonrecurring items. These items include a litigation charge of $20 million,
gains on the sales of local exchanges of $45 million and a gain on the sale
of an equity investment in an equipment provider of $26 million. Excluding
these items, the ratio of earnings to fixed charges would have been 6.32
for 1997.
(/3/Earnings)as computed for the ratio of earnings to fixed charges includes
the nonrecurring charge related to litigation of $60 million recorded in
1996. Excluding this charge, the ratio of earnings to fixed charges would
have been 6.07 for 1996.
(/4/Earnings)as computed for the ratio of earnings to fixed charges includes
the nonrecurring restructuring charge of $88 million recorded in 1995.
Excluding this charge, the ratio of earnings to fixed charges would have
been 4.53 for 1995.
Note: The ratios were computed by dividing fixed charges into the sum of
earnings (after certain adjustments) and fixed charges. Earnings include
income from continuing operations before taxes, plus equity in the net
losses of less-than-50% owned entities, less capitalized interest. Fixed
charges include (a) interest on all debt of continuing operations
(including amortization of debt issuance costs), (b) the interest component
of operating rents, and (c) the pre-tax cost of subsidiary preferred stock
dividends.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT Sprint Corporation
Sprint Corporation is the parent. The subsidiaries of Sprint Corporation are as
follows:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Ownership
Interest Held
Jurisdiction of By Its
Incorporation or Immediate
Name Organization Parent
- ----------------------------------------------------------------------------
<S> <C> <C>
Carolina Telephone and Telegraph Company North Carolina 100
NOCUTS, Inc. Pennsylvania 100
SC One Company Kansas 100
Centel Corporation Kansas 91.4(/1/)
Centel Capital Corporation Delaware 100
Centel Directory Company Delaware 100
The CenDon Partnership Illinois Partnership 50
Centel-Texas, Inc. Texas 100
Central Telephone Company of Texas Texas 100
Central Telephone Company Delaware 98.8(/2/)
Central Telephone Company of Illinois Illinois 100
Central Telephone Company of Virginia Virginia 100
Sprint-Florida, Incorporated Florida 100
C FON Corporation Delaware 100
DirectoriesAmerica, Inc. Kansas 100
Sprint Publishing & Advertising, Inc. Kansas 100
North Supply Company Ohio 100
Northstar Transportation, Inc. Kansas 100
North Supply Chile, S.A. Chile 18
North Supply Company of Lenexa Delaware 100
North Supply International, Ltd. Kansas 100
NSC Advertising, Inc. Kansas 100
Sprint Products Group, Inc. Kansas 100
Sprint Asian American, Inc. Kansas 100
Asian American Communications, L.L.C. Kansas 25.5
Sprint Capital Corporation Delaware 100
SprintCom, Inc. Kansas 100
Sprint Communications of Michigan, Inc. Michigan 100
Sprint Credit General, Inc. Kansas 100
Sprint Credit Limited, Inc. Kansas 100
Sprint Healthcare Systems, Inc. Kansas 100
Sprint International Holding, Inc. Kansas 100
Sprint Cayman Holding, Ltd. Cayman Islands 100
Shanghai Cayman Holding, Ltd. Cayman Islands 100
Sprint International do Brasil Ltda. Brazil 50
Sprint Mid-Atlantic Telecom, Inc. North Carolina 100
Sprint Minnesota, Inc. Minnesota 100
Sprint Missouri, Inc. Missouri 100
SC Eight Company Kansas 100
Sprint Paranet, Inc. Kansas 100
Sprint Payphone Services, Inc. Florida 100
Sprint TELECENTERS Inc. Florida 100
Sprint/United Management Company Kansas 100
Sprint Services, Inc. Kansas 100
</TABLE>
- --------------------------------------------------------------------------------
(/1/Sprint)Corporation owns all of the common stock. The voting preferred stock
is held by 11 Sprint subsidiaries.
(/2/Centel)Corporation owns all of the common stock.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest Held
Jurisdiction of By Its
Incorporation or Immediate
Name Organization Parent
- ------------------------------------------------------------------------------
<S> <C> <C>
Sprint Ventures, Inc. Kansas 100
Telmex/Sprint Communications, L.L.C. Delaware 50
SWV Five, Inc. Delaware 100
PhillieCo Partners I, L.P. Delaware Partnership 35.3
PhillieCo Sub, L.P. Delaware Partnership 99
PhillieCo, L.P. Delaware Partnership 99
PhillieCo Equipment & Realty Company,
L.P. Delaware Partnership 99
PhillieCo Partners II, L.P. Delaware Partnership 35.3
PhillieCo Equipment & Realty Company,
L.P. Delaware Partnership 1
PhillieCo, L.P. Delaware Partnership 1
PhillieCo Sub, L.P. Delaware Partnership 1
SWV Four, Inc. Delaware 100
PhillieCo Partners I, L.P. Delaware Partnership 17.6
PhillieCo Partners II, L.P. Delaware Partnership 17.6
SWV Two Telephony Partnership Delaware Partnership 99
MinorCo, L.P. Delaware Partnership 15
American PCS, L.P. Delaware Partnership (/3/)
American PCS Communications, LLC Delaware 99(/4/)
APC PCS, LLC Delaware 99(/5/)
APC Realty and Equipment Company Delaware 99(/5/)
American Personal Communications
Holdings, Inc. Delaware 100
American PCS Communications, LLC Delaware (/6/)
APC PCS, LLC Delaware (/6/)
APC Realty and Equipment Company,
LLC Delaware (/6/)
NewTelco, L.P. Delaware Partnership (/3/)
Sprint Spectrum Equipment Company,
L.P. Delaware Partnership (/3/)
Sprint Spectrum L.P. Delaware Partnership (/3/)
Sprint Spectrum Equipment Company,
L.P. Delaware Partnership 99(/7/)
Sprint Spectrum Finance Corporation Delaware 100
Sprint Spectrum Realty Company, L.P. Delaware Partnership 99(/7/)
WirelessCo, L.P. Delaware Partnership 99(/7/)
Sprint Spectrum Realty Company, L.P. Delaware Partnership (/3/)
WirelessCo, L.P. Delaware Partnership (/3/)
Sprint Spectrum Holding Company, L.P. Delaware Partnership 15
American PCS, L.P. Delaware Partnership 99(/8/)
Cox Communications PCS, L.P. Delaware Partnership 59.2
Cox PCS Assets, L.L.C. Delaware 100
Cox PCS License, L.L.C. Delaware 100
NewTelco, L.P. Delaware Partnership 99(/8/)
Sprint Spectrum L.P. Delaware Partnership 99(/8/)
SWV One, Inc. Delaware 100
SWV One Telephony Partnership Delaware Partnership 1
MinorCo, L.P. Delaware Partnership 15
Sprint Spectrum Holding Company, L.P. Delaware Partnership 15
SWV Six, Inc. Colorado 100
MinorCo, L.P. Delaware Partnership 30
Sprint Spectrum Holding Company, L.P. Delaware Partnership 30
</TABLE>
- --------------------------------------------------------------------------------
(/3/MinorCo,)L.P. holds a limited and preferred partnership interest of less
than 1%.
(/4/American)PCS, L.P. holds the general partnership interest of greater than
99%.
(/5/American)PCS Communications, LLC holds the general partnership interest of
greater than 99%.
(/6/American)Personal Communications Holdings, Inc. holds a limited partnership
interest of less than 1%.
(/7/Sprint)Spectrum L.P. holds the general partnership interest of greater than
99%.
(/8/Sprint)Spectrum Holding Company, L.P. holds the general partnership
interest of greater than 99%.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest Held
Jurisdiction of By Its
Incorporation or Immediate
Name Organization Parent
- -------------------------------------------------------------------------------
<S> <C> <C>
SWV Three, Inc. Delaware 100
SWV Two Telephony Partnership Delaware Partnership 1
SWV Two, Inc. Delaware 100
SWV One Telephony Partnership Delaware Partnership 99
UCOM, Inc. Missouri 100
Sprint Communications Company L.P. Delaware Partnership 34
Asian American Communications, L.L.C. Kansas 23.5
Sprint Communications Company of New
Hampshire, Inc. New Hampshire 100
Sprint Communications Company of
Virginia, Inc. Virginia 100
Sprint Licensing, Inc. Kansas 100
United Telephone of Kansas Kansas 1(/9/)
USST of Texas, Inc. Texas 100
SprintCom Equipment Company L.P. Delaware 49
Sprint Enterprises, L.P. Delaware Partnership 13.7
MinorCo, L.P. Delaware Partnership 40
Sprint Spectrum Holding Company, L.P. Delaware Partnership 40
Sprint Global Venture, Inc. Kansas (/10/)
Global One Communications Europe, L.L.C. Delaware 33.3
Global One Communications GBN Holding,
Limited Ireland 50
Global One Communications B.V. Netherlands
Global One Telekommunikationsdienste
GmbH Austria 100
Global One Communications S.A. / N.V. Belgium 100
Global One Communications Ltd. Bulgaria 100
Global One Communications and
Information
Services Ltd. Joint Venture Bulgaria 60
Global One Communications s.r.o. Czech Republic 100
Global One Communications A/S Denmark 100
Global One Communications OY Finland 100
Global One Communications S.A. France 100
Global One Telekommunikationsdienste
GmbH Germany 100
Global One Communications Hellas S.A. Greece 100
Global One Telecommunications Services
Kft. Hungary 100
Global One Communications Limited Ireland 100
Sprint International Italia S.p.A. Italy 96
Global One Communications S.p.A. Italy 100
Sprint International Italia S.p.A. Italy 4
France Telecom Network Services
Luxembourg Luxembourg 100
Global One Communications S.A. Luxembourg 99
Global One Communications B.V. Netherlands 100
Global One Communications AS Norway 100
Global One Communications, Sp zo.o Poland 100
Global One Communications Romania S.A. Romania 50.5
Global One Communications Service S.A. Spain 100
Sprint Communications Sweden A.B. Sweden 100
Global One Services A.B. Sweden 100
F.T. Nordphone A.B. Sweden 100
Global One Communications Service S.A. Switzerland 99.4
Global One Communications Service A.B. Switzerland 100
Global One Telekomunikasyon Limited
Sirketi Turkey 99.9
Inturnet Telekomunikasyon Hizmetleri
Anonim Sirketi Turkey 100
Global One Communications Holding Ltd. UK 100
Global One Communications Services
Ltd. UK 100
Global One UK Ltd. UK 100
Global One Communications Ltd. UK 100
Global One Communications Operations
Ltd. UK 100
ROE Finco UK 100
- -------------------------------------------------------------------------------
</TABLE>
(/9/Sprint)Corporation owns all of the common stock. The voting preferred stock
is held by Sprint Communicaitons Company L.P.
(/10/UCOM,)Inc., US Telecom, Inc., and Utelcom, Inc. each holds less than 1% of
the common stock.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest Held
Jurisdiction of By Its
Incorporation or Immediate
Name Organization Parent
- --------------------------------------------------------------------------------
<S> <C> <C>
Global One Communications, L.L.C. Delaware 50
Global One Communications Technical
Operations and Management Services Company
(GOCTOMS) Delaware 100
Global One Central America Inc. Delaware 100
Global One Communications East, Inc. Delaware 100
Global One Marketing (Joint Venture) Russia 60
Global One Networks (Joint Venture) Russia 39.9
GOCTOMS--South Africa Branch Office South Africa 100
Global One Communications (Australia)
Limited Delaware 100
Global One Communications (New Zealand)
Limited Delaware 100
Global One Communications Service, Inc.
(GOCS) Delaware 100
GOCS--Beijing Representative Office China 100
GOCS--Nanjing Representative Office China 100
GOCS--Shanghai Representative Office China 100
GOCS--Guangzhou Representative Office China 100
GOCS--India Liaison Office India 100
GOCS--Malaysia Representative Office Malaysia 100
GOCS--Philippines Representative Office Philippines 100
GOCS--Bahrain Branch Office U.A.E. 100
GOCS--Dubai Representative Office U.A.E. 100
GOCS--Hanoi Representative Office Vietnam 100
GOCS--Ho Chi Minh City Representative
Office Vietnam 100
Global One Communications Operations, Limited Ireland 33.3
Global One Communications Service, B.V. Netherlands 33.3
Global One Communications Service B.V.--
Swiss Branch Switzerland 100
Global One Communications World Holding B.V. Netherlands 50
ROW Finco United Kingdom 100
Global One Communications, S.A. Argentina 100
Global One Communications, Pty. Limited Australia 100
Global One Communicacoes, Ltda. Brazil 100
Global One Communications, Inc. Canada 100
Global One Communications, S.A. Chile 100
Global One Communications, S.A. Colombia 100
Global One Communications, Limited Cyprus 100
Global One Communications Technical
Operations and
Management Services, Limited Cyprus 100
Global One Communications S.A. de C.V. El Salvador 100
Global One Communications, S.A. Guatemala 100
Global One Communications, Limited Hong Kong 100
Global One Telecommunications (Beijing)
Co., Ltd China 100
Global One Communications, Inc.--Indonesia
Representative Office Indonesia 100
Global One Communications, Inc.--Taiwan
Branch Office Taiwan 100
France Telecom Network Services Hong Kong Hong Kong 100
Sprint RPG India, Ltd. (Joint Venture) India 50
Global One Communications, Inc. Japan 100
Global One Communications Jordan (Joint
Venture) Jordan 49
Global One Communications, S.A. de C.V. Mexico 100
Global One Communications Trading, S.A. de
C.V. Mexico 100
Global One Communications, Ltd New Zealand 100
Global One Communications, Inc. Panama 100
Global One Communications, S.A. Peru 100
Global One (Joint Venture) Russia 60
Global One Communications, Pte Ltd. Singapore 100
France Telecom Network Services Singapore
Pte Ltd. Singapore 99
Global One Communications, Inc. South Korea 100
Global One Communications, Ltd. Thailand 100
Global One Telecommunicaciones, S.A. Venezuela 100
Global One Communications World Operations
Limited Ireland 50
Global One Communications World Service B.V. Netherlands 50
Global One Communications World Service
B.V.--Swiss Branch Switzerland 100
</TABLE>
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest Held
Jurisdiction of By Its
Incorporation or Immediate
Name Organization Parent
- ------------------------------------------------------------------------------
<S> <C> <C>
UC PhoneCo, Inc. Kansas 100
Sprint Enterprises, L.P. Delaware Partnership 35.3
United Telephone Company of the Carolinas South Carolina 100
SC Two Company Kansas 100
United Telephone Company of Eastern Kansas Delaware 100
Sprint/United Midwest Management Services
Company Kansas 20
United Teleservices, Inc. Kansas 100
United Telephone Company of Florida Florida 100
Vista-United Telecommunications Florida 49
United Telephone Company of Indiana, Inc. Indiana 100
SC Four Company Kansas 100
United Telephone Company of Kansas Kansas 99(/9/)
Sprint/United Midwest Management Services
Company Kansas 80
United Telephone Company of New Jersey,
Inc. New Jersey 100
United Telephone Company of the Northwest Oregon 100
United Telephone Company of Ohio Ohio 100
SC Five Company Kansas 100
United Telephone Communications Services
of Ohio, Inc. Ohio 100
United Telephone Company of Pennsylvania,
The Pennsylvania 100
SC Six Company Kansas 100
Valley Network Partnership Virginia Partnership 20
United Telephone Company of Southcentral
Kansas Arkansas 100
United Telephone Company of Texas, Inc. Texas 100
SC Seven Company Kansas 50
United Telephone Company of the West Delaware 100
United Telephone-Southeast, Inc. Virginia 100
SC Three Company Kansas 100
Valley Network Partnership Virginia Partnership 20
US Telecom, Inc. Kansas 100
ASC Telecom, Inc. Kansas 100
LCF, Inc. California 100
SC Seven Company Kansas 50
Sprint Communications Company L.P. Delaware Partnership 59
SprintCom Equipment Company L.P. Delaware Partnership 51
Sprint Enterprises, L.P. Delaware Partnership 14.3
Sprint Global Venture, Inc. Kansas (/10/)
Sprint Iridium, Inc. Kansas 100
Iridium U.S., L.P. Delaware Partnership 27
Iridium Canada Communications Inc. Canada 27
Iridium LLC Delaware 3.8
United Telecommunications, Inc. Delaware 100
US Telecom of New Hampshire, Inc. New Hampshire 100
UST PhoneCo, Inc. Kansas 100
Sprint Enterprises, L.P. Delaware Partnership 36.8
</TABLE>
- --------------------------------------------------------------------------------
(/9/Sprint)Corporation owns all of the common stock. The voting preferred stock
is held by Sprint Communicaitons Company L.P.
(/10/UCOM,)Inc., US Telecom, Inc., and Utelcom, Inc. each holds less than 1% of
the common stock.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest Held
Jurisdiction of By Its
Incorporation or Immediate
Name Organization Parent
- -------------------------------------------------------------------------------
<S> <C> <C>
Utelcom, Inc. Kansas 100
Private TransAtlantic Telecommunications
System, Inc. Delaware 100
Private Trans-Atlantic Telecommunications
System (N.J.), Inc. New Jersey 100
Sprint Communications Company L.P. Delaware Partnership 5
Sprint Global Venture, Inc. Kansas (/10/)
Sprint International Incorporated Delaware 100
Consortium Communications International,
Inc. New York 100
Dial--The Israeli Company for
International Communication Services LTD Israel 54.4
Marconi-Sprint Servicos de Comunicacao,
Lda. Portugal 49
Sprint FON Inc. Delaware 100
Sprint Global Venture, Inc. Kansas 86
Sprint International do Brasil Ltda. Brazil 50
Sprint International Caribe, Inc. Puerto Rico 100
Sprint International Communications
Corporation Delaware 100
Sprint Communications Company L.P. Delaware Partnership 2
Sprint Global Venture, Inc. Kansas 13
Sprint International Construction Company Delaware 100
Sprint Israel Cellular, Inc. Delaware 100
Sprint R.P. Telekom Sp. z o.o. Poland 50
Sprint Telecommunications France Inc. Delaware 100
Sprint Telecommunications Services GmbH Germany 100
Sprint Telecommunications (UK) Limited Delaware 100
- -------------------------------------------------------------------------------
</TABLE>
(/10/UCOM,)Inc., US Telecom, Inc., and Utelcom, Inc. each holds less than 1% of
the common stock.
<PAGE>
EXHIBIT (23)(a)
CONSENT OF INDEPENDENT AUDITORS Sprint Corporation
We consent to the incorporation by reference in the Registration Statements
(Form S-3, No. 333-65649; Form S-3, No. 33-58488; Form S-8, No. 33-44255; Form
S-8, No. 33-38761; Form S-8, No. 33-31802; Form S-8, No. 2-97322; Form S-8, No.
2-71704; Form S-8, No. 33-59316; Form S-8, No. 33-59318; Form S-8, No. 33-
59322; Form S-8, No. 33-59324; Form S-8, No. 33-59326; Form S-8, No. 33-59328;
Form S-8, No. 33-53695; Form S-8, No. 33-57911; Form S-8, No. 33-59349; Form S-
8, No. 33-65149; Form S-8, No. 33-25449; Form S-8, No. 333-42077; Form S-8, No.
333-46487; Form S-8, No. 333-46491; Form S-8, No. 333-68737; Form S-8, No. 333-
68741; Form S-8, No. 333-68739; and Form S-8, No. 333-68795) of Sprint
Corporation and in the related Prospectuses of our reports dated February 2,
1999, with respect to the consolidated financial statements and schedule of
Sprint Corporation and the combined financial statements and schedules of the
Sprint FON Group and the Sprint PCS Group included in this Annual Report (Form
10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
-------------------------------------
Ernst & Young LLP
Kansas City, Missouri
March 5, 1999
<PAGE>
EXHIBIT (23)(b)
INDEPENDENT AUDITORS' CONSENT Sprint Spectrum Holding Company, L.P.
We consent to the incorporation by reference in the Registration Statement
(Nos. 33-58488 and 333-65649) on Form S-3 and the Registration Statement (Nos.
33-44255, 33-38761, 33-31802, 2-97322, 2-71704, 33-59316, 33-59318, 33-59322,
33-59324, 33-59326, 33-59328, 33-53695, 33-57911, 33-59349, 33-65149, 33-25449,
333-42077, 333-46487, 333-46491, 333-68737, 333-68739, 333-68741 and 333-68795)
on Form S-8 of Sprint Corporation of our report dated February 2, 1999, on the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries for each of the three years in the period ended December 31, 1998
appearing in the Annual Report on Form 10-K of Sprint Corporation for the year
ended December 31, 1998.
/s/ Deloitte & Touche LLP
-------------------------------------
Deloitte & Touche LLP
Kansas City, Missouri
March 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 605,200
<SECURITIES> 0
<RECEIVABLES> 2,876,200
<ALLOWANCES> 185,500
<INVENTORY> 477,100
<CURRENT-ASSETS> 4,387,900
<PP&E> 32,144,300
<DEPRECIATION> 13,161,300
<TOTAL-ASSETS> 33,231,100
<CURRENT-LIABILITIES> 5,441,100
<BONDS> 11,942,400
0
246,800
<COMMON> 1,291,500
<OTHER-SE> 10,910,000
<TOTAL-LIABILITY-AND-EQUITY> 33,231,100
<SALES> 0
<TOTAL-REVENUES> 17,134,300
<CGS> 0
<TOTAL-COSTS> 11,492,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 728,200
<INCOME-PRETAX> 842,400
<INCOME-TAX> 391,900
<INCOME-CONTINUING> 450,500
<DISCONTINUED> 0
<EXTRAORDINARY> (36,000)
<CHANGES> 0
<NET-INCOME> 414,500
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1> From January 1, 1998 through November 23, 1998:
Sprint EPS - Basic 1.98
Sprint EPS - Diluted 1.95
<F2> From November 23, 1998 through December 31, 1998:
FON Group EPS - Basic 0.28
FON Group EPS - Diluted 0.27
PCS Group EPS - Basic (1.34)
PCS Group EPS - Diluted (1.34)
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 47,700
<SECURITIES> 0
<RECEIVABLES> 2,681,800
<ALLOWANCES> 166,000
<INVENTORY> 349,900
<CURRENT-ASSETS> 3,878,600
<PP&E> 26,259,400
<DEPRECIATION> 12,757,200
<TOTAL-ASSETS> 20,542,600
<CURRENT-LIABILITIES> 3,205,800
<BONDS> 5,039,800
0
0
<COMMON> 1,091,300
<OTHER-SE> 8,211,000
<TOTAL-LIABILITY-AND-EQUITY> 20,542,600
<SALES> 0
<TOTAL-REVENUES> 12,599,500
<CGS> 0
<TOTAL-COSTS> 8,323,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 528,800
<INCOME-PRETAX> 1,061,200
<INCOME-TAX> 400,400
<INCOME-CONTINUING> 660,800
<DISCONTINUED> 0
<EXTRAORDINARY> (4,400)
<CHANGES> 0
<NET-INCOME> 656,400
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.50
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 93,300
<SECURITIES> 0
<RECEIVABLES> 2,652,300
<ALLOWANCES> 159,700
<INVENTORY> 381,000
<CURRENT-ASSETS> 3,892,700
<PP&E> 25,263,100
<DEPRECIATION> 12,375,400
<TOTAL-ASSETS> 19,879,500
<CURRENT-LIABILITIES> 3,206,400
<BONDS> 4,406,200
9,500
0
<COMMON> 1,091,300
<OTHER-SE> 8,131,900
<TOTAL-LIABILITY-AND-EQUITY> 19,879,500
<SALES> 0
<TOTAL-REVENUES> 8,265,000
<CGS> 0
<TOTAL-COSTS> 5,455,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,300
<INCOME-PRETAX> 719,800
<INCOME-TAX> 298,200
<INCOME-CONTINUING> 421,600
<DISCONTINUED> 0
<EXTRAORDINARY> (4,400)
<CHANGES> 0
<NET-INCOME> 417,200
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.95
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 158,200
<SECURITIES> 0
<RECEIVABLES> 2,684,700
<ALLOWANCES> 165,600
<INVENTORY> 378,500
<CURRENT-ASSETS> 4,017,700
<PP&E> 23,803,200
<DEPRECIATION> 12,024,000
<TOTAL-ASSETS> 18,845,600
<CURRENT-LIABILITIES> 3,187,900
<BONDS> 4,075,700
9,500
0
<COMMON> 1,091,300
<OTHER-SE> 8,064,900
<TOTAL-LIABILITY-AND-EQUITY> 18,845,600
<SALES> 0
<TOTAL-REVENUES> 4,075,500
<CGS> 0
<TOTAL-COSTS> 2,677,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,100
<INCOME-PRETAX> 360,200
<INCOME-TAX> 149,500
<INCOME-CONTINUING> 210,700
<DISCONTINUED> 0
<EXTRAORDINARY> (4,400)
<CHANGES> 0
<NET-INCOME> 206,300
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 101,700
<SECURITIES> 0
<RECEIVABLES> 2,642,300
<ALLOWANCES> 146,700
<INVENTORY> 352,000
<CURRENT-ASSETS> 3,772,600
<PP&E> 23,210,900
<DEPRECIATION> 11,716,800
<TOTAL-ASSETS> 18,273,600
<CURRENT-LIABILITIES> 3,076,800
<BONDS> 3,748,600
0
0
<COMMON> 1,091,300
<OTHER-SE> 7,933,900
<TOTAL-LIABILITY-AND-EQUITY> 18,273,600
<SALES> 0
<TOTAL-REVENUES> 14,873,900
<CGS> 0
<TOTAL-COSTS> 9,177,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187,200
<INCOME-PRETAX> 1,583,000
<INCOME-TAX> 630,500
<INCOME-CONTINUING> 952,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 952,500
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.18
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,150,600
<SECURITIES> 0
<RECEIVABLES> 2,461,000
<ALLOWANCES> 117,400
<INVENTORY> 305,300
<CURRENT-ASSETS> 4,232,900
<PP&E> 21,410,800
<DEPRECIATION> 10,946,700
<TOTAL-ASSETS> 16,915,200
<CURRENT-LIABILITIES> 3,194,300
<BONDS> 2,974,800
11,800
0
<COMMON> 1,091,300
<OTHER-SE> 7,428,600
<TOTAL-LIABILITY-AND-EQUITY> 16,915,200
<SALES> 0
<TOTAL-REVENUES> 13,887,500
<CGS> 0
<TOTAL-COSTS> 8,503,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,700
<INCOME-PRETAX> 1,911,900
<INCOME-TAX> 721,000
<INCOME-CONTINUING> 1,190,900
<DISCONTINUED> (2,600)
<EXTRAORDINARY> (4,500)
<CHANGES> 0
<NET-INCOME> 1,183,800
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.77
</TABLE>
