RULE NO. 424(b)(3)
REGISTRATION NOS. 333-65402
333-65402-01
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
IS NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT (SUBJECT TO COMPLETION -- DATED JULY 30, 2001)
(TO PROSPECTUS DATED JULY 26, 2001)
40,000,000 EQUITY UNITS
(INITIALLY CONSISTING OF 40,000,000 CORPORATE UNITS)
[LOGO] SPRINT
[LOGO] Sprint(R)
Sprint PCS(R)
SPRINT CORPORATION
SPRINT CAPITAL CORPORATION
----------------
We are offering 40,000,000 equity units. The equity units will initially
consist of corporate units, each with a stated amount of $25. Each corporate
unit will include a purchase contract pursuant to which you will agree to
purchase from us shares of the PCS common stock, series 1 on August 17, 2004.
Under the purchase contract, we will make quarterly contract adjustment
payments to you at the rate of % on the stated amount per year. Each
corporate unit will also initially include $25 principal amount of senior notes
due August 17, 2006 of our wholly owned finance subsidiary, Sprint Capital
Corporation, which will be fully and unconditionally guaranteed by us. Sprint
Capital Corporation will make quarterly interest payments on the notes at the
rate of % per year, which rate is expected to be reset on or after May 17,
2004. The notes will not trade separately from the corporate units unless
substitution is made as described in this prospectus supplement.
The corporate units have been approved for listing on the New York Stock
Exchange, or NYSE, under the symbol "SDE". The PCS common stock, series 1 is
traded on the NYSE under the symbol "PCS". On July 26, 2001, the last reported
sales price of the PCS common stock, series 1 as reported on the NYSE was
$25.00 per share.
Concurrently with this offering we are offering 40,000,000 shares of the
PCS common stock, series 1 pursuant to a separate prospectus supplement.
Neither offering is contingent upon the closing of the other offering.
INVESTING IN EQUITY UNITS INVOLVES RISKS. SEE "RISK FACTORS RELATING TO
THE EQUITY UNITS" BEGINNING ON PAGE S-24 OF THIS PROSPECTUS SUPPLEMENT AND
"RISK FACTORS" BEGINNING ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS.
----------------
PER
CORPORATE
UNIT TOTAL
--------- -----
Public offering price(1)........ $ $
Underwriting discount........... $ $
Proceeds, before expenses, to us $ $
(1)Plus accrued interest and accumulated contract adjustment payments
from , 2001, if settlement occurs after that date.
The underwriters may also purchase up to an additional 6,000,000
corporate units at the public offering price less the underwriting discount
within 30 days of the date of this prospectus supplement in order to cover
overallotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The corporate units are expected to be ready for delivery in book-entry
form only through The Depository Trust Company on or about , 2001.
----------------
JOINT BOOK-RUNNING MANAGERS
JPMORGAN
MERRILL LYNCH & CO.
UBS WARBURG
----------------
ABN AMRO ROTHSCHILD LLC
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
----------------
The date of this prospectus supplement is , 2001.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About this Prospectus Supplement.............................................. S-3
Prospectus Supplement Summary................................................. S-4
Sprint Corporation........................................................... S-4
Sprint Capital Corporation................................................... S-6
Recent Developments.......................................................... S-7
The Offering--Q&A............................................................ S-9
The Offering--Explanatory Diagrams........................................... S-15
Summary Selected Consolidated Financial Data................................. S-19
Risk Factors Relating to the Equity Units..................................... S-24
Use of Proceeds............................................................... S-28
Price Range of PCS Common Stock and Dividends................................. S-28
Capitalization................................................................ S-29
Accounting Treatment.......................................................... S-30
Description of the Equity Units............................................... S-31
Description of the Purchase Contracts......................................... S-35
Certain Provisions of the Purchase Contract Agreement and the Pledge Agreement S-48
Description of the Notes...................................................... S-52
Certain Federal Income Tax Consequences....................................... S-58
Certain U.S. Federal Income Tax Consequences to Non-United States Holders..... S-65
Underwriting.................................................................. S-67
Legal Matters................................................................. S-70
PROSPECTUS
About this Prospectus......................................................................... 2
Where You Can Find More Information........................................................... 2
Sprint Corporation............................................................................ 4
Sprint Capital Corporation.................................................................... 5
Risk Factors.................................................................................. 6
Special Note Regarding Forward-Looking Statements............................................. 16
Use of Proceeds............................................................................... 16
Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends 17
Description of Debt Securities................................................................ 19
Description of Convertible Subordinated Debt Securities....................................... 27
Authorized Capital Stock...................................................................... 38
Description of Convertible Preferred Stock.................................................... 39
Description of PCS Common Stock............................................................... 40
Description of Stock Purchase Contracts and Equity Units...................................... 47
Selling Stockholders.......................................................................... 48
Plan of Distribution.......................................................................... 49
Legal Matters................................................................................. 51
Experts....................................................................................... 51
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates; provided, however, that any information that we file
with the SEC after the date of this prospectus supplement that is incorporated
by reference in this prospectus supplement and the accompanying prospectus will
automatically update this prospectus supplement and the accompanying
prospectus. Our business, financial condition, results of operations and
prospects may have changed since those dates. See "Where You Can Find More
Information."
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part, which is this prospectus
supplement, describes the specific terms of the equity units offered and other
matters relating to us and our financial condition. The second part, which is
the accompanying prospectus, gives more general information about securities we
and Sprint Capital may offer from time to time, some of which may not apply to
the equity units offered by this prospectus supplement. If the description of
this offering varies between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
S-3
PROSPECTUS SUPPLEMENT SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS ABOUT US, SPRINT CAPITAL CORPORATION AND THE
SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS. UNLESS WE INDICATE OTHERWISE, ALL INFORMATION IN THIS PROSPECTUS
SUPPLEMENT ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVERALLOTMENT
OPTION. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS
SUPPLEMENT TO "WE," "US" AND "OUR" MEAN SPRINT CORPORATION AND ITS
SUBSIDIARIES, INCLUDING SPRINT CAPITAL CORPORATION, REFERENCES TO "SPRINT
CAPITAL" MEAN SPRINT CAPITAL CORPORATION, OUR WHOLLY OWNED FINANCE SUBSIDIARY,
AND REFERENCES TO "PCS COMMON STOCK" MEAN THE PCS COMMON STOCK, SERIES 1.
SPRINT CORPORATION
We are a global communications company and a leader in integrating
long-distance, local service and wireless communications. We are also one of
the largest carriers of Internet traffic using our tier one Internet protocol
network, which provides connectivity to any point on the Internet either
through our own network or via direct connections with another backbone
provider. We are the nation's third-largest provider of long distance services
and operate nationwide, all-digital long distance and tier one Internet
protocol networks using fiber-optic and electronic technology. In addition, our
local telecommunications division currently serves approximately 8.3 million
access lines in 18 states. We also operate the only 100% digital personal
communications service, or PCS, wireless network in the United States with
licenses to provide service nationwide using a single frequency band and a
single technology. We own PCS licenses to provide service to the entire United
States population, including Puerto Rico and the U.S. Virgin Islands. For the
year ended December 31, 2000, we had revenues of $23.6 billion and net income
of $93 million and served more than 23 million business and residential
customers. For the six months ended June 30, 2001, we had revenues of $12.7
billion and a net loss of $33 million.
In November 1998, we allocated all of our assets and liabilities into two
groups: the FON group and the PCS group. At the same time, we reclassified each
share of our publicly traded common stock into tracking stocks. Each share of
common stock was reclassified into one share of FON common stock and 1/2 share
of PCS common stock. Our business is divided into four lines of business: the
global markets division, the local telecommunications division, the product
distribution and directory publishing businesses and the PCS wireless telephony
products and services business. The FON group includes the global markets
division, the local telecommunications division and the product distribution
and directory publishing businesses, and the PCS group includes the PCS
wireless telephony products and services business. The PCS common stock is
intended to reflect the financial results and economic value of the PCS
wireless telephony products and services business. The FON common stock is
intended to reflect the financial results and economic value of the global
markets division, the local telecommunications division and the product
distribution and directory publishing businesses. Our tracking stocks present a
number of risks. See "Risks Factors--Risk Factors Relating to Tracking Stocks"
in the accompanying prospectus.
We were incorporated in 1938 under the laws of the State of Kansas. Our
principal executive offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and our telephone number is (913) 624-3000.
SPRINT'S PCS GROUP
The PCS group includes our wireless PCS operations. The PCS group, which
markets its wireless telephony products and services under the Sprint and
Sprint PCS brand names, operates the only 100% digital PCS wireless network in
the United States with licenses to provide service nationwide using a single
frequency
S-4
band and a single technology. The PCS group owns licenses to provide service to
the entire United States population, including Puerto Rico and the U.S. Virgin
Islands. The PCS group currently provides nationwide service through a
combination of:
. operating its own digital network in major metropolitan areas,
. affiliating with other companies, primarily in and around small
metropolitan areas,
. roaming on analog cellular networks of other providers using
dual-band/dual-mode handsets, and
. roaming on other providers' digital PCS networks that use code
division multiple access technology.
The PCS group also provides wholesale PCS services to companies that
resell the services to their customers on a retail basis. These companies pay
the PCS group a discounted price for their customers' usage, but bear the costs
of acquisition and customer service. The PCS group also includes our investment
in Pegaso Telecomunicaciones, S.A. de C.V., a wireless PCS operation in Mexico.
This investment is accounted for using the equity method.
The PCS group's business goals include continually expanding network
coverage using superior technology and increasing market penetration by
aggressively marketing competitively priced PCS products and services under the
Sprint and Sprint PCS brand names, offering enhanced voice and data 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 the operating scale of the PCS group's national network to
achieve significant cost advantages in purchasing power, operations
and marketing;
. leveraging our national brand to gain consumer confidence in, and
acceptance of, the PCS group's products and services;
. using state-of-the-art technology, including code division multiple
access technology, which is a digital spread-spectrum wireless
technology that allows a large number of users to access a single
frequency band that assigns a code to all speech bits, sends a
scrambled transmission of the enclosed speech over the air and
reassembles the speech into its original format;
. incorporating third generation technology into its network;
. delivering superior value and service to its customers;
. growing its customer base using multiple distribution channels;
. continuing to expand coverage; and
. offering PCS services in combination with FON group services.
Since launching its first commercial PCS service in the United States in
November 1995, the PCS group has experienced rapid customer growth, providing
service to approximately 11.5 million direct and resale customers as of June
30, 2001, representing an increase of more than 50% in the number of customers
served as of June 30, 2000. The PCS group affiliates also had approximately 1.3
million subscribers as of June 30, 2001. The service offered by the PCS group
and its affiliates now reaches nearly 239 million people. For the year ended
December 31, 2000, the PCS group had revenues of $6.3 billion, and for the six
months ended June 30, 2001, the PCS group had revenues of $4.3 billion.
S-5
SPRINT'S FON GROUP
The FON group includes our global markets division, local
telecommunications division, and product distribution and directory publishing
businesses.
Through our global markets division we provide a broad suite of
communications services targeted to domestic business and residential
customers, multinational corporations and other communications companies. These
services include domestic and international voice, data communications services
using various protocols such as Internet protocol and frame relay (a public
data service that transfers packets of data over our network) and managed
security services. Through this division we also provide broadband services,
including high-speed data transmission over our networks using fixed wireless
multipoint multichannel distribution service technology, which is a fixed
wireless network that distributes signals through microwave from a single
transmission point to multiple receiving points, and digital subscriber line
technology, which enables high-speed transmission of data over existing copper
telephone lines between the customer and the service provider.
Our local telecommunications division consists primarily of regulated
local exchange carriers serving approximately 8.3 million access lines in 18
states. Through this division we provide local voice and data services, long
distance services for customers within our local territories, and access for
other carriers to our local exchange facilities. This division also sells
telecommunications equipment. Our local telecommunications division has
embarked on a growth strategy to market our entire long distance and PCS
product portfolios as well as its core product line of local voice and advanced
network features and data products to our local customers.
Our product distribution and directory publishing businesses consist of
wholesale distribution of telecommunications equipment and the publishing and
marketing of white and yellow page telephone directories. We are one of the
nation's largest distributors of telecommunications equipment to wireline and
wireless service companies, cable television operators, and systems resellers.
SPRINT CAPITAL CORPORATION
Sprint Capital is a wholly owned subsidiary of our company. We formed
Sprint Capital to engage in financing activities to provide funds for use by us
and our other subsidiaries other than the local exchange companies in our local
telecommunications division. Sprint Capital raises funds through the sale of
debt securities, and then uses the net proceeds to make loans to, or
investments in, us or our other subsidiaries, other than the local exchange
companies in our local telecommunications division. Sprint Capital does not and
will not engage in any other business operations.
Sprint Capital was incorporated in 1993 under the laws of the State of
Delaware. Its principal offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and its telephone number is (913) 624-3000.
S-6
RECENT DEVELOPMENTS
The following table sets forth selected financial data for our company,
the PCS group and the FON group for the six months ended June 30, 2000 and
2001. The following selected financial data for the six months ended June 30,
2000 and 2001 have been derived from our unaudited consolidated financial
statements and, in our opinion, reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the data for those periods.
Results of operations for the six months ended June 30, 2001 are not
necessarily indicative of results that may be expected for the full year. You
should read the table below in conjunction with our Current Report on Form 8-K
filed on July 24, 2001 and incorporated by reference in this prospectus
supplement and the accompanying prospectus.
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 2001
---------- ----------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
SPRINT CORPORATION:
Net operating revenues................................................... $11,350 $12,700
Operating income......................................................... 278 681
Loss from continuing operations.......................................... (156) (34)
Net income (loss)........................................................ 514 (33)
Diluted earnings (loss) per share from continuing operations:
PCS group............................................................. (1.02) (0.66)
FON group............................................................. 0.91 0.68
SPRINT'S PCS GROUP:
Net operating revenues................................................... $ 2,696 $ 4,315
Operating loss........................................................... (1,071) (339)
Loss from continuing operations.......................................... (966) (640)
Net loss................................................................. (969) (638)
SPRINT'S FON GROUP:
Net operating revenues
Global markets division............................................... $ 5,314 $ 5,130
Local telecommunications division..................................... 3,052 3,105
Product distribution and directory publishing......................... 932 968
Intercompany eliminations............................................. (448) (535)
------- -------
Total............................................................. 8,850 8,668
Operating income (loss)
Global markets division............................................... $ 505 $ (22)
Local telecommunications division..................................... 889 904
Product distribution and directory publishing......................... 135 157
Unallocated corporate operations and intercompany eliminations........ (180) (19)
------- -------
Total............................................................. 1,349 1,020
Income from continuing operations........................................ 810 606
Net income............................................................... 1,483 605
Ratio of earnings to fixed charges....................................... --(1) 1.03(2)
Ratio of earnings to combined fixed charges and preferred stock dividends --(1) 1.02(2)
--------
(1)For the six months ended June 30, 2000, our earnings were inadequate to
cover fixed charges by $172 million and were inadequate to cover combined
fixed charges and preferred stock dividends by $177 million. Earnings
included a nonrecurring charge of $187 million related to the proposed
WorldCom merger, which was terminated, net nonrecurring gains from the sale
of an independent directory publishing operation and investment activities
of $71 million and a net nonrecurring gain of $28 million from the sale of
network infrastructure and the right to manage customers to a PCS affiliate.
Excluding these items, earnings would have been inadequate to cover fixed
charges by $84 million and inadequate to cover combined fixed charges and
preferred stock dividends by $89 million.
(2)Earnings for the six months ended June 30, 2001 included net nonrecurring
gains from investment activities of $14 million. Excluding these gains, the
ratio of earnings to fixed charges would have been 1.01 and the ratio of
earnings to combined fixed charges and preferred stock dividends would have
been 1.00.
S-7
On June 29, 2001, we paid a dividend of 12.5 cents per share on our FON
common stock.
On June 4, 2001 we completed a registered secondary offering on behalf of
France Telecom and Deutsche Telekom in which they sold 174.8 million shares of
our FON common stock (including 22.8 million shares to cover overallotments),
which represented an approximate 10% voting interest in our company. We did not
receive any of the proceeds from that offering.
On February 9, 2001, we announced updated terms relating to our alliance
with EarthLink, Inc. The new arrangement eliminates the original exclusivity
terms of the alliance and revises the governance terms. For financial reporting
purposes, we are no longer required to record our respective share of
EarthLink's losses.
On January 25, 2001, we issued $2.4 billion aggregate principal amount of
senior notes, including $750 million aggregate principal amount of 7 1/8% Notes
due 2006 and $1.65 billion aggregate principal amount of 7 5/8% Notes due 2011.
We received net proceeds of approximately $2.4 billion in connection with the
transaction, which were used to repay commercial paper.
In the first quarter of 2000, we sold our interest in Global One to
France Telecom and Deutsche Telekom. As a result of this sale, our gain on the
sale of Global One has been reported as a discontinued operation. In 2000, we
recorded an after-tax gain related to the sale of our interest in Global One of
$675 million.
S-8
THE OFFERING--Q&A
WHAT ARE EQUITY UNITS?
Equity units may include corporate units or treasury units. The equity
units will initially consist of 40,000,000 corporate units, each with a stated
amount of $25. From each corporate unit, the holder may create a treasury unit,
as described below.
WHAT ARE THE COMPONENTS OF CORPORATE UNITS?
Each corporate unit will consist of a purchase contract and, initially,
$25 principal amount of Sprint Capital's notes. The holder of the corporate
unit will own the underlying note, but will pledge the note to us to secure its
obligations under the purchase contract. If the notes are successfully
remarketed or a tax event redemption occurs as described in this prospectus
supplement, the applicable ownership interest in the treasury portfolio will
replace the note as a component of each corporate unit and will be pledged to
us to secure the holder's obligations under the purchase contract.
WHAT IS A PURCHASE CONTRACT?
Each purchase contract underlying an equity unit obligates the holder of
the purchase contract to purchase, and obligates us to sell, on August 17,
2004, newly issued shares of the PCS common stock equal to the "settlement
rate" for each $25 stated amount of equity units. The settlement rate will be
calculated, subject to adjustment as described under "Description of the
Purchase Contracts--Anti-Dilution Adjustments," as follows:
. if the applicable market value of the PCS common stock equals or
exceeds $ , which is the "threshold price," the settlement rate will
be ;
. if the applicable market value of the PCS common stock is less than
the threshold appreciation price but greater than the reference
price, the settlement rate will be equal to the stated amount divided
by the applicable market value; and
. if the applicable market value is less than or equal to the reference
price, the settlement rate will be .
"Applicable market value" means the average of the closing price per
share of PCS common stock on each of the 20 consecutive trading days ending on
the third trading day before August 17, 2004. The "reference price" is $ ,
which is the last reported sale price of the PCS common stock on the NYSE on
August , 200l.
WHAT ARE TREASURY UNITS?
Treasury units consist of a purchase contract and a treasury security.
The treasury security is a 1/40, or 2.5%, undivided beneficial ownership
interest in a zero-coupon U.S. treasury security with a principal amount at
maturity of $1,000 that matures on August 15, 2004. The holder of the treasury
unit will own the underlying treasury security but will pledge the treasury
security to us to secure the holder's obligations under the purchase contract.
HOW CAN YOU CREATE TREASURY UNITS FROM CORPORATE UNITS?
Unless the treasury portfolio has replaced the notes as a component of
corporate units as a result of a successful remarketing of the notes or a tax
event redemption, each holder of corporate units will have the right, at any
time on or prior to the fifth business day before August 17, 2004, to
substitute for the related notes held by the collateral agent zero-coupon
treasury securities that mature on August 15, 2004 in a total principal amount
at
S-9
maturity equal to the aggregate principal amount of the notes for which
substitution is being made. This substitution will create treasury units and
the applicable notes will be released to the holder. Because U.S. treasury
securities are issued in multiples of $1,000, holders of corporate units may
make this substitution only in integral multiples of 40 corporate units.
However, if the treasury portfolio has replaced the notes as a component of
corporate units as a result of a successful remarketing of the notes or a tax
event redemption, holders of corporate units may make this substitution only in
multiples of corporate units, at any time on or prior to the second
business day before August 17, 2004. Holders would also obtain the release of
the appropriate applicable ownership interest in the treasury portfolio rather
than a release of the applicable notes.
HOW CAN YOU RECREATE CORPORATE UNITS FROM TREASURY UNITS?
Unless the treasury portfolio has replaced the notes as a component of
corporate units as a result of a successful remarketing of the notes or a tax
event redemption, each holder of treasury units will have the right, at any
time on or prior to the fifth business day before August 17, 2004, to
substitute notes for the related treasury securities held by the collateral
agent in an aggregate principal amount of such notes equal to the aggregate
principal amount at maturity of the treasury securities. This substitution
would create corporate units, and the applicable treasury securities would be
released to the holder. Because treasury securities are issued in integral
multiples of $1,000, holders of treasury units may make this substitution only
in integral multiples of 40 treasury units. If the treasury portfolio has
replaced the notes as a component of corporate units as a result of a
successful remarketing of the notes or a tax event redemption, holders of the
treasury units may make this substitution at any time on or prior to the second
business day before August 17, 2004, by using the applicable ownership interest
of the treasury portfolio instead of notes and only in integral multiples of
treasury units.
WHAT PAYMENTS ARE YOU ENTITLED TO AS A HOLDER OF CORPORATE UNITS?
Holders of corporate units will receive total cash distributions at a
rate of % of the stated amount per year, payable quarterly in arrears. These
cash distributions will consist of interest on the related notes payable by
Sprint Capital or cash distributions on the applicable ownership interest in
the treasury portfolio, as applicable, at the rate of % of the stated amount
per year and contract adjustment payments payable by us at the rate of % of
the stated amount per year, subject to our right to defer the payment of such
contract adjustment amounts. Each corporate unit has a stated amount of $25.
Sprint Capital may not defer interest payments on the notes. The contract
adjustment payment rate will be increased under limited circumstances described
in this prospectus supplement.
WHAT PAYMENTS ARE YOU ENTITLED TO IF YOU CONVERT YOUR CORPORATE UNITS TO
TREASURY UNITS?
Holders of treasury units will receive quarterly contract adjustment
payments payable by us at the rate of % of the stated amount of $25 per year,
subject to our rights of deferral described in this prospectus supplement.
CAN WE DEFER CURRENT PAYMENTS?
We have the right to defer the payment of contract adjustment payments
until no later than August 17, 2004. However, such deferred contract adjustment
payments would accrue additional contract adjustment payments at the rate of %
per year (equal to the rate on the notes plus the rate of contract adjustment
payments on the purchase contracts) until paid, compounded quarterly, to but
excluding August 17, 2004. Sprint Capital may not defer payments of interest on
the notes. In the event we exercise our option to defer the payment of contract
adjustment payments, then until these payments have been paid, we will not,
with certain exceptions, declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any series of the PCS common stock.
S-10
WHAT ARE THE PAYMENT DATES FOR THE CORPORATE UNITS?
Payments in respect of corporate units will be payable quarterly in
arrears on February 17, May 17, August 17 and November 17 of each year,
commencing November 17, 2001. We will make contract adjustment payments to but
excluding the earlier of August 17, 2004 or the most recent quarterly payment
date on or before any early settlement of the related purchase contracts. We
may defer these contract adjustment payments as described above. Sprint Capital
will make interest payments on the notes as described below under the questions
and answers beginning with "What interest payments will you receive on the
notes?"
WHAT IS REMARKETING?
The notes of corporate units holders will be initially remarketed on the
third business day before May 17, 2004, which we refer to as the "initial
remarketing." The remarketing agent will use its reasonable efforts to obtain a
price of approximately 100.5% of the purchase price for the treasury portfolio.
The portion of the proceeds from the remarketing equal to the treasury
portfolio purchase price will be applied to purchase the treasury portfolio.
The treasury portfolio will be substituted for the notes and will be pledged to
the collateral agent to secure the obligations of the holders to purchase the
PCS common stock under the purchase contracts. When paid at maturity, an amount
of the treasury portfolio equal to the principal amount of the notes will
automatically be applied to satisfy the obligations of the holders to purchase
PCS common stock under the purchase contracts. In addition, the remarketing
agent may deduct, as a remarketing fee, an amount not exceeding 25 basis points
(0.25%) of the treasury portfolio purchase price from any amount of the
proceeds in excess of the treasury portfolio purchase price. The remarketing
agent will then remit the remaining portion of the proceeds from the
remarketing, if any, for the benefit of the holders.
If the initial remarketing of the notes fails because the remarketing
agent cannot obtain a price of at least 100% of the treasury portfolio purchase
price or a condition precedent to the remarketing has not been satisfied, the
notes will continue to be a component of the corporate units. Thereafter,
unless a tax event redemption has occurred, at our or Sprint Capital's request,
the remarketing agent will use reasonable efforts to remarket the notes from
time to time prior to the tenth business day before August 17, 2004 on the
terms described above, which we refer to in any case as a "subsequent
remarketing." Any subsequent remarketing will be on the terms described above
with respect to the initial remarketing. Instead of participating in any
subsequent remarketing, you can elect to settle your purchase contracts with
separate cash by delivering notice to the purchase contract agent on or prior
to the second business day before any subsequent remarketing date.
If the initial remarketing and any subsequent remarketing fail because
the remarketing agent cannot obtain a price of at least 100% of the treasury
portfolio purchase price or a condition precedent to the remarketing has not
been satisfied, the notes will be remarketed on the third business day
preceding , 2004. We refer to this remarketing as the "final remarketing."
In the final remarketing, the remarketing agent will use its reasonable efforts
to obtain a price of approximately 100.5% of the aggregate principal amount of
the notes. The portion of the proceeds from the remarketing equal to the total
principal amount of the notes will automatically be applied to satisfy in full
the corporate units holders' obligations to purchase PCS common stock under the
related purchase contracts. In addition, in any final remarketing, the
remarketing agent may deduct, as a remarketing fee, an amount not exceeding 25
basis points (0.25%) of the aggregate principal amount of the remarketed notes
from any amount of the proceeds in excess of the aggregate principal amount of
the remarketed notes. The remarketing agent will remit the remaining portion of
the proceeds from the remarketing, if any, for the benefit of the holders.
If the final remarketing of the notes fails because the remarketing agent
cannot obtain a price of at least 100% of the total principal amount of the
notes or a condition precedent to the remarketing has not been satisfied, we
will exercise our rights as a secured party to dispose of the notes in
accordance with applicable law and to satisfy in full, from the proceeds of the
disposition, the holder's obligation to purchase PCS common stock under the
related purchase contracts.
S-11
Notwithstanding the foregoing, any obligation on the part of our company,
Sprint Capital or the remarketing agent to remarket the notes on any given
date, other than the date of the final remarketing, will be subject to our
right to defer any remarketing to the extent we determine in good faith that
effecting a remarketing on that date is not in the best interests of our
company.
WHAT IS THE TREASURY PORTFOLIO?
The "treasury portfolio" is a portfolio of zero-coupon U.S. treasury
securities consisting of:
. interest or principal strips of U.S. treasury securities that mature
on or prior to August 15, 2004 in an aggregate amount equal to the
principal amount of the notes included in the corporate units, and
. with respect to the scheduled interest payment date on the notes that
falls on August 17, 2004, in the case of a successful remarketing of
the notes, or with respect to each scheduled interest payment date on
the notes that occurs after the tax event redemption date and on or
before August 17, 2004 in the case of a tax event redemption,
interest or principal strips of U.S. treasury securities that mature
on or before that interest payment date in an aggregate amount equal
to the aggregate interest payment that would be due on that interest
payment date on the principal amount of the notes included in the
corporate units assuming no reset of the interest rate on the notes.
IF YOU ARE NOT A PARTY TO A PURCHASE CONTRACT, MAY YOU STILL PARTICIPATE IN A
REMARKETING OF YOUR NOTES?
Holders of notes that no longer underlie corporate units may elect to
have their notes remarketed by the remarketing agent as described in this
prospectus supplement. If your notes no longer underlie corporate units and you
do not elect to participate in a remarketing, if the remarketing is successful
the interest rate on your notes will still be reset as described below.
BESIDES PARTICIPATING IN A REMARKETING, HOW ELSE WILL YOUR OBLIGATIONS UNDER
THE PURCHASE CONTRACTS BE SATISFIED?
Holders of equity units may satisfy their obligations, or their
obligations will be terminated, under the purchase contracts:
. through early settlement by the delivery of cash to the purchase
contract agent in the manner described in this prospectus supplement;
. in the case of holders of corporate units, by settling the related
purchase contracts with cash on the business day before August 17,
2004 with prior notification to the purchase contract agent;
. in the case of holders of corporate units, if we foreclose on the
notes because the remarketings were not successful; or
. without any further action, upon the termination of the purchase
contracts as a result of our bankruptcy, insolvency or
reorganization.
S-12
If the holder of an equity unit settles a purchase contract early, or if
the holder's purchase contract is terminated, the holder will have no right to
receive any accrued or deferred contract adjustment payments.
WHAT INTEREST PAYMENTS WILL YOU RECEIVE ON THE NOTES?
Sprint Capital will pay interest on the notes initially at the annual
rate of % of the principal amount of $25 per note to, but excluding, the reset
effective date, which will be the third business day following the day on which
any remarketing of the notes is successfully completed. Following a reset of
the interest rate, the notes will bear interest from the reset effective date,
at the reset rate to, but excluding, August 17, 2006.
WHAT ARE THE INTEREST PAYMENT DATES ON THE NOTES?
Sprint Capital will pay interest on the notes quarterly in arrears on
each February 17, May 17, August 17 and November 17, commencing November 17,
2001. We have fully and unconditionally guaranteed the notes.
WHEN WILL THE INTEREST RATE ON THE NOTES BE RESET?
Unless a tax event redemption has occurred, the interest rate on the
notes will be reset on the "reset date," which is the day on which the initial
remarketing, any subsequent remarketing or the final remarketing is
successfully completed, and will become effective on the third business day
following the reset date. We refer to any date on which the reset interest rate
becomes effective as the "reset effective date." For example, if the initial
remarketing is successful, the interest rate on the notes will be reset on the
third business day before May 17, 2004 and this reset rate will become
effective on May 17, 2004. If all attempts to remarket the notes fail, the
interest rate on the notes will not be reset. In this case, holders that still
own notes after August 17, 2004 will have the right, upon at least three
business days prior notice, to put their notes to Sprint Capital on September
30, 2004 at a price equal to 100% of the principal amount plus accrued and
unpaid interest, if any.
WHAT IS THE RESET RATE?
In the case of a reset on or prior to the tenth business day before
August 17, 2004, the reset agent will determine the reset rate as the rate the
notes should bear in order for the notes included in corporate units to have an
approximate aggregate market value on the reset date of 100.5% of the treasury
portfolio purchase price. In the case of a reset on the third business day
before August 17, 2004, the reset agent will determine the reset rate as the
rate the notes should bear in order for each note to have an approximate market
value of 100.5% of the principal amount of the note. The reset rate may not
exceed the maximum rate, if any, permitted by applicable law.
WHEN MAY THE NOTES BE REDEEMED?
Sprint Capital may redeem the notes, at its option, in whole but not in
part, upon the occurrence and continuation of a tax event as described in this
prospectus supplement, which we refer to as a "tax event redemption." Following
any tax event redemption of the notes that occurs before August 17, 2004 or any
earlier successful remarketing, investors that own corporate units will own the
applicable ownership interest of the treasury portfolio as a component of their
corporate units.
WHAT ARE THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES RELATED TO THE OWNERSHIP
OF NOTES AND PURCHASE CONTRACTS COMPRISING THE CORPORATE UNITS?
We intend to treat the notes as contingent payment debt instruments for
United States federal income tax purposes. Accordingly, a holder of corporate
units or notes would be required to include in gross income original issue
discount, which through May 17, 2004 will be in excess of the interest actually
received on the notes,
S-13
regardless of the holder's usual method of tax accounting, and generally would
recognize ordinary income or loss, rather than capital gain or loss, on the
sale, exchange or disposition of the notes or of the corporate units, to the
extent such income is allocable to the notes. Contract adjustment payments and
deferred contract adjustment payments may constitute taxable ordinary income
when received or accrued, in accordance with the holder's usual method of tax
accounting, although the federal income tax treatment of contract adjustment
payments is unclear.
WHAT ARE THE RIGHTS AND PRIVILEGES OF THE PCS COMMON STOCK?
Our PCS common stock and FON common stock are intended to reflect the
performance of the PCS and FON groups. However, they are classes of common
stock of our company, not of the group they are intended to track. Accordingly,
holders of PCS and FON common stock are subject to all of the risks of an
equity investment in us and all of our businesses, assets and liabilities.
Shares of PCS or FON common stock do not represent a direct equity or legal
interest in the assets and liabilities allocated to either group, but rather
represent a direct equity interest in our assets and liabilities as a whole.
Holders of PCS and FON common stock generally vote as a single class on
all matters submitted to a vote of our stockholders, including the election of
directors. The vote per share of PCS common stock is different than the vote
per share of FON common stock. The FON common stock has one vote per share. The
vote per share of the PCS common stock is based on the market price of a share
of PCS common stock relative to the market price of a share of FON common stock
for a period of time before the record date for a stockholder meeting.
For more information regarding the rights and privileges of the PCS
common stock, please see the discussion under the caption "Description of PCS
Common Stock" in the accompanying prospectus.
WHAT ARE THE USES OF PROCEEDS FROM THE OFFERING?
We expect to use the net proceeds from this offering of corporate units
(approximately $ billion, or approximately $ billion if the underwriters
exercise their overallotment option in full) for general corporate purposes,
including repaying debt, making capital investments and funding working capital
requirements.
WHAT IS THE OTHER OFFERING BEING CONDUCTED BY SPRINT?
Concurrently with this offering we are offering 40,000,000 shares of the
PCS common stock pursuant to a separate prospectus supplement. Neither offering
is contingent upon the closing of the other offering.
S-14
THE OFFERING--EXPLANATORY DIAGRAMS
The following diagrams demonstrate some of the key features of the
purchase contracts, the notes, the corporate units and the treasury units, and
the transformation of corporate units into treasury units and separate notes.
THE PRICES AND PERCENTAGES BELOW ARE FOR ILLUSTRATION ONLY. ACTUAL PRICES AND
PERCENTAGES MAY DIFFER FROM THOSE SHOWN BELOW. The following diagrams also
assume that the initial remarketing of the notes is successful, the interest
rate on the notes is reset on the third business day before May 17, 2004 and
early settlement does not apply. For clarity, the following diagrams also use
approximate maturity and other dates.
PURCHASE CONTRACT
Corporate units and treasury units both include a purchase contract under
which the holder agrees to purchase shares of the PCS common stock at the end
of three years. In addition, under these purchase contracts we agree to make
contract adjustment payments as shown in the diagrams on the following pages.
[FLOW CHART OF Values of Shares Delivered at Maturity]
[FLOW CHART OF Percentage of Shares Delivered at Maturity(1)]
--------
(1)For each of the percentage categories shown, the percentage of shares to be
delivered upon settlement to an investor in corporate units or treasury
units is determined by dividing:
. the related number of shares to be delivered, as indicated in the footnote
for each category, by
. an amount equal to $25, the stated amount, divided by the reference price.
(2)If the applicable market value of the PCS common stock is less than or equal
to $25, the reference price, the number of shares to be delivered will be
calculated by dividing the stated amount by the reference price, or 1 share
for purposes of this illustration.
(3)If the applicable market value of the PCS common stock is between $25 and
$30, the number of shares to be delivered will be calculated by dividing the
stated amount by the applicable market value.
(4)If the applicable market value of the PCS common stock is greater than or
equal to $30, the number of shares to be delivered will be calculated by
dividing the stated amount by the threshold appreciation price, or .8333
shares for purposes of this illustration.
(5)The reference price is $25 for purposes of this illustration, which is the
last reported sales price of the PCS common stock on the NYSE on July 26,
2001.
(6)The threshold appreciation price is $30 for purposes of this illustration.
S-15
CORPORATE UNITS
Each corporate unit consists of two components as described below:
[FLOW CHART OF Purchase Contract & Note]
--------
. The holder owns the note but will pledge it to us to secure its obligations
under the purchase contract.
. Following the remarketing of the notes, the applicable ownership interest in
the treasury portfolio will replace the note as a component of the corporate
units.
TREASURY UNITS
Each treasury unit consists of two components as described below:
[FLOW CHART OF ]
--------
. The holder owns the treasury security but will pledge it to us to secure its
obligations under the purchase contract.
S-16
NOTES
The notes have the terms described below:
[FLOW CHART OF Note
(Owed to Holder)
__% per year
paid quarterly
(reset at end of 2.75 years)
(Owed to Holder)
$25 at Maturity
(end of 5 years)]
S-17
TRANSFORMING CORPORATE UNITS INTO TREASURY UNITS AND NOTES
. To create a treasury unit, the holder separates a corporate unit into
its components--the purchase contract and the note--and then combines
the purchase contract with an undivided 1/40, or 2.5%, interest in a
zero coupon treasury security that matures concurrently with the
maturity of the purchase contract.
. The holder owns the treasury security but will pledge it to us to
secure its obligations under the purchase contract.
. The treasury security together with the purchase contract constitutes
a treasury unit. The note, which is no longer a component of the
corporate unit, is tradeable as a separate security.
[FLOW CHART OF THE PURCHASE CONTRACT AND THE NOTES]
. Following the remarketing of the notes or a tax event redemption,
upon the transformation of a corporate unit into a treasury unit, the
applicable ownership interest in the treasury portfolio, rather than
the note, will be released to the holder and will trade separately.
. The holder can also transform treasury units and notes into corporate
units. Following that transformation, the treasury security, which is
no longer a component of the treasury units, is tradeable as a
separate security.
. The transformation of corporate units into treasury units and notes,
and the transformation of treasury units and notes into corporate
units, requires certain minimum amounts of securities, as more fully
provided in this prospectus supplement.
RISK FACTORS
Prospective investors in the corporate units should carefully consider
all of the information in this prospectus supplement and the accompanying
prospectus and, in particular, should evaluate the specific factors under "Risk
Factors Relating to Equity Units" beginning on page S-24 of this prospectus
supplement and page 6 of the accompanying prospectus.
S-18
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following summary selected consolidated financial data for and as of
the years ended December 31, 1996 through 2000 are derived from our
consolidated financial statements for those years, which have been audited by
Ernst & Young LLP whose audit was based in part on the reports of Deloitte &
Touche LLP on the financial statements of Sprint Spectrum Holding Company,
L.P., for the years ended December 31, 1996, 1997 and 1998. The summary
selected consolidated financial data for the six months ended June 30, 2000 and
2001 have been derived from our unaudited financial statements and, in our
opinion, reflect all adjustments (consisting of normal accruals) necessary to
present fairly the data for those periods. Our results of operations for the
six months ended June 30, 2001 may not be indicative of results that may be
expected for the full year. You should read the table below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes thereto
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Certain prior-year amounts have been reclassified to conform to the
current-year presentation. These reclassifications had no effect on the results
of operations as previously reported.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ -----------------
1996(1) 1997(1) 1998(1) 1999 2000 2000 2001
------- ------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net operating revenues.......................... $13,874 $14,947 $17,144 $20,265 $23,613 $11,350 $12,700
Operating income (loss) (2)..................... 2,267 2,451 190 (307) 505 278 681
Income (loss) from continuing
operations(2)(3)(5)(6)......................... 1,253 1,094 585 (745) (576) (156) (34)
Net income (loss) (2)(3)(5)(6)(7)............... 1,184 952 414 (935) 93 514 (33)
Earnings (loss) per common share from
continuing operations--diluted (2)(3)(4)
Sprint....................................... 2.93 2.51 2.19 -- -- -- --
FON group (5)(6)............................. -- -- 0.18 1.97 1.45 0.91 0.68
PCS group (5)(6)............................. -- -- (0.63) (2.71) (1.95) (1.02) (0.66)
Earnings (loss) per common share from
continuing operations--basic (2)(3)(4)
Sprint....................................... 2.97 2.54 2.23 -- -- -- --
FON group (5)(6)............................. -- -- 0.18 2.01 1.47 0.92 0.69
PCS group (5)(6)............................. -- -- (0.63) (2.71) (1.95) (1.02) (0.66)
Dividends per common share: (4)
Sprint....................................... 1.00 1.00 0.75 -- -- -- --
FON group.................................... -- -- 0.125 0.50 0.50 0.25 0.25
BALANCE SHEET DATA:
Total assets.................................... $16,915 $18,274 $33,257 $39,250 $42,601 $44,584
Property, plant and equipment, net.............. 10,464 11,494 18,983 21,969 25,316 27,584
Total debt (including long-term borrowings and
redeemable preferred stock).................... 3,086 3,891 12,445 17,028 18,975 19,794
Stockholders' equity............................ 8,520 9,025 12,202 13,313 13,716 13,562
--------
(1)In November 1998, we 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. Our 1998
results of operations include Sprint PCS's operating results on a
consolidated basis for the entire year. The cable partners' share of losses
through the PCS restructuring in November 1998, which is described in our
Annual Report on Form 10-K/A for the year ended December 31, 2000
incorporated by reference in this prospectus supplement and the accompanying
prospectus, was reflected as "Other partners' loss in Sprint PCS" in our
consolidated statements of operations. The cable partners consist of
Tele-Communications, Inc., Comcast Corporation and Cox Communications.
Before 1998, our investment in
S-19
Sprint PCS was accounted for using the equity method. Sprint PCS's financial
position at year-end 1998 has also been reflected on a consolidated basis.
As a result of the recapitalization, 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.
(2)In 2000, the FON group recorded a nonrecurring charge principally related to
a write-down of goodwill in the global markets division, which reduced
operating income by $238 million and income from continuing operations by
$152 million. Also in 2000, we recorded a nonrecurring charge associated
with the proposed WorldCom merger, which was terminated. This charge reduced
the FON group's operating income by $163 million and income from continuing
operations by $105 million. This charge increased the PCS group's operating
loss by $24 million and loss from continuing operations by $16 million. 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. The FON group recorded a nonrecurring
charge of $20 million in 1997 and $60 million in 1996 related to litigation.
These charges reduced income from continuing operations by $13 million in
1997 and $36 million in 1996.
(3)In 2000, the FON group recorded nonrecurring charges of $122 million related
to write-downs of certain equity investments. These charges increased the
loss from continuing operations by $109 million. Also in 2000, the FON group
recorded nonrecurring gains of $71 million from the sale of an independent
directory publishing operation and from investment activities. These gains
included income from continuing operations of $44 million. In 2000, the PCS
group recorded a net nonrecurring gain of $28 million from the sale of
network infrastructure and the right to manage customers to a PCS affiliate,
which reduced the PCS group's loss from continuing operations by $18
million. In 1999, the FON group recorded nonrecurring gains of $54 million
related to investment activities, which increased the FON group's income
from continuing operations by $35 million. In 1998, the FON group recorded
net nonrecurring gains of $104 million mainly from the sale of local
exchanges, which increased its 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, which
increased the FON group's income from continuing operations by $44 million.
(4)In the first quarter of 2000, we effected a two-for-one stock split of the
PCS common stock. In the 1999 second quarter, we effected a two-for-one
stock split of the FON common stock. As a result, diluted and basic earnings
per common share and dividends for the FON common stock and diluted and
basic loss per common share for the PCS common stock have been restated for
periods before these stock splits.
(5)In the six months ended June 30, 2000, the FON group recorded a $163 million
nonrecurring charge, and the PCS group recorded a nonrecurring charge of $24
million, for costs associated with the proposed WorldCom merger, which was
terminated. These charges increased the loss from continuing operations by
$121 million.
(6)In the six months ended June 30, 2001, the FON group recorded net
nonrecurring gains from investment activities of $14 million, which reduced
the loss from continuing operations by $9 million. In the six months ended
June 30, 2000, the FON group recorded net nonrecurring gains from the sale
of an independent directory publishing operation and investment activities
of $71 million which reduced the loss from continuing operations by $44
million. In the six months ended June 30, 2000, the PCS group recorded a net
nonrecurring gain of $28 million from the sale of network infrastructure and
the right to manage customers to a PCS affiliate, which reduced the loss
from continuing operations by $18 million.
(7)In the first quarter of 2000, we sold our interest in Global One to France
Telecom and Deutsche Telekom. As a result of this sale, our gain on the sale
of Global One has been reported as a discontinued operation. In 2000, we
recorded an after-tax gain related to the sale of our interest in Global One
of $675 million.
S-20
The following table sets forth selected operating data for the PCS group.
You should read the table below in conjunction with the information in our
consolidated financial statements and notes thereto incorporated by reference
in this prospectus supplement and the accompanying prospectus.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- -------
(IN MILLIONS)
NET OPERATING REVENUES:.................................. $ 1,294 $ 3,373 $ 6,341 $ 2,696 $4,315
------- ------- ------- ------- ------
OPERATING EXPENSES:
Costs of services and products........................ 1,758 3,150 3,942 1,831 2,295
Selling, general and administrative................... 1,138 1,937 2,426 1,035 1,276
Depreciation.......................................... 670 1,060 1,339 611 839
Amortization.......................................... 119 463 538 266 244
Merger related costs.................................. -- -- 24 24 --
Acquired in-process research and
development costs................................... 179 -- -- -- --
------- ------- ------- ------- ------
Total operating expenses.......................... 3,864 6,610 8,269 3,767 4,654
------- ------- ------- ------- ------
OPERATING LOSS:.......................................... (2,570) (3,237) (1,928) (1,071) (339)
Interest expense......................................... (491) (698) (933) (444) (585)
Other partners' loss in Sprint PCS....................... 1,251 -- -- -- --
Minority interest........................................ 145 20 -- -- --
Other income (expense), net.............................. 34 46 (11) 17 (35)
------- ------- ------- ------- ------
Loss from continuing operations before income tax benefit (1,631) (3,869) (2,872) (1,498) (959)
Income tax benefit....................................... 541 1,388 1,004 532 319
------- ------- ------- ------- ------
LOSS FROM CONTINUING OPERATIONS.......................... (1,090) (2,481) (1,868) (966) (640)
Extraordinary items, net................................. (31) (21) (3) (3) --
Cumulative effect of change in accounting principle, net. -- -- -- -- 2
------- ------- ------- ------- ------
NET LOSS:................................................ $(1,121) $(2,502) $(1,871) $ (969) $ (638)
======= ======= ======= ======= ======
S-21
The following table sets forth selected consolidating financial data for
our company. You should read the table below in conjunction with the
information in our consolidated financial statements and notes thereto
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996(1) 1997(1) 1998(1) 1999 2000
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS:
Net operating revenues:
Sprint FON group.......................................... $13,874 $14,947 $15,958 $17,160 $17,688
Sprint PCS group.......................................... -- -- 1,294 3,373 6,341
Eliminations.............................................. -- -- (108) (268) (416)
------- ------- ------- ------- -------
Consolidated.............................................. $13,874 $14,947 $17,144 $20,265 $23,613
------- ------- ------- ------- -------
Operating income (loss)(3)(7):
Sprint FON group.......................................... $ 2,268 $ 2,470 $ 2,760 $ 2,930 $ 2,433
Sprint PCS Group.......................................... (1) (19) (2,570) (3,237) (1,928)
------- ------- ------- ------- -------
Consolidated.............................................. $ 2,267 $ 2,451 $ 190 $ (307) $ 505
------- ------- ------- ------- -------
Income (loss) from continuing operations(3)(4)(7)(8):
Sprint FON group.......................................... $ 1,373 $ 1,513 $ 1,675 $ 1,736 $ 1,292
Sprint PCS group.......................................... (120) (419) (1,090) (2,481) (1,868)
------- ------- ------- ------- -------
Consolidated.............................................. $ 1,253 $ 1,094 $ 585 $ (745) $ (576)
------- ------- ------- ------- -------
EARNINGS PER SHARE AND DIVIDENDS:
Earnings per Sprint common share from continuing
operations(2)(3)(4)(7)(8):
Diluted................................................... $ 2.93 $ 2.51 $ 2.19 $ -- $ --
Basic..................................................... 2.97 2.54 2.23 -- --
Dividends per Sprint common share............................ 1.00 1.00 0.75 -- --
EARNINGS (LOSS) PER SHARE AND DIVIDENDS:
Earnings (loss) per common share from continuing
operations(2)(3)(4)(5):
Sprint FON group (diluted)................................ -- -- $ 0.18 $ 1.97 $ 1.45
Sprint FON group (basic).................................. -- -- 0.18 2.01 1.47
Sprint PCS group (diluted and basic)...................... -- -- (0.63) (2.71) (1.95)
Dividends per FON common share............................... -- -- 0.125 0.50 0.50
FINANCIAL POSITION:
Total Assets:
Sprint FON group.......................................... $15,655 $16,581 $19,001 $21,803 $23,649
Sprint PCS group.......................................... 1,260 1,703 15,165 17,924 19,763
Eliminations.............................................. -- (10) (909) (477) (811)
------- ------- ------- ------- -------
Consolidated.............................................. $16,915 $18,274 $33,257 $39,250 $42,601
------- ------- ------- ------- -------
Property, plant and equipment, net:
Sprint FON group.......................................... $10,464 $11,307 $12,464 $14,002 $15,833
Sprint PCS group.......................................... -- 187 6,535 7,996 9,522
Eliminations.............................................. -- -- (16) (29) (39)
------- ------- ------- ------- -------
Consolidated.............................................. $10,464 $11,494 $18,983 $21,969 $25,316
------- ------- ------- ------- -------
Total debt (including long-term borrowings and redeemable
preferred stock):
Sprint FON group.......................................... $ 3,086 $ 3,891 $ 4,452 $ 5,443 $ 4,518
Sprint PCS group.......................................... -- -- 8,721 12,015 14,906
Eliminations.............................................. -- -- (728) (430) (449)
------- ------- ------- ------- -------
Consolidated.............................................. $ 3,086 $ 3,891 $12,445 $17,028 $18,975
------- ------- ------- ------- -------
Stockholders' equity:
Sprint FON group.......................................... $ 7,332 $ 7,639 $ 9,024 $10,514 $12,343
Sprint PCS group.......................................... 1,188 1,386 3,229 2,794 1,366
Eliminations.............................................. -- -- (51) 5 7
------- ------- ------- ------- -------
Consolidated.............................................. $ 8,520 $ 9,025 $12,202 $13,313 $13,716
------- ------- ------- ------- -------
CASH FLOW DATA:
Net cash from operating activities--continuing operations(6):
Sprint FON group.......................................... $ 2,267 $ 2,899 $ 3,915 $ 3,713 $ 4,323
Sprint PCS group.......................................... (1) 38 (159) (1,692) (8)
Eliminations.............................................. 138 435 443 (69) --
------- ------- ------- ------- -------
Consolidated.............................................. $ 2,404 $ 3,372 $ 4,199 $ 1,952 $ 4,315
------- ------- ------- ------- -------
Capital expenditures:
Sprint FON group.......................................... $ 2,434 $ 2,709 $ 3,159 $ 3,534 $ 4,105
Sprint PCS group.......................................... -- 154 1,072 2,580 3,047
------- ------- ------- ------- -------
Consolidated.............................................. $ 2,434 $ 2,863 $ 4,231 $ 6,114 $ 7,152
======= ======= ======= ======= =======
SIX MONTHS
ENDED JUNE 30,
-----------------------
2000 2001
-------- --------
RESULTS OF OPERATIONS:
Net operating revenues:
Sprint FON group.......................................... $ 8,850 $ 8,668
Sprint PCS group.......................................... 2,696 4,315
Eliminations.............................................. (196) (283)
------- -------
Consolidated.............................................. $11,350 $12,700
------- -------
Operating income (loss)(3)(7):
Sprint FON group.......................................... $ 1,349 $ 1,020
Sprint PCS Group.......................................... (1,071) (339)
------- -------
Consolidated.............................................. $ 278 $ 681
------- -------
Income (loss) from continuing operations(3)(4)(7)(8):
Sprint FON group.......................................... $ 810 $ 606
Sprint PCS group.......................................... (966) (640)
------- -------
Consolidated.............................................. $ (156) $ (34)
------- -------
EARNINGS PER SHARE AND DIVIDENDS:
Earnings per Sprint common share from continuing
operations(2)(3)(4)(7)(8):
Diluted................................................... $ -- $ --
Basic..................................................... -- --
Dividends per Sprint common share............................ -- --
EARNINGS (LOSS) PER SHARE AND DIVIDENDS:
Earnings (loss) per common share from continuing
operations(2)(3)(4)(5):
Sprint FON group (diluted)................................ $ 0.91 $ 0.68
Sprint FON group (basic).................................. 0.92 0.69
Sprint PCS group (diluted and basic)...................... (1.02) (0.66)
Dividends per FON common share............................... 0.25 0.25
FINANCIAL POSITION:
Total Assets:
Sprint FON group.......................................... $24,599
Sprint PCS group.......................................... 20,585
Eliminations.............................................. (600)
-------
Consolidated.............................................. $44,584
-------
Property, plant and equipment, net:
Sprint FON group.......................................... $17,241
Sprint PCS group.......................................... 10,388
Eliminations.............................................. (45)
-------
Consolidated.............................................. $27,584
-------
Total debt (including long-term borrowings and redeemable
preferred stock):
Sprint FON group.......................................... $ 5,161
Sprint PCS group.......................................... 15,093
Eliminations.............................................. (460)
-------
Consolidated.............................................. $19,794
-------
Stockholders' equity:
Sprint FON group.......................................... $12,631
Sprint PCS group.......................................... 940
Eliminations.............................................. (9)
-------
Consolidated.............................................. $13,562
-------
CASH FLOW DATA:
Net cash from operating activities--continuing operations(6):
Sprint FON group.......................................... $ 1,615 $ 1,776
Sprint PCS group.......................................... 294 (154)
Eliminations.............................................. -- --
------- -------
Consolidated.............................................. $ 1,909 $ 1,622
------- -------
Capital expenditures:
Sprint FON group.......................................... $ 1,751 $ 2,602
Sprint PCS group.......................................... 1,435 1,712
------- -------
Consolidated.............................................. $ 3,186 $ 4,314
======= =======
S-22
--------
(1)Our 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 our consolidated statements of operations. Before
1998, our 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.
(2)As a result of the recapitalization in 1998, 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.
(3)In 2000, the FON group recorded a nonrecurring charge of $238 million, which
principally represented a write-down of goodwill, and a $163 million
nonrecurring charge for costs associated with the proposed WorldCom merger,
which was terminated. The PCS group recorded costs associated with the
terminated WorldCom merger of $24 million. These charges reduced operating
income by $425 million and increased the loss from continuing operations by
$273 million. 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, which reduced operating income and income
from continuing operations by $179 million. The FON group recorded
nonrecurring charges of $20 million on 1997 and $60 million in 1996 related
to litigation within the global markets division, which reduced income from
continuing operations by $13 million in 1997 and $36 million in 1996.
(4)In 2000, the FON group recorded nonrecurring charges of $122 million related
to write-downs of certain equity investments, which increased the loss from
continuing operations by $109 million. Also in 2000, the FON group recorded
net nonrecurring gains of $71 million from the sale of an independent
directory publishing operation and from investment activities, which reduced
the loss from continuing operations by $44 million. In 2000, the PCS group
recorded a net nonrecurring gain of $28 million from the sale of network
infrastructure and the right to manage customers to a PCS affiliate, which
reduced the loss from continuing operations by $18 million. In 1999, the FON
group recorded net nonrecurring gains of $54 million from investment
activities, which reduced the loss from continuing operations by $35
million. In 1998, the FON group recorded net nonrecurring gains of $104
million mainly from the sale of local exchanges, which 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, which increased income from continuing operations by
$44 million.
(5)In the 2000 first quarter, we effected a two-for-one stock split of the PCS
common stock. In the 1999 second quarter, we effected a two-for-one stock
split of the FON common stock. As a result, diluted and basic earnings per
common share and dividends for the FON common stock and diluted and basic
loss per common share for the PCS common stock have been restated for
periods before these stock splits.
(6)The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
(7)In the six month ended June 30, 2000, the FON group recorded a $163 million
nonrecurring charge, and the PCS group recorded a nonrecurring charge of $24
million, for costs associated with the proposed WorldCom merger, which was
terminated. These charges increased the loss from continuing operations by
$121 million.
(8)In the six months ended June 30, 2001, the FON group recorded net
nonrecurring gains from investment activities of $14 million, which reduced
the loss from continuing operations by $9 million. In the six months ended
June 30, 2000, the FON group recorded net nonrecurring gains from the sale
of an independent directory publishing operation and investment activities
of $71 million which reduced the loss from continuing operations by $44
million. In the six months ended June 30, 2000, the PCS group recorded a net
nonrecurring gain of $28 million from the sale of network infrastructure and
the right to manage customers to a PCS affiliate, which reduced the loss
from continuing operations by $18 million.
S-23
RISK FACTORS RELATING TO THE EQUITY UNITS
BEFORE PURCHASING THE EQUITY UNITS, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS AS WELL AS THE RISK FACTORS RELATING TO OUR BUSINESS AND
TRACKING STOCKS DISCUSSED UNDER THE CAPTION "RISK FACTORS" IN THE ACCOMPANYING
PROSPECTUS, TOGETHER WITH THE OTHER INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
YOU ASSUME THE RISK THAT THE MARKET VALUE OF THE PCS COMMON STOCK MAY DECLINE.
Although as a holder of equity units you will own the related notes,
treasury securities or treasury portfolio, as the case may be, you do have an
obligation pursuant to the purchase contract to buy shares of PCS common stock.
Before August 17, 2004, unless you pay cash to settle the purchase contracts
early or the purchase contracts terminate due to our bankruptcy, insolvency or
reorganization, at the maturity of the purchase contracts, the collateral
pledged to secure your obligations under the purchase contracts will
automatically be used to purchase shares of PCS common stock on your behalf.
The market value of the PCS common stock that you receive on August 17, 2004
upon settlement of your purchase contracts may be less than the effective price
per share of $ paid by you for the PCS common stock when you purchased your
equity units. Accordingly, you assume the full risk that the market value of
the PCS common stock may decline before the purchase contract settlement date
and that the decline could be substantial.
THE OPPORTUNITY FOR EQUITY APPRECIATION PROVIDED BY AN INVESTMENT IN THE EQUITY
UNITS IS LESS THAN THAT PROVIDED BY A DIRECT INVESTMENT IN PCS COMMON STOCK.
Your opportunity for equity appreciation afforded by investing in the
equity units is less than your opportunity for equity appreciation if you
invested directly in PCS common stock. This is because the market value of the
PCS common stock to be received by you pursuant to the purchase contract on
August 17, 2004 (assuming that the market value is the same as the applicable
market value of the PCS common stock) will only exceed the effective price per
share of $ paid by you for PCS common stock when you purchased your equity
units if the applicable market value of the PCS common stock exceeds the
threshold appreciation price (which represents an appreciation of approximately
% over $ ). This situation occurs because in this event, you would receive
on August 17, 2004 only approximately % (the percentage equal to $ divided
by the threshold appreciation price) of the shares of PCS common stock that you
would have received if you had made a direct investment in the PCS common stock
on the date of this prospectus supplement.
A NUMBER OF FACTORS WILL AFFECT THE TRADING PRICES OF THE CORPORATE UNITS AND
TREASURY UNITS, SOME OF WHICH ARE BEYOND OUR CONTROL.
The trading prices of corporate units and treasury units in the secondary
market will be directly affected by the trading prices of the PCS common stock,
the general level of interest rates and our credit quality. We cannot predict
whether the price of the PCS common stock or interest rates will rise or fall.
Trading prices of the PCS common stock will be influenced by our operating
results and prospects and by economic, financial and other factors. In
addition, general market conditions, including the level of, and fluctuations
in, the trading prices of stocks generally, and sales of substantial amounts of
PCS common stock by us or our stockholders in the market after this offering,
or the perception that such sales could occur, could affect the trading price
of the PCS common stock. Fluctuations in interest rates may give rise to
arbitrage opportunities based upon changes in the relative value of the PCS
common stock underlying the purchase contracts and of the other components of
the equity units. Any arbitrage could, in turn, affect the trading prices of
the equity units, treasury units, the notes and PCS common stock.
S-24
IF YOU HOLD EQUITY UNITS, YOU WILL NOT BE ENTITLED TO ANY RIGHTS AS A
STOCKHOLDER WITH RESPECT TO THE PCS COMMON STOCK, BUT YOU WILL BE SUBJECT TO
ALL CHANGES MADE WITH RESPECT TO THE PCS COMMON STOCK.
If you hold equity units, you will not be entitled to any rights as a
stockholder with respect to the PCS common stock, including, without
limitation, voting rights, rights to respond to tender offers and rights to
receive any dividends or other distributions on the PCS common stock. However,
you will be subject to all changes affecting the PCS common stock. You will
only be entitled to rights as a stockholder if and when we deliver shares of
PCS common stock to you upon settlement of equity units, and the applicable
record date, if any, for the exercise of rights or the receipt of dividends or
other distributions occurs after that date. For example, in the event that we
or our stockholders propose to amend our articles of incorporation or by-laws
in connection with a recapitalization and the record date for determining
stockholders of record entitled to vote on the amendment occurs before delivery
of the PCS common stock, you will not be entitled to vote on the amendment,
although you will nevertheless be subject to any changes in the powers,
preferences or special rights of the PCS common stock.
WE MAY ISSUE ADDITIONAL SHARES OF PCS COMMON STOCK AND THEREBY MATERIALLY AND
ADVERSELY AFFECT THE TRADING PRICE OF THE PCS COMMON STOCK.
We will adjust the number of shares of PCS common stock that you may
receive upon settlement of your purchase contracts for certain events affecting
our capital structure, such as stock splits and combinations, stock dividends
and recapitalizations. We will not adjust the number of shares of PCS common
stock that you may receive upon settlement of your purchase contracts for other
events, including the issuance of employee stock options, the issuance of PCS
common stock for cash or in connection with acquisitions or other transactions.
We are not restricted from issuing additional PCS common stock during the term
of the purchase contracts and have no obligation to consider your interests for
any reason. If we issue additional shares of PCS common stock, it may
materially and adversely affect the trading price of the PCS common stock and,
because of the relationship of the number of shares to be received on August
17, 2004 to the price of the PCS common stock, these other events may adversely
affect the trading price of the equity units.
THE SECONDARY MARKET FOR THE CORPORATE UNITS AND THE TREASURY UNITS MAY BE
ILLIQUID.
We cannot predict how the corporate units, treasury units or notes will
trade in the secondary market or whether the market will be liquid or illiquid.
There is currently no secondary market for the corporate units, treasury units
or notes. The corporate units have been approved for listing on the NYSE. If
the treasury units or the notes trade separately to a sufficient extent that
applicable exchange listing requirements are met, we may endeavor to list the
treasury units or notes on the exchange on which the corporate units are then
listed. However, we do not presently plan to list the treasury units or the
notes on any securities exchange and have no obligation to do so in the future.
Any market that develops for the corporate units, treasury units or the notes
may not be liquid and a trading market, if it develops, may not continue. As a
result, you may have difficulty selling these securities. In addition, in the
event you substitute treasury securities for notes or notes for treasury
securities, thereby converting your corporate units to treasury units or your
treasury units to corporate units, as the case may be, the liquidity of
corporate units or treasury units could be adversely affected. The corporate
units may be delisted from the NYSE or the trading in the corporate units may
be suspended as a result of your election to create treasury units by
substituting collateral, which could cause the number of corporate units to
fall below the requirement for listing securities on the NYSE that at least
1,000,000 corporate units be outstanding at any time. The underwriters have
advised us that they presently intend to make a market for the corporate units.
However, they are not obligated to do so and they may discontinue any market
making at any time.
S-25
YOUR RIGHTS TO THE PLEDGED SECURITIES WILL BE SUBJECT TO OUR SECURITY INTEREST.
Although you will beneficially own the related notes, treasury securities
or treasury portfolio, as applicable, those securities will be pledged to the
collateral agent to secure your obligations under the related purchase
contracts. Thus, your rights to the pledged securities will be subject to our
security interest. Additionally, notwithstanding the automatic termination of
the purchase contracts in the event that we become the subject of a case under
the U.S. Bankruptcy Code, the delivery of the pledged securities to you may be
delayed by the imposition of the automatic stay of Section 362 of the
Bankruptcy Code.
WE MAY REDEEM THE NOTES UPON THE OCCURRENCE OF A TAX EVENT.
Sprint Capital has the option to redeem the notes, in whole but not in
part, at any time before August 17, 2006 if a tax event occurs and continues
under the circumstances described in this prospectus supplement. If Sprint
Capital exercises this option, Sprint Capital will redeem all of the notes at
the redemption price plus accrued and unpaid interest, if any. If Sprint
Capital redeems the notes, Sprint Capital will pay the redemption price in cash
to the holders of the notes. If the tax event redemption occurs before August
17, 2004 or an earlier successful remarketing, the redemption price payable to
you as a holder of the corporate equity units will be distributed to the
collateral agent, who in turn will apply an amount equal to the redemption
price to purchase the treasury portfolio on your behalf and will remit the
remainder of the redemption price to you. The treasury portfolio will be
substituted for the notes as collateral to secure your obligations under the
purchase contracts underlying the corporate units. If your notes do not
underlie corporate units, you will receive redemption payments directly. The
substitution of the treasury portfolio as collateral in place of any notes
redeemed may adversely affect the trading price of the corporate units. A tax
event redemption will be a taxable event to the holders of the notes. See
''Description of the Notes--Tax Event Redemption.''
WE WILL ISSUE THE PURCHASE CONTRACTS PURSUANT TO THE PURCHASE CONTRACT
AGREEMENT, WHICH WILL NOT BE QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939,
AND THE OBLIGATIONS OF THE PURCHASE CONTRACT AGENT ARE LIMITED.
The purchase contract agreement between the purchase contract agent and
us will not be qualified as an indenture under the Trust Indenture Act, and the
purchase contract agent will not be required to qualify as a trustee under the
Trust Indenture Act. Thus, you will not have the benefit of the protection of
the Trust Indenture Act with respect to the purchase contract agreement or the
purchase contract agent. Sprint Capital will issue the notes constituting a
part of the corporate units pursuant to an indenture, which has been qualified
under the Trust Indenture Act. Accordingly, if you hold equity units, you will
not have the benefit of the protections of the Trust Indenture Act other than
to the extent applicable to a note included in a corporate unit. The
protections generally afforded the holder of a security issued under an
indenture that has been qualified under the Trust Indenture Act include:
. disqualification of the indenture trustee for "conflicting
interests," as defined under the Trust Indenture Act;
. provisions preventing an indenture trustee that is also a creditor of
the issuer from improving its own credit position at the expense of
the security holders immediately before or after a default under such
indenture; and
. the requirement that the indenture trustee deliver reports at least
annually with respect to certain matters concerning the indenture
trustee and the securities.
S-26
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE EQUITY UNITS ARE UNCLEAR.
No statutory, judicial or administrative authority directly addresses the
treatment of the equity units or instruments similar to the equity units for
United States federal income tax purposes. As a result, the United States
federal income tax consequences of the purchase, ownership and disposition of
equity units are not entirely clear. In addition, any gain on the disposition
of a note before the purchase contract settlement date generally will be
treated as ordinary interest income; thus, the ability to offset this interest
income with a loss, if any, on a purchase contract may be limited. For
additional tax-related risks, see "Certain Federal Income Tax Consequences" in
this prospectus supplement.
YOU WILL BE REQUIRED TO ACCRUE ORIGINAL ISSUE DISCOUNT ON THE NOTES FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES.
Because of the manner in which the interest rate on the notes is reset,
the notes should be classified as contingent payment debt instruments subject
to the "noncontingent bond method" for accruing original issue discount for
federal income tax purposes. Accordingly, you will be required to accrue
original issue discount on the notes in your gross income on a constant
yield-to-maturity basis, regardless of your usual method of tax accounting. For
all accrual periods through May 17, 2004, the original issue discount that
accrues on the notes will exceed the stated interest payments on the notes. For
additional tax-related risks relating to the notes, see "Certain Federal Income
Tax Consequences--Notes" in this prospectus supplement.
THE TRADING PRICE OF THE NOTES MAY NOT FULLY REFLECT THE VALUE OF THEIR ACCRUED
BUT UNPAID INTEREST.
The notes may trade at a price that does not fully reflect the value of
their accrued but unpaid interest. If you dispose of your notes between record
dates for interest payments, you will be required to include in gross income
the daily portions of original issue discount through the date of disposition
as ordinary income, and to add this amount to your adjusted tax basis in the
notes disposed of. To the extent the selling price is less than your adjusted
tax basis, you will recognize a loss.
THE DELIVERY OF NOTES UPON TERMINATION OF THE PURCHASE CONTRACTS IS SUBJECT TO
CERTAIN RISKS IN THE EVENT OF OUR BANKRUPTCY.
The purchase contracts will terminate automatically if certain
bankruptcy, insolvency or reorganization events occur with respect to us. If
the purchase contracts terminate upon one of these events, your rights and
obligations under your purchase contract also will terminate, including your
obligation to pay for, and your right to receive, shares of the PCS common
stock. Upon termination, you will receive your note, your applicable ownership
interest of the treasury portfolio or your treasury security, as the case may
be.
SOME SPIN-OFF TRANSACTIONS COULD BE TAXABLE TO HOLDERS OF NOTES AND PURCHASE
CONTRACTS.
An assumption of the notes or the purchase contracts by another entity in
connection with a spin-off, split-off, split-up or other transaction involving
the distribution or transfer of a significant portion of our assets and
liabilities to holders of any class of our common stock, or any related change
in the guarantee arrangements, as applicable, could, unless certain
requirements are satisfied, cause a holder to be deemed for U.S. federal income
tax purposes to have exchanged these securities for new securities in a taxable
transaction as to which gain or loss is recognized. See "Certain Federal Income
Tax Consequences" in this prospectus supplement.
S-27
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the equity
units in this offering of approximately $ billion (approximately $
billion if the underwriters exercise their overallotment option in full), after
deducting the underwriting discount and estimated offering expenses payable by
us. We expect to use the net proceeds from this offering for general corporate
purposes, including repaying debt, making capital investments and funding
working capital requirements.
PRICE RANGE OF PCS COMMON STOCK AND DIVIDENDS
The following table sets forth for the periods indicated the intra-day
high and low sales prices per share of the PCS common stock as reported on the
NYSE composite transactions reporting system during the periods indicated, in
each case as adjusted for a two-for-one stock split in the first quarter of
2000.
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1999:
First Quarter......................... $24.16 $10.44
Second Quarter........................ 30.38 20.75
Third Quarter......................... 39.13 26.47
Fourth Quarter........................ 56.81 33.41
YEAR ENDED DECEMBER 31, 2000:
First Quarter......................... 66.94 42.56
Second Quarter........................ 66.00 44.06
Third Quarter......................... 65.88 27.81
Fourth Quarter........................ 39.19 19.38
YEAR ENDED DECEMBER 31, 2001:
First Quarter......................... 33.25 15.72
Second Quarter........................ 27.50 16.43
Third Quarter (through July 26, 2001). 26.58 22.70
On July 26, 2001, the last reported sale price of the PCS common stock on
the NYSE was $25.00 per share. As of July 26, 2001, there were approximately
62,000 holders of record of the PCS common stock.
We have not declared any dividends on the PCS common stock and do not
intend to declare dividends on the PCS common stock in the foreseeable future.
Our board of directors periodically considers appropriate dividend policies and
practices relating to future dividends on the PCS common stock. Pursuant to the
board's existing tracking stock policies, dividends on the PCS common stock may
be declared and paid only out of the lesser of:
. the funds legally available therefor and
. the PCS group available dividend amount.
The PCS group available dividend amount is similar to the amount of
assets that would be available for payment of dividends on the PCS common stock
under the Kansas General Corporation Code if the PCS group were a separate
company. The board's tracking stock policies generally may be modified,
suspended, or rescinded and additions adopted or exceptions made at any time,
although the board has no present intention to do so. In the absence of this
dividend policy, our board could declare dividends on the PCS common stock or
on the FON common stock in excess of the respective available dividend amount
for each class, although the board could not in any case declare dividends in
excess of our funds legally available for the payment of dividends. See "Risk
Factors--Risk Factors Relating to Tracking Stocks" in the accompanying
prospectus.
S-28
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2001 (1)
on an actual basis and (2) as adjusted to give effect to this offering and the
application of the net proceeds as described under "Use of Proceeds" in this
prospectus supplement and the sale of the 40,000,000 shares of PCS common stock
we are offering pursuant to a separate prospectus supplement concurrently with
this offering and the application of the net proceeds from that offering.
AS OF JUNE 30, 2001
----------------------------------------------------------
PCS FON ELIMINATIONS/
GROUP GROUP RECLASSIFICATIONS CONSOLIDATED AS ADJUSTED
------- ------- ----------------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Cash and equivalents........................... $ 136 $ 40 $ -- $ 176 $
======= ======= ======== ======= ==
Short-term debt (includes current maturities of
long-term debt)(1)(2)........................ $ 1,746 $ 2,351 $ (69) $ 4,028 $
Long-term debt(1)(2)........................... 14,313 3,262 (111) 17,464
Redeemable preferred stock(2).................. 526 10 (280) 256
Class A common stock:
$.50 par value; 200 million shares
authorized; 86.2 million shares issued
and outstanding (each share represents
the right to 1/2 PCS share)............... -- -- 43 43
FON common stock:
$2.00 par value; 4.2 billion shares
authorized; 886.6 million shares issued
and outstanding........................... -- -- 1,773 1,773
PCS common stock:
$1.00 par value; 4.6 billion shares
authorized; 937.4 million shares issued
and outstanding........................... -- -- 937 937
Other stockholders' equity..................... -- -- 10,809 10,809
Combined attributed net assets................. 940 12,631 (13,571) --
------- ------- -------- ------- --
Total stockholders' equity(2)............... -- -- (9) 13,562
Total capitalization(2)................. $17,525 $18,254 $ (469) $35,310 $
======= ======= ======== ======= ==
--------
(1)We manage financing activities for the FON group and the PCS group on a
centralized basis. Debt incurred by us on behalf of the FON group and the
PCS group is specifically allocated to and reflected in the financial
statements of the applicable group.
(2)The FON group holds certain interests in the PCS group in the form of
redeemable preferred interest and high yield debt securities. These
interests are eliminated in consolidation.
S-29
ACCOUNTING TREATMENT
We will allocate the net proceeds from the sale of the equity units
between the purchase contract and the notes on our consolidated financial
statements. Initially, we will charge the present value of the purchase
contract adjustment payments to equity, with an offsetting credit to
liabilities. We will allocate subsequent purchase contract adjustment payments
between this liability account and interest expense based on a constant rate
calculation over the life of the transaction.
The purchase contracts constitute forward transactions in the PCS common
stock. Upon settlement of a purchase contract, we will receive $25 on that
purchase contract and will issue the requisite number of shares of PCS common
stock. We will credit the $25 to stockholders' equity allocated between the PCS
common stock and paid-in-capital accounts.
Before the issuance of PCS common stock upon settlement of the purchase
contracts, we will reflect the purchase contracts in our diluted earnings per
share calculations using the treasury stock method. Under this method, the
number of shares of PCS common stock used in calculating diluted earnings per
share is deemed to be increased by the excess, if any, of the number of shares
that would be issued upon settlement of the purchase contracts less the number
of shares that could be purchased by us in the market, at the average market
price during the period, using the proceeds receivable upon settlement.
Consequently, we anticipate that there will be no dilutive effect on our
earnings per share except during periods when the average market price of our
common stock is above $ .
S-30
DESCRIPTION OF THE EQUITY UNITS
We will issue the equity units under the purchase contract agreement
between the purchase contract agent and us. The equity units initially will
consist of 40,000,000 corporate units (46,000,000 corporate units if the
underwriters exercise their overallotment option in full), each with a stated
amount of $25. We have summarized the material terms of the equity units below.
The form of the equity unit and the purchase contract agreement have been filed
as exhibits to the registration statement and you should read the form of
equity unit and purchase contract agreement for provisions that may be
important to you. You can obtain copies of the form of equity unit and purchase
contract agreement by following the directions described under the caption
"Where You Can Find More Information" in the accompanying prospectus.
GENERAL
Each of the corporate units will consist of a unit consisting of:
(1) a purchase contract pursuant to which:
. the holder will purchase from us no later than August 17, 2004, for
the stated amount, a number of shares of the PCS common stock equal
to the settlement rate described below under "Description of the
Purchase Contracts--Purchase of PCS Common Stock," and
. we will make unsecured contract adjustment payments to the holder at
the rate of % of the stated amount per year, paid quarterly, subject
to our right to defer these payments; and
(2) either:
. a note having a principal amount equal to the stated amount, or
. following a successful remarketing of the notes or the occurrence of
a tax event redemption before August 17, 2004, the treasury portfolio
consisting of the appropriate applicable ownership interest in a
portfolio of zero-coupon U.S. treasury securities.
"Applicable ownership interest" means, with respect to corporate units
and the U.S. treasury securities in the treasury portfolio:
(1) a 1/40, or 2.5%, undivided beneficial ownership interest in a
$1,000 principal or interest amount of a principal or interest strip in a
U.S. treasury security included in the treasury portfolio that matures on
or before August 15, 2004; and
(2) for the scheduled interest payment date on the notes that
occurs on August 17, 2004, in the case of a successful remarketing of the
notes, or for each scheduled interest payment date on the notes that
occurs after the tax event redemption date and on or before August 17,
2004, in the case of a tax event redemption, a % undivided beneficial
ownership interest in a $1,000 principal or interest amount of a
principal or interest strip in a U.S. treasury security included in the
treasury portfolio that matures on or before that interest payment date.
In the event of a remarketing or tax event redemption at our sole
discretion, we may substitute any of the following types of securities in an
equivalent amount: (1) obligations fully guaranteed by the United States of
America; (2) demand deposits, time deposits or certificates of deposit of
depository institutions or trust companies, the commercial paper, if any, of
which has the highest rating from the rating agencies; (3) commercial paper or
other short-term obligations having, at the time of the investment therein, a
rating in the highest rating category from the rating agencies; or (4) notes or
bankers' acceptances issued by any depository institutions or trust companies,
the commercial paper, if any, of which has the highest rating from the rating
agencies. References in this prospectus supplement to the treasury portfolio
will refer to these substituted securities, if applicable.
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For United States federal income tax purposes, we will allocate the issue
price of each of the corporate units between the related purchase contract and
the note in proportion to their relative fair market values at the time of
issuance. We expect that, at the time of issuance, the fair market value of
each note will be $25 and the fair market value of each purchase contract will
be $0. This allocation generally will be binding on each beneficial owner of
each of the corporate units, but not on the IRS.
As long as an equity unit is in the form of a corporate unit, the note or
the appropriate applicable ownership interest in the treasury portfolio, as
applicable, forming a part of the corporate unit will be pledged to the
collateral agent to secure the holder's obligation to purchase PCS common stock
under the related purchase contract.
CREATING TREASURY UNITS
Unless the treasury portfolio has replaced the notes as a component of
the corporate units as the result of a successful remarketing of the notes or a
tax event redemption, each holder of corporate units will have the right, at
any time on or prior to the fifth business day before August 17, 2004, to
substitute for the related notes held by the collateral agent zero-coupon U.S.
treasury securities (CUSIP No. 912820BK2) maturing on August 15, 2004, which we
refer to as "treasury securities", in a total principal amount at maturity
equal to the aggregate principal amount of the notes for which substitution is
being made. This substitution will create treasury units, and the applicable
notes will be released to the holder.
Because treasury securities are issued in multiples of $1,000, holders of
corporate units may make this substitution only in integral multiples of 40
corporate units. If the treasury portfolio has replaced the notes as a
component of the corporate units as the result of a successful remarketing of
the notes or a tax event redemption, holders of corporate units may make
substitutions only in multiples of corporate units, at any time on or prior
to the second business day before August 17, 2004. In such a case, holders
would also obtain the release of the appropriate applicable ownership interest
in the treasury portfolio rather than a release of the applicable notes.
Each of the treasury units will consist of a unit with a stated amount of
$25 and will contain two components:
(1) a purchase contract pursuant to which:
. the holder will purchase from us no later than August 17, 2004, for
the stated amount, a number of shares of the PCS common stock equal
to the settlement rate described below under "Description of the
Purchase Contracts--Purchase of PCS Common Stock" and
. we will make unsecured contract adjustment payments to the holder at
the rate of % of the stated amount per year, paid quarterly, subject
to our right to defer these payments; and
(2) a 1/40, or 2.5%, undivided beneficial ownership interest in a
treasury security that matures on August 15, 2004 and has a principal amount at
maturity of $1,000.
For example, to create 40 treasury units, the corporate unit holder will:
. deposit with the collateral agent a treasury security that matures on
August 15, 2004 and has a principal amount at maturity of $1,000 and
which must have been acquired at the holder's expense, and
. transfer 40 corporate units to the purchase contract agent
accompanied by a notice stating that the holder has deposited a
treasury security with the collateral agent and requesting the
release to the holder of the 40 notes relating to the 40 corporate
units.
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Upon that deposit and the receipt of an instruction from the purchase
contract agent, the collateral agent will release the related 40 notes from the
pledge under the pledge agreement, free and clear of our security interest, to
the purchase contract agent. The purchase contract agent will then:
. cancel the 40 corporate units,
. transfer the 40 related notes to the holder, and
. deliver 40 treasury units to the holder.
The treasury security will be substituted for the notes and will be
pledged to the collateral agent to secure the holder's obligation to purchase
the PCS common stock under the related purchase contracts. The related notes
released to the holder thereafter will trade separately from the resulting
treasury unit. We will make contract adjustment payments on these treasury
units on each payment date from the later of November 17, 2001 and the last
payment date on which contract adjustment payments were made.
RECREATING CORPORATE UNITS
Unless the treasury portfolio has replaced the notes as a component of
the corporate units as a result of a successful remarketing of the notes or a
tax event redemption, each holder of treasury units will have the right, at any
time on or prior to the fifth business day before August 17, 2004, to
substitute for the related treasury securities held by the collateral agent
notes in an aggregate principal amount equal to the aggregate principal amount
at maturity of the treasury securities. This substitution would create
corporate units, and the applicable treasury securities would be released to
the holder.
Because treasury securities are issued in integral multiples of $1,000,
holders of treasury units may make this substitution only in integral multiples
of 40 treasury units. If the treasury portfolio has replaced the notes as a
component of the corporate units as the result of a successful remarketing of
the notes or a tax event redemption, holders of the treasury units may make
this substitution at any time on or prior to the second business day before
August 17, 2004, but using the appropriate applicable ownership interest in the
treasury portfolio instead of notes and only in integral multiples of
treasury units.
For example, to create 40 corporate units, the treasury units holder
will:
. deposit with the collateral agent 40 notes, which notes must be the
holder's original notes or have been purchased in the open market at
the holder's expense, and
. transfer 40 treasury unit certificates to the purchase contract agent
accompanied by a notice stating that the treasury units holder has
deposited 40 notes with the collateral agent and requesting that the
purchase contract agent instruct the collateral agent to release the
treasury security relating to those treasury units.
Upon that deposit and the receipt of an instruction from the purchase
contract agent, the collateral agent will release the related treasury
securities from the pledge under the pledge agreement, free and clear of our
security interest, to the purchase contract agent. The purchase contract agent
will then:
. cancel the 40 treasury units,
. transfer the related treasury security to the holder of treasury
units, and
. deliver 40 corporate units to the holder.
The substituted notes will be pledged with the collateral agent to secure
the corporate units holder's obligation to purchase PCS common stock under the
related purchase contracts.
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Holders that elect to substitute pledged securities, thereby creating
treasury units or recreating corporate units, will be responsible for any fees
or expenses payable in connection with the substitution.
PAYMENTS TO HOLDERS
Holders of corporate units will receive aggregate cash distributions at
the rate of % of the $25 stated amount per year from and after the original
issue date, payable quarterly in arrears. The cash distributions will consist
of interest on the related note payable by Sprint Capital or cash distributions
on the applicable ownership interest in the treasury portfolio, as applicable,
payable at the rate of % of the stated amount per year, and contract
adjustment payments payable by us at the rate of % of the stated amount per
year, subject to our right to defer the payment of such contract adjustment
payments.
Holders who create treasury units will receive quarterly contract
adjustment payments payable by us at the rate of % of the stated amount per
year, subject to our right to defer the payments of such contract adjustment
payments.
Our obligations with respect to the contract adjustment payments will
rank junior in right of payment to our senior indebtedness. "Senior
indebtedness" with respect to the contract adjustment payments means
indebtedness of any kind provided the instrument under which such indebtedness
is incurred does not expressly provide that it is not senior. Sprint Capital's
obligations on the notes will rank equal in right of payment with all of its
other senior unsecured obligations, and our guarantee of the notes will rank
equal in right of payment with all of our other senior unsecured obligations.
See "Risk Factors Relating to our Company--Our substantial leverage will reduce
cash flow from operations available to fund our business and may cause a
decline in our credit rating and/or limit our ability to raise additional
capital" and "--We are a holding company and, accordingly, we depend on the
cash flow of our subsidiaries to satisfy our obligations under our
indebtedness" and "Description of Debt Securities" in the accompanying
prospectus.
VOTING AND CERTAIN OTHER RIGHTS
Holders of purchase contracts forming part of the corporate units or
treasury units, in their capacities as such holders, will have no voting or
other rights in respect of the PCS common stock underlying the purchase
contracts.
LISTING OF THE SECURITIES
The corporate units have been approved for listing on the NYSE under the
symbol "SDE". Unless and until substitution has been made as described in
"--Creating Treasury Units" or "-- Recreating Corporate Units," neither the
note component nor the treasury portfolio component of corporate units nor the
treasury security component of treasury units will trade separately from
corporate units or treasury units. The note or treasury portfolio component
will trade as a unit with the purchase contract component of the corporate
units, and the treasury security component will trade as a unit with the
purchase contract component of the treasury units. If treasury units or notes
are separately traded to a sufficient extent that the applicable exchange
listing requirements are met, we may, in our sole discretion, endeavor to cause
the treasury units or notes to be listed on the exchange on which the corporate
units are then listed.
MISCELLANEOUS
We or our affiliates may, from time to time, to the extent permitted by
law, purchase any of the corporate units, treasury units or notes which are
then outstanding by tender, in the open market or by private agreement.
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DESCRIPTION OF THE PURCHASE CONTRACTS
We will issue the purchase contracts under the purchase contract
agreement between the purchase contract agent and us. We have summarized the
material terms of the purchase contract agreement below and under the caption
"Certain Provisions of the Purchase Contract Agreement and the Pledge
Agreement." The form of purchase contract agreement has been filed as an
exhibit to the registration statement and you should read the form of purchase
contract agreement for provisions that may be important to you. You can obtain
copies of the form of purchase contract agreement by following the directions
described under the caption "Where You Can Find More Information" in the
accompanying prospectus.
PURCHASE OF PCS COMMON STOCK
Each purchase contract underlying the equity units will obligate the
holder of the purchase contract to purchase, and us to sell, on August 17,
2004, for an amount in cash equal to the stated amount of the equity units, a
number of shares of PCS common stock equal to the settlement rate. The
settlement rate will be calculated, subject to adjustment under the
circumstances described in "--Anti-Dilution Adjustments," as follows:
. if the applicable market value is equal to or greater than the
threshold appreciation price of $ , which is approximately % above
the reference price of $ , the settlement rate will be , which is
equal to the stated amount divided by the threshold appreciation
price. Accordingly, if, between the date of this prospectus
supplement and the period during which the applicable market value is
measured, the market price for the PCS common stock increases to an
amount that is higher than the threshold appreciation price, the
aggregate market value of the shares of PCS common stock issued upon
settlement of each purchase contract will be higher than the stated
amount, assuming that the market price of the PCS common stock on the
date of settlement is the same as the applicable market value of the
PCS common stock. If the market price is the same as the threshold
appreciation price, the aggregate market value of the shares will be
equal to the stated amount, assuming that the market price of the PCS
common stock on the date of settlement is the same as the applicable
market value of the PCS common stock;
. if the applicable market value is less than the threshold
appreciation price but greater than $ , the reference price, the
settlement rate will be equal to the stated amount divided by the
applicable market value. Accordingly, if the market price for the PCS
common stock increases between the date of this prospectus supplement
and the period during which the applicable market value is measured,
but the market price is less than the threshold appreciation price,
the aggregate market value of the shares of PCS common stock issued
upon settlement of each purchase contract will be equal to the stated
amount, assuming that the market price of the PCS common stock on the
date of settlement is the same as the applicable market value of the
PCS common stock; and
. if the applicable market value is less than or equal to the reference
price, the settlement rate will be , which is equal to the stated
amount divided by the reference price. Accordingly, if the market
price for the PCS common stock decreases between the date of this
prospectus supplement and the period during which the applicable
market value is measured, the aggregate market value of the shares of
PCS common stock issued upon settlement of each purchase contract
will be less than the stated amount, assuming that the market value
is the same as the applicable market value of the PCS common stock.
If the market price stays the same, the aggregate market value of the
shares will be equal to the stated amount, assuming that the market
price of the PCS common stock on the date of settlement is the same
as the applicable market value of the PCS common stock.
"Applicable market value" means the average of the closing price per
share of PCS common stock on each of the twenty consecutive trading days ending
on the third trading day before August 17, 2004.
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"Closing price" of the PCS common stock on any date of determination
means:
. the closing sale price, or, if no closing price is reported, the last
reported sale price, of the PCS common stock on the NYSE on that
date, or
. if the PCS common stock is not listed for trading on the NYSE on any
such date, as reported in the composite transactions for the
principal United States national or regional securities exchange on
which the PCS common stock is so listed, or
. if the PCS common stock is not so listed on a United States national
or regional securities exchange, the last closing sale price of the
PCS common stock as reported by the Nasdaq Stock Market, or
. if the PCS common stock is not so reported, the last quoted bid price
for the PCS common stock in the over-the-counter market as reported
by the National Quotation Bureau or similar organization, or
. if the bid price is not available, the market value of the PCS common
stock on the date of determination as determined by a nationally
recognized independent investment banking firm retained by us for
this purpose.
A "trading day" means a day on which the PCS common stock:
. is not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business, and
. has traded at least once on the national or regional securities
exchange or association or over-the- counter market that is the
primary market for the trading of the PCS common stock.
We will not issue any fractional shares of PCS common stock pursuant to
the purchase contracts. In lieu of fractional shares otherwise issuable,
calculated on an aggregate basis, in respect of purchase contracts being
settled by a holder of corporate units or treasury units, the holder will be
entitled to receive an amount of cash equal to the fraction of a share times
the applicable market value.
On the business day before August 17, 2004, unless:
(1)a holder of corporate units or treasury units has settled the related
purchase contracts through the early delivery of cash to the purchase
contract agent in the manner described under "--Early Settlement,"
(2)a holder of corporate units that include notes has settled the
related purchase contracts with separate cash on the business day
before August 17, 2004 pursuant to prior notice given in the manner
described under "--Notice to Settle with Cash," or
(3)an event described under "--Termination" below has occurred,
then
. in the case of corporate units, unless the treasury portfolio has
replaced the notes as a component of the corporate units as the
result of a successful remarketing of the notes or a tax event
redemption, we will exercise our rights as a secured party to dispose
of the notes in accordance with applicable law, which will satisfy
holders' obligations to purchase PCS common stock under the related
purchase contracts, and
. in the case of treasury units or, in the event that the treasury
portfolio has replaced the notes as a component of the corporate
units as the result of a successful remarketing of the notes or a tax
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event redemption, in the case of corporate units, the principal
amount of the related treasury securities, or the appropriate
applicable ownership interest of the treasury portfolio, as
applicable, when paid at maturity, will automatically be applied to
satisfy in full the holder's obligation to purchase PCS common stock
under the related purchase contracts.
The PCS common stock will then be issued and delivered to the holder or
the holder's designee, upon presentation and surrender of the certificate
evidencing the equity units and payment by the holder of any transfer or
similar taxes payable in connection with the issuance of the PCS common stock
to any person other than the holder.
Each holder of corporate units or treasury units, by acceptance of these
securities, will be deemed to have:
. irrevocably agreed to be bound by the terms and provisions of the
related purchase contracts and the pledge agreement and to have
agreed to perform its obligations thereunder for so long as the
holder remains a holder of the equity units, and
. duly appointed the purchase contract agent as the holder's
attorney-in-fact to enter into and perform the related purchase
contracts and pledge agreement on behalf of and in the name of the
holder.
In addition, each beneficial owner of corporate units or treasury units,
by acceptance of this interest, will be deemed to have agreed to treat:
. itself as the owner of the related notes, the appropriate applicable
ownership interest of the treasury portfolio or the treasury
securities, as the case may be, and
. the notes as indebtedness for all United States federal income tax
purposes.
REMARKETING
INITIAL REMARKETING. Pursuant to the remarketing agreement and subject to
the terms of the supplemental remarketing agreement among the remarketing
agent, the purchase contract agent, Sprint Capital and us, unless a tax event
redemption has occurred, the notes underlying corporate units will be initially
remarketed on the third business day before May 17, 2004.
In the initial remarketing, the remarketing agent will use its reasonable
efforts to remarket notes at an aggregate price of approximately 100.5% of the
treasury portfolio purchase price described below. The portion of the proceeds
from the remarketing equal to the treasury portfolio purchase price will be
applied to purchase a treasury portfolio consisting of:
. interest or principal strips of U.S. treasury securities that mature
on or before August 15, 2004 in an aggregate amount equal to the
principal amount of the notes included in corporate units, and
. interest or principal strips of U.S. treasury securities that mature
on or before August 15, 2004 in an aggregate amount equal to the
aggregate interest payment that would be due on that date on the
principal amount of the notes included in corporate units if the
interest rate on the notes was not reset as described in "Description
of the Notes--Market Rate Reset."
The treasury portfolio will be substituted for the notes and will be
pledged to the collateral agent to secure the corporate unit holders'
obligation to purchase the PCS common stock under the purchase contracts. At
the maturity of the purchase contracts, proceeds of the treasury portfolio in
an amount equal to the principal amount of the notes will be automatically
applied to satisfy the holders' obligations to purchase the PCS common stock
under the purchase contracts.
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In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (0.25%) of the treasury portfolio purchase
price from any amount of the proceeds in excess of the treasury portfolio
purchase price. The remarketing agent will then remit any remaining portion of
the proceeds for the benefit of the holders. Corporate unit holders whose notes
are remarketed will not otherwise be responsible for the payment of any
remarketing fee in connection with the remarketing.
As used in this context, "treasury portfolio purchase price" means the
lowest aggregate price quoted by a primary U.S. government securities dealer in
New York City to the quotation agent on the date of the initial remarketing or,
if applicable, any subsequent remarketing or the final remarketing (both as
defined below) for settlement on the third business day after such remarketing
date.
"Quotation agent" means any of J.P. Morgan Securities Inc., Merrill Lynch
Government Securities, Inc. or UBS Warburg LLC or their respective successors
or any other primary U.S. government securities dealer in New York City
selected by us.
With respect to the initial remarketing, if:
. despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us or Sprint Capital, at a
price equal to or greater than 100% of the treasury portfolio
purchase price, or
. the initial remarketing has not occurred because a condition
precedent to the initial remarketing has not been fulfilled,
in each case resulting in a failed initial remarketing, the notes will continue
to be a component of corporate units, and another remarketing may be attempted
as described below.
SUBSEQUENT REMARKETING. If the initial remarketing fails, unless a tax
event redemption occurs, at our and Sprint Capital's request the remarketing
agent will use reasonable efforts to remarket from time to time prior to the
tenth business day before August 17, 2004 the notes of corporate unit holders
who have not otherwise notified the purchase contract agent on or prior to the
second business day before the date of any subsequent remarketing of their
intention to settle the related purchase contracts with separate cash. Any
subsequent remarketing will be on the terms described above with respect to the
initial remarketing.
FINAL REMARKETING. If the initial remarketing and any subsequent
remarketing fail, unless a tax event redemption has occurred, the notes of
corporate unit holders who have failed to notify the purchase contract agent on
or prior to the fifth business day before August 17, 2004 of their intention to
settle the related purchase contracts with separate cash will be remarketed on
the third business day immediately before August 17, 2004.
In the final remarketing, the remarketing agent will use its reasonable
efforts to remarket the notes at a price of approximately 100.5% of the
aggregate principal amount of the notes. The portion of the proceeds from the
final remarketing equal to the aggregate principal amount of the notes will be
automatically applied to satisfy in full the corporate units holders'
obligations to purchase PCS common stock.
In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (0.25%) of the aggregate principal amount
of the remarketed notes from any amount of the proceeds in excess of the
aggregate principal amount of the remarketed notes. The remarketing agent will
then remit any remaining portion of the proceeds for the benefit of the
holders. Corporate unit holders whose notes are remarketed will not otherwise
be responsible for the payment of any remarketing fee in connection with the
final remarketing.
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In the final remarketing, if:
. despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us or Sprint Capital, at a
price equal to or greater than 100% of the aggregate principal amount
of the notes, or
. a condition precedent to the final remarketing has not been
satisfied, in each case resulting in a failed remarketing,
we will exercise our rights as a secured party to dispose of the notes held as
part of a corporate unit in accordance with applicable law, which will satisfy
in full each holder's obligation to purchase PCS common stock under the related
purchase contracts.
Notwithstanding the foregoing, any obligation on the part of our company,
Sprint Capital or the remarketing agent to remarket the notes on any given
date, other than the date of the final remarketing, will be subject to our
right to defer any remarketing to the extent we determine in good faith that
effecting a remarketing on that date is not in the best interests of our
company.
NOTICES. We will request, not later than seven nor more than 15 calendar
days before a remarketing date, that the depositary notify its participants
holding notes, corporate units and treasury units of the remarketing date. We
will cause a notice of any failed remarketing to be published on the first
business day immediately following the failed remarketing by publication in a
daily newspaper in the English language of general circulation in New York
City, which is expected to be The Wall Street Journal. If registration is
required by law, we will use commercially reasonable best efforts to ensure
that a registration statement with regard to the full amount of the notes to be
remarketed will be effective in a form that will enable the remarketing agent
to rely on it in connection with the remarketing process.
REMARKETING AGENT
The remarketing agent will be a nationally recognized independent
investment banking firm selected by us. We, Sprint Capital and the remarketing
agent will enter into the remarketing agreement which provides, among other
things, that the remarketing agent will act as the exclusive remarketing agent
and will use reasonable efforts to remarket the notes. Under certain
circumstances, some portion of the notes tendered in the remarketing may be
purchased by the remarketing agent.
The remarketing agreement provides that the remarketing agent will incur
no liability to us or to any holder of corporate units or notes in its
individual capacity or as remarketing agent for any action or failure to act in
connection with a remarketing or otherwise in connection with the transactions
contemplated by the remarketing agreement, except as a result of gross
negligence or willful misconduct on its part.
We have agreed to indemnify the remarketing agent against certain
liabilities, including liabilities under the Securities Act of 1933, arising
out of or in connection with its duties under the remarketing agreement.
EARLY SETTLEMENT
At any time on or prior to the fifth business day before August 17, 2004,
a holder of equity units may settle the related purchase contracts by
presenting and surrendering the related equity units certificate at the offices
of the purchase contract agent with the form of "Election to Settle Early" on
the reverse side of the certificate completed and executed as indicated,
accompanied by payment to us in immediately available funds of an amount equal
to:
. the stated amount times the number of purchase contracts being
settled, plus
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. if the delivery is made with respect to any purchase contract during
the period from the close of business on any record date next
preceding any payment date to the opening of business on such payment
date, an amount equal to the contract adjustment payments payable on
the payment date with respect to the purchase contract; provided that
no payment is required if we have elected to defer the contract
adjustment payments which would otherwise be payable on the payment
date.
Holders of corporate units may settle early only in integral multiples of
40 corporate units. If the treasury portfolio has replaced the notes as a
component of corporate units as a result of a successful remarketing of the
notes or a tax event redemption, holders of the corporate units may settle
early only in integral multiples of corporate units. Holders of treasury units
may settle early only in integral multiples of 40 treasury units.
So long as the equity units are evidenced by one or more global security
certificates deposited with the depositary, procedures for early settlement
will also be governed by standing arrangements between the depositary and the
purchase contract agent.
Upon early settlement of the purchase contracts related to any corporate
units or treasury units:
. the holder will receive newly issued shares of PCS common stock
per corporate unit or treasury unit, subject to adjustment under the
circumstances described in "--Anti-Dilution and Other Adjustments"
below, accompanied by this prospectus supplement, as amended or
stickered,
. the notes, the appropriate applicable ownership interest in the
treasury portfolio or the treasury securities, as the case may be,
related to the corporate units or treasury units will be transferred
to the holder free and clear of our security interest,
. the holder's right to receive any deferred contract adjustment
payments on the purchase contracts being settled will be forfeited,
. the holder's right to receive future contract adjustment payments
will terminate, and
. no adjustment will be made to or for the holder on account of any
deferred contract adjustment payments or any amounts accrued in
respect of contract adjustment payments.
If the purchase contract agent receives an equity unit certificate,
accompanied by the completed "Election to Settle Early" and required
immediately available funds, from a holder of equity units by 5:00 p.m., New
York City time, on a business day, that day will be considered the settlement
date. If the purchase contract agent receives the above after 5:00 p.m., New
York City time, on a business day or at any time on a day that is not a
business day, the next business day will be considered the settlement date.
Upon early settlement of purchase contracts in the manner described
above, presentation and surrender of the equity unit certificate evidencing the
related corporate units or treasury units and payment of any transfer or
similar taxes payable by the holder in connection with the issuance of the
related PCS common stock to any person other than the holder of the corporate
units or treasury units, we will cause the shares of PCS common stock being
purchased to be issued, and the related notes, the appropriate applicable
ownership interest in the treasury portfolio or the treasury securities, as the
case may be, securing the purchase contracts to be released from the pledge
under the pledge agreement described in "--Pledged Securities and Pledge
Agreement" and transferred, within three business days following the settlement
date, to the purchasing holder or the holder's designee.
NOTICE TO SETTLE WITH CASH
Unless the treasury portfolio has replaced the notes as a component of
corporate units as a result of a successful remarketing of the notes or a tax
event redemption or the holder has notified the purchase contract
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agent of its intention to elect early settlement, a holder of corporate units
may settle the related purchase contract with separate cash prior to 11:00
a.m., New York City time, on the business day before August 17, 2004. A holder
of a corporate unit wishing to settle the related purchase contract with
separate cash must notify the purchase contract agent by presenting and
surrendering the corporate unit certificate evidencing the corporate unit at
the offices of the purchase contract agent with the form of "Notice to Settle
by Separate Cash" on the reverse side of the certificate completed and executed
as indicated on or prior to 5:00 p.m., New York City time, on the fifth
business day before August 17, 2004. If a holder who has given notice of its
intention to settle the related purchase contract with separate cash fails to
deliver the cash to the collateral agent on the business day before August 17,
2004, we will exercise our right as a secured party to dispose of, in
accordance with applicable law, the related note to satisfy in full, from the
disposition of the note, the holder's obligation to purchase PCS common stock
under the related purchase contracts.
CONTRACT ADJUSTMENT PAYMENTS
Contract adjustment payments in respect of corporate units and treasury
units will be fixed at a rate per year of % of the stated amount per purchase
contract. Contract adjustment payments payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. Contract adjustment
payments will accrue from August 2001 and will be payable quarterly in arrears
on February 17, May 17, August 17 and November 17 of each year, commencing
November 17, 2001.
If we merge, consolidate or consummate any other business combination
with, or sell, assign, transfer, lease or convey all or substantially all of
our assets and properties to, any person or entity that is not organized and
existing under the laws of the United States or any U.S. state or the District
of Columbia and, as a result, the contract adjustment payments become subject
to withholding taxes imposed by one or more non-U.S. jurisdictions, the
contract adjustment payments will be increased to the extent necessary so that
the amount of contract adjustment payments actually received by the holders
will be the same, net of the non-U.S. withholding taxes, as if the non-U.S.
withholding taxes were not imposed on the contract adjustment payments. In
addition, if we convert or recapitalize the outstanding shares of PCS common
stock into shares of any other capital stock or otherwise increase the annual
dividend rate on the PCS common stock, the contract adjustment payment rate
will equal the rate payable as of the date of this prospectus supplement plus
an amount equal to any regular cash dividends paid on the maximum number of
shares of capital stock or PCS common stock, as the case may be, purchasable
under the purchase contract.
Contract adjustment payments will be payable to the holders of purchase
contracts as they appear on the books and records of the purchase contract
agent on the relevant record dates, which will be on the first day of the month
in which the relevant payment date falls. These distributions will be paid
through the purchase contract agent, who will hold amounts received in respect
of the contract adjustment payments for the benefit of the holders of the
purchase contracts relating to the equity units. Subject to any applicable laws
and regulations, each such payment will be made as described under
"--Book-Entry System."
If any date on which contract adjustment payments are to be made on the
purchase contracts is not a business day, then payment of the contract
adjustment payments payable on that date will be made on the next succeeding
day which is a business day, and no interest or payment will be paid in respect
of the delay. However, if that business day is in the next succeeding calendar
year, that payment will be made on the immediately preceding business day, in
each case with the same force and effect as if made on that payment date. A
business day means any day other than a Saturday, Sunday or any other day on
which banking institutions and trust companies in New York City are permitted
or required by any applicable law to close.
Our obligations with respect to contract adjustment payments will rank
junior in right of payment to our obligations under any of our senior
indebtedness.
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OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
We may, at our option and upon prior written notice to the holders of the
equity units and the purchase contract agent, defer the payment of contract
adjustment payments on the related purchase contracts underlying the equity
units until no later than August 17, 2004. However, deferred contract
adjustment payments will bear additional contract adjustment payments at the
rate of % per year (compounding on each succeeding payment date) until paid.
If the purchase contracts are terminated (upon the occurrence of certain events
of bankruptcy, insolvency or reorganization with respect to us), the right to
receive contract adjustment payments and deferred contract adjustment payments
will also terminate.
If we elect to defer the payment of contract adjustment payments on the
purchase contracts until August 17, 2004, each holder of equity units will
receive on August 17, 2004 in respect of the deferred contract adjustment
payments, in lieu of a cash payment, a number of shares of PCS common stock
equal to:
. the aggregate amount of deferred contract adjustment payments payable
to the holder divided by
. the applicable market value described under "--Purchase of PCS Common
Stock."
We will not issue any fractional shares of PCS common stock with respect
to the payment of deferred contract adjustment payments on August 17, 2004. In
lieu of fractional shares otherwise issuable with respect to such payment of
deferred contract adjustment payments, the holder will be entitled to receive
an amount in cash equal to the fraction of a share times the applicable market
value.
If we exercise our option to defer the payment of contract adjustment
payments, then until the deferred contract adjustment payments have been paid,
we will not declare or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
series of the PCS common stock other than:
(1) purchases, redemptions or acquisitions of shares of any series
of PCS common stock in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of employees,
officers or directors or a stock purchase or dividend reinvestment plan,
or the satisfaction by us of our obligations pursuant to any contract or
security outstanding on the date of any event referred to in the
preceding clause,
(2) as a result of a reclassification of any series of PCS common
stock or the exchange or conversion of one series of PCS common stock for
another series of PCS common stock,
(3) the purchase of fractional interests in shares of any series of
PCS common stock pursuant to the conversion or exchange provisions of any
series of PCS common stock or the security being converted or exchanged,
(4) dividends or distributions in any series of PCS common stock
(or rights to acquire capital stock), or repurchases, redemptions or
acquisitions of any series of PCS common stock in connection with the
issuance or exchange of any series of PCS common stock (or securities
convertible into or exchangeable for shares of our any series of PCS
common stock),
(5) redemptions, exchanges or repurchases of any rights outstanding
under a shareholder rights plan or the declaration or payment thereunder
of a dividend or distribution of or with respect to rights in the future;
or
(6) redemptions of PCS common stock as described under the caption
"Description of PCS Common Stock--Mandatory Dividend, Redemption or
Conversion of PCS Common Stock" in the accompanying prospectus.
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ANTI-DILUTION AND OTHER ADJUSTMENTS
We will adjust the settlement rate, without duplication, upon the
occurrence of certain events, including:
(1) the payment of dividends in PCS common stock and other
distributions payable in PCS common stock on PCS common stock;
(2) the issuance to all holders of PCS common stock of rights,
warrants or options (other than any dividend reinvestment or share
purchase plans) entitling them, for a period of up to 45 days, to
subscribe for or purchase PCS common stock at less than the current
market price of PCS common stock, to the extent shares are actually
purchased;
(3) subdivisions, splits and combinations of PCS common stock;
(4) distributions to all holders of PCS common stock of evidences
of our indebtedness, shares of capital stock, securities, cash or
property (excluding any dividend or distribution covered by clause (1) or
(2) above and any dividend or distribution paid exclusively in cash);
(5) cash distributions (other than regular quarterly cash
dividends) to all holders of PCS common stock in an aggregate amount
that, together with:
. other all-cash distributions (other than regular quarterly cash
dividends) made within the preceding 12 months and
. any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer (other than
consideration payable in respect of any odd-lot tender offer)
by us or any of our subsidiaries for PCS common stock concluded
within the preceding 12 months,
exceeds 15% of the aggregate market capitalization of the PCS common
stock (aggregate market capitalization being the product of the current
market price of PCS common stock multiplied by the number of shares of
all series of PCS common stock then outstanding, including as outstanding
shares of PCS common stock underlying Class A common stock) on the date
of the distribution;
(6) the successful completion of a tender or exchange offer made by
us or any of our subsidiaries for PCS common stock which involves an
aggregate consideration that, together with:
. any cash and the fair market value of other consideration
payable in respect of any tender or exchange offer (other than
consideration payable in respect of any odd-lot tender offer)
by us or any of our subsidiaries for the PCS common stock
concluded within the preceding 12 months and
. the aggregate amount of any all-cash distributions (other than
regular quarterly cash dividends) to all holders of PCS common
stock made within the preceding 12 months,
exceeds 15% of the aggregate market capitalization of the PCS common
stock on the expiration of the tender or exchange offer; and
(7) the conversion of all outstanding shares of PCS common stock
into shares of FON common stock or common stock of a subsidiary, or the
redemption of all or most of the outstanding shares of PCS common stock,
as described under the caption "Description of PCS Common
Stock--Conversion of PCS Common Stock at our Option," "--Mandatory
Dividend, Redemption or Conversion of PCS Common Stock" or "--Redemption
of PCS Common Stock in Exchange for Stock of a Subsidiary" in the
accompanying prospectus.
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The "current market price" per share of PCS common stock on any day means
the average of the daily closing prices for the five consecutive trading days
selected by us commencing not more than 30 trading days before, and ending not
later than, the earlier of the day in question and the day before the "ex date"
with respect to the issuance or distribution requiring the computation. For
purposes of this paragraph, the term "ex date," when used with respect to any
issuance or distribution, means the first date on which the PCS common stock
trades regular way on the applicable exchange or in the applicable market
without the right to receive the issuance or distribution.
In the case of certain reclassifications, recapitalization,
consolidations, mergers, sales or transfers of assets or other transactions
pursuant to which we redeem all or most of the PCS common stock or the PCS
common stock is converted into the right to receive other securities, cash or
property, each purchase contract then outstanding would, without the consent of
the holders of the related corporate units or treasury units, as the case may
be, become a contract to purchase only the kind and amount of securities, cash
and other property that would have been receivable in connection with such
transaction (except as otherwise specifically provided, without any interest
thereon and without any right to dividends or distributions thereon which have
a record date that is before the purchase contract settlement date) by the
holder of the related corporate units or treasury units immediately before the
date of consummation of such transaction if the holder had then settled the
purchase contract. In addition, in connection with an assignment as described
under "--Assignment", immediately after the assignment, the purchase contracts
will automatically, without the consent of the holders of the related corporate
units or treasury units, as the case may be, become contracts to purchase only
the common stock of such entity and the settlement rate will be adjusted
appropriately.
If at any time we make a distribution of property to our stockholders
that would be taxable to the stockholders as a dividend for United States
federal income tax purposes (i.e., distributions out of our current or
accumulated earnings and profits or evidences of indebtedness or assets, but
generally not stock dividends or rights to subscribe for capital stock) and,
pursuant to the settlement rate adjustment provisions of the purchase contract
agreement, the settlement rate is increased, this increase may give rise to a
taxable dividend to holders of equity units.
In addition, we may make increases in the settlement rate to avoid or
diminish any income tax to holders of our capital stock resulting from any
dividend or distribution of capital stock (or rights to acquire capital stock)
or from any event treated as such for income tax purposes or for any other
reasons.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate will be required
unless the adjustment would require an increase or decrease of at least one
percent in the settlement rate. However, any adjustments which are not required
to be made because they would have required an increase or decrease of less
than one percent will be carried forward and taken into account in any
subsequent adjustment. We will be required, within ten business days following
the adjustment of the settlement rate, to provide written notice to the
purchase contract agent of the occurrence of the adjustment and a statement in
reasonable detail setting forth the method by which the adjustment to the
settlement rate was determined and setting forth the revised settlement rate.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of shares of PCS common stock issuable upon early
settlement of a purchase contract.
TERMINATION
The purchase contracts, and the rights and obligations of us and the
holders under the purchase contracts, will immediately and automatically
terminate upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to us. Upon any termination, the collateral agent
will release the related notes, the appropriate applicable ownership interest
of the treasury portfolio or the treasury securities, as the case may be, held
by it to the purchase contract agent for distribution to the holders, subject,
in the case of the treasury
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portfolio or the treasury securities, to the purchase contract agent's
disposition of the subject securities for cash, and the payment of this cash to
the holders, to the extent that the holders would otherwise have been entitled
to receive less than $1,000 principal amount at maturity of any such security.
Upon any termination, however, the release and distribution may be subject to a
delay. In the event that we become the subject of a case under the U.S.
Bankruptcy Code, the delay may occur as a result of the automatic stay under
the Bankruptcy Code and continue until the automatic stay has been lifted. We
expect any such delay to be limited.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
Pledged securities will be pledged to the collateral agent, for our
benefit, pursuant to the pledge agreement to secure the obligations of holders
of equity units to purchase PCS common stock under the related purchase
contracts. The rights of holders of equity units to the related pledged
securities will be subject to our security interest created by the pledge
agreement.
No holder of corporate units or treasury units will be permitted to
withdraw the pledged securities related to the corporate units or treasury
units from the pledge arrangement except:
. to substitute treasury securities for the related notes or the
appropriate applicable ownership interest of the treasury portfolio,
as the case may be, as provided for under "Description of the Equity
Units--Creating Treasury Units,"
. to substitute notes or the appropriate applicable ownership interest
of the treasury portfolio, as the case may be, for the related
treasury securities, as provided for under "Description of the Equity
Units--Recreating Corporate Units," or
. upon the termination or early settlement of the related purchase
contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, each holder of corporate units, unless the
treasury portfolio has replaced the notes as a component of corporate units as
a result of a successful remarketing of the notes or a tax event redemption,
will be entitled through the purchase contract agent and the collateral agent
to all of the proportional rights and preferences of the related notes,
including distribution, voting, redemption, repayment and liquidation rights.
Each holder of treasury units and each holder of corporate units, if the
treasury portfolio has replaced the notes as a component of corporate units as
a result of a successful remarketing of the notes or a tax event redemption,
will retain beneficial ownership of the related treasury securities or the
appropriate applicable ownership interest of the treasury portfolio, as
applicable, pledged in respect of the related purchase contracts. We will have
no interest in the pledged securities other than our security interest.
Except as described in "Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement--General," the collateral agent will, upon
receipt, if any, of payments on the pledged securities, distribute the payments
to the purchase contract agent, which will in turn distribute those payments to
the persons in whose names the related corporate units or treasury units are
registered at the close of business on the record date before the date of
payment.
ASSIGNMENT
Under the terms of the contract purchase agreement, in connection with a
proposed spin-off, split-off, split-up or other transaction involving the
distribution or transfer of a significant portion of our assets and liabilities
to holders of any class of our common stock, we have the right to assign our
obligations to any entity that, at the time of or immediately before the
effective time of the assignment, is an affiliate of our company provided:
(1) it is a corporation organized and existing under the laws of
the United States of America or a U.S. state or the District of Columbia
and it expressly assumes our obligations under the purchase contract
agreement, the purchase contracts, the pledge agreement and the
remarketing agreement; and
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(2) it is not, immediately after the assignment, in default of the
payment obligations or other material obligations under the purchase
contracts, the purchase contract agreement, the pledge agreement or the
remarketing agreement.
In addition, in connection with an assignment pursuant to this provision,
immediately after the assignment, the purchase contracts will automatically,
without the consent of the holders of the related corporate units or treasury
units, as the case may be, become contracts to purchase only the common stock
of such entity. See "--Anti-Dilution and Other Adjustments."
We will give at least 30 days notice to holders of purchase contracts of
any proposed assignment.
BOOK ENTRY-SYSTEM
The Depository Trust Company, which we refer to along with its successors
in this capacity as the depositary, will act as securities depositary for the
equity units. The equity units will be issued only as fully-registered
securities registered in the name of Cede & Co., the depositary's nominee. One
or more fully-registered global security certificates, representing the total
aggregate number of equity units, will be issued and will be deposited with the
depositary and will bear a legend regarding the restrictions on exchanges and
registration of transfer referred to below.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the equity units so
long as the equity units are represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, including transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The depositary is owned by a number of its direct participants
and by the NYSE, the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the depositary's system is
also available to others, including securities brokers and dealers, banks and
trust companies that clear transactions through or maintain a direct or
indirect custodial relationship with a direct participant either directly or
indirectly. The rules applicable to the depositary and its participants are on
file with the SEC.
Although the depositary has agreed to the procedures described in this
section in order to facilitate transfer of interests in the global security
certificates among participants, the depositary is under no obligation to
perform or continue to perform these procedures and these procedures may be
discontinued at any time. We will not have any responsibility for the
performance by the depositary or its direct participants or indirect
participants under the rules and procedures governing the depositary.
In the event that the depositary notifies us that it is unwilling or
unable to continue as a depositary for the global security certificates and no
successor depositary has been appointed within 90 days after this notice, or an
event of default under the purchase contract agreement or the indenture has
occurred and is continuing, certificates for the equity units will be printed
and delivered in exchange for beneficial interests in the global security
certificates. Any global security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for equity units certificates
registered in the names directed by the depositary. We expect that these
instructions will be based upon directions received by the depositary from its
participants with respect to ownership of beneficial interests in the global
security certificates.
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As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or the nominee, as the case may
be, will be considered the sole owner and holder of the global security
certificates and all equity units represented by these certificates for all
purposes under the equity units and the purchase contract agreement. Except in
the limited circumstances referred to above, owners of beneficial interests in
global security certificates will not be entitled to have such global security
certificates or the equity units represented by these certificates registered
in their names, will not receive or be entitled to receive physical delivery of
equity units certificates in exchange for beneficial interests in global
security certificates and will not be considered to be owners or holders of the
global security certificates or any equity units represented by these
certificates for any purpose under the equity units or the purchase contract
agreement.
All payments on the equity units represented by the global security
certificates and all transfers and deliveries of related notes, treasury
portfolio, treasury securities and PCS common stock will be made to the
depositary or its nominee, as the case may be, as the holder of the securities.
Ownership of beneficial interests in the global security certificates will be
limited to participants or persons that may hold beneficial interests through
institutions that have accounts with the depositary or its nominee.
Ownership of beneficial interests in global security certificates will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by the depositary or its nominee, with respect
to participants' interests, or any participant, with respect to interests of
persons held by the participant on their behalf. Procedures for settlement of
purchase contracts on August 17, 2004 or upon early settlement will be governed
by arrangements among the depositary, participants and persons that may hold
beneficial interests through participants designed to permit settlement without
the physical movement of certificates. Payments, transfers, deliveries,
exchanges and other matters relating to beneficial interests in global security
certificates may be subject to various policies and procedures adopted by the
depositary from time to time. Neither we or any of our agents, nor the purchase
contract agent or any of its agents will have any responsibility or liability
for any aspect of the depositary's or any participant's records relating to, or
for payments made on account of, beneficial interests in global security
certificates, or for maintaining, supervising or reviewing any of the
depositary's records or any participant's records relating to these beneficial
ownership interests.
The information in this section concerning the depositary and its
book-entry system has been obtained from sources that we believe to be
reliable, but we have not attempted to verify the accuracy of this information.
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CERTAIN PROVISIONS OF THE PURCHASE CONTRACT AGREEMENT AND THE PLEDGE AGREEMENT
We will issue the purchase contracts under the purchase contract
agreement between the purchase contract agent and us. We, Sprint Capital and
the collateral agent will also enter into the pledge agreement, which will also
govern the rights and obligations of holders of purchase contracts. We have
summarized certain terms of the purchase contract agreement and pledge
agreement below. The form of purchase contract agreement and pledge agreement
have been filed as exhibits to the registration statement and you should read
the form of purchase contract agreement and pledge agreement for provisions
that may be important to you. You can obtain copies of the forms of purchase
contract agreement and pledge agreement by following the directions described
under the caption "Where You Can Find More Information" in the accompanying
prospectus.
GENERAL
Payments on the equity units will be payable, purchase contracts (and
documents related to the equity units and purchase contracts) will be settled,
and transfers of the equity units will be registrable, at the office of the
purchase contract agent in the Borough of Manhattan, The City of New York. In
addition, if the equity units do not remain in book-entry form, payment of
distributions on the equity units may be made, at our option, by check mailed
to the address of the person entitled to payment as shown on the security
register.
Shares of PCS common stock will be delivered on August 17, 2004 (or
earlier upon early settlement), or, if the purchase contracts have terminated,
the related pledged securities will be delivered potentially after a delay as a
result of the imposition of the automatic stay under the Bankruptcy Code, in
each case upon presentation and surrender of the equity units certificate at
the office of the purchase contract agent. See "Description of the Purchase
Contracts--Termination".
If a holder of outstanding corporate units or treasury units fails to
present and surrender the equity units certificate evidencing the corporate
units or treasury units to the purchase contract agent on August 17, 2004, the
shares of PCS common stock issuable in settlement of the related purchase
contract will be registered in the name of the purchase contract agent. The
shares, together with any distributions, will be held by the purchase contract
agent as agent for the benefit of the holder until the equity units certificate
is presented and surrendered or the holder provides satisfactory evidence that
the certificate has been destroyed, lost or stolen, together with any indemnity
that may be required by the purchase contract agent and us.
If the purchase contracts have terminated before August 17, 2004, the
related pledged securities have been transferred to the purchase contract agent
for distribution to the holders, and a holder fails to present and surrender
the equity units certificate evidencing the holder's corporate units or
treasury units to the purchase contract agent, the related pledged securities
delivered to the purchase contract agent and payments on the pledged securities
will be held by the purchase contract agent as agent for the benefit of the
holder until the equity units certificate is presented or the holder provides
the evidence and indemnity described above.
The purchase contract agent will have no obligation to invest or to pay
interest on any amounts held by the purchase contract agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or
exchange of the equity units, except for any tax or other governmental charge
that may be imposed in connection with a transfer or exchange.
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MODIFICATION
We and the purchase contract agent may modify or amend the purchase
contract agreement without the consent of the holders for any of the following
purposes:
. to evidence the succession of another person to our obligations,
. to add to the covenants for the benefit of holders,
. to evidence and provide for the acceptance of appointment of a
successor purchase contract agent,
. to make provision with respect to the rights of holders pursuant to
adjustments in the settlement rate due to consolidations, mergers or
other reorganization events, or
. to cure any ambiguity, to correct or supplement any provisions that
may be inconsistent, or to make any other provisions with respect to
such matters or questions, provided that such action shall not
adversely affect the interest of the holders in any material respect.
We and the purchase contract agent or collateral agent, as the case may
be, may modify and amend the terms of the purchase contracts, the purchase
contract agreement and the pledge agreement, as applicable, with the consent of
the holders of not less than a majority of the purchase contracts at the time
outstanding. However, no such modification or amendment may, without the
consent of the holder of each outstanding purchase contract affected by the
modification or amendment,
. change any payment date,
. change the amount or type of pledged securities related to the
purchase contract,
. impair the right of the holder of any pledged securities to receive
distributions on the pledged securities or otherwise adversely affect
the holder's rights in or to the pledged securities,
. change the place or currency of payment or reduce any contract
adjustment payments or deferred contract adjustment payments,
. impair the right to institute suit for the enforcement of the
purchase contract, any contract adjustment payments or any deferred
contract adjustment payments,
. reduce the number of shares of PCS common stock or the amount of any
other property purchasable under the purchase contract, increase the
price to purchase PCS common stock or any other property upon
settlement of the purchase contract, change the purchase contract
settlement date or the right to early settlement or otherwise
adversely affect the holder's rights under the purchase contract, or
. reduce the above-stated percentage of outstanding purchase contracts
the consent of the holders of which is required for the modification
or amendment of the provisions of the purchase contracts, the
purchase contract agreement or the pledge agreement.
If any amendment or proposal referred to above would adversely affect
only the corporate units or the treasury units, then only the affected class of
holders will be entitled to vote on the modification or amendment and the
modification or amendment will not be effective except with the consent of the
holders of not less than a majority of the affected class or all of the holders
of the affected class, as applicable.
NO CONSENT TO ASSUMPTION
Each holder of corporate units or treasury units, by acceptance of these
securities, will under the terms of the purchase contract agreement and the
corporate units or treasury units, as applicable, be deemed expressly to have
withheld any consent to the assumption (i.e., affirmance) of the related
purchase contracts by us or our
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trustee if we become the subject of a case under the Bankruptcy Code or other
similar state or federal law providing for reorganization or liquidation.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
We will not merge, consolidate or consummate any other business
combination with any other entity or sell, assign, transfer, lease or convey
all or substantially all of our assets and properties to any person or entity,
unless:
(1) we are the continuing corporation or the successor entity or
its parent expressly assumes our obligations under the purchase
contracts, the purchase contract agreement, the pledge agreement and the
remarketing agreement, and
(2) we or the successor entity or its parent, as applicable, is
not, immediately after the merger, consolidation, sale, assignment,
transfer, lease or conveyance, in default of our payment obligations or
other material obligations under the purchase contracts, the purchase
contract agreement, the pledge agreement or the remarketing agreement.
TITLE
We, the purchase contract agent and the collateral agent may treat the
registered owner of any equity units as the absolute owner of the equity units
for the purpose of making payment and settling the related purchase contracts
and for all other purposes.
REPLACEMENT OF EQUITY UNIT CERTIFICATES
In the event that physical certificates have been issued, any mutilated
equity units certificate will be replaced by us at the expense of the holder
upon surrender of the certificate to the purchase contract agent. Equity unit
certificates that become destroyed, lost or stolen will be replaced by us at
the expense of the holder upon delivery to us and the purchase contract agent
of evidence of the destruction, loss or theft satisfactory to us and the
purchase contract agent. In the case of a destroyed, lost or stolen equity unit
certificate, an indemnity satisfactory to the purchase contract agent and us
may be required at the expense of the holder of the equity units evidenced by
the certificate before a replacement will be issued.
Notwithstanding the foregoing, we will not be obligated to issue any
corporate units or treasury units on or after the business day before August
17, 2004, or after early settlement, or after the purchase contracts have
terminated. The purchase contract agreement will provide that, in lieu of the
delivery of a replacement equity units certificate following August 17, 2004
the purchase contract agent, upon delivery of the evidence and indemnity
described above, will deliver the PCS common stock issuable pursuant to the
purchase contracts included in the corporate units or treasury units evidenced
by the certificate, or, if the purchase contracts have terminated prior to
August 17, 2004, transfer the pledged securities included in the corporate
units or treasury units evidenced by the certificate.
GOVERNING LAW
The purchase contract agreement, the pledge agreement and the purchase
contracts will be governed by, and construed in accordance with, the laws of
the State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The purchase contract agent will act as the agent for the holders of
corporate units and treasury units from time to time. The purchase contract
agreement will not obligate the purchase contract agent to exercise any
discretionary actions in connection with a default under the terms of the
corporate units and treasury units or the purchase contract agreement.
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The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement will
contain provisions under which the purchase contract agent may resign or be
replaced. This resignation or replacement would be effective upon the
appointment of a successor.
The purchase contract agent maintains commercial banking relationships
with us.
INFORMATION CONCERNING THE COLLATERAL AGENT
The collateral agent will act solely as our agent and will not assume any
obligation or relationship of agency or trust for or with any of the holders of
the corporate units and treasury units except for the obligations owed by a
pledgee of property to the owner of the property under the pledge agreement and
applicable law.
The pledge agreement will contain provisions limiting the liability of
the collateral agent. The pledge agreement will contain provisions under which
the collateral agent may resign or be replaced. This resignation or replacement
would be effective upon the appointment of a successor.
The collateral agent maintains commercial banking relationships with us.
MISCELLANEOUS
The purchase contract agreement will provide that we will pay all fees
and expenses related to the offering of the equity units, the retention of the
collateral agent and the enforcement by the purchase contract agent of the
rights of the holders of the equity units. However, holders who elect to
substitute for the related pledged securities, thereby creating treasury units
or recreating corporate units, will be responsible for any fees or expenses
payable in connection with the substitution, as well as any commissions, fees
or other expenses incurred in acquiring the securities to be substituted, and
we will not be responsible for any of these fees or expenses.
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DESCRIPTION OF THE NOTES
The following description of the notes supplements the description of the
general terms and provisions of the debt securities contained in the
accompanying prospectus. See "Description of Debt Securities" in the
accompanying prospectus.
GENERAL
Sprint Capital will issue the notes, and we will fully and
unconditionally guarantee the notes. The notes are limited to an aggregate
principal amount of $ (or up to $ aggregate principal amount if the
underwriters overallotment option is exercised in full). The notes will mature
on August 17, 2006. The notes may not be redeemed before their stated maturity
except as described below under "--Redemption." The notes will not be subject
to a sinking fund provision. Unless a tax event redemption has occurred before
August 17, 2006 the entire principal amount of the notes will mature and become
due and payable, together with any accrued and unpaid interest, on August 17,
2006.
Notes forming a part of the corporate units will be issued in
certificated form, will be in denominations of $25 and integral multiples of
$25, without coupons, and may be transferred or exchanged, without service
charge but upon payment of any taxes or other governmental charges payable in
connection with the transfer or exchange, at the offices described below.
PAYMENTS ON THE NOTES
Payments on notes issued as a global security will be made to the
depositary, a successor depositary or, in the event that no depositary is used,
to the paying agent for the notes. Principal and interest with respect to
certificated notes will be payable, the transfer of the notes will be
registrable and notes will be exchangeable for notes of other denominations of
a like aggregate principal amount, at the office or agency maintained by Sprint
Capital for this purpose in the Borough of Manhattan, New York City. However,
at Sprint Capital's option, payment of interest may be made by check mailed to
the address of the holder entitled to payment or by wire transfer to an account
designated by the holder entitled to payment. Sprint Capital will appoint an
initial paying agent, transfer agent and registrar for the notes. Sprint
Capital may at any time designate additional transfer agents and paying agents
with respect to the notes, and may remove any transfer agent, paying agent or
registrar for the notes. Sprint Capital will at all times maintain a paying
agent and transfer agent for the notes in the Borough of Manhattan, New York
City.
Any monies deposited with the trustee or paying agent, or held by Sprint
Capital, in trust, for the payment of principal of or interest on any note and
remaining unclaimed for two years after such principal or interest has become
due and payable will, at Sprint Capital's request, be repaid to Sprint Capital
or released from trust, as applicable, and the holder of the note will
thereafter look, as a general unsecured creditor, only to us for the payment
thereof.
INTEREST
Each note will bear interest initially at the rate of % per year from
the original issue date, payable quarterly in arrears on February 17, May 17,
August 17 and November 17 of each year, each an "interest payment date,"
commencing November 17, 2001, to the person in whose name the note is
registered at the close of business on the first day of the month in which the
interest payment date falls.
The interest rate on the notes will be reset on the day on which the
initial remarketing, any subsequent remarketing or the final remarketing is
successfully completed, which in any case we refer to as the reset date. On the
applicable reset date, the interest rate on the notes will be reset to the
reset rate described below under "--Market Rate Reset." The reset rate will
then become effective on the third business day following the reset
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date, which we refer to as the reset effective date. If all attempts to
remarket the notes fail, the interest rate on the notes will not be reset. In
this case, holders of notes will have the right to put their notes to Sprint
Capital as described below under "--Put Option on Failed Final Remarketing."
The amount of interest payable for any period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The amount of
interest payable for any period shorter than a full quarterly period for which
interest is computed will be computed on the basis of the actual number of days
elapsed in the 90-day period. In the event that any date on which interest is
payable on the notes is not a business day, the payment of the interest payable
on that date will be made on the next succeeding day that is a business day,
without any interest or other payment in respect of the delay, except that, if
the business day is in the next succeeding calendar year, then the payment will
be made on the immediately preceding business day, in each case with the same
force and effect as if made on the scheduled payment date.
MARKET RATE RESET
The reset rate will be equal to the sum of the reset spread and the rate
of interest on the applicable benchmark treasury in effect on the reset date,
and will be determined by the reset agent. If the reset date is on or prior to
the tenth business day before August 17, 2004, the reset rate will be the rate
determined by the reset agent as the rate the notes should bear in order for
the notes included in corporate units to have an approximate aggregate market
value on the reset date of 100.5% of the treasury portfolio purchase price
described under "Description of the Purchase Contracts--Remarketing." If the
reset date is on the third business day before August 17, 2004, the reset rate
will be the rate determined by the reset agent as the rate the notes should
bear in order for the notes to have an approximate market value of 100.5% of
the principal amount of the notes. The reset rate will in no event exceed the
maximum rate permitted by applicable law.
The "applicable benchmark treasury " means direct obligations of the
United States, as agreed upon by us and the reset agent, which may be
obligations traded on a when-issued basis only, having a maturity comparable to
the remaining term to maturity of the notes. The rate for the applicable
benchmark treasury will be the bid side rate displayed at 10:00 A.M., New York
City time, on the reset date in the Telerate system (or if the Telerate system
is no longer available on that date or, in the opinion of the reset agent,
after consultation with us, no longer an appropriate system from which to
obtain the rate, such other nationally recognized quotation system as, in the
opinion of the reset agent, after consultation with us, is appropriate). If
this rate is not so displayed, the rate for the applicable benchmark treasury
will be, as calculated by the reset agent, the yield to maturity for the
applicable benchmark treasury, expressed as a bond equivalent on the basis of a
year of 365 days or 366 days, as applicable, and applied on a daily basis, and
computed by taking the arithmetic mean of the secondary market bid rates, as of
10:30 A.M., New York City time, on the reset date of three leading United
States government securities dealers selected by the reset agent after
consultation with us (which may include the reset agent or an affiliate
thereof). The reset agent will be a nationally recognized independent
investment banking firm selected by us.
On the tenth business day before the reset effective date, the applicable
benchmark treasury to be used to determine the reset rate on the reset date
will be selected, the reset spread to be added to the rate on the applicable
benchmark treasury in effect on the reset date will be established by the reset
agent and the reset spread and the applicable benchmark treasury will be
announced by us or Sprint Capital (the "reset announcement date"). We or Sprint
Capital will cause a notice of the reset spread and the applicable benchmark
treasury to be published on the business day following the reset announcement
date by publication in a daily newspaper in the English language of general
circulation in New York City, which is expected to be THE WALL STREET JOURNAL.
Sprint Capital will request, not later than seven nor more than 15 calendar
days before the reset announcement date, that the depositary notify its
participants holding notes, corporate units or treasury units of the reset
announcement date and of the procedures that must be followed if any owner of
corporate units wishes to settle the related purchase contract with cash on the
business day before August 17, 2004.
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OPTIONAL REMARKETING
On or prior to the third business day before any remarketing date, but no
earlier than the payment date before such remarketing date, holders of notes
that are not components of corporate units may elect to have their notes
remarketed in the same manner as notes that are components of corporate units
by delivering their notes along with a notice of this election to the
applicable collateral agent. The applicable collateral agent will hold the
notes in an account separate from the collateral account in which the pledged
securities will be held. Holders of notes electing to have their notes
remarketed will also have the right to withdraw the election on or prior to the
fifth business day before the date of any remarketing.
If the initial remarketing fails and we proceed with any subsequent
remarketing, then, in the case of any such subsequent remarketing, the
remarketing agent will notify all holders of notes that are not components of
corporate units of the date of the subsequent remarketing as soon as practical,
but no later than three business days before the date of the subsequent
remarketing. Holders of notes may elect to have their notes remarketed in the
same manner as the notes that are components of corporate units by delivering
their notes along with a notice of this election to the applicable collateral
agent no later than two business days following notice from the remarketing
agent. As a consequence of the shorter notice period for any subsequent
remarketing, it may be more difficult for a holder of separate notes to
participate.
PUT OPTION UPON A FAILED FINAL REMARKETING
If the final remarketing of the notes on the third business day before
August 17, 2004 has occurred and has resulted in a failed remarketing, holders
of notes following August 17, 2004 will have the right to put the notes to
Sprint Capital on September 30, 2004, upon at least three business days' prior
notice, at a price equal to 100% of the principal amount, plus accrued and
unpaid interest, if any.
TAX EVENT REDEMPTION
If a tax event, as defined below, occurs and is continuing, Sprint
Capital may, at its option, redeem all of the outstanding notes (whether
underlying corporate units or otherwise) in whole, but not in part, at any time
at a price, which we refer to as the redemption price, equal to, for each note,
the redemption amount described below plus accrued and unpaid interest, if any,
to the date of redemption. Installments of interest on notes which are due and
payable on or before a redemption date will be payable to the holders of the
notes registered as such at the close of business on the relevant record dates.
If the tax event redemption occurs before August 17, 2004 or any earlier
successful remarketing, the redemption price of the notes forming a part of the
corporate units will be distributed to the collateral agent, who in turn will
purchase the treasury portfolio described below on behalf of the holders of
corporate units and remit the remainder of the redemption price, if any, to the
purchase contract agent for payment to the holders. The treasury portfolio will
be substituted for the notes and will be pledged to the collateral agent to
secure the corporate units holders' obligations to purchase PCS common stock
under the purchase contracts. If, following the occurrence of a tax event on or
after August 17, 2004 or any earlier successful remarketing, Sprint Capital
exercises the option to redeem the notes, the proceeds of the redemption will
be payable in cash to the holders of the notes. A holder of a note that is not
part of a corporate unit will directly receive the redemption amount
attributable to such note.
"Tax event" means our receipt of an opinion of nationally recognized
independent tax counsel experienced in such matters (which may be King &
Spalding) to the effect that there is more than an insubstantial risk that
interest or original issue discount paid or accrued by Sprint Capital on the
notes would not be deductible, in whole or in part, by Sprint Capital for
United States federal income tax purposes as a result of any amendment to,
change in, or announced proposed change in, the laws, or any regulations
thereunder, of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, any amendment to or change in
an interpretation or application of any such laws or regulations by any
legislative body, court, governmental agency or regulatory authority or any
interpretation or pronouncement that provides for a position with respect to
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any such laws or regulations that differs from the generally accepted position
on the date of this prospectus supplement, which amendment, change or proposed
change is effective or which interpretation or pronouncement is announced on or
after the date of this prospectus supplement.
The treasury portfolio to be purchased on behalf of the holders of
corporate units as a result of a tax event redemption will consist of interest
or principal strips of treasury securities which mature on or before August 15,
2004 in an aggregate amount equal to the aggregate principal amount of the
notes included in corporate units and, with respect to each scheduled interest
payment date on the notes that occurs after the redemption date and on or
before August 17, 2004, interest or principal strips of treasury securities
which mature on or before that interest payment date in an aggregate amount
equal to the aggregate interest payment that would be due on the aggregate
principal amount of the notes on that date if the interest rate of the notes
was not reset on the applicable reset date.
Solely for purposes of determining the treasury portfolio price in the
case of a redemption date occurring on or after August 17, 2004 or an earlier
successful remarketing, "treasury portfolio" shall mean a portfolio of
zero-coupon U.S. treasury securities consisting of principal or interest strips
of U.S. treasury securities which mature on or before August 15, 2006 in an
aggregate amount equal to the aggregate principal amount of the notes
outstanding on the redemption date and, with respect to each scheduled interest
payment date on the notes that occurs after the redemption date, interest or
principal strips of U.S. treasury securities which mature on or before that
interest payment date in an aggregate amount equal to the aggregate interest
payment that would be due on the aggregate principal amount of the notes
outstanding on the redemption date if the interest rate of the notes was not
reset on the applicable reset date.
"Redemption amount" means in the case of a tax event redemption occurring
before August 17, 2004 or an earlier successful remarketing, for each note the
product of the principal amount of the note and a fraction whose numerator is
the treasury portfolio purchase price and whose denominator is the aggregate
principal amount of notes included in corporate units, and in the case of a tax
event redemption occurring on or after August 17, 2004 or an earlier successful
remarketing, for each note the product of the principal amount of the note and
a fraction whose numerator is the treasury portfolio purchase price and whose
denominator is the aggregate principal amount of the notes outstanding on the
redemption date.
"Treasury portfolio purchase price" means the lowest aggregate price
quoted by a primary U.S. government securities dealer in New York City to the
quotation agent on the third business day before the redemption date for the
purchase of the treasury portfolio for settlement on the redemption date.
"Quotation agent" means any of J.P. Morgan Securities Inc., Merrill Lynch
Government Securities, Inc. or UBS Warburg LLC or their respective successors
or any other primary U.S. government securities dealer in New York City
selected by us or Sprint Capital.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each registered holder of notes to
be redeemed at its registered address. Unless Sprint Capital defaults in
payment of the redemption price, on and after the redemption date interest
shall cease to accrue on the notes. In the event any notes are called for
redemption, neither Sprint Capital nor the trustee will be required to register
the transfer of or exchange the notes to be redeemed.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
We will not merge, consolidate or consummate any other business
combination with any other entity or sell, assign, transfer, lease or convey
all or substantially all of our assets and properties to any person or entity,
unless:
(1) we are the continuing corporation or the successor entity or
its parent expressly assumes our obligations under the guarantees of the
notes, and
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(2) we or the successor entity or its parent, as applicable, is
not, immediately after the merger, consolidation, sale, assignment,
transfer, lease or conveyance, in default of our obligations under the
guarantees of the notes.
ASSIGNMENT
Under the notes and the guarantees, in connection with a proposed
spin-off, split-off, split-up or other transaction involving the distribution
or transfer of a significant portion of our assets and liabilities to holders
of any class of our common stock, we and Sprint Capital have the right to
assign our obligations to any entity that, at the time of or immediately before
the effective time of the assignment, is an affiliate of our company provided:
(1) it is a corporation organized and existing under the laws of
the United States of America or a U.S. state or the District of Columbia
and it is expressly assumes our respective obligations under the notes
and the guarantees of the notes;
(2) it is not, immediately after the assignment, in default of the
payment obligations or other material obligations under the notes or the
guarantees of the notes; and
(3) immediately after the assignment, the notes still have a credit
rating equal to or higher than the credit rating applicable to the notes
immediately before the assignment, which credit rating will have been
assigned by either Moody's Investors Service, Inc., or any successor to
its rating agency business, or Standard & Poor's Ratings Group, Inc., or
any successor to its rating agency business.
We will give at least 30 days' notice to holders of notes of any proposed
assignment.
BOOK-ENTRY AND SETTLEMENT
Notes which are released from the pledge following substitution or early
settlement will be issued in the form of one or more global certificates, which
we refer to as global securities, registered in the name of the depositary or
its nominee. Except under the limited circumstances described below or except
upon recreation of corporate units, notes represented by the global securities
will not be exchangeable for, and will not otherwise be issuable as, notes in
certificated form. The global securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of the securities in certificated form. These
laws may impair the ability to transfer beneficial interests in such a global
security.
Except as provided below, owners of beneficial interests in such a global
security will not be entitled to receive physical delivery of notes in
certificated form and will be not be considered the holders (as defined in the
Sprint Capital indenture) of the notes for any purpose under the Sprint Capital
indenture, and no global security representing notes will be exchangeable,
except for another global security of like denomination and tenor to be
registered in the name of the depositary or its nominee or a successor
depositary or its nominee. Accordingly, each beneficial owner must rely on the
procedures of the depositary or if such person is not a participant, on the
procedures of the participant through which such person owns its interest to
exercise any rights of a holder under the applicable indenture.
In the event that:
. the depositary notifies Sprint Capital that it is unwilling or unable
to continue as a depositary for the global security certificates and
no successor depositary has been appointed within 90 days after this
notice, or
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. the depositary at any time ceases to be a clearing agency registered
under the Securities Exchange Act at a time the depositary is
required to be so registered to act as the depositary and no
successor depositary has been appointed within 90 days after Sprint
Capital learns that the depositary has ceased to be so registered, or
. Sprint Capital determines in its sole discretion that Sprint Capital
will no longer have debt securities represented by global securities
or permit any of the global security certificates to be exchangeable
or an event of default under the Sprint Capital indenture has
occurred and is continuing, then
certificates for the notes will be printed and delivered in exchange for
beneficial interests in the global security certificates. Any global note that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
note certificates registered in the names directed by the depositary. Sprint
Capital expects that these instructions will be based upon directions received
by the depositary from its participants with respect to ownership of beneficial
interests in the global security certificates.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the equity units, notes and PCS common stock acquired under a purchase
contract. Unless otherwise stated, this summary deals only with equity units,
notes and PCS common stock held as capital assets (generally, assets held for
investment) by holders that are U.S. persons (defined below) that purchase
equity units upon original issuance for the issue price of $25 per unit. The
tax treatment of a holder may vary depending on that holder's particular
situation. This summary does not address all of the tax consequences that may
be relevant to holders that may be subject to special tax treatment such as,
for example, insurance companies, broker dealers, tax-exempt organizations,
foreign taxpayers, regulated investment companies, persons holding equity
units, notes, or shares of PCS common stock as part of a straddle, hedge,
conversion transaction or other integrated investment, persons holding equity
units, notes or shares of PCS common stock through a partnership or other
pass-through entity and persons whose functional currency is not the U.S.
dollar. In addition, this summary does not address any aspects of state, local,
or foreign tax laws. This summary is based on the United States federal income
tax laws, regulations, rulings and decisions in effect as of the date of this
prospectus supplement, which are subject to change or differing
interpretations, possibly on a retroactive basis. YOU SHOULD CONSULT YOUR OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF PURCHASING, OWNING,
AND DISPOSING OF THE EQUITY UNITS, NOTES OR PCS COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
No statutory, administrative or judicial authority directly addresses the
treatment of equity units or instruments similar to equity units for United
States federal income tax purposes. As a result, no assurance can be given that
the IRS will agree with the tax consequences described below.
For purposes of this summary, the term "U.S. person" means:
. a person who is a citizen or resident of the United States, as
determined for United States federal income tax purposes,
. a legal entity (1) created or organized in or under the laws of the
United States, any state in the United States or the District of
Columbia and (2) treated as a corporation for United States federal
income tax purposes,
. an estate the income of which is subject to United States federal
income taxation regardless of its source, or
. a trust if (1) a court within the United States is able to exercise
primary supervision over the administration of such trust and one or
more United States persons have the authority to control all
substantial decisions of such trust or (2) such trust has in effect a
valid election to be treated as a domestic trust for United States
federal income tax purposes.
EQUITY UNITS
ALLOCATION OF ISSUE PRICE. The issue price of each corporate unit will be
allocated between the note and the purchase contract in proportion to their
relative fair market values at the time of issuance, and this allocation will
establish your initial tax basis in the note and the purchase contract. We will
report the fair market value of each note as $25 and the fair market value of
each purchase contract as $0, which will be binding on you (but not on the IRS)
unless you explicitly disclose a contrary allocation on a statement attached to
your timely filed United States federal income tax return for the taxable year
in which you acquire the corporate unit. Thus, absent such disclosure, you
should allocate the issue price for a corporate unit in accordance with the
foregoing. The remainder of this discussion assumes that this allocation will
be respected for United States federal income tax purposes.
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OWNERSHIP OF NOTES OR U.S. TREASURY SECURITIES. You will be treated as
owning the notes constituting a part of the corporate units, or the treasury
securities constituting a part of the treasury units, as applicable, for United
States federal income tax purposes. By virtue of your acquisition of equity
units, you agree to treat yourself as owning the notes or treasury securities
constituting a part of the equity units for United States federal income tax
purposes, and the remainder of this summary assumes such treatment. The United
States federal income tax consequences of owning the notes or treasury
securities are discussed below. See "--Notes," "--U.S. Treasury Securities" and
"--Remarketing and Tax Event Redemption of Notes".
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF EQUITY UNITS. If you
sell, exchange or otherwise dispose of equity units in a taxable disposition
(collectively, a "DISPOSITION"), you will be treated as having sold, exchanged
or disposed of each of the purchase contract and the notes, the treasury
portfolio or the treasury securities that constitute such equity units, and the
proceeds realized on such disposition would be allocated among the purchase
contract and the notes, the treasury portfolio or the treasury securities in
proportion to their respective fair market values. As a result, you generally
will recognize gain or loss equal to the difference between the portion of the
proceeds you receive which are allocable to the purchase contract and the
notes, the treasury portfolio or treasury securities, as the case may be, and
your adjusted tax basis in the purchase contract and the notes, the treasury
portfolio or treasury securities, except to the extent that you are treated as
receiving an amount with respect to accrued acquisition discount on the
treasury portfolio or the treasury securities, which amount will be treated as
ordinary income, or to the extent you are treated as receiving an amount with
respect to accrued contract adjustment payments or deferred contract adjustment
payments, which may be treated as ordinary income, in each case to the extent
not previously included in income. In the case of the purchase contract, the
treasury portfolio and the treasury securities, such gain or loss will
generally be capital gain or loss, and such gain or loss generally will be
long-term capital gain or loss if you held such component of your equity units
for more than one year immediately prior to such disposition. Long-term capital
gains of individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations. The rules governing
the determination of the character of gain or loss on the disposition of the
notes are summarized under "--Notes--Sales, Exchanges or Other Taxable
Dispositions of Notes."
If the disposition of an equity unit occurs when the purchase contract
has negative value, you should be considered to have received additional
consideration for the notes, treasury portfolio or treasury securities, as the
case may be, in an amount equal to such negative value and to have paid such
amount to be released from your obligation under the purchase contract.
Because, as discussed below, any gain on the disposition of notes before the
purchase contract settlement date generally will be treated as ordinary
interest income for United States federal income tax purposes, the ability to
offset such interest income with a loss on the purchase contract may be
limited. You should consult your tax advisor regarding a disposition of an
equity unit at a time when the purchase contract has negative value.
In determining gain or loss, contract adjustment payments or deferred
contract adjustment payments that you have received but have not included in
your income previously should either reduce your adjusted tax basis in the
purchase contract or result in an increase in the amount realized on the
disposition of the purchase contract. Any contract adjustment payments or
deferred contract adjustment payments that you previously have included in your
income but have not received should increase your adjusted tax basis in the
purchase contract. See "Purchase Contracts--Contract Adjustment Payments and
Deferred Contract Adjustment Payments" below.
NOTES
The discussion in this section will apply to you if you hold corporate
units or notes.
CLASSIFICATION OF THE NOTES. In connection with the issuance of the
notes, King & Spalding, our counsel, will deliver an opinion that, under
current law, and based on certain representations, facts and assumptions set
forth in such opinion, the notes will be classified as indebtedness for United
States federal
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income tax purposes. By virtue of your acquisition of corporate units, you
agree to treat the notes as indebtedness for United States federal income tax
purposes.
ORIGINAL ISSUE DISCOUNT. Because of the manner in which the interest rate
on the notes is reset, the notes should be classified as contingent payment
debt instruments subject to the "noncontingent bond method" for accruing
original issue discount, as set forth in the applicable U.S. Treasury
regulations. We intend to treat the notes as such, and the remainder of this
discussion assumes that the notes will be so treated. As discussed more fully
below, the effects of applying such method will be:
. to require you to accrue original issue discount on the notes on a
constant yield basis, regardless of your usual method of tax
accounting,
. for all accrual periods through May 17, 2004, to require you to
accrue original issue discount in excess of the stated interest
payments on the notes, and
. to result in the treatment of all or a portion of any gain or loss on
the sale, exchange or other disposition of the notes as ordinary
income or loss rather than capital gain or loss. See "--Sales,
Exchanges or Other Taxable Dispositions of Notes."
You will be required to accrue original issue discount on a constant
yield-to-maturity basis based on the comparable yield of the notes. The
comparable yield of the notes generally will be the rate at which we would
issue a fixed rate debt instrument with terms and conditions similar to the
notes (which rate will exceed the current interest payments on the notes). We
have determined that the comparable yield is % and the projected payments for
the notes per $25 of principal amount are $ on , 2001, $ for each
subsequent quarter ending on or before May 17, 2004, and $ for each quarter
ending after May 17, 2004. We also have determined that the projected payment
for the notes, per $ of principal amount, at the maturity date is $
(which includes the stated principal amount of the notes as well as the final
projected interest payment). The amount of original issue discount on a note
for each accrual period is determined by multiplying the comparable yield of
the note (adjusted for the length of the accrual period) by the note's adjusted
issue price at the beginning of the accrual period. Based on the allocation of
the issue price of each corporate unit described above, the adjusted issue
price of each note, per $25 of principal amount, at the beginning of the first
accrual period will be $25, and the adjusted issue price of each note at the
beginning of each subsequent accrual period will be equal to $25, increased by
any original issue discount previously accrued on such note and decreased by
the amount of any projected payments on such note through that date. The amount
of original issue discount so determined will then be allocated on a ratable
basis to each day in the accrual period that you hold the note.
We have provided the foregoing comparable yield and projected payment
schedule solely for computing taxable income under the noncontingent bond
method for United States federal income tax purposes. It does not constitute a
projection or representation as to the amounts that you will actually receive
as a result of owning notes or corporate units.
If after May 17, 2004, the remaining amounts of principal and interest
payable on the notes differ from the payments set forth on the foregoing
projected payment schedule, you should take into account negative or positive
adjustments reflecting such difference as adjustments to interest income in a
reasonable manner over the period to which they relate. We expect to account
for any such difference with respect to a period as an adjustment for that
period.
In general, you are bound by the comparable yield and projected payment
schedule that we provide unless either is unreasonable. If you decide to use
your own comparable yield and projected payment schedule, you must explicitly
disclose this fact and the reason that you have used your own comparable yield
and projected payment schedule. In general, this disclosure must be made on a
statement attached to your timely filed United States federal income tax return
for the taxable year in which you acquired the note.
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ADJUSTMENT TO TAX BASIS IN NOTES. Your tax basis in a note will be
increased by the amount of original issue discount included in income with
respect to the note and decreased by the amount of projected payments with
respect to the note through the computation date.
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF NOTES. You will
recognize gain or loss on a disposition of a note (including a redemption for
cash or the remarketing thereof) in an amount equal to the difference between
your amount realized and your adjusted tax basis in the note. Your selling
expenses, including a proportionate share of the remarketing fee, will reduce
the amount of gain or increase the amount of loss you recognize upon a
disposition of a note. Gain recognized on the disposition of a note before the
date that is six months after the reset date will be treated as ordinary
interest income. Loss recognized on the disposition of a note before that date
will be treated as ordinary loss to the extent of your prior inclusions of
original issue discount on the note. Any loss in excess of that amount will be
treated as a capital loss. In general, gain recognized on the disposition of a
note on or after the date that is six months after the reset date will be
ordinary interest income to the extent attributable to any excess of the total
remaining principal and interest payments due on the note over the total
remaining payments set forth on the projected payment schedule for the note.
Any gain recognized in excess of such amount and any loss recognized on such a
disposition will generally be treated as a capital gain or loss. Long-term
capital gains of individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
In the event that we engage in a spin-off, split-off, split-up or other
transaction involving the distribution or transfer of a significant portion of
our assets and liabilities to holders of any class of our common stock, Sprint
Capital's obligations under the notes may be assumed by an affiliate of our
company. This assumption of the notes, or any related change in the guarantee
arrangements, could result in a "significant modification" of the notes within
the meaning of the applicable Treasury Regulations under Section 1001 of the
Internal Revenue Code unless the conditions specified in these regulations are
satisfied. If these conditions are not satisfied and a significant modification
is deemed to occur as a result of the transaction, the holders of notes would
be deemed to have exchanged their notes for new notes in a taxable transaction,
and they would recognize gain or loss on this deemed exchange equal to the
difference, if any, between a holder's tax basis in the notes and the adjusted
issue price of the new notes received in the exchange.
U.S. TREASURY SECURITIES
The discussion in this section will apply to you if you hold treasury
units or treasury securities.
ORIGINAL ISSUE DISCOUNT; ACQUISITION DISCOUNT. If you hold treasury
units, you will be required to treat your ownership interest in the treasury
securities comprising a treasury unit as an interest in a bond that was
originally issued on the date you acquired the treasury securities. Any such
treasury securities that are owned or treated as owned by you will have
original issue discount equal to the excess of the amount payable at maturity
of such treasury securities over the purchase price thereof, or, in the case of
"short-term treasury securities" (as defined below), will have "acquisition
discount" equal to such excess. You will be required to include any original
issue discount (on treasury securities other than short-term treasury
securities) in income on a constant yield-to-maturity basis over the period
between the purchase date of the treasury securities and the maturity date of
the treasury securities, regardless of your method of tax accounting and in
advance of the receipt of cash attributable to such original issue discount.
Your adjusted tax basis in the U.S. treasury securities will be increased by
the original issue discount included in your gross income.
In the case of any treasury security with a maturity of one year or less
from the date of its issue (a "short-term treasury security"), you generally
will be required to include the acquisition discount in income as it accrues
only if you are an accrual basis taxpayer. In that event, you would accrue such
acquisition discount on a straight-line basis, unless you make an election to
accrue the acquisition discount on a constant yield-to-maturity basis.
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF TREASURY SECURITIES. As
discussed below, in the event that you obtain the release of treasury
securities by delivering notes to the collateral agent, you generally will not
recognize gain or loss upon such substitution. You will recognize gain or loss
on a subsequent disposition of the treasury securities in an amount equal to
the difference between the amount you realized on such disposition and your
adjusted tax basis in the treasury securities. The gain or loss generally will
be capital
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gain or loss and generally will be long-term capital gain or loss if you held
such treasury securities for more than one year. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
PURCHASE CONTRACTS
CONTRACT ADJUSTMENT PAYMENTS AND DEFERRED CONTRACT ADJUSTMENT PAYMENTS.
There is no direct authority addressing the treatment, under current law, of
the contract adjustment payments or deferred contract adjustment payments, and
such treatment, therefore, is unclear. Contract adjustment payments and
deferred contract adjustment payments may constitute taxable ordinary income to
you when received or accrued, in accordance with your regular method of tax
accounting. To the extent we are required to file information returns with
respect to contract adjustment payments or deferred contract adjustment
payments, we intend to report these payments as taxable ordinary income to you.
You should consult your tax advisor concerning the treatment of contract
adjustment payments and deferred contract adjustment payments, including the
possibility that any contract adjustment payment or deferred contract
adjustment payment may be treated as a loan, purchase price adjustment, rebate
or payment analogous to an option premium, rather than being includible in
income on a current basis.
The treatment of contract adjustment payments and deferred contract
adjustment payments could affect your adjusted tax basis in a purchase contract
or PCS common stock received under a purchase contract or the amount you
realized on the sale or disposition of an equity unit or the termination of a
purchase contract. In particular, any contract adjustment payments or deferred
contract adjustment payments
. which have been included in your income, but which have not been paid
to you, should increase your adjusted tax basis in the purchase
contract, and
. which have been paid to you, but which have not been included in your
income, should either reduce your adjusted tax basis in the purchase
contract or result in an increase in the amount realized on the
disposition of the purchase contract. See "--Acquisition of PCS
Common Stock Under a Purchase Contract," "Equity Units--Sales,
Exchanges or Other Taxable Dispositions of Equity Units" and
"--Termination of Purchase Contract".
ACQUISITION OF PCS COMMON STOCK UNDER A PURCHASE CONTRACT. You generally
will not recognize gain or loss on the purchase of PCS common stock under a
purchase contract, except with respect to any cash paid to you in lieu of a
fractional share of stock. Your aggregate initial tax basis in the PCS common
stock received under a purchase contract generally should equal the purchase
price paid for such PCS common stock, plus your adjusted tax basis in the
purchase contract, if any, less the portion of this purchase price and adjusted
tax basis allocable to the fractional share. The holding period for PCS common
stock received under a purchase contract will commence on the day following the
acquisition of the stock.
OWNERSHIP OF PCS COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT. Any
distribution on PCS common stock that we pay out of our current or accumulated
earnings and profits (as determined for United States federal income tax
purposes) will constitute a dividend and will be includible in your gross
income. Any such dividend will be eligible for the dividends received deduction
if you are an otherwise qualifying corporate holder that meets the holding
period and other requirements for the dividends received deduction.
Upon a disposition of PCS common stock, you generally will recognize
capital gain or loss equal to the difference between the amount realized and
your adjusted tax basis in the stock. Such capital gain or loss generally will
be long-term capital gain or loss if you held the stock for more than one year.
Long-term capital gains of individuals are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
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EARLY SETTLEMENT OF PURCHASE CONTRACT. You will not recognize gain or
loss on the receipt of your proportionate share of notes, treasury securities
or the treasury portfolio upon early settlement of a purchase contract, and you
will have the same adjusted tax basis in the notes, treasury securities or the
treasury portfolio as before the early settlement.
TERMINATION OF PURCHASE CONTRACT. If a purchase contract terminates, you
will recognize gain or loss equal to the difference between the amount realized
(if any) upon the termination and your adjusted tax basis (if any) in the
purchase contract at the time of the termination. In general, the gain or loss
will be capital gain or loss and will be long-term capital gain or loss if you
held the purchase contract for more than one year immediately before to such
termination. Long-term capital gains of individuals are eligible for reduced
rates of taxation. The deductibility of capital losses is subject to
limitations. You will not recognize gain or loss on the receipt of your
proportionate share of the notes, treasury securities or treasury portfolio
upon termination of the purchase contract, and you will have the same adjusted
tax basis in the notes, treasury securities or treasury portfolio as before
such distribution.
ADJUSTMENT TO SETTLEMENT RATE. You might be treated as receiving a
constructive dividend distribution from us if:
. the settlement rate is adjusted and, as a result of this adjustment,
the proportionate interest of holders of equity units in our assets
or earnings and profits is increased and
. the adjustment is not made pursuant to a bona fide, reasonable
anti-dilution formula.
An adjustment in the settlement rate would not be considered made
pursuant to such a formula if the adjustment were made to compensate you for
certain taxable distributions with respect to the PCS common stock. Thus, under
certain circumstances, an increase in the settlement rate might give rise to a
taxable dividend to you even though you would not receive any cash related to
the increase.
ASSIGNMENT OF PURCHASE CONTRACTS. In the event that we engage in a
spin-off, split-off, split-up or other transaction involving the distribution
or transfer of a significant portion of our assets and liabilities to holders
of any class of our common stock, our obligations under the purchase contracts
may be assigned to an affiliate of our company. Unless the transaction in which
the assignment occurs qualifies as a tax-free distribution described in section
355 of the Internal Revenue Code, holders of purchase contracts would be
treated as having exchanged their purchase contracts for new purchase contracts
in a taxable transaction. In that event, you would recognize capital gain or
loss in an amount equal to the difference, if any, between the fair market
value of the new purchase contract and your adjusted tax basis in the old
purchase contract, except to the extent you are treated as receiving an amount
with respect to accrued contract adjustment payments or deferred contract
adjustment payments, which may be treated as ordinary income to the extent not
previously included in income.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE TREASURY UNITS
If you hold corporate units and deliver treasury securities to the
collateral agent in substitution for notes, you generally will not recognize
gain or loss upon your delivery of the treasury securities or your receipt of
the notes. You will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by you with respect to the
treasury securities and notes, and your adjusted tax bases in the treasury
securities, the notes and the purchase contract will not be affected by such
delivery and release.
SUBSTITUTION OF NOTES TO RECREATE CORPORATE UNITS
If you hold treasury units and deliver notes to the collateral agent in
substitution for treasury securities, you generally will not recognize gain or
loss upon your delivery of such notes or your receipt of the treasury
securities. You will continue to take into account items of income or deduction
otherwise includible or
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deductible, respectively, by you with respect to such treasury securities and
notes, and your adjusted tax bases in the treasury securities, the notes and
the purchase contract will not be affected by such delivery and release.
REMARKETING AND TAX EVENT REDEMPTION OF NOTES
A remarketing or tax event redemption will be a taxable event for holders
of notes and will be subject to tax in the manner described under
"Notes--Sales, Exchanges or Other Taxable Dispositions of Notes."
OWNERSHIP OF U.S. TREASURY PORTFOLIO. Following a remarketing of the
notes on the third business day preceding August 17, 2004, or a tax event
redemption before the purchase contract settlement date, we and, by virtue of
your acquisition of corporate units, you agree to treat the treasury portfolio
constituting a part of your corporate units as owned by you for United States
federal income tax purposes. The remainder of this summary assumes such
treatment.
ORIGINAL ISSUE DISCOUNT; ACQUISITION DISCOUNT. For United States federal
income tax purposes, you will be required to treat your pro rata portion of
each treasury security in the treasury portfolio as a bond that was originally
issued on the date the collateral agent acquired the relevant treasury
securities and that has original issue discount (or, in the case of short-term
treasury securities, acquisition discount) equal to your pro rata portion of
the excess of the amounts payable on such treasury securities over the purchase
price of the treasury securities at the time the collateral agent acquires them
on your behalf. In the case of treasury securities other than short-term
treasury securities, you will be required to include the original issue
discount in income for United States federal income tax purposes as it accrues
on a constant yield to maturity basis, regardless of your regular method of tax
accounting. The amount of this excess will constitute only a portion of the
total amounts payable in respect of the Treasury portfolio. Consequently, a
portion of each scheduled interest payment to you will be treated as a return
of your investment in the treasury portfolio and will not be considered current
income for United States federal income tax purposes.
With respect to any short-term treasury securities, you generally will be
required to include the acquisition discount in income as it accrues only if
you are an accrual basis taxpayer. In that case, you generally would accrue
such acquisition discount on a straight-line basis, unless you make an election
to accrue the acquisition discount on a constant yield-to-maturity basis.
TAX BASIS OF THE U.S. TREASURY PORTFOLIO. The initial tax basis of your
applicable ownership interest in the treasury portfolio will equal your pro
rata portion of the amount paid by the collateral agent for the treasury
portfolio. Your adjusted tax basis in the treasury portfolio will be increased
by the amount of original issue discount or acquisition discount included in
income with respect thereto and decreased by the amount of cash received in
respect of the treasury portfolio.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Unless you are an exempt recipient (such as a corporation), interest,
original issue discount, acquisition discount, contract adjustment payments or
deferred contract adjustment payments, and dividends received on, and proceeds
received from the sale of, equity units, notes, purchase contracts, treasury
securities, the treasury portfolio, or PCS common stock, may be subject to
information reporting and also may be subject to United States federal backup
withholding tax a rate equal to the fourth lowest income tax rate applicable to
individuals (which is 30.5% for 2001, 30.0% for 2002 and 2003, 29.0% for 2004,
and 28.0% for 2006), if you fail to supply an accurate taxpayer identification
number or otherwise fail to comply with applicable United States information
reporting or certification requirements.
Any amounts withheld under the backup withholding rules will be allowed
as a credit against your United States federal income tax liability, provided
that you furnish the required information to the IRS.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following discussion applies to you if you are a holder other than a
U.S. person as defined in the third paragraph of "Certain Federal Income Tax
Consequences" above. Special rules may apply to you or your shareholders if you
are a "controlled foreign corporation", "passive foreign investment company" or
"foreign personal holding company," and you should consult your own tax advisor
to determine the United States federal, state, local and other tax consequences
that may be relevant to you.
UNITED STATES FEDERAL WITHHOLDING TAX. The 30% United States federal
withholding tax should not apply to any payment of principal or interest
(including original issue discount or acquisition discount) on the notes, U.S.
treasury securities or U.S. treasury portfolio, provided that:
. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the U.S. Internal Revenue Code and the U.S. treasury
regulations;
. you are not a controlled foreign corporation that is related to us
through stock ownership;
. you are not a bank whose receipt of interest on the notes is
described in section 881(c)(3)(A) of the U.S. Internal Revenue Code;
and
. you provide your name and address on an IRS Form W-8BEN (or a
successor form), and certify, under penalties of perjury, that you
are not a United States person; or a qualified intermediary holding
the equity units on your behalf provides us with a Form W-8IMY that
among other things, certifies that it has determined that you are not
a U.S. person.
WE DO NOT INTEND TO WITHHOLD ON PAYMENTS OF PRINCIPAL AND INTEREST IF THESE
REQUIREMENTS ARE MET.
We generally will withhold tax at a rate of 30% on any dividends paid on
the shares of PCS common stock acquired under the purchase contract and on the
contract adjustment payments made with respect to the purchase contract. If a
treaty applies, however, you may be eligible for a reduced rate of withholding.
Similarly, contract adjustment payments or dividends that are effectively
connected with your conduct of a trade or business within the United States
(or, where a tax treaty applies, are attributable to a United States permanent
establishment that you maintain), are not subject to the withholding tax, but
instead are subject to United States federal income tax, as described below. In
order to claim any such exemption or reduction in the 30% withholding tax, you
should provide a properly executed IRS Form W-8BEN (or a suitable substitute
form) claiming a reduction of or an exemption from withholding under an
applicable tax treaty or IRS Form W-8ECI (or a suitable substitute form)
stating that such payments are not subject to withholding because they are
effectively connected with your conduct of a trade or business in the United
States.
In general, the 30% U.S. federal withholding tax will not apply to any
gain or income that you realize on the sale, exchange, or other disposition of
the equity units, notes, purchase contracts, U.S. treasury securities or PCS
common stock acquired under the purchase contracts.
In general, no backup withholding will be required with respect to
payments we make with respect to the equity units, the notes, or the contract
adjustment payments if the certification requirements described above have been
satisfied and we do not have actual knowledge or reason to know that you are a
U.S. person. In addition, no backup withholding will be required on the
proceeds of the sale of equity units, notes, U.S. treasury securities and PCS
common stock made within the United States or conducted through certain United
States financial intermediaries if the payor receives the statement described
above and does not have actual knowledge or reason to know that you are a
United States person or you otherwise establish an exemption.
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UNITED STATES FEDERAL INCOME TAX. If you are engaged in a trade or
business in the United States (or, if a tax treaty applies, if you maintain a
permanent establishment within the United States) and interest (including
original issue discount) on the notes, original issue discount or acquisition
discount on the U.S. treasury securities, dividends on PCS common stock and, to
the extent they constitute taxable income, contract adjustment payments from
the purchase contracts are effectively connected with the conduct of that trade
or business (or if a treaty applies, of that permanent establishment), you will
be subject to United States federal income tax (but not the 30% withholding
tax), on such sources of income on a net income basis in the same manner as if
you were a U.S. person. In addition, if you are a foreign corporation, you may
be subject to an additional branch profits tax at a 30% rate (or such lower
rate or exemption as may be specified by an applicable tax treaty).
Any gain or income realized on the disposition of an equity unit,
purchase contract, note, U.S. treasury security or PCS common stock generally
will not be subject to United States federal income tax unless:
. that gain or income is effectively connected with your conduct of a
trade or business in the United States;
. you are an individual who is present in the United States for 183
days or more in the taxable year of that disposition, and certain
other conditions are met; or
. in the case of PCS common stock or purchase contracts, we are or have
been a "U.S. real property holding corporation" for United States
federal income tax purposes.
We do not believe that we are currently a "U.S. real property holding
corporation" for United States federal income tax purposes, although it has not
been determined or established whether we will be a U.S. real property holding
corporation in the future. In any event, if we were to become a U.S. real
property holding corporation, so long as the PCS common stock continues to be
regularly traded on an established securities market,
. you generally would not be subject to U.S. federal income tax on the
disposition of PCS common stock if you held (at all times during the
five year period preceding the date of disposition) less than five
percent of the total outstanding shares of PCS common stock, and
. you would not be subject to U.S. federal income tax on the
disposition of a purchase contract if, on the last day you acquired
any purchase contracts, all of the purchase contracts you owned on
such day had a fair market value less than the fair market value of
five percent of the PCS common stock.
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UNDERWRITING
We intend to offer the corporate units through the underwriters. J. P.
Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
UBS Warburg LLC are acting as representatives of the underwriters named below.
Subject to the terms and conditions in an underwriting agreement between us and
the underwriters, we have agreed to sell to the underwriters, and the
underwriters have severally agreed to purchase from us, the number of corporate
units set forth opposite their names below.
NUMBER OF
CORPORATE
UNDERWRITER UNITS
----------- ---------
J.P. Morgan Securities Inc.....................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
UBS Warburg LLC................................
ABN AMRO Rothschild LLC........................
Banc of America Securities LLC.................
Credit Suisse First Boston Corporation.........
Lehman Brothers Inc............................
-----
Total................................... =====
The underwriters have agreed to purchase all of the corporate units sold
pursuant to the underwriting agreement if any of the corporate units are
purchased. If an underwriter defaults, the underwriting agreement provides that
the purchase commitments of the nondefaulting underwriters may be increased or
the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect to those
liabilities.
The underwriters are offering corporate units, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of legal
matters by their counsel, including the validity of the corporate units, and
other conditions contained in the underwriting agreement, such as the receipt
by the underwriters of officers' certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The underwriters have advised us that they propose initially to offer the
corporate units to the public at the public offering price on the cover page of
this prospectus supplement and to dealers at that price less a concession not
in excess of $ per corporate unit. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $ per corporate unit to
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
We expect to incur expenses in connection with this offering, not
including the underwriting discount, of approximately $ .
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The following table shows the per unit and total public offering price,
underwriting discount to be paid by us to the underwriters and proceeds before
expenses to us. The information is presented assuming either no exercise or
full exercise by the underwriters of the overallotment option.
PER
CORPORATE
UNIT WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price........... $ $ $
Underwriting discount........... $ $ $
Proceeds, before expenses, to us $ $ $
OVERALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to an
additional 6,000,000 corporate units at the public offering price less the
underwriting discount. The underwriters may exercise this option for 30 days
from the date of this prospectus supplement solely to cover any overallotments.
If the underwriters exercise this option, each will be obligated, subject to
conditions contained in the underwriting agreement, to purchase a number of
additional corporate units proportionate to that underwriter's initial amount
reflected in the table above.
NO SALE OF SIMILAR SECURITIES
We have agreed, with some exceptions, not to, directly or indirectly,
without the prior written consent of any two of J.P. Morgan Securities Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and UBS Warburg LLC, on
behalf of the underwriters, for a period of 90 days after the date of this
prospectus supplement:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose
of directly or indirectly, any shares of any series of PCS common
stock or any securities convertible into or exercisable or
exchangeable for shares of any series of PCS common stock; or
. enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
the PCS common stock.
The restrictions described in this paragraph do not apply to:
. the sale of corporate units, including the purchase contracts to
purchase PCS common stock, to the underwriters;
. any transactions by us in connection with or pursuant to any employee
or director benefit plan in effect on the date of this prospectus
supplement, our registration of any such transaction or the issuance
by us of shares of capital stock under our rights plan in effect on
the date of this prospectus supplement;
. issuances by us of PCS common stock or securities convertible or
exchangeable into PCS common stock in connection with acquisitions or
mergers or in connection with strategic or other significant
investments in which the recipient of such PCS common stock or
securities convertible or exchangeable into PCS common stock agrees
to be bound by the restrictions described above for a 90-day period;
. issuance of PCS common stock upon conversion of outstanding shares of
preferred stock -- seventh series, convertible, or upon exercise of
outstanding warrants to purchase PCS common stock;
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. registrations of PCS common stock for, or issuances of PCS common
stock to, Comcast Corporation, Cox Communications, Inc. and Liberty
PCS Trust (collectively, the "Cable Partners") upon any exercise of
their equity purchase rights or registration rights;
. issuances or registrations of shares of PCS common stock issuable to
or for the benefit of France Telecom, Deutsche Telekom, or any
affiliate or third parties in respect of the shares of our Class A
common stock held by France Telecom and Deutsche Telekom on the date
of this prospectus supplement;
. treasury units or corporate units to be created or recreated upon
substitution of pledged securities, or shares of PCS common stock
issuable upon early settlement of the corporate units or the treasury
units; and
. the issuance and sale of PCS common stock in the offering being
conducted concurrently with this offering.
Any two of J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and UBS Warburg LLC, in their sole discretion, may jointly
release any of the securities subject to these lock-up agreements at any time
without notice.
NEW YORK STOCK EXCHANGE LISTING
The corporate units are a new issue of securities with no established
trading market. The PCS common stock is traded on the NYSE under the symbol
"PCS," and the corporate units have been approved for listing on the NYSE under
the symbol "SDE". We have been advised by the underwriters that they intend to
make a market in the securities, but they are not obligated to do so and may
discontinue market-making at any time without notice. We and the underwriters
can provide no assurance as to the liquidity of, or any trading market for, the
securities.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the corporate units offered by this prospectus
supplement is completed, SEC rules may limit the underwriters and selling group
members from bidding for or purchasing the corporate units or shares of the PCS
common stock. However, the representatives may engage in transactions that
stabilize the price of the corporate units or the PCS common stock, such as
bids or purchases that peg, fix or maintain the price of the corporate units or
the PCS common stock.
In connection with this offering, the representatives may make short
sales of our corporate units. Short sales involve the sale by the underwriters,
at the time of the offering, of a greater number of corporate units than they
are required to purchase in the offering. Covered short sales are sales made in
an amount not greater than the overallotment option. The underwriters may close
out any covered short position by either exercising the allotment option or
purchasing corporate units in the open market. In determining the source of
corporate units to close out the covered short position, the representatives
will consider, among other things, the price of corporate units available for
purchase in the open market as compared to the price at which they may purchase
the corporate units through the overallotment option. Similar to other purchase
transactions, purchases by the representatives to cover syndicate short
positions may have the effect of raising or maintaining the market price of the
corporate units and the PCS common stock or preventing or retarding a decline
in the market price of the corporate units and the PCS common stock. As a
result, the prices of the corporate units and the PCS common stock may be
higher than they would otherwise be in the absence of these transactions.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the corporate units or the
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PCS common stock. In addition, neither we nor any of the underwriters make any
representation that the representatives will engage in these transactions or
that these transactions, once commenced, will not be discontinued without
notice.
ELECTRONIC PROSPECTUS
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make internet distributions on the
same basis as other allocations. Merrill Lynch will be facilitating
distribution for this offering to certain of their internet subscription
customers. Merrill Lynch intends to allocate a limited number of shares for
sale to their online brokerage customers. An electronic preliminary prospectus
supplement is available on the internet website maintained by Merrill Lynch.
Other than the preliminary prospectus supplement in electronic format, the
information on the Merrill Lynch website is not intended to be part of this
prospectus supplement.
OTHER RELATIONSHIPS
The underwriters and their affiliates have performed certain investment
banking, advisory and general financing and banking services for us from time
to time for which they have received customary fees and expenses. The
underwriters and their affiliates may, from time to time, be customers of,
engage in transactions with and perform services for us in the ordinary course
of their business. Certain of the underwriters and their affiliates have in the
past and may in the future act as lenders in connection with our credit
facilities.
LEGAL MATTERS
Certain legal matters with respect to this offering will be passed upon
for us by Thomas A. Gerke, Vice President, Corporate Secretary and Associate
General Counsel of our company, and King & Spalding. Certain legal matters
relating to the offering will be passed upon for the underwriters by Cravath,
Swaine & Moore, New York, New York. As of June 30, 2001, Thomas A. Gerke
beneficially owned approximately 16,100 shares of PCS common stock and 16,400
shares of FON common stock and had options to purchase in excess of 75,000
shares of PCS common stock and in excess of 135,000 shares of FON common stock.
S-70
PROSPECTUS
[LOGO] Sprint(R)
SPRINT CORPORATION
[LOGO] Sprint(R)
Sprint PCS(R)
Debt Securities
Guarantees
Convertible Subordinated Debt Securities
Convertible Preferred Stock
PCS Common Stock, Series 1
Stock Purchase Contracts
Equity Units
-----------------
SPRINT CAPITAL CORPORATION
Debt Securities
unconditionally guaranteed by
SPRINT CORPORATION
-----------------
We may offer from time to time debt securities, guarantees, convertible
subordinated debt securities, convertible preferred stock, PCS common stock,
series 1, stock purchase contracts and equity units, and Sprint Capital
Corporation may offer from time to time debt securities unconditionally
guaranteed by us, in an aggregate amount not to exceed $4,000,000,000. In
addition, one or more of our stockholders may offer from time to time up to
57,000,000 shares of PCS common stock, series 1. We or Sprint Capital
Corporation, as the case may be, will provide the specific terms of these
securities as applicable in supplements to this prospectus. You should read
this prospectus and the accompanying prospectus supplement carefully before you
invest.
The PCS common stock is intended to track the performance of our PCS group.
The PCS common stock is a class of common stock of our company and,
accordingly, holders of PCS common stock are subject to all the risks of an
equity investment in us and all of our businesses, assets and liabilities.
The PCS common stock, series 1 is listed on the New York Stock Exchange
under the symbol "PCS". Any PCS common stock sold pursuant to a prospectus
supplement will be listed on the New York Stock Exchange.
-----------------
Investing in our securities involves risks. See "Risk Factors" beginning on
page 6.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------
The date of this prospectus is July 26, 2001.
TABLE OF CONTENTS
About This Prospectus.......................................................................... 2
Where You Can Find More Information............................................................ 2
Sprint Corporation............................................................................. 4
Sprint Capital Corporation..................................................................... 5
Risk Factors................................................................................... 6
Special Note Regarding Forward-Looking Statements.............................................. 16
Use of Proceeds................................................................................ 16
Ratios of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends 17
Description of Debt Securities................................................................. 19
Description of Convertible Subordinated Debt Securities........................................ 27
Authorized Capital Stock....................................................................... 38
Description of Convertible Preferred Stock..................................................... 39
Description of PCS Common Stock................................................................ 40
Description of Stock Purchase Contracts and Equity Units....................................... 47
Selling Stockholder............................................................................ 48
Plan of Distribution........................................................................... 49
Legal Matters.................................................................................. 51
Experts........................................................................................ 51
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf process, we may sell
any combination of the following securities:
. debt securities,
. guarantees,
. convertible subordinated debt securities,
. convertible preferred stock,
. PCS common stock, series 1,
. stock purchase contracts, and
. equity units,
and Sprint Capital Corporation, or Sprint Capital, may sell:
. debt securities
in one or more offerings up to a total dollar amount of $4,000,000,000. In
addition, one or more of our stockholders may from time to time sell up to
57,000,000 shares of PCS common stock, series 1, in one or more offerings. This
prospectus provides you with a general description of the securities we or a
selling stockholder may sell. Each time we, Sprint Capital or a selling
stockholder sell securities, we or Sprint Capital will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement also may add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
caption "Where You Can Find More Information." We, Sprint Capital or a selling
stockholder may only use this prospectus to sell securities if it is
accompanied by a prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may
2
also read and copy any document we file with the SEC at its public reference
facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You can also obtain
copies of the documents at prescribed rates by writing to the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference facilities. Our SEC filings are also available at the office
of the New York Stock Exchange. For further information on obtaining copies of
our public filings at the New York Stock Exchange, you should call (212)
656-5060.
The SEC allows us to "incorporate by reference" the information that we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus and information that we subsequently file
with the SEC will automatically update and supercede information in this
prospectus and in our other filings with the SEC. We incorporate by reference
the documents listed below, which we have already filed with the SEC, and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until we sell all of the securities offered
by this prospectus:
. Annual Report on Form 10-K/A for the year ended December 31, 2000;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
. Current Report on Form 8-K filed on February 20, 2001;
. Current Report on Form 8-K filed on April 23, 2001;
. Current Report on Form 8-K filed on May 16, 2001;
. Current Report on Form 8-K filed on July 24, 2001;
. Amendment No.3 to Form 8-A registering the PCS common stock, series 1
under the Exchange Act, dated and filed on April 18, 2001; and
. Amendment No.2 to Form 8-A registering the PCS group rights under the
Exchange Act, dated and filed on July 26, 1999.
You may request a copy of these filings, other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing,
at no cost, by writing or calling us at the following address:
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
(800) 259-3755
Attention: Investor Relations
We and Sprint Capital have also filed a registration statement with the SEC
relating to the securities described in this prospectus. This prospectus is
part of the registration statement. You may obtain from the SEC a copy of the
registration statement and exhibits that we and Sprint Capital filed with the
SEC when we and Sprint Capital registered the securities. The registration
statement may contain additional information that may be important to you.
You should rely only on the information contained or incorporated by
reference in this prospectus or the applicable prospectus supplement. Neither
we nor Sprint Capital have authorized anyone else to provide you with
additional or different information. We and Sprint Capital are only offering
these securities in states where the offer is permitted. You should not assume
that the information in this prospectus or the applicable prospectus supplement
is accurate as of any date other than the dates on the front of those
documents.
Unless the context requires otherwise, references to "we," "us," and "our"
mean Sprint Corporation and its subsidiaries, including Sprint Capital
Corporation and references to Sprint Capital mean Sprint Capital Corporation,
our wholly owned finance subsidiary.
3
SPRINT CORPORATION
General
We are a global communications company and a leader in integrating
long-distance, local service and wireless communications. We are also one of
the largest carriers of Internet traffic using our tier one Internet protocol
network, which provides connectivity to any point on the Internet either
through our own network or via direct connections with another backbone
provider. We are the nation's third-largest provider of long distance services
and operate nationwide, all-digital long distance and tier one Internet
protocol networks using fiber-optic and electronic technology. In addition, our
local telecommunications division currently serves approximately 8.3 million
access lines in 18 states. We also operate the only 100% digital personal
communications service, or PCS, wireless network in the United States with
licenses to provide service nationwide using a single frequency band and a
single technology.
In November 1998, we allocated all of our assets and liabilities into two
groups: the FON group and the PCS group. At the same time, we reclassified each
share of our publicly traded common stock into tracking stocks. Each share of
common stock was reclassified into one share of FON common stock and 1/2 share
of PCS common stock. Our business is divided into four lines of business: the
global markets division, the local telecommunications division, the product
distribution and directory publishing businesses and the PCS wireless telephony
products and services business. The FON group includes the global markets
division, the local telecommunications division and the product distribution
and directory publishing businesses, and the PCS group includes the PCS
wireless telephony products and services business. The PCS common stock is
intended to reflect the financial results and economic value of the PCS
wireless telephony products and services business. The FON common stock is
intended to reflect the financial results and economic value of the global
markets division, the local telecommunications division and the product
distribution and directory publishing businesses.
We were incorporated in 1938 under the laws of the State of Kansas. Our
principal executive offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and our telephone number is (913) 624-3000.
Characteristics of Tracking Stock
Our PCS common stock and FON common stock are intended to reflect the
performance of the PCS and FON groups. However, they are classes of common
stock of our company, not of the group they are intended to track. Accordingly,
holders of PCS and FON common stock are subject to all of the risks of an
equity investment in us and all of our businesses, assets and liabilities.
Shares of PCS or FON common stock do not represent a direct equity or legal
interest in the assets and liabilities allocated to either group, but rather
represent a direct equity interest in our assets and liabilities as a whole.
Holders of PCS and FON common stock generally vote as a single class on all
matters submitted to a vote of our stockholders, including the election of
directors. The vote per share of PCS common stock is different than the vote
per share of FON common stock. The FON common stock has one vote per share. The
vote per share of the PCS common stock is based on the market price of a share
of PCS common stock relative to the market price of a share of FON common stock
for a period of time before the record date for a stockholder meeting. See
"Description of PCS Common Stock--Voting Rights."
The market price of the PCS common stock may not accurately reflect the
reported financial results and prospects of the PCS group or the dividend
policies established by our board with respect to the PCS common stock. The
market price of the FON common stock may not accurately reflect the reported
financial results and prospects of the FON group or the dividend policies
established by our board of directors with respect to the FON common stock.
Events affecting our company generally or the results of one group could
adversely affect the results of operations of the other group or the market
price of the stock tracking the other group. In addition, holders of PCS and
FON common stock may have conflicting interests, which could be resolved by our
board to the detriment of one group or the other. See "Risk Factors--Risk
Factors Relating to Tracking Stocks."
4
SPRINT CAPITAL CORPORATION
Sprint Capital is a wholly owned subsidiary of our company. We formed Sprint
Capital to engage in financing activities to provide funds for use by us and
our other subsidiaries, other than the local exchange companies in our local
telecommunications division. Sprint Capital raises funds through the sale of
debt securities, and then uses the net proceeds to make loans to, or
investments in, us or our other subsidiaries, other than the local exchange
companies in our local telecommunications division. Sprint Capital does not and
will not engage in any other business operations.
Sprint Capital was incorporated in 1993 under the laws of the State of
Delaware. Its principal offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and its telephone number is (913) 624-3000.
5
RISK FACTORS
An investment in the securities described in this prospectus involves risks.
You should carefully consider the following risk factors and the other
information included or incorporated by reference in this prospectus before
deciding to invest in the securities.
Risk Factors Relating to our Company
Any failure by the PCS group to continue the buildout of its network and meet
capacity requirements of its customer growth will likely impair its financial
performance and negatively impact the market price of the PCS common stock
and our other securities.
The PCS group has additional network buildout and substantial capacity
additions to complete. As the PCS group continues the buildout and expansion of
its PCS network, it must:
. obtain rights to a large number of cell sites;
. obtain zoning variances or other approvals or permits for network
construction and expansion; and
. build and maintain additional network capacity to satisfy customer
growth.
Network buildout and expansion may not occur as scheduled or at the cost
that the PCS group has estimated. The Federal Communications Commission
requires certain levels of construction or "buildout" for licensees to retain
their PCS licenses. Moreover, delays or failure to add network capacity, or
increased costs of adding capacity, could limit our ability to increase the
revenues of, or cause a deterioration in the operating margin of, the PCS group
or our company as a whole.
The PCS group expects to continue to supplement its own network buildout
through affiliation arrangements with other companies. Under these
arrangements, these companies offer PCS services under the Sprint PCS brand
name, allow us to retain a portion of collected revenues, and complete network
buildout at the affiliates' expense. The related PCS networks are in various
stages of network buildout and launch. These companies may not be able to
complete and operate their networks.
Failure to satisfy our substantial capital requirements could cause us to
delay or abandon our expansion plans.
The PCS group and the FON group will continue to require substantial
additional capital to continue to expand their businesses. We may not be able
to arrange additional financing to fund our capital requirements on terms
acceptable to us. Our ability to arrange additional financing will depend upon,
among other factors, our financial performance, general economic conditions and
prevailing market conditions. Many of these factors are beyond our control.
Either of the PCS group's or the FON group's fund raising efforts may adversely
affect the other group's ability to raise additional capital. Failure to obtain
suitable financing could, among other things, result in the delay or
abandonment of the PCS group's expansion plans or the inability of the FON
group to continue to expand its business and meet competitive challenges.
We face intense competition that may reduce our market share and harm our
financial performance.
There is substantial competition in the telecommunications industry. The
traditional dividing lines between long distance, local, wireless and Internet
services are increasingly becoming blurred. Through mergers and various service
integration strategies, major providers, including us, are striving to provide
integrated solutions both within and across all geographical markets.
6
We expect competition to intensify as a result of the entrance of new
competitors and the rapid development of new technologies, products and
services. We cannot predict which of many possible future technologies,
products or services will be important to maintain our competitive position or
what expenditures will be required to develop and provide these technologies,
products or services. Our ability to compete successfully will depend on
marketing and on our ability to anticipate and respond to various competitive
factors affecting the industry, including new services that may be introduced,
changes in consumer preferences, demographic trends, economic conditions and
discount pricing strategies by competitors. To the extent we do not keep pace
with technological advances or fail to timely respond to changes in competitive
factors in our industry, we could lose market share or experience a decline in
our revenue and net income.
PCS group. Each of the markets in which the PCS group competes is served by
other two-way wireless service providers, including cellular, enhanced
specialized mobile radio and PCS operators and resellers. A majority of markets
have five or more commercial mobile radio service providers. Each of the top 50
metropolitan markets has at least two other PCS competitors in addition to two
cellular incumbents. Many of these competitors have been operating for a number
of years and currently serve a substantial subscriber base. Competition may
continue to increase to the extent that licenses are transferred from smaller
stand-alone operations to larger, better capitalized and more experienced
wireless communications operations. These larger wireless communications
operations may be able to offer customers network features not offered by the
PCS group. The actions of these larger wireless communications operations could
negatively impact the PCS group's customer churn, ability to attract new
customers, average revenue per user, cost to acquire customers and operating
costs per customer.
The PCS group relies on agreements with competitors to provide automatic
roaming capability to PCS group customers in many of the areas of the United
States not covered by the PCS group's network, which primarily serves
metropolitan areas. Certain competitors may be able to offer coverage in areas
not served by the PCS group's network or may be able to offer roaming rates
that are lower than those offered by the PCS group. Certain of our competitors
are seeking to reduce access to their networks through actions pending with the
Federal Communications Commission. Moreover, the standard for the dominant air
interface upon which PCS customers roam is currently being considered for
elimination by the Federal Communications Commission as part of a streamlining
proceeding. If the Federal Communications Commission eliminates this standard,
PCS customers may have difficulty roaming in certain markets.
Many cellular providers, some of which have an infrastructure in place and
have been operating for a number of years, have been upgrading their systems
and provide expanded and digital services to compete with the PCS group's
services. Many of these wireless providers require their customers to enter
into long term contracts, which may make it more difficult for the PCS group to
attract these customers away from these wireless providers.
We anticipate that market prices for two-way wireless voice services and
products generally will decline in the future as a result of increased
competition. We also expect to face increased competition for access to
distribution channels. Consequently, we may be forced to increase advertising
and promotion spending. All of this may lead to greater choices for customers,
possible consumer confusion and increased industry churn.
FON group. As the nation's third largest provider of long distance services,
the FON group competes with AT&T Corp., or AT&T, and WorldCom, Inc., as well as
a host of smaller competitors. A class of new entrants has emerged, such as
Qwest Communications International Inc. and Level 3 Communications, Inc., that
have built high-capacity fiber-optic networks capable of supporting tremendous
amounts of bandwidth. Although these new entrants have not captured a large
market share, they and others with a strategy of using Internet-based networks
claim certain cost structure advantages which, among other factors, may
position them well for the future. In addition, increased competition has
forced lower prices for long distance services. The significant increase in
capacity resulting from new networks may drive prices down further.
The Telecommunications Act of 1996 allows the Regional Bell Operating
Companies to provide long distance services in their respective regions if
certain conditions are met. Verizon Communications Inc. has entered the long
distance market in New York and SBC Communications Inc. has entered the long
distance market in Texas. Both have been successful in obtaining a significant
market share in a short period of time. SBC
7
Communications Inc. has also recently entered the long distance market in
Kansas and Oklahoma and Verizon Communications Inc. has recently entered the
long distance market in Massachusetts. A significant portion of the Regional
Bell Operating Companies may secure regulatory clearance to offer long distance
services in their respective markets in the next 12 months. As the Regional
Bell Operating Companies enter the market they should prove to be formidable
long distance competitors.
Because our local telecommunications division operates largely in rural
markets, competition in the local division's markets is occurring more
gradually. There is already significant competition for business and
residential customers in urban areas served by the local telecommunications
division of the FON group and for business customers located in most areas.
Certain combinations involving competitors may increase competition. In
addition, wireless services will continue to grow as an alternative to wireline
services as a means of reaching customers.
Demand for some of our communications products and services has been
adversely affected by a downturn in the United States economy as well as
changes in the global economy.
Demand for some of our communications products and services has been
adversely affected by a downturn in the United States economy as well as
changes in the global economy. A number of the FON group's wholesale customers
have struggled financially recently and some have filed for bankruptcy. As a
result, we have experienced lower than expected revenues for our wholesale
business in recent quarters. In addition, we have lowered our expectations for
near-term growth of our web hosting and related businesses due to lower demand.
As a result, we have recently reduced our financial forecast for our FON group
operations for the remainder of 2001.
Likewise, a number of our suppliers have recently experienced financial
challenges. If they cannot meet their commitments, we would have to use
different vendors and this could result in delays, interruptions or additional
expenses associated with the upgrade and expansion of our networks and the
offering of our products and services.
If current general economic conditions continue or worsen, the revenues,
cash flow and net income of the PCS group, the FON group and our company as a
whole could be adversely effected.
Our substantial leverage will reduce cash flow from operations available to
fund our business and may cause a decline in our credit rating and/or limit
our ability to raise additional capital.
We have substantial indebtedness. As of March 31, 2001, we had total
outstanding debt of $20.1 billion. We intend to incur additional indebtedness
in the future as we implement the business plans of the PCS group and the FON
group. In connection with the execution of our business strategies, we are
continuously evaluating acquisition opportunities with respect to both the PCS
group and the FON group, and we may elect to finance acquisitions by incurring
additional indebtedness. We must use a portion of our future cash flow from
operations to pay the principal and interest on our indebtedness, which will
reduce the funds available for our operations, including capital investments
and business expenses. This could hinder our ability to adjust to changing
market and economic conditions. If we incur significant additional
indebtedness, our credit rating could be adversely affected. As a result, our
borrowing costs would likely increase and our access to capital may be
adversely affected.
Any convertible subordinated debt securities will rank behind other
indebtedness.
Any convertible subordinated debt securities will rank behind all of our
existing and future senior debt (as defined in the indenture relating to the
convertible subordinated debt securities), including debt outstanding under our
credit facilities. As of March 31, 2001, we, excluding our subsidiaries, had
$16.9 billion of senior debt outstanding (including $86 million of letters of
credit and $15.5 billion of guarantees of debt of our subsidiaries). This
amount does not include approximately $2.7 billion that we had available to
borrow under our credit facilities, all of which would be senior debt if
borrowed. In addition, the convertible subordinated debt securities will be
effectively subordinated to all of the indebtedness and liabilities, including
trade payables, of our subsidiaries. As of March 31, 2001, our subsidiaries had
$28.2 billion of indebtedness and other liabilities, including trade payables,
outstanding. In the event of our bankruptcy, liquidation or reorganization, our
assets will be available to pay our obligations on the convertible subordinated
debt securities only after we have repaid
8
all of our senior debt in full. It is possible that sufficient assets would not
remain to make full payment on the convertible subordinated debt securities
after those payments are made. In addition, the subordination provisions of the
indenture provide that we cannot make cash payments on any convertible
subordinated debt securities while a payment default is continuing under any of
our senior debt. See "Description of Convertible Subordinated Debt
Securities--Subordination."
We are a holding company and, accordingly, will depend on the cash flow of
our subsidiaries to satisfy our obligations under our indebtedness.
We are primarily a holding company and have no material operations, sources
of income or assets other than our equity interest in our subsidiaries. Any
convertible subordinated debt securities will be exclusively our obligations
and will not be guaranteed by any of our subsidiaries. Because substantially
all of our operations are conducted by our subsidiaries, our operating cash
flow and our ability to service our indebtedness, including any convertible
subordinated debt securities, depends upon the cash flow of our subsidiaries
and their ability to make transfers to us in the form of loans, dividends or
otherwise. If we cannot obtain sufficient funds from our subsidiaries, we may
not be able to meet our obligations on the convertible subordinated debt
securities.
The PCS group has a history of operating losses.
If the PCS group does not achieve and maintain profitability on a timely
basis, the PCS group may be unable to make capital expenditures necessary to
implement its business plan, meet its debt service requirements or otherwise
conduct its business in an effective and competitive manner. This would require
us to divert cash from other uses, which may not be possible or may detract
from the growth of our PCS and FON groups' businesses. These events could limit
our ability to increase revenues and net income of the PCS group and our
company as a whole or cause these amounts to decline.
Significant change in the wireless industry could cause a decline in demand
for the PCS group's services.
The wireless telecommunications industry is experiencing significant
technological change, including improvements in the capacity and quality of
digital technology such as the move to third generation wireless technology.
This causes uncertainty about future customer demand for the PCS group's
services and the prices that we will be able to charge for these services. For
example, the demands for wireless data services provided by the PCS group may
be impacted by the proliferation of wireless local area networks using new
technologies. The rapid change in technology may lead to the development of
wireless telecommunications services or alternative services that consumers
prefer over PCS. There is also uncertainty as to the extent to which airtime
charges and monthly recurring charges may continue to decline. As a result, the
future prospects of the wireless industry and the PCS group and the success of
PCS and other competitive services remain uncertain.
A high rate of customer churn would likely impair the PCS group's financial
performance.
Historically, the PCS group experienced a high rate of customer churn.
Current strategies to address customer churn may not continue to be successful
and recent improvements in the rate of churn could reverse. A high rate of
customer churn would impair our ability to increase the revenues of, or cause a
deterioration in the operating margin of, the PCS group or our company as a
whole.
Government regulation could adversely affect the PCS group's prospects and
results of operations.
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the Federal Communications Commission and, depending on the
jurisdiction, state and local regulatory agencies. In addition, the Federal
Communications Commission, together with the Federal Aviation Administration,
regulates tower marking and lighting. Tower construction is also affected by
federal statutes addressing environmental protection and historic preservation.
The Federal Communications Commission, the Federal Aviation Administration or
other governmental
9
authorities having jurisdiction over the PCS group's business could adopt
regulations or take other actions that would adversely affect the business
prospects or results of operations of the PCS group.
Federal Communications Commission licenses to provide PCS services are
subject to renewal and revocation. The PCS group's metropolitan trading area
licenses will expire in 2005 and its basic trading area licenses will expire in
2007. Metropolitan trading areas are areas defined by the Federal
Communications Commission for the purpose of issuing licenses for PCS. Several
basic trading areas make up each metropolitan trading area. The licenses may be
renewed by the Federal Communications Commission for additional ten year terms;
however, there can be no guarantee that the PCS group's licenses will be
renewed. Federal Communications Commission rules require all PCS licensees to
meet certain buildout requirements. The PCS group may not continue to obtain
the requisite coverage in each metropolitan trading area market or obtain the
requisite coverage in each basic trading area market. Failure to comply with
Federal Communications Commission requirements in a given license area could
result in revocation of the PCS group's PCS license for that license area or
the imposition of fines on the PCS group by the Federal Communications
Commission.
Failure by various regulatory bodies to make telephone numbers available in
a timely fashion could result in the PCS group not having enough local numbers
to assign to new subscribers in certain markets. The Federal Communications
Commission has adopted rules to promote the efficient use of numbering
resources, including restrictions on the assignment of telephone numbers to
carriers, including wireless carriers. The Federal Communications Commission is
considering additional rules in this area. The Federal Communications
Commission has delegated to states the authority to assign, administer and
conserve telephone numbers. Depending on the actual rules adopted by the
states, the supply of available numbers could be adversely restricted. As a
result, the PCS group may:
. be required to assign subscribers non-local telephone numbers, which may
be a disincentive for potential customers to subscribe to PCS service,
. incur significant costs to either acquire new numbers or reassign
subscribers to new numbers and/or
. be unable to enroll new subscribers at projected rates.
Failure to complete development and rollout of new technology could impact
our ability to compete in the industry.
We are currently in the process of developing and rolling out various new
technologies intended to help us compete in the industry. We have entered into
several major contracts with vendors and undertaken other initiatives for the
provision of third generation technology to be included in our PCS network.
Successful implementation of this upgrade depends on the vendors meeting their
obligations in a timely manner. In addition, we have invested significant
amounts in the development of Sprint ION for the FON group. Sprint ION is still
in its development phase. For example, although we have deployed Sprint ION
using dedicated access and digital subscriber line technology, we are in the
process of developing our ability to deploy Sprint ION over our fixed wireless
multipoint multichannel distribution service technology. We are also working to
improve voice stability on the Sprint ION digital subscriber line platform. We
may not successfully complete the development and rollout of third generation
technology, Sprint ION or any other new technology in a timely manner and third
generation technology, Sprint ION or any other new technology may not be widely
accepted by customers. In either case, we may not be able to compete
effectively in the industry.
We could be required to move our broadband fixed wireless services to a
higher frequency or surrender some of the frequency we use to provide these
services, which would adversely affect our ability to provide these services.
The Federal Communications Commission and the National Telecommunications
and Information Administration in the Department of Commerce are seeking to
identify additional spectrum that can be used to
10
provide advanced wireless services. Among the spectrum bands under
consideration are the bands currently used by the FON group and others to
provide broadband fixed wireless services. The Federal Communications
Commission has initiated a proceeding to examine the issues raised by the
possibility of reallocating spectrum subject to its jurisdiction or reducing
the spectrum available to current licensees and is expected to issue an order
later this year. If the Federal Communications Commission orders reallocation
of the spectrum used by us or reduces our spectrum, it would substantially
increase our cost of providing broadband fixed wireless services and could make
it unprofitable to provide these services.
Risk Factors Relating to Tracking Stocks
Risks associated with the business of the FON group may adversely affect our
overall performance. Because PCS common stock represents an equity interest
in our company as a whole and not the PCS group separately, the market price
of the PCS common stock and any security convertible into or exercisable for
the PCS common stock could be adversely affected by the business of the FON
group.
Although the PCS common stock is intended to track the performance of our
PCS group, it does not represent a direct legal interest in the assets and
liabilities of the PCS group, but rather represents a direct equity interest in
our assets and liabilities as a whole. Therefore, holders of PCS common stock
are common stockholders of our company and as such are subject to the risks
related to all of our businesses, assets and liabilities. This means that
events affecting the business, assets or financial condition of the FON group
could also adversely affect the business, assets or financial condition of the
PCS group. Consequently, these events could affect the market price of the PCS
common stock and any security convertible into or exercisable for PCS common
stock.
The market price of the PCS common stock may not accurately reflect the
performance of the PCS group.
The market price for the PCS common stock may not reflect the reported
financial results and prospects of the PCS group or the dividend policies
established by our board of directors with respect to the PCS common stock. For
example, if investors have negative expectations for the FON group or our
company as a whole, the market price of the PCS common stock and any security
convertible into or exercisable for PCS common stock could be adversely
affected without regard to the performance of the PCS group.
The complex nature of the tracking stocks may adversely affect the market
prices of the PCS common stock and the FON common stock.
The complex nature of the terms of the PCS common stock and the FON common
stock, such as the relative voting power and dividend policies applicable to
each type of common stock, and the difficulties investors may have in
understanding these terms may adversely affect the market prices of the PCS
common stock and the FON common stock and any security convertible into or
exercisable for either of these stocks.
Holders of PCS common stock are stockholders of our company and generally do
not have specific rights related to the assets or business of the PCS group.
As such, they must vote with holders of FON and Class A common stock on
matters submitted to a vote of our stockholders and they may not be able to
determine the outcome of the vote.
We are the issuer of the PCS common stock, and the PCS common stock does not
represent a direct interest in the PCS group. As a result, with few exceptions,
holders of PCS common stock have only the rights customarily held by common
stockholders of a corporation and do not have rights specifically related to
the assets or business of the PCS group. For example, holders of PCS common
stock vote together with holders of FON common stock and Class A common stock
as a single class on most matters, including the election of directors. The FON
common stock has one vote per share. The vote per share of the PCS common stock
fluctuates, based on its market price relative to the market price of a share
of FON common stock for a period of time before the record date for a
stockholders' meeting. To the extent that the aggregate voting power of the
outstanding FON common stock and
11
Class A common stock is greater than that of the PCS common stock, the holders
of those stocks would be in a position to control the outcome of stockholder
votes, including the election of directors. This would be true even if the
matter to be voted upon involves a conflict in the interests of the holders of
the FON common stock and the PCS common stock.
Under the applicable corporate law, our board of directors does not owe
separate duties to the holders of the PCS common stock or to the holders of
the FON common stock.
Under the applicable corporate law, our board of directors owes its
fiduciary duties to all of our stockholders. Neither the PCS group nor the FON
group has a separate board of directors to represent solely the interests of
the holders of the PCS common stock or FON common stock. Consequently, there is
no board of directors that owes separate duties to the holders of either the
PCS common stock or the FON common stock. Our tracking stock policies provide
that our board, in resolving material matters in which the holders of PCS
common stock and FON common stock have potentially divergent interests, will
act in the best interest of our company and all of our common stockholders
after giving fair consideration to the potentially divergent interests of the
holders of the separate classes of our common stock. These tracking policies
may be changed by the board without stockholder approval.
Conflicts of interest between holders of PCS common stock and FON common
stock in transactions between the PCS group and the FON group or in our
dealings with third parties could be resolved by our board to the detriment
of PCS stockholders.
Holders of PCS common stock may have interests that differ from or conflict
with the interests of holders of FON common stock. For example, conflicts could
arise with respect to decisions by our board of directors with respect to,
among other things, the following matters:
. conversion of the outstanding shares of PCS common stock into shares of
FON common stock, which our board of directors may do any time after
November 23, 2001;
. payment of dividends on PCS common stock or FON common stock;
. sale of the assets of either the PCS or FON group to a third party;
. transfer of assets from one group to the other group;
. allocation of consideration in a merger among holders of PCS common
stock and FON common stock;
. intercompany loans from one group to the other group;
. formulation of public policy positions that could have different effects
on the interests of the PCS group and the FON group; and
. the effects on each group of operational and financial decisions.
Policies adopted by our board of directors with respect to our tracking
stocks provide that loans from the FON group to the PCS group will be made at
interest rates and on terms and conditions substantially equivalent to the
interest rates and terms and conditions that the PCS group would be able to
obtain from third parties, including the public markets, as a wholly-owned
subsidiary, but without the benefit of any guaranty from us or the FON group.
This provision applies regardless of the interest rate at which the loaned
funds are borrowed by us or the FON group. We anticipate that the interest
rates payable by the PCS group will continue to be higher than those payable by
us or the FON group for the foreseeable future.
These tracking stock policies also provide guidelines for addressing
material conflicts. Our board of directors has appointed a committee,
consisting of outside board members, to interpret and oversee the
implementation of these policies. Subject to these policies, the resolution of
conflicts by our board may benefit, or appear to benefit, one group at the
expense of the other group.
12
Our directors generally own more FON common stock than PCS common stock,
which could give rise to claims of conflict of interest.
In general, members of our board of directors have a greater economic
interest in the FON group than in the PCS group. This difference in ownership
could give rise to claims of conflict of interest when our board of directors
makes decisions on matters where the interests of the FON group and the PCS
group diverge.
Payments to the PCS group under the tax sharing agreement could be less than
expected, and our board of directors could change the terms of the tax
sharing agreement to the detriment of the PCS group.
Federal and state income taxes incurred by us are allocated between the
groups in accordance with a tax sharing agreement entered into by us when we
created the FON group and the PCS group. These allocations are based
principally on the taxable income and tax credits contributed by each group.
Allocations to or from the PCS group are intended to reflect its actual
incremental cumulative effect (positive or negative) on our consolidated
federal and state taxable income and related tax liability and tax credit
positions, subject to certain adjustments. Significant payments pursuant to the
tax sharing agreement have been made by the FON group to the PCS group and we
expect that significant payments will continue to be made by the FON group to
the PCS group in the near future, in light of the operating losses that the PCS
group has incurred or is expected to incur during this time. It is possible
that these payments will be more or less than expected. For example, PCS group
losses or FON group income could be less than anticipated, in which case the
payments to the PCS group would be less than expected.
The initial tax sharing agreement applies to tax years ending on or before
December 31, 2001. For periods after December 31, 2001, our board of directors
will adopt a tax sharing arrangement that will be designed to continue to
allocate tax benefits and burdens fairly between the FON group and the PCS
group. We expect that tax benefits that cannot be used by a group generating
those benefits but can be used on a consolidated basis will continue to result
in payments to the group that generated the benefits. In addition, we expect
that any tax benefits relating to tax loss or tax credit carry forwards
generated by the PCS group but not used as of the expiration of the initial tax
sharing agreement will continue to result in payments to the PCS group when the
tax benefits are used. Our board of directors could change the terms of the tax
sharing agreement in a way that would decrease the benefit (or increase the
cost) of the agreement to the PCS group.
Our board of directors has the discretion to change the allocation of the
assets and liabilities that comprise each of the PCS group and the FON group
without the approval of our stockholders.
Our board of directors, subject to the restrictions in our articles of
incorporation, has the discretion to change the allocation of the assets and
liabilities that comprise each of the PCS group and the FON group without the
approval of our stockholders. It is possible that a change in the existing
allocation of our assets and liabilities between the groups could adversely
affect the PCS group or the FON group. We intend to disclose any change in this
allocation in our reports filed with the SEC; however, this disclosure is not
required and the timing and content of this disclosure is at our discretion.
Because our stockholders would not be entitled to vote on any change in the
allocations, the market prices of the PCS common stock and the FON common stock
and any security convertible into or exercisable for either of these stocks may
not reflect a change until the change is disclosed by us.
Our board of directors could change its established policies relating to the
holders of PCS common stock to the detriment of the PCS group.
Our board of directors may change its tracking stock policies without the
approval of our stockholders. Our board of directors may also adopt additional
policies depending upon the circumstances. Our board of directors may adopt new
policies and change existing policies in a manner consistent with its fiduciary
duties after giving fair consideration to the potentially divergent interests
and all other relevant interests of the holders of the separate classes of our
common stock, including the holders of PCS common stock and the holders of FON
13
common stock. However, new policies and changes to the existing policies could
have different impacts upon holders of PCS common stock and FON common stock
and could affect one common stock negatively in relation to the other common
stock. See "Description of PCS Common Stock--Dividend Rights and Restrictions."
The structure of the tracking stocks may impede an acquisition of the PCS
group.
If the PCS group were a stand-alone entity, a person that did not wish to
negotiate with our management could seek to acquire the PCS group by means of a
tender offer or proxy contest involving only the PCS group stockholders.
However, because the PCS group is a part of our company, acquiring it without
negotiation with our management would require a proxy contest or tender offer
to gain control of our company as a whole and would probably require
solicitations to holders of both PCS common stock and FON common stock. This
may hinder potential acquirers of the PCS group assets and thereby prevent
holders of PCS common stock from achieving additional return on their
investment related to such acquisitions.
Holders of PCS common stock may receive less in an acquisition of the PCS
group's assets than they would if the PCS group were a separate company.
If the PCS group were an independent company and its shares were acquired by
another person, certain costs, including corporate level taxes, might not be
payable in connection with the acquisition. As a result, holders of PCS common
stock might receive more consideration in an acquisition of the PCS group if
the PCS group were an independent company. In addition, the after-tax proceeds
per share that holders of PCS common stock would receive as a result of a
disposition of PCS group assets might be less than the market value per share
of the PCS common stock before or after the announcement of such disposition.
Potential sales of large amounts of PCS common stock into the market could
lower the market price of the PCS common stock.
As of June 30, 2001, we had approximately 980.6 million shares of PCS common
stock outstanding (including shares of PCS common stock underlying the Class A
common stock held by France Telecom and Deutsche Telekom). Of these shares, an
aggregate of approximately 113.4 million were held by France Telecom and
Deutsche Telekom, and an aggregate of 324.2 million were held by Liberty PCS
Trust, Comcast Corporation and Cox Communications, Inc. In addition, as of June
30, 2001 Liberty PCS Trust, Comcast and Cox held shares of our preferred stock
that were convertible into an aggregate of approximately 16.1 million shares of
PCS common stock and warrants to purchase approximately 24.9 million shares of
PCS common stock.
Comcast, Cox and Tele-Communications, Inc., or TCI, which we refer to
together with Liberty PCS Trust as the cable holders, received PCS common
stock, series 2 as part of the purchase price in our acquisition of their
interests in entities that are now part of the PCS group. TCI transferred its
shares to Liberty PCS Trust in connection with the acquisition of TCI by AT&T
in March 1999.
These stockholders have significant registration rights. Sales of a
substantial number of these shares of PCS common stock, or the perception that
such sales may occur, could cause the market price of the PCS common stock and
any security convertible into or exercisable for PCS common stock to decline
and impede our ability to raise capital through sales of PCS common stock or
securities convertible into or exercisable for PCS common stock.
On February 20, 2001, we entered into an agreement with France Telecom and
Deutsche Telekom that sets forth the parties' agreements concerning the timing
and mechanics of our recent secondary offering of FON common stock, series 1 in
relation to an offering by us of PCS common stock, which we refer to as the PCS
offering. Under the agreement, unless waived by us, each of France Telecom and
Deutsche Telekom is required to refrain from disposing of, or requesting that
we register, its shares of PCS common stock, subject to limited exceptions,
until the earliest to occur of:
. 180 days following the closing of the PCS offering, if the PCS offering
is completed by December 31, 2001,
14
. November 15, 2001, if we have not publicly announced our intention to
commence the PCS offering by that date, and
. January 1, 2002, if the PCS offering is not completed by December 31,
2001.
Any sale of PCS common stock by the cable holders to the public or other
unaffiliated parties will result in conversion of their shares of PCS common
stock, series 2 into the same number of shares of PCS common stock, series 1.
Each share of PCS common stock, series 1 possesses ten times the vote of each
share of PCS common stock, series 2, except in the case of a class vote. Thus,
any sales of PCS common stock, series 2 to the public or other unaffiliated
parties will dilute the voting power of the shares of PCS common stock, series
1 that are outstanding immediately before the sale.
In connection with AT&T's acquisition of TCI, the U.S. Department of Justice
required TCI to transfer its shares of PCS common stock to the Liberty PCS
Trust for disposition within a five-year period. Other elements and
requirements of the trust included the following:
. the trustee must divest sufficient shares of PCS common stock to cause
its holdings to amount to no more than 10% of the PCS common stock on a
fully diluted basis on or before May 23, 2002,
. the trustee must divest the remaining shares on or before May 23, 2004,
. the trustee must accomplish the divestiture only in a manner reasonably
calculated to maximize the value of the PCS common stock held by the
selling stockholder, and
. there are no specified limits on the number of shares that may be sold
in any given period.
15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference "forward-looking
statements" within the meaning of the securities laws. All statements that are
not historical facts are "forward-looking statements." The words "estimate,"
"project," "intend," "expect," "believe," "anticipate" and similar expressions
identify forward-looking statements. These forward-looking statements include
statements regarding the expected financial position, business, financing
plans, business prospects, revenues, working capital, liquidity, capital needs,
interest costs and income, in each case relating to the PCS group and the FON
group as well as our company as a whole.
Forward-looking statements are estimates and projections reflecting our best
judgment and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements. Although we and Sprint Capital believe that the estimates and
projections reflected in the forward-looking statements are reasonable, our
expectations may prove to be incorrect. Important factors that could cause
actual results to differ materially from estimates or projections contained in
the forward-looking statements include:
. the effects of vigorous competition in the markets in which we operate;
. the costs and business risks associated with providing new services and
entering new markets necessary to provide nationwide or global services;
. the ability of the PCS group to continue to grow a significant market
presence;
. the effects of mergers and consolidations within the telecommunications
industry;
. the uncertainties related to our strategic investments;
. the impact of any unusual items resulting from ongoing evaluations of
our business strategies;
. unexpected results of litigation filed against us;
. the possibility of one or more of the markets in which we compete being
impacted by changes in political, economic or other factors such as
monetary policy, legal and regulatory changes, including the impact of
the Telecommunications Act of 1996, or other external factors over which
we have no control; and
. those factors listed in this prospectus under "Risk Factors."
We and Sprint Capital believe these forward-looking statements are
reasonable; however, undue reliance should not be placed on any forward-looking
statements, which are based on current expectations. Further, forward-looking
statements speak only as of the date they are made.
USE OF PROCEEDS
Unless the applicable prospectus supplement states otherwise, we and Sprint
Capital will use the net proceeds from the sale of any securities for general
corporate purposes, including repaying debt, making capital investments and
funding working capital requirements.
We will not receive any of the proceeds from the sale, if any, of PCS common
stock, series 1, by any selling stockholder.
16
RATIOS OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
The following table shows the ratios of earnings to fixed charges and to
combined fixed charges and preferred stock dividends for our company, which
includes our subsidiaries, on a consolidated basis. The following table does
not show the ratio of earnings to fixed charges for Sprint Capital on a
stand-alone basis because it is not meaningful.
For purposes of calculating the ratios,
(1)earnings include:
. income (loss) from continuing operations before taxes, plus
. equity in the net losses of less-than-50% owned entities, less
. capitalized interest; and
(2)fixed charges include:
. interest on all debt of continuing operations, including capitalized
interest;
. amortization of debt issuance costs; and
. the interest component of operating rents.
For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, preferred stock dividends include the amount of
pre-tax earnings required to pay the dividends on outstanding preferred stock.
The ratio of earnings to fixed charges is calculated as follows:
(earnings) + (fixed charges)
----------------------------
(fixed charges)
The ratio of earnings to combined fixed charges and preferred stock
dividends is calculated as follows:
(earnings) + (fixed charges)
-------------------------------------------------------------------------------
(fixed charges) + (pretax earnings required to cover preferred stock dividends)
Pretax earnings required to cover preferred stock dividends are calculated
as follows:
preferred stock dividends, as adjusted for the tax benefits related to unallocated shares
-----------------------------------------------------------------------------------------
1 - (our effective income tax rate)
Three Months
Ended
Year Ended December 31, March 31,
--------------------------------------- ---------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------ ------ ------ ------
Ratio of earnings to fixed charges............. 5.96(1) 6.67(2) 1.79(3) -- (4) -- (5) -- (6) -- (7)
Ratio of earnings to combined fixed charges and
preferred stock dividends.................... 5.93(1) 6.64(2) 1.78(3) -- (4) -- (5) -- (6) -- (7)
--------
(1)Earnings, as defined above, include a nonrecurring charge related to
litigation of $60 million. Excluding this charge, the ratio of earnings to
fixed charges would have been 6.10 for 1996 and the ratio of earnings to
combined fixed charges and preferred stock dividends would have been 6.08
for 1996.
(2)Earnings, as defined above, include a nonrecurring litigation charge of $20
million and nonrecurring net gains of $71 million mainly from sales of local
exchanges and certain investments. Excluding these items, the ratio of
earnings to fixed charges would have been 6.54 for 1997 and the ratio of
earnings to combined fixed charges and preferred stock dividends would have
been 6.51 for 1997.
17
(3)Earnings, as defined above, include a nonrecurring charge to write off $179
million of acquired in-process research and development costs related to the
PCS restructuring and nonrecurring net gains of $104 million mainly relating
to sales of local exchanges. Excluding these items, the ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends would have been 1.85 for 1998.
(4)Earnings, as defined above, were inadequate to cover fixed charges by $1.1
billion and inadequate to cover combined fixed charges and preferred stock
dividends by $1.2 billion in 1999. Earnings, as defined above, include a net
nonrecurring gain of $54 million from investment activities. Excluding this
gain, earnings, as defined above, would have been inadequate to cover fixed
charges, and inadequate to cover combined fixed charges and preferred stock
dividends, by $1.2 billion.
(5)Earnings, as defined above, were inadequate to cover fixed charges by $621
million and inadequate to cover combined fixed charges and preferred stock
dividends by $632 million in 2000. Earnings, as defined above, include:
. nonrecurring charges of $238 million principally representing a
write-down of goodwill, $187 million for costs associated with the
terminated WorldCom merger and $122 million for the write-downs of
certain equity investments;
. net nonrecurring gains of $71 million from the sale of an independent
directory publishing operation and from investment activities; and
. a nonrecurring gain of $28 million from the sale of network
infrastructure and the right to manage customers to a PCS affiliate.
Excluding these items, earnings, as defined above, would have been
inadequate to cover fixed charges by $173 million and inadequate to cover
combined fixed charges and preferred stock dividends by $184 million.
(6)Earnings, as defined above, were inadequate to cover fixed charges by $72
million and inadequate to cover combined fixed charges and preferred stock
dividends by $75 million in the quarter ending March 31, 2000. Earnings, as
defined above, include a net nonrecurring gain of $26 million from
investment activities. Excluding this gain, earnings, as defined above,
would have been inadequate to cover fixed charges by $98 million and
inadequate to cover combined fixed charges and preferred stock dividends by
$101 million.
(7)Earnings, as defined above, were inadequate to cover fixed charges by $62
million and inadequate to cover combined fixed charges and preferred stock
dividends by $65 million in the quarter ending March 31, 2001. Earnings, as
defined above, include a nonrecurring gain of $14 million from investment
activities. Excluding this gain, earnings, as defined above, would have been
inadequate to cover fixed charges by $76 million and inadequate to cover
combined fixed charges and preferred stock dividends by $79 million.
18
DESCRIPTION OF DEBT SECURITIES
Debt securities issued by us will be issued pursuant to an indenture dated
as of October 1, 1998 between us and Bank One, N.A., as trustee, as
supplemented by a first supplemental indenture dated as of January 15, 1999. We
refer to this indenture as so supplemented as the Sprint indenture. Debt
securities issued by Sprint Capital will be issued under an indenture dated as
of October 1, 1998 among us, Sprint Capital and Bank One, N.A., as trustee, as
supplemented by a first supplemental indenture dated as of January 15, 1999. We
refer to this indenture as so supplemented as the Sprint Capital indenture. We
refer to the Sprint indenture and the Sprint Capital indenture collectively as
the indentures.
We have summarized the material provisions of the indentures below. The
forms of the indentures have been filed as exhibits to the registration
statement and you should read the indentures for provisions that may be
important to you. In the summary below, we have included references to section
numbers of the indentures so that you can easily locate these provisions.
Capitalized terms used in the summary have the meaning specified in the
indentures. You can obtain copies of the indenture by following the directions
described under the caption "Where You Can Find More Information." In this
section, references to "our", "we" and similar terms mean Sprint Corporation,
excluding its subsidiaries.
General
The indentures do not limit the aggregate principal amount of debt
securities that we and Sprint Capital may issue and provide that we and Sprint
Capital may issue debt securities from time to time in one or more series, in
each case with the same or various maturities, at par or at a discount. We may
issue additional debt securities of a particular series without the consent of
the holders of the debt securities of that series outstanding at the time of
the issuance. Any additional debt securities, together with all other
outstanding debt securities of that series, will constitute a single series of
debt securities under the applicable indenture. The indentures also do not
limit our ability or the ability of Sprint Capital to incur other debt and do
not contain financial or similar restrictive covenants, except as described
below. Debt securities issued by us will be our senior unsecured obligations,
and debt securities issued by Sprint Capital will be its senior unsecured
obligations and will be fully and unconditionally guaranteed by us.
A prospectus supplement relating to a series of debt securities being
offered will include specific terms relating to the offering. These terms will
include some or all of the following:
. the title of the debt securities;
. any limit on the total principal amount of the debt securities;
. the maturity date or dates of the debt securities;
. the rate or rates of interest, which may be fixed or variable, per annum
at which the debt securities will bear interest, or the method of
determining the rate or rates, if any;
. the date or dates from which interest, if any, will accrue;
. the dates on which interest will be payable and the related record
dates;
. whether payments of principal or interest will be determined by any
index, formula or other method and the manner of determining the amount
of these payments;
. the place or places where the principal of, premium, if any, and
interest on the debt securities will be payable if other than the
location specified in this prospectus;
. any redemption dates, prices, rights, obligations and restrictions on
the debt securities;
. any mandatory or optional sinking fund, purchase fund or similar
provisions;
. the denominations in which the debt securities will be issuable if other
than denominations of $ 1,000 and integral multiples of $ 1,000;
19
. the portion of the principal amount of the debt securities payable upon
the acceleration of the maturity of the debt securities if other than
the principal amount;
. the currency or currency unit in which principal and interest will be
paid if other than U.S. dollars;
. whether the debt securities will be issued in permanent global form and
the circumstances under which the permanent global debt security may be
exchanged;
. any deletions from, changes in or additions to the events of default or
the covenants specified in the indenture; and
. any other material terms of the debt securities not specified in this
prospectus (Section 301).
We and Sprint Capital may issue debt securities at a substantial discount
below their stated principal amount. We refer to these securities as original
issue discount securities, which means any security that initially provides for
an amount less than its principal amount to be due and payable upon the
acceleration of its maturity. We or Sprint Capital, as applicable, will
describe the federal income tax consequences and other special considerations
applicable to any original issue discount securities in the applicable
prospectus supplement.
Unless the applicable prospectus supplement states otherwise, debt
securities will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000 (Sections 301 and
302). Holders of debt securities will not pay any service charge for any
registration of transfer or exchange of the debt securities, but we or Sprint
Capital may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with the registration of transfer or
exchange (Section 305).
Unless the applicable prospectus supplement states otherwise, the covenants
contained in the indentures, the debt securities and guarantees would not
necessarily afford holders protection in the event of a highly leveraged or
other transaction involving us that may adversely affect holders.
Payment; Transfer
Unless the applicable prospectus supplement states otherwise, principal of,
premium, if any, and interest, if any, on the debt securities will be payable,
and the debt securities will be transferable, at the corporate trust office of
the applicable trustee. However, interest may be paid at our or Sprint
Capital's option by check mailed to the address of the holder entitled to the
interest as it appears on the applicable security register. We and Sprint
Capital will have the right to require a holder of any debt security, in
connection with any payment on the debt security, to certify information to us
or, in the absence of certification, we or Sprint Capital, as the case may be,
may rely on any legal presumption to enable us to determine our obligation, if
any, to deduct or withhold taxes, assessments or governmental charges from the
payment.
Guarantees
We will unconditionally guarantee the due and punctual payment of the
principal and any premium and interest on the debt securities issued by Sprint
Capital when and as it becomes due and payable, whether at maturity or
otherwise (Sprint Capital indenture, Section 311). The guarantees will rank
equally with all our other unsecured and unsubordinated indebtedness. The
guarantees provide that in the event of a default in payment of principal or
any premium or interest on a debt security, the holder of the debt security may
institute legal proceedings directly against us to enforce the guarantees
without first proceeding against Sprint Capital. The Sprint Capital indenture
provides that we may under certain circumstances assume all rights and
obligations of Sprint Capital under the Sprint Capital indenture with respect
to a series of debt securities issued by Sprint Capital.
Restrictive Covenants
Sprint. Under the indentures, we may not, and may not permit our Restricted
Subsidiaries to, create, incur or allow to exist any Lien upon any property or
assets now owned or acquired at a later time unless:
. the Lien is a Permitted Lien; or
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. the outstanding debt securities and, in the case of debt securities
issued by Sprint Capital, the outstanding guarantees are equally and
ratably secured by the Lien; or
. the aggregate principal amount of indebtedness secured by the Lien and
any other Lien, other than Permitted Liens, plus the Attributable Debt
in respect of any Sale and Leaseback Transaction does not exceed 15% of
our Consolidated Net Tangible Assets (Sprint indenture, Section 1008,
Sprint Capital indenture, Section 1012).
Sprint Capital. Sprint Capital may not create, issue, assume or guarantee
any unsecured funded debt ranking prior to the debt securities issued by Sprint
Capital (Sprint Capital indenture, Section 1009).
Unless the applicable prospectus supplement states otherwise, Sprint Capital
may not create, assume or suffer to exist any Lien upon any of its property or
assets, now owned or acquired at a later time, without equally and ratably
securing any outstanding debt securities issued by Sprint Capital with any and
all other obligations and indebtedness secured by the Lien, subject to certain
exceptions (Sprint Capital indenture, Section 1008).
Definitions. Under the indentures:
"Attributable Debt" of a Sale and Leaseback Transaction means, at any date,
the total net amount of rent required to be paid under the lease during the
remaining term of the lease, excluding any subsequent renewal or other
extension options held by the lessee, discounted from the respective due dates
of the amounts to the date of determination at the rate of interest per annum
implicit in the terms of the lease, as determined in good faith by us,
compounded annually. The net amount of rent required to be paid under any lease
during the remaining term will be the amount of rent payable by the lessee with
respect to this period, after excluding amounts required to be paid on account
of maintenance and repairs, insurance, taxes, assessments, water rates and
similar charges and contingent rents.
"Capital Lease Obligations" means indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with generally accepted accounting principles. The
amount of indebtedness will be the capitalized amount of the obligations
determined in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Net Tangible Assets" means our and our subsidiaries'
consolidated total assets as reflected in our most recent balance sheet
preceding the date of determination prepared in accordance with generally
accepted accounting principles consistently applied, less
. current liabilities, excluding current maturities of long-term debt and
Capital Lease Obligations, and
. goodwill, tradenames, trademarks, patents, minority interests of others,
unamortized debt discount and expense and other similar intangible
assets, excluding any investments in permits or licenses issued, granted
or approved by the Federal Communications Commission.
"Lien" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, lien, charge, easement or
zoning restriction, encumbrance, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever on or
with respect to property including any Capital Lease Obligation, conditional
sale or other title retention agreement having substantially the same economic
effect as any of the foregoing or any Sale and Leaseback Transaction.
"Permitted Liens" means:
(1) Liens existing on October 1, 1998;
(2) Liens on property existing at the time of acquisition of the property
or to secure the payment of all or any part of the purchase price of the
property or to secure any indebtedness incurred before, at the time of or
within 270 days after the acquisition of the property for the purpose of
financing all or any part of the purchase price of the property;
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(3) Liens securing indebtedness owing by a Restricted Subsidiary to us or
any of our wholly owned subsidiaries;
(4) Liens on property of any entity, or on the stock, indebtedness or
other obligations of any entity, existing at the time
. the entity becomes a Restricted Subsidiary,
. the entity is merged into or consolidated with us or a Restricted
Subsidiary, or
. we or a Restricted Subsidiary acquires all or substantially all
of the assets of the entity,
as long as the Liens do not extend to any other property of ours or property
of any other Restricted Subsidiary;
(5) Liens on property to secure any indebtedness incurred to provide
funds for all or any part of the cost of development of or improvements to
the property;
(6) Liens on our property or the property of any of our Restricted
Subsidiaries securing
. nondelinquent performance of bids or contracts, other than for
borrowed money, obtaining of advances or credit or the securing
of debt,
. contingent obligations on surety and appeal bonds, and
. other nondelinquent obligations of a similar nature,
in each case, incurred in the ordinary course of business;
(7) Liens securing Capital Lease Obligations, provided that
. the Liens attach to the property within 270 days after the
acquisition thereof, and
. the Liens attach solely to the property so acquired;
(8) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds, as long as the deposit
account is not a dedicated cash collateral account and is not subject to
restrictions against access by us or a Restricted Subsidiary, as applicable,
in excess of those set forth by regulations promulgated by the Federal
Reserve Board and the deposit account is not intended by us or the
Restricted Subsidiary to provide collateral to the depository institution;
(9) pledges or deposits under worker's compensation laws, unemployment
insurance laws or similar legislation;
(10) statutory and tax Liens for sums not yet due or delinquent or which
are being contested or appealed in good faith by appropriate proceedings;
(11) Liens arising solely by operation of law, such as mechanics',
materialmen's, warehouseman's and carriers' Liens and Liens of landlords or
of mortgages of landlords, on fixtures and movable property located on
premises leased in the ordinary course of business;
(12) Liens on personal property, other than shares of stock or
indebtedness of any Restricted Subsidiary, to secure loans maturing not more
than one year from the date of the creation of the loan and on accounts
receivable associated with a receivables financing program of ours or any of
our Restricted Subsidiaries;
(13) any Lien created by or resulting from litigation or other proceeding
against us or any Restricted Subsidiary, or upon property of ours or of a
Restricted Subsidiary, or any lien for workmen's compensation awards or
similar awards, so long as the finality of the judgment or award is being
contested and execution on the judgment or award is stayed or the Lien
relates to a final unappealable judgment which is satisfied
22
within 30 days of the judgment or any Lien incurred by us or any Restricted
Subsidiary for the purpose of obtaining a stay or discharge in the course of
any litigation or other proceeding, as long as the judgment or award does
not constitute an Event of Default under clause (5) of "Events of Default"
below;
(14) Liens on our real property or the real property of a Restricted
Subsidiary which constitute minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights of way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of the real
property, as long as all of the liens referred to in this clause (14) in the
aggregate do not at any time materially detract from the value of the real
property or materially impair its use in the operation of our business or
the business of our subsidiaries;
(15) Liens on our property or the property of a Restricted Subsidiary
securing indebtedness or other obligations issued by the United States of
America or any state or any department, agency or instrumentality or
political subdivision of the United States of America or any state, or by
any other country or any political subdivision of any other country, to
finance all or any part of the purchase price of, or, in the case of real
property, the cost of construction on or improvement of, any property or
assets subject to the Liens, including Liens incurred in connection with
pollution control, industrial revenue or similar financings; and
(16) any renewal, extension or replacement of any Lien permitted pursuant
to (1), (2), (4), (5), (7) and (15) above or of any indebtedness secured by
any such Lien, as long as the extension, renewal or replacement Lien is
limited to all or any part of the same property that secured the Lien
extended, renewed or replaced, plus improvements on the property, and the
principal amount of indebtedness secured by the Lien and not otherwise
authorized by clauses (1), (2), (4), (5), (7) and (15) does not exceed the
principal amount of indebtedness plus any premium or fee payable in
connection with the renewal, extension or replacement so secured at the time
of the renewal, extension or replacement.
"Receivables Subsidiary" means a special purpose wholly owned subsidiary
created in connection with any transactions that may be entered into by us or
any of our subsidiaries pursuant to which we or any of our subsidiaries may
sell, convey, grant a security interest in or otherwise transfer undivided
percentage interests in its receivables.
"Restricted Subsidiary" means any subsidiary of ours, other than a
Receivables Subsidiary or Sprint Capital, if:
. the subsidiary has substantially all of its property in the United
States, other than its territories and possessions; and
. at the end of our most recent fiscal quarter preceding the date of
determination, the aggregate amount, determined in accordance with generally
accepted accounting principles consistently applied, of securities of, loans
and advances to, and other investments in, the subsidiary held by us and our
other subsidiaries, less any securities of, loans and advances to, and other
investments in us and our other subsidiaries held by the subsidiary or any
of its subsidiaries, exceeded 15% of our Consolidated Net Tangible Assets.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
pursuant to which property is sold or transferred by us or a Restricted
Subsidiary and is thereafter leased back from the purchaser or transferee by us
or the Restricted Subsidiary.
Events of Default
Definition. The indentures define an Event of Default with respect to debt
securities of any series as any one of the following events:
(1) failure to pay principal of or any premium on any debt security of
that series at maturity;
(2) failure to pay any interest on any debt security of that series when
due, continued for 30 days;
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(3) failure to deposit any sinking fund payment, when due, in respect of
any debt security of that series;
(4) failure to perform any other covenant or warranty in the applicable
indenture, other than a covenant included solely for the benefit of series
of debt securities other than that series, continued for 60 days after
written notice as provided in that indenture;
(5) default resulting in acceleration of more than $50 million in
aggregate principal amount of any indebtedness for money borrowed by us or
Sprint Capital or any other subsidiary of ours under the terms of the
instrument under which that indebtedness is issued or secured, if that
indebtedness is not discharged or acceleration is not rescinded or annulled
within 10 days after written notice as provided in the indentures;
(6) certain events of bankruptcy, insolvency or reorganization; and
(7) any other Event of Default provided with respect to debt securities
of that series (Section 501).
Remedies. If an Event of Default with respect to debt securities of any
series at the time outstanding occurs and is continuing, either the applicable
trustee or the holders of at least 25% in principal amount of the outstanding
debt securities of that series may declare the principal amount (or, if any of
the debt securities of that series are original issue discount securities, such
portion of the principal amount as may be specified in the terms of that
series) of all the debt securities of that series to be due and payable
immediately by written notice as provided in the applicable indenture.
Notwithstanding the foregoing, unless the applicable prospectus supplement
states otherwise, if an Event of Default described in clause (6) with respect
to any debt securities of any series occurs and is continuing, then all of the
debt securities of that series shall become immediately due and payable without
any further act by us, Sprint Capital, any holder or the applicable trustee. At
any time after a declaration of acceleration with respect to debt securities of
any series has been made and before a judgment or decree for payment of the
money due based on acceleration has been obtained, the holders of a majority in
principal amount of the outstanding debt securities of that series may, in
accordance with the applicable indenture, rescind and annul the acceleration
(Section 502).
Obligations of Trustee. Each indenture provides that the trustee will be
under no obligation, subject to the duty of the trustee during default to act
with the required standard of care, to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders, unless
the holders offer reasonable indemnity to the trustee (Sections 601 and 603).
Subject to the provisions for indemnification of the applicable trustee, the
holders of a majority in principal amount of the outstanding debt securities of
any series will have the right, in accordance with applicable law, to direct
the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee, with respect to the debt securities of that series (Section 512).
Under the indentures we and Sprint Capital must furnish to the applicable
trustee annually a statement regarding the performance of our respective
obligations under the applicable indentures and as to any default in
performance (Section 1004).
Modification and Waiver
Modifications and Amendments. We and the applicable trustee may modify and
amend the Sprint indenture, in most cases with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
affected by the modification or amendment.
We, Sprint Capital and the applicable trustee may modify and amend the
Sprint Capital indenture, in most cases with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
affected by the modification or amendment.
Unless the applicable prospectus supplement states otherwise, however,
neither we nor Sprint Capital may, without the consent of the holder of each
outstanding debt security affected:
. change the date specified in the debt security for the payment of the
principal of, or any installment of principal of or interest on, the
debt security,
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. reduce the principal amount of, or any premium or interest on, any debt
security,
. reduce the amount of principal of an original issue discount security or
any other debt security payable upon acceleration of the maturity of
that debt security,
. change the place or currency of payment of principal of, or any premium
or interest on, any debt security,
. impair the right to institute suit for the enforcement of any payment on
or with respect to any debt security or
. reduce the percentage in principal amount of outstanding debt securities
of any series, the consent of whose holders is required to modify or
amend the indenture or to waive compliance with certain provisions of
the applicable indenture or for waiver of certain defaults (Section
902).
In addition, unless the applicable prospectus supplement states otherwise,
we, Sprint Capital and the trustee may not, without the consent of the holder
of each outstanding debt security affected, modify or amend the terms and
conditions of, or our obligations under, the guarantees in any manner adverse
to the holders of any debt security.
Waivers. The holders of a majority in principal amount of the outstanding
debt securities of any series issued under the indentures may on behalf of the
holders of all debt securities of that series waive, insofar as that series is
concerned, compliance by us or Sprint Capital, as the case may be, with certain
restrictive provisions of the indenture (Sprint indenture, Section 1009, Sprint
Capital indenture, Sections 1010 and 1013). The holders of a majority in
principal amount of the outstanding debt securities of any series may on behalf
of the holders of all debt securities of that series waive any past default
under the applicable indenture with respect to that series, except a default in
the payment of the principal of or any premium or interest on any debt security
of that series or in respect of a covenant or provision which under the
indentures cannot be modified or amended without the consent of the holder of
each outstanding debt security of that series affected (Section 513).
Consolidation, Merger and Conveyances
Neither we nor, in the case of the Sprint Capital indenture, Sprint Capital
may consolidate with or merge into any other person or convey, transfer or
lease all or substantially all of our properties and assets in any one
transaction or series of transactions, and neither we nor, in the case of the
Sprint Capital indenture, Sprint Capital may permit any person to consolidate
with or merge into us or Sprint Capital or convey, transfer or lease all or
substantially all of its properties and assets in any one transaction or series
of transactions to us or Sprint Capital, unless:
. the successor person is organized under the laws of any United States
jurisdiction and assumes our obligations or the obligations of Sprint
Capital, as applicable, under the debt securities, the guarantees and
the applicable indenture,
. after giving effect to the transaction no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, has happened and is continuing, and
. certain other conditions specified in the indentures are met.
Thereafter, if we or Sprint Capital are not the successor person, all of our
obligations and the obligations of Sprint Capital terminate (Sections 801 and
802).
Defeasance
Unless the applicable prospectus supplement states otherwise, the following
defeasance provisions will apply to the debt securities.
The indentures provide that we and Sprint Capital, in the case of debt
securities issued under the Sprint Capital indenture, may elect either:
. to defease and be discharged from any and all obligations with respect
to the debt securities and the guarantees of those debt securities, with
certain limited exceptions described below, which we refer to as full
defeasance, or
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. to be released from our respective obligations with respect to the debt
securities under the restrictive covenants in the indentures and the
related Events of Default as well as the cross-default to other
indebtedness Event of Default, which we refer to as covenant defeasance.
In order to accomplish full defeasance or covenant defeasance, we or Sprint
Capital must deposit with the applicable trustee, or other qualifying trustee,
in trust, money and/or U.S. government obligations which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of and any premium and interest on the
debt securities on the scheduled due dates for the payments. Such a trust may
be established only if, among other things, we or Sprint Capital deliver to the
applicable trustee an opinion of counsel to the effect that the holders of the
debt securities will not recognize gain or loss for federal income tax purposes
as a result of full defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if full defeasance or covenant defeasance had
not occurred. The opinion, in the case of full defeasance, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after October 1, 1998. Obligations not
discharged in a full defeasance include those relating to the rights of holders
of outstanding debt securities to receive, solely from the trust fund described
above, payments in respect of the principal of and any premium and interest on
debt securities when due as set forth in Section 1304 of the indentures, and
obligations to register the transfer or exchange of the debt securities, to
replace temporary or mutilated, destroyed, lost or stolen debt securities, to
maintain an office or agency in respect of the debt securities, to hold moneys
for payment in trust and to compensate, reimburse and indemnify the trustee
(Article Thirteen).
The applicable prospectus supplement may further describe additional
provisions, if any, permitting defeasance or covenant defeasance with respect
to the debt securities of a particular series.
Regarding the Trustee
We have a normal business banking relationship with the trustee, including
the maintenance of accounts and the borrowing of funds. The trustee may own
debt securities.
Governing Law
New York law, without regard to principles of conflicts of law, will govern
the indentures, the debt securities and the guarantees.
Global Securities
Unless otherwise provided in the applicable prospectus supplement, each
series of the debt securities will be issued in the form of one or more global
securities that will be deposited with, or on behalf of, The Depository Trust
Company, as depositary. Interests in the global securities will be issued only
in denominations of $1,000 or integral multiples thereof. Unless and until it
is exchanged in whole or in part for debt securities in definitive form, a
global security may not be transferred except as a whole to a nominee of the
depositary for such global security, or by a nominee of the depositary to the
depositary or another nominee of the depositary, or by the depositary or any
such nominee to a successor depositary or a nominee of such successor
depositary.
Book-Entry System
Initially, the debt securities will be registered in the name of Cede & Co.,
the nominee of the depositary. Accordingly, beneficial interests in the debt
securities will be shown on, and transfers of the debt securities will be
effected only through, records maintained by the depositary and its
participants. For further discussion of the provisions we expect will apply to
depositary arrangements, see "Description of Convertible Subordinated Debt
Securities--Book-Entry Securities."
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DESCRIPTION OF CONVERTIBLE SUBORDINATED DEBT SECURITIES
The convertible subordinated debt securities will be issued under an
indenture between us and a trustee. The name of the trustee will be set forth
in the applicable prospectus supplement. We have summarized the material
provisions of the indenture below. The form of the indenture has been filed as
an exhibit to the registration statement and you should read the indenture for
provisions that may be important to you. In the summary below, we have included
references to section numbers of the indenture so that you can easily locate
these provisions. Capitalized terms used in the summary have the meaning
specified in the indenture. You can obtain copies of the indenture by following
the directions described under the caption "Where You Can Find More
Information." In this section, references to "our", "we" and similar terms mean
Sprint Corporation, excluding its subsidiaries.
General
The indenture does not limit the aggregate principal amount of convertible
subordinated debt securities that we may issue and provides that we may issue
convertible subordinated debt securities from time to time in one or more
series, in each case with the same or various maturities, at par or at a
discount. We may issue additional convertible subordinated debt securities of a
particular series without the consent of the holders of the convertible
subordinated debt securities of that series outstanding at the time of the
issuance. Any additional convertible subordinated debt securities, together
with all other outstanding convertible subordinated debt securities of that
series, will constitute a single series of convertible subordinated debt
securities under the indenture. The indenture also does not limit our ability
to incur other debt and does not contain financial or similar restrictive
covenants. The convertible subordinated debt securities will be subordinated in
right of payment to all of our Senior Debt as described below.
A prospectus supplement relating to a series of convertible subordinated
debt securities being offered will include specific terms relating to the
offering. These terms will include some or all of the following:
. the title of the convertible subordinated debt securities;
. any limit on the total principal amount of the convertible subordinated
debt securities;
. the maturity date or dates of the convertible subordinated debt
securities;
. the rate or rates of interest, which may be fixed or variable, per annum
at which the convertible subordinated debt securities will bear
interest, or the method of determining the rate or rates, if any;
. the date or dates from which interest, if any, will accrue;
. the dates on which interest will be payable and the related record
dates;
. whether payments of principal or interest will be determined by any
index, formula or other method and the manner of determining the amount
of these payments;
. the place or places where the principal of, premium, if any, and
interest on the convertible subordinated debt securities will be payable
if other than the location specified in this prospectus;
. any redemption dates, prices, rights, obligations and restrictions on
the convertible subordinated debt securities;
. any mandatory or optional sinking fund, purchase fund or similar
provisions;
. the denominations in which the convertible subordinated debt securities
will be issuable if other than denominations of $1,000 and integral
multiples of $1,000;
. the portion of the principal amount of the convertible subordinated debt
securities payable upon the acceleration of the maturity of the
convertible subordinated debt securities if other than the principal
amount;
27
. the currency or currency unit in which principal and interest will be
paid if other than U.S. dollars;
. whether we will issue the convertible subordinated debt securities in
permanent global form and the circumstances under which the permanent
global debt security may be exchanged;
. whether subordination provisions different from those summarized below
will apply to the convertible subordinated debt securities;
. any special tax implications of the convertible subordinated debt
securities;
. any deletions from, changes in or additions to the events of default or
the covenants specified in the indenture; and
. any other material terms of the convertible subordinated debt securities
not specified in this prospectus (Section 301).
We may issue convertible subordinated debt securities at a substantial
discount below their stated principal amount. We refer to these securities as
original issue discount securities, which means any security that initially
provides for an amount less than its principal amount to be due and payable
upon the acceleration of its maturity. We will describe the federal income tax
consequences and other special considerations applicable to any original issue
discount securities in the applicable prospectus supplement.
Unless the applicable prospectus supplement states otherwise, the
convertible subordinated debt securities will be issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. Holders of convertible subordinated debt securities will
not pay any service charge for any registration of transfer or exchange of the
convertible subordinated debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with the registration of transfer or exchange.
Payment; Transfer
Unless the applicable prospectus supplement states otherwise, principal of,
premium, if any, and interest, if any, on the convertible subordinated debt
securities will be payable, and the convertible subordinated debt securities
will be transferable, at the corporate trust office of the trustee. However,
interest may be paid at our option by check mailed to the address of the holder
entitled to the interest as it appears on the security register. We will have
the right to require a holder of any convertible subordinated debt security, in
connection with any payment on the convertible subordinated debt security, to
certify information to us or, in the absence of certification, we may rely on
any legal presumption to enable us to determine our obligation, if any, to
deduct or withhold taxes, assessments or governmental charges from the payment.
Conversion Rights
General. Unless the applicable prospectus supplement states otherwise, the
holder of any convertible subordinated debt security of any series will have
the right, at the holder's option, to convert any portion of the principal
amount of the security that is an integral multiple of $1,000 into shares of
common stock, as defined, at any time following the last original issue date of
the convertible subordinated debt securities of that series and before the
close of business on the maturity date at the conversion rate per $1,000
principal amount of the convertible subordinated debt security set forth in the
applicable prospectus supplement. Unless the applicable prospectus supplement
states otherwise, the conversion rate will be subject to adjustment as
described below. The right to convert a convertible subordinated debt security
called for redemption or delivered for repurchase will terminate at the close
of business on the redemption date or repurchase date for that convertible
subordinated debt security (Sections 203 and 1501).
Definition of Common Stock. Under the indenture, the term "common stock"
initially refers to our PCS common stock, series 1. However, if we convert all
outstanding shares of PCS common stock into FON common
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stock as described under the caption "Description of PCS Common
Stock--Conversion of PCS Common Stock at our Option" or "--Mandatory Dividend,
Redemption or Conversion of PCS Common Stock," each convertible subordinated
debt security then outstanding will thereafter be convertible into the number
of shares of FON common stock that would have been issuable in respect of that
security if it had been converted into PCS common stock immediately before the
conversion of PCS common stock into FON common stock. See "--Adjustments to
Conversion Rate" below. In this circumstance, the term "common stock" as used
in the indenture will thereafter refer to FON common stock.
If we redeem all outstanding shares of PCS common stock in exchange for
common stock of one or more of our subsidiaries as described under the caption
"Description of PCS Common Stock--Redemption of PCS Common Stock in Exchange
for Stock of a Subsidiary," each convertible subordinated debt security then
outstanding will thereafter be convertible into the number of shares of common
stock of the subsidiary or subsidiaries that would have been issuable in
respect of that security if it had been converted into PCS common stock
immediately before the redemption. See "--Adjustments to Conversion Rate"
below. In this circumstance, the term "common stock" as used in the indenture
will thereafter refer to the common stock of our subsidiary or subsidiaries.
Exercise of Conversion Rights. Unless the applicable prospectus supplement
states otherwise, the holder of any convertible subordinated debt security will
be able to exercise its right of conversion by delivering the convertible
subordinated debt security at the specified office of the conversion agent,
accompanied by a duly signed and completed notice of conversion. You will be
able to obtain a copy of the form of conversion notice from the trustee. The
conversion date will be the date on which the convertible subordinated debt
security and the duly signed and completed notice of conversion and all other
required items are so delivered. As promptly as practicable on or after the
conversion date, we will issue and deliver to the conversion agent a
certificate for the number of full shares of common stock issuable upon
conversion. Shares of common stock issued upon conversion of the convertible
subordinated debt securities will be fully paid and nonassessable.
Unless the applicable prospectus supplement states otherwise, any holder
that surrenders a convertible subordinated debt security for conversion on a
date that is not an interest payment date will not be entitled to any interest
for the period from the preceding interest payment date to the date of
conversion, except as described in this paragraph. The holder of any
convertible subordinated debt security on a regular record date, including a
convertible subordinated debt security that is subsequently converted after the
regular record date, will receive the interest payable on the interest payment
date. However, any holder surrendering a convertible subordinated debt security
for conversion during the period from the close of business on a regular record
date to the opening of business on the next interest payment date must be
accompanied by payment of an amount equal to the interest payable on that
interest payment date on the principal amount of the convertible subordinated
debt security surrendered for conversion. Notwithstanding this requirement, a
holder need not make that payment if it is converting a convertible
subordinated debt security that we have called for redemption or are required
to repurchase, if the right to convert the subordinated debt security would
terminate between the regular record date and the close of business on the next
interest payment date because of the redemption or repurchase.We will pay
interest in respect of any convertible subordinated debt security surrendered
for conversion on or after an interest payment date and before the next regular
record date to the holder of that convertible subordinated debt security as of
the next preceding regular record date, notwithstanding the exercise of the
conversion right.
We will not make any other payment or adjustment for interest, or for any
dividends in respect of common stock, upon conversion. Holders of common stock
issued upon conversion of convertible subordinated debt securities will not
receive any dividends payable to holders of common stock as of any record time
before the close of business on the conversion date relating to such
convertible subordinated debt securities. We will not issue any fractional
shares upon conversion and instead will pay fractional shares in cash or, at
our option, we will round up the shares issued to the next whole number of
shares.
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A holder delivering a convertible subordinated debt security for conversion
need not pay any transfer or similar taxes or duties in respect of the issue or
delivery of common stock on conversion but must pay any tax or duty payable in
respect of any transfer involved in the issue of the common stock. We will not
deliver certificates representing shares of common stock unless the person
requesting delivery has paid to us the amount of any tax or duty that is
payable or has established to our satisfaction that the tax or duty has been
paid (Sections 1502 and 1508).
Adjustments to Conversion Rate. Unless the applicable prospectus supplement
states otherwise, we will adjust the conversion rate in certain events,
including:
(1) dividends and other distributions payable in common stock on shares
of our capital stock;
(2) the issuance to all holders of common stock of rights, options or
warrants to subscribe for or purchase common stock at less than the then
current market price (determined as provided in the indenture) as of the
record date for stockholders entitled to receive those rights, options or
warrants;
(3) subdivisions, combinations and reclassifications of our common stock;
(4) distributions to all holders of common stock of evidences of our
indebtedness, shares of capital stock, cash or assets (including securities,
but excluding those dividends, rights, options, warrants and distributions
referred to in clauses (1) and (2) above, dividends and distributions paid
exclusively in cash and in mergers and consolidations to which the third
succeeding paragraph applies);
(5) cash distributions (excluding any cash portion of distributions
referred to in clause (4) above or cash distributed upon a merger or
consolidation to which the third succeeding paragraph applies) to all
holders of common stock in an aggregate amount that, together with:
. other cash distributions made within the preceding 12 months to all
holders of common stock in respect of which no adjustment has been
made, and
. any cash and the fair market value of other consideration payable in
respect of any tender offer by us or any of our subsidiaries for
common stock concluded within the preceding 12 months in respect of
which no adjustment has been made,
exceeds 10% of the market capitalization of the common stock on the record
date for that distribution;
(6) the successful completion of a tender offer by us or any of our
subsidiaries for common stock that involves an aggregate consideration that,
together with:
. any cash and other consideration payable in a tender offer by us or
any of our subsidiaries for common stock expiring within the 12
months preceding the expiration of the tender offer in respect of
which no adjustment has been made, and
. the aggregate amount of any cash distributions referred to in clause
(5) above to all holders of common stock within the 12 months
preceding the expiration of the tender offer in respect of which no
adjustments have been made,
exceeds 10% of the market capitalization of the common stock on the
expiration of that tender offer; and
(7) the conversion of all outstanding shares of PCS common stock into
shares of FON common stock or common stock of a subsidiary as described
under the caption "Description of PCS Common Stock-- Conversion of PCS
Common Stock at our Option, "--Mandatory Dividend, Redemption or Conversion
of PCS Common Stock" or "--Redemption of PCS Common Stock in Exchange for
Stock of a Subsidiary."
In addition, we reserve the right to make increases in the conversion rate
that we consider advisable so that any event treated for federal income tax
purposes as a dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock will not be taxable to the
recipients.
We will not adjust the conversion rate until the cumulative adjustments
amount to 1.0% or more of the conversion rate (Section 1504). We will also not
duplicate any adjustment when an event falls into more than one of the
categories described above. We will compute any adjustments to the conversion
rate and will give notice to the holders of the convertible subordinated debt
securities of any adjustments (Section 1505).
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In case of:
(1) our consolidation or merger with or into another person, or
(2) any merger of another person into us, other than a merger which does
not result in any reclassification, conversion, exchange or cancellation of
the common stock, or
(3) any sale or transfer of all or substantially all of our assets,
each convertible subordinated debt security then outstanding will become
convertible only into the securities, cash and other property receivable upon
the consolidation, merger, sale or transfer by a holder of the number of shares
of common stock into which that convertible subordinated debt security could be
converted immediately before the event, assuming:
. the holder of common stock failed to exercise any rights of election
with respect to the consolidation, merger, sale or transfer, and
. that the convertible subordinated debt security was then convertible
(Section 1511).
Unless the applicable prospectus supplement states otherwise, from time to
time we may increase the conversion rate relating to any series of convertible
subordinated debt securities by any amount for any period of at least 20 days
if our board of directors determinates that the increase would be in our best
interests. This determination will be conclusive. We will give holders at least
15 days' notice of any increase of this kind.
If at any time we make a distribution of property to our stockholders that
would be taxable to those stockholders as a dividend for federal income tax
purposes and, pursuant to the anti-dilution provisions of the indenture, the
number of shares into which convertible subordinated debt securities of any
series are convertible is increased, that increase may be deemed for federal
income tax purposes to be the payment of a taxable dividend to holders of
convertible subordinated debt securities.
Termination of Conversion Rights. Under our articles of incorporation, if we
dispose of all or most of the PCS group's assets and elect to redeem all or
most of the outstanding shares of PCS common stock, series 1 as described under
the caption "Description of PCS Common Stock--Mandatory Dividend, Redemption or
Conversion of PCS Common Stock," we will mail notice of the redemption to all
holders of convertible subordinated debt securities at least 30 days prior to
the redemption date, which we refer to as the PCS stock redemption date. The
right to convert convertible subordinated debt securities into shares of common
stock will terminate at the close of business on the day immediately preceding
the PCS stock redemption date. After the PCS stock redemption date, outstanding
convertible subordinated securities will no longer be convertible into any
securities of our company.
Subordination
The convertible subordinated debt securities will be subordinate and junior
in right of payment to all of our Senior Debt. The convertible subordinated
debt securities will also be effectively subordinated in right of payment to
all indebtedness and other liabilities of our subsidiaries. As of March 31,
2001, we had $16.9 billion of Senior Debt outstanding (including $86 million of
letters of credit and $15.5 billion of guarantees of debt of our subsidiaries),
and our subsidiaries had an aggregate of $28.2 billion of indebtedness and
other liabilities outstanding.
Under the indenture, Senior Debt means:
(1) our indebtedness for money borrowed or evidenced by credit or loan
agreements, bonds, debentures, notes or similar instruments,
(2) all our obligations evidenced by a note or similar instrument or
written agreement given in connection with the acquisition of any
businesses, properties or assets, including the acquisition of securities,
(3) our obligations as lessee under leases capitalized on the balance
sheet of the lessee under generally accepted accounting principles,
31
(4) our obligations under interest rate and currency swaps, caps, floors,
collars, hedge agreements, forward contracts, or similar agreements or
arrangements intended to protect us against fluctuations in interest or
currency exchange rates or commodity prices,
(5) all our reimbursement obligations with respect to letters of credit,
bankers' acceptances or similar facilities issued for our account,
(6) indebtedness of others of the kinds described in the preceding
clauses (1), (2), (3), (4) and (5) that we have assumed, guaranteed or
otherwise assured the payment of, directly or indirectly, and/or
(7) deferrals, renewals, extensions and refundings of, or bonds,
debentures, notes or other evidences of indebtedness issued in exchange for,
or amendments, modifications or supplements to, or covenants and our other
obligations in connection with, the indebtedness described in the preceding
clauses (1) through (6) whether or not there is notice to or consent of the
holders of convertible subordinated debt securities; except:
. indebtedness and advances among us and our direct and indirect
subsidiaries; and
. any particular indebtedness that expressly provides that it is not
Senior Debt (Sections 101).
As a result of these subordination provisions, no payment on account of the
principal of, premium, if any, or interest on the convertible subordinated debt
securities may be made if:
. a payment default with respect to any Senior Debt exists and any
applicable grace period has expired or,
. any other event of default has occurred with respect to any Senior Debt
that permits the holders to accelerate the maturity of the Senior Debt
and is continuing after written notice to us and the trustee, which we
refer to as a payment blockage notice (Section 1603).
If payments on the convertible subordinated debt securities have been
blocked by a payment default on Senior Debt, payments on the convertible
subordinated debt securities may resume when the payment default has been cured
or waived. If payments on the convertible subordinated debt securities have
been blocked by a nonpayment default, payments on the convertible subordinated
debt securities may resume on the earlier of:
. the date the nonpayment default is cured or waived, or
. 179 days after the payment blockage notice is received.
No nonpayment default that existed on the day a payment blockage notice was
delivered to the trustee can be used as the basis for any subsequent payment
blockage notice. In addition, once any holder of Senior Debt has blocked
payment on the convertible subordinated debt securities by giving a payment
blockage notice, no new period of payment blockage can be commenced by any
holder of Senior Debt until 365 days have elapsed since the effectiveness of
the immediately prior payment blockage notice.
Upon the acceleration of the principal due on the convertible subordinated
debt securities or payment or distribution of our assets to creditors upon any
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due on all Senior Debt must be
paid in full in cash before the holders of the convertible subordinated debt
securities may receive any payment. As a result of these subordination
provisions, in the event of our insolvency, our creditors who hold Senior Debt
may recover more, ratably, than the holders of the convertible subordinated
debt securities, and the subordination may reduce or limit payments to the
holders of the convertible subordinated debt securities (Section 1602).
Events of Default
Definition. The indenture defines an Event of Default with respect to
convertible subordinated debt securities of any series as any one of the
following events:
(1) failure to pay any interest on any convertible subordinated debt
security of that series when due and payable, continued for 30 days;
32
(2) failure to pay principal of or any premium on any convertible
subordinated debt security of that series when due;
(3) failure to deposit any sinking fund payment, when due, in respect of
any convertible subordinated debt security of that series;
(4) failure to perform any other covenant or warranty in the indenture
(other than a covenant included in the indenture solely for the benefit of a
series of convertible subordinated debt securities other than that series),
continued for 60 days after written notice as provided in the indenture;
(5) any indebtedness for money borrowed by us in an aggregate principal
amount in excess of $50 million is not paid at final maturity or the
maturity of which is accelerated and the default in payment or acceleration
is not cured or rescinded within 10 days after written notice;
(6) the entry of a decree or order for relief in respect of our company
by a court having jurisdiction in the premises in an involuntary case under
federal or state bankruptcy laws and the continuance of any decree or order
unstayed and in effect for a period of 60 consecutive days;
(7) the commencement by us of a voluntary case under federal or state
bankruptcy laws or the consent by us to the entry of a decree or order for
relief in an involuntary case under any bankruptcy law; and
(8) any other Event of Default provided with respect to convertible
subordinated debt securities of that series (Section 501).
Remedies. If an Event of Default with respect to convertible subordinated
debt securities of any series occurs and is continuing, then either the trustee
or the holders of at least 25% in aggregate principal amount of the outstanding
convertible subordinated debt securities of that series may declare by notice
in writing to us the principal amount (or, if the convertible subordinated debt
securities of that series are original issue discount securities, that portion
of the principal amount as may be specified in the terms of that series) of all
the convertible subordinated debt securities of that series to be due and
payable immediately. Notwithstanding the foregoing, unless the applicable
prospectus supplement states otherwise, if an Event of Default described in
clauses (6) or (7) with respect to convertible subordinated debt securities of
any series occurs and is continuing, then all of the convertible subordinated
debt securities of that series shall become immediately due and payable without
any further act by us, any holder or the trustee. At any time after a judgment
or decree based on acceleration has been obtained, the holders of a majority in
aggregate principal amount of outstanding convertible subordinated debt
securities of that series may, under certain circumstances, rescind and annul
the acceleration (Section 502).
In the event of a payment or covenant default with respect to convertible
subordinated debt securities, the trustee, subject to certain limitations and
conditions, may institute judicial proceedings to enforce the payment of any
amount due or the performance of that covenant or any other proper remedy
(Section 503). Under certain circumstances, the trustee may withhold notice to
the holders of the convertible subordinated debt securities of a default if the
trustee in good faith determines that withholding notice is in the best
interest of the holders (Section 602).
Obligations of Trustee. The indenture provides that, subject to the duty of
the trustee during default to act with the required standard of care, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders, unless
the holders shall have offered to the trustee reasonable security or indemnity
(Section 603). Subject to the provisions for the indemnification of the trustee
and to certain other conditions, the holders of a majority in aggregate
principal amount of the outstanding convertible subordinated debt securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee with respect
to the convertible subordinated debt securities of that series. However, the
trustee may decline to act if the holders' direction violates any law or the
indenture, would unduly prejudice the right of other holders or subject the
trustee to personal liability (Section 512).
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No holder of any convertible subordinated debt security of any series will
have any right to institute any proceeding with respect to the indenture, or
for the appointment of a receiver or trustee or for any remedy, unless:
. the holder has given the trustee written notice of a continuing Event of
Default with respect to the convertible subordinated debt securities of
that series;
. the holders of not less than 25% in aggregate principal amount of the
outstanding convertible subordinated debt securities of that series have
made written request, and offered reasonable indemnity, to the trustee
to institute the proceeding as trustee;
. the trustee has not received an inconsistent direction from the holders
of a majority in principal amount of the outstanding convertible
subordinated debt securities of that series; and
. the trustee has failed to institute the requested proceeding within 60
days (Section 507).
However, the holder of any convertible subordinated debt security will have
an absolute right to receive payment of the principal of, premium, if any, and
interest on that convertible subordinated debt security on the due dates
expressed in that convertible subordinated debt security and to institute suit
for the enforcement of any payment (Section 508).
Under the indenture we must furnish to the trustee annually a statement
regarding our performance of certain of our obligations under the indenture and
as to any default in performance (Section 1005).
Defeasance and Covenant Defeasance
Unless the applicable prospectus supplement states otherwise, the indenture
provides that we may choose to deposit in trust with the trustee cash and/or
government securities in an amount sufficient, without reinvestment, to pay all
sums due on any series of convertible subordinated debt securities. If we make
this deposit, then, at our option, we:
(1) will be deemed to have satisfied and paid all of our obligations in
respect of the convertible subordinated debt securities of a particular
series, which is referred to as full defeasance; or
(2) will not need to comply with certain restrictive covenants contained
in the indenture, and the occurrence of a covenant default with respect to
those restrictive covenants, as well as the cross-default to other
indebtedness, will no longer be Events of Default with respect to that
series of convertible subordinated debt securities, which is referred to as
covenant defeasance.
We will, however, be required, among other things, to continue to effect
conversions of convertible subordinated debt securities.
A trust of this kind may only be established if, among other things,
. no Event of Default exists or occurs as a result of the deposit; and
. we deliver an opinion of counsel to the effect that the holders will not
recognize income, gain or loss for federal income tax purposes as a
result of the deposit.
If we exercise either defeasance option with respect to any series of
convertible subordinated debt securities and the maturity of that series is
accelerated upon an Event of Default, the amount of cash and government
securities on deposit with the trustee may not be sufficient to pay amounts due
on these convertible subordinated debt securities at the time of the
acceleration. If we have elected covenant defeasance, we will remain liable
with respect to these payments. However, if we have elected full defeasance, we
will not remain liable with respect to these payments (Article 13).
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Modification and Waiver
Modifications and Amendments. We and the trustee may modify and amend the
indenture with the consent of the holders of a majority in aggregate principal
amount of the outstanding convertible subordinated debt securities of each
series affected by the modification or amendment. Unless the applicable
prospectus supplement states otherwise, however, we may not, without the
consent of the holder of each outstanding convertible subordinated debt
security affected:
. change the maturity date of the principal of, or interest on, any
convertible subordinated debt security,
. reduce the principal amount of, or any premium or rate of interest on,
any convertible subordinated debt security,
. reduce the amount of principal of an original issue discount security
payable upon acceleration of the maturity thereof,
. change the place or currency of payment of principal of, premium, if
any, or interest on, any debt security,
. impair the right to institute suit for the enforcement of any payment on
or with respect to any convertible subordinated debt security,
. modify the conversion privilege or the subordination provisions with
respect to any convertible subordinated debt security in a manner
adverse to the holder thereof, or
. reduce the percentage in principal amount of outstanding convertible
subordinated debt securities of any series required to modify or amend
the indenture or to waive compliance with certain provisions of, or
defaults under, the indenture (Section 902).
Notwithstanding the foregoing, without the consent of any holder of
convertible subordinated debt securities, we and the trustee may modify and
amend the indenture:
. to evidence the succession of another person to us and the assumption by
the successor of our obligations under the indenture;
. to make any change that would provide any additional rights or benefits
to the holders of the convertible subordinated debt securities of any
series or that does not adversely affect the legal rights of any holder
under the indenture;
. to add any additional Events of Default;
. to permit the issuance of convertible subordinated debt securities in
bearer form;
. to change the provisions of the indenture in respect of any series of
convertible subordinated debt securities not yet issued;
. to secure the convertible subordinated debt securities of any series;
. to make provisions with respect to the conversion rights of holders of
convertible subordinated debt securities of any series in the event of a
consolidation, merger or sale of assets as required by the indenture;
. to establish the form or terms of the convertible subordinated debt
securities of any series as permitted by the indenture;
. to evidence and provide for the acceptance of the appointment under the
indenture of a successor trustee; or
. to cure any ambiguity, defect or inconsistency, provided that the
interests of the holders of outstanding convertible subordinated debt
securities of any series are not adversely affected in any material
respect (Section 901).
Waivers. The holders of at least a majority in aggregate principal amount of
the outstanding convertible subordinated debt securities of each series may, on
behalf of all holders of convertible subordinated debt securities of that
series, waive, insofar as that series is concerned, our compliance with certain
restrictive provisions of the indenture (Section 1006).
35
The holders of at least a majority in aggregate principal amount of the
outstanding convertible subordinated debt securities of any series may, on
behalf of all holders of convertible subordinated debt securities of that
series, waive any past default under the indenture, except:
. a default in the payment of principal of, premium, if any, or interest
on, any convertible subordinated debt security of that series; or
. a default in respect of a covenant or provision which under the
indenture cannot be modified or amended without the consent of the
holder of each convertible subordinated debt security of the series
affected (Section 513).
Consolidation, Merger and Conveyances
We may consolidate with or merge into any corporation, or transfer our
assets substantially as an entirety to any person, organized under the laws of
the U.S., any state in the U.S. or the District of Columbia, provided that:
. the successor person assumes our obligations on the convertible
subordinated debt securities and under the indenture;
. after giving effect to the transaction no Event of Default, and no event
which, after notice or lapse of time, would become an Event of Default,
will have occurred and be continuing; and
. certain other conditions under the indenture are met (Section 801).
Trustee
The trustee may resign or be removed with respect to one or more series of
convertible subordinated debt securities and a successor trustee may be
appointed to act with respect to that series (Section 610). In the event that
two or more persons are acting as trustee with respect to different series of
convertible subordinated debt securities, each trustee shall be a trustee of a
trust under the indenture separate and apart from the trust administered by any
other trustee, and any action described herein to be taken by the "trustee" may
then be taken by each trustee with respect to, and only with respect to, the
one or more series of convertible subordinated debt securities for which it is
trustee (Section 611).
Book-Entry Securities
The convertible subordinated debt securities of a series may be issued in
the form of one or more book-entry securities that will be deposited with a
depositary or its nominee identified in the applicable prospectus supplement
(Section 301). In this case, one or more book-entry securities will be issued
in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of convertible subordinated debt securities of the
series to be represented by the book-entry security or securities. Unless and
until it is exchanged in whole or in part for convertible subordinated debt
securities in definitive registered form, a book-entry security may not be
transferred except as a whole by the depositary for that book-entry security to
a nominee of the depositary or by a nominee of the depositary to the depositary
or another nominee of the depositary or by the depositary or any nominee to a
successor of the depositary or a nominee of the successor (Section 305).
The specific terms of the depositary arrangement with respect to any portion
of a series of convertible subordinated debt securities to be represented by a
book-entry security will be described in the applicable prospectus supplement.
We anticipate that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a book-entry security, the depositary for that
book-entry security or its nominee will credit, on its book-entry registration
and transfer system, the respective principal amounts of the convertible
subordinated debt securities represented by that book-entry security to the
accounts of persons that have accounts with that depositary, or participants.
Those accounts will be designated by the underwriters or agents with respect to
the convertible subordinated debt securities or by us if the convertible
subordinated debt securities are offered and sold directly by us. Participants
include securities brokers and dealers, banks and trust companies, clearing
36
corporations and certain other organizations. Access to the depositary's system
is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with
participants either directly or indirectly, which we refer to as indirect
participants. Persons who are not participants may beneficially own book-entry
securities held by the depositary only through participants or indirect
participants.
Ownership of beneficial interests in any book-entry security will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the depositary or its nominee with respect to interests of
participants in that book-entry security and on the records of participants
with respect to interests of indirect participants. The laws of some states
require that certain purchasers of securities take physical delivery of the
securities in definitive form. These laws, as well as the limits on
participation in the depositary's book-entry system, may impair the ability to
transfer beneficial interests in a book-entry security.
So long as the depositary or its nominee is the registered owner of a
book-entry security, the depositary or its nominee will be considered the sole
owner or holder of the convertible subordinated debt securities represented by
that book-entry security for all purposes under the indenture. Except as
provided below, owners of beneficial interests in convertible subordinated debt
securities represented by book-entry securities will not be entitled to have
convertible subordinated debt securities of the series represented by that
book-entry security registered in their names, will not receive or be entitled
to receive physical delivery of the convertible subordinated debt securities in
definitive form, and will not be considered the owners or holders of the
convertible subordinated debt security under the indenture.
Payments of principal of, premium, if any, and interest on convertible
subordinated debt securities registered in the name of the depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the book-entry security representing those convertible
subordinated debt securities. We expect that the depositary for a series of
convertible subordinated debt securities or its nominee, upon receipt of any
payment of principal, premium or interest, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the book-entry
security for those convertible subordinated debt securities, as shown on the
records of the depositary or its nominee. We also expect that payments by
participants and indirect participants to owners of beneficial interests in the
book-entry security held through those persons will be governed by standing
instructions and customary practices, as is now the case with securities
registered in "street name", and will be the responsibility of the participants
and indirect participants. None of us, the trustee, any authenticating agent,
any paying agent, or the security registrar for the convertible subordinated
debt securities will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the book-entry security for those convertible subordinated debt
securities or for maintaining, supervising or reviewing any records relating to
those beneficial ownership interests (Section 311).
If the depositary for convertible subordinated debt securities of a series
notifies us that it is unwilling or unable to continue as depositary or if at
any time the depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, we have agreed to appoint a successor
depositary. If a successor is not appointed by us within 90 days, we will issue
convertible subordinated debt securities of that series in definitive
registered form in exchange for the book-entry security representing that
series of convertible subordinated debt securities. In addition, we may at any
time and in our sole discretion determine that the convertible subordinated
debt securities of any series issued in the form of one or more book-entry
securities will no longer be represented by that book-entry security or
securities and, in that event, we will issue convertible subordinated debt
securities of that series in definitive registered form in exchange for the
book-entry security or securities. Further, if we so specify with respect to
the convertible subordinated debt securities of a series, or if an Event of
Default, or an event which with notice, lapse of time or both would be an Event
of Default, with respect to the convertible subordinated debt securities of
that series has occurred and is continuing, an owner of a beneficial interest
in a book-entry security representing convertible subordinated debt securities
of that series may receive convertible subordinated debt securities of that
series in definitive registered form. In that case, an owner of a beneficial
interest in a book-entry security will be entitled to physical delivery in
definitive registered form of convertible subordinated debt securities of the
series represented by that book-entry security equal in principal amount to
that beneficial interest and to have those convertible subordinated debt
securities registered in its name (Section 305).
37
AUTHORIZED CAPITAL STOCK
Pursuant to our articles of incorporation, we have 9,020,000,000 shares of
authorized capital stock, which are divided into three classes of common stock
and one class of preferred stock. The common stock consists of the FON common
stock, the PCS common stock and the Class A common stock. Each class of common
stock is divided into two or more series, as follows:
Our FON common stock includes the following authorized shares:
. 2,500,000,000 shares of FON common stock, series 1, par value $2.00 per
share,
. 500,000,000 shares of FON common stock, series 2, par value $2.00 per
share, and
. 1,200,000,000 shares of FON common stock, series 3, par value $2.00 per
share.
Our PCS common stock includes the following authorized shares:
. 3,000,000,000 shares of PCS common stock, series 1, par value $1.00 per
share,
. 1,000,000,000 shares of PCS common stock, series 2, par value $1.00 per
share, and
. 600,000,000 shares of PCS common stock, series 3, par value $1.00 per
share.
Our Class A common stock includes the following authorized shares:
. 100,000,000 shares of Class A common stock, having no series
designation, par value $0.50 per share, and
. 100,000,000 shares of Class A common stock, series DT, par value $0.50
per share.
In addition, we have 20,000,000 authorized shares of preferred stock, no par
value. Of these shares, 3,050,095 have been designated and 246,861 have been
issued. See "Description of Preferred Stock--Designated and Outstanding
Preferred Stock." With respect to our undesignated shares of preferred stock,
our board of directors may issue shares in one or more series, with the voting
powers (full or limited or without voting power), designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions on those rights, as our board may
fix and determine by resolution.
The FON common stock, series 3, the PCS common stock, series 3, and the two
series of Class A common stock are all shares of stock that are referred to
collectively as Class A stock. Shares of Class A stock have been issued, and
will be issued, only to France Telecom or Deutsche Telekom, or to certain
majority owned subsidiaries of France Telecom and/or Deutsche Telekom.
Following the completion of the secondary offering of all of the FON common
stock owned by France Telecom and Deutsche Telekom, including the FON common
stock underlying their shares of Class A common stock, on June 4, 2001, each
share of Class A common stock entitles the holder to have one-half of a share
of PCS common stock, series 3 issued to the holder. The issuance of the
underlying shares of FON common stock, series 3 in the secondary offering did
not change the number of outstanding shares of Class A common stock. Similarly,
the issuance of the underlying shares of PCS common stock, series 3 will not
change the number of outstanding shares of Class A common stock. Instead, the
issuance of the underlying stock reduces the number of underlying shares that
the holder is entitled to have issued, which in turn affects the per share
dividend rights, voting rights and liquidation rights of the Class A common
stock. In addition, the par value of the shares of Class A common stock is
reduced by the aggregate par value of the underlying shares issued. For
example, the par value of the Class A common stock was reduced to $0.50 per
share from $2.50 per share as a result of the issuance of the underlying FON
common stock.
The FON common stock, series 1 and the PCS common stock, series 1 are both
listed and traded on the New York Stock Exchange.
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DESCRIPTION OF CONVERTIBLE PREFERRED STOCK
The terms of any series of convertible preferred stock will be set forth in
a certificate of designation adopted by our board of directors. The applicable
prospectus supplement will describe the material terms of the series of
convertible preferred stock offered by that prospectus supplement. If we issue
any series of convertible preferred stock, we will file the applicable
certificate of designation as an exhibit to the registration statement and you
should read the certificate of designation for provisions that may be important
to you. In addition, our articles of incorporation and bylaws govern the rights
of all of our stockholders generally. Our articles of incorporation and bylaws
have been filed as exhibits to the registration statement and you should read
our articles of incorporation and bylaws for provisions that may be important
to you. You can obtain copies of any certificate of designation and our
articles of incorporation and bylaws by following the directions described
under the caption "Where You Can Find More Information."
General
Under our articles of incorporation, our board of directors has the
authority, without further stockholder action, to issue a maximum of 20,000,000
shares of preferred stock, or 16,949,905 shares of preferred stock in addition
to the 3,050,095 shares of preferred stock already designated. See
"--Designated and Outstanding Preferred Stock" below. Our board of directors
has the authority to determine or fix the voting powers (full or limited or
without voting powers), designations, preferences and relative, participating,
optional or other special rights of, and any qualifications, limitations or
restrictions on, any series of convertible preferred stock, which we will
describe in the applicable prospectus supplement. These powers, designations,
preferences and rights may include the following:
. the number of shares and designation or title of the shares;
. dividend rights;
. any redemption dates, prices, rights, obligations and restrictions;
. the terms of any purchase, retirement or sinking fund;
. voting rights, if any;
. the rights of the holders upon our dissolution or upon the distribution
of our assets, including any liquidation preference; and
. any other preferences, rights, limitations or restrictions of the
series.
The applicable prospectus supplement will also describe the terms and
conditions of the conversion rights of the series of convertible preferred
stock being offered by that prospectus supplement.
Designated and Outstanding Preferred Stock
As of June 30, 2001, we had the following series of preferred stock
designated and outstanding:
. 95 shares of preferred stock-fifth series, no par value, designated and
95 shares outstanding;
. 1,500,000 shares of preferred stock-sixth series, no par value,
designated and no shares outstanding;
. 300,000 shares of preferred stock-seventh series, convertible, no par
value, designated and 246,766 shares outstanding; and
. 1,250,000 shares of preferred stock-eighth series, no par value,
designated and no shares outstanding.
39
DESCRIPTION OF PCS COMMON STOCK
We have summarized the material terms of our PCS common stock below. Our
articles of incorporation and bylaws have been filed as an exhibit to the
registration statement and you should read our articles of incorporation and
bylaws for provisions that may be important to you. You can obtain copies of
our articles of incorporation and bylaws by following the directions described
under the caption "Where You Can Find More Information."
Dividend Rights and Restrictions
We will pay dividends on the PCS common stock when declared by our board of
directors. We do not anticipate that our board will declare dividends on the
PCS common stock in the foreseeable future.
Our board may declare dividends on the FON common stock and not the PCS
common stock, or it may declare dividends on the PCS common stock and not the
FON common stock. If the board declares a dividend on one series of the PCS
common stock, it must declare the same dividend on all three series of PCS
common stock. In addition, it must declare an equivalent dividend on the PCS
common stock underlying the outstanding Class A common stock.
Dividends on the FON common stock, the PCS common stock and the Class A
common stock may be declared only out of our net income or earned surplus. Net
losses of either the PCS group or the FON group, and dividends and
distributions on, or repurchases of, PCS common stock, FON common stock or
Class A common stock, will reduce funds legally available for the payment of
dividends on all three classes of common stock.
The tracking stock policies adopted by our board of directors require that
dividends on the PCS common stock, including the PCS common stock underlying
the Class A common stock, may be paid only out of the lesser of
. the funds of our company that are legally available for the payment of
dividends and
. the PCS group available dividend amount, which is similar to the amount
of assets that would be available for the payment of dividends on the
PCS common stock, including the PCS common stock underlying the Class A
common stock, under the Kansas General Corporation Code if the PCS group
were a separate company.
Our board of directors may not declare a dividend or distribution consisting
of shares of FON common stock on the PCS common stock. The board may only
declare a dividend or distribution of shares of PCS common stock on the FON
common stock if the shares to be issued represent an inter-group interest of
the FON group in the PCS group.
Before any dividends on the PCS common stock or any other class of our
common stock may be paid or declared and set apart for payment, we must pay or
declare and set apart for payment full cumulative dividends on all outstanding
series of preferred stock.
If we fail to purchase the preferred stock--fifth series upon tender by the
holders, we are precluded from declaring or paying dividends on our PCS common
stock or any other class of common stock until we have deposited the funds
necessary for the purchase of the preferred stock-fifth series. If all of the
shares of preferred stock-fifth series were tendered, the purchase price would
be $9.5 million plus accrued dividends.
Upon the issuance of a new series of preferred stock, our board may provide
for dividend restrictions on the PCS common stock as to that series of
preferred stock.
40
Voting Rights
Votes Per Share. The holders of PCS common stock vote together with the
holders of the FON common stock, Class A common stock and preferred stock as a
single class on most matters. When all classes are voting as a single class,
the holders have the following number of votes:
. The holders of the FON common stock, series 1, the FON common stock,
series 3 and the preferred stock--fifth series have one vote per share.
. The holders of the PCS common stock, series 1 and PCS common stock,
series 3 have a number of votes per share equal to the number obtained
by dividing the average trading price of one share of PCS common stock,
series 1 by the average trading price of one share of FON common stock,
series 1, computed as of the tenth trading day before the record date
for determining the stockholders entitled to vote. For these purposes,
the average trading price is defined as the average closing price of the
stock determined over the 20 trading days immediately preceding the date
of determination. If the "ex-dividend" date for a dividend or
distribution on either the PCS common stock, series 1 or the FON common
stock, series 1 occurs during this 20 trading day period, or the
effective date of any subdivision or combination of the PCS common
stock, series 1 or FON common stock, series 1 occurs during this 20
trading day period, an appropriate adjustment is made to the closing
prices used in the calculation. The vote per share of the PCS common
stock, series 1 and PCS common stock, series 3 is expressed as a decimal
fraction rounded to the nearest three decimal places. By way of example,
if the average trading price of one share of PCS common stock, series 1
is determined to be $35 and the average trading price of one share of
FON common stock, series 1 is determined to be $30, each share of PCS
common stock, series 1 and PCS common stock, series 3 would have 1.167
votes.
. The holders of the PCS common stock, series 2 have 1/10 of the vote per
share that the holders of the PCS common stock, series 1 and the PCS
common stock, series 3 have.
. The holders of the preferred stock--seventh series have the number of
votes per share equal to the aggregate number of votes of the shares of
PCS common stock, series 1 or PCS common stock, series 2 into which a
share of the preferred stock--seventh series may be converted. At June
30, 2001, each share of preferred stock--seventh series was convertible
into 65.04784 shares of PCS common stock, series 1 or PCS common stock,
series 2, depending on who held the share of preferred stock--seventh
series.
. The holders of shares of Class A common stock have the number of votes
per share equal to the votes represented by the PCS common stock
underlying each share of Class A common stock.
On each matter to be voted on by the holders of the PCS common stock and
Class A common stock voting together as a single class, the holders of shares
of each series of PCS common stock are entitled to one vote per share. The
holders of the Class A common stock are entitled to the vote per share
represented by the shares or fraction of a share of PCS common stock, series 3
underlying each share of Class A common stock, assuming that the PCS common
stock, series 3 has one vote per share.
If the PCS common stock is entitled to vote on a matter as a separate class,
each share will be entitled to one vote. If a particular series of PCS common
stock, such as the PCS common stock, series 1, is voting as a separate series,
each share will be entitled to one vote.
Our articles of incorporation provide that the affirmative vote of the
holders of a majority of the votes represented by the PCS common stock and
Class A common stock voting together as a single class is required
(1)to adopt any amendment to our articles of incorporation that would:
. increase or decrease the number of authorized shares of PCS common
stock;
. increase or decrease the par value of shares of PCS common stock;
41
. change the powers, preference or special rights of the shares of PCS
common stock so as to affect them adversely; and
(2)to amend the provisions of our bylaws relating to the capital stock
committee before November 23, 2002.
The tracking stock policies adopted by our board of directors provide that
the consent of the holders of a majority of the outstanding shares of PCS
common stock, voting as a separate class, and the consent of the holders of a
majority of the outstanding shares of FON common stock, voting as a separate
class, is required to approve any acquisition by the FON group of more than 33%
of the assets of the PCS group.
Special Adjustment in Voting Power of the Class A Stock. If there is an
increase in the per share vote of any of our voting securities due to the
transfer of the voting securities and the increase occurs on or after the tenth
trading day preceding a record date for purposes of determining the
stockholders entitled to vote or to receive the payment of a dividend, then the
per share vote of the Class A stock will be increased. The vote per share will
be increased so that the percentage of the voting power represented by the
shares of Class A stock held by each holder of Class A stock will not be
diluted as a result of the increase in votes due to the transfer of voting
securities until the day immediately following the date of the stockholders
meeting or the date of the dividend payment. When PCS common stock, series 2 is
transferred by a cable holder to a non-affiliate, it is automatically converted
into PCS common stock, series 1, which has a higher per share vote.
Special Voting Rights of the Preferred Stock. The preferred stock is
entitled to vote as a class with respect to certain matters affecting
preferences of the preferred stock or an increase in the authorized shares of
the class.
If we do not pay dividends or pay less than full cumulative dividends on the
preferred stock--fifth series for each of four consecutive dividend periods, or
if arrearages in the payment of dividends on the preferred stock--fifth series
have cumulated in an amount equal to full cumulative dividends on the preferred
stock--fifth series for six quarterly dividend periods, the holders of the
preferred stock--fifth series, acting alone, will be entitled to elect the
smallest number constituting a majority of our directors then to be elected
until all arrears in those dividends are paid or set aside for payment.
The affirmative vote of two-thirds of the votes to which the holders of the
outstanding shares of the preferred stock--seventh series are entitled is
necessary for authorizing or effecting the amendment, alteration or repeal of
any of the provisions of our articles of incorporation which would materially
and adversely affect the voting powers, preferences, rights, powers or
privileges, qualifications, limitations and restrictions of the preferred
stock--seventh series.
Classified Board; No Cumulative Voting. Our board of directors is divided
into three classes, with each class consisting, as nearly as possible, of
one-third of the total number of the directors. Only one class is elected each
year for a three-year term. The holders of all currently outstanding classes
and series of stock are entitled to vote in the election of these directors.
However, our board of directors could authorize a new series of preferred stock
that does not have voting rights in the election of directors.
Our stockholders are not entitled to cumulative voting rights in the
election of directors.
Redemption of Common Stock
Our articles of incorporation permit the redemption of shares of FON common
stock, series 1, PCS common stock, series 1, PCS common stock, series 2 and, in
certain circumstances, Class A stock held by aliens if necessary to comply with
the foreign ownership limitations set forth in Section 310 of the
Communications Act of
42
1934, as amended. The provisions permit FON common stock, series 1, PCS common
stock, series 1 and PCS common stock, series 2 to be redeemed at a price equal
to the fair market value of the shares, except that the redemption price in
respect of shares purchased by any alien after November 21, 1995 and within one
year of the redemption date would not, unless otherwise determined by our
board, exceed the purchase price paid for those shares by the alien.
Conversion of PCS Common Stock at our Option
At any time after November 23, 2001, our board of directors may convert each
share of PCS common stock, series 1 into shares of FON common stock, series 1.
If the conversion takes place before November 23, 2002, each share of PCS
common stock, series 1 will convert into the number of shares of FON common
stock, series 1 equal to 110% of the optional conversion ratio computed as of
the fifth trading day before the date that notice of conversion is sent to
holders of PCS common stock. The optional conversion ratio is the ratio of the
average trading price of a share of PCS common stock, series 1 to the average
trading price of a share of FON common stock, series 1. See the discussion of
the vote per share of PCS common stock, series 1 under "--Voting Rights--Votes
Per Share" above for a definition of the term "average trading price." We must
compute the optional conversion ratio over a 60 trading day period if the
20-trading day period normally used to determine the average trading price is
less than 90% of the ratio as determined over a 60-trading day period.
If the conversion takes place on or after November 23, 2002, our board of
directors will determine the conversion ratio, subject to the requirement that
it must make independent determinations as to the fairness of the conversion
ratio to the holders of the PCS common stock, taken as a separate class, and to
the holders of the FON common stock, taken as a separate class.
At the same time as the board converts the PCS common stock, series 1 into
FON common stock, series 1, it must convert the PCS common stock, series 2 into
FON common stock, series 2 and the PCS common stock, series 3 into FON common
stock, series 3. In addition, the unissued shares of PCS common stock
underlying the Class A common stock will convert into unissued shares of FON
common stock on an equivalent basis.
Other Conversion Rights
The PCS common stock, series 2 converts into PCS common stock, series 1 when
it is transferred by a cable holder to a non-affiliate of the cable holders.
The PCS common stock, series 2 also converts into PCS common stock, series 1
when the total number of votes represented by the outstanding shares of PCS
common stock, series 2, calculated as though the PCS common stock, series 2 has
the same vote as the PCS common stock, series 1, is below 1% of our outstanding
voting power.
The holders of the FON common stock, series 3 may at any time convert their
shares of FON common stock, series 3 into shares of FON common stock, series 1
and the holders of the PCS common stock, series 3 may at any time convert their
shares of PCS common stock, series 3 into shares of PCS common stock, series 1.
This also applies to the shares of PCS common stock, series 3 that are issuable
with respect to the Class A common stock.
Mandatory Dividend, Redemption or Conversion of PCS Common Stock
If we dispose of all of the assets of the PCS group, or if we dispose of at
least 80% of the assets of the PCS group on a then-current market value basis,
we must use all of the net proceeds to pay a dividend on the PCS common stock
or redeem all or a portion of the PCS common stock or we must convert the PCS
common stock into FON common stock. There are certain exceptions to this rule;
for example, we do not have to pay a dividend on the PCS common stock, redeem
the PCS common stock or convert the PCS common stock into FON common
43
stock when we receive in exchange for the assets primarily equity securities of
an entity engaged, or proposing to engage, in a business similar or
complementary to the business of the PCS group.
If our board determines to convert the PCS common stock into FON common
stock in these circumstances, we will convert each share of PCS common stock
into a number of shares of FON common stock at a ratio equal to 110% of the
average market value of one share of PCS common stock, series 1 to the average
market value of one share of FON common stock, series 1 computed over a
10-trading day period beginning on the 16th trading day after the consummation
of the disposition. The market value is defined as the average of the high and
low reported sales prices regular way. Appropriate adjustments are made if an
ex-dividend date or an effective date for a subdivision or combination of the
relevant shares occurs during the measurement period.
If our board determines to pay a dividend on the PCS common stock or redeem
PCS common stock, we will distribute to holders of PCS common stock and to
holders of Class A common stock, based on the PCS common stock underlying the
Class A common stock, cash or securities, other than our common equity
securities, or other property, or a combination of cash and securities and
other property, equal to the fair value of the net proceeds after deducting
amounts necessary to pay transaction costs, taxes on the disposition,
liabilities of the PCS group, and any amount corresponding to any inter-group
interest in the PCS group held by the FON group. If the payment of the dividend
or redemption price occurs before November 23, 2001, the board may also convert
each share of PCS common stock remaining outstanding into shares of FON common
stock on the same basis as conversion of PCS common stock into FON common stock
after November 23, 2001 and before November 23, 2002 described above under
"--Conversion of PCS Common Stock at Our Option." The conversion of PCS common
stock into FON common stock can occur under these circumstances only if the
conversion date occurs before the first anniversary of the payment of the
dividend or redemption price.
Redemption of PCS Common Stock in Exchange for Stock of a Subsidiary
We may redeem all of the outstanding shares of PCS common stock in exchange
for the outstanding shares of common stock of one or more wholly-owned
subsidiaries that hold all of the assets and liabilities attributed to the PCS
group if one of the following conditions is met:
. the redemption is tax free to the holders of PCS common stock; or
. after deducting related taxes, holders of PCS common stock are in a
position that is substantially equivalent economically to the position
they would be in if the redemption were tax free.
Liquidation Rights
In the event of the liquidation of Sprint, the prior rights of creditors and
the aggregate liquidation preference of any preferred stock then outstanding
must first be satisfied. The holders of FON common stock, PCS common stock and
Class A common stock will be entitled to share in the remaining assets of our
company in accordance with the per share liquidation units attributable to each
class or series of common stock. The holders of PCS common stock have no
special claim to the assets attributed to the PCS group. The liquidation units
attributable to each class of common stock are as follows:
. each share of FON common stock is attributed one liquidation unit;
. each share of PCS common stock is attributed 0.2046 liquidation units;
and
. each share of a series of Class A common stock is entitled to a number
of liquidation units equal to the sum of the liquidation units
associated with the unissued shares of PCS common stock underlying that
series of Class A common stock at the time of the liquidation, divided
by the aggregate number of outstanding shares of that series of Class A
common stock.
The number of liquidation units for each share of FON common stock and each
share of PCS common stock will be adjusted for stock splits, reverse stock
splits and other corporate events affecting the FON common stock or the PCS
common stock.
44
Preemptive Rights
No holder of PCS common stock or any other capital stock of our company is
entitled to preemptive rights or subscription rights, other than pursuant to
the rights issued pursuant to our rights agreement. At the time of the
acquisition of their shares of PCS common stock, series 2, Tele-Communications,
Inc., Comcast Corporation and Cox Communications, Inc. were given contractual
rights to purchase additional shares of PCS common stock, series 2 under
certain circumstances to enable them to maintain certain ownership levels.
Fully Paid
The outstanding shares of PCS common stock are fully paid and nonassessable.
Transfer Agent And Registrar
The transfer agent and registrar for PCS common stock and FON common stock
is UMB Bank, n.a., Kansas City, Missouri.
Anti-Takeover Provisions
The Kansas General Corporation Code and our articles of incorporation and
bylaws contain provisions which could discourage or make more difficult a
change in control of our company without the support of our board of directors.
A summary of these provisions follows.
Vote Required for Certain Business Combinations. Our articles of
incorporation require that certain business combinations initiated by a
beneficial owner of 10% or more of our voting stock must be approved by the
holders of 80% of the outstanding voting stock.
Restriction on Purchase of Equity Securities by Sprint. If the beneficial
owner of 5% or more of a class of our equity securities has held any of the
securities for less than two years, our articles of incorporation prohibit us
from purchasing equity securities of the same class as the securities held for
less than two years from the 5% security holder at a premium over market price
unless we either:
. obtain the approval of the holders of a majority of the voting power of
our outstanding capital stock, excluding the shares held by the 5%
security holder, or
. make a tender or exchange offer to purchase securities of the same class
on the same terms to all holders of those equity securities.
The approval of stockholders is not required in connection with purchases,
redemptions or other acquisitions by us of our capital stock held by France
Telecom, Deutsche Telekom, certain of their designated subsidiaries or certain
other qualified holders of the Class A stock pursuant to the investment
agreements entered into with France Telecom and Deutsche Telekom or our
articles of incorporation. The approval of stockholders is also not required in
connection with purchases, redemptions, conversions or other acquisitions of
PCS common stock from a holder of that stock pursuant to our articles of
incorporation.
Classified Board; Removal of Directors. In addition to providing for a
classified board of directors, discussed above under "Voting Rights--Classified
Board; No Cumulative Voting," our articles of incorporation provide that
directors may be removed only for cause. Removal for cause requires the
affirmative vote of the holders of a majority of the votes represented by the
shares entitled to vote on the election of that director. The provisions for a
classified board, together with the limitation on the removal of directors,
makes it more difficult to remove directors.
45
Notice Provisions Relating to Stockholder Proposals and Nominees. Our bylaws
contain provisions requiring our stockholders to give advance written notice to
us of a proposal or director nomination in order to have the proposal or the
nominee considered at a meeting of stockholders. The notice must usually be
given not less than 50 days and not more than 75 days before the meeting. Under
our bylaws, our stockholders may require that a special meeting of stockholders
be called only if the holders of a majority of the shares of stock issued and
outstanding and entitled to vote request that the meeting be called.
Rights Plan. Our board of directors has adopted a rights agreement. Pursuant
to the terms of the rights agreement, rights are attached to the FON common
stock, the PCS common stock and the Class A common stock. For a description of
the FON group rights attached to the FON common stock, see Amendment No. 3 to
our Registration Statement on Form 8-A relating to the FON group rights, filed
with the SEC on August 4, 1999 and incorporated by reference into this
prospectus. For a description of the PCS group rights attached to the PCS
common stock, see Amendment No. 2 to our Registration Statement on Form 8-A
relating to the PCS group rights, filed with the SEC on July 26, 1999 and
incorporated by reference into this prospectus. See "Where You Can Find More
Information."
Business Combination Statute. Kansas has a Business Combination Statute that
limits certain business combinations between Kansas corporations, like our
company, and interested stockholders, who are certain persons beneficially
owning a significant percentage of the voting stock of the corporation.
However, business combinations with a stockholder who became an interested
stockholder in a transaction approved by the corporation's board of directors
are exempted from these provisions.
Control Share Acquisition Statute. Kansas also has a Control Share
Acquisition Statute that provides that persons who acquire beneficial ownership
of the voting stock of a corporation in excess of certain thresholds lose the
right to vote the shares acquired in the transaction resulting in the person
exceeding one of the thresholds, unless the acquisition is approved by:
. a majority of the outstanding voting shares of the corporation, and
. a majority of the outstanding voting shares of the corporation excluding
the shares owned by the person making the acquisition, shares held by
the officers of the corporation and shares held by directors of the
corporation who are also employees of the corporation.
The thresholds are 20%, 33 1/3% and 50% of the voting power. Shares acquired
directly from the issuing corporation are not subject to the statute.
46
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND EQUITY UNITS
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or equity units offered by that prospectus supplement. If we
issue any stock purchase contracts or equity units, we will file the form of
stock purchase contract and equity unit as exhibits to the registration
statement and you should read these documents for provisions that may be
important to you. You can obtain copies of any form of stock purchase contract
and equity unit by following the directions described under the caption "Where
You Can Find More Information."
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of PCS common stock, series 1, or other securities
at a future date or dates. We may fix the price and number of securities
subject to the stock purchase contracts at the time we issue the stock purchase
contracts or we may provide that the price and number of securities will be
determined pursuant to a formula set forth in the stock purchase contracts. The
stock purchase contracts may be issued separately or as part of units
consisting of a stock purchase contract and debt securities or debt obligations
of third parties, including U.S. treasury securities, securing the obligations
of the holders of the units to purchase the securities under the stock purchase
contracts. We refer to these units as equity units. The stock purchase
contracts will require holders to secure their obligations under the stock
purchase contracts. The stock purchase contracts also may require us to make
periodic payments to the holders of the equity units or vice versa, and those
payments may be unsecured or refunded on some basis.
47
SELLING STOCKHOLDER
One or more of our stockholders may from time to time offer up to 57,000,000
shares of PCS common stock, series 1.
The prospectus supplement for any offering of PCS common stock, series 1 by
a selling stockholder will include, in addition to any other relevant material
information, the following information about the selling stockholder:
. the name of the selling stockholder;
. the nature of any position, office or other material relationship
between the selling stockholder and us, our affiliates or predecessors
during the last three years;
. the number of shares of PCS common stock, series 1 offered by the
selling stockholder under the prospectus supplement; and
. the number of shares of PCS common stock, series 1 owned by the selling
stockholder before and after the offering and, if one percent or more,
the percentage of PCS common stock, series 1 owned by the selling
stockholder after the offering.
48
PLAN OF DISTRIBUTION
We and any selling stockholder may sell any securities:
. through underwriters or dealers;
. through agents; or
. directly to one or more purchasers.
The distribution of the securities may be effected from time to time in one
or more transactions:
. at a fixed price or prices, which may be changed from time to time;
. at market prices prevailing at the time of sale;
. at prices related to prevailing market prices; or
. at negotiated prices.
For each series of securities, the applicable prospectus supplement will set
forth the terms of the offering including:
. the initial public offering price;
. the names of any underwriters, dealers or agents;
. the purchase price of the securities;
. our proceeds from the sale of the securities;
. any underwriting discounts, agency fees, or other compensation payable
to underwriters or agents;
. any discounts or concessions allowed or reallowed or repaid to dealers;
and
. the securities exchanges on which the securities will be listed, if any.
If we or any selling stockholder use underwriters in the sale, they will buy
the securities for their own account. The underwriters may then resell the
securities in one or more transactions at a fixed public offering price or at
varying prices determined at or after the time of sale. The obligations of the
underwriters to purchase the securities will be subject to certain conditions.
The underwriters will be obligated to purchase all the securities offered if
they purchase any securities. Any initial public offering price and any
discounts or concessions allowed or re-allowed or paid to dealers may be
changed from time to time. In connection with an offering, underwriters and
selling group members and their affiliates may engage in transactions to
stabilize, maintain or otherwise affect the market price of the securities in
accordance with applicable law.
If we or any selling stockholder use dealers in the sale, we or any selling
stockholder will sell securities to those dealers as principals. The dealers
may then resell the securities to the public at varying prices to be determined
by the dealers at the time of resale. If we or any selling stockholder use
agents in the sale, they will use their reasonable best efforts to solicit
purchases for the period of their appointment. If we or any selling stockholder
sell directly, no underwriters or agents would be involved. We are not making
an offer of securities in any state that does not permit an offer of these
securities.
Underwriters, dealers and agents that participate in the securities
distribution may be deemed to be underwriters as defined in the Securities Act
of 1933. Any discounts, commissions, or profit they receive when they resell
the securities may be treated as underwriting discounts and commissions under
the Securities Act of 1933. We or any selling stockholder may have agreements
with underwriters, dealers and agents to indemnify them against certain civil
liabilities, including certain liabilities under the Securities Act of 1933, or
to contribute with respect to payments that they may be required to make.
49
We or any selling stockholder may authorize underwriters, dealers or agents
to solicit offers from certain institutions where the institution contractually
agrees to purchase the securities from us or the selling stockholder on a
future date at a specific price. This type of contract may be made only with
institutions that we or the selling stockholder specifically approve. These
institutions could include banks, insurance companies, pension funds,
investment companies and educational and charitable institutions. The
underwriters, dealers or agents will not be responsible for the validity or
performance of these contracts.
The securities, other than any PCS common stock, will be new issues of
securities with no established trading market and unless otherwise specified in
the applicable prospectus supplement, we will not list any series of the
securities (other than the PCS common stock) on any exchange. It has not
presently been established whether the underwriters, if any, of the securities
will make a market in the securities. If the underwriters make a market in the
securities, the market making may be discontinued at any time without notice.
We cannot provide any assurance as to the liquidity of the trading market for
the securities.
50
LEGAL MATTERS
The validity of the convertible preferred stock and the PCS common stock,
series 1 will be passed upon for us by Thomas A. Gerke, Vice President,
Corporate Secretary and Associate General Counsel of our company. The validity
of the debt securities, guarantees, convertible subordinated debt securities,
stock purchase contracts and equity units will be passed upon for us by King &
Spalding. As of June 30, 2001, Thomas A. Gerke beneficially owned approximately
16,100 shares of PCS common stock and 16,400 shares of FON common stock and had
options to purchase in excess of 75,000 shares of PCS common stock and in
excess of 135,000 shares of FON common stock.
EXPERTS
Ernst & Young LLP, our independent auditors, have audited Sprint
Corporation's consolidated financial statements and schedule, as amended, and
the combined financial statements, as amended, of the PCS group and the FON
group included in Sprint Corporation's Annual Report on Form 10-K/A for the
year ended December 31, 2000, as set forth in their reports, which are
incorporated by reference in this prospectus and which, as to the year 1998 for
our consolidated financial statements and for the combined financial statements
of the PCS group, are based in part on the report of Deloitte & Touche LLP,
independent auditors. These financial statements and schedule are incorporated
by reference in reliance on the reports, given on the authority of such firms
as experts in accounting and auditing.
The consolidated financial statements of Sprint Spectrum Holdings Company,
L.P. and subsidiaries and the related financial statement schedule for the year
ended December 31, 1998 incorporated in this prospectus by reference from
Sprint Corporation's Annual Report on Form 10-K/A for the year ended December
31, 2000 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
51
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40,000,000 EQUITY UNITS
(INITIALLY CONSISTING OF 40,000,000 CORPORATE UNITS)
[LOGO] SPRINT [LOGO] Sprint(R)
Sprint PCS(R)
SPRINT CORPORATION
SPRINT CAPITAL CORPORATION
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
JPMORGAN
MERRILL LYNCH & CO.
UBS WARBURG
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ABN AMRO ROTHSCHILD LLC
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
, 2001
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