-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CFlvaJ2Ow82PCeaTTtt4wRWmkabrj2dexwYPdgc+za6+KVR/NrMFjwpXYz8Dyw64 sIP4zyIrflLdPXtvMk6RPw== 0000101830-03-000060.txt : 20030812 0000101830-03-000060.hdr.sgml : 20030812 20030812164657 ACCESSION NUMBER: 0000101830-03-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPRINT CORP CENTRAL INDEX KEY: 0000101830 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 480457967 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04721 FILM NUMBER: 03838053 BUSINESS ADDRESS: STREET 1: PO BOX 11315 CITY: KANSAS CITY STATE: MO ZIP: 64112 BUSINESS PHONE: 9136243000 MAIL ADDRESS: STREET 1: PO BOX 11315 CITY: KANSAS CITY STATE: MO ZIP: 64112 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TELECOMMUNICATIONS INC DATE OF NAME CHANGE: 19920316 FORMER COMPANY: FORMER CONFORMED NAME: UNITED UTILITIES INC DATE OF NAME CHANGE: 19731011 10-Q 1 spr10q_2q03.txt SPRINT CORPORATION 2Q03 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 -------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ -------------------------- Commission file number 1-04721 -------------------------------------------------------- SPRINT CORPORATION ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) KANSAS 48-0457967 - --------------------------------------- ---------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) P.O. Box 7997, Shawnee Mission, Kansas 66207-0997 - --------------------------------------- ---------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (913) 624-3000 ----------------------------- ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file these reports), and (2) has been subject to these filing requirements for the past 90 days. Yes X No ---------- ---------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ---------- ---------- COMMON SHARES OUTSTANDING AT JULY 31, 2003: FON COMMON STOCK 903,168,126 PCS COMMON STOCK: Series 1 813,568,852 Series 2 220,895,330 CLASS A COMMON STOCK 43,118,018
TABLE OF CONTENTS Page Reference Part I - Financial Information Item 1. Financial Statements Consolidated Financial Statements (including Consolidating Information) Consolidated Statements of Operations 1 Consolidated Statements of Comprehensive Income (Loss) 5 Consolidated Balance Sheets 9 Consolidated Statements of Cash Flows 13 Consolidated Statement of Shareholders' Equity 15 Condensed Notes to Consolidated Financial Statements 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Item 3. Quantitative and Qualitative Disclosures about Market Risk 53 Item 4. Controls and Procedures 54 Part II - Other Information Item 1. Legal Proceedings 55 Item 2. Changes in Securities 55 Item 3. Defaults Upon Senior Securities 56 Item 4. Submission of Matters to a Vote of Security Holders 56 Item 5. Other Information 57 Item 6. Exhibits and Reports on Form 8-K 57 Signature 60
Part I. Item 1. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Sprint Corporation ------------------------------- (millions, except per share data) Consolidated - --------------------------------------------- --- ------------- -- -------------- -- ------------------------------- Quarters Ended June 30, 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net Operating Revenues $ 6,463 $ 6,703 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Operating Expenses Costs of services and products 2,893 3,081 Selling, general and administrative 1,600 1,752 Depreciation 1,252 1,198 Amortization - 2 Restructuring and asset impairments 348 - - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Total operating expenses 6,093 6,033 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Operating Income 370 670 Interest expense (351) (386) Intergroup interest charge - - Other income (expense), net (21) (277) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Income (loss) from continuing operations before income taxes (2) 7 Income tax (expense) benefit - (113) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Income (Loss) from Continuing Operations (2) (106) Discontinued operation, net 9 38 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net Income (Loss) 7 (68) Preferred stock dividends (paid) received (1) (2) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Earnings (Loss) Applicable to Common Stock $ 6 $ (70) -- ------------- --- ------------- Diluted Earnings (Loss) per Common Share Continuing operations Discontinued operation - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Total Diluted weighted average common shares Basic Earnings (Loss) per Common Share Continuing operations Discontinued operation - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Total Basic weighted average common shares DIVIDENDS PER COMMON SHARE See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ------------------------------------- ---------------------------------- ---------------------------------- 2003 2002 2003 2002 2003 2002 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ (163) $ (154) $ 3,530 $ 3,839 $ 3,096 $ 3,018 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- (163) (154) 1,535 1,800 1,521 1,435 (10) (8) 903 941 707 819 - - 635 657 617 541 - - - - - 2 - - 348 - - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- (173) (162) 3,421 3,398 2,845 2,797 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- 10 8 109 441 251 221 - - (65) (78) (286) (308) - - 98 92 (98) (92) (10) (8) 4 (200) (15) (69) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 146 255 (148) (248) - - (56) (191) 56 78 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 90 64 (92) (170) - - 9 38 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 99 102 (92) (170) - - 2 1 (3) (3) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 101 $ 103 $ (95) $ (173) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ 0.10 $ 0.07 $ (0.09) $ (0.17) 0.01 0.05 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ 0.11 $ 0.12 $ (0.09) $ (0.17) --- ------------- -- ------------- -- ------------- --- ------------- 901.7 893.4 1,024.3 1,013.9 --- ------------- -- ------------- -- ------------- --- ------------- $ 0.10 $ 0.07 $ (0.09) $ (0.17) 0.01 0.05 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ 0.11 $ 0.12 $ (0.09) $ (0.17) --- ------------- -- ------------- -- ------------- --- ------------- 899.9 891.1 1,024.3 1,013.9 --- ------------- -- ------------- -- ------------- --- ------------- $ 0.125 $ 0.125 $ - $ - --- ------------- -- ------------- -- ------------- --- -------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Sprint Corporation ------------------------------- (millions, except per share data) Consolidated - --------------------------------------------- --- ------------- -- -------------- -- ------------------------------- Year-to-Date June 30, 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net Operating Revenues $ 12,802 $ 13,340 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Operating Expenses Costs of services and products 5,732 6,251 Selling, general and administrative 3,250 3,507 Depreciation 2,488 2,368 Amortization - 3 Restructuring and asset impairments 358 23 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Total operating expenses 11,828 12,152 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Operating Income (Loss) 974 1,188 Interest expense (717) (699) Intergroup interest charge - - Premium on early retirement of debt (19) - Other expense, net (82) (308) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Income (loss) from continuing operations before income taxes 156 181 Income tax benefit (expense) (61) (187) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Income (Loss) from Continuing Operations 95 (6) Discontinued operation, net 1,322 78 Cumulative effect of change in accounting principles, net 258 - - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net Income (Loss) 1,675 72 Preferred stock dividends (paid) received (3) (4) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Earnings (Loss) Applicable to Common Stock $ 1,672 $ 68 -- ------------- --- ------------- Diluted Earnings (Loss) per Common Share Continuing operations Discontinued operation Cumulative effect of change in accounting principle, net - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Total Diluted weighted average common shares Basic Earnings (Loss) per Common Share Continuing operations Discontinued operation Cumulative effect of change in accounting principle, net - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Total Basic weighted average common shares DIVIDENDS PER COMMON SHARE See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ------------------------------------- ---------------------------------- ---------------------------------- 2003 2002 2003 2002 2003 2002 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ (352) $ (269) $ 7,111 $ 7,743 $ 6,043 $ 5,866 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- (352) (269) 3,115 3,682 2,969 2,838 (20) (16) 1,822 1,922 1,448 1,601 - - 1,263 1,301 1,225 1,067 - - - - - 3 - - 348 - 10 23 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- (372) (285) 6,548 6,905 5,652 5,532 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- 20 16 563 838 391 334 - - (130) (157) (587) (542) - - 180 173 (180) (173) - - (19) - - (20) (16) - (198) (62) (94) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 594 656 (438) (475) - - (225) (346) 164 159 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 369 310 (274) (316) - - 1,322 78 - - - - 258 - - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 1,949 388 (274) (316) - - 4 3 (7) (7) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 1,953 $ 391 $ (281) $ (323) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ 0.41 $ 0.35 $ (0.27) $ (0.32) 1.47 0.09 - - 0.29 - - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ 2.17 $ 0.44 $ (0.27) $ (0.32) --- ------------- -- ------------- -- ------------- --- ------------- 900.2 892.9 1,023.2 1,011.9 --- ------------- -- ------------- -- ------------- --- ------------- $ 0.41 $ 0.35 $ (0.27) $ (0.32) 1.47 0.09 - - 0.29 - - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ 2.17 $ 0.44 $ (0.27) $ (0.32) --- ------------- -- ------------- -- ------------- --- ------------- 898.2 890.4 1,023.2 1,011.9 --- ------------- -- ------------- -- ------------- --- ------------- $ 0.25 $ 0.25 $ - $ - --- ------------- -- ------------- -- ------------- --- -------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Sprint Corporation ------------------------------- (millions) Consolidated - --------------------------------------------- ----------------- ----------------- -- ------------------------------- Quarters Ended June 30, 2003 2002 - --------------------------------------------- ----------------- ----------------- -- ------------- --- ------------- Net Income (Loss) $ 7 $ (68) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Other Comprehensive Income (Loss) Unrealized holding gains (losses) on securities 41 (24) Income tax benefit (expense) (15) 7 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net unrealized holding gains (losses) on securities during the period 26 (17) Reclassification adjustment for gains on securities included in net income (loss) (2) (1) Income tax benefit 1 - - ------------------------------------------------- ------------- -- -------------- -- ------------- --- ------------- Net reclassification adjustment for gains included in net income (1) (1) Foreign currency translation adjustments (3) 6 Unrealized gains (losses) on qualifying cash flow hedges (28) 20 Income tax benefit (expense) 11 (8) - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Net unrealized holding gains (losses) on qualifying cash flow hedges during the period (17) 12 - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Total other comprehensive income (loss) 5 - - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Comprehensive Income (Loss) $ 12 $ (68) -- ------------- --- ------------- See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ------------------------------------- ------------------------------- -- ---------------------------------- 2003 2002 2003 2002 2003 2002 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 99 $ 102 $ (92) $ (170) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 41 (24) - - - - (15) 7 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 26 (17) - - - - (2) (1) - - - - 1 - - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - (1) (1) - - - - (3) - - 6 - - (28) 20 - - - - 11 (8) - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - (17) 12 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 5 (6) - 6 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 104 $ 96 $ (92) $ (164) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- -------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Sprint Corporation ------------------------------- (millions) Consolidated - --------------------------------------------- ----------------- ----------------- -- ------------------------------- Year-to-Date June 30, 2003 2002 - --------------------------------------------- ----------------- ----------------- -- ------------- --- ------------- Net Income (Loss) $ 1,675 $ 72 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Other Comprehensive Income (Loss) Unrealized holding gains (losses) on securities 40 (30) Income tax benefit (expense) (15) 12 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net unrealized holding gains (losses) on securities during the period 25 (18) Reclassification adjustment for gains on securities included in net income (loss) (3) (1) Income tax benefit 2 - - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Reclassifications adjustment for gains included in net income (loss) (1) (1) Foreign currency translation adjustments (1) 3 Unrealized gains (losses) on qualifying cash flow hedges (30) 28 Income tax benefit (expense) 12 (6) - --------------------------------------------------------------- -- -------------- -- ------------- --- ------------- Net unrealized gains (losses) on qualifying cash flow hedges (18) 22 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Total other comprehensive income 5 6 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Comprehensive Income $ 1,680 $ 78 -- ------------- --- ------------- See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ------------------------------------- ---------------------------------- ---------------------------------- 2003 2002 2003 2002 2003 2002 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 1,949 $ 388 $ (274) $ (316) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 40 (30) - - - - (15) 12 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 25 (18) - - - - (3) (1) - - - - 2 - - - - ----- ------------- --- ------------- -- --- ------------- -- ------------- --- -- ------------- --- ------------- - - (1) (1) - - - - (1) (2) - 5 - - (30) 28 - - - - 12 (6) - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - (18) 22 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 5 1 - 5 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 1,954 $ 389 $ (274) $ (311) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- -------------
CONSOLIDATED BALANCE SHEETS Sprint Corporation ----------------------------------- (millions) Consolidated - ------------------------------------------------------------------------------------------------------------------------- June 30, December 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------------- (Unaudited) Assets Current assets Cash and equivalents $ 2,739 $ 1,035 Accounts receivable, net of consolidated allowance for doubtful accounts of $320 and $414 2,902 2,951 Inventories 654 682 Deferred tax asset 10 806 Current tax benefit receivable from the FON Group - - Prepaid expenses 351 360 Intergroup receivable - - Other 220 244 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 6,876 6,078 Assets of discontinued operation - 391 Property, plant and equipment FON Group 35,114 35,055 PCS Group 17,819 16,978 - ------------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment 52,933 52,033 Accumulated depreciation (25,146) (23,288) - ------------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 27,787 28,745 Investments in and advances to affiliates 45 73 Intangibles Goodwill 4,401 4,401 Spectrum licenses 4,618 4,620 Other intangibles 29 26 - ------------------------------------------------------------------------------------------------------------------------- Total intangibles 9,048 9,047 Accumulated amortization (3) (2) - ------------------------------------------------------------------------------------------------------------------------- Net intangibles 9,045 9,045 Other assets 891 961 - ------------------------------------------------------------------------------------------------------------------------- Total $ 44,644 $ 45,293 ----------------------------------- See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ------------------------------------- ----------------------------------- ----------------------------------- June 30, December 31, June 30, December 31, June 30, December 31, 2003 2002 2003 2002 2003 2002 - ------------------------------------- ----------------------------------- ----------------------------------- (Unaudited) (Unaudited) (Unaudited) $ - $ - $ 1,742 $ 641 $ 997 $ 394 - - 1,567 1,650 1,335 1,301 - - 221 219 433 463 - - 10 42 - 764 (375) - - - 375 - - - 173 215 178 145 (601) (536) 601 536 - - - - 117 114 103 130 - ------------------------------------- ----------------------------------- ----------------------------------- (976) (536) 4,431 3,417 3,421 3,197 - - - 391 - - - - 35,114 35,055 - - - - - - 17,819 16,978 - ------------------------------------- ----------------------------------- ----------------------------------- - - 35,114 35,055 17,819 16,978 (48) (46) (18,675) (18,161) (6,423) (5,081) - ------------------------------------- ----------------------------------- ----------------------------------- (48) (46) 16,439 16,894 11,396 11,897 (279) (280) 252 252 72 101 - - 27 27 4,374 4,374 - - 1,521 1,520 3,097 3,100 - - 26 24 3 2 - ------------------------------------- ----------------------------------- ----------------------------------- - - 1,574 1,571 7,474 7,476 - - (3) (2) - - - ------------------------------------- ----------------------------------- ----------------------------------- - - 1,571 1,569 7,474 7,476 - - 560 610 331 351 - ------------------------------------- ----------------------------------- ----------------------------------- $ (1,303) $ (862) $ 23,253 $ 23,133 $ 22,694 $ 23,022 - ------------------------------------- ----------------------------------- -----------------------------------
CONSOLIDATED BALANCE SHEETS (continued) Sprint Corporation ----------------------------------- (millions, except per share data) Consolidated - ------------------------------------------------------------------------------------------------------------------------- June 30, December 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------------- (Unaudited) Liabilities and Shareholders' Equity Current liabilities Short-term borrowings and current maturities of long-term debt $ 1,330 $ 1,887 Current maturities of intergroup debt - - Accounts payable 1,964 2,151 Accrued interconnection costs 563 626 Accrued taxes 402 358 Advance billings 559 510 Accrued restructuring costs 185 277 Payroll and employee benefits 534 579 Accrued interest 394 416 Intergroup payable - - Other 1,044 1,004 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 6,975 7,808 Liabilities of discontinued operation Current tax benefit payable to the PCS Group - - Other - 299 Noncurrent liabilities Long-term debt and capital lease obligations 17,107 18,405 Intergroup debt - - Equity unit notes 1,725 1,725 Deferred income taxes 2,039 2,025 Postretirement and other benefit obligations 1,779 1,712 Other 932 769 - ------------------------------------------------------------------------------------------------------------------------- Total noncurrent liabilities 23,582 24,636 Redeemable preferred stock 247 256 Shareholders' equity Common stock Class A FT, par value $0.00 per share and $0.50 per share, 100.0 shares authorized, 43.1 shares issued and outstanding - 22 FON, par value $2.00 per share, 4,200.0 shares authorized, 901.4 and 895.1 shares issued and outstanding 1,803 1,790 PCS, par value $1.00 per share, 4,600.0 shares authorized, 1,025.7 and 999.8 shares issued and outstanding 1,026 1,000 Capital in excess of par or stated value 10,004 9,931 Retained earnings 1,703 252 Accumulated other comprehensive loss (696) (701) Combined attributed net assets - - - ------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 13,840 12,294 - ------------------------------------------------------------------------------------------------------------------------- Total $ 44,644 $ 45,293 ----------------------------------- See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ------------------------------------ ----------------------------------- ----------------------------------- June 30, December 31, June 30, December 31, June 30, December 31, 2003 2002 2003 2002 2003 2002 - ------------------------------------ ----------------------------------- ----------------------------------- (Unaudited) (Unaudited) (Unaudited) $ - $ - $ 353 $ 1,234 $ 977 $ 653 - - (1,076) - 1,076 - - - 777 808 1,187 1,343 - - 551 614 12 12 (25) - 291 122 136 236 - - 230 232 329 278 - - 181 251 4 26 - - 441 488 93 91 - - 84 116 310 300 (601) (536) - - 601 536 (48) (46) 562 545 530 505 - ------------------------------------ ----------------------------------- ----------------------------------- (674) (582) 2,394 4,410 5,255 3,980 (350) - 350 - - - - - - 299 - - - - 2,868 3,142 14,239 15,263 - - - (406) - 406 - - - - 1,725 1,725 - - 1,884 1,825 155 200 - - 1,744 1,677 35 35 - - 398 362 534 407 - ------------------------------------ ----------------------------------- ----------------------------------- - - 6,894 6,600 16,688 18,036 (279) (280) - 10 526 526 - 22 - - - - 1,803 1,790 - - - - 1,026 1,000 - - - - 10,004 9,931 - - - - 1,703 252 - - - - (696) (701) - - - - (13,840) (12,294) 13,615 11,814 225 480 - ------------------------------------ ----------------------------------- ----------------------------------- - - - - - - - ------------------------------------ ----------------------------------- ----------------------------------- $ (1,303) $ (862) $ 23,253 $ 23,133 $ 22,694 $ 23,022 - ------------------------------------ ----------------------------------- -----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (millions) Sprint Corporation ---------------------------------- Consolidated - ------------------------------------------------------------------ ----------------- ---------------------------------- Year-to-Date June 30, 2003 2002 - ------------------------------------------------------------------ ----------------- ----------------- ---------------- Operating Activities Net income (loss) $ 1,675 $ 72 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Discontinued operation, net (1,322) (78) Cumulative effect of change in accounting principle, net (258) - Equity in net losses of affiliates 28 102 Depreciation and amortization 2,488 2,371 Deferred income taxes 644 628 Net losses on write-down of assets 347 254 Changes in assets and liabilities: Accounts receivable, net 49 76 Inventories and other current assets (288) (123) Accounts payable and other current liabilities (729) (622) Current tax benefit receivable from the FON Group - - Affiliate receivables and payables, net - - Noncurrent assets and liabilities, net 234 11 Other, net 100 25 - ------------------------------------------------------------------------------------ --- ------------- -- ------------- Net cash provided by operating activities of continuing operations 2,968 2,716 - ------------------------------------------------------------------------------------ --- ------------- -- ------------- Investing Activities Capital expenditures (1,492) (2,509) Investments in and loans to other affiliates, net (12) 12 Net proceeds from sales of assets 77 60 - ------------------------------------------------------------------ --- ------------- --- ------------- -- ------------- Net cash used by investing activities of continuing operations (1,427) (2,437) - ------------------------------------------------------------------ --- ------------- --- ------------- -- ------------- Financing Activities Proceeds from debt 44 5,980 Payments on debt (1,903) (5,777) Dividends paid (228) (226) Intergroup advances, net - - Other, net 19 14 - ------------------------------------------------------------------------------------ --- ------------- -- ------------- Net cash provided (used) by financing activities of continuing operations (2,068) (9) - ------------------------------------------------------------------------------------ --- ------------- -- ------------- - ------------------------------------------------------------------ --- ------------- --- ------------- -- ------------- Cash from discontinued operations 2,231 65 - ------------------------------------------------------------------ --- ------------- --- ------------- -- ------------- Increase (Decrease) in Cash and Equivalents 1,704 335 Cash and Equivalents at Beginning of Period 1,035 313 - ------------------------------------------------------------------ --- ------------- --- ------------- -- ------------- Cash and Equivalents at End of Period $ 2,739 $ 648 --- ------------- -- ------------- See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). Eliminations/Reclassifications Sprint FON Group Sprint PCS Group - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- 2003 2002 2003 2002 2003 2002 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 1,949 $ 388 $ (274) $ (316) - - (1,322) (78) - - - - (258) - - - - - (1) 14 29 88 - - 1,263 1,301 1,225 1,070 - - (75) 247 719 381 - - 337 253 10 1 - - 83 192 (34) (116) 375 - 38 (106) (701) (17) (375) (20) (184) (774) (170) 172 - 20 - - - (20) - - (38) 157 38 (157) - - 102 (17) 132 28 - - 60 (12) 40 37 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 1,954 1,565 1,014 1,151 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - (772) (1,081) (720) (1,428) - - - (26) (12) 38 - - 77 60 - - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - (695) (1,047) (732) (1,390) - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- -- - - 44 1,244 - 4,736 - - (1,873) (1,781) (30) (3,996) - - (221) (219) (7) (7) - - - 158 - (158) - - 11 (73) 8 87 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - (2,039) (671) (29) 662 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 1,881 65 350 - - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- - - 1,101 (88) 603 423 - - 641 134 394 179 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- ------------- $ - $ - $ 1,742 $ 46 $ 997 $ 602 - ----- ------------- --- ------------- --- ------------- -- ------------- -- ------------- --- -------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Sprint Corporation (millions) Year-to-date June 30, 2003 - ---------------------------------------------------------------------------------------------------------------- Capital in FON PCS Excess of Class A FT Common Common Par or Stated Common Stock Stock Stock Value - ---------------------------------------------------------------------------------------------------------------- Beginning 2003 balance $ 22 $ 1,790 $ 1,000 $ 9,931 Net income (loss) - - - - FON common stock dividends - - - - PCS preferred stock dividends - - - (3) Conversion of PCS common stock underlying Class A common stock (22) - 22 - FON Series 1 common stock issued - 13 - 62 PCS Series 1 common stock issued - - 4 14 Other, net - - - - - ---------------------------------------------------------------------------------------------------------------- June 2003 balance $ - $ 1,803 $ 1,026 $ 10,004 ------------------------------------------------------------------ Shares Outstanding - ------------------------------------------------------------------------------------------------ Beginning 2003 balance 43.1 895.1 999.8 FON Series 1 common stock issued - 6.3 - PCS Series 1 common stock issued - - 4.3 Conversion of Class A FT - - 21.6 - ------------------------------------------------------------------------------------------------ June 2003 balance 43.1 901.4 1,025.7 -------------------------------------------------- See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited). - ------------------------------------------------------------------------------------ Accumulated Other Retained Comprehensive Consolidated Combined Attributed Net Assets Earnings Loss Total Sprint FON Group Sprint PCS Group - ------------------------------------------------------------------------------------ $ 252 $ (701) $ 12,294 $ 11,814 $ 480 1,675 - 1,675 1,949 (274) (225) - (225) (225) - - - (3) 4 (7) - - - - - - - 75 75 - - - 18 - 18 1 5 6 (2) 8 - ------------------------------------------------------------------------------------ $ 1,703 $ (696) $ 13,840 $ 13,615 $ 225 - ------------------------------------------------------------------------------------
PART I. Item 1. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Sprint Corporation The information in this Form 10-Q has been prepared according to Securities and Exchange Commission (SEC) rules and regulations. In our opinion, the consolidated interim financial statements reflect all adjustments, consisting only of normal recurring accruals, needed to fairly present Sprint Corporation's consolidated financial position, results of operations, cash flows and comprehensive income (loss). Certain information and footnote disclosures normally included in consolidated financial statements prepared according to accounting principles generally accepted in the United States have been condensed or omitted. As a result, you should read these financial statements along with Sprint Corporation's 2002 Form 10-K. Operating results for the 2003 year-to-date period do not necessarily represent the results that may be expected for the year ending December 31, 2003. - -------------------------------------------------------------------------------- 1. Basis of Consolidation and Presentation - -------------------------------------------------------------------------------- Tracking Stock FON common stock and PCS common stock are intended to reflect the financial results and economic value of the FON and PCS Groups. However, they are classes of common stock of Sprint, not of the group they are intended to track. Accordingly, FON and PCS shareholders are subject to the risks related to an equity investment in Sprint and all of Sprint's businesses, assets and liabilities. Shares of FON common stock and PCS common stock do not represent a direct 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. Board Discretion Regarding Tracking Stocks Sprint's Board has the discretion to, among other things, make operating and financial decisions that could favor one group over the other and, subject to the restrictions in Sprint's articles of incorporation, to change the allocation of the assets and liabilities that comprise each of the FON Group and the PCS Group without shareholder approval. Under the applicable corporate law, Sprint's Board owes its fiduciary duties to all of Sprint's shareholders and there is no Board of Directors that owes separate duties to the holders of either the FON common stock or the PCS common stock. The Tracking Stock Policies provide that the Board, in resolving material matters in which the holders of FON common stock and PCS common stock have potentially divergent interests, will act in the best interests of Sprint and all of its common shareholders after giving fair consideration to the potentially divergent interests of the holders of the separate classes of Sprint common stock. These policies may be changed by the Board without shareholder approval. Given the Board's discretion in these matters, it may be difficult to assess the future prospects of each group based on past performance. Consolidation and Comparative Presentation The consolidated financial statements include the accounts of Sprint, its wholly owned subsidiaries and subsidiaries it controls. Investments in entities in which Sprint exercises significant influence, but does not control, are accounted for using the equity method (see Note 2). The consolidated financial statements are prepared using accounting principles generally accepted in the United States. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Certain prior-year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no effect on the results of operations or shareholders' equity as previously reported. Intergroup Transactions The PCS Group uses the long distance operation of the FON Group as its interexchange carrier and purchases wholesale long distance for resale to its customers. Additionally, the FON Group provides the PCS Group with Caller ID services and various other goods and services. Also included in these amounts are goods capitalized by the PCS Group. Charges to the PCS Group for these items totaled $163 million and $177 million in the 2003 and 2002 second quarters and $350 million and $325 million in the 2003 and 2002 year-to-date periods, respectively. The intercompany profit on capitalized charges totaled $2 million and $1 million in the 2003 and 2002 second quarters and $3 million and $4 million in the 2003 and 2002 year-to-date periods, respectively. The service charges less capitalized charges are included in the FON Group's net operating revenues and in the PCS Group's costs of services and products. The PCS Group provides the FON Group with access to its network and telemarketing and various other services. Charges to the FON Group for these items totaled $2 million in the 2003 second quarter and $5 million in the year-to-date period. In the 2002 second quarter and year-to-date period, the PCS Group credited the FON Group for $22 million and $52 million, respectively. This credit was primarily related to proceedings initiated by the Federal Communications Commission (FCC) in 2001 to consider a number of issues regarding compensation arrangements between carriers that exchange local and long distance traffic, including the issue of whether wireless carriers should be allowed to charge long distance carriers for terminating long distance calls to their wireless customers. The FON Group charges the PCS Group a return on investment or capital carrying charge for the use of FON Group owned capital assets. Charges to the PCS Group for this item totaled $10 million and $8 million in the 2003 and 2002 second quarters and $20 million and $16 million in the 2003 and 2002 year-to-date periods, respectively. These amounts are included in the FON Group's other income and the PCS Group's operating expenses. Allocation of Shared Services Sprint directly assigns, where possible, certain general and administrative costs to the FON Group and the PCS Group based on their actual use of those services. Where direct assignment of costs is not possible, or practical, Sprint uses other indirect methods, including time studies, to estimate the allocation of costs to each group. Cost allocation methods other than time studies include factors (general, marketing or headcount) derived from the operating unit's relative share of the predefined category referenced (e.g. headcount). Sprint believes that the costs allocated are comparable to the costs that would be incurred if the groups had been operating on a stand-alone basis. The FON Group provides facilities, information services and certain other services to the PCS Group. Charges to the PCS Group for these services totaled $148 million and $79 million in the 2003 and 2002 second quarters and $259 million and $135 million in the 2003 and 2002 year-to-date periods, respectively. This increase primarily reflects the transition of the PCS Group to shared facilities managed by the FON Group. Previously the PCS Group had separate facilities, and thus a direct cost. Also included in these amounts are charges that were capitalized by the PCS Group. These capitalized charges totaled $4 million and $3 million in the 2003 and 2002 second quarters and $9 million and $5 million in the 2003 and 2002 year-to-date periods, respectively. The service charges less capitalized charges are included in the PCS Group's operating expenses. Costs for shared services totaled approximately $422 million and $129 million in the 2003 and 2002 second quarters and $542 million and $252 million in the 2003 and 2002 year-to-date periods, respectively. The percentage of these costs allocated to the PCS Group were approximately 51% and 29% in the 2003 and 2002 second quarters and 47% and 28% in the 2003 and 2002 year-to-date periods, respectively, with the balance allocated to the FON Group. The increase in total costs for shared services is driven by the consolidation of Sprint's Network, Information Technology, and Billing and Accounts Receivable organizations announced in the 2002 fourth quarter. Divisional direct costs for these services have dropped proportionately for these allocated shared services. The allocation of shared services may change at the discretion of Sprint's Board and does not require shareholder approval. Allocation of Group Financing Financing activities for the groups are managed by Sprint on a centralized basis. Debt incurred by Sprint on behalf of the groups is specifically allocated to and reflected in the financial statements of the applicable group. If the group to which the debt has been allocated does not provide the funds when Sprint subsequently repays all or a part of the debt, the allocated debt is reported as intergroup debt. With certain external borrowings in 1998, the FON Group extended the PCS Group longer repayment terms than the external borrowings. Interest expense is allocated to the PCS Group based on an interest rate that is substantially equal to the rate it would be able to obtain from third parties as a wholly owned Sprint subsidiary, but without the benefit of any guarantee by Sprint or any member of the FON Group. That interest rate is higher than the rate Sprint obtains on borrowings. The difference between Sprint's actual interest rate and the rate charged to the PCS Group is reflected as a reduction in the FON Group's interest expense and totaled $98 million and $92 million in the 2003 and 2002 second quarters and $180 million and $173 million in the 2003 and 2002 year-to-date periods, respectively. These amounts are reflected in the "Intergroup interest charge" on the Consolidated Statements of Operations. Under Sprint's centralized cash management program, one group may advance funds to the other group. These advances are accounted for as short-term borrowings between the groups and bear interest at a market rate that is substantially equal to the rate that group would be able to obtain from third parties on a short-term basis. The allocation of group financing activities may change at the discretion of Sprint's Board and does not require shareholder approval. Allocation of Federal and State Income Taxes Sprint files a consolidated federal income tax return and certain state income tax returns which include FON Group and PCS Group results. Sprint adopted a tax sharing agreement which provides for the allocation of income taxes between the two groups. The FON Group's income taxes are calculated as if it files returns which exclude the PCS Group. The PCS Group's income taxes reflect the PCS Group's incremental cumulative impact on Sprint's consolidated income taxes. Intergroup tax payments are satisfied on the date Sprint's related tax payment is due to or the refund is received from the applicable tax authority. - -------------------------------------------------------------------------------- 2. Investments - -------------------------------------------------------------------------------- Investments in Securities The cost of investments in marketable securities, which is included in "Other assets" on the balance sheets, was $140 million at the end of June 2003 and $95 million at December 31, 2002. Accumulated unrealized holding gains were $27 million, gross and $17 million, net of income taxes, at the end of June 2003. Comparatively, as of December 31, 2002, the accumulated unrealized holding losses were $20 million, gross and $12 million, net of income taxes, and accumulated unrealized holding gains were $10 million, gross and $6 million, net of income taxes, at year-end 2002. Both gains and losses are included in "Accumulated other comprehensive loss" in the Sprint Consolidated Balance Sheets. During the 2003 second quarter, Sprint converted its remaining EarthLink preferred shares into 18 million common shares and sold 10.8 million shares to EarthLink, Inc. and in the open market for $66 million. Sprint recognized a $3 million loss on the sales. At the end of June 2003, Sprint held 18.9 million EarthLink common shares. These shares are hedged with variable prepaid forward contracts, maturing from November 2004 to November 2005. Sprint's cost method investment in EarthLink preferred shares, which is also included in "Other assets" on the Consolidated Balance Sheet, was $116 million at the end of December 2002. Investments in and Advances to Affiliates At the end of June 2003, investments accounted for using the equity method consisted primarily of the PCS Group's $72 million investment in Virgin Mobile, U.S.A. At the end of June 2002, investments accounted for using the equity method consisted primarily of the PCS Group's investment in Pegaso Telecomunicaciones, S.A. de C.V. (Pegaso), SVC BidCo L.P., and Virgin Mobile, U.S.A. During 2002, the PCS Group's investment in BidCo was dissolved. In the third quarter of 2002, the PCS Group sold its investment in Pegaso to Telefonica Moviles. Combined, unaudited, summarized financial information (100% basis) of entities accounted for using the equity method was as follows:
Quarters Ended Year-to-Date June 30, June 30, --- ------------------------------- -- ------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions) Results of operations Net operating revenues $ 184 $ 192 $ 347 $ 384 --- ------------- -- -------------- -- ------------- --- ------------- Operating loss $ (32) $ (87) $ (54) $ (122) --- ------------- -- -------------- -- ------------- --- ------------- Net loss $ (19) $ (248) $ (51) $ (381) --- ------------- -- -------------- -- ------------- --- ------------- Equity in net losses of affiliates $ (10) $ (82) $ (28) $ (102) --- ------------- -- -------------- -- ------------- --- -------------
- -------------------------------------------------------------------------------- 3. Asset Retirement Obligations - -------------------------------------------------------------------------------- Sprint adopted Statement of Financial Accounting Standard (SFAS) No. 143, Accounting for Asset Retirement Obligations, on January 1, 2003. This standard provides accounting guidance for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or development and (or) normal operation of that asset. According to the standard, the fair value of an asset retirement obligation (ARO liability) should be recognized in the period in which (1) a legal obligation to retire a long-lived asset exists and (2) the fair value of the obligation based on retirement cost and settlement date is reasonably estimable. Upon initial recognition of the ARO liability, the related asset retirement cost should be capitalized by increasing the carrying amount of the related long-lived asset. Sprint's network is primarily located on leased property. In the FON Group, a majority of the leased property has no requirement for remediation at retirement. The remainder of the FON Group's leased property and predominately all of the PCS Group's leased property do have remediation requirements. Sprint expects to maintain the property as a necessary component of infrastructure required to maintain FCC licensing. The history and patterns of Sprint's use, as well as that of our industry, support a low probability associated with lessor enforcement of their remediation rights. Based on these trends and our limited experience in performing remediation of sites, Sprint estimates the liability associated with the ultimate disposition of those requirements to be immaterial. While adoption of SFAS No. 143 did not result in the recognition of asset retirement obligations, adoption of this standard did affect cost of removal historically recorded by the FON Group's local division. Consistent with regulatory requirements and industry practice, the local division historically accrued costs of removal in its depreciation reserves. These costs of removal do not meet the SFAS No. 143 definition of an ARO liability. Upon adoption of SFAS No. 143, the FON Group recorded a reduction in its historical depreciation reserves of approximately $420 million to remove the accumulated excess cost of removal, resulting in a cumulative effect of change in accounting principle credit, net of tax, in the Consolidated Statements of Operations of $258 million. The annual impact of this accounting change on income from continuing operations is an expected decrease to the FON Group's 2003 depreciation expense of approximately $40 million and an increase to 2003 expenses incurred for removal costs of approximately $20 million recognized ratably over the year.
Sprint FON Group ---------------------------------------------------------------------- Quarters Ended June 30, Year-to-Date June 30, --- ------------------------------- -- ------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions) Net income, as reported $ 99 $ 102 $ 1,949 $ 388 Deduct: Cumulative effect of change in accounting principle, net of related tax effects - - (258) - Add: Historically accrued cost of removal included in depreciation reserves, less cash removal expenses, net of related tax effects - 3 - 6 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Pro forma net income $ 99 $ 105 $ 1,691 $ 394 --- ------------- -- -------------- -- ------------- --- -------------
- -------------------------------------------------------------------------------- 4. Income Taxes - -------------------------------------------------------------------------------- The differences that caused Sprint's effective income tax rates to vary from the 35% federal statutory rate for income taxes related to continuing operations were as follows:
Sprint Sprint Sprint Corporation FON PCS Year-to-date June 30, 2003 Consolidated Group Group - ------------------------------------------------------------- --- ------------- --- -------------- -- -------------- (millions) Income tax expense (benefit) at the federal statutory rate $ 55 $ 208 $ (153) Effect of: State income taxes, net of federal income tax effect 8 18 (10) Equity in losses of foreign joint ventures 2 2 - Other, net (4) (3) (1) - ------------------------------------------------------------- --- ------------- --- -------------- -- -------------- Income tax expense (benefit) $ 61 $ 225 $ (164) --- ------------- --- -------------- -- -------------- Effective income tax rate 39.1% 37.9% 37.4% --- ------------- --- -------------- -- -------------- Sprint Sprint Sprint Corporation FON PCS Year-to-date June 30, 2002 Consolidated Group Group - ------------------------------------------------------------- --- ------------- --- -------------- -- -------------- (millions) Income tax expense (benefit) at the federal statutory rate $ 63 $ 229 $ (166) Effect of: State income taxes, net of federal income tax effect 13 27 (14) Equity in losses of foreign joint ventures 25 1 24 Write-down of cost-method investment 84 84 - Other, net 2 5 (3) - ------------------------------------------------------------- --- ------------- --- -------------- -- -------------- Income tax expense (benefit) $ 187 $ 346 $ (159) --- ------------- --- -------------- -- -------------- Effective income tax rate 103.3% 52.8% 33.5% --- ------------- --- -------------- -- --------------
- -------------------------------------------------------------------------------- 5. Accounting for Derivative Instruments - -------------------------------------------------------------------------------- Risk Management Policies Sprint's derivative instruments include interest rate swaps, stock warrants, variable prepaid forward contracts, credit forward contracts, and foreign currency forward contracts. Sprint's derivative transactions are used principally for hedging purposes and comply with Board-approved policies. Senior finance management receives frequent status updates of all outstanding derivative positions. Sprint enters into interest rate swap agreements to manage exposure to interest rate movements and achieve an optimal mixture of floating and fixed-rate debt while minimizing liquidity risk. The interest rate swap agreements designated as fair value hedges effectively convert Sprint's fixed-rate debt to a floating rate through the receipt of fixed-rate amounts in exchange for floating-rate interest payments over the life of the agreement without an exchange of the underlying principal amount. Sprint enters into interest rate swap agreements designated as cash flow hedges to reduce the impact of interest rate movements on future interest expense by effectively converting a portion of its floating-rate debt to a fixed rate. In certain business transactions, Sprint is granted warrants to purchase the securities of other companies at fixed rates. These warrants are supplemental to the terms of the business transactions and are not designated as hedging instruments. Sprint enters into variable prepaid forward contracts which reduce the variability in expected cash flows related to a forecasted sale of the underlying equity securities held as available for sale. Sprint holds fair value hedges through credit forward contracts which hedge changes in fair value of certain debt issues. Sprint's foreign exchange risk management program focuses on reducing transaction exposure to optimize consolidated cash flow. Sprint enters into forward contracts and options in foreign currencies to reduce the impact of changes in foreign exchange rates. Sprint's primary transaction exposure results from net payments made to overseas telecommunications companies for completing international calls made by Sprint's domestic customers. Forward contracts are used to offset the impact of foreign currency fluctuations of these payments. Interest Rate Swaps The interest rate swaps met all the required criteria under derivative accounting rules for the assumption of perfect effectiveness resulting in no recognition of changes in their fair value in earnings during the life of the swap. During the period ending June 30, 2003, Sprint held no interest rate swaps. Sprint held cash flow hedges in interest rate swaps in the period ending June 30, 2002. Sprint recorded a $6 million pre-tax increase to other comprehensive income in the 2002 second quarter and a $12 million pre-tax increase in the 2002 year-to-date period resulting from gains on cash flow hedges. The changes in other comprehensive income are included in "Net unrealized gains (losses) on qualifying cash flow hedges" on the Consolidated Statements of Comprehensive Income (Loss). Stock Warrants The stock warrants are not designated as hedging instruments and changes in the fair value of these derivative instruments are recognized in earnings during the period of change. Sprint's net derivative losses on stock warrants were immaterial in the 2003 second quarter and 2003 year-to-date period. Sprint recorded net derivative losses in earnings of $1 million after tax for the 2002 second quarter and net derivative losses in earnings of $3 million after tax for the 2002 year-to-date period due to changes in the fair value of the stock warrants. Net Purchased Equity Options The net purchased equity options embedded in variable prepaid forward contracts are designated as cash flow hedges. Sprint recorded a $17 million after-tax decrease to other comprehensive income in the 2003 second quarter and an $18 million after tax decrease for the 2003 year-to-date period resulting from losses on these cash flow hedges. Sprint recorded a $9 million after-tax increase to other comprehensive income in the 2002 second quarter and a $10 million after tax increase for the 2002 year-to-date period. The changes in other comprehensive income are included in "Net unrealized gains (losses) on qualifying cash flow hedges" on the Consolidated Statements of Comprehensive Income (Loss). Credit Forward Contracts As there is high correlation between the credit forward contracts and the debt issues being hedged, fluctuations in the value of the credit forward contracts are generally offset by changes in the fair value of the debt issues. A nominal amount was recorded in the 2003 second quarter on this investment in Sprint's Consolidated Statements of Operations. Foreign Currency Forward Contracts Foreign currency forward contracts held during the period were not designated as hedges as defined in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and changes in the fair value of these derivative instruments are recognized in earnings during the period of change. The activity associated with these contracts was immaterial in all periods presented. - -------------------------------------------------------------------------------- 6. Restructuring and Asset Impairment - -------------------------------------------------------------------------------- Restructuring Activity In the 2003 second quarter, Sprint announced the wind-down of its web hosting business. Restructurings of other global markets division operations also occurred in the continuing effort to create a more efficient cost structure (Global Markets Web Hosting Wind-down). These decisions resulted in pre-tax charges of $348 million consisting of asset write-offs and severance costs associated with work force reductions. The charge for asset impairments was $337 million and the remaining $11 million was accrued for employee terminations. The severance charges are associated with the involuntary employee separation of approximately 750 employees. In connection with the wind-down of the web hosting business, Sprint will record additional charges for facility lease terminations, customer migration, employee termination, and other wind-down costs in subsequent periods. As of June 30, 2003, approximately 250 of the employee separations had been completed. Sprint expects the aggregate pre-tax charge to be approximately $400 million to $475 million. Sprint expects to pay the majority of severance and other exit costs in the next twelve months. In the 2002 fourth quarter, Sprint announced a consolidation in its Network, Information Technology, and Billing and Accounts Receivable organizations, as well as in other areas of the Company, in the ongoing effort to streamline operations and maintain a competitive cost structure (One Sprint Consolidation). These decisions resulted in a $146 million pre-tax charge consisting of severance costs associated with work force reductions totaling $58 million, and the remaining $88 million accrued for other exit costs primarily associated with the termination of real estate leases. The severance charge is associated with the involuntary employee separation of approximately 2,100 employees. As of June 30, 2003, approximately 1,800 of the employee separations had been completed. Sprint expects to pay the majority of severance and other exit costs by March 31, 2004. In the 2002 fourth quarter, the PCS group announced it would reduce operating expenses through a work force reduction (PCS Consolidation). This action, which was undertaken to create a more competitive cost structure for the business, resulted in a $43 million pre-tax charge. The charge for severance costs totaled $25 million, and the remaining $18 million was accrued for other exit costs primarily associated with the termination of real estate leases. The severance charge was associated with the involuntary employee separation of approximately 1,600 employees. As of December 31, 2002, substantially all of the employee separations had been completed. Sprint expects to pay the majority of the remaining severance and other exit costs by March 31, 2004. In the 2002 third quarter, Sprint announced a restructuring integrating its E|Solutions' web hosting sales, mobile computing consulting, marketing, and product sales support capabilities into Sprint Business while integrating its customer service operations into Network Services. Additionally, Sprint announced that its global markets division would discontinue offering and internally supporting facilities-based Digital Subscriber Line (DSL) services to customers (collectively, the Global Markets Consolidation). These decisions resulted in a $202 million pre-tax charge. The charge for asset impairments was $142 million, severance costs totaled $22 million, and the remaining $38 million was accrued for other exit costs associated with the termination of real estate leases and other contractual obligations. The severance charge was associated with the involuntary employee separation of approximately 1,100 employees. As of September 30, 2002, substantially all of the employee separations had been completed. Sprint expects to pay the majority of severance and other exit costs by the third quarter of 2003. In the 2002 first quarter, the PCS Group announced plans to close five PCS customer solution centers, as well as additional steps to reduce operating costs in its network, sales and distribution, and customer solutions business units (PCS Customer Service Center Closures). These decisions resulted in a $23 million pre-tax charge. The charge for severance costs was $13 million with the remaining $10 million being for other exit costs, primarily for the termination of real estate leases. The severance charge was associated with the involuntary employee separation of approximately 2,600 employees. As of September 30, 2002, substantially all of the employee separations had been completed. In the 2002 third quarter, Sprint performed an analysis to finalize the restructuring estimates recorded in the 2002 first quarter. This analysis resulted in a reserve reduction of $6 million primarily associated with real estate lease terminations. In the 2001 fourth quarter, Sprint terminated its efforts to provide its Sprint ION consumer and business offerings and announced plans to reduce operating costs in the business units that comprise its FON Group. These efforts included consolidation and streamlining of marketing and network operations, as well as streamlining corporate support functions (Sprint ION Termination). These decisions resulted in a $1,813 million pre-tax charge. The charge for asset impairments was $1,327 million, severance costs totaled $231 million, and the remaining $256 million was accrued for other exit costs including termination of supplier agreements, real estate leases, and other contractual obligations. The severance charge was associated with the involuntary employee separation of approximately 6,000 employees. As of September 30, 2002, substantially all of the employee separations had been completed. In the 2002 third quarter, Sprint performed an analysis to finalize the restructuring estimates recorded in the 2001 fourth quarter. This analysis resulted in a reserve reduction in the third quarter of 2002 of $42 million primarily associated with exit costs and a $34 million reduction associated with the asset impairment charge. Sprint expects to pay the majority of the remaining severance costs by December 31, 2003. In several of these restructuring events, the remaining other exit costs are primarily lease commitments which will be paid according to their terms. This activity is summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------- 2003 Activity ----------------------------------------- Total December 31, Restructuring Cash Non-cash/ June 30, 2002 Liability Charge Payments Adjustments 2003 Balance Liability Balance - ---------------------------------------------------------------------------------------------------------------------- (millions) Restructuring Events - 2003 Global Markets Web Hosting Wind-down Severance $ - $ 11 $ - $ - $ 11 Restructuring Events - 2002 One Sprint Consolidation Severance 58 - 28 - 30 Other exit costs 51 - 1 - 50 PCS Consolidation Severance 22 - 16 - 6 Other exit costs 16 - - (3) 13 Global Markets Consolidation Severance 8 - 7 - 1 Other exit costs 30 - 8 - 22 PCS Customer Service Center Closures Other exit costs 2 - 1 - 1 Restructuring Events - 2001 Sprint ION Termination Severance 43 - 17 - 26 Other exit costs 47 - 13 (9) 25 - ---------------------------------------------------------------------------------------------------------------------- Total $ 277 $ 11 $ 91 $ (12) $ 185 ------------------------------------------------------------------------------
Other Asset Impairments In the 2003 first quarter, the PCS Group recorded a charge for asset impairment of $10 million. This charge was associated with the termination of a software development project. - -------------------------------------------------------------------------------- 7. Discontinued Operation - -------------------------------------------------------------------------------- In the 2002 third quarter, Sprint reached a definitive agreement to sell its directory publishing business to R.H. Donnelley for $2.23 billion in cash. The sale closed on January 3, 2003. In the 2003 second quarter, Sprint recognized a pretax gain of $14 million, $9 million after tax, primarily related to a working capital payment. The pretax gain recognized in the year-to-date period was $2.14 billion, $1.32 billion after-tax. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, Sprint has presented the directory publishing business as a discontinued operation in the consolidated financial statements. Summary financial information is as follows:
June 30, December 31, 2003 2002 --------------------------------------------------- ----------------------------------- (millions) Assets of discontinued operation Accounts receivable, net $ - $ 277 Prepaids - 99 Other assets - 15 --------------------------------------------------- -- -------------- -- -------------- Total assets of discontinued operation $ - $ 391 -- -------------- -- -------------- Liabilities of discontinued operation Advance billings and other $ - $ 299 -- -------------- -- -------------- Quarters Ended June 30, -- -------------- -- -------------- 2003 2002 --------------------------------------------------- -- -------------- -- -------------- (millions) Net operating revenues $ - $ 139 -- -------------- -- -------------- Income before income taxes $ - $ 64 -- -------------- -- -------------- Year-to-Date June 30, -- -------------- -- -------------- 2003 2002 --------------------------------------------------- -- -------------- -- -------------- (millions) Net operating revenues $ 5 $ 276 -- -------------- -- -------------- Income before income taxes $ 5 $ 127 -- -------------- -- --------------
At June 30, 2003, the FON Group had a current tax payable to the PCS Group related to the gain on the sale of the directory publishing business in the amount of $350 million for the tax allocation between the PCS Group and the FON Group under the tax sharing agreement. - -------------------------------------------------------------------------------- 8. Short-term Borrowings and Current Maturities of Long-term Debt - -------------------------------------------------------------------------------- In February 2003, Sprint prepaid the $455 million balance outstanding relating to the global markets division accounts receivable asset securitization facility. As of June 30, 2003, no amounts were drawn against the facility. In March 2003, Sprint completed a tender offer to purchase $442 million principal amount of current senior notes before their scheduled maturity. The notes had an interest rate of 5.7% and a maturity date of November 15, 2003. A premium of $6 million was paid as part of the tender offer. The notes were allocated to the PCS Group and reflected as long-term debt. As a result of the FON Group's repayment of the notes, the allocated debt is now reflected as intergroup debt on the PCS Group balance sheet. The PCS Group is scheduled to pay $36 million of the total to the FON Group in the 2003 fourth quarter and the remaining $406 million in the 2004 second quarter. The intergroup debt is eliminated on the consolidated balance sheet. In March 2003, Sprint completed a tender offer to purchase $635 million principal amount of its long-term senior notes before their scheduled maturity. As of the 2003 second quarter, the allocated debt is reflected as current maturities of intergroup debt on the PCS balance sheet. See further discussion in Note 9. In June 2003, Sprint closed on a new revolving credit facility with a syndicate of banks. The $1.0 billion facility is unsecured, with no springing liens, and is structured as a 364-day credit line with a subsequent one-year, $1.0 billion term-out option. Sprint does not intend to draw against this facility. - -------------------------------------------------------------------------------- 9. Long-term Debt and Capital Lease Obligations - -------------------------------------------------------------------------------- In March 2003, Sprint completed a tender offer to purchase $635 million principal amount of its long-term senior notes before their scheduled maturity. The notes had an interest rate of 5.875% and a maturity date of May 1, 2004. A premium of $13 million was paid as part of the tender offer. The notes were allocated to the PCS Group and reflected as long-term debt at the time of the tender offer. As a result of the FON Group's repayment of the notes, the allocated debt is now reflected as intergroup debt on the PCS Group balance sheet. The notes are scheduled to be paid to the FON Group in the 2004 second quarter. As of the 2003 second quarter, the allocated debt is reflected as current maturities of intergroup debt on the PCS balance sheet. The intergroup debt is eliminated on the consolidated balance sheet. In March 2002, Sprint issued $5 billion of debt securities which replaced its commercial paper program. - -------------------------------------------------------------------------------- 10. Common Stock Issuances - -------------------------------------------------------------------------------- In March 2003, France Telecom (FT) converted 34.4 million shares of Series 3 PCS common stock into shares of Series 1 PCS common stock. At the same time, FT converted 21.6 million shares of PCS common stock underlying Class A common stock into Series 1 PCS common stock. Upon the issuance of the PCS shares underlying the Class A common stock, there were no more underlying shares of PCS or FON stock. The par value of the Class A common stock was automatically reduced to $0.00 per share from $0.50 per share. While the Class A common stock remains outstanding, it is nonvoting. According to an amended Schedule 13D filed by FT with the SEC, it sold its shares of Series 1 PCS common stock in June 2003. As a result, neither France Telecom nor Deutsche Telekom own any shares of PCS common stock or FON common stock or any shares convertible into PCS common stock or FON common stock. - -------------------------------------------------------------------------------- 11. Stock-based Compensation - -------------------------------------------------------------------------------- Effective January 1, 2003, Sprint adopted SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, using the prospective method. Upon adoption Sprint began expensing the fair value of stock-based compensation for all grants, modifications or settlements made on or after January 1, 2003. The following table illustrates the effect on net income and earnings per share of stock-based compensation included in net income and the effect on net income and earnings per share for grants issued on or before December 31, 2002, had Sprint applied the fair value recognition provisions of SFAS 123.
Sprint FON Group ---------------------------------------------------------------------- Quarters Ended Year-to-Date June 30, June 30, 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions, except per share data) Net income, as reported $ 99 $ 102 $ 1,949 $ 388 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 8 1 8 1 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (25) (25) (39) (47) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Pro forma net income $ 82 $ 78 $ 1,918 $ 342 --- ------------- -- -------------- -- ------------- --- ------------- Earnings per common share: Basic - as reported $ 0.11 $ 0.12 $ 2.17 $ 0.44 --- ------------- -- -------------- -- ------------- --- ------------- Basic - pro forma $ 0.09 $ 0.09 $ 2.14 $ 0.38 --- ------------- -- -------------- -- ------------- --- ------------- Diluted - as reported $ 0.11 $ 0.12 $ 2.17 $ 0.44 --- ------------- -- -------------- -- ------------- --- ------------- Diluted - pro forma $ 0.09 $ 0.09 $ 2.13 $ 0.38 --- ------------- -- -------------- -- ------------- --- ------------- Sprint PCS Group --- ------------------------------- -- ------------------------------- Quarters Ended Year-to-Date June 30, June 30, --- ------------------------------- -- ------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions, except per share data) Net loss, as reported $ (92) $ (170) $ (274) $ (316) Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 7 1 7 1 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (34) (35) (54) (63) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Pro forma net loss $ (119) $ (204) $ (321) $ (378) --- ------------- -- -------------- -- ------------- --- ------------- Earnings per common share: Basic - as reported $ (0.09) $ (0.17) $ (0.27) $ (0.32) --- ------------- -- -------------- -- ------------- --- ------------- Basic - pro forma $ (0.12) $ (0.20) $ (0.31) $ (0.37) --- ------------- -- -------------- -- ------------- --- ------------- Diluted - as reported $ (0.09) $ (0.17) $ (0.27) $ (0.32) --- ------------- -- -------------- -- ------------- --- ------------- Diluted - pro forma $ (0.12) $ (0.20) $ (0.31) $ (0.37) --- ------------- -- -------------- -- ------------- --- -------------
Sprint recognized pre-tax charges of $8 million in the 2003 second quarter and $9 million in the year to date period related to newly issued stock-based grants. An immaterial amount of expense was recognized for grants of restricted stock made in previous years. In the 2003 second quarter, Sprint recognized pre-tax charges of $15 million of non-cash expense in connection with separation agreements agreed to by Sprint and William T. Esrey, former chairman and chief executive officer; Ronald T. LeMay, former president and chief operating officer; and J. Richard Devlin, former executive vice president - general counsel, external affairs and corporate secretary. The charges were associated with accounting for modifications which accelerated vesting and extended exercise periods of stock options granted in prior periods, as required by SFAS No. 123 "Accounting for Stock-Based Compensation." Most of the FON options had exercise prices that were approximately two times the market price at the modification date, while most of the PCS options had exercise prices that were approximately five times the market prices at the modification date. The charge to earnings in the second quarter was approximately one cent per share each for the FON Group and the PCS Group. - -------------------------------------------------------------------------------- 12. Litigation, Claims and Assessments - -------------------------------------------------------------------------------- In March 2003, settlements subject to court approval were announced in both a derivative action and a securities class action filed by institutional stockholders. The derivative settlement includes the adoption of certain corporate governance enhancements, certain restrictions on stock and options by individual defendants, and the payment of plaintiff's attorneys' fees in Sprint stock, for which Sprint reserved $5 million in the 2003 first quarter in other income (expense), net. The securities class action settlement provides for the payment of a total of $50 million to the plaintiff class. Sprint reserved $45 million, representing the settlement amount net of undisputed insurance coverage, in the 2003 first quarter in other income (expense), net. A number of putative class action cases that allege Sprint failed to obtain easements from property owners during the installation of its fiber optic network have been filed in various courts. Several of these cases sought certification of nationwide classes, and in one case, a nationwide class was certified. However, a nationwide settlement of these claims was recently approved by the U.S. District Court for the Northern District of Illinois, which has enjoined all other similar cases. Sprint has previously accrued for the estimated settlement costs of these suits. In July 2002, the Federal Communications Commission released a declaratory ruling in a matter referred to it by the federal district court for the Western District of Missouri in Sprint's suit against AT&T Corp for the collection of terminating access charges. The FCC ruled that although nothing prohibited wireless carriers from charging for access to their networks, interexchange carriers were not required to pay such charges absent a contractual obligation to do so. This decision has been appealed to the D.C. Circuit Court of Appeals. Management believes adequate provisions have been recorded in the PCS Group's results of operations. In July 2003, the Inspector General of the General Services Administration (GSA) recommended that the GSA Debarment Official consider whether to initiate debarment proceedings against Sprint. The recommendation was based on a billing error related to Sprint's FTS2001 contract with the GSA. In June 2003, Sprint reached agreement with the Justice Department to pay the government $5.2 million, an amount twice the estimate of the amount over billed and an amount that both agreed compensated the government. If debarred, Sprint would not be able to bid on future government contracts. Sprint believes that the request for debarment consideration is unprecedented and unfounded. In April and May 2003, three putative class action lawsuits were filed in the U.S. District Court for the District of Kansas by individual participants in the Sprint Retirement Savings Plan and the Centel Retirement Savings Plan for Bargaining Unit Employees against Sprint Corporation, the committees that administer the two plans, and various current and former officers of Sprint. The lawsuits allege that defendants breached their fiduciary duties to the plans and violated the ERISA statutes by including FON and PCS stock among the thirty investment options offered to plan participants. Sprint believes these lawsuits are unfounded and intends to defend them vigorously. Various other suits, proceedings and claims, including purported class actions, typical for a business enterprise, are pending against Sprint. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with Sprint's beliefs, Sprint expects that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on the financial condition or results of operations of Sprint, the FON Group or the PCS Group. - -------------------------------------------------------------------------------- 13. Other Financial Information - -------------------------------------------------------------------------------- Allowance for Doubtful Accounts Sprint's allowance for doubtful accounts was as follows:
----------------- ---------------- June 30, December 31, 2003 2002 --------------------------------------------------- ----------------------------------- (millions) FON Group $ 228 $ 279 PCS Group 92 135 --------------------------------------------------- -- -------------- -- -------------- Consolidated $ 320 $ 414 -- -------------- -- -------------- Supplemental Cash Flows Information Sprint's net cash paid for interest and income taxes was as follows: Year-to-Date June 30, -- ------------- -- ------------- 2003 2002 --------------------------------------------------- -- ------------- -- ------------- (millions) Interest (net of capitalized interest) $ 729 $ 554 -- ------------- -- ------------- Income taxes $ 94 $ (384) -- ------------- -- ------------- Sprint's non-cash activities included the following: Year-to-Date June 30, -- ------------- -- ------------- 2003 2002 --------------------------------------------------- -- ------------- -- ------------- (millions) Common stock issued under Sprint's employee benefit stock plans $ 91 $ 114 -- ------------- -- ------------- Tax benefit from stock options exercised $ 1 $ 2 -- ------------- -- ------------- Contribution to equity investment $ - $ 35 -- ------------- -- -------------
- -------------------------------------------------------------------------------- 14. Segment Information - -------------------------------------------------------------------------------- Sprint is divided into three main lines of business: the global markets division, the local division, and the PCS wireless telephony products and services business, also known as the PCS Group. Other consists primarily of wholesale distribution of telecommunications products. Sprint manages its segments to the operating income (loss) level of reporting. Items below operating income (loss) are held at a corporate level and only attributed to the group level. The reconciliation from operating income to net income is shown on the face of the Consolidated Statements of Operations in the consolidating information. Segment financial information was as follows:
- ---------------------------------------------------------------------------------------------------------------- Global Corporate Quarters Ended Markets Local PCS and June 30, Division Division Other(1) Group(2) Eliminations(3) Consolidated - ---------------------------------------------------------------------------------------------------------------- (millions) 2003 Net operating revenues $ 2,002 $ 1,529 $ 210 $ 3,096 $ (374) $ 6,463 Affiliated revenues 170 66 136 2 (374) - Operating income (loss) (329) 449 (6) 251 5 370 2002 Net operating revenues $ 2,275 $ 1,548 $ 227 $ 3,018 $ (365) $ 6,703 Affiliated revenues 177 72 138 (22) (365) - Operating income (loss) (30) 481 (4) 221 2 670 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Global Corporate Year-to-Date Markets Local PCS and June 30, Division Division Other(1) Group(2) Eliminations(3) Consolidated - ---------------------------------------------------------------------------------------------------------------- (millions) 2003 Net operating revenues $ 4,044 $ 3,065 $ 397 $ 6,043 $ (747) $ 12,802 Affiliated revenues 363 118 261 5 (747) - Operating income (loss) (323) 909 (16) 391 13 974 2002 Net operating revenues $ 4,617 $ 3,113 $ 420 $ 5,866 $ (676) $ 13,340 Affiliated revenues 324 150 254 (52) (676) - Operating income (loss) (105) 962 (10) 334 7 1,188 - ---------------------------------------------------------------------------------------------------------------- (1) In the 2003 first quarter, Sprint closed the sale of its directory publishing business to R.H. Donnelley for $2.23 billion in cash. Operations of the directory publishing business are reported as a discontinued operation for all periods presented. See Note 7 for additional information. (2) Affiliate revenues in the 2002 second quarter and year-to-date periods reflect the adjustment of previously recorded inter-segment wireless access revenue between the global markets division and the PCS Group. (3) Revenues eliminated in consolidation consist principally of local access charged to the global markets division by the local division, equipment purchases from the wholesale distribution business, interexchange services provided to the local division, long-distance services provided to the PCS Group for resale to PCS customers and for internal business use, Caller ID services provided by the local division to the PCS Group and handset purchases from the PCS Group.
Net operating revenues by product and services were as follows:
- ---------------------------------------------------------------------------------------------------------------------- Global Quarters Ended Markets Local PCS Eliminations June 30, Division Division Other(1) Group (2),(3) Consolidated - ---------------------------------------------------------------------------------------------------------------------- (millions) 2003 Voice $ 1,243 $ - $ - $ - $ (103) $ 1,140 Data 463 - - - (42) 421 Internet 245 - - - (23) 222 Local service - 762 - - - 762 Network access - 519 - - (57) 462 Long distance - 133 - - - 133 Wireless services - - - 3,096 (3) 3,093 Other 51 115 210 - (146) 230 ---------------------------------------------------------------------------------- Total net operating revenues $ 2,002 $ 1,529 $ 210 $ 3,096 $ (374) $ 6,463 ---------------------------------------------------------------------------------- 2002 Voice $ 1,468 $ - $ - $ - $ (176) $ 1,292 Data 467 - - - - 467 Internet 247 - - - - 247 Local service - 763 - - - 763 Network access - 518 - - (53) 465 Long distance - 156 - - - 156 Wireless services - - - 3,018 21 3,039 Other 93 111 227 - (157) 274 ---------------------------------------------------------------------------------- Total net operating revenues $ 2,275 $ 1,548 $ 227 $ 3,018 $ (365) $ 6,703 ---------------------------------------------------------------------------------- (1) In the 2003 first quarter, Sprint closed the sale of its directory publishing business to R.H. Donnelley for $2.23 billion in cash. Operations of the directory publishing business are reported as a discontinued operation for all periods presented. See Note 7 for additional information. (2) Revenues eliminated in consolidation consist principally of local access charged to the global markets division by the local division, equipment purchases from the wholesale distribution business, interexchange services provided to the local division, long-distance services provided to the PCS Group for resale to PCS customers and for internal business use, Caller ID services provided by the local division to the PCS Group and handset purchases from the PCS Group. (3) Prior to the 2003 second quarter, elimination information was not tracked at a specific products and services level. All eliminations were considered voice revenues.
- ---------------------------------------------------------------------------------------------------------------------- Global Year-to-Date Markets Local PCS Eliminations June 30, Division(1) Division Other(1) Group (2),(3) Consolidated - ---------------------------------------------------------------------------------------------------------------------- (millions) 2003 Voice $ 2,535 $ - $ - $ - $ (296) $ 2,239 Data 924 - - - (42) 882 Internet 488 - - - (23) 465 Local service - 1,527 - - (1) 1,526 Network access - 1,042 - - (100) 942 Long distance - 277 - - - 277 Wireless services - - - 6,043 (5) 6,038 Other 97 219 397 - (280) 433 ---------------------------------------------------------------------------------- Total net operating revenues $ 4,044 $ 3,065 $ 397 $ 6,043 $ (747) $ 12,802 ---------------------------------------------------------------------------------- 2002 Voice $ 3,004 $ - $ - $ - $ (324) $ 2,680 Data 951 - - - - 951 Internet 492 - - - - 492 Local service - 1,524 - - - 1,524 Network access - 1,036 - - (112) 924 Long distance - 324 - - - 324 Wireless services - - - 5,866 52 5,918 Other 170 229 420 - (292) 527 ---------------------------------------------------------------------------------- Total net operating revenues $ 4,617 $ 3,113 $ 420 $ 5,866 $ (676) $ 13,340 ---------------------------------------------------------------------------------- (1) In the 2003 first quarter, Sprint closed the sale of its directory publishing business to R.H. Donnelley for $2.23 billion in cash. Operations of the directory publishing business are reported as a discontinued operation for all periods presented. See Note 7 for additional information. (2) Revenues eliminated in consolidation consist principally of local access charged to the global markets division by the local division, equipment purchases from the wholesale distribution business, interexchange services provided to the local division, long-distance services provided to the PCS Group for resale to PCS customers and for internal business use, Caller ID services provided by the local division to the PCS Group and handset purchases from the PCS Group. (3) Prior to the 2003 second quarter, elimination information was not tracked at a specific products and services level. All eliminations were considered voice revenues.
- -------------------------------------------------------------------------------- 15. Recently Issued Accounting Pronouncements - -------------------------------------------------------------------------------- In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus on EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF 00-21). The issue addresses how to account for arrangements that may involve multiple revenue-generating activities, i.e., the delivery or performance of multiple products, services, and/or rights to use assets. In applying this guidance, separate contracts with the same party, entered into at or near the same time, will be presumed to be a bundled transaction, and the consideration will be measured and allocated to the separate units based on their relative fair values. This consensus guidance will be applicable to agreements entered into in quarters beginning after June 15, 2003. Sprint will adopt this new accounting effective July 1, 2003. The PCS Group currently sells wireless phones and service contracts simultaneously in its company-owned stores. Under previous accounting guidance in Staff Accounting Bulletin 101, these direct sales channel activation fees and associated costs were deferred and recognized over the average life of service. These were considered to be service revenues and expenses. EITF 00-21 will result in this activation fee revenue being recognized at the time the related wireless phone is sold, and will classify it as equipment sales. The associated costs will no longer be deferred. While Sprint expects this change to accelerate the recognition of revenue and associated expense over the next twenty-four months, which is the average life of service, the impact to results of operations and cash flows will not be material. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This standard requires the classification of certain freestanding financial instruments as liabilities measured at their fair value. Financial instruments within the scope of this standard include mandatorily redeemable shares, instruments that constitute an obligation to repurchase equity shares, or certain instruments that constitute an obligation that may be settled by issuing a variable number of equity shares. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, or otherwise at the beginning of the first interim period beginning after June 15, 2003. Sprint will adopt this standard effective July 1, 2003, but does not expect a material impact to its Consolidated Balance Sheet. In January 2003, the FASB issued Financial Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities. This interpretation addresses the consolidation of certain business entities to which the usual condition of consolidation does not apply. The interpretation focuses on financial interests that indicate control and concludes that in the absence of control through voting interests, a company's exposure to the economic risk and potential rewards from an entity's assets and activities are the best evidence of control. Variable interests are the rights and obligations that convey economic gains or losses from changes in the value of the entity's assets and liabilities. If an enterprise holds a majority of the variable interests of an entity, it is considered the primary beneficiary and as such would be required to include the assets, liabilities and the results of operations of the variable interest entity in its financial statements. The provisions of this interpretation will be effective for Sprint beginning in the 2003 third quarter. Sprint is currently assessing the application of FIN No. 46 as it relates to variable interests acquired prior to January 31, 2003, but does not expect a material impact will be recorded in the third quarter 2003 financial statements. - -------------------------------------------------------------------------------- 16. Subsequent Events - -------------------------------------------------------------------------------- Dividend Declaration On August 12, 2003, Sprint's Board of Directors declared a dividend of 12.5 cents per share on the FON common stock. The dividend will be paid September 30, 2003. Debt Repurchase On July 2, 2003, Sprint gave notice of its intent to redeem before its scheduled maturity $84 million of secured debt that was issued by its local telephone companies. This redemption was completed on August 1, 2003. These borrowings had interest rates ranging from 9.14% to 9.33%. A premium of $4.8 million was paid as part of the redemption. Pension Contribution On July 22, 2003, Sprint contributed $400 million to its pension fund. This contribution is allowable under ERISA rules and is tax deductible. Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sprint Corporation - -------------------------------------------------------------------------------- Forward-looking Information - -------------------------------------------------------------------------------- Sprint includes certain estimates, projections and other forward-looking statements in its reports and in other publicly available material. Statements regarding expectations, including performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements. These statements reflect management's judgments based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer growth, pricing, costs to acquire customers and provide service, the timing of various events and the economic environment. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include: o extent and duration of the current economic downturn; o the effects of vigorous competition in the markets in which Sprint operates; o the costs and business risks associated with providing new services and entering new markets necessary to provide nationwide or global services; o adverse change in the ratings afforded our debt securities by ratings agencies; o the ability of the PCS Group and the global markets division to continue to grow a significant market presence; o the ability of the PCS Group and the global markets division to improve profitability and reduce cash requirements; o the effects of mergers and consolidations within the telecommunications industry and unexpected announcements or developments from others in the telecommunications industry; o the uncertainties related to the outcome of bankruptcies affecting the telecommunication industry; o the impact to the PCS Group's network coverage due to financial difficulties of third-party affiliates; o the uncertainties related to Sprint's investments; o the impact of any unusual items resulting from ongoing evaluations of Sprint's business strategies; o the impact of new, emerging and competing technologies on Sprint's business; o unexpected results of litigation filed against Sprint; o the possibility of one or more of the markets in which Sprint competes being impacted by changes in political or other factors such as monetary policy, legal and regulatory changes, including the impact of the Telecommunications Act of 1996 (Telecom Act), or other external factors over which Sprint has no control; and o other risks referenced from time to time in Sprint's filings with the Securities and Exchange Commission (SEC). The words "estimate," "project," "intend," "expect," "believe" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are found throughout Management's Discussion and Analysis. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Sprint is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this report or unforeseen events. Sprint provides a detailed discussion of risk factors in various SEC filings, including its 2002 Form 10-K, and you are encouraged to review these filings. - -------------------------------------------------------------------------------- Definitions of Financial Measures - -------------------------------------------------------------------------------- Sprint provides readers financial measures generated using generally accepted accounting principles (GAAP). ARPU (Average monthly service revenue per user) is calculated by dividing wireless service revenues by weighted average monthly wireless subscribers. ARPU is used to measure revenue on a per user basis. This is a measure which uses GAAP as the basis for the calculation. CCPU (Cash cost per user) is calculated by dividing the costs of wireless service revenues, service delivery and other general and administrative costs by weighted average monthly wireless subscribers. CCPU is a measure analysts use to evaluate the cash costs to operate the business on a per user basis. This is a measure which uses GAAP as the basis for the calculation. CPGA (Cost per gross addition) is calculated by dividing the costs of acquiring a new wireless subscriber, including equipment subsidies, marketing costs and selling expenses, by gross additional subscribers. Analysts use this measure in conjunction with the other measures to evaluate the profitability of the operation. This is a measure which uses GAAP as the basis for the calculation. - -------------------------------------------------------------------------------- General - -------------------------------------------------------------------------------- Sprint is a global communications company and a leader in integrating long-distance, local service, and wireless communications. Sprint is also one of the largest carriers of Internet traffic using its tier one Internet protocol network, which provides connectivity to any point on the Internet either through its own network or via direct connections with other backbone providers. Sprint is the nation's third-largest provider of long distance services, based on revenues, and operates nationwide, all-digital long distance and tier one Internet protocol networks. In addition, the local division currently serves approximately 8.0 million access lines in 18 states. Sprint also operates a 100% digital PCS wireless network with licenses to provide service to the entire United States population using a single frequency band and a single technology. Sprint operates in industries that have been and continue to be subject to consolidation and dynamic change. Therefore, Sprint routinely reassesses its business strategies. Due to changes in the telecommunications industry, including bankruptcies, over-capacity and the economic downturn, Sprint continues to assess the implications on its operations. Any such assessment may impact the valuation of its long-lived assets. As part of its overall business strategy, Sprint regularly evaluates opportunities to expand and complement its business and may at any time be discussing or negotiating a transaction that, if consummated, could have a material effect on its business, financial condition, liquidity or results of operations. In the 2003 first quarter, Sprint sold its directory publishing business to R.H. Donnelley for $2.23 billion in cash. Operating Segments Sprint's business is divided into three lines of business: the global markets division, the local division and the PCS wireless telephony products and services business. Board Discretion Regarding Tracking Stocks FON common stock and PCS common stock are intended to reflect the financial results and economic value of the FON and PCS Groups. However, they are classes of common stock of Sprint, not of the group they are intended to track. Accordingly, FON and PCS shareholders are subject to the risks related to an equity investment in Sprint and all of Sprint's businesses, assets and liabilities. Shares of FON common stock and PCS common stock do not represent a direct 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. Sprint's board of directors has the discretion to, among other things, make operating and financial decisions that could favor one group over the other and, subject to the restrictions in Sprint's articles of incorporation, to change the allocation of the assets and liabilities that comprise each of the FON Group and the PCS Group without shareholder approval. Under the applicable corporate law, Sprint's Board owes its fiduciary duties to all of Sprint's shareholders and there is no board of directors that owes separate duties to the holders of either the FON common stock or the PCS common stock. The Tracking Stock Policies provide that the Board, in resolving material matters in which the holders of FON common stock and PCS common stock have potentially divergent interests, will act in the best interests of Sprint and all of its common shareholders after giving fair consideration to the potentially divergent interests of the holders of the separate classes of Sprint common stock. These policies may be changed by the Board without shareholder approval. Given the Board's discretion in these matters, it may be difficult to assess the future prospects of each group based on past performance. - -------------------------------------------------------------------------------- General Overview of the Sprint FON Group - -------------------------------------------------------------------------------- The FON Group is comprised of the global markets division, the local division and other businesses consisting primarily of wholesale distribution of telecommunications products. The global markets division is the nation's third-largest provider of long distance services based on revenues. The activities of the local division include local exchange communications and consumer long distance services used by customers within Sprint's local franchise territories. The FON Group also includes its investments in EarthLink, Inc., an Internet service provider, and Call-Net, a long distance provider in Canada. Global Markets Division The global markets division provides 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 using various protocols such as Internet protocol (IP) and frame relay (a data service that transfers packets of data over Sprint's network) and managed network services. In addition, the global markets division provides consulting services and international data communications. In the 2003 second quarter, Sprint announced the wind-down of its web hosting business. The global markets division also includes the operating results of the wireless high speed data and cable TV service operations of the broadband fixed wireless companies. In 2001, Sprint announced it would halt further deployment of Multichannel Multipoint Distribution Services (MMDS) using current line of sight technology. Sprint is evaluating alternative strategies with respect to the MMDS spectrum leases and licenses. In July 2003, the Inspector General of the General Services Administration (GSA) recommended that the GSA Debarment Official consider whether to initiate debarment proceedings against Sprint. The recommendation was based on a billing error related to Sprint's FTS2001 contract with the GSA. In June 2003, Sprint reached agreement with the Justice Department to pay the government $5.2 million, an amount twice the estimate of the amount over billed and an amount that both agreed compensated the government. If debarred, Sprint would not be able to bid on future government contracts. Sprint believes that the request for debarment consideration is unprecedented and unfounded. Local Division The local division consists mainly of regulated local phone companies serving approximately 8.0 million access lines in 18 states. The local division provides local voice and data services, including digital subscriber line (DSL), for customers within its franchise territories, access by phone customers and other carriers to the local division's local network, nationwide long distance services to residential customers within its franchise territories, sales of telecommunications equipment, and other services within specified calling areas to residential and business customers. DSL enables high speed transmission of data over existing copper telephone lines. - -------------------------------------------------------------------------------- General Overview of the Sprint PCS Group - -------------------------------------------------------------------------------- The PCS Group includes Sprint's wireless PCS operations. It operates a 100% digital PCS wireless network with licenses to provide service to the entire United States population using a single frequency band and a single technology. At the end of the 2003 second quarter, the PCS Group, together with third party affiliates, operated PCS systems in over 300 metropolitan markets, including the 100 largest U.S. metropolitan areas. The PCS Group's service, including third party affiliates, reaches a quarter billion people. The PCS Group provides nationwide service through a combination of: o operating its own digital network in major U.S. metropolitan areas using code division multiple access (CDMA), which is a digital spread-spectrum wireless technology that allows a large number of users to access a single frequency band by assigning a code to all speech bits, sending a scrambled transmission of the encoded speech over the air and reassembling the speech into its original format, o affiliating with other companies that use CDMA, mainly in and around smaller U.S. metropolitan areas, o roaming on other providers' analog cellular networks using multi-mode and multi-band handsets, and o roaming on other providers' digital networks that use CDMA. Sprint PCS customers can also use their phones in Canada and Mexico through roaming agreements. Sprint launched nationwide third generation (3G) capability in the 2002 third quarter. This capability allows more efficient utilization of the network when voice calls are made using 3G-enabled handsets. It also provides enhanced data services. The service, marketed as "PCS Vision," allows consumer and business customers to use their Vision-enabled PCS devices to exchange personal and corporate e-mail, take and receive pictures, play games with full-color graphics and polyphonic sounds and browse the Internet wirelessly with speeds up to 144 kbps (with average speeds of 50 to 70 kbps). The PCS Group supplements its own network through affiliation arrangements with other companies that use CDMA. Under these arrangements, these companies offer PCS services under the Sprint brand name on CDMA networks built and operated at their own expense. Several of these affiliates are experiencing financial difficulties and are evaluating restructuring activities. One affiliate filed for bankruptcy protection and made claims against Sprint in the bankruptcy court. Another affiliate has filed suit against Sprint. Several of the affiliates are disputing and refusing to pay amounts owed to the PCS Group. Reserves have been established that provide for the ultimate resolution of these disputes. The PCS Group may incur additional expenses to ensure that service is available to its customers in the areas served by these affiliates. If any of the PCS Group affiliates cease operations, the PCS Group may incur roaming charges in areas where service was previously provided by the affiliates and costs to meet FCC buildout requirements, as well as experience lower revenues. The PCS Group also includes its investment in Virgin Mobile, USA (Virgin Mobile), a joint venture to market wireless services. This investment is accounted for using the equity method. The PCS Group also provides PCS services to companies that resell PCS services to their customers on a retail basis under their own brand. These companies bear the costs of acquisition, billing and customer service. The wireless industry, including the PCS Group, typically generates a higher number of subscriber additions and handset sales in the fourth quarter of each year compared to the remaining quarters. This is due to the use of retail distribution, which is dependent on the holiday shopping season; the timing of new products and service introductions; and aggressive marketing and sales promotions. - -------------------------------------------------------------------------------- Results of Operations - -------------------------------------------------------------------------------- Consolidated Total net operating revenues were as follows:
Quarters Ended Year-to-Date June 30, June 30, ----------------------------------- ---------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions) FON Group $ 3,530 $ 3,839 $ 7,111 $ 7,743 PCS Group 3,096 3,018 6,043 5,866 Intergroup eliminations (163) (154) (352) (269) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Net operating revenues $ 6,463 $ 6,703 $ 12,802 $ 13,340 --- ------------- -- -------------- -- ------------- --- -------------
Net operating revenues decreased 4% in both the 2003 second quarter and the 2003 year-to-date period compared to the same 2002 periods reflecting declining FON Group long distance voice revenues and product distribution revenues partially offset by growth in the PCS Group revenues. Income (Loss) from continuing operations was as follows:
Quarters Ended Year-to-Date June 30, June 30, ----------------------------------- ---------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions) FON Group $ 90 $ 64 $ 369 $ 310 PCS Group (92) (170) (274) (316) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Income (Loss) from continuing operations $ (2) $ (106) $ 95 $ (6) --- ------------- -- -------------- -- ------------- --- -------------
In the 2003 second quarter, income from continuing operations includes a $22 million charge in connection with the separation agreements agreed to by Sprint and three former executive officers and a $218 million charge related to winding down the global markets division's web hosting business. This charge includes a non-cash charge for the impairment of hosting assets and a charge related to cash requirements for employee terminations. Sprint will record additional charges for facility lease terminations, customer migration, employee termination and other wind-down costs in subsequent periods. In the 2003 first quarter, income from continuing operations includes a $32 million charge to settle derivative action and securities class action litigation, a $12 million charge reflecting the premiums paid on debt tender offers, and a $6 million charge associated with the termination of a software development project. In the 2002 second quarter, income from continuing operations includes $25 million related to a gain from the sale of customer contracts and a $241 million charge related to a write-down of an investment due to declining market value. In the 2002 first quarter, income from continuing operations includes a $15 million restructuring charge representing the closing of five PCS customer solution centers, as well as additional steps to reduce operating costs in the PCS business units. This charge was offset by favorable true-ups of unrelated items. In total, the charge and true-ups had no effect on income from continuing operations. - -------------------------------------------------------------------------------- Segmental Results of Operations - -------------------------------------------------------------------------------- Global Markets Division
Selected Operating Results --------------------------------------------------------------------- Quarters Ended June 30, Variance ---------------------------------- ------------------------------- 2003 2002 $ % - ---------------------------------------------- ---------------- ----------------- -- ------------- ----------------- (millions) Net operating revenues Voice $ 1,243 $ 1,468 $ (225) (15.3)% Data 463 467 (4) (0.9)% Internet 245 247 (2) (0.8)% Other 51 93 (42) (45.2)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Total net operating revenues 2,002 2,275 (273) (12.0)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating expenses Costs of services and products 1,063 1,329 266 20.0% Selling, general and administrative 558 612 54 8.8% Depreciation and amortization 362 364 2 0.5% Restructuring and asset impairments 348 - (348) NM - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Total operating expenses 2,331 2,305 (26) (1.1)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating loss $ (329) $ (30) $ (299) NM -- ------------- -- -------------- -- ------------- Operating margin NM NM -- ------------- -- -------------- Selected Operating Results --------------------------------------------------------------------- Year-to-Date June 30, Variance ---------------------------------- ------------------------------- 2003 2002 $ % - ---------------------------------------------- ---------------- ----------------- -- ------------- ----------------- (millions) Net operating revenues Voice $ 2,535 $ 3,004 $ (469) (15.6)% Data 924 951 (27) (2.8)% Internet 488 492 (4) (0.8)% Other 97 170 (73) (42.9)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Total net operating revenues 4,044 4,617 (573) (12.4)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating expenses Costs of services and products 2,166 2,750 584 21.2% Selling, general and administrative 1,131 1,251 120 9.6% Depreciation and amortization 722 721 (1) (0.1)% Restructuring and asset impairments 348 - (348) NM - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Total operating expenses 4,367 4,722 355 7.5% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating loss $ (323) $ (105) $ (218) NM -- ------------- -- -------------- -- ------------- Operating margin NM NM -- ------------- -- -------------- NM = Not meaningful
Net Operating Revenues Net operating revenues decreased 12% in the 2003 second quarter and in the 2003 year-to-date period from the same 2002 periods. The overall revenue decrease is in large part due to the decline in voice revenues including the loss of revenues from a major wholesale customer. Voice Revenues Voice revenues decreased 15% in the 2003 second quarter and 16% in the 2003 year-to-date period from the same 2002 periods due to a decline in consumer voice revenues resulting from wireless and e-mail substitution, aggressive competition from RBOCs for consumer and small business customers and business voice contract renewals occurring at lower prices. Minute volume decreased 7% in the 2003 second quarter compared to the 2002 second quarter. The minute decline was primarily driven by the loss of a major wholesale customer and a large prepaid customer. Data Revenues Data revenues decreased 1% in the 2003 second quarter and 3% in the 2003 year-to-date period from the same 2002 periods due to declines in private line services and rate reductions in ATM partially offset by an increase in frame relay. Internet Revenues Internet revenues decreased 1% in both the 2003 second quarter and the 2003 year-to-date period from the same 2002 periods. Increases in dedicated IP and web hosting services were more than offset by the final, contractually-scheduled repricing of the AOL dial IP agreement, as well as a general decline in dial IP pricing. Other Revenues Other revenues decreased 45% in the 2003 second quarter and 43% in the 2003 year-to-date period from the same 2002 periods. The decrease was primarily due to the sale of a consulting business in the third quarter of 2002 and lower equipment sales. Costs of Services and Products Costs of services and products include interconnection costs paid to local phone companies, other domestic service providers and foreign phone companies to complete calls made by the division's domestic customers, costs to operate and maintain the long distance network and the IP network, and costs of equipment sales. These costs decreased 20% in the 2003 second quarter and 21% in the 2003 year-to-date period from the same 2002 periods. The decrease was due to volume declines, an improving product mix, successful initiatives to reduce access unit costs and lower international settlements. Costs of services and products for the global markets division were 53.1% of net operating revenues in the 2003 second quarter and 53.6% in the 2003 year-to-date period compared to 58.4% and 59.6% for the same periods a year ago. Selling, General and Administrative Expense Selling, general and administrative (SG&A) expenses decreased 9% in the 2003 second quarter and 10% in the 2003 year-to-date period from the same 2002 periods. The decline was due to reduced bad debt provisions, restructuring efforts, and general cost controls partially offset by the cost of the executive separation agreements reached during the second quarter. SG&A expense was 27.9% of net operating revenues in the 2003 second quarter and 28.0% in the 2003 year-to-date period compared to 26.9% and 27.1% for the same periods a year ago. SG&A includes charges for estimated bad debt expense. The reserve for bad debts requires management's judgment and is based on customer specific indicators, as well as historical trending, industry norms, regulatory decisions and recognition of current market indicators about general economic conditions. Bad debt expense as a percentage of net revenues was 1.9% in the 2003 second quarter and 2.2% in the 2003 year-to-date period compared to 3.4% in both of the 2002 periods. This reduction reflects an improvement in collections and aging. Reserve for bad debt as a percent of outstanding accounts receivable was 14.3% at the end of the 2003 second quarter and 14.9% at year-end 2002. Depreciation and Amortization Expense Estimates and assumptions are used both in setting depreciable lives and testing for recoverability. Assumptions are based on internal studies of use, industry data on lives, recognition of technological advancements and understanding of business strategy. Depreciation and amortization expense decreased 1% in the 2003 second quarter and remained the same in the 2003 year-to-date period from the same periods a year ago. Depreciation and amortization expense was 18.1% of net operating revenues in the 2003 second quarter and 17.9% in the 2003 year-to-date period compared to 16.0% and 15.6% for the same 2002 periods. Restructuring and Asset Impairment In the 2003 second quarter, a $348 million charge was recorded in connection with Sprint's announcement of the wind-down of its web hosting business. The charge for asset impairments was $337 million. The remaining $11 million was accrued for employee terminations in connection with the wind-down of the web hosting business, as well as restructurings of other global markets division operations in the continuing effort to create a more efficient cost structure. Sprint will record additional wind-down related charges for facility lease terminations, customer migration, employee termination, and other wind-down costs in subsequent periods. Sprint expects the aggregate pre-tax charge to be approximately $400 to $475 million. Local Division
Selected Operating Results ---------------------------------------------------------------------- Quarters Ended June 30, Variance ----------------------------------- ------------------------------- 2003 2002 $ % - --------------------------------------------- ----------------- ----------------- -- ------------- ----------------- (millions) Net operating revenues Local service $ 762 $ 763 $ (1) (0.1)% Network access 519 518 1 0.2% Long distance 133 156 (23) (14.7)% Other 115 111 4 3.6% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Total net operating revenues 1,529 1,548 (19) (1.2)% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Operating expenses Costs of services and products 490 474 (16) (3.4)% Selling, general and administrative 318 305 (13) (4.3)% Depreciation and amortization 272 288 16 5.6% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Total operating expenses 1,080 1,067 (13) (1.2)% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Operating income $ 449 $ 481 $ (32) (6.7)% --- ------------- -- -------------- -- ------------- Operating margin 29.4% 31.1% --- ------------- -- --------------
Selected Operating Results ---------------------------------------------------------------------- Year-to-Date June 30, Variance ----------------------------------- ------------------------------- 2003 2002 $ % - --------------------------------------------- ----------------- ----------------- -- ------------- ----------------- (millions) Net operating revenues Local service $ 1,527 $ 1,524 $ 3 0.2% Network access 1,042 1,036 6 0.6% Long distance 277 324 (47) (14.5)% Other 219 229 (10) (4.4)% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Total net operating revenues 3,065 3,113 (48) (1.5)% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Operating expenses Costs of services and products 980 954 (26) (2.7)% Selling, general and administrative 638 623 (15) (2.4)% Depreciation and amortization 538 574 36 6.3% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Total operating expenses 2,156 2,151 (5) (0.2)% - --------------------------------------------- --- ------------- -- -------------- -- ------------- Operating income $ 909 $ 962 $ (53) (5.5)% --- ------------- -- -------------- -- ------------- Operating margin 29.7% 30.9% --- ------------- -- --------------
Net Operating Revenues Net operating revenues decreased 1% in the 2003 second quarter and 2% in the 2003 year-to-date period from the same 2002 periods. The year-to-date decline is driven by lower long distance services and equipment sales. The local division ended the 2003 second quarter with approximately 8.0 million switched access lines, a 2% decrease during the past 12 months. The reduction in access lines was driven by the continuing economic slowdown, wireless and cable substitution, and losses to competitive local providers. The reduction in access lines is expected to continue as Sprint believes its access line loss for 2003 will be comparable to its loss for the past 12 months, and will remain below the losses experienced by the other major carriers. On a voice-grade equivalent basis, which includes both traditional switched services and high capacity lines, voice-grade equivalents grew 7% during the past 12 months. This growth reflects growth in DSL as well as many business customers switching from individual lines to high capacity dedicated circuits. Local Service Revenues Local service revenues, derived from local exchange services, remained flat in both the 2003 second quarter and the 2003 year-to-date period from the same 2002 periods as the increase in vertical services revenue, driven by the success of bundled offerings, was offset by the decrease in access lines. Network Access Revenues Network access revenues, derived from long distance phone companies using the local network to complete calls, remained flat in the 2003 second quarter and increased 1% in the 2003 year-to-date period compared to a year ago. Strong growth in DSL services in the 2003 second quarter was largely offset by a 4% decline in access minutes of use, as well as by regulator-mandated access rate reductions. Long Distance Revenues Long distance revenues are mainly derived from providing nationwide long distance services to residential customers within Sprint's local franchise territories and other services within specified regional call areas, or LATAs, to residential and business customers. These revenues declined 15% in both the 2003 second quarter and the 2003 year-to-date period from the same 2002 periods. This was primarily due to a decline in total long distance minutes of use, as customers shifted more of their communications to wireless, e-mail and instant messaging. Other Revenues Other revenues increased 4% in the 2003 second quarter and decreased 4% in the 2003 year-to-date period from the same 2002 periods principally driven by equipment sales. The year-to-date decrease in equipment sales was primarily the result of the economic slowdown causing a reduction in customer demand for equipment. Costs of Services and Products Costs of services and products include costs to operate and maintain the local network and costs of equipment sales. These costs increased 3% in both the 2003 second quarter and the 2003 year-to-date period compared to the same 2002 periods. This increase was mainly driven by higher pension and retiree benefit costs as well as higher employee healthcare costs. Costs of services and products were 32.0% of net operating revenues in both the 2003 second quarter and the 2003 year-to-date period compared to 30.6% for the same periods a year ago. Selling, General and Administrative Expense SG&A expense increased 4% in the 2003 second quarter and 2% in the 2003 year-to-date period compared to the same 2002 periods. This increase was primarily due to additional pension and retiree benefit costs, higher employee healthcare costs and the cost of executive separation agreements reached during the second quarter partially offset by a decline in bad debt expense. SG&A expense was 20.8% of net operating revenues in both the 2003 second quarter and the 2003 year-to-date period compared to 19.7% and 20.0% for the same periods a year ago. Bad debt expense as a percentage of net revenues was 1.1% in the 2003 second quarter and 1.3% in the 2003 year-to-date period compared to 2.5% in the same periods a year ago. This reflects an improvement in collections and aging. Reserve for bad debt as a percent of outstanding accounts receivable was 10.2% at the end of the 2003 second quarter and 13.9% at year-end 2002. Depreciation and Amortization Expense Estimates and assumptions are used in setting depreciable lives. Assumptions are based on internal studies of use, industry data on lives, recognition of technological advancements and understanding of business strategy. Depreciation and amortization expense decreased 6% in both the 2003 second quarter and the 2003 year-to-date period compared to the same 2002 periods. This decline was driven by the implementation of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which eliminated the accrual for removal cost from the depreciable rate, as well as declines in circuit switching depreciation rates due to a revised schedule for converting from a digital to a packet network. Depreciation and amortization expense was 17.8% of net operating revenues in the 2003 second quarter and 17.6% in the 2003 year-to-date period compared to 18.6% and 18.4% for the same periods a year ago. PCS Group
Selected Operating Results --------------------------------------------------------------------- Quarters Ended June 30, Variance ---------------------------------- ------------------------------- 2003 2002 $ % - ---------------------------------------------- ---------------- ----------------- -- ------------- ----------------- (millions) Net operating revenues $ 3,096 $ 3,018 $ 78 2.6% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating expenses Costs of services and products 1,521 1,435 (86) (6.0)% Selling, general and administrative 707 819 112 13.7% Depreciation 617 541 (76) (14.0)% Amortization - 2 2 100.0% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Total operating expenses 2,845 2,797 (48) (1.7)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating income $ 251 $ 221 $ 30 13.6% -- ------------- -- -------------- -- ------------- Selected Operating Results --------------------------------------------------------------------- Year-to-Date June 30, Variance ---------------------------------- ------------------------------- 2003 2002 $ % - ---------------------------------------------- ---------------- ----------------- -- ------------- ----------------- (millions) Net operating revenues $ 6,043 $ 5,866 $ 177 3.0% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating expenses Costs of services and products 2,969 2,838 (131) (4.6)% Selling, general and administrative 1,448 1,601 153 9.6% Depreciation 1,225 1,067 (158) (14.8)% Amortization - 3 3 100.0% Restructuring and asset impairment 10 23 13 56.5% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Total operating expenses 5,652 5,532 (120) (2.2)% - ---------------------------------------------- -- ------------- -- -------------- -- ------------- Operating income $ 391 $ 334 $ 57 17.1% -- ------------- -- -------------- -- -------------
The PCS Group markets its products through multiple distribution channels, including its own retail stores as well as other retail outlets. Equipment sales to one retail chain and the service revenues generated by sales to its customers accounted for 20.6% of net operating revenues in the 2003 second quarter and 21.7% in the 2003 year-to-date period compared to 22.5% and 22.6% for the same 2002 periods. Net Operating Revenues
Quarters Ended Year-to-Date June 30, June 30, ----------------------------------- ---------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Customers (millions) 15.3 14.6 15.3 14.6 --- ------------- -- -------------- -- ------------- --- ------------- Average monthly service revenue per user (ARPU) $ 62 $ 61 $ 60 $ 61 --- ------------- -- -------------- -- ------------- --- ------------- Customer churn rate 2.4% 2.9% 2.8% 3.0% --- ------------- -- -------------- -- ------------- --- -------------
Net operating revenues include service revenues, sales of handsets and accessory equipment, and other revenues. Service revenues consist of monthly recurring charges, a pro rata portion of activation fees, usage charges and miscellaneous fees such as directory assistance, operator-assisted calling, handset insurance and late payment charges. Service revenues increased 5.0% in the 2003 second quarter and year-to-date period from the same 2002 periods reflecting an increase in the number of customers, higher monthly recurring charges, recognition of state Universal Service Fund (USF) fees and late fees initiated in the third quarter of 2002. The higher monthly recurring charges and recognition of state USF fees were partially offset by lower overage charges from usage-based plans. Average monthly usage increased by more than two hours when compared to the 2002 second quarter. The PCS Group had 360,000 post-paid retail additions in the 2003 second quarter, ending the period with approximately 15.3 million customers compared to approximately 14.6 million customers at the end of the 2002 second quarter. Resellers added 177,000 customers in the second quarter of 2003, which increased their customer base to 767,000, principally due to Virgin Mobile. The PCS Group third party affiliates added 80,000 customers in the second quarter of 2003. This brings the total number of customers served on the PCS network, including post-paid retail, affiliate and resale customers, at the end of the quarter to more than 18.8 million. In the 2003 second quarter, nearly 40 percent of new post-paid retail customers chose to include PCS Vision in their service package. This is up from 26 percent in the 2003 first quarter. In addition, the quality of the PCS subscriber base has improved due to better customer mix for new additions and lower churn. The customer churn rate in the 2003 second quarter was 2.4% compared to 2.9% for the same 2002 period. Improvement was primarily due to reduction in the involuntary churn rate as the PCS Group benefited from credit management policies initiated in the 2002 fourth quarter. Revenues from sales of handsets and accessories, including new customers and upgrades, were approximately 7.7% of net operating revenues in the 2003 second quarter and 8.4% in the 2003 year-to-date period compared to 9.8% and 10.1% for the same 2002 periods. The decline was mainly due to higher rebates and lower gross additions. As part of the PCS Group's marketing plans, handsets are normally sold at prices below the PCS Group's cost. Other revenues consist of net fees collected from affiliates for network operation and customer maintenance. It also includes revenues from the wholesale of PCS services to companies that resell to their customers on a retail basis. Other revenues represented 1.8% of net operating revenues in the 2003 second quarter and 2.1% in the 2003 year-to-date period compared to 1.7% for the same 2002 periods. The increase mainly reflects net additions to the affiliate and wholesale customer base. The PCS Group assesses access charges to long distance carriers for the termination of landline originated calls. Though regulations generally entitle a carrier that terminates a call on behalf of another to be compensated for providing that service, these regulations were developed in a period where services of this nature were provided exclusively by local exchange carriers. Certain long distance carriers have disputed the PCS Group's assessment of these charges as well as the corresponding rate at which the charges were determined. In July 2002, the FCC released a ruling affirming that nothing prohibited wireless carriers from imposing access charges for the use of their networks; however, the FCC also stated that inter-exchange carriers could not be unilaterally required to pay these charges without a contractual obligation to do so. The FCC referred the matter back to the Federal District Court for the Western District of Missouri. The decision has been appealed to the D.C. Circuit Court of Appeals. In light of this ruling, in the 2002 second quarter the PCS Group recorded an additional provision for outstanding receivables related to amounts previously billed and is fully reserved for 2003. Operating Expenses
Quarters Ended Year-to-Date June 30, June 30, ----------------------------------- ---------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Acquisition costs per gross customer addition (CPGA) $ 415 $ 350 $ 390 $ 325 --- ------------- -- -------------- -- ------------- --- ------------- Monthly cash costs per user (CCPU) $ 31 $ 32 $ 31 $ 32 --- ------------- -- -------------- -- ------------- --- -------------
Cost per Gross Customer Addition CPGA, a measure of the costs of acquiring a new subscriber, increased approximately 19% in the 2003 second quarter and 20% in the 2003 year-to-date period from the same 2002 periods. The CPGA increase was primarily due to certain fixed costs being spread across lower gross customer additions, as well as higher handset rebates. By November 24, 2003, all covered commercial mobile radio service (CMRS) providers, including the PCS Group, must offer a database solution for local number portability (LNP) that must be able to support roaming. LNP allows customers to retain, subject to certain geographical limitations, existing telephone numbers when switching from one telecommunications carrier to another. The LNP requirement will impose increased operating costs on all CMRS carriers and may result in higher subscriber churn rates. Cash Cost per User CCPU, a measure of the cash costs to operate the business on a per user basis, decreased approximately 3% in the 2003 second quarter and year-to-date period from the same 2002 periods. The reduction in CCPU occurred primarily due to lower bad debt expense; however, this savings was partially offset by increased USF charges, charges associated with the executive separation agreements reached in the second quarter and upgrade equipment rebate costs incurred to retain existing customers initiated in the fourth quarter of 2002. Costs of Services and Products The PCS Group's costs of services and products mainly include handset and accessory costs, switch and cell site expenses, customer care costs and other network-related costs. These costs increased 6% in the 2003 second quarter and 5% in the 2003 year-to-date period from the same 2002 periods. The increase was primarily due to network support of a larger customer base, expanded market coverage, and increased unit handset costs. These increases were somewhat offset by scale benefits resulting from the increased customer base and decreases in customer solutions expense. Handset and equipment costs were 36% of total costs of services and products in the 2003 second quarter and 38% in the 2003 year-to-date period compared to 37% and 38% for the same periods a year ago. Costs of services and products were 49.1% of net operating revenues in the 2003 second quarter and year-to-date period compared to 47.5% and 48.4% for the same periods a year ago. Selling, General and Administrative Expense SG&A expense mainly includes marketing costs to promote products and services as well as related salary and benefit costs. SG&A expense decreased 14% in the 2003 second quarter and 10% in the 2003 year-to-date period from the same 2002 periods reflecting a decline in bad debt expense due to a better credit class mix, leading to lower write-offs and higher recovery, and reduced sales and marketing costs, partially offset by the cost of the executive separation agreements reached in the second quarter. SG&A expense was 22.8% of net operating revenues in the 2003 second quarter and 24.0% in the 2003 year-to-date period compared to 27.1% and 27.3% for the same periods a year ago. Bad debt expense as a percentage of net revenues was 1.8% in the 2003 second quarter and 2.4% in the 2003 year-to-date period compared to 5.5% and 5.0% in the same periods a year ago. Reserve for bad debt as a percent of outstanding accounts receivable was 6.4% at the end of the 2003 second quarter and 9.4% at year-end 2002. These improvements were mainly driven by credit management policies initiated in the 2002 fourth quarter resulting in lower involuntary churn and improved receivables aging. Depreciation and Amortization Expense Estimates and assumptions are used both in setting depreciable lives and testing for recoverability. Assumptions are based on internal studies of use, industry data on lives, recognition of technological advancements and understanding of business strategy. Depreciation and amortization expense consists mainly of depreciation of network assets and amortization of definite life intangible assets. The definite life intangible assets include various customer bases, which became fully amortized in August 2002. Depreciation and amortization expense increased 14% in the 2003 second quarter and year-to-date periods from the same 2002 periods due to an increase in the network asset investment during 2002 and first half of 2003. Depreciation and amortization expense was 19.9% of net operating revenues in the 2003 second quarter and 20.3% in the 2003 year-to-date period compared to 18.0% and 18.2% for the same periods a year ago. Restructuring and Asset Impairment In the first quarter of 2003, the PCS Group recorded a charge of $10 million associated with the termination of a software development project. In the first quarter of 2002, the PCS Group announced plans to reduce operating costs through the closing of five PCS customer solution centers, as well as additional steps to reduce operating costs in the PCS business units. These actions were finalized in the third quarter of 2002, and ultimately resulted in the PCS Group incurring an $18 million charge. - -------------------------------------------------------------------------------- Nonoperating Items - -------------------------------------------------------------------------------- Interest Expense Sprint's effective interest rate on long-term debt was 7.0% in the 2003 second quarter compared to 7.1% in the 2002 second quarter. Interest costs on short-term borrowings, including short-term borrowings classified as long-term debt, and interest costs on deferred compensation plans have been excluded so as not to distort the effective interest rate on long-term debt. See "Liquidity and Capital Resources" for more information on Sprint's financing activities. Premium on Early Retirement of Debt In March 2003, Sprint completed a tender offer to purchase $442 million principal amount of current senior notes before their scheduled maturity. The notes had an interest rate of 5.7% and a maturity date of November 15, 2003. A premium of $6 million was paid as part of the tender offer. Also in March 2003, Sprint completed a tender offer to purchase $635 million principal amount of its long-term senior notes before their scheduled maturity. The notes had an interest rate of 5.875% and a maturity date of May 1, 2004. A premium of $13 million was paid as part of the tender offer. Other Income (Expense), net Other income (expense), net consisted of the following:
Quarters Ended Year-to-Date June 30, June 30, ----------------------------------- ---------------------------------- 2003 2002 2003 2002 - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- (millions) Dividend and interest income $ 7 $ 13 $ 21 $ 21 Equity in net losses of affiliates (10) (82) (28) (102) Net losses from investments - (243) - (253) Gains (losses) on sales of assets (3) 50 (3) 50 Amortization of debt costs (8) (12) (15) (20) Losses from disposal of PPE (4) (1) (5) (2) Royalties 4 3 7 6 Litigation settlement - - (50) - Other, net (7) (5) (9) (8) - --------------------------------------------- --- ------------- -- -------------- -- ------------- --- ------------- Total $ (21) $ (277) $ (82) $ (308) --- ------------- -- -------------- -- ------------- --- -------------
Equity in net losses of affiliates was driven by the PCS Group's investment in Virgin Mobile, U.S.A., in the 2003 second quarter and year-to-date period and by the PCS Group's investment in Pegaso Telecomunicaciones, S.A. de C.V. (Pegaso) and Virgin Mobile, U.S.A., in the 2002 second quarter and year-to-date period. Net losses from investments in the 2002 second quarter and year-to-date periods mainly include the write-down of EarthLink preferred shares to current market value and Sprint's equity investment in Intelig Telecommunicacoes Ltda. (Intelig). In the first quarter of 2003, Sprint recorded a $50 million charge to settle shareholder litigation. See Note 12 of Condensed Notes to Consolidated Financial Statements for additional information. Beginning in January 2002, Call-Net began making a royalty payment of 2.5% of revenues to Sprint. Currently, this is approximately $3 million per quarter. Income Taxes See Note 4 of Condensed Notes to Consolidated Financial Statements for information about the differences that caused the effective income tax rates to vary from the federal statutory rate for income taxes related to continuing operations. Discontinued Operation, Net In the 2002 third quarter, Sprint reached a definitive agreement to sell its directory publishing business to R.H. Donnelley for $2.23 billion in cash. The sale closed on January 3, 2003. In the 2003 second quarter, Sprint recognized a pretax gain of $14 million, $9 million after-tax, primarily related to a working capital payment. The pretax gain recognized in the year-to-date period was $2.14 billion, $1.32 billion after-tax. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, Sprint has presented the directory publishing business as a discontinued operation in the consolidated financial statements. Cumulative Effect of Change in Accounting Principle, Net In the 2003 first quarter, Sprint adopted SFAS No. 143, Accounting for Asset Retirement Obligations. Upon adoption of SFAS No. 143, the FON Group recorded a reduction in the local division's depreciation reserves to remove previously accrued costs of removal. Historically, the local division accrued costs of removal in its depreciable rate, a practice consistent with regulatory requirements and others in the industry. These costs of removal do not meet the standard's definition of an asset retirement obligation liability. This one-time benefit of approximately $420 million resulted in a cumulative effect of change in accounting principle credit, net of tax, in the Consolidated Statements of Operations of $258 million. - -------------------------------------------------------------------------------- Financial Condition - -------------------------------------------------------------------------------- Total consolidated assets were as follows:
---------------------------------- June 30, December 31, 2003 2002 ------------------------------------------------------------------------ (millions) FON Group $ 23,253 $ 23,133 PCS Group 22,694 23,022 Intergroup eliminations (1,303) (862) ------------------------------------------------------------------------ Consolidated assets $ 44,644 $ 45,293 ----------------------------------
Sprint's consolidated assets decreased $649 million in the 2003 year-to-date period. Cash and equivalents increased $1,704 million due to improved operating cash flows, reduced capital expenditures, and the sale of Sprint's directory publishing business to R.H. Donnelley in the 2003 first quarter. Net property, plant, and equipment decreased $958 million. Capital expenditures were more than offset by depreciation expense and the 2003 year-to-date period asset impairments. - -------------------------------------------------------------------------------- Liquidity and Capital Resources - -------------------------------------------------------------------------------- Sprint's Board of Directors exercises discretion regarding the liquidity and capital resource needs of the FON Group and the PCS Group. This includes the ability to prioritize the use of capital and debt capacity, to determine cash management policies and to make decisions regarding the timing and amount of capital expenditures. The actions of the Board of Directors are subject to its fiduciary duties to all shareholders of Sprint, and not just to the holders of a particular class of common stock. Given the above, it may be difficult for investors to assess each group's liquidity and capital resources and in turn the future prospects of each group based on past performance. Operating Activities
Year-to-Date June 30, ---------------------------------- 2003 2002 ------------------------------------------------------------------------ (millions) FON Group $ 1,954 $ 1,565 PCS Group 1,014 1,151 ------------------------------------------------------------------------ Cash flows provided by operating activities $ 2,968 $ 2,716 ----------------------------------
Cash flow from operations increased $252 million in the 2003 year-to-date period from the same 2002 period. This increase was driven by the FON Group's improvements in its operations as cost controls have mitigated the revenue erosion seen in the global market division and also reduced its working capital requirements. This was partially offset by the PCS Group's increased working capital requirements related mainly to a decrease in accounts payable. Investing Activities
Year-to-Date June 30, ---------------------------------- 2003 2002 ------------------------------------------------------------------------ (millions) FON Group $ (695) $ (1,047) PCS Group (732) (1,390) ------------------------------------------------------------------------ Cash flows used by investing activities $ (1,427) $ (2,437) ----------------------------------
The FON Group's capital expenditures totaled $772 million in the 2003 year-to-date period and $1,081 million in the same 2002 period. The decline in capital expenditures is primarily due to the global markets division continuing to take advantage of existing network capacity to meet the needs of growth in customer demand. Global markets division capital expenditures were incurred mainly to expand its global IP network to support increasing demand, enhance network reliability and upgrade capabilities for providing new products and services. The local division incurred capital expenditures to accommodate voice grade equivalent growth, expand capabilities for providing enhanced services, convert its network from circuit to packet switching, and continue the build-out of high-speed DSL services. PCS Group capital expenditures were $720 million in the 2003 year-to-date period and $1,428 million in the same 2002 period. Capital expenditures in both years were incurred to increase capacity and expand coverage. Lower capital spending in the 2003 year-to-date period was due to reprioritization efforts initiated late last year to re-focus capital spending on markets with greater impact. Despite lower capital spending, PCS has experienced strong improvements in network performance since the deployment of 1x technology. The 2002 year-to-date period capital expenditures also include the deployment of 3G technology, which was launched nationwide in the 2002 third quarter. Proceeds from the sale of assets in the 2003 year-to-date period mainly includes sale of marketable securities. The 2002 year-to-date period mainly includes proceeds from sales of certain contracts, investment securities, and other administrative assets. Financing Activities
Year-to-Date June 30, ---------------------------------- 2003 2002 ------------------------------------------------------------------------ (millions) FON Group $ (2,039) $ (671) PCS Group (29) 662 ------------------------------------------------------------------------ Cash flows provided (used) by financing activities $ (2,068) $ (9) ----------------------------------
Financing activities include a debt reduction of $1.9 billion in the 2003 year-to-date period compared to a $203 million increase in debt in the same 2002 period. The debt reduction in the 2003 year-to-date period is mainly due to the March 2003 tender for the 2003 and 2004 senior notes and the prepayment of the global markets division accounts receivable asset securitization facility. Sprint paid cash dividends of $228 million in the 2003 year-to-date period compared to $226 million in the same 2002 period. Capital Requirements Sprint's 2003 investing activities, mainly consisting of capital expenditures, are expected to total approximately $3.9 billion. FON Group capital expenditures are expected to be approximately $1.8 billion. PCS Group capital expenditures are expected to be approximately $2.1 billion. Sprint continues to review capital expenditures and will adjust capital investment in concert with growth. Dividend payments are expected to approximate $463 million in 2003. Sprint expects these capital requirements and dividend payments to be funded by Sprint's $2.7 billion cash balance at June 30, 2003, existing financing agreements, and expected 2003 cash flow from operations. Liquidity In recent years, Sprint has used the long-term bond market as well as other financial markets to fund its needs. As a result of its improved liquidity position, Sprint currently does not expect to borrow funds through the capital markets in 2003 to fund capital expenditures and operating and working capital requirements. In January 2003, Sprint closed on the $2.23 billion cash sale of its directory publishing business to R.H. Donnelley. In June 2003, Sprint closed on a new revolving credit facility with a syndicate of banks. The $1.0 billion facility is unsecured, with no springing liens, and is structured as a 364-day credit line with a subsequent one-year, $1.0 billion term-out option. Sprint does not intend to draw against this facility. Sprint had standby letters of credit serving as a backup to various obligations of approximately $128 million as of June 30, 2003. Sprint has a PCS Group accounts receivable asset securitization facility that provides Sprint with up to $500 million of additional liquidity. The facility, which expires in 2005, is subject to annual renewals and does not include any ratings triggers that would allow the lenders involved to terminate the facility in the event of a credit rating downgrade. The maximum amount of funding available is based on numerous factors and will fluctuate each month. Sprint has not drawn against the facility and more than $208 million was available as of June 30, 2003. Sprint has a global markets division accounts receivable asset securitization facility that provides Sprint with up to $700 million of additional liquidity. The facility, which expires in 2005, is subject to annual renewals and does not include any ratings triggers that would allow the lenders involved to terminate the facility in the event of a credit rating downgrade. The maximum amount of funding available is based on numerous factors and will fluctuate each month. In February 2003, Sprint prepaid all outstanding borrowings under this facility. As of June 30, 2003, Sprint had more than $416 million total funding available under the facility. The undrawn loan facilities described above would charge interest rates equal to LIBOR or Prime Rate plus a spread that varies depending on Sprint's credit ratings. Debt maturities for the remainder of 2003 total approximately $635 million. Debt maturities for 2004 total approximately $850 million. Sprint's $2.7 billion cash balance at June 30, 2003, existing financing agreements, and expected 2003 cash flow from operations more than fund these requirements. Any borrowings Sprint may incur are ultimately limited by certain debt covenants. Sprint could borrow up to an additional $5.4 billion at June 30, 2003 under the most restrictive of its debt covenants. Sprint is currently in compliance with all debt covenants associated with its borrowings. Sprint completed its tender offers to repurchase senior notes in March 2003 in the amount of $1.1 billion. Sprint continually evaluates various factors and, as a result, may repurchase additional debt in the future. Fitch Ratings (Fitch) currently rates Sprint's long-term senior unsecured debt at BBB with a stable outlook. Standard and Poor's Corporate Ratings (Standard and Poor's) currently rates Sprint's long-term senior unsecured debt at BBB- with a stable outlook. In June 2003, Moody's Investors Service (Moody's) raised Sprint's outlook to stable. Moody's currently rates Sprint's long-term senior unsecured debt at Baa3. Sprint's ability to fund its capital needs is ultimately impacted by the overall capacity and terms of the bank, term-debt and equity markets. There is significant volatility in the markets at this time caused by the economic downturn, recent business failures and reduced confidence in the financial accounting process. Sprint continues to monitor the markets closely and to take steps to maintain as much financial flexibility as possible, while maintaining a reasonable capital structure cost. Sprint currently does not intend to access the markets other than extending, replacing or renewing current credit arrangements. Off-Balance Sheet Financing Sprint does not participate in, nor secure, financings for any unconsolidated, special purpose entities. - -------------------------------------------------------------------------------- Financial Strategies - -------------------------------------------------------------------------------- General Risk Management Policies Sprint selectively enters into interest rate swap agreements to manage its exposure to interest rate changes on its debt. Sprint also enters into forward contracts and options in foreign currencies to reduce the impact of changes in foreign exchange rates. Sprint seeks to minimize counterparty credit risk through stringent credit approval and review processes, the selection of only the most creditworthy counterparties, continual review and monitoring of all counterparties, and thorough legal review of contracts. Sprint also controls exposure to market risk by regularly monitoring changes in foreign exchange and interest rate positions under normal and stress conditions to ensure they do not exceed established limits. Sprint's derivative transactions are used principally for hedging purposes and comply with Board-approved policies. Senior management receives frequent status updates of all outstanding derivative positions. Interest Rate Risk Management Fair Value Hedges Sprint enters into interest rate swap agreements to manage exposure to interest rate movements and achieve an optimal mixture of floating and fixed-rate debt while minimizing liquidity risk. The interest rate swap agreements designated as fair value hedges effectively convert Sprint's fixed-rate debt to a floating rate by receiving fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount. As of June 30, 2003, Sprint had no outstanding fair value hedges. Cash Flow Hedges Sprint enters into interest rate swap agreements designated as cash flow hedges to reduce the impact of interest rate movements on future interest expense by effectively converting a portion of its floating-rate debt to a fixed-rate. As of June 30, 2003, Sprint had no outstanding interest rate cash flow hedges. Other Derivatives In certain business transactions, Sprint is granted warrants to purchase the securities of other companies at fixed rates. These warrants are supplemental to the terms of the business transaction and are not designated as hedging instruments. During 2002 and 2003, Sprint entered into variable prepaid forward contracts to monetize equity securities held as available for sale. The derivatives have been designated as cash flow hedges to reduce the variability in expected cash flows related to the forecasted sale of the underlying equity securities. Foreign Exchange Risk Management Sprint's foreign exchange risk management program focuses on reducing transaction exposure to optimize consolidated cash flow. Sprint's primary transaction exposure results from payments made to and received from overseas telecommunications companies for completing international calls made by Sprint's domestic customers. These international operations were not material to the consolidated financial position at June 30, 2003 or results of operations or cash flows for the quarter ended June 30, 2003. Sprint has not entered into any significant foreign currency forward contracts or other derivative instruments to reduce the effects of adverse fluctuations in foreign exchange rates. As a result, Sprint was not subject to material foreign exchange risk. PART I. Item 3. Item 3. Quantitative and Qualitative Disclosures about Market Risk The risk inherent in Sprint's market risk sensitive instruments and positions is the potential loss arising from adverse changes in those factors. Sprint is susceptible to certain risks related to changes in interest rates and foreign currency exchange rate fluctuations. Sprint does not purchase or hold any derivative financial instruments for trading purposes. Interest Rate Risk The communications industry is a capital intensive, technology driven business. Sprint is subject to interest rate risk primarily associated with its borrowings. Sprint selectively enters into interest rate swap and cap agreements to manage its exposure to interest rate changes on its debt. Approximately 93% of Sprint's debt at June 30, 2003 is fixed-rate debt. While changes in interest rates impact the fair value of this debt, there is no impact to earnings and cash flows because Sprint intends to hold these obligations to maturity unless refinancing conditions are favorable. Sprint performs interest rate sensitivity analyses on its variable-rate debt. These analyses indicate that a one percentage point change in interest rates would have an annual impact of $8 million pre-tax on the statements of operations and cash flows at June 30, 2003. While Sprint's variable-rate debt is subject to earnings and cash flows impacts as interest rates change, it is not subject to changes in fair values. Sprint also performs a sensitivity analysis on the fair market value of its outstanding debt. A 10% decline in market interest rates would cause a $545 million increase in fair market value of its debt to $20.9 billion. This analysis excludes Sprint's equity unit notes. Foreign Currency Risk Sprint also enters into forward contracts and options in foreign currencies to reduce the impact of changes in foreign exchange rates. Sprint uses foreign currency derivatives to hedge its foreign currency exposure related to settlement of international telecommunications access charges. The dollar equivalent of Sprint's net foreign currency payables was $4 million at June 30, 2003. The potential immediate pre-tax loss to Sprint that would result from a hypothetical 10% change in foreign currency exchange rates based on these positions would be less than $1 million. PART I. Item 4. Item 4. Controls and Procedures In response to adoption of the Sarbanes-Oxley Act of 2002, Sprint formalized its disclosure controls and procedures. In connection with the preparation of this Form 10-Q and as of June 30, 2003, Sprint's Chief Executive Officer and Chief Financial Officer directed Sprint's internal auditors to update their review of the effectiveness of these disclosure controls and procedures and report their conclusions. The Chief Executive Officer and Chief Financial Officer also met with other members of management, members of the financial accounting and legal departments, and Sprint's independent auditors to discuss and evaluate Sprint's disclosures and the effectiveness of the disclosure controls and procedures. Based on these discussions and the report of the internal auditors, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the disclosure controls and procedures were effective and enabled Sprint to disclose all material financial and non-financial information affecting its businesses as required by the rules governing this report. No changes were made in Sprint's internal controls over financial reporting during the second quarter that have materially affected or are reasonably likely to materially affect Sprint's financial reporting. PART II. Other Information PART II. - Other Information Item 1. Legal Proceedings In July 2003, the Inspector General of the General Services Administration (GSA) recommended that the GSA Debarment Official consider whether to initiate debarment proceedings against Sprint. The recommendation was based on a billing error related to Sprint's FTS2001 contract with the GSA. In June 2003, Sprint reached agreement with the Justice Department to pay the government $5.2 million, an amount twice the estimate of the amount over billed and an amount that both agreed compensated the government. If debarred, Sprint would not be able to bid on future government contracts. Sprint believes that the request for debarment consideration is unprecedented and unfounded. In April and May 2003, three putative class action lawsuits were filed in the U.S. District Court for the District of Kansas by individual participants in the Sprint Retirement Savings Plan and the Centel Retirement Savings Plan for Bargaining Unit Employees against Sprint Corporation, the committees that administer the two plans, and various current and former officers of Sprint. The lawsuits allege that defendants breached their fiduciary duties to the plans and violated the ERISA statutes by including FON and PCS stock among the thirty investment options offered to plan participants. Sprint believes these lawsuits are unfounded and intends to defend them vigorously. Various other suits, proceedings and claims, including purported class actions, typical for a business enterprise, are pending against Sprint. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with Sprint's beliefs, Sprint expects the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on the financial condition or results of operations of Sprint, the FON Group or the PCS Group. Item 2. Changes in Securities Articles Amendments At the annual meeting of shareholders of Sprint held on May 13, 2003, the shareholders approved an amendment to Sprint's Articles of Incorporation declassifying the Board of Directors. Under the amendment, each director elected at or after the 2004 annual meeting of shareholders will be elected for a one-year term. Directors elected before that meeting will serve the remaining duration of their three-year terms. A director who fills a vacancy will have the same remaining term as his or her predecessor. Sprint filed a certificate changing its registered office and registered agent with the Kansas Secretary of State on May 16, 2003. This changed the registered address of the corporation to 200 S.W. 30th Street, Topeka, Shawnee County, Kansas 66611 and changed the registered agent to the Corporation Service Company. Sale of Unregistered Equity Securities In April and May, 2003, Sprint issued to certain of its executive officers an aggregate of 100,630 restricted stock units relating to shares of FON Stock and an aggregate of 100,630 restricted stock units relating to shares of PCS Stock. The restricted stock units were granted to executive officers as part of their long-term incentive compensation. In June 2003, Sprint issued to its outside directors an aggregate of 25,725 restricted stock units relating to shares of FON Stock and an aggregate of 25,725 restricted stock units relating to shares of PCS Stock. These restricted stock units were granted to the directors as part of their annual equity compensation. Each restricted stock unit represents the right to one share of common stock once the unit vests. The restricted stock units also include dividend equivalent rights, which means that, when Sprint pays a dividend on the stock represented by the units, the grantee of the units is entitled to additional shares of the stock when the units vest. In the case of some of the restricted stock units granted to Mr. Forsee in the 2003 first quarter, the dividend equivalents are paid to him in cash. The units granted to the executive officers vest at various times beginning in 2004 and ending in 2006. The units granted to the outside directors all vest in 2006. Neither the units nor the common stock issuable once the units vest were registered under the Securities Act of 1933. The issuance of the restricted stock units was exempt from registration under the Securities Act in reliance on the exemption provided by Section 4(2) of the Securities Act because the restricted stock units were issued in transactions not involving a public offering. Sprint may in the future register the resale of the shares of stock to be received by the executive officers and the directors once the units vest. Item 3. Defaults Upon Senior Securities There were no reportable events during the quarter ended June 30, 2003. Item 4. Submission of Matters to a Vote of Security Holders On May 13, 2003, Sprint held its annual meeting of shareholders. In addition to the election of three Class II Directors to serve a term of three years, the shareholders approved an amendment to Sprint's Articles of Incorporation declassifying the Board, approved an amendment to Sprint's Employees Stock Purchase Plan to increase the shares available for purchase under the plan, ratified the appointment of Ernst & Young LLP as independent auditors of Sprint for 2003, and approved one shareholder proposal relating to severance packages. The shareholders did not approve two shareholder proposals. The following votes were cast for each of the following nominees for Director or were withheld with respect to such nominees: For Withheld Gary D. Forsee 983,951,842 37,929,704 Charles E. Rice 686,044,925 335,836,622 Louis W. Smith 675,133,337 346,748,210 The following votes were cast with respect to the proposal to amend the Articles of Incorporation to eliminate classification of Sprint's Board of Directors: For 989,787,266 Against 22,124,078 Abstain 9,970,199 The following votes were cast with respect to the proposal to amend the 1988 Employees Stock Purchase Plan to increase the number of shares available for purchase under the Plan: For 806,531,303 Against 49,985,853 Abstain 10,211,194 Broker non-votes 155,153,196 The following votes were cast with respect to the proposal to ratify the appointment of Ernst & Young LLP as independent auditors of Sprint for 2003: For 609,527,472 Against 392,037,170 Abstain 20,316,901 The following votes were cast with respect to a shareholder proposal urging the Sprint Board to adopt a policy that Sprint will not, without prior approval of the shareholders, reprice to a lower exercise price, or terminate and regrant at a lower price, stock options granted to any executive officer or director of Sprint, or grant new options to executive officers or directors on account of the market price dropping below the exercise price of prior options: For 282,014,618 Against 573,084,694 Abstain 11,629,037 Broker non-votes 155,153,196 The following votes were cast with respect to a shareholder proposal urging the Sprint Board to seek shareholder approval for future severance agreements with senior executives that provide benefits in an amount exceeding two times the sum of the executive's base salary and bonus: For 544,199,685 Against 309,998,474 Abstain 12,530,189 Broker non-votes 155,153,199 The following votes were cast with respect to a shareholder proposal asking the Sprint Board to (1) establish a cap on the total compensation that may be paid to the chief executive officer in a given year: and (2) report to shareholders on the policy before the 2004 annual meeting of shareholders: For 124,529,653 Against 727,118,645 Abstain 15,080,049 Broker non-votes 155,153,199 Item 5. Other Information Ratios of Earnings to Fixed Charges Sprint's earnings, as adjusted, were inadequate to cover fixed charges by $12 million in the 2003 second quarter. The ratio of earnings to fixed charges was 1.15 in the 2003 year-to-date period. Sprint's ratio of earnings to fixed charges was 1.12 in the 2002 second quarter and 1.23 in the 2002 year-to-date period. The ratio of earnings to fixed charges was computed by dividing fixed charges into the sum of earnings, after certain adjustments, and fixed charges. Earnings include income or loss from continuing operations before income taxes plus net losses in equity method investees, less capitalized interest. Fixed charges include interest on all debt of continuing operations, including amortization of debt issuance costs, and the interest component of operating rents. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this report: (3) Articles of Incorporation and Bylaws: (a) Articles of Incorporation, as amended (filed as Exhibit 3.1 to Amendment No. 5 to Sprint Corporation's Registration Statement on Form 8-A relating to Sprint's Series 1 FON Common Stock, filed May 22, 2003, and incorporated herein by reference). (b) Bylaws, as amended (filed as Exhibit 3.2 to Amendment No. 4 to Sprint Corporation's Registration Statement on Form 8-A relating to Sprint's Series 1 PCS Common Stock, filed April 17, 2002, and incorporated herein by reference). (4) Instruments defining the Rights of Sprint's Security Holders: (a) The rights of Sprint's equity security holders are defined in the Fifth, Sixth, Seventh and Eighth Articles of Sprint's Articles of Incorporation. See Exhibit 3(a). (b) Provisions regarding Stockholders' Meetings are set forth in Article III of the Bylaws. Provisions regarding the Capital Stock Committee are set forth in Article IV, Section 12 of the Bylaws. See Exhibit 3(b). (c) Amended and Restated Rights Agreement dated as of November 23, 1998, between Sprint Corporation and UMB Bank, n.a. (filed as Exhibit 4.1 to Amendment No. 1 to Sprint Corporation's Registration Statement on Form 8-A relating to Sprint's PCS Group Rights, filed November 25, 1998, and incorporated herein by reference). (d) Amendment dated March 28, 2003, to Amended and Restated Rights Agreement between the Registrant and UMB, n.a., as Rights Agent (filed as Exhibit 4.2 to Amendment No. 3 to Sprint Corporation's Registration Statement on Form 8-A relating to Sprint's PCS Group Rights, filed April 2, 2003, and incorporated herein by reference). (e) Amended and Restated Standstill Agreement dated November 23, 1998, by and among Sprint Corporation, France Telecom and Deutsche Telekom AG (filed as Exhibit 4E to Post-Effective Amendment No. 2 to Sprint Corporation's Registration Statement on Form S-3 (No. 33-58488) and incorporated herein by reference), as amended by the Master Transfer Agreement dated January 21, 2000 between and among France Telecom, Deutsche Telekom AG, NAB Nordamerika Beteiligungs Holding GmbH, Atlas Telecommunications, S.A., Sprint Corporation, Sprint Global Venture, Inc. and the JV Entities set forth in Schedule II thereto (filed as Exhibit 2 to Sprint Corporation's Current Report on Form 8-K dated January 26, 2000 and incorporated herein by reference). (f) Tracking Stock Policies of Sprint Corporation, as amended (filed as Exhibit 4(c) to Sprint Corporation's Annual Report on Form 10-K/A for the year ended December 31, 2001 and incorporated herein by reference). (10) Material Contracts: (a) 364-Day Credit Agreement dated as of June 24, 2003, among Sprint Corporation and Sprint Capital Corporation, as Borrowers, the initial Lenders named therein, as Initial Lenders, Citibank, N.A., as Administrative Agent, Citigroup Global Markets Inc and J.P. Morgan Securities Inc., as joint lead arrangers and as book managers, JPMorgan Chase Bank, as syndication agent, and Bank of America, N.A., Deutsche Bank AG New York Branch and UBS AG, Cayman Islands Branch, as documentation agents. Executive Compensation Plans and Arrangements: (b) Letter Agreement dated April 9, 2003 and Separation Agreement dated as of April 9, 2003 by and among Sprint Corporation, Sprint/United Management Company and Ronald T. LeMay (filed as Exhibit 10(d) to Sprint Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference). (c) Letter Agreement dated May 12, 2003 and Full and Final General Release effective May 12, 2003 between Sprint Corporation and J. Richard Devlin (filed as Exhibit 99(a) to Sprint Corporation's Current Report on Form 8-K dated June 10, 2003 and incorporated herein by reference). (d) Separation Agreement dated as of May 12, 2003 by and among Sprint Corporation, Sprint/United Management Company and William T. Esrey (filed as Exhibit 99(b) to Sprint Corporation's Current Report on Form 8-K dated June 10, 2003 and incorporated herein by reference). (e) Summary of Executive Officer Benefits and Board of Directors Benefits and Fees. (f) Special Compensation and Non-Compete Agreements between Sprint Corporation and certain of its Executive Officers (Messrs. Hawthorne, Janzen, Stout, Gerke and White). (g) Form of Award Agreement (awarding restricted stock units) with Directors. (h) Form of Award Agreement (awarding restricted stock units and stock options) with Executive Officers. (12) Computation of Ratios of Earnings to Fixed Charges (31) (a) Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a). (b) Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a). (32) (a) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Sprint will furnish to the Securities and Exchange Commission, upon request, a copy of the instruments defining the rights of holders of long-term debt that does not exceed 10% of the total assets of Sprint. (b) Reports on Form 8-K Sprint filed a Current Report on Form 8-K dated April 21, 2003, in which it reported that it announced first quarter 2003 results. The news release regarding first quarter 2003 results, which was furnished as an exhibit to the Current Report, included the following financial information: Sprint Corporation Consolidated Statements of Operations Sprint Corporation Consolidated Balance Sheets Sprint Corporation Condensed Consolidated Cash Flow Information Sprint Corporation Reconciliation of Non-GAAP Liquidity Measures Sprint Corporation FON Group - Local Division Selected Information Sprint Corporation PCS Group Net Customer Additions Sprint filed a Current Report on Form 8-K dated June 10, 2003, in which it reported that it would take second quarter earnings charges resulting from its decision to wind down its web hosting business and from executive separation agreements. Sprint filed a Current Report on Form 8-K dated July 28, 2003, in which it reported that it announced second quarter 2003 results. The news release regarding second quarter 2003 results, which was furnished as an exhibit to the Current Report, included the following financial information: Sprint Corporation Consolidated Statements of Operations Sprint Corporation Consolidated Balance Sheets Sprint Corporation Condensed Consolidated Cash Flow Information Sprint Corporation Reconciliation of Non-GAAP Liquidity Measures Sprint Corporation FON Group Operating Statistics Sprint Corporation PCS Group Operating Statistics SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPRINT CORPORATION ------------------ (Registrant) By /s/ John P. Meyer ----------------------------------- John P. Meyer Senior Vice President -- Controller Principal Accounting Officer Dated: August 12, 2003 EX-10 3 exh10a364daycreditagree.txt 364 DAY CREDIT AGREEMENT Exhibit 10(a) EXECUTION COPY $1,000,000,000 364-DAY CREDIT AGREEMENT Dated as of June 24, 2003 Among SPRINT CORPORATION and SPRINT CAPITAL CORPORATION as Borrowers THE INITIAL LENDERS NAMED HEREIN as Initial Lenders CITIBANK, N.A. as Administrative Agent CITIGROUP GLOBAL MARKETS INC. and J.P. MORGAN SECURITIES INC. as Joint Lead Arrangers and Book Managers JPMORGAN CHASE BANK as Syndication Agent and BANK OF AMERICA, N.A. DEUTSCHE BANK AG NEW YORK BRANCH and UBS AG, CAYMAN ISLANDS BRANCH as Documentation Agents
TABLE OF CONTENTS Page Article I DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Certain Defined Terms.........................................................1 Section 1.02. Computation of Time Periods..................................................11 Section 1.03. Accounting Terms.............................................................11 Article II AMOUNTS AND TERMS OF THE ADVANCES Section 2.01. The Revolving Credit Advances................................................11 Section 2.02. Making the Revolving Credit Advances.........................................12 Section 2.03. The Competitive Bid Advances.................................................13 Section 2.04. Fees.........................................................................15 Section 2.05. Termination or Reduction of the Commitments..................................15 Section 2.06. Repayment of Advances........................................................16 Section 2.07. Interest on Revolving Credit Advances........................................16 Section 2.08. Interest Rate Determination..................................................16 Section 2.09. Optional Conversion of Revolving Credit Advances.............................17 Section 2.10. Optional Prepayments of Revolving Credit Advances............................18 Section 2.11. Increased Costs..............................................................18 Section 2.12. Illegality...................................................................18 Section 2.13. Payments and Computations....................................................19 Section 2.14. Taxes........................................................................19 Section 2.15. Sharing of Payments, Etc.....................................................21 Section 2.16. Extension of Revolver Termination Date.......................................21 Section 2.17. Use of Proceeds..............................................................23 Article III CONDITIONS TO EFFECTIVENESS AND LENDING Section 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03..............23 Section 3.02. Conditions Precedent to Each Revolving Credit Borrowing, Term Loan Conversion Date and Extension Date......................................................24 Section 3.03. Conditions Precedent to Each Competitive Bid Borrowing.......................25 Section 3.04. Determinations Under Section 3.01............................................25 Article IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Borrowers..............................25 Article V COVENANTS OF THE BORROWERS Section 5.01. Affirmative Covenants........................................................26 Section 5.02. Negative Covenants...........................................................29 Section 5.03. Financial Covenants..........................................................31 Article VI EVENTS OF DEFAULT Section 6.01. Events of Default............................................................31 Article VII COMPANY GUARANTY Section 7.01. Guaranty.....................................................................33 Section 7.02. Guaranty Absolute............................................................33 Section 7.03. Waiver.......................................................................34 Section 7.04. Continuing Guaranty; Assignments.............................................34 Section 7.05. Subrogation..................................................................34 i Article VIII THE ADMINISTRATIVE AGENT Section 8.01. Authorization and Action.....................................................34 Section 8.02. Administrative Agent's Reliance, Etc.........................................35 Section 8.03. Citibank and Affiliates......................................................35 Section 8.04. Lender Credit Decision.......................................................35 Section 8.05. Indemnification..............................................................35 Section 8.06. Successor Administrative Agent...............................................36 Section 8.07. Other Agents.................................................................36 Article IX MISCELLANEOUS Section 9.01. Amendments, Etc..............................................................36 Section 9.02. Notices, Etc.................................................................36 Section 9.03. No Waiver; Remedies..........................................................37 Section 9.04. Costs and Expenses...........................................................37 Section 9.05. Right of Set-off.............................................................38 Section 9.06. Binding Effect...............................................................38 Section 9.07. Assignments and Participations...............................................38 Section 9.08. Confidentiality..............................................................40 Section 9.09. Governing Law................................................................40 Section 9.10. Execution in Counterparts....................................................40 Section 9.11. Jurisdiction, Etc............................................................40 Section 9.12. Waiver of Jury Trial.........................................................42 Schedules Schedule I - List of Applicable Lending Offices Schedule 5.02(a) - Existing Liens Schedule 5.02(c) - Potential Asset Sales Schedule 5.02(e) - Existing Subsidiary Debt Exhibits Exhibit A - Form of Note Exhibit B-1 - Form of Notice of Revolving Credit Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit B-3 - Form of Notice of Term Loan Election Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Opinion of Counsel for the Borrowers ii
364-DAY CREDIT AGREEMENT Dated as of June 24, 2003 SPRINT CORPORATION, a Kansas corporation (the "Company"), SPRINT CAPITAL CORPORATION, a Delaware corporation ("Sprint Capital" and, together with the Company, the "Borrowers"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") listed on the signature pages hereof, and CITIBANK, N.A. ("Citibank"), as administrative agent (together with any successor administrative agent appointed pursuant to Section 8.06, the "Administrative Agent") for the Lenders (as hereinafter defined), CITIGROUP GLOBAL MARKETS INC. and J.P. MORGAN SECURITIES INC., as joint lead arrangers and book managers, JPMORGAN CHASE BANK, as syndication agent, and BANK OF AMERICA, N.A., DEUTSCHE BANK AG NEW YORK BRANCH and UBS AG, CAYMAN ISLANDS BRANCH, as documentation agents, agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Advance" means a Revolving Credit Advance or a Competitive Bid Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent at Citibank with its office at 2 Penns Way, Suite 200, New Castle, Delaware 19720, Account No. 36852248, Attention: Bank Loan Syndications. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
========================= ====================== ====================== ====================== ====================== Public Debt Rating Applicable Margin Applicable Margin Applicable Margin Applicable Margin S&P/Moody's for Eurodollar Rate for Eurodollar Rate for Base Rate for Base Rate Advances Prior to Advances On and Advances Prior to Advances On and Term Loan Conversion After Term Loan Term Loan Conversion After Term Loan Date Conversion Date Date Conversion Date ========================= ====================== ====================== ====================== ====================== Level 1 BBB+ or Baa1 or above 0.625% 3.375% 0.000% 1.875% - ------------------------- ---------------------- ---------------------- ---------------------- ---------------------- Level 2 BBB or Baa2 0.725% 3.625% 0.000% 2.125% - ------------------------- ---------------------- ---------------------- ---------------------- ---------------------- Level 3 BBB- and Baa3 1.175% 4.125% 0.000% 2.625% - ------------------------- ---------------------- ---------------------- ---------------------- ---------------------- Level 4 BB+ and Ba1 1.625% 5.000% 0.125% 3.500% - ------------------------- ---------------------- ---------------------- ---------------------- ---------------------- Level 5 Lower than Level 4 2.000% 5.500% 0.500% 4.000% ========================= ====================== ====================== ====================== ======================
"Applicable Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
================================ ============================= Public Debt Rating Applicable S&P/Moody's Percentage ================================ ============================= Level 1 BBB+ or Baa1 or above 0.125% -------------------------------- ----------------------------- Level 2 BBB or Baa2 0.150% -------------------------------- ----------------------------- Level 3 BBB- and Baa3 0.200% -------------------------------- ----------------------------- Level 4 BB+ and Ba1 0.375% -------------------------------- ----------------------------- Level 5 Lower than Level 4 0.500% ================================ =============================
"Applicable Utilization Fee" means, as of any date prior to the Term Loan Conversion Date on which the aggregate principal amount of the Advances exceeds 25% of the aggregate amount of the Lenders' Commitments, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below: 2
============================= ============================ ============================= Public Debt Rating Applicable Applicable S&P/Moody's Utilization Fee for Utilization Fee for Base Eurodollar Rate Advances Rate Advances ============================= ============================ ============================= Level 1 BBB+ or Baa1 or above 0.125% 0.000% - ----------------------------- ---------------------------- ----------------------------- Level 2 BBB or Baa2 0.250% 0.000% - ----------------------------- ---------------------------- ----------------------------- Level 3 BBB- and Baa3 0.250% 0.000% - ----------------------------- ---------------------------- ----------------------------- Level 4 BB+ and Ba1 0.500% 0.500% - ----------------------------- ---------------------------- ----------------------------- Level 5 Lower than Level 4 0.500% 0.500% ============================= ============================ =============================
"Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit C hereto. "Assuming Lender" means an Extension Assuming Lender. "Assumption Agreement" means an assumption agreement entered into between an Extension Assuming Lender and a Non-Consenting Lender and accepted by the Administrative Agent and the Company, in such form as is agreed among the applicable Extension Assuming Lender, the applicable Non- Consenting Lender, the Administrative Agent and the Company. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; (b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1% per annum, plus (ii) the rate obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three- week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three- week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank with respect to liabilities consisting of or including (among other liabilities) three-month U.S. dollar non-personal time deposits in the United States, plus (iii) the average during such 3 three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of Citibank in the United States; and (c) 1/2 of one percent per annum above the Federal Funds Rate. "Base Rate Advance" means a Revolving Credit Advance that bears interest as provided in Section 2.07(a)(i). "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid Borrowing. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Commitment" has the meaning specified in Section 2.01. "Competitive Bid Advance" means an advance by a Lender to a Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.03. "Competitive Bid Reduction" has the meaning specified in Section 2.01. "Confidential Information" means information that any Borrower furnishes to the Administrative Agent or any Lender in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Administrative Agent or such Lender from a source other than a Borrower. "Consenting Lender" has the meaning specified in Section 2.16(b). "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Convert", "Conversion" and "Converted" each refers to a conversion of Revolving Credit Advances of one Type into Revolving Credit Advances of the other Type pursuant to Section 2.08 or 2.09. "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases and under synthetic, off-balance sheet or tax retention leases (excluding, however, operating leases), (e) all obligations, contingent or otherwise, of such Person in respect of acceptances, standby letters of credit or similar extensions of credit, (f) all net payment obligations of such Person in respect of Hedge Agreements, (g) all obligations outstanding to Persons that are not Affiliates of the Company in connection with a receivables securitization program, (h) all Debt of others referred to in clauses (a) through (e) above or clause (i) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against 4 loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance or Assumption Agreement pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the Administrative Agent. "EBITDA" means, for any period, net income (or net loss) (before discontinued operations for such period and exclusive of, without duplication, (x) the income or loss resulting from extraordinary items, (y) the income or loss of any Person accounted for by the Company on the equity method and (z) non-cash, one-time charges) plus the sum of (a) interest expense, (b) income tax expense, (c) depreciation expense and (d) amortization expense, in each case in accordance with GAAP for such period. "Effective Date" has the meaning specified in Section 3.01. "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender that is a bank or other financial institution; and (iii) any other bank or financial institution approved by the Administrative Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 9.07, the Company, such approval not to be unreasonably withheld or delayed; provided, however, that neither any Borrower nor an Affiliate of any Borrower shall qualify as an Eligible Assignee. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Company's controlled group, or under common control with the Company, within the meaning of Section 414 of the Internal Revenue Code. 5 "ERISA Event" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Company or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Company or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance or Assumption Agreement pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such rate is not such a multiple) appearing on Moneyline Telerate Markets Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term equal to such Interest Period or, if for any reason such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. If the Moneyline Telerate Markets Page 3750 (or any successor page) is unavailable, the Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "Eurodollar Rate Advance" means a Revolving Credit Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two 6 Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Extension Assuming Lender" has the meaning specified in Section 2.16(c). "Extension Date" has the meaning specified in Section 2.16(b). "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "FON Group" has the meaning specified in the Company's Articles of Incorporation. "GAAP" has the meaning specified in Section 1.03. "Guaranteed Obligations" has the meaning specified in Section 7.01. "Hazardous Materials" means (a) petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreement" means interest rate swap or collar agreements, interest rate future contracts, currency swap agreements, currency future contracts and other similar agreements. "Information Memorandum" means the information memorandum dated May 28, 2003 used by the Administrative Agent in connection with the syndication of the Commitments. "Insignificant Subsidiary" means any Subsidiary of the Company that (i) has assets aggregating $1,000,000 or less and (ii) does not have any creditor that is the beneficiary of a guaranty of the Company or any of its Subsidiaries. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below and, thereafter, with respect to Eurodollar Rate Advances, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by such Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months (or if available to all Lenders, nine months), as the applicable Borrower may, upon notice received 7 by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (i) no Borrower may select any Interest Period that ends after the scheduled Revolver Termination Date or, if the Revolving Credit Advances have been converted to a term loan pursuant to Section 2.06 prior to such selection, that ends after the Maturity Date; (ii) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iv) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Lenders" means the Initial Lenders and each Person that shall become a party hereto pursuant to Section 2.16 or Section 9.07. "LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such rate is not such a multiple) appearing on Moneyline Telerate Markets Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term equal to such Interest Period or, if for any reason such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the amount that would be the Reference Banks' respective ratable shares of such Borrowing if such Borrowing were to be a Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. If the Moneyline Telerate Markets Page 3750 (or any successor page) is unavailable, the LIBO Rate for any Interest Period for each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. 8 "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any Borrower or any Borrower and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of any Borrower or any Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or any Lender under this Agreement or any Note or (c) the ability of any Borrower to perform its obligations under this Agreement or any Note. "Maturity Date" means the earlier of (a) the first anniversary of the Revolver Termination Date and (b) the date of termination in whole of the aggregate Commitments pursuant to Section 2.05 or 6.01. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Company or any ERISA Affiliate and at least one Person other than the Company and the ERISA Affiliates or (b) was so maintained and in respect of which the Company or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Debt" of any Person means at any time (i) Debt of such Person that, in accordance with GAAP, would be classified as indebtedness on a Consolidated balance sheet of such Person minus (ii) the positive amount, if any, that is equal to (a) the total amount of cash and cash equivalents reflected on such Person's balance sheet at such time minus (b) $200,000,000. "Non-Consenting Lender" has the meaning specified in Section 2.16(b). "Note" means a promissory note of a Borrower payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the Advances made by such Lender. "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.03(a). "Notice of Revolving Credit Borrowing" has the meaning specified in Section 2.02(a). "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "PCS Group" has the meaning specified in the Company's Articles of Incorporation. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings and as to which appropriate reserves are being maintained; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in 9 the ordinary course of business; and (e) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Public Debt Rating" means, as of any date, the highest rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Company. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee shall be determined by reference to the available rating; (b) if neither S&P nor Moody's shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee will be set in accordance with Level 5 under the definition of "Applicable Margin", "Applicable Percentage" or "Applicable Utilization Fee", as the case may be; (c) if the ratings established by S&P and Moody's shall fall within different levels higher than Level 4, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee shall be based upon the higher rating, provided that if the lower of such ratings is more than one level below the higher of such ratings, then the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee shall be based on the rating that is the level above the lower of such ratings; (d) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Reference Banks" means Citibank, JPMorgan Chase Bank, Bank of America, N.A., Deutsche Bank AG New York Branch and UBS AG, Cayman Islands Branch. "Register" has the meaning specified in Section 9.07(d). "Required Lenders" means at any time Lenders owed at least a majority in interest of the then aggregate unpaid principal amount of the Revolving Credit Advances owing to Lenders, or, if no such principal amount is then outstanding, Lenders having at least a majority in interest of the Commitments. "Revolver Termination Date" means the earlier of (a) June 22, 2004, subject to the extension thereof pursuant to Section 2.16, or (b) the date of termination in whole of the Commitments pursuant to Section 2.05 or 6.01, or if such date is not a Business Day, the immediately preceding Business Day; provided, however, that the Revolver Termination Date of any Lender that is a Non-Consenting Lender to any requested extension pursuant to Section 2.16 shall be the Revolver Termination Date in effect immediately prior to the applicable Extension Date for all purposes of this Agreement. "Revolving Credit Advance" means an advance by a Lender to a Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving Credit Advance). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by each of the Lenders pursuant to Section 2.01. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. 10 "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Company or any ERISA Affiliate and no Person other than the Company and the ERISA Affiliates or (b) was so maintained and in respect of which the Company or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Telephone Asset" means any asset of a Person used by such Person to provide telephone or communication services. "Term Loan Conversion Date" means the Revolver Termination Date on which all Revolving Credit Advances outstanding on such date are converted into a term loan pursuant to Section 2.06(a). "Term Loan Election" has the meaning specified in Section 2.06(a). "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to appoint or to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e) ("GAAP"). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Revolving Credit Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Credit Advances to any Borrower from time to time on any Business Day during the period from the Effective Date until the Revolver Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance or an Assumption Agreement, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d), as such amount may be reduced pursuant to Section 2.05 (such Lender's "Commitment"), provided that (i) the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the Competitive Bid Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be allocated among the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a "Competitive Bid Reduction") and (ii) the aggregate Advances of all the Lenders outstanding at any time shall not exceed the aggregate Commitments. Each Revolving Credit Borrowing shall be in an aggregate amount of $25,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Revolving Credit Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Notwithstanding any other provision of this Agreement, more than one 11 Revolving Credit Borrowing may be made on the same day by either or both Borrowers. Within the limits of each Lender's Commitment, the Borrowers may borrow under this Section 2.01, prepay pursuant to Section 2.10 and reborrow under this Section 2.01. SECTION 2.02. Making the Revolving Credit Advances. (a) Each Revolving Credit Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, or the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, by a Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier or telex. Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier or telex in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, and (iv) in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Revolving Credit Advance. Each Lender shall, before 12:00 noon (New York City time) on the date of such Revolving Credit Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Revolving Credit Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available on the date of such Revolving Credit Advance to the Borrower giving such Notice of Revolving Credit Borrowing at the Administrative Agent's address referred to in Section 9.02. (b) Anything in subsection (a) above to the contrary notwithstanding, no Borrower may select Eurodollar Rate Advances for any Revolving Credit Borrowing at any time that the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12. (c) Each Notice of Revolving Credit Borrowing shall be irrevocable and binding on the Borrower giving such Notice of Revolving Credit Borrowing. In the case of any Revolving Credit Borrowing that the related Notice of Revolving Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower giving such Notice of Revolving Credit Borrowing shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of Applicable Margin), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Credit Advance to be made by such Lender as part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a result of such failure, is not made on such date. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the time of any Revolving Credit Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Revolving Credit Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Revolving Credit Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to a Borrower giving such Notice of Revolving Credit Borrowing on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the applicable Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of such Borrower, the interest rate applicable at the time to Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the Revolving Credit Advance to be made by it as part of any Revolving Credit Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no Lender shall be responsible for 12 the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender on the date of any Revolving Credit Borrowing. SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally agrees that any Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 30 days prior to the Revolver Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders (computed without regard to any Competitive Bid Reduction). (i) Any Borrower may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier or telex, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid Borrowing and (II) the Revolver Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if the applicable Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the applicable Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders are to be based on the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). The Administrative Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received by it from a Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the applicable Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to such Borrower), before 9:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and before 10:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the applicable Borrower of such offer at least 30 minutes before the time and on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. 13 (iii) The Borrower giving the Notice of Competitive Bid Borrowing shall, in turn, before 10:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and before 11:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Administrative Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the applicable Borrower by the Administrative Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Administrative Agent notice to that effect. The Borrower giving the Notice of Competitive Bid Borrowing shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated among such Lenders in proportion to the maximum amount that each such Lender offered at such interest rate. (iv) If the applicable Borrower notifies the Administrative Agent that such Competitive Bid Borrowing is canceled pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the applicable Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the applicable Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Administrative Agent of such funds, the Administrative Agent will promptly make such funds available to the applicable Borrower at the Administrative Agent's address referred to in Section 9.02. Promptly after each Competitive Bid Borrowing the Administrative Agent will notify each Lender of the amount of the Competitive Bid Borrowing, the consequent Competitive Bid Reduction and the dates upon which such Competitive Bid Reduction commenced and will terminate. (vi) If the applicable Borrower notifies the Administrative Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on such Borrower. The Borrower giving the Notice of Competitive Bid Borrowing shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid 14 Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $25,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrowers shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrowers may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03. (d) The applicable Borrower shall repay to the Administrative Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by such Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above), the then unpaid principal amount of such Competitive Bid Advance. No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by the applicable Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. (e) The applicable Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. Upon the occurrence and during the continuance of an Event of Default, such Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Competitive Bid Advance. SECTION 2.04. Fees. (a) Facility Fee. The Borrowers agree to pay to the Administrative Agent for the account of each Lender a facility fee on the aggregate amount of such Lender's Commitment from the date hereof in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance or Assumption Agreement pursuant to which it became a Lender in the case of each other Lender until the Revolver Termination Date (or, if applicable, until such Lender's Commitment has been assigned to another Lender) at a rate per annum equal to the Applicable Percentage in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December, commencing June 30, 2003, and on the Revolver Termination Date. (b) Administrative Agent's Fees. The Borrowers shall pay to the Administrative Agent for its own account such fees as may from time to time be agreed among the Borrowers and the Administrative Agent. SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Company shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or permanently reduce ratably in part the aggregate unused Commitments of the Lenders; provided that each partial reduction shall be in an aggregate amount of $25,000,000 or an integral multiple of $1,000,000 in excess thereof or, if less, the aggregate amount of all Commitments at such time. (b) Mandatory. On the Revolver Termination Date, if the Company has made the Term Loan Election in accordance with Section 2.06(a) prior to such date, and from time to time thereafter upon each prepayment of the Revolving Credit Advances, the Commitments of the Lenders shall be automatically and 15 permanently reduced on a pro rata basis by an amount equal to the amount by which (i) the aggregate Commitments immediately prior to such reduction exceeds (ii) the aggregate unpaid principal amount of all Revolving Credit Advances outstanding immediately after such prepayment. SECTION 2.06. Repayment of Advances. (a) Revolving Credit Advances. Each Borrower shall, subject to the next succeeding sentence, repay to the Administrative Agent for the ratable account of the Lenders on the Revolver Termination Date the aggregate principal amount of the Revolving Credit Advances then outstanding. The Company may, by delivery of a notice in the form of Exhibit B-3 to the Administrative Agent not less than 10 days' notice prior to the Revolver Termination Date, elect (the "Term Loan Election") to convert all of the Revolving Credit Advances outstanding on the Revolver Termination Date in effect at such time into a term loan which the applicable Borrower shall repay in full ratably to the Lenders on the Maturity Date; provided that the Term Loan Election may not be exercised if the applicable conditions set forth in Article III have not been satisfied. All Revolving Credit Advances converted into a term loan pursuant to this Section 2.06(a) shall continue to constitute Revolving Credit Advances except that the Borrowers may not reborrow pursuant to Section 2.01 after all or any portion of such Revolving Credit Advances have been prepaid pursuant to Section 2.10. (b) Competitive Bid Advances. Each Borrower shall repay to the Administrative Agent, for the account of each Lender that has made a Competitive Bid Advance, the aggregate outstanding principal amount of each Competitive Bid Advance made to such Borrower and owing to such Lender on the earlier of (i) the maturity date therefor, specified in the related Notice of Competitive Bid Borrowing delivered pursuant to Section 2.03(a)(i) and (ii) the Revolver Termination Date. SECTION 2.07. Interest on Revolving Credit Advances (a) Scheduled Interest. Each Borrower shall pay interest on the unpaid principal amount of each Revolving Credit Advance made to it owing to each Lender from the date of such Revolving Credit Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Revolving Credit Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Fee, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Revolving Credit Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Revolving Credit Advance plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Fee, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) or Section 6.01(e), each Borrower shall pay interest on (i) the unpaid principal amount of each Revolving Credit Advance made to it and owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Revolving Credit Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above. SECTION 2.08. Interest Rate Determination. (a) If Moneyline Telerate Markets Page 3750 (or any successor page) is unavailable, each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate and each LIBO Rate. If any one or more of the 16 Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Administrative Agent shall give prompt notice to the Borrowers and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.07(a)(i) or (ii) , and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(a)(ii). (b) If, with respect to any Eurodollar Rate Advances, the Required Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrowers and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers and the Lenders that the circumstances causing such suspension no longer exist. (c) If any Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify such Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances. (d) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $25,000,000, such Advances shall automatically Convert into Base Rate Advances. (e) Upon the occurrence and during the continuance of any Event of Default under Section 6.01(a) or Section 6.01(e), (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. (f) If Moneyline Telerate Markets Page 3750 (or any successor page) is unavailable and fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate or LIBO Rate for any Eurodollar Rate Advances or LIBO Rate Advances, as the case may be, (i) the Administrative Agent shall forthwith notify the Borrowers and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances or LIBO Rate Advances, as the case may be, (ii) with respect to Eurodollar Rate Advances, each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and (iii) the obligation of the Lenders to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers and the Lenders that the circumstances causing such suspension no longer exist. SECTION 2.09. Optional Conversion of Revolving Credit Advances. Each Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all Revolving Credit Advances made to it of one Type comprising the same Borrowing into Revolving Credit Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, and any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the 17 minimum amount specified in Section 2.01. Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Revolving Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower giving such notice. SECTION 2.10. Optional Prepayments of Revolving Credit Advances. Each Borrower may, upon notice by 11:00 A.M. (New York City time) at least two Business Days' prior to the date of the proposed prepayment (in the case of Eurodollar Rate Advances) and notice by 11:00 A.M. (New York City time) on the date of the proposed prepayment (in the case of Base Rate Advances) to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given such Borrower shall, prepay the outstanding principal amount of the Revolving Credit Advances made to it comprising part of the same Revolving Credit Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, such Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 9.04(c). SECTION 2.11. Increased Costs. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) after the date hereof, in the case of Eurodollar Rate Advances, or after the date of any Lender's offer to make a Competitive Bid Advance pursuant to Section 2.03(a)(ii), in the case of LIBO Rate Advances, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrowers shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrowers shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amounts submitted to the Borrowers and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.12. Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, (i) each LIBO Rate Advance of such Lender and each Eurodollar Rate Advance will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.07(a)(i), as the case may be, and (ii) the obligation of such Lender to make LIBO Rate Advances and the obligation of the Lenders to make Eurodollar Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers and the Lenders that the circumstances causing such suspension no longer exist. 18 SECTION 2.13. Payments and Computations. (a) Each Borrower shall make each payment hereunder and under the Notes not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds without set-off, counterclaim or deduction. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees ratably (other than amounts payable pursuant to Section 2.03, 2.11, 2.14 or 9.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(c), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on clause (a) of the definition of the Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of facility fees and utilization fees shall be made by the Administrative Agent on the basis of a year of 360 days and computations in respect of Competitive Bid Advances shall be made by the Agent as specified in the applicable Notice of Competitive Bid Borrowing, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the applicable Borrower prior to the date on which any payment is due to the Lenders hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the applicable Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.14. Taxes. (a) Any and all payments by each Borrower hereunder or under the Notes shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such 19 deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "Other Taxes"). (c) Each Borrower shall indemnify each Lender and the Administrative Agent for and hold it harmless against the full amount of Taxes or Other Taxes imposed on or paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses, but excluding items specifically excluded from the definition of "Taxes" in subsection (a) above) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, each Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of any Borrower through an account or branch outside the United States or by or on behalf of such Borrower by a payor that is not a United States person, if such Borrower determines that no Taxes are payable in respect thereof, such Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender and on the date of the Assignment and Acceptance or the Assumption Agreement pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Borrowers (but only so long as such Lender remains lawfully able to do so), shall provide each of the Administrative Agent and the Borrowers with two (or such other number as may be prescribed by applicable laws or regulations) original, duly completed Internal Revenue Service form W-8BEN, W-8ECI, or W-8IMY, as appropriate, or any successor or other forms prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance or the Assumption Agreement pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include United States withholding tax at a rate equal to the lesser of (i) the rate of United States withholding tax, if any, included in Taxes in respect of the Lender assignor on such date or (ii) the rate of United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required by Internal Revenue Service form W-8BEN, W-8ECI, or W-8IMY, or any successor or other forms prescribed by the Internal Revenue Service, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrowers and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender has failed to provide the Borrowers with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become 20 subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes. (g) Any Lender claiming any additional amounts payable pursuant to this Section 2.14 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (h) If any Lender receives a refund or credit of any Taxes or Other Taxes paid or reimbursed by the Borrowers pursuant to subsection (a) or (c) above in respect of payments under this Agreement or the Notes, such Lender shall pay to the Borrowers, with reasonable promptness following the date on which it actually realizes such refund or credit, an amount equal to the amount of such refund or credit, net of all out-of-pocket expenses in securing such refund or credit. SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Revolving Credit Advances owing to it (other than pursuant to Section 2.11, 2.14 or 9.04(c)) in excess of its ratable share of payments on account of the Revolving Credit Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Revolving Credit Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set- off) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. SECTION 2.16. Extension of Revolver Termination Date. (a) At least 45 days but not more than 60 days prior to the scheduled Revolver Termination Date then in effect, the Borrowers, by written notice to the Administrative Agent, may request an extension of such Revolver Termination Date for a period of 364 days from its then scheduled expiration; provided, however, that the Company shall not have made the Term Loan Election for Revolving Credit Advances outstanding on such Revolver Termination Date prior to such time. The Administrative Agent shall promptly notify each Lender of such request, and each Lender shall in turn, in its sole discretion, not earlier than 30 days but at least 20 days prior to the scheduled Revolver Termination Date then in effect, notify the Administrative Agent in writing as to whether such Lender will consent to such extension. If any Lender shall fail to notify the Administrative Agent in writing of its consent to, or refusal of, any such request for extension of the Revolver Termination Date at least 20 days prior to the scheduled Revolver Termination Date then in effect, such Lender shall be deemed to be a Non-Consenting Lender with respect to such request. The Administrative Agent shall notify the Borrowers in writing not later than 15 days prior to the scheduled Revolver Termination Date then in effect of the decision of the Lenders regarding the Borrowers' request for an extension of such Revolver Termination Date. It is understood and agreed that no Lender shall have any obligation whatsoever to agree to any request made by the Borrowers for an extension of the Revolver Termination Date. (b) If all of the Lenders consent in writing to any such request in accordance with subsection (a) of this Section 2.16, upon fulfillment of the applicable conditions set forth in Article III, the Revolver Termination Date in effect at such time shall, effective as at such Revolver Termination Date (the "Extension Date"), be extended for a period of 364 days from such Extension Date. If Lenders holding at least a majority in interest of the aggregate Commitments at such time (after giving effect to any assumptions of the Commitments of Non-Consenting Lenders in accordance with subsection (c) of this Section 2.16) consent in writing to any such request in accordance with subsection (a) of this Section 2.16, the Revolver Termination Date in effect at such time shall, upon fulfillment of the applicable conditions set forth in Article III, effective as at the applicable Extension Date, be extended as to 21 those Lenders that so consented (each a "Consenting Lender") but shall not be extended as to any other Lender (each a "Non-Consenting Lender"). To the extent that the Revolver Termination Date is not extended as to any Lender pursuant to this Section 2.16 and the Commitment of such Lender is not assumed in accordance with subsection (c) of this Section 2.16 on or prior to the applicable Extension Date, the Commitment of such Non-Consenting Lender shall automatically terminate in whole on such unextended Revolver Termination Date without any further notice or other action by the Borrowers, such Lender or any other Person; provided that such Non-Consenting Lender's rights under Sections 2.11, 2.14 and 9.04, and its obligations under Section 8.05, shall survive the Revolver Termination Date for such Lender as to matters occurring prior to such Extension Date. (c) If less than all of the Lenders consent to any such request pursuant to subsection (a) of this Section 2.16, the Administrative Agent shall promptly so notify the Consenting Lenders, and each Consenting Lender may, in its sole discretion, give written notice to the Administrative Agent not later than 10 days prior to the Revolver Termination Date of the amount of the Non-Consenting Lenders' Commitments for which it is willing to accept an assignment. If the Consenting Lenders notify the Administrative Agent that they are willing to accept assignments of Commitments in an aggregate amount that exceeds the amount of the Commitments of the Non-Consenting Lenders, such Commitments shall be allocated among the Consenting Lenders willing to accept such assignments in such amounts as are agreed between the Borrowers and the Administrative Agent. If after giving effect to the assignments described above there remains any Commitments of Non-Consenting Lenders, the Borrowers may arrange for one or more Consenting Lenders or other Eligible Assignees to assume, effective as of the Extension Date, any Non-Consenting Lender's Commitment and all of the rights and obligations of such Non- Consenting Lender under this Agreement thereafter arising (each Eligible Assignee assuming the Commitment of one or more Non- Consenting Lenders pursuant to this Section 2.16 being an "Extension Assuming Lender"), without recourse to or warranty by, or expense to, such Non-Consenting Lender; provided, however, that the Commitment of any such Extension Assuming Lender shall in no event be less than $10,000,000 unless the Commitment of such Non-Consenting Lender hereunder at such time is less than $10,000,000, in which case such Extension Assuming Lender shall assume all of such lesser amount; and provided further that: (i) the Consenting Lenders and Extension Assuming Lenders shall collectively have paid to the Non-Consenting Lenders the aggregate principal amount of, and any interest accrued and unpaid to the effective date of such assumption on, the outstanding Advances, if any, of such Non-Consenting Lenders; (ii) any accrued and unpaid Facility Fees and Utilization Fees owing to such Non-Consenting Lenders as of the effective date of such assumption, and all additional cost and expense reimbursements and indemnification payments payable to such Non- Consenting Lenders, and all other accrued and unpaid amounts owing to such Non-Consenting Lenders under this Agreement and the Notes, as of the effective date of such assumption, shall have been paid to such Non-Consenting Lenders by the Borrowers or such Consenting Lenders and Extension Assuming Lenders; and (iii) with respect to any such Extension Assuming Lender, the applicable processing and recordation fee required under Section 9.07(a) shall have been paid; and provided further that such Non-Consenting Lender's rights under Sections 2.11, 2.14 and 9.04, and its obligations under Section 8.05, shall survive such substitution as to matters occurring prior to the date of substitution. At least three Business Days prior to each Extension Date, (A) each such Extension Assuming Lender, if any, shall have delivered to the Borrowers and the Administrative Agent an Assumption Agreement, duly executed by such Extension Assuming Lender, such Non-Consenting Lender, the Borrowers and the Administrative Agent, (B) each such Consenting Lender, if any, shall have delivered written confirmation satisfactory to the Borrowers and the Administrative Agent as to any increase in the amount of its Commitment resulting from its assumption of one or more Commitments of the Non-Consenting Lenders and (C) each Non-Consenting Lender being replaced pursuant to this Section 2.16(c) shall have delivered to the Administrative Agent, to be held in escrow on behalf of such Non-Consenting Lender until the payment in full of all amounts owing to such Non-Consenting Lender under clauses (i) through (iii) of this Section 2.16(c), any Note or Notes held by such Non- Consenting Lender. Upon the payment or prepayment of all amounts referred to in clauses (i), (ii) and (iii) of this Section 2.16(c), each such Consenting Lender or Extension Assuming Lender, as of the Extension Date, will be substituted for the applicable Non- 22 Consenting Lender(s) under this Agreement and shall be a Lender for all purposes of this Agreement, without any further acknowledgment by or the consent of any of the other Lenders, and the obligations of each such Non-Consenting Lender hereunder shall, by the provisions hereof, be released and discharged. (d) If Lenders holding at least a majority in interest of the aggregate Commitments at such time (after giving effect to any assumptions pursuant to subsection (c) of this Section 2.16) consent in writing to a requested extension (whether by execution and delivery of an Assumption Agreement or otherwise) not later than one Business Day prior to an Extension Date, the Administrative Agent shall so notify the Borrowers, and, upon fulfillment of the applicable conditions set forth in Article III and subsection (c) above, the Revolver Termination Date then in effect shall be extended for the 364-day period described in subsection (a) of this Section 2.16, and all references in this Agreement and in the Notes to the "Revolver Termination Date" shall, with respect to each Consenting Lender and each Extension Assuming Lender for such Extension Date, refer to the Revolver Termination Date as so extended. Promptly following each Extension Date, the Administrative Agent shall notify the Lenders (including, without limitation, each Assuming Lender) of the extension of the scheduled Revolver Termination Date in effect immediately prior thereto and shall thereupon record in the Register the relevant information with respect to each such Consenting Lender and each such Extension Assuming Lender. SECTION 2.17. Use of Proceeds. The proceeds of the Advances shall be available (and each Borrower agrees that it shall use such proceeds) solely for general corporate purposes of the Company and its Subsidiaries, including commercial paper backstop. ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) There shall have occurred no Material Adverse Change since December 31, 2002. (b) There shall exist no action, suit, investigation, litigation or proceeding affecting the Company or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions contemplated hereby. (c) Nothing shall have come to the attention of the Lenders during the course of their due diligence investigation to lead them to believe that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect; without limiting the generality of the foregoing, the Lenders shall have been given such access to the management, records, books of account, contracts and properties of the Company and its Subsidiaries as they shall have reasonably requested. (d) All governmental and third party consents and approvals necessary in connection with the transactions contemplated hereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, and no law or regulation shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon the transactions contemplated hereby. (e) The Company shall have notified each Lender and the Administrative Agent in writing as to the proposed Effective Date. (f) The Company shall have paid all accrued fees and expenses of the Administrative Agent and the Lenders in connection with this Agreement and the transactions contemplated hereby (including the accrued fees and expenses of counsel to the Administrative Agent). 23 (g) On the Effective Date, the following statements shall be true and the Administrative Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Company, dated the Effective Date, stating that: (i) The representations and warranties contained in Section 4.01 are correct on and as of the Effective Date, and (ii) No event has occurred and is continuing that constitutes a Default. (h) The Administrative Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Administrative Agent and (except for the Notes) in sufficient copies for each Lender: (i) The Notes payable to the order of the Lenders, respectively. (ii) Certified copies of the resolutions of the Board of Directors of each Borrower authorizing this Agreement and the Notes to be executed by it, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Notes. (iii) A certificate of the Secretary or an Assistant Secretary of each Borrower certifying the names and true signatures of the officers of such Borrower authorized to sign this Agreement and the Notes and the other documents to be delivered hereunder. (iv) A favorable opinion of Michael T. Hyde, Assistant Secretary of each of the Borrowers, counsel for the Borrowers, substantially in the form of Exhibit D hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request. (v) A favorable opinion of Shearman & Sterling LLP, counsel for the Administrative Agent, in form and substance satisfactory to the Administrative Agent. (i) The Borrowers shall have terminated the commitments, and paid in full all Debt, interest, fees and other amounts outstanding, under the $1,500,000,000 364-Day Credit Agreement dated as of August 9, 2002 among the Company and Sprint Capital, as borrowers, the lenders parties thereto, Citibank N.A., as administrative agent, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and book managers, JPMorgan Chase Bank, as syndication agent, and Bank of America, N.A., Deutsche Bank AG New York Branch and UBS AG, Stamford Branch, as documentation agents. Each of the Lenders that is a party to the above described credit agreement, by execution hereof, hereby waives the requirement of three business days' notice to the termination of the commitments thereunder. SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing, Term Loan Conversion Date and Extension Date. The obligation of each Lender to make a Revolving Credit Advance on the occasion of each Revolving Credit Borrowing, the Term Loan Election and each extension of Commitments pursuant to Section 2.16 shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Revolving Credit Borrowing, the Term Loan Election and the applicable Extension Date (a) the following statements shall be true (and each of the giving of the applicable Notice of Revolving Credit Borrowing, the Term Loan Election, request for Commitment extension and the acceptance by the applicable Borrower of the proceeds of such Revolving Credit Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Borrowing, the Term Loan Election and such Extension Date such statements are true): (i) the representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the date of such Revolving Credit Borrowing, the Term Loan Election or such Extension Date, before and after giving effect to such Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and 24 (ii) no event has occurred and is continuing, or would result from such Revolving Credit Borrowing, the Term Loan Election or such Commitment extension, or from the application of the proceeds therefrom, that constitutes a Default; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (a) the Administrative Agent shall have received the written notice of the acceptance of offers made by Lenders for Competitive Bid Advances with respect thereto in accordance with Section 2.03(a)(iii)(y) and (b) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by the applicable Borrower of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Competitive Bid Borrowing such statements are true): (i) the representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and (ii) no event has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default. SECTION 3.04. Determinations Under Section 3.01 For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the date that the Borrowers, by notice to the Lenders, designate as the proposed Effective Date, specifying its objection thereto. The Administrative Agent shall promptly notify the Lenders of the occurrence of the Effective Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrowers. Each Borrower represents and warrants as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Kansas. Sprint Capital is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The execution, delivery and performance by each Borrower of this Agreement and the Notes to be executed by it, and the consummation of the transactions contemplated hereby, are within such Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) such Borrower's charter or bylaws or (ii) any law or any contractual restriction binding on or affecting such Borrower. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by such Borrower of this Agreement or the Notes to be executed by it. (d) This Agreement has been duly executed and delivered by each Borrower. This Agreement is the legal, valid and binding obligation of each Borrower enforceable against such Borrower in accordance with its terms. 25 Each of the Notes to be executed by a Borrower when delivered hereunder will have been duly executed and delivered by such Borrower and will be the legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms. (e) The Consolidated balance sheet of the Company and its Subsidiaries as at December 31, 2002, and the related Consolidated statements of income and cash flows of the Company and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of Ernst & Young LLP, independent public accountants, and the Consolidated balance sheet of the Company and its Subsidiaries as at March 31, 2003, and the related Consolidated statements of income and cash flows of the Company and its Subsidiaries for the three months then ended, duly certified by the chief financial officer, chief accounting officer or treasurer of the Company, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at March 31, 2003, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Company and its Subsidiaries as at such dates and the Consolidated results of the operations of the Company and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Since December 31, 2002, there has been no Material Adverse Change. (f) There is no pending or threatened action, suit, investigation, litigation or proceeding, including, without limitation, any Environmental Action, affecting the Company or any of its Subsidiaries before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions contemplated hereby. (g) No Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (h) The Company and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does such Borrower know of any valid basis for any such claim, except, in either case, for such claims that in the aggregate could not reasonably be expected to have a Material Adverse Effect. The use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (i) No Borrower is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Borrower is subject to regulation under any Federal or State statute or regulation which limits its ability to incur Debt. (j) The Company owns all of the shares of the issued and outstanding capital stock of Sprint Capital. ARTICLE V COVENANTS OF THE BORROWERS SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, each Borrower will: 26 (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders (including, without limitation, compliance with ERISA and Environmental Laws). (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Company nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Borrower or such Subsidiary operates. (d) Preservation of Corporate Existence, Etc. Continue to engage in business of the same general type as now conducted by it and preserve and maintain, and cause each of its Subsidiaries (other than Insignificant Subsidiaries) to preserve and maintain, its existence, rights (charter and statutory) and franchises; provided, however, that the Company and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and any disposition permitted under Section 5.02(c) and provided further that neither the Company nor any of its Subsidiaries shall be required to preserve any right or franchise if the Company or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Company, such Subsidiary or the Lenders. (e) Visitation Rights. At any reasonable time and from time to time upon notice, permit the Administrative Agent or any of the Lenders or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, such Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of such Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account in which full and correct entries shall be made of all financial transactions and the assets and business of such Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under this Agreement with any of their Affiliates (other than the Company and its Subsidiaries) on terms that are fair and reasonable and no less favorable to such Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (i) Reporting Requirements. Furnish to the Administrative Agent for the account of each of the Lenders: (i) as soon as available and in any event within 45 days electronically after the end of each of the first three quarters of each fiscal year of the Company, Consolidated balance sheets of (A) the Company and its Subsidiaries, (B) the PCS Group and (C) the FON Group as of the end of such quarter and Consolidated statements of income and cash flows of (A) the Company and its Subsidiaries, (B) the PCS Group and (C) the FON Group for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial 27 officer, the chief accounting officer or the treasurer of the Company as having been prepared in accordance with generally accepted accounting principles and as soon as available and in any event within 55 days in paper format a certificate of the chief financial officer, the chief accounting officer or the treasurer of the Company as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Company shall also provide in paper format, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP; provided further, that financial statements for the PCS Group and the FON Group shall be required only for periods during which the Company has PCS tracking stock outstanding; (ii) as soon as available and in any event within 90 days electronically after the end of each fiscal year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, containing Consolidated balance sheets of (A) the Company and its Subsidiaries, (B) the PCS Group and (C) the FON Group as of the end of such fiscal year and Consolidated statements of income and cash flows of (A) the Company and its Subsidiaries, (B) the PCS Group and (C) the FON Group for such fiscal year, in each case accompanied by an opinion acceptable to the Required Lenders by Ernst & Young LLP or other independent public accountants acceptable to the Required Lenders and as soon as available and in any event within 100 days in paper format a certificate of the chief financial officer, the chief accounting officer or the treasurer of the Company as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Company shall also provide within 100 days in paper format, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP; provided further, that financial statements for the PCS Group and the FON Group shall be required only for periods during which the Company has PCS tracking stock outstanding; (iii) as soon as possible and in any event within five days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer, the chief accounting officer, the treasurer or assistant treasurer of the Company setting forth details of such Default and the action that the Company has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports that the Company sends to any of its securityholders, and copies of all reports and proxy solicitations that the Company files with the Securities and Exchange Commission; (v) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting the Company or any of its Subsidiaries of the type described in Section 4.01(f); and (vi) such other information respecting the Company or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request. Reports and financial statements required to be delivered by the Company pursuant to clauses (i), (ii) and (iv) of this subsection (i) shall be deemed to have been delivered on the date on which the Company posts such reports, or reports containing such financial statements, on its website on the Internet at www.sprint.com, at www.sec.gov or at such other website identified by the Company in a notice to the Administrative Agent and the Lenders and that is accessible by the Lenders without charge; provided that the Company shall deliver paper copies of such information to any Lender promptly upon request of such Lender through the Administrative Agent and provided further that the Lenders shall be deemed to have received the information specified in clauses (i) through (v) of this subsection (i) on the date (x) the information regarding the website where reports and financial information can be found is posted at the website of the Administrative Agent identified from time to time by the Administrative Agent to the Lenders and the Company and (y) such posting is notified to the Lenders (it being understood that the 28 Company shall have satisfied the timing obligations imposed by those clauses as of the date such information is delivered to the Administrative Agent). SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Company will not: (a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien on or with respect to any of its properties, whether now owned or hereafter acquired, or assign for security purposes, or permit any of its Subsidiaries to assign for security purposes, any right to receive income, other than: (i) Permitted Liens, (ii) purchase money Liens upon or in any real property or equipment acquired or held by the Company or any Subsidiary in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition of such property or equipment, or Liens existing on such property or equipment at the time of its acquisition (other than any such Liens created in contemplation of such acquisition that were not incurred to finance the acquisition of such property) or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided, however, that no such Lien shall extend to or cover any properties of any character other than the real property or equipment being acquired, and no such extension, renewal or replacement shall extend to or cover any properties not theretofore subject to the Lien being extended, renewed or replaced, (iii) the Liens existing on the Effective Date and described on Schedule 5.02(a) hereto, (iv) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; provided that such Liens were not created in contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person so merged into or consolidated with the Company or such Subsidiary or acquired by the Company or such Subsidiary, (v) Liens arising in connection with capital leases, (vi) Liens arising in connection with the monetization of common shares of Earthlink Inc. owned by the Company and its Subsidiaries, (vii) Liens arising in connection with the sale or financing of accounts receivable permitted by Section 5.02(c)(vi), (viii) other Liens securing Debt in an aggregate principal amount not to exceed $200,000,000 at any time outstanding, and (ix) the replacement, extension or renewal of any Lien described on Schedule 5.02(a) or any Lien permitted by clause (iv) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Debt secured thereby. (b) Mergers, Etc. Merge or consolidate with or into any Person, or permit any of its Subsidiaries to do so, except that (i) any Subsidiary of the Company may merge or consolidate with or into any other Subsidiary of the Company, (ii) any Subsidiary of the Company may merge into the Company and (iii) the Company and any of its Subsidiaries may merge with any other Person so long as the Company or any of its Subsidiaries is the surviving corporation, provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. 29 (c) Sales, Etc., of Assets. Convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) any of its assets (whether now owned or hereafter acquired) to any Person, or permit any of its Subsidiaries to do so, except that (i) any Subsidiary of the Company may dispose of assets to any other Subsidiary of the Company or to the Company; (ii) the Company or any of its Subsidiaries may convey, transfer, lease or otherwise dispose of inventory or other assets in the ordinary course of business; (iii) the Company or any of its Subsidiaries may exchange Telephone Assets for Telephone Assets of any other Person, for the purpose of consolidating the Telephone Assets of the Company or such Subsidiary, to the extent of the greater of the book value and the fair market value (as determined in good faith by the Board of Directors of the Company or such Subsidiary) of the Telephone Assets obtained by the Company or such Subsidiary as a result of such exchange; (iv) the Company or any of its Subsidiaries may sell any and all assets set forth on Schedule 5.02(c); (v) the Company and its Subsidiaries may sell other assets for fair market value having an aggregate book value of all such assets so sold by the Company and its Subsidiaries of not more than $500,000,000 from the date hereof; and (vi) the Company or any of its Subsidiaries may sell or encumber accounts receivable with or without recourse; provided that, in each case (except clauses (i), (ii) and (vi) above), no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. (d) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required or permitted by generally accepted accounting principles. (e) Subsidiary Debt. Permit any of its Subsidiaries (other than Sprint Capital) to create or suffer to exist, any Debt other than: (i) Debt owed to the Company or to a wholly owned Subsidiary of the Company, (ii) Debt existing on the Effective Date and described on Schedule 5.02(e) hereto (the "Existing Debt"), and any Debt extending the maturity of, or refunding or refinancing, in whole or in part, the Existing Debt, provided that the principal amount of such Existing Debt shall not be increased above the principal amount thereof outstanding immediately prior to such extension, refunding or refinancing, and the direct and contingent obligors therefor shall not be changed, as a result of or in connection with such extension, refunding or refinancing, (iii) Debt secured by Liens permitted by Section 5.02(a), (iv) Debt of a Person existing at the time such Person is merged into or consolidated with any Subsidiary of the Company or becomes a Subsidiary of the Company; provided that such Debt is not created in contemplation of such merger, consolidation or acquisition; and any Debt extending the maturity of, or refunding or refinancing, in whole or in part, such Debt, provided that the principal amount of such Debt shall not increase above the principal amount thereof outstanding immediately prior to such extension, refunding or refinancing, and the direct and contingent obligors therefor shall not be changed, as a result of or in connection with such extension, refunding or refinancing. (v) obligations in respect of acceptances, letters of credit and similar extensions of credit in an aggregate amount not to exceed $50,000,000 at any time outstanding, (vi) other Debt in an aggregate amount not to exceed $200,000,000 at any one time outstanding, and (vii) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. (f) Payment Restrictions Affecting Subsidiaries. Directly or indirectly, enter into or suffer to exist, or permit any of its Restricted Subsidiaries (as hereinafter defined) to enter into or suffer to exist, any agreement or arrangement limiting the ability of any of its Restricted Subsidiaries to (i) declare or pay dividends or other 30 distributions in respect of its equity interests or (ii) repay or prepay any Debt owed to, make loans or advances to, provide guaranties in respect of, or otherwise transfer assets to or invest in, the Company or any other Subsidiary of the Company (whether through a covenant restricting dividends, loans, asset transfers or investments, a financial covenant or otherwise), except (i) any agreement in effect on the date hereof, (ii) any agreement evidencing a Lien permitted by Section 5.02(a) to the extent that such limitation relates solely to the assets encumbered by such Lien and (iii) any agreement in effect at the time such Restricted Subsidiary becomes a Restricted Subsidiary of the Company, so long as such agreement was not entered into solely in contemplation of such Person becoming a Restricted Subsidiary of the Company. "Restricted Subsidiary" means any Subsidiary of the Company that owns 1% or more of the Consolidated assets of the Company and its Subsidiaries taken as a whole or as to which is attributed 1% or more of the Consolidated revenues of the Company and its Subsidiaries taken as a whole, in each case as determined by reference to the most recent financial statements of the Company. SECTION 5.03. Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Company will: (a) Leverage Ratio. Maintain, as of the end of any fiscal quarter, for the four consecutive fiscal quarters then most recently ended, a ratio of Consolidated Net Debt of the Company and its Subsidiaries to Consolidated EBITDA of the Company and its Subsidiaries for such four fiscal quarter period of not greater than the ratios set forth below: Periods Ending Ratio June 30, 2003 and September 30, 2003 3.50:1.0 December 31, 2003 and thereafter 3.00:1.0 (b) Interest Coverage Ratio. Maintain, as of the end of any fiscal quarter, for the four consecutive fiscal quarters then most recently ended, a ratio of Consolidated EBITDA of the Company and its Subsidiaries for such four fiscal quarter period to interest expense on, including amortization of debt discount in respect of, Consolidated Debt of the Company and its Subsidiaries during such four fiscal quarter period of not less than 4.0:1. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or any Borrower shall fail to pay any interest on any Advance or make any other payment of fees or other amounts payable under this Agreement or any Note within three Business Days after the same becomes due and payable; or (b) Any representation or warranty made by any Borrower herein or by such Borrower in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (c) (i) Any Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), (e) or (i), 5.02 or 5.03, or (ii) any Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrowers by the Administrative Agent or any Lender; or (d) The Company or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal amount of at least $100,000,000 in the aggregate (but excluding Debt outstanding hereunder) of the Company or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure 31 shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) The Company or any of its Subsidiaries (other than any Insignificant Subsidiary) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Company or any of its Subsidiaries (other than any Insignificant Subsidiary) seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Company or any of its Subsidiaries (other than any Insignificant Subsidiary) shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $20,000,000 shall be rendered against the Company or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) (i) Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Company (or other securities convertible into such Voting Stock) representing 33 1/3% or more of the combined voting power of all Voting Stock of the Company, or shall obtain the power (whether or not exercised) to elect a majority of the Company's directors; or (ii) any Person or two or more Persons (other than members of the Board of Directors of the Company acting in their capacity as members of the Board of Directors or any committee thereof) acting in concert shall succeed in having sufficient of its nominees elected to the Board of Directors of the Company such that such nominees, when added to any existing director remaining on the Board of Directors of the Company after such election who is a related person of such Person, shall constitute a majority of the Board of Directors of the Company; (iii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement (and five Business Days shall have elapsed since the date of entering into such contract or arrangement) that, upon consummation, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Company; or (iv) the Company shall cease to maintain beneficial ownership of 100% of the Voting Stock of Sprint Capital; or (h) The Company or any of its ERISA Affiliates shall incur, or shall be reasonably likely to incur, liability in excess of $75,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of the Company or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan; or (i) The Company Guaranty contained in Article VII of this Agreement shall cease for any reason to be valid and binding on or enforceable against the Company or the Company shall so state in writing; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of 32 the Required Lenders, by notice to the Borrowers, declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by each Borrower. ARTICLE VII COMPANY GUARANTY SECTION 7.01. Guaranty. The Company hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of Sprint Capital now or hereafter existing under this Agreement or any Note, whether for principal, interest, fees, expenses or otherwise (such obligations, to the extent not paid by Sprint Capital or specifically waived in accordance with Section 9.01, being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Administrative Agent or the Lenders in enforcing any rights under this Article VII ("this Guaranty"). Without limiting the generality of the foregoing, the Company's liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by Sprint Capital to the Administrative Agent or any Lender under this Agreement or any Note but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Sprint Capital. SECTION 7.02. Guaranty Absolute. The Company guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of this Agreement and the Notes, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or the Lenders with respect thereto. The obligations of the Company under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against the Company to enforce this Guaranty, irrespective of whether any action is brought against Sprint Capital or whether Sprint Capital is joined in any such action or actions. The liability of the Company under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and, to the maximum extent permitted by law, the Company hereby irrevocably waives any defenses it may now or hereafter have in any way relating to, any or all of the following: (a) any lack of validity or enforceability of this Agreement or any agreement or instrument relating hereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from this Agreement or any Note, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to Sprint Capital or otherwise; (c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) any change, restructuring or termination of the corporate structure or existence of Sprint Capital; or (e) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by the Administrative Agent or any Lender that might otherwise constitute a defense available to, or a discharge of, the Company, Sprint Capital or any other guarantor or surety. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of Sprint Capital or otherwise, all as though such payment had not been made. 33 SECTION 7.03. Waiver. The Company hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the Administrative Agent or any Lender exhaust any right or take any action against Sprint Capital or any other Person or any collateral. The Company acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated herein and that the waiver set forth in this Section 7.03 is knowingly made in contemplation of such benefits. The Company hereby waives any right to revoke this Guaranty, and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. SECTION 7.04. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the later of the cash payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty and the Revolver Termination Date, (b) be binding upon the Company, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lenders, the Administrative Agent and their successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender may assign or otherwise transfer all or any portion of its rights and obligations hereunder (including, without limitation, all or any portion of its Commitment, the Advances owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as provided in Section 9.07. SECTION 7.05. Subrogation. The Company will not exercise any rights that it may now or hereafter acquire against Sprint Capital or any other insider guarantor that arise from the existence, payment, performance or enforcement of the Company's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any Lender against Sprint Capital or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from Sprint Capital or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash and the Revolver Termination Date shall have occurred. If any amount shall be paid to the Company in violation of the preceding sentence at any time prior to the later of the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty and the Revolver Termination Date, such amount shall be held in trust for the benefit of the Administrative Agent and the Lenders and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of this Guaranty, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (i) the Company shall make payment to the Administrative Agent or any Lender of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall be paid in full in cash and (iii) the Revolver Termination Date shall have occurred, the Administrative Agent and the Lenders will, at the Company's request and expense, execute and deliver to the Company appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Company of an interest in the Guaranteed Obligations resulting from such payment by the Company. ARTICLE VIII THE ADMINISTRATIVE AGENT SECTION 8.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal 34 liability or that is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement. SECTION 8.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may consult with legal counsel (including counsel for the Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrowers or to inspect the property (including the books and records) of the Borrowers; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. Citibank and Affiliates. With respect to its Commitment, the Advances made by it and the Note issued to it, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, the Company, any of its Subsidiaries and any Person who may do business with or own securities of the Company or any such Subsidiary, all as if Citibank were not the Administrative Agent and without any duty to account therefor to the Lenders. SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.05. Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective principal amounts of the Revolving Credit Advances then owed to each of them (or if no such Advances are outstanding at the time, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, reasonable costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement (collectively, the "Indemnified Costs"), provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Administrative Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any reasonable out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrowers. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 8.05 applies whether any such investigation, litigation or proceeding is brought by the Administrative Agent, any Lender or a third party. 35 SECTION 8.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrowers. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 8.07. Other Agents. Each Lender and each Borrower hereby acknowledges that none of the arranger, syndication agent, the documentation agents or any other Lender designated as any "Agent" (other than the Administrative Agent) on the signature pages hereof has any liability hereunder other than in its capacity as a Lender. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes, nor consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (f) reduce or limit the obligations of the Company under Section 7.01 or release or otherwise limit liability of the Company with respect to the Guaranteed Obligations or (g) amend this Section 9.01; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed or delivered, if to the Company, at its address at 6220 Sprint Parkway, Overland Park, Kansas 66251, Attention: Treasurer (Telecopier No.: (913) 794-1402); if to Sprint Capital, at its address at 6220 Sprint Parkway, Overland Park, Kansas 66251, Attention: Treasurer (Telecopier No.: (913) 794-0153); if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance or the Assumption Agreement pursuant to which it became a Lender; and if to the Administrative Agent, at its address at 388 Greenwich Street, New York, New York 10013, Attention: Robert Parr (Telecopier No.: (212) 816-8063); or, as to any Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrowers and the Administrative Agent. All such notices and communications shall, when mailed, telecopied, telegraphed or telexed, be effective when deposited in the mails, telecopied, delivered to the telegraph company or confirmed by telex answerback, respectively, except that notices and communications to the Administrative Agent pursuant to Article II, III or VII shall not be effective until received by the Administrative Agent. Delivery by telecopier of an 36 executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit (other than the Notes) hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs and Expenses. (a) The Borrowers agree to pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, consultant, and audit expenses and (B) the reasonable fees and expenses of outside counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement. The Borrowers further agree to pay on demand all costs and expenses of the Administrative Agent and the Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Administrative Agent and each Lender in connection with the enforcement of rights under this Section 9.04(a). (b) The Borrowers agree to indemnify and hold harmless the Administrative Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. Each Borrower also agrees not to assert any claim against the Administrative Agent, any Lender, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 9.07 as a result of a demand by the Borrowers pursuant to Section 9.07(a), such Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (including loss of Applicable Margin), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (d) The Borrowers acknowledge that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution. All notices, financial statements, financial and other reports, certificates, requests and other information materials (the 37 "Communications") and the website of the Administrative Agent (the "Platform") are provided "as is" and "as available". The Administrative Agent does not warrant the accuracy, adequacy or completeness of the Communications or the Platform and expressly disclaims liability for errors or omissions in the Communications or the Platform. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by the Administrative Agent in connection with the Communications or the Platform. (e) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in Sections 2.11, 2.14 and 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes. SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under this Agreement and the Note held by such Lender, whether or not such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the applicable Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. SECTION 9.06. Binding Effect. This Agreement shall become effective (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by each Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrowers, the Administrative Agent and each Lender and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 9.07. Assignments and Participations. (a) Each Lender may and, if demanded by the Borrowers (following a demand by such Lender pursuant to Section 2.11 or 2.14) upon at least 5 Business Days' notice to such Lender and the Administrative Agent, will assign to one or more banks or other financial institutions all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Revolving Credit Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement (other than any right to make Competitive Bid Advances and Competitive Bid Advances owing to it), (ii) except in the case of an assignment to a bank or other financial institution that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Borrowers pursuant to this Section 9.07(a) shall be arranged by the Borrowers after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrowers pursuant to this Section 9.07(a) unless and until such Lender shall have received one or more payments from either a Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts accrued or payable to such Lender under this Agreement, and (vi) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing 38 and recordation fee of $3,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together (if the entire interest is being assigned) with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers. Within five Business Days after its receipt of such notice, each Borrower, at its own expense, shall execute and deliver to the Administrative Agent a new Note to the order of such Eligible Assignee. Such new Note shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto. (d) The Administrative Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance and each Assumption Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Each Lender may sell participations to one or more banks or other financial institutions (other than the Company or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrowers, the Administrative Agent and the 39 other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note, or any consent to any departure by any Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Borrowers received by it from such Lender. (g) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.08. Confidentiality. Neither the Administrative Agent nor any Lender shall disclose any Confidential Information to any other Person without the consent of the Company, other than (a) to the Administrative Agent's or such Lender's Affiliates (that are not competitors of the Company and its Subsidiaries) and their officers, directors, employees, agents and advisors and, as contemplated by Section 9.07(f), to actual or prospective assignees and participants, and then only on a confidential and a need-to-know basis, (b) as required by any law, rule or regulation or judicial process and (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking or any self-regulatory body having authority to regulate or oversee any aspect of such Lender's business. Notwithstanding anything herein to the contrary, the Administrative Agent and the Lenders may disclose to any and all Persons, without limitation of any kind, the U.S. tax treatment and tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Administrative Agent or any Lender relating to such U.S. tax treatment and tax structure. SECTION 9.09. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.10. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment arising out of or relating to this Agreement or the Notes, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Notes in any New York State court or federal 40 court sitting in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 41 SECTION 9.12. Waiver of Jury Trial. Each of the Borrowers, the Administrative Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Notes or the actions of the Administrative Agent or any Lender in the negotiation, administration, performance or enforcement hereof or thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SPRINT CORPORATION By: /s/ Dennis C. Piper Title: Vice President-Finance and Assistant Treasurer SPRINT CAPITAL CORPORATION By: /s/ Dennis C. Piper Title: Vice President and Treasurer CITIBANK, N.A., as Administrative Agent By: /s/ Elizabeth H. Minnella Title: Director and Vice President 42 Joint Lead Arrangers $115,000,000 CITIBANK, N.A. By: /s/ Elizabeth H. Minnella Title: Director and Vice President $115,000,000 JPMORGAN CHASE BANK By: /s/ Edmond DeForest Title: Vice President Documentation Agents $100,000,000 BANK OF AMERICA, N.A. By: /s/ Richard M. Peck Title: Vice President $90,000,000 DEUTSCHE BANK AG, NEW YORK BRANCH By: /s/ Andreas Neumeier Title: Director By: /s/ Peter Eschmann Title: Vice President $90,000,000 UBS AG, CAYMAN ISLANDS BRANCH By: /s/ Wilfred V. Saint Title: Associate Director, Banking Products Services, US By: /s/ Patricia O'Kicki Title: Director Senior Managing Agents $70,000,000 ABN AMRO BANK N.V. By: /s/ Frances O'R. Logan Title: Senior Vice President By: /s/ David Carrington Title: Group Vice President 43 $70,000,000 BANK ONE, NA By: /s/ Jennifer L. Jones Title: Director $70,000,000 LEHMAN BROTHERS BANK, FSB By: /s/ G.T. Taylor Title: Vice President $70,000,000 MORGAN STANLEY BANK By: /s/ Jaap L. Tonckens Title: Vice President $70,000,000 WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Mark L. Cook Title: Director Lenders $50,000,000 FIFTH THIRD BANK By: /s/ Andy Buschle Title: Vice President $50,000,000 MERRILL LYNCH BANK USA By: /s/ Louis Alder Title: Vice President $25,000,000 THE NORTHERN TRUST COMPANY By: /s/ Ashish S. Bhagwat Title: Vice President 44 $10,000,000 UMB BANK, N.A. By: /s/ David A. Proffitt Title: Senior Vice President $5,000,000 COMMERCE BANK, N.A. By: /s/ Julias Madas Title: Senior Vice President $1,000,000,000 Total of the Commitments 45 The Exhibits and Schedules referenced in the table of contents have been omitted for purposes of this filing, but will be furnished supplementally to the Securities and Exchange Commission upon request. EX-10 4 exh10esummary.txt SUMMARY OF EXEC AND BOD BENEFITS AND FEES Exhibit 10(e) SUMMARY OF EXECUTIVE OFFICER BENEFITS AND BOARD OF DIRECTORS BENEFITS AND FEES *
Description of Benefit Eligible Positions Amount/Schedule Automobile Allowance Chief Executive Officer $1,500/month Chief Operating Officer $1,300/month Division Presidents and Executive Vice $1,100/month Presidents Senior Vice Presidents $1,000/month - ------------------------------ ------------------------------------------------------ ---------------------------------- Club Membership Chief Executive Officer Approved at discretion of Compensation Committee Chief Operating Officer, Division Presidents and Approved at discretion of direct Executive Vice Presidents, Senior Vice Presidents supervisor - ------------------------------ ------------------------------------------------------ ---------------------------------- Communication Services (Long Board of Directors $6,000/year (continues after Distance and PCS) (1) retirement for up to 120 months) and use of two Sprint PCS handsets - ------------------------------ ------------------------------------------------------ ---------------------------------- Sprint Long-Distance Chief Executive Officer, Chief Operating Actual usage (continues after Telephone Service (1) Officer, Division Presidents, Executive retirement) and Senior Vice Presidents - ------------------------------ ------------------------------------------------------ ---------------------------------- Income tax compliance for Chief Executive Officer and Chief Operating Amount incurred 2002 tax year (preparation Officer, Division Presidents, EVP/Chief Financial of federal and state income Officer & EVP Legal & External Affairs tax filings and related analyses) (1)(2) - ------------------------------ ------------------------------------------------------ ---------------------------------- Miscellaneous services Chief Executive Officer and Chief Operating $15,000/year (investment counseling, Officer insurance counseling, Division Presidents and Executive Vice $12,000/year preparation of wills and Presidents trusts, tax counseling, Senior Vice Presidents $10,000/year income tax preparation, estate planning, and personal financial planning) (1)(3) - ------------------------------ ------------------------------------------------------ ---------------------------------- Disability Chief Executive Officer, Chief Operating 52 weeks at full base pay Officer, Division Presidents, Executive and Senior Vice Presidents - ------------------------------ ------------------------------------------------------ ---------------------------------- Separation Chief Executive Officer, Chief Operating 52 weeks salary continuation Officer, Division Presidents, Executive and Senior Vice Presidents (unless otherwise provided in an individual agreement with an officer) - ------------------------------ ------------------------------------------------------ ---------------------------------- Fees Board of Directors Annual retainer - $50,000/year (all Outside Directors) Additional Annual retainer for Lead Independent Director - $75,000/year Committee Chair additional annual retainer for Outside Directors Audit Committee $10,000 Other Committees $7,500 Meeting Fee - $ 1,500/meeting Committee Meeting Fee - $ 1,500/meeting Fee for In-person Meetings of Outside Directors and in-person business meetings attended on Sprint's behalf - $ 1,500/meeting - ------------------------------ ------------------------------------------------------ ---------------------------------- * This summary is effective beginning July 1, 2003. Before that date, benefits and fees were as described in Exhibit 10(f) to the 10-Q for the period ended March 31, 2003. (1) Sprint reimburses for income taxes associated with these benefits. (2) This benefit has been eliminated with respect to tax years after 2002. (3) With respect to tax years after 2002, Sprint's independent auditor may not provide these services.
EX-10 5 exh10fnoncomp.txt SPECIAL COMPENSATION AND NON COMPETE AGREEMENT Exhibit 10(f) Special Compensation and Non-Compete Agreement This Agreement is entered into as of the 13th day of May, 2003 (the "Grant Date"), by and between Sprint Corporation, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and Bruce N. Hawthorne ("Employee"). Recitals 1. Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2. Employer has offered to employ Employee as an executive officer of Employer. 3. By virtue of his work for Employer, Employee will gain access to valuable Proprietary Information of Employer. 4. Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. Now, Therefore, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants 2.01. Exclusivity of Services Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and attention to the performance of those duties and responsibilities and to use his 1 best efforts to promote and develop the business of Employer. Employee shall adhere in all respects to Sprint's Principles of Business Conduct (together with any successor provision, which is incorporated by this reference, the "Code of Ethics") as in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.02. Proprietary Information Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agreement, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.03. Non-Competition Employee shall not, during the Non-Compete Period, engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Constructive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary, Division, or other divested unit employing Employee, this provision shall continue to apply during the Non-Compete Period, except that Employee's continued employment for the Subsidiary, Division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. Employee agrees that, in anticipation of the sale, spin-off, split-off, or other divestiture of a business unit or division for whom Employee is then providing services, Employer may change the Subsidiary employing Employee to the the Subsidiary that is the subject of the sale, spin-off, split-off, or other divestiture. Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a 2 more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2.04. Inducement of Employees, Customers and Others During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for or transfer business to any Competitor of Employer. 2.05. Return of Employer's Property Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.06. Exit Interview At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 2.07. Confidentiality of Agreement Employee shall not disclose or discuss the existence of this Agreement, the Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him, (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Stock-Based Awards As partial consideration for Employee's agreements hereunder, Employee shall be granted the Stock-Based Awards on the terms set forth in this section. 3 3.01. Award of Stock Options Sprint hereby grants to Employee, under Sprint's 1990 Stock Option Plan, as of the Grant Date (a) an option to purchase 107,250 shares of Sprint's FON Stock, Series 1 and (b) an option to purchase 107,250 shares of Sprint's PCS Common Stock, Series 1, both at a strike price equal to the Fair Market Value of one share of the respective stock on the Grant Date. The options shall become exercisable, with respect to 25% of the total shares granted, on each of the first four anniversaries of the Grant Date. The options shall expire on the 10th anniversary of the Grant Date. The terms of the 1990 Stock Option Plan, to the extent not in conflict with the terms of this Agreement, are hereby incorporated into this Agreement by reference. Notwithstanding the terms of the 1990 Stock Option Plan, the definition of a Change in Control set forth in this Agreement shall apply for all purposes. 3.02. Provisions Applicable to Stock-Based Award (a) Acceleration of Stock-Based Awards (1) Conditions to Acceleration The the stock options shall become immediately exercisable if Employee is not in breach of thisAgreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. For purposes of the Stock-Based Award, the definition of Change in Control set forth in this Agreement shall control, notwithstanding terms of the the 1990 Stock Option Plan. (2) No Acceleration on Transfer of Employment to Affiliates In no event shall the exercisability of stock options be accelerated as provided in the prior section upon Employee's ceasing employment with Employer to commence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration If the acceleration of the exercisability of the Stock-Based Award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall 4 be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances Employee shall not be entitled to continue to own any unexercisable stock options if before the stock options become exercisable (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause, or (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. (c) Tax Withholding Employer may withhold the amount of any tax attributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation 4.01. Conditions to Payment In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's Long-Term Disability Plan, Employee shall be entitled to Special Compensation plus any vacation pay for vacation accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or (ii) Employee terminates his employment with Employer upon Constructive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is re-employed by Employer or Employee materially breaches this Agreement. 5 4.02. Payments Conditioned on Settlement and Release The payments and benefits provided for hereunder shall be in full settlement and satisfaction of all of Employee's claims and demands relating to or arising out of his employment with the Company or the termination thereof except for any claims Employee may have against Employer under this Agreement and any indemnification agreements entered into between Employer and Employee. The Company's obligation to provide these payments and benefits is expressly made subject to and conditioned upon (i) the Employee's execution, within forty-five (45) days after the Termination Date, of a release of those claims and demands in such form as the Company may reasonably determine and (ii) the Employee's non-revocation of the release in accordance with its terms. 5. Dispute Resolution 5.01. Jurisdiction and Venue Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 5.02. Remedies Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Grant Date, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. 6 This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6. Definitions 6.01. Affiliate "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 6.02. Board "Board" means the board of directors of Sprint. 6.03. Change in Control "Change in Control" means the occurrence of any of the following events: (i) the acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder, including, without limitation, Rule 13d-5(b)) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of Sprint that represent 30% or more of the combined voting power of Sprint's then outstanding voting securities, other than (A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by Sprint or by any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by Sprint, or (B) an acquisition of voting securities by Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their ownership of the stock of Sprint, or (C) an acquisition of voting securities pursuant to a transaction described in clause (iii) below that would not be a Change in Control under clause (iii); (ii) a change in the composition of the Board that causes less than a majority of the directors of Sprint to be directors that meet one or more of the following descriptions: (A) a director who has been a director of Sprint for a continuous period of at least 24 months, or 7 (B) a director whose election or nomination as director was approved by a vote of at least 2/3's of the then directors described in clauses (ii)(A), (B), or (C) by prior nomination or election, but excluding, for the purpose of this subclause (B), any director whose initial assumption of office occurred as a result of an actual or threatened (y) election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board or (z) tender offer, merger, sale of substantially all of Sprint's assets, consolidation, reorganization, or business combination that would be a Change in Control under clause (iii) on consummation thereof, or (C) who were serving on the Board as a result of the consummation of a transaction described in clause (iii) that would not be a Change in Control under clause (iii); (iii) the consummation by Sprint (whether directly involving Sprint or indirectly involving Sprint through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of Sprint's assets or (z) the acquisition of assets or stock of another entity, in each case, other than in a transaction (A) that results in Sprint's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of Sprint or the person that, as a result of the transaction, controls, directly or indirectly, Sprint or owns, directly or indirectly, all or substantially all of Sprint's assets or otherwise succeeds to the business of Sprint (Sprint or such person, the "Successor Entity")) directly or indirectly, at least 50% of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction, and (B) after which more than 50% of the members of the board of directors of the Successor Entity were members of the Board at the time of the Board's approval of the agreement providing for the transaction or other action of the Board approving the transaction (or whose election or nomination was approved by a vote of at least 2_3's of the members who were members of the Board at that time), and (C) after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, no person or group shall be treated for purposes of this clause (C) as beneficially owning 30% or more of combined voting power of the Successor Entity solely as a result of the voting power held in Sprint prior to the consummation of the transaction; or 8 (iv) a liquidation or dissolution of Sprint. For purposes of clarification, (x) a change in the voting power of Sprint voting securities based on the relative trading values of Sprint's then outstanding securities as determined pursuant to Sprint's Articles of Incorporation or (y) an acquisition of Sprint securities by Sprint that, in either case, by itself (or in combination only with the other event listed in this sentence) causes the Sprint's voting securities beneficially owned by a person or group to represent 30% or more of the combined voting power of Sprint's then outstanding voting securities is not to be treated as an "acquisition" by any person or group for purposes of clause (i) above. For purposes of clause (i) above, Sprint makes the calculation of voting power as if the date of the acquisition were a record date for a vote of Sprint's shareholders, and for purposes of clause (iii) above, Sprint makes the calculation of voting power as if the date of the consummation of the transaction were a record date for a vote of Sprint's shareholders. 6.04. Committee "Committee" means the Compensation Committee of Sprint's board of directors. 6.05. Competitive Employment "Competitive Employment" means the performance of duties or responsibilities, or the supervision of individuals performing such duties or responsibilities, for a Competitor of Employer (i) (A) that are of a similar nature or employ similar professional or technical skills (for example, executive, managerial, marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, and (B) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (ii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.06. Competitor of Employer Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. 9 "Competitor of Employer" means any one or more of the following: (i) any Person doing business in the United States or any of its Divisions employing Employee if the Person or its Division receives at least 15% of its gross operating revenues from providing communications services of any type (for example, voice, data, including Internet, and video), employing any transmission medium (for example, wireline, wireless, or any other technology), over any distance (for example, local, long-distance, and distance insensitive services), using any protocol (for example, circuitswitched, or packet-based, such as Internet Protocol), or services or capabilities ancillary to such communications services (for example, web hosting and network security services); (ii) any Person doing business in the United States or its Division employing Employee if the Person or its Division receives at least 15% of its gross operating revenue from a line of business in which Employer receives at least 3% of its gross operating revenues; (iii) any Person doing business in the United States, or its Division employing Employee, operating for less than 5 years a line of business from which Employer derives at least 3% of its gross operating revenues, notwithstanding such Person's or Division's lack of substantial revenues in such line of business; or (iv) any Person doing business in the United States, or its Division employing Employee, if the Person or its Division receives at least 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years, notwithstanding Employer's lack of substantial revenues in such line of business. For purposes of the foregoing, gross operating revenues of Employer and such other Person shall be those of the Employer or such Person, together with their Consolidated Affiliates, but those of any Division employing or proposing to employ Employee shall be on a stand-alone basis, all measured by the most recent available financial information of both Employer and such other Person or Division at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.07. Consolidated Affiliate "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 10 6.08. Constructive Discharge "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.09. Division "Division" means any distinct group or unit organized as a segment or portion of a Person that is devoted to the production, provision, or management of a common product or service or group of related products or services, regardless of whether the group is organized as a legally distinct entity. 6.10. Non-Compete Period "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 6.11. Person "Person" means any individual, corporation, partnership, association, company, or other entity. 6.12. Proprietary Information "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer or Employer's Affiliates, including but not limited to: computer programs, un- patented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; 11 and information about potential mergers or acquisitions which information: (i) has not been made known generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 6.13. Severance Date "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.14. Severance Period "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.15. Special Compensation "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Short-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; (iii) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was par- ticipating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance 12 Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; (iv) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (v) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vi) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of paid time off; and (vii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans, restricted stock plans, and other equity compensation plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.16. Stock-Based Award "Stock-Based Award" means the award of stock options as elected by Employee under Section 3 of this Agreement. 6.17. Subsidiary "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.18. Termination for Cause "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Code of Ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 6.19. Total Disability "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 13 7. General Provisions 7.01. Obligations to Survive Termination of Employment Employee's obligations under this Agreement shall survive his termination of employment with Employer. 7.02. Binding Effect This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 7.04. Waiver The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 14 7.06. Notices Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: If to Employee: If to Employer: Bruce N. Hawthorne Sprint Corporation Attn: Corporate Secretary 6200 Sprint Parkway Overland Park, KS 66251 FAX: (913) 794-0114 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas without regard to its choice of law provisions. 7.08. Number and Gender Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 7.09. Headings The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 15 In Witness Whereof, the parties have caused this Agreement to be duly executed on the date set forth below. Sprint Corporation by: /s/ James Kissinger James Kissinger, Senior Vice President-Human Resources /s/ Bruce N. Hawthorne Bruce N. Hawthorne, Employee Dated: May 12, 2003 Attestation State of Kansas > > ss. County of Johnson > Signed or attested before me on May 12th, 2003 by Bruce N. Hawthorne. /s/ Mary E. Baker Notary Public (Seal if any) My appointment expires: 2/11/06 16 Special Compensation and Non-Compete Agreement This Agreement is entered into as of the 13th day of May, 2003 (the "Grant Date"), by and between Sprint Corporation, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and Howard E. Janzen ("Employee"). Recitals 1. Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2. By virtue of his work for Employer, Employee has gained and will continue to gain additional valuable Proprietary Information of Employer. 3. Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. Now, Therefore, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants 2.01. Exclusivity of Services Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and attention to the performance of those duties and responsibilities and to use his best efforts to promote and develop the business of Employer. Employee shall adhere in all respects to Sprint's Principles of Business Conduct (together with any successor provision, which is incorporated by this reference, the "Code of 1 Ethics") as in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.02. Proprietary Information Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agreement, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.03. Non-Competition Employee shall not, during the Non-Compete Period, engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Constructive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary, Division, or other divested unit employing Employee, this provision shall continue to apply during the Non-Compete Period, except that Employee's continued employment for the Subsidiary, Division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. Employee agrees that, in anticipation of the sale, spin-off, split-off, or other divestiture of a business unit or division for whom Employee is then providing services, Employer may change the Subsidiary employing Employee to the the Subsidiary that is the subject of the sale, spin-off, split-off, or other divestiture. Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2.04. Inducement of Employees, Customers and Others 2 During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for or transfer business to any Competitor of Employer. 2.05. Return of Employer's Property Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.06. Exit Interview At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 2.07. Confidentiality of Agreement Employee shall not disclose or discuss the existence of this Agreement, the Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him, (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Stock-Based Awards As partial consideration for Employee's agreements hereunder, Employee shall be granted the Stock-Based Awards on the terms set forth in this section. 3.01. Award of Stock Options Sprint hereby grants to Employee, under Sprint's 1990 Stock Option Plan, as of the Grant Date (a) an option to purchase 161,250 shares of Sprint's FON 3 Stock, Series 1 and (b) an option to purchase 161,250 shares of Sprint's PCS Common Stock, Series 1, both at a strike price equal to the Fair Market Value of one share of the respective stock on the Grant Date. The options shall become exercisable, with respect to 25% of the total shares granted, on each of the first four anniversaries of the Grant Date. The options shall expire on the 10th anniversary of the Grant Date. The terms of the 1990 Stock Option Plan, to the extent not in conflict with the terms of this Agreement, are hereby incorporated into this Agreement by reference. Notwithstanding the terms of the 1990 Stock Option Plan, the definition of a Change in Control set forth in this Agreement shall apply for all purposes. 3.02. Provisions Applicable to Stock-Based Award (a) Acceleration of Stock-Based Awards (1) Conditions to Acceleration The the stock options shall become immediately exercisable if Employee is not in breach of this Agreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. For purposes of the Stock-Based Award, the definition of Change in Control set forth in this Agreement shall control, notwithstanding terms of the the 1990 Stock Option Plan. (2) No Acceleration on Transfer of Employment to Affiliates In no event shall the exercisability of stock options be accelerated as provided in the prior section upon Employee's ceasing employment with Employer to commence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration If the acceleration of the exercisability of the Stock-Based Award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or 4 other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances Employee shall not be entitled to continue to own any unexercisable stock options if before the stock options become exercisable (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause, or (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. (c) Tax Withholding Employer may withhold the amount of any tax at- tributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation 4.01. Conditions to Payment In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's Long-Term Disability Plan, Employee shall be entitled to Special Compensation plus any pay for paid time off accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or (ii) Employee terminates his employment with Employer upon Constructive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is re-employed by Employer or Employee materially breaches this Agreement. 4.02. Settlement and Release The payments and benefits provided for hereunder shall be in full settlement and satisfaction of all of Employee's claims and demands relating to or arising out of his employment with the Company or the termination thereof except for any claims Employee may have against Employer under this Agreement and 5 any indemnification agreements entered into between Employer and Employee. The Company's obligation to provide these payments and benefits is expressly made subject to and conditioned upon (i) the Employee's execution, within forty-five (45) days after the Termination Date, of a release of those claims and demands in such form as the Company may reasonably determine and (ii) the Employee's non-revocation of the release in accordance with its terms. 5. Dispute Resolution 5.01. Jurisdiction and Venue Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 5.02. Remedies Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Grant Date, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6. Definitions 6 6.01. Affiliate "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 6.02. Board "Board" means the board of directors of Sprint. 6.03. Change in Control "Change in Control" means the occurrence of any of the following events: (i) the acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder, including, without limitation, Rule 13d-5(b)) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of Sprint that represent 30% or more of the combined voting power of Sprint's then outstanding voting securities, other than (A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by Sprint or by any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by Sprint, or (B) an acquisition of voting securities by Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their ownership of the stock of Sprint, or (C) an acquisition of voting securities pursuant to a transaction described in clause (iii) below that would not be a Change in Control under clause (iii); (ii) a change in the composition of the Board that causes less than a majority of the directors of Sprint to be directors that meet one or more of the following descriptions: (A) a director who has been a director of Sprint for a continuous period of at least 24 months, or (B) a director whose election or nomination as director was approved by a vote of at least 2/3's of the then directors described in clauses (ii)(A), (B), or (C) by prior nomination or election, but excluding, for the purpose of this subclause (B), any director whose initial assumption of office occurred as a result of an actual or threatened (y) election contest with respect to the election or removal of directors or other 7 actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board or (z) tender offer, merger, sale of substantially all of Sprint's assets, consolidation, reorganization, or business combination that would be a Change in Control under clause (iii) on consummation thereof, or (C) who were serving on the Board as a result of the consummation of a transaction described in clause (iii) that would not be a Change in Control under clause (iii); (iii) the consummation by Sprint (whether directly involving Sprint or indirectly involving Sprint through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of Sprint's assets or (z) the acquisition of assets or stock of another entity, in each case, other than in a transaction (A) that results in Sprint's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of Sprint or the person that, as a result of the transaction, controls, directly or indirectly, Sprint or owns, directly or indirectly, all or substantially all of Sprint's assets or otherwise succeeds to the business of Sprint (Sprint or such person, the "Successor Entity")) directly or indirectly, at least 50% of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction, and (B) after which more than 50% of the members of the board of directors of the Successor Entity were members of the Board at the time of the Board's approval of the agreement providing for the transaction or other action of the Board approving the transaction (or whose election or nomination was approved by a vote of at least 2/3's of the members who were members of the Board at that time), and (C) after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, no person or group shall be treated for purposes of this clause (C) as beneficially owning 30% or more of combined voting power of the Successor Entity solely as a result of the voting power held in Sprint prior to the consummation of the transaction; or (iv) a liquidation or dissolution of Sprint. For purposes of clarification, (x) a change in the voting power of Sprint voting securities based on the relative trading values of Sprint's then outstanding securities as determined pursuant to Sprint's Articles of Incorporation or (y) an acquisition of Sprint securities by Sprint that, in either case, by itself 8 (or in combination only with the other event listed in this sentence) causes the Sprint's voting securities beneficially owned by a person or group to represent 30% or more of the combined voting power of Sprint's then outstanding voting securities is not to be treated as an "acquisition" by any person or group for purposes of clause (i) above. For purposes of clause (i) above, Sprint makes the calculation of voting power as if the date of the acquisition were a record date for a vote of Sprint's shareholders, and for purposes of clause (iii) above, Sprint makes the calculation of voting power as if the date of the consummation of the transaction were a record date for a vote of Sprint's shareholders. 6.04. Committee "Committee" means the Organization, Compensation, and Nominating Com- mittee of Sprint's board of directors. 6.05. Competitive Employment "Competitive Employment" means the performance of duties or responsibilities, or the supervision of individuals performing such duties or responsibilities, for a Competitor of Employer (i) (A) that are of a similar nature or employ similar professional or technical skills (for example, executive, managerial, marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, and (B) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (ii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.06. Competitor of Employer Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. "Competitor of Employer" means any one or more of the following: (i) any Person doing business in the United States or any of its Divisions employing Employee if the Person or its Division receives at least 15% of its gross operating revenues from providing communications services of any 9 type (for example, voice, data, including Internet, and video), employing any transmission medium (for example, wireline, wireless, or any other technology), over any distance (for example, local, long-distance, and distance insensitive services), using any protocol (for example, circuitswitched, or packet-based, such as Internet Protocol), or services or capabilities ancillary to such communications services (for example, web hosting and network security services); (ii) any Person doing business in the United States or its Division employing Employee if the Person or its Division receives at least 15% of its gross operating revenue from a line of business in which Employer receives at least 3% of its gross operating revenues; (iii) any Person doing business in the United States, or its Division employing Employee, operating for less than 5 years a line of business from which Employer derives at least 3% of its gross operating revenues, notwithstanding such Person's or Division's lack of substantial revenues in such line of business; or (iv) any Person doing business in the United States, or its Division employing Employee, if the Person or its Division receives at least 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years, notwithstanding Employer's lack of substantial revenues in such line of business. For purposes of the foregoing, gross operating revenues of Employer and such other Person shall be those of the Employer or such Person, together with their Consolidated Affiliates, but those of any Division employing or proposing to employ Employee shall be on a stand-alone basis, all measured by the most recent available financial information of both Employer and such other Person or Division at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.07. Consolidated Affiliate "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 6.08. Constructive Discharge "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current 10 position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.09. Division "Division" means any distinct group or unit organized as a segment or portion of a Person that is devoted to the production, provision, or management of a common product or service or group of related products or services, regardless of whether the group is organized as a legally distinct entity. 6.10. Non-Compete Period "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 6.11. Person "Person" means any individual, corporation, partnership, association, company, or other entity. 6.12. Proprietary Information "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer or Employer's Affiliates, including but not limited to: computer programs, un- patented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; and information about potential mergers or acquisitions which information: (i) has not been made known generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 11 6.13. Severance Date "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.14. Severance Period "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.15. Special Compensation "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Short-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; (iii) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was par- ticipating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; (iv) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Em- 12 ployer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (v) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vi) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of paid time off; and (vii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans, restricted stock plans, and other equity compensation plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.16. Stock-Based Award "Stock-Based Award" means the award of stock options as elected by Employee under Section 3 of this Agreement. 6.17. Subsidiary "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.18. Termination for Cause "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Code of Ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 6.19. Total Disability "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 7. General Provisions 7.01. Obligations to Survive Termination of Employment Employee's obligations under this Agreement shall survive his termination of employment with Employer. 13 7.02. Binding Effect This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 7.04. Waiver The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 7.06. Notices Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: If to Employee: If to Employer: Howard E. Janzen Sprint Corporation Attn: Corporate Secretary 6200 Sprint Parkway Overland Park, KS 66251 FAX: (913) 794-0114 14 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas without regard to its choice of law provisions. 7.08. Number and Gender Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 7.09. Headings The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 15 In Witness Whereof, the parties have caused this Agreement to be duly executed on the date set forth below. Sprint Corporation by: /s/ James Kissinger James Kissinger, Senior Vice President-Human Resources /s/ Howard E. Janzen Howard E. Janzen, Employee Dated: May 12, 2003 Attestation State of Kansas > > ss. County of Johnson > Signed or attested before me on 12th of May 2003 by Howard E. Janzen. /s/ Mary E. Baker Notary Public (Seal if any) My appointment expires: 2/11/06 16 Special Compensation and Non-Compete Agreement This Agreement is entered into as of the 13th day of May, 2003 (the "Grant Date"), by and between Sprint Corporation, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and Michael Stout ("Employee"). Recitals 1. Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2. Employer has offered to employ Employee as an executive officer of Employer. 3. By virtue of his work for Employer, Employee will gain access to valuable Proprietary Information of Employer. 4. Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. Now, Therefore, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants 2.01. Exclusivity of Services Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and attention to the performance of those duties and responsibilities and to use his 1 best efforts to promote and develop the business of Employer. Employee shall adhere in all respects to Sprint's Principles of Business Conduct (together with any successor provision, which is incorporated by this reference, the "Code of Ethics") as in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.02. Proprietary Information Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agreement, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.03. Non-Competition Employee shall not, during the Non-Compete Period, engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Constructive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary, Division, or other divested unit employing Employee, this provision shall continue to apply during the Non-Compete Period, except that Employee's continued employment for the Subsidiary, Division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. Employee agrees that, in anticipation of the sale, spin-off, split-off, or other divestiture of a business unit or division for whom Employee is then providing services, Employer may change the Subsidiary employing Employee to the the Subsidiary that is the subject of the sale, spin-off, split-off, or other divestiture. Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a 2 more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2.04. Inducement of Employees, Customers and Others During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for or transfer business to any Competitor of Employer. 2.05. Return of Employer's Property Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.06. Exit Interview At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 2.07. Confidentiality of Agreement Employee shall not disclose or discuss the existence of this Agreement, the Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him, (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Stock-Based Awards As partial consideration for Employee's agreements hereunder, Employee shall be granted the Stock-Based Awards on the terms set forth in this section. 3 3.01. Award of Stock Options Sprint hereby grants to Employee, under Sprint's 1990 Stock Option Plan, as of the Grant Date (a) an option to purchase 107,250 shares of Sprint's FON Stock, Series 1 and (b) an option to purchase 107,250 shares of Sprint's PCS Common Stock, Series 1, both at a strike price equal to the Fair Market Value of one share of the respective stock on the Grant Date. The options shall become exercisable, with respect to 25% of the total shares granted, on each of the first four anniversaries of the Grant Date. The options shall expire on the 10th anniversary of the Grant Date. The terms of the 1990 Stock Option Plan, to the extent not in conflict with the terms of this Agreement, are hereby incorporated into this Agreement by reference. Notwithstanding the terms of the 1990 Stock Option Plan, the definition of a Change in Control set forth in this Agreement shall apply for all purposes. 3.02. Provisions Applicable to Stock-Based Award (a) Acceleration of Stock-Based Awards (1) Conditions to Acceleration The the stock options shall become immediately exercisable if Employee is not in breach of this Agreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. For purposes of the Stock-Based Award, the definition of Change in Control set forth in this Agreement shall control, notwithstanding terms of the the 1990 Stock Option Plan. (2) No Acceleration on Transfer of Employment to Affiliates In no event shall the exercisability of stock options be accelerated as provided in the prior section upon Employee's ceasing employment with Employer to commence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration If the acceleration of the exercisability of the Stock-Based Award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall 4 be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances Employee shall not be entitled to continue to own any unexercisable stock options if before the stock options become exercisable (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause, or (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. (c) Tax Withholding Employer may withhold the amount of any tax at- tributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation 4.01. Conditions to Payment In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's Long-Term Disability Plan, Employee shall be entitled to Special Compensation plus any vacation pay for vacation accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or (ii) Employee terminates his employment with Employer upon Constructive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is re-employed by Employer or Employee materially breaches this Agreement. 5 4.02. Payments Conditioned on Settlement and Release The payments and benefits provided for hereunder shall be in full settlement and satisfaction of all of Employee's claims and demands relating to or arising out of his employment with the Company or the termination thereof except for any claims Employee may have against Employer under this Agreement and any indemnification agreements entered into between Employer and Employee. The Company's obligation to provide these payments and benefits is expressly made subject to and conditioned upon (i) the Employee's execution, within forty-five (45) days after the Termination Date, of a release of those claims and demands in such form as the Company may reasonably determine and (ii) the Employee's non-revocation of the release in accordance with its terms. 5. Dispute Resolution 5.01. Jurisdiction and Venue Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 5.02. Remedies Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Grant Date, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. 6 This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6. Definitions 6.01. Affiliate "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 6.02. Board "Board" means the board of directors of Sprint. 6.03. Change in Control "Change in Control" means the occurrence of any of the following events: (i) the acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder, including, without limitation, Rule 13d-5(b)) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of Sprint that represent 30% or more of the combined voting power of Sprint's then outstanding voting securities, other than (A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by Sprint or by any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by Sprint, or (B) an acquisition of voting securities by Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their ownership of the stock of Sprint, or (C) an acquisition of voting securities pursuant to a transaction described in clause (iii) below that would not be a Change in Control under clause (iii); (ii) a change in the composition of the Board that causes less than a majority of the directors of Sprint to be directors that meet one or more of the following descriptions: (A) a director who has been a director of Sprint for a continuous period of at least 24 months, or 7 (B) a director whose election or nomination as director was approved by a vote of at least 2/3's of the then directors described in clauses (ii)(A), (B), or (C) by prior nomination or election, but excluding, for the purpose of this subclause (B), any director whose initial assumption of office occurred as a result of an actual or threatened (y) election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board or (z) tender offer, merger, sale of substantially all of Sprint's assets, consolidation, reorganization, or business combination that would be a Change in Control under clause (iii) on consummation thereof, or (C) who were serving on the Board as a result of the consummation of a transaction described in clause (iii) that would not be a Change in Control under clause (iii); (iii) the consummation by Sprint (whether directly involving Sprint or indirectly involving Sprint through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of Sprint's assets or (z) the acquisition of assets or stock of another entity, in each case, other than in a transaction (A) that results in Sprint's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of Sprint or the person that, as a result of the transaction, controls, directly or indirectly, Sprint or owns, directly or indirectly, all or substantially all of Sprint's assets or otherwise succeeds to the business of Sprint (Sprint or such person, the "Successor Entity")) directly or indirectly, at least 50% of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction, and (B) after which more than 50% of the members of the board of directors of the Successor Entity were members of the Board at the time of the Board's approval of the agreement providing for the transaction or other action of the Board approving the transaction (or whose election or nomination was approved by a vote of at least 2/3's of the members who were members of the Board at that time), and (C) after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, no person or group shall be treated for purposes of this clause (C) as beneficially owning 30% or more of combined voting power of the Successor Entity solely as a result of the voting power held in Sprint prior to the consummation of the transaction; or 8 (iv) a liquidation or dissolution of Sprint. For purposes of clarification, (x) a change in the voting power of Sprint voting securities based on the relative trading values of Sprint's then outstanding securities as determined pursuant to Sprint's Articles of Incorporation or (y) an acquisition of Sprint securities by Sprint that, in either case, by itself (or in combination only with the other event listed in this sentence) causes the Sprint's voting securities beneficially owned by a person or group to represent 30% or more of the combined voting power of Sprint's then outstanding voting securities is not to be treated as an "acquisition" by any person or group for purposes of clause (i) above. For purposes of clause (i) above, Sprint makes the calculation of voting power as if the date of the acquisition were a record date for a vote of Sprint's shareholders, and for purposes of clause (iii) above, Sprint makes the calculation of voting power as if the date of the consummation of the transaction were a record date for a vote of Sprint's shareholders. 6.04. Committee "Committee" means the Organization, Compensation, and Nominating Committee of Sprint's board of directors. 6.05. Competitive Employment "Competitive Employment" means the performance of duties or responsibilities, or the supervision of individuals performing such duties or responsibilities, for a Competitor of Employer (i) (A) that are of a similar nature or employ similar professional or technical skills (for example, executive, managerial, marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, and (B) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (ii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.06. Competitor of Employer Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. 9 "Competitor of Employer" means any one or more of the following: (i) any Person doing business in the United States or any of its Divisions employing Employee if the Person or its Division receives at least 15% of its gross operating revenues from providing communications services of any type (for example, voice, data, including Internet, and video), employing any transmission medium (for example, wireline, wireless, or any other technology), over any distance (for example, local, long-distance, and distance insensitive services), using any protocol (for example, circuitswitched, or packet-based, such as Internet Protocol), or services or capabilities ancillary to such communications services (for example, web hosting and network security services); (ii) any Person doing business in the United States or its Division employing Employee if the Person or its Division receives at least 15% of its gross operating revenue from a line of business in which Employer receives at least 3% of its gross operating revenues; (iii) any Person doing business in the United States, or its Division employing Employee, operating for less than 5 years a line of business from which Employer derives at least 3% of its gross operating revenues, notwithstanding such Person's or Division's lack of substantial revenues in such line of business; or (iv) any Person doing business in the United States, or its Division employing Employee, if the Person or its Division receives at least 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years, notwithstanding Employer's lack of substantial revenues in such line of business. For purposes of the foregoing, gross operating revenues of Employer and such other Person shall be those of the Employer or such Person, together with their Consolidated Affiliates, but those of any Division employing or proposing to employ Employee shall be on a stand-alone basis, all measured by the most recent available financial information of both Employer and such other Person or Division at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.07. Consolidated Affiliate "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 10 6.08. Constructive Discharge "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.09. Division "Division" means any distinct group or unit organized as a segment or portion of a Person that is devoted to the production, provision, or management of a common product or service or group of related products or services, regardless of whether the group is organized as a legally distinct entity. 6.10. Non-Compete Period "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 6.11. Person "Person" means any individual, corporation, partnership, association, company, or other entity. 6.12. Proprietary Information "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer or Employer's Affiliates, including but not limited to: computer programs, un- patented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; 11 and information about potential mergers or acquisitions which information: (i) has not been made known generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 6.13. Severance Date "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.14. Severance Period "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.15. Special Compensation "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Short-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; (iii) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was par- ticipating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance 12 Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; (iv) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (v) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vi) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of paid time off; and (vii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans, restricted stock plans, and other equity compensation plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.16. Stock-Based Award "Stock-Based Award" means the award of stock options as elected by Employee under Section 3 of this Agreement. 6.17. Subsidiary "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.18. Termination for Cause "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Code of Ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 6.19. Total Disability "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 13 7. General Provisions 7.01. Obligations to Survive Termination of Employment Employee's obligations under this Agreement shall survive his termination of employment with Employer. 7.02. Binding Effect This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 7.04. Waiver The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 14 7.06. Notices Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: If to Employee: If to Employer: Michael Stout Sprint Corporation Attn: Corporate Secretary 6200 Sprint Parkway Overland Park, KS 66251 FAX: (913) 794-0114 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas without regard to its choice of law provisions. 7.08. Number and Gender Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 7.09. Headings The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 15 In Witness Whereof, the parties have caused this Agreement to be duly executed on the date set forth below. Sprint Corporation by: /s/ James Kissinger James Kissinger, Senior Vice President-Human Resources /s/ Michael Stout Michael Stout, Employee Dated: 5/8/03 Attestation State of NM > > ss. County of Santa Fe > Signed or attested before me on May 8th, 2003 by Michael Stout. /s/ A. G. Notary Public (Seal if any) My appointment expires: 5/24/2006 16 Special Compensation and Non-Compete Agreement This Agreement is entered into as of the 9th day of December, 1997 (the "Effective Date"), by and between Sprint Corporation, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and Thomas A. Gerke ("Employee"). Recitals 1. Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2. By virtue of his work for Employer, Employee has gained and will continue to gain additional valuable Proprietary Information of Employer. 3. Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. Now, Therefore, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will. Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants. 2.01. Exclusivity of Services. Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and 1 attention to the performance of those duties and responsibilities and to use his best efforts to promote and develop the business of Employer. Employee shall adhere to the conflicts of interest provisions set forth in Section 7 of the Sprint Code of Ethics (or any successor provision, which is incorporated by this reference) as in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.02. Proprietary Information. Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agree- ment, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.03. Non-Competition. Employee shall not, during the Non-Compete Period, engage in Compet- itive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Construc- tive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiairy, division, or other divested unit employing Employee, this provision shall continue to apply during the Non-Compete Period, except that Employee's continued employment for the Subsidiary, division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. 2 Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2.04. Inducement of Employees, Customers and Others. During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for or transfer business to any Competitor of Employer. 2.05. Return of Employer's Property. Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.06. Exit Interview. At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 3 2.07. Confidentiality of Agreement. Employee shall not disclose or discuss the existence of this Agreement, the Alternative Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him, (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Alternative Stock-Based Awards. As partial consideration for Employee's agreements hereunder, Employee shall be granted one of the two Stock-Based Awards, at the election of Employee, on the terms set forth in this section. Employee must indicate which of the two forms of compensation he elects to receive by checking the corresponding box above his signature line at the bottom of this Agreement. If Employee signs this Agreement but checks neither box or both boxes, Employee shall be considered to have elected to receive restricted stock. 3.01. Alternative Award of Restricted Stock. If Employee elects to receive Restricted Stock, this Section 3.01 shall be considered a part of this Agreement, otherwise it shall not be considered a part of this Agreement. Employer hereby grants to Employee an award of 2,500 shares of restricted stock under Sprint's 1990 Restricted Stock Plan, the terms of which are hereby incorporated into this Agreement by this reference. (a) Lapse of Restrictions. Employee may not sell, transfer, assign, pledge, or otherwise encumber or dispose of shares of restricted stock until the restrictions on the shares lapse. Restrictions on the shares covered by this award shall lapse, with respect to 25% of the total shares granted, on each of the first four anniversary dates of the Effective Date. (b) Rights as Stockholder and Issuance of Shares. Except as set forth in the 1990 Restricted Stock Plan, Employee shall have all rights of a stockholder with respect to the shares of restricted 4 stock, including the right to vote the shares of stock and the right to dividends on the shares. The shares of restricted stock shall be registered in the name of the Employee and the certificates evidencing the shares shall, at Employer's sole election, either (i) bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the award or (ii) be held in escrow by the Company. Within 60 days of the Effective Date of this Agreement, the Employee shall execute a stock power or powers assigning the shares of restricted stock to Sprint, and Sprint shall hold the stock power and the certificate in escrow and may use the stock power to effect forfeiture of the restricted stock to the extent the shares are forfeited under the terms of this Agreement. Sprint shall cause the certificate evidencing unrestricted shares of com- mon stock to be issued to the Employee as soon as practicable after the restrictions lapse on the restricted shares. 3.02. Alternative Award of Stock Options. If Employee elects to receive stock options, this Section 3.02 shall be considered a part of this Agreement; otherwise it shall not be considered a part of this Agreement. Sprint hereby grants to Employee, under Sprint's 1990 Stock Option Plan, an option to purchase 10,000 shares of Sprint common stock at a price of $56.50 per share. The option shall become exercisable, with respect to 25% of the total shares granted, on each of the first four anniversaries of the Effective Date. The option shall expire on December 9, 2007. The terms of the 1990 Stock Option Plan are hereby incorporated into this Agreement by reference. 3.03. Provisions Applicable to Awards of both Restricted Stock and Stock Options. (a) Acceleration of Stock-Based Awards. (1) Conditions to Acceleration. The restrictions on all shares of restricted stock that have not otherwise lapsed shall lapse or the stock options shall become immediately exercisable, as the case may be, if, on or after the first anniversary of the Effective Date, Employee is not in breach of this Agreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Employee's Total Disability or 5 (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. (2) No Acceleration on Transfer of Employment to Affiliates. In no event shall the restrictions lapse on restricted stock nor the exercisability of stock options be accelerated as provided in the prior section upon Employee's ceasing employment with Employer to commence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration. If the acceleration of the vesting of restricted stock or the exercisability of the stock-based award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances. Employee shall not be entitled to sell or continue to own any unvested shares of restricted stock or exercise or continue to own any unexercisable stock options, as the case may be, if before such restricted shares vest or before such stock options become exercisable (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause or by reason of Employee's Total Disability, or 6 (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. Except as to clause (iii), this provision applies regardless of what subsequent employment Employee may take. (c) Tax Withholding. Employer may withhold the amount of any tax attributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation. In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's LongTerm Disability Plan, Employee shall be entitled to Special Compensation plus any vacation pay for vacation accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or (ii) Employee terminates his employment with Employer upon Construc- tive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is re-employed by Employer or Employee materially breaches this Agreement. 5. Dispute Resolution. 5.01. Jurisdiction and Venue. Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 7 5.02. Remedies. Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Effective Date of this Agreement, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6. Definitions. 6.01. Affiliate. "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 8 6.02. Change in Control. "Change in Control" means the occurrence of any of the following events: (i) the acquisition, without the approval of a majority of the directors described in clause (ii) of this Section 6.02, by any "person" or "group" as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder other than (A) a trustee or other fiduciary holding securities under an employee benefit plan of Sprint, (B) Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their ownership of stock of Sprint, or (C) Deutsche Telekom AG or FranceeTlecom, individually or collectively; of securities of Sprint representing 20% or more of the combined voting power of Sprint's then outstanding securities; or (ii) at the end of any two-year period, less than a majority of the directors of Sprint are directors (A) who were directors of Sprint at the beginning of the two-year period or (B) whose election or nomination as director was approved by a vote of 2/3's of the then directors described in this clause (ii) of this Section 6.02 by prior nomination or election; or (iii) the shareholders of Sprint approve a merger (in which Sprint is not the surviving operating entity), consolidation, liquidation, or dissolution of Sprint, or a sale of all or substantially all of the assets of Sprint; or (iv) the acquisition by Deutsche Telekom AG or FranceeTlecom, individually or collectively, of additional securities of the Company that would result in their possessing in the aggregate 35% or more of the combined voting power of the Company's then outstanding securities. 6.03. Committee. "Committee" means the Organization, Compensation, and Nominating Committee of Sprint's board of directors. 9 6.04. Competitive Employment. "Competitive Employment" means the performance of duties or responsibilities for a Competitor of Employer (i) that are of a similar nature or employ similar professional or technical skills (e.g., marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, (ii) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (iii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.05. Competitor of Employer. Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. "Competitor of Employer" means (i) any Person doing business in the United States whose primary business is providing local or long distance telephone or wireless service; (ii) any Person doing business in the United States, who, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenue from a line of business in which Employer, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenues, all as measured by the most recent available financial information of both Employer and such other Person, at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person; (iii) any Person doing business in the United States and operating, for less than 5 years, a line of business from which Employer derives more than 15% of its gross operating revenues, notwithstanding such Person's lack 10 of substantial revenues in such line of business; and (iv) any Person doing business in the United States, who receives more than 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years, notwithstanding Employer's lack of substantial revenues in such line of business. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.06. Consolidated Affiliate. "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 6.07. Constructive Discharge. "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.08. Non-Compete Period. "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 11 6.09. Person. "Person" means any individual, corporation, partnership, association, company, or other entity. 6.10. Proprietary Information. "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer or Employer's Affiliates, including but not limited to: computer programs, unpatented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; and information about potential mergers or acquisitions which information: (i) has not been made generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 6.11. Severance Date. "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.12. Severance Period. "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.13. Special Compensation. "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance 12 Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Short-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; (iii) to receive an award under the Long Term Incentive Plan and the Executive Long Term Incentive Plan (the "Long-Term Incentive Plans"), assuming achievement of performance targets under the Long-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) 0% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Long-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Long-Term Incentive Plan; (iv) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; 13 (v) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (vi) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vii) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of vacation; and (viii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans and restricted stock plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.14. Stock-Based Award. "Stock-Based Award" means the award of restricted stock or stock options as elected by Employee under Section 3 of this Agreement. 6.15. Subsidiary. "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.16. Termination for Cause. "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Employers code of ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 14 6.17. Total Disability. "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 7. General Provisions. 7.01. Obligations to Survive Termination of Employment. Employee's obligations under this Agreement shall survive his termination of employment with Employer. 7.02. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity. The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 7.04. Waiver. The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement. This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 7.06. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party 15 (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: If to Employee: If to Employer: Thomas A. Gerke Sprint Corporation Attn: Corporate Secretary 2330 Shawnee Mission Parkway Westwood, KS 66205 FAX: (913) 624-2256 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law. Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas. 7.08. Number and Gender. Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 7.09. Headings. The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 16 In Witness Whereof, the parties have caused this Agreement to be duly executed and effective as of December 9, 1997. Sprint Corporation by: /s/ Don A. Jensen Don A. Jensen, Vice President and Secretary I hereby elect to receive the following as the Stock-Based Award (check one): _____ Restricted Stock __X__ Stock Options /s/ Tom Gerke Thomas A. Gerke, Employee 17 Special Compensation and Non-Compete Agreement This Agreement is entered into as of the 8th day of February, 1999 (the "Grant Date"), by and between Sprint Corporation, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and William White ("Employee"). Recitals 1. Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2. By virtue of his work for Employer, Employee has gained and will continue to gain additional valuable Proprietary Information of Employer. 3. Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. Now, Therefore, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will. Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants. 2.01. Exclusivity of Services. Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and attention to the performance of those duties and responsibilities and to use his best efforts to promote and develop the business of Employer. Employee shall adhere to the conflicts of interest provisions set forth in Section 7 of the Sprint Code of Ethics (or any successor provision, which is incorporated by this reference) as 1 in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.02. Proprietary Information. Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agreement, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.03. Non-Competition. Employee shall not, during the Non-Compete Period, engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Constructive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary, division, or other divested unit employing Employee, this provision shall continue to apply during the Non-Compete Period, except that Employee's continued employment for the Subsidiary, division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2.04. Inducement of Employees, Customers and Others. During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for 2 or transfer business to any Competitor of Employer. 2.05. Return of Employer's Property. Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.06. Exit Interview. At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 2.07. Confidentiality of Agreement. Employee shall not disclose or discuss the existence of this Agreement, the Alternative Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him, (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Alternative Stock-Based Awards. As partial consideration for Employee's agreements hereunder, Employee shall be granted one of the two Stock-Based Awards, at the election of Employee, on the terms set forth in this section. Employee must indicate which of the two forms of compensation he elects to receive by checking the corresponding box above his signature line at the bottom of this Agreement. If Employee signs this Agreement but checks neither box or both boxes, Employee shall be considered to have elected to receive restricted stock. 3.01. Alternative Award of Restricted Stock. If Employee elects to receive Restricted Stock, this Section 3.01 shall be considered a part of this Agreement, otherwise it shall not be considered a part of 3 this Agreement. Employer hereby grants to Employee, as of the Grant Date an award of (a) 1,150 shares of restricted stock of Sprint's FON Common Stock, Series 1, and (b) 650 shares of restricted stock of Sprint's PCS Common Stock, Series 1, under Sprint's 1990 Restricted Stock Plan, the terms of which, to the extent not in conflict with this Agreement, are hereby incorporated into this Agreement by this reference. (a) Lapse of Restrictions. Employee may not sell, transfer, assign, pledge, or otherwise encumber or dispose of shares of restricted stock until the restrictions on the shares lapse. Restrictions on the shares covered by this award shall lapse, with respect to 25% of the total shares granted, on each of the first four anniversary dates of the Grant Date. (b) Rights as Stockholder and Issuance of Shares. Except as set forth in the 1990 Restricted Stock Plan, Employee shall have all rights of a stockholder with respect to the shares of restricted stock, including the right to vote the shares of stock and the right to dividends on the shares. The shares of restricted stock shall be registered in the name of the Employee and the certificates evidencing the shares shall, at Employer's sole election, either (i) bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the award or (ii) be held in escrow by the Company. Within 60 days of the Grant Date, the Employee shall execute a stock power or powers assigning the shares of restricted stock to Sprint, and Sprint shall hold the stock power and the certificate in escrow and may use the stock power to effect forfeiture of the restricted stock to the extent the shares are forfeited under the terms of this Agreement. Sprint shall cause the certificate evidencing unrestricted shares of common stock to be issued to the Employee as soon as practicable after the restrictions lapse on the restricted shares. 3.02. Alternative Award of Stock Options. If Employee elects to receive stock options, this Section 3.02 shall be considered a part of this Agreement; otherwise it shall not be considered a part of this Agreement. Sprint hereby grants to Employee, under Sprint's 1990 Stock Option Plan, as of the Grant Date (a) an option to purchase 4,150 shares of Sprint's FON Stock, Series 1, at a strike price of $77.96875 per share and (b) an option to purchase 1,200 shares of Sprint's PCS Common Stock, Series 1, at a strike price of $31.1875 per share respectively, on the Grant Date. The options shall become exercisable, with respect to 25% of the total shares granted, on each of the first four anniversaries of the Grant Date. The options shall expire on February 8, 2009. The terms of the 1990 Stock Option Plan, to the extent not in conflict with the terms of this Agreement, are hereby incorporated into this Agreement by reference. 4 3.03. Provisions Applicable to Awards of both Restricted Stock and Stock Options. (a) Acceleration of Stock-Based Awards. (1) Conditions to Acceleration. The restrictions on all shares of restricted stock that have not otherwise lapsed shall lapse or the stock options shall become immediately exercisable, as the case may be, if, on or after the first anniversary of the Grant Date, Employee is not in breach of this Agreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Employee's Total Disability or (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. (2) No Acceleration on Transfer of Employment to Affiliates. In no event shall the restrictions lapse on restricted stock nor the exercisability of stock options be accelerated as provided in the prior section upon Employee's ceasing employment with Employer to com- mence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration. If the acceleration of the vesting of restricted stock or the exercisability of the stock-based award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances. Employee shall not be entitled to sell or continue to own any unvested shares of restricted stock or exercise or continue to own any unexercisable stock options, as the case may be, if before such restricted shares vest or before such stock options become exercisable 5 (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause or by reason of Employee's Total Disability, or (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. Except as to clause (iii), this provision applies regardless of what subsequent employment Employee may take. (c) Tax Withholding. Employer may withhold the amount of any tax attributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation. In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's Long-Term Disability Plan, Employee shall be entitled to Special Compensation plus any vacation pay for vacation accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or (ii) Employee terminates his employment with Employer upon Constructive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is re-employed by Employer or Employee materially breaches this Agreement. 5. Dispute Resolution. 5.01. Jurisdiction and Venue. Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 5.02. Remedies. Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will 6 not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Grant Date, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6. Definitions. 6.01. Affiliate. "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 6.02. Change in Control. "Change in Control" means the occurrence of any of the following events: (i) the acquisition by any "person" or "group" as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder other than (A) a trustee or other fiduciary holding securities under an employee benefit plan of Sprint, (B) Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their own- 7 ership of stock of Sprint, or (C) Deutsche Telekom AG or FranceeTlecom, individually or collectively; of securities of Sprint representing 20% or more of the combined voting power of Sprint's then outstanding securities; or (ii) at the end of any two-year period, less than a majority of the directors of Sprint are directors (A) who were directors of Sprint at the beginning of the two-year period or (B) whose election or nomination as director was approved by a vote of 2/3's of the then directors described in this clause (ii) of this Section 6.02 by prior nomination or election; or (iii) the shareholders of Sprint approve a merger (in which Sprint is not the surviving operating entity), consolidation, liquidation, or dissolution of Sprint, or a sale of all or substantially all of the assets of Sprint; or (iv) the acquisition by Deutsche Telekom AG or FranceeTlecom, individually or collectively, of additional securities of the Company that would result in their possessing in the aggregate 35% or more of the combined voting power of the Company's then outstanding securities. 6.03. Committee. "Committee" means the Organization, Compensation, and Nominating Com- mittee of Sprint's board of directors. 6.04. Competitive Employment. "Competitive Employment" means the performance of duties or responsibilities for a Competitor of Employer (i) that are of a similar nature or employ similar professional or technical skills (e.g., marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, (ii) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (iii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.05. Competitor of Employer. Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over 8 time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. "Competitor of Employer" means (i) any Person doing business in the United States whose primary business is providing local or long distance telephone or wireless service; (ii) any Person doing business in the United States, who, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenue from a line of business in which Employer, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenues, all as measured by the most recent available financial information of both Employer and such other Person, at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person; (iii) any Person doing business in the United States and operating, for less than 5 years, a line of business from which Employer derives more than 15% of its gross operating revenues, notwithstanding such Person's lack of substantial revenues in such line of business; and (iv) any Person doing business in the United States, who receives more than 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years, notwithstanding Employer's lack of substantial revenues in such line of business. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.06. Consolidated Affiliate. "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 6.07. Constructive Discharge. "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% 9 other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.08. Non-Compete Period. "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 6.09. Person. "Person" means any individual, corporation, partnership, association, company, or other entity. 6.10. Proprietary Information. "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer or Employer's Affiliates, including but not limited to: computer programs, unpatented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; and information about potential mergers or acquisitions which information: (i) has not been made known generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 6.11. Severance Date. "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.12. Severance Period. "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.13. Special Compensation. "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation 10 at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Short-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; (iii) to receive an award under the Long Term Incentive Plan and the Executive Long Term Incentive Plan (the "Long-Term Incentive Plans"), assuming achievement of performance targets under the Long-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) 0% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Long-Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Long-Term Incentive Plan; (iv) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; 11 (v) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (vi) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vii) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of vacation; and (viii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans and restricted stock plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.14. Stock-Based Award. "Stock-Based Award" means the award of restricted stock or stock options as elected by Employee under Section 3 of this Agreement. 6.15. Subsidiary. "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.16. Termination for Cause. "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Employers code of ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 6.17. Total Disability. "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 7. General Provisions. 7.01. Obligations to Survive Termination of Employment. 12 Employee's obligations under this Agreement shall survive his termination of employment with Employer. 7.02. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity. The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 7.04. Waiver. The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement. This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 7.06. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: 13 If to Employee: If to Employer: William White Sprint Corporation Attn: Corporate Secretary 2330 Shawnee Mission Parkway Westwood, KS 66205 FAX: (913) 624-2256 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law. Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas. 7.08. Number and Gender. Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 7.09. Headings. The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 14 In Witness Whereof, the parties have caused this Agreement to be duly executed and effective as of February 8, 1999. Sprint Corporation by: /s/ Don A. Jensen Don A. Jensen, Vice President and Secretary I hereby elect to receive the following as the Stock-Based Award (check one): _____ Restricted Stock __X__ Stock Options /s/ William K. White William White, Employee 15 EX-10 6 exh10gdirectoraward.txt DIRECTOR AWARD AGREEMENT Exhibit 10(g) Award Agreement THIS AWARD AGREEMENT (the "Agreement") is entered into as of (date) (the "Grant Date"), by and between SPRINT CORPORATION, a Kansas corporation (together with its direct and indirect subsidiaries, "Sprint") and (First Name) (Last Name) (the "Director"), an outside director of Sprint's board of directors for the grant of restricted stock units with respect to Sprint's FON Common Stock, par value $2.00 per share ("FON Stock"), and Sprint's PCS Common Stock, par value $1.00 per share ("PCS Stock"). IN CONSIDERATION of the mutual covenants and agreements set forth in this Agreement, the parties agree to the following. 1. Defined Terms Incorporated from 1990 Stock Option Plan Capitalized terms used in this Award Agreement and not defined herein shall have the meanings set forth in Sprint's 1990 Stock Option Plan. 2. Grant of and Terms of Restricted Stock Units Sprint hereby grants to Director under the 1997 Long-Term Stock Incentive Program (FONRSAwarded) FON restricted stock units and (PCSRSAwarded) PCS restricted stock units, subject to the restrictions, terms, and conditions set forth in this Agreement. (a) Rights under Restricted Stock Units Each restricted stock unit (an "RSU") represents the unsecured right to require Sprint to deliver to Director one share of FON Stock for each FON RSU and one share of PCS Stock for each PCS RSU. The number of shares of stock deliverable with respect to each RSU is subject to increase on payment of dividends on the underlying class of stock as set forth in Section 2(f) of this Agreement and is subject to adjustment as determined by the Compensation Committee of Sprint's board of directors (the "Committee") to the number and kind of shares of stock deliverable upon any merger, reorganization, consolidation, recapitalization, stock dividend, spin-off, or other change in the corporate structure affecting the FON Stock or PCS Stock generally. (b) Vesting and Delivery Dates of RSUs Each RSU is assigned a "vesting date" and an "initial delivery date" on the third anniversary of the Grant Date. (c) Acceleration before Vesting Date (1) Acceleration on Death or Total Disability If Director ceases service with Sprint by reason of the Director's death or Total Disability, all outstanding but unvested RSUs shall become immediately vested. If Director's delivery date for an RSU is the same as the initial delivery date, the delivery date will also accelerate. (2) Acceleration on Certain Terminations of Service If Director fails to be elected or fails to be re-nominated to Sprint's Board, or terminates service on Sprint's board following Normal Retirement, all outstanding but unvested RSUs shall become immediately vested. If Director's delivery date for an RSU is the same as the initial delivery date, the delivery date will also accelerate. (3) Acceleration on Change in Control If on or after the first anniversary of the Grant Date, there is a Change in Control of Sprint Corporation, all outstanding but unvested RSUs shall become immediately vested. If Director's delivery date for an RSU is the same as the initial delivery date, the delivery date will also accelerate. 1 (4) Limitation on Change in Control Acceleration If acceleration pursuant to Section 2(c)(3), together with all other payments or benefits contingent on a Change in Control within the meaning of Section 280G of the Internal Revenue Code of 1986, results in any portion of the payments or benefits not being deductible by Sprint as a result of the application of Section 280G, the acceleration of vesting or other payments or benefits shall be reduced until the entire amount thereof is deductible by Sprint. The order in which such acceleration of vesting or other payments or benefits are reduced shall be at the election of the Director. (d) Forfeiture of RSUs (1) On Other Terminations of Service If Director terminates service as a director of Sprint for any reason that does not result in acceleration of vesting pursuant to Section 2(c), Director shall immediately forfeit all outstanding but unvested RSUs granted on the Grant Date. (2) On Acquiring an Interest in a Competitor If Director, without the consent of the Committee, becomes associated with (including but not limited to accepting an offer of employment or other contract with), renders services to, or owns any interest (other than an insignificant interest, as determined by the Committee) in any business that is in competition with Sprint or other business in which Sprint has a substantial interest, as determined by the Committee, the Director shall immediately forfeit all outstanding but unvested RSUs granted on the Grant Date. The decision of the Committee on any such matters shall be final and binding upon all concerned. (e) Restrictions on Transfer and Delivery on Death Director may not sell, transfer, assign, pledge, or otherwise encumber or dispose of the RSUs. Director may designate beneficiaries to receive stock if Director dies before the delivery date by so indicating on Exhibit A, which is hereby incorporated into and made a part of this agreement. If Director fails to designate beneficiaries on Exhibit A, the shares will be delivered to Director's estate. (f) Accrual of Dividend Equivalents On each date on which Sprint pays a dividend on shares of the stock underlying an RSU, the number of shares represented by each RSU will be increased by a number of whole or fractional shares equal to (a) the value of the dividend paid on the shares of stock underlying the RSU (b) divided by the Fair Market Value of one share of the underlying stock on the dividend payment date. (g) Delivery on Delivery Date As soon as practicable following the delivery date for each RSU, Sprint will deliver a certificate for the number of shares represented by all RSUs having a delivery date on the same date, and Sprint will pay Director the value of any remaining fractional share in cash in an amount equal to the Fair Market Value of one share of the underlying stock on the delivery date multiplied by the fractional share. (h) Deferral of Delivery Date Director may elect to defer the delivery date of any RSU by so electing on the attached Exhibit B. If, after execution of this Agreement, Director elects to further defer the delivery date or to defer the initial delivery date, Director may do so by delivering an election form to Sprint following the execution of this agreement at least 13 months before the then scheduled delivery date for the RSUs to which the election applies. 3. Agreement to Remain a Director As consideration for the grant of RSUs, Director agrees to remain a director of Sprint for a period of one year from the Grant Date. Nothing contained in this Agreement confers upon Director any right to membership on Sprint's board of directors, nor interferes in any way with the right of Sprint to remove Director in accordance with its articles of incorporation and bylaws at any time. 2 4. Other Terms and Conditions (a) Director's Rights as Stockholder Director shall have no rights as a stockholder with respect to the RSUs or the shares underlying them until Sprint delivers the shares to Director on the delivery date. (b) Non-Uniformity Director acknowledges and agrees that Sprint has the right to make grants with varying restrictions, terms, and conditions and is under no obligation to treat directors or employees uniformly under Sprint's equity compensation plans. (c) Incorporation of Plans To the extent not inconsistent with the provisions of this Agreement, the terms of the 1997 Long-Term Stock Incentive Program are hereby incorporated by this reference. 5. Plan Information Director hereby acknowledges having read the 1997 Long-Term Stock Incentive Program Plan Information Statements for Outside Director Restricted Stock Units. IN WITNESS WHEREOF, Sprint has caused this Agreement to be executed by its duly authorized officer and the Director has executed the same as of the Grant Date. SPRINT CORPORATION By: Authorized Officer ------------------------------------- (First Name) (Last Name), "Director" 3 EX-10 7 exh10hexecutiveaward.txt EXECUTIVE AWARD AGREEMENT Exhibit 10(h) Award Agreement THIS AWARD AGREEMENT (the "Agreement") is entered into as of (date) (the "Grant Date"), by and between SPRINT CORPORATION, a Kansas corporation (together with its direct and indirect subsidiaries, "Sprint") and (First Name) (Last Name) (the "Executive"), an employee of Sprint for the grant of options and restricted stock units with respect to Sprint's FON Common Stock, par value $2.00 per share ("FON Stock"), and Sprint's PCS Common Stock, par value $1.00 per share ("PCS Stock"). IN CONSIDERATION of the mutual covenants and agreements set forth in this Agreement, the parties agree to the following. 1. Defined Terms Incorporated from 1990 Stock Option Plan Capitalized terms used in this Award Agreement and not defined herein shall have the meanings set forth in Sprint's 1990 Stock Option Plan. 2. Grant of Stock Options Sprint hereby grants to Executive under the 1990 Stock Option Plan options to buy (FONOptionSh) shares of FON Stock at a strike price of $_______ per share and (PCSOptionSh) shares of PCS Stock at a strike price of $_______ per share (together, the "Options"). The Options become exercisable at a rate of 25% of the total number of shares subject to purchase on each of the first four anniversaries of the Grant Date and expire on the 10th anniversary of the Grant Date. The Options are governed by, and this Agreement hereby incorporates, the Standard Terms of Options set forth in Section 7.01 of the 1990 Stock Option Plan. 3. Grant of and Terms of Restricted Stock Units Sprint hereby grants to Executive under the 1997 Long-Term Stock Incentive Program (FONRSAwarded) FON restricted stock units and (PCSRSAwarded) PCS restricted stock units, subject to the restrictions, terms, and conditions set forth in this Agreement. (a) Rights under Restricted Stock Units Each restricted stock unit (an "RSU") represents the unsecured right to require Sprint to deliver to Executive one share of FON Stock for each FON RSU and one share of PCS Stock for each PCS RSU. The number of shares of stock deliverable with respect to each RSU is subject to increase on payment of dividends on the underlying class of stock as set forth in Section 3(f) of this Agreement and is subject to adjustment as determined by the Compensation Committee of Sprint's board of directors (the "Committee") to the number and kind of shares of stock deliverable upon any merger, reorganization, consolidation, recapitalization, stock dividend, spin-off, or other change in the corporate structure affecting the FON Stock or PCS Stock generally. (b) Vesting and Delivery Dates of RSUs Each RSUs is assigned a "vesting date" and an "initial delivery date" in accordance with the following schedule: Vesting Date and Initial Number of FON RSUs Number of PCS RSUs Delivery Date Vesting of shares may occur during your term of employment with Sprint or during any period during which you are receiving severance benefits pursuant to a Sprint severance plan or other severance arrangement with Sprint. 1 (c) Acceleration before Vesting Date (1) Acceleration on Death or Total Disability If Executive ceases employment with Sprint by reason of the Executive's death or total disability within the meaning of Sprint's Long-Term Disability Plan, all RSUs that are not vested at that time shall become immediately vested. If Executive's delivery date for an RSU is the same as the initial delivery date, the delivery date will also accelerate. (2) Acceleration at Age 65 If on or after the first anniversary of the Grant Date, Executive is age 65 or older, all outstanding but unvested RSUs shall become immediately vested. If Executive's delivery date for an RSU is the same as the initial delivery date, the delivery date will also accelerate. (3) Acceleration on Change in Control If on or after the first anniversary of the Grant Date, there is a Change in Control of Sprint Corporation, all outstanding but unvested RSUs shall become immediately vested. If Executive's delivery date for an RSU is the same as the initial delivery date, the delivery date will also accelerate. (4) Limitation on Change in Control Acceleration If acceleration pursuant to this Section 3(c)(3), together with all other payments or benefits contingent on a Change in Control within the meaning of Section 280G of the Internal Revenue Code of 1986, results in any portion of the payments or benefits not being deductible by Sprint as a result of the application of Section 280G, the acceleration of vesting or other payments or benefits shall be reduced until the entire amount thereof is deductible by Sprint. The order in which such acceleration of vesting or other payments or benefits are reduced shall be at the election of the Executive. (d) Forfeiture of RSUs (1) On Termination of Employment If Executive terminates employment with Sprint for any reason that does not result in acceleration of vesting pursuant to Section 3(c)(1), Executive shall immediately forfeit all unvested RSUs granted on the Grant Date. For this purpose, your termination date will be the end of any period during which you are entitled to receive payments under Sprint's separation program or other separation arrangement with Sprint. (2) On Acquiring an Interest in a Competitor If Executive, without the consent of the Committee, becomes associated with (including but not limited to accepting an offer of employment or other contract with), renders services to, or owns any interest (other than an insignificant interest, as determined by the Committee) in any business that is in competition with Sprint or other business in which Sprint has a substantial interest, as determined by the Committee, the Executive shall immediately forfeit all unvested RSUs granted on the Grant Date. The decision of the Committee on any such matters shall be final and binding upon all concerned. (e) Restrictions on Transfer and Delivery on Death Executive may not sell, transfer, assign, pledge, or otherwise encumber or dispose of the RSUs. Executive may designate beneficiaries to receive stock if Executive dies before the delivery date by so indicating on Exhibit A, which is hereby incorporated into and made a part of this agreement. If Executive fails to designate beneficiaries on Exhibit A, the shares will be delivered to Executive's estate. (f) Accrual of Dividend Equivalents On each date on which Sprint pays an ordinary cash dividend on shares of the stock underlying an RSU, the number of shares represented by each RSU will be increased by a number of whole or fractional shares equal to (a) the cash dividend per share paid on the underlying stock (b) divided by the Fair Market Value of one share of the underlying stock on the dividend payment date. 2 (g) Delivery on Delivery Date As soon as practicable following the delivery date for each RSU, Sprint will deliver a certificate for the number of shares represented by all RSUs having a delivery date on the same date, and Sprint will pay Executive the value of any remaining fractional share in cash in an amount equal to the Fair Market Value of one share of the underlying stock on the delivery date multiplied by the fractional share. (h) Deferral of Delivery Date Executive may elect to defer the delivery date of any RSU by so electing on the attached Exhibit B. If, after execution of this Agreement, Executive elects to further defer the delivery date or to defer the initial delivery date, Executive may do so by delivering an election form to Sprint following the execution of this agreement at least 13 months before the then scheduled delivery date for the RSUs to which the election applies. 4. Agreement to Remain Employed As consideration for the grant of Options and RSUs, Executive agrees to remain employed by Sprint for a period of one year from the Grant Date. Nothing contained in this Agreement confers upon Executive any right to continued employment with Sprint, nor interferes in any way with the right of Sprint to terminate Executive's employment or change the Executive's compensation at any time. 5. Other Terms and Conditions (a) Executive's Rights as Stockholder Executive shall have no rights as a stockholder with respect to the RSUs or the shares underlying them until Sprint delivers the shares to Executive on the delivery date. (b) Tax Withholding Sprint is entitled to withhold the amount of any tax attributable to the RSUs (including dividends, if any) or to the vesting or delivery of the RSUs. (c) Election to Have Sprint Withhold Shares (1) In general Executive may elect by so indicating in the space provided near the signature block to this Agreement if you want to have Sprint withhold shares on the delivery date from those otherwise deliverable to you at the then applicable required withholding rate for any federal, state, local, FICA, and Medicare taxes. If you do not elect stock withholding, you must pay your withholding obligation in cash after which Sprint will issue to you the full number of shares upon which restrictions have lapsed. (2) Excess withholding At any time before the delivery date, Executive may elect on forms provided by the Corporate Secretary of Sprint Corporation, to deliver additional shares for withholding above the minimum required withholding rate up to the Executive's marginal withholding rate. (3) FICA and Medicare withholding on vesting date If Executive elects to defer delivery beyond the vesting date for any RSU, Executive must pay any required FICA, Medicare and any other required withholding to Sprint in cash on the vesting date. (d) Non-Uniformity Executive acknowledges and agrees that Sprint has the right to make grants with varying restrictions, terms, and conditions and is under no obligation to treat employees uniformly under Sprint's stock option or other equity compensation plans. (e) Incorporation of Plans To the extent not inconsistent with the provisions of this Agreement, the terms of the 1990 Stock Option Plan are hereby incorporated by this reference. 3 6. Plan Information Executive hereby acknowledges having read the attached 1990 Stock Option and the 1997 Long-Term Stock Incentive Program Plan Information Statements for Restricted Stock Units. IN WITNESS WHEREOF, Sprint has caused this Agreement to be executed by its duly authorized officer and the Executive has executed the same as of the Grant Date. SPRINT CORPORATION By: Authorized Officer _____ By checking this box, I hereby elect to have Sprint withhold shares from those otherwise deliverable to me under this Agreement at the then applicable required withholding rate for any federal, state, local, FICA, and Medicare taxes applicable to me on the delivery date for each RSU awarded in this Award Agreement. ------------------------------------- (First Name) (Last Name), "Executive" 4 EX-12 8 exh12.txt RATIOS OF EARNINGS TO FIXED CHARGES
EXHIBIT (12) COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Sprint Corporation (Unaudited) Quarters Ended, Year-to-Date, June 30, June 30, --------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------------- (millions) Earnings Income (loss) from continuing operations before income taxes $ (2) $ 7 $ 156 $ 181 Capitalized interest (20) (27) (40) (59) Net losses in equity method investees 10 82 28 102 - -------------------------------------------------------------------------------------------------------------------- Subtotal (12) 62 144 224 - -------------------------------------------------------------------------------------------------------------------- Fixed charges Interest charges 377 420 771 771 Interest factor of operating rents 93 101 188 200 - -------------------------------------------------------------------------------------------------------------------- Total fixed charges 470 521 959 971 - -------------------------------------------------------------------------------------------------------------------- Earnings, as adjusted $ 458 $ 583 $ 1,103 $ 1,195 --------------------------------------------------------------- Ratio of earnings to fixed charges - 1.12 1.15 1.23 --------------------------------------------------------------- Note:The ratios of earnings to fixed charges were computed by dividing fixed charges into the sum of earnings (after certain adjustments) and fixed charges. Earnings include income from continuing operations before income taxes, plus net losses in equity method investees, less capitalized interest. Fixed charges include interest on all debt of continuing operations, including amortization of debt issuance costs, and the interest component of operating rents.
EX-31 9 exh31a.txt CEO 302 CERTIFICATION EXHIBIT 31(a) CERTIFICATION I, Gary D. Forsee, Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sprint Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 /s/ Gary D. Forsee ------------------------------------ Gary D. Forsee Chief Executive Officer EX-31 10 exh31b.txt CFO 302 CERTIFICATION EXHIBIT 31(b) CERTIFICATION I, Robert J. Dellinger, Executive Vice President and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sprint Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 /s/ Robert J. Dellinger ------------------------------------ Robert J. Dellinger Executive Vice President and Chief Financial Officer EX-32 11 exh32a.txt CEO 906 CERTIFICATION EXHIBIT 32(a) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the quarterly report of Sprint Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission (the "Report"), I, Gary D. Forsee, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 11, 2003 /s/ Gary D. Forsee - ---------------------------------------- ----------------------- Date Gary D. Forsee Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Sprint Corporation and will be retained by Sprint Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 12 exh32b.txt CFO 906 CERTIFICATION EXHIBIT 32(b) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the quarterly report of Sprint Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission (the "Report"), I, Robert J. Dellinger, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 11, 2003 /s/ Robert J. Dellinger - ------------------------------------------- --------------------------- Date Robert J. Dellinger Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Sprint Corporation and will be retained by Sprint Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----