DEFM14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
VIRGIN MOBILE USA, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
o Fee paid previously with preliminary materials.
o Check box if any part of the
fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid
previously. Identify the previous filing
by registration statement number, or the
Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
As we previously announced, Virgin Mobile USA, Sprint Nextel
Corporation and Sprint Mozart, Inc., a wholly-owned subsidiary
of Sprint Nextel, entered into a merger agreement, dated as of
July 27, 2009, which provides for a merger in which Virgin
Mobile USA will become a wholly-owned subsidiary of Sprint
Nextel.
Subject to stockholder approval as described in the accompanying
proxy statement/prospectus and satisfaction or waiver of the
other conditions specified in the merger agreement, in
connection with the merger:
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all stockholders of Virgin Mobile USA, excluding Sprint Nextel
and the other stockholders identified in the following two
paragraphs, will be entitled to receive a number of shares of
Series 1 common stock of Sprint Nextel, which we refer to
as Sprint Nextel common stock, for each outstanding share of
Virgin Mobile USAs Class A common stock that they
own, and cash in lieu of fractional shares, based on the
exchange ratio described below;
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Corvina Holdings Limited and Cortaire Limited and any of their
respective affiliates to which any Virgin Mobile USA shares are
transferred, which we refer to collectively as the Virgin Group,
will be entitled to receive a number of shares of Sprint Nextel
common stock for each outstanding share of Class A common
stock and Virgin Mobile USAs Class C common stock
that they own, and cash in lieu of fractional shares, based on
the exchange ratio multiplied by 93.09%;
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SK Telecom Co., Ltd. and any of its affiliates to which any
Virgin Mobile USA shares are transferred, which we refer to
collectively as SK Telecom, will be entitled to receive a number
of shares of Sprint Nextel common stock for each outstanding
share of Class A common stock that they own, and cash in
lieu of fractional shares, based on the exchange ratio
multiplied by 89.84%;
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the Virgin Group and SK Telecom will be entitled to receive a
number of shares of Sprint Nextel common stock for each
outstanding share of Virgin Mobile USAs preferred stock
that they own, and cash in lieu of fractional shares, equal to
the number of shares of Class A common stock into which
each share of preferred stock is convertible, multiplied by
(1) in the case of the Virgin Group, the exchange ratio
multiplied by 93.09%, and (2) in the case of SK Telecom,
the exchange ratio multiplied by 89.84%; and
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the Virgin Group and SK Telecom will be entitled to receive
consideration in connection with certain contractual obligations
of Virgin Mobile USA, which consideration will be payable in
cash or Sprint Nextel common stock, at Sprint Nextels
election, as described in the accompanying proxy
statement/prospectus.
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The exchange ratio will be equal to the number determined by
dividing $5.50 by the average of the closing prices of the
Sprint Nextel common stock on the New York Stock Exchange for
the 10 trading days ending on the second trading day immediately
preceding the effective time of the merger. However, in no event
will the exchange ratio be less than 1.0630 or greater than
1.3668.
We are asking you to vote to adopt the merger agreement at the
Special Meeting of Stockholders of Virgin Mobile USA. The Virgin
Mobile USA board of directors has approved and declared
advisable the merger agreement and the transactions contemplated
by the merger agreement and has determined that the merger
agreement and the transactions contemplated by the merger
agreement, including the merger, are fair to, and in the best
interests of, Virgin Mobile USA and its stockholders.
Therefore, the Virgin Mobile USA board of directors
recommends that you vote FOR the adoption of the
merger agreement.
The Sprint Nextel common stock and Virgin Mobile USA
Class A common stock are traded on the New York Stock
Exchange under the symbols S and VM,
respectively. On October 22, 2009, the closing sale price
of Sprint Nextel common stock was $3.38 per share, and the
closing sale price of Virgin Mobile USA Class A common
stock was $4.50 per share.
Your vote is very important. As a condition to
the completion of the merger, an affirmative vote of holders of
a majority of the combined voting power of the outstanding
shares of Virgin Mobile USAs Class A common stock,
Class B common stock, Class C common stock and
preferred stock entitled to vote on the proposal, voting
together as a single class, is required. The Virgin Group and SK
Telecom have agreed to vote a portion of the Virgin Mobile USA
shares owned by them that, when aggregated with the shares owned
by Sprint Nextel, comprise approximately 40% of the outstanding
voting power of Virgin Mobile USA, in favor of the adoption of
the merger agreement, and may vote their remaining shares in
favor of the adoption of the merger agreement as well.
The obligations of Sprint Nextel and Virgin Mobile USA to
complete the merger are subject to a number of conditions set
forth in the merger agreement and summarized in the accompanying
proxy statement/prospectus. More information about Sprint
Nextel, Virgin Mobile USA, the special meeting and the merger is
contained in the accompanying proxy statement/prospectus. You
are encouraged to read carefully the accompanying proxy
statement/prospectus in its entirety, including the section
titled Risk Factors beginning on page 23.
If you have any questions about the merger or need assistance
voting your shares, please call Innisfree M&A Incorporated,
which is assisting Virgin Mobile USA with the solicitation of
proxies, toll-free at
(888) 750-5834
or call collect at
(212) 750-5833.
Sincerely,
Daniel H. Schulman
Chief Executive Officer and
Director
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued under the accompanying proxy
statement/prospectus or determined that the accompanying proxy
statement/prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
The accompanying proxy statement/prospectus is dated
October 23, 2009 and is first being mailed to the
stockholders of Virgin Mobile USA on or about October 23,
2009.
Virgin
Mobile USA, Inc.
10 Independence Boulevard
Warren, New Jersey 07059
Notice of Special Meeting of
Stockholders
To the Stockholders of Virgin Mobile USA, Inc.:
Notice Is Hereby Given that a Special Meeting of Stockholders of
Virgin Mobile USA, Inc., a Delaware corporation, will be held on
November 24, 2009 at 9:00 a.m., local time, at the
Courtyard by Marriott Basking Ridge, 595 Martinsville Road,
Basking Ridge, New Jersey 07920, for the following purpose:
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To consider and vote on a proposal to adopt the Agreement and
Plan of Merger, dated as of July 27, 2009 (as it may be
amended from time to time, the merger agreement),
among Sprint Nextel Corporation, Sprint Mozart, Inc., a
wholly-owned subsidiary of Sprint Nextel, and Virgin Mobile USA,
a copy of which is attached as Annex A to the proxy
statement/prospectus accompanying this notice; and
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To approve the adjournment of the meeting, if necessary or
appropriate, to solicit additional proxies if there is an
insufficient number of votes at the meeting to approve the
proposal described above.
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The foregoing items of business are more completely described in
the proxy statement/prospectus accompanying this Notice. The
Virgin Mobile USA board of directors has determined that the
merger agreement and the transactions contemplated by the merger
agreement, including the merger, are advisable and are fair to,
and in the best interests of, Virgin Mobile USA and its
stockholders and recommends that Virgin Mobile USA stockholders
vote FOR the proposal to adopt the merger agreement.
In addition, the Virgin Mobile USA board of directors
recommends that you vote FOR the proposal to adjourn
the meeting, if necessary, to permit further solicitation of
proxies for the adoption of the merger agreement.
The Virgin Mobile USA board of directors has chosen the close of
business on October 22, 2009 as the record date
that will determine the stockholders who are entitled to receive
notice of, and to vote at, the meeting or at any adjournment or
postponement of the meeting. A list of the names of Virgin
Mobile USA stockholders of record will be available at the
meeting and for 10 days prior to the meeting for any
purpose germane to the meeting during regular business hours at
Virgin Mobile USAs principal executive offices,
10 Independence Boulevard, Warren, New Jersey 07059.
All holders of record of outstanding shares of capital stock of
Virgin Mobile USA at the close of business on the record date
are entitled to receive notice of, and to vote at, the special
meeting and any adjournment or postponement thereof. Adoption of
the merger agreement by Virgin Mobile USAs stockholders is
a condition to the merger and requires the affirmative vote of
holders of a majority of the combined voting power of all
outstanding shares entitled to vote on the proposal, voting
together as a single class.
As authorized by the board of
directors,
Peter Lurie
General Counsel and Corporate
Secretary
Warren, New Jersey
October 23, 2009
YOUR VOTE
IS IMPORTANT!
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, WE
URGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE
(1) THROUGH THE INTERNET, (2) BY TELEPHONE, OR
(3) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD
AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You
may revoke your proxy at any time before the meeting. If your
shares are held in the name of a bank, broker or other
fiduciary, please follow the instructions on the voting
instruction card furnished to you by the record holder.
The accompanying proxy statement/prospectus provides a detailed
description of the merger and the merger agreement to be
considered at the meeting. We urge you to read the accompanying
proxy statement/prospectus, including any documents incorporated
by reference into the accompanying proxy statement/prospectus,
and its annexes carefully and in their entirety. If you have any
questions concerning the merger or the accompanying proxy
statement/prospectus, would like additional copies of the
accompanying proxy statement/prospectus or need help voting your
Virgin Mobile USA shares, please contact Virgin Mobile
USAs proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue,
20th
Floor
New York, NY 10022
Telephone:
(888) 750-5834
Important Notice Regarding the Availability of Proxy
Materials for Virgin Mobile USAs Special Meeting of
Stockholders to Be Held on November 24, 2009: The
accompanying proxy statement/prospectus is available at
http://investorrelations.virginmobileusa.com.
ADDITIONAL
INFORMATION
This accompanying proxy statement/prospectus incorporates
important business and financial information about Sprint Nextel
and Virgin Mobile USA from other documents that are not included
in or delivered with the proxy statement/prospectus. This
information is available to you without charge upon your
request. You can obtain the documents incorporated by reference
into the proxy statement/prospectus by requesting them in
writing or by telephone from the appropriate company at the
following addresses and telephone numbers:
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Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, KS 66251
Attn: Investor Relations
Telephone:
(800) 259-3755
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Virgin Mobile USA, Inc.
10 Independence Boulevard
Warren, NJ 07059
Attn: General Counsel and
Corporate Secretary
Telephone: (908) 607-4000
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In addition, if you have questions about the merger or the proxy
statement/prospectus, would like additional copies of the proxy
statement/prospectus or need to obtain proxy cards or other
information related to the proxy solicitation, you may contact
Innisfree M&A Incorporated, Virgin Mobile USAs proxy
solicitor, at the address and telephone number listed below. You
will not be charged for any documents that you request.
Innisfree
M&A Incorporated
501 Madison Avenue,
20th
Floor
New York, NY 10022
Telephone:
(888) 750-5834
In order to receive timely delivery of the documents in
advance of the Special Meeting of Stockholders, you must request
the information no later than November 17, 2009.
For more information, see Where You Can Find More
Information beginning on page 141.
TABLE OF
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A-i
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B-1
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iv
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
The following are some questions that you, as a stockholder
of Virgin Mobile USA, may have regarding the merger being
considered at Virgin Mobile USAs Special Meeting of
Stockholders, which we refer to as the meeting or the special
meeting, and the answers to those questions. You are urged to
carefully read this proxy statement/prospectus and the other
documents referred to in this proxy statement/prospectus in
their entirety because the information in this section does not
provide all of the information that might be important to you
with respect to the merger and the special meeting. Additional
important information is contained in the annexes to, and the
documents incorporated by reference into, this proxy
statement/prospectus. In evaluating the merger, the merger
agreement and the Sprint Nextel common stock to be received in
connection with the merger, you should carefully read this proxy
statement/prospectus and especially consider the factors
discussed in the section entitled Risk Factors.
In this proxy statement/prospectus, unless stated otherwise
or the context otherwise requires, the terms the
company, we, our, ours
and us refer to Sprint Nextel and/or Virgin Mobile
USA and their respective subsidiaries, as applicable in the
context. Throughout this proxy statement/prospectus, we refer to
Sprint Nextels Series 1 common stock, par value $2.00
per share, as Sprint Nextel common stock; Virgin Mobile
USAs Class A common stock, par value $0.01 per share,
as Class A common stock; Virgin Mobile USAs
Class B common stock, par value $0.01 per share, as
Class B common stock; Virgin Mobile USAs Class C
common stock, par value $0.01 per share, as Class C common
stock; Virgin Mobile USAs Series A convertible
preferred stock, par value $0.01 per share, as preferred stock;
and the shares of Class A common stock, Class B common
stock, Class C common stock and preferred stock
collectively as Virgin Mobile USA shares. In addition, we refer
to Virgin Mobile USA, L.P. as the Operating Partnership; Corvina
Holdings Limited and Cortaire Limited and any of their
respective affiliates to which they transfer any Virgin Mobile
USA shares collectively as the Virgin Group; and SK Telecom Co.,
Ltd. and any of its affiliates to which it transfers any Virgin
Mobile USA shares collectively as SK Telecom.
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Why am I receiving this document? |
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Sprint Nextel and Virgin Mobile USA have agreed to a merger,
pursuant to which Virgin Mobile USA will become a wholly-owned
subsidiary of Sprint Nextel and will no longer be a publicly
held corporation. In the merger, Sprint Nextel will issue shares
of Sprint Nextel common stock as the consideration to be paid to
holders of Class A common stock, Class C common stock
and preferred stock. In order to complete the merger, Virgin
Mobile USA stockholders must vote to adopt the merger agreement,
which is attached to this proxy statement/prospectus as
Annex A. |
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We are delivering this document to you as both a proxy statement
of Virgin Mobile USA and a prospectus of Sprint Nextel. It is a
proxy statement because the Virgin Mobile USA board of directors
is soliciting proxies from its stockholders to vote on the
adoption of the merger agreement at Virgin Mobile USAs
special meeting of stockholders, and your proxy will be used at
the meeting as scheduled or following any adjournment or
postponement of the meeting. It is a prospectus because Sprint
Nextel will issue shares of Sprint Nextel common stock to Virgin
Mobile USA stockholders in connection with the merger. |
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What am I being asked to vote on? |
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Virgin Mobile USA stockholders are being asked to vote on the
following proposals: |
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to adopt the merger agreement among Virgin Mobile
USA, Sprint Nextel and Sprint Mozart, Inc., a wholly-owned
subsidiary of Sprint Nextel; and
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to approve the adjournment of the meeting, if
necessary or appropriate, to solicit additional proxies if there
is an insufficient number of votes to adopt the merger agreement
at the time of the meeting.
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Are there any other matters to be addressed at the
meeting? |
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We know of no other matters to be brought before the meeting,
but if other matters are brought before the meeting or at any
adjournment or postponement of the meeting, the officers named
in your proxy intend to take any action as in their judgment is
in the best interest of Virgin Mobile USA and its stockholders. |
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What is a proxy and how do I vote? |
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A proxy is a legal designation of another person to vote your
shares on your behalf. If you hold Virgin Mobile USA shares in
your own name, you may submit a proxy for your shares by using
the toll-free number or the Internet web site if your proxy card
includes instructions for using these quick, cost-effective and
easy methods for submitting proxies. You also may submit a proxy
in writing by simply filling out, signing and dating your proxy
card and mailing it in the prepaid envelope included with these
proxy materials. If you submit a proxy by telephone or the
Internet web site, please do not return your proxy card by mail.
You will need to follow the instructions when you submit a proxy
using any of these methods to make sure your shares will be
voted at the meeting. You also may vote by submitting a ballot
in person if you attend the meeting. However, we encourage you
to submit a proxy by mail by completing your proxy card, by
telephone or via the Internet even if you plan to attend the
meeting. |
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If you hold Virgin Mobile USA shares through a broker or other
nominee, you may instruct your broker or other nominee to vote
your shares by following the instructions that the broker or
nominee provides to you with these materials. Most brokers offer
the ability for stockholders to submit voting instructions by
mail by completing a voting instruction card, by telephone and
via the Internet. If you hold shares through a broker or other
nominee and wish to vote your shares at the meeting, you must
obtain a legal proxy from your broker or nominee and present it
to the inspector of election with your ballot when you vote at
the meeting. |
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When and where will the meeting be held? |
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The meeting will be held on November 24, 2009 at
9 a.m., local time, at the Courtyard by Marriott Basking
Ridge, 595 Martinsville Road, Basking Ridge,
New Jersey 07920. |
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Who is entitled to vote at the meeting? |
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All holders of Virgin Mobile USAs outstanding shares
(which includes all shares of Class A common stock,
Class B common stock, Class C common stock and
preferred stock) who hold shares at the close of business on the
record date (October 22, 2009) are entitled to receive
notice of, and to vote at, the meeting, provided that the shares
remain outstanding on the date of the meeting. |
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Q: |
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How will abstentions be counted? |
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A: |
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For the proposal to adopt the merger agreement, abstentions
have the same effect as a vote against the merger. For the
proposal to adjourn the meeting to solicit additional proxies,
abstentions are treated as present and entitled to vote at the
meeting and therefore have the same effect as a vote against the
matter. |
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Q: |
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Why is my vote important? |
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A: |
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If you do not submit a proxy or vote in person at the meeting,
it will be more difficult for us to obtain the necessary quorum
to hold the meeting. In addition, your failure to submit a proxy
or to vote in person will have the same effect as a vote against
the adoption of the merger agreement. If you hold your shares
through a broker, your broker will not be able to cast a vote on
the adoption of the merger agreement without instructions from
you. |
2
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The Virgin Mobile USA board of directors recommends that you
vote FOR the adoption of the merger agreement. |
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Q: |
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Are votes confidential? |
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A: |
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The votes of all stockholders will be held in confidence from
directors, officers and employees of Virgin Mobile USA except: |
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as necessary to meet applicable legal requirements
and to assert or defend claims for or against Virgin Mobile USA;
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in the case of a contested proxy solicitation;
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if a stockholder submits a written comment or
otherwise communicates his or her vote to management; or
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to allow the independent inspectors of election to
certify the results of the vote.
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Q: |
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How will my shares be represented at the meeting? |
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A: |
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At the meeting, the officers named in your proxy card will vote
your shares in the manner you requested if you correctly
submitted your proxy. If you sign your proxy card and return it
without indicating how you would like to vote your shares, your
proxy will be voted as the Virgin Mobile USA board of directors
recommends, which is: |
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FOR the adoption of the merger agreement; and
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FOR the approval of the adjournment of the meeting,
if necessary or appropriate, to solicit additional proxies if
there is an insufficient number of votes to adopt the merger
agreement at the time of the meeting.
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Q: |
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What happens if I sell my shares after the record date but
before the meeting? |
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A: |
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The record date of the meeting is earlier than the date of the
meeting and the date that the merger is expected to be
completed. If you transfer your Virgin Mobile USA shares after
the record date but before the date of the meeting, you will
retain your right to vote at the meeting (provided that the
shares remain outstanding on the date of the meeting), but you
will not have the right to receive the merger consideration to
be received by Virgin Mobile USA stockholders in the merger. In
order to receive the merger consideration, you must hold your
shares through the completion of the merger. |
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Q: |
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What do I do if I receive more than one proxy
statement/prospectus or set of voting instructions? |
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A: |
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If you hold shares directly as a record holder and also in
street name, or otherwise through a nominee, you may
receive more than one proxy statement/prospectus and/or set of
voting instructions relating to the meeting. These should each
be voted and/or returned separately in order to ensure that all
of your shares are voted. |
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Q: |
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If my shares of Virgin Mobile USA common stock are held in
street name by my broker, will my broker automatically vote my
shares for me? |
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A: |
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No. If your shares are held in an account at a broker,
you must instruct the broker on how to vote your shares. If you
do not provide voting instructions to your broker, your shares
will not be voted on any proposal on which your broker does not
have discretionary authority to vote. This is called a broker
non-vote. In these cases, the broker can register your shares as
being present at the meeting for purposes of |
3
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determining the presence of a quorum but will not be able to
vote on those matters for which specific authorization is
required. Under the current rules of the New York Stock
Exchange, which we refer to as the NYSE, brokers do not have
discretionary authority to vote on the proposal to adopt the
merger agreement. A broker non-vote will have the same effect as
a vote against adoption of the merger agreement. |
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Q: |
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Can I change my vote after I have delivered my proxy? |
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A: |
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Yes. You may revoke your proxy and change your vote at
any time before the meeting. If you are a stockholder of record,
you can revoke your proxy before it is exercised by written
notice to the Corporate Secretary of Virgin Mobile USA, by
timely delivery of a valid, later-dated proxy card or a
later-dated proxy submitted by telephone or via the Internet, or
by voting by ballot in person if you attend the meeting. Simply
attending the meeting will not revoke your proxy. If you hold
shares through a broker or other nominee, you may submit new
voting instructions by contacting your broker or other nominee. |
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Q: |
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Who may attend the meeting? |
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A: |
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Virgin Mobile USA stockholders (or their authorized
representatives) and Virgin Mobile USAs invited guests may
attend the meeting. Verification of stock ownership will be
required at the meeting. If you hold your Virgin Mobile USA
shares in your own name or hold them through a broker (and can
provide documentation showing ownership such as a letter from
your broker or a recent account statement) at the close of
business on the record date, you will be permitted to attend the
meeting. Stockholders may call Virgin Mobile USAs
Corporate Secretary at
(908) 607-4100
to obtain directions to the meeting. |
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Q: |
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Will cameras and recording devices be permitted at the
meeting? |
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A: |
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No. Stockholders are not permitted to bring cameras or
recording equipment into the meeting room. |
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Q: |
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Will a proxy solicitor be used? |
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A: |
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Yes. Virgin Mobile USA has engaged Innisfree M&A
Incorporated, which we refer to as Innisfree, to assist in the
solicitation of proxies for the meeting and Virgin Mobile USA
estimates that it will pay Innisfree a fee of approximately
$20,000. Virgin Mobile USA has also agreed to reimburse
Innisfree for reasonable
out-of-pocket
expenses and disbursements incurred in connection with the proxy
solicitation and to indemnify Innisfree against certain losses,
costs and expenses. In addition, our officers and employees may
request the return of proxies by telephone or in person, but no
additional compensation will be paid to them. |
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Q: |
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Whom should I call with questions? |
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A: |
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Virgin Mobile USA stockholders should call Innisfree, Virgin
Mobile USAs proxy solicitor, toll-free at
(888) 750-5834
or collect at
(212) 750-5833
with any questions about the merger, or to obtain additional
copies of this proxy statement/prospectus or additional proxy
cards. |
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Q: |
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Do I need to do anything now in order to exchange my Virgin
Mobile USA shares for shares of Sprint Nextel common stock? |
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A: |
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No. After the completion of the merger, Sprint Nextel
will send you a letter indicating any documents that may be
required from you and the number of shares of Sprint Nextel
common stock and amount of cash in lieu of fractional shares, if
any, that you will receive in exchange for your Virgin Mobile
USA shares. Because Virgin Mobile USA does not have
certificated shares, the exchange will occur electronically
without any issuance or delivery of physical stock certificates
or any action by stockholders. The shares of Sprint Nextel
common stock you receive in the merger will be issued in
book-entry form. For further discussion, see The
Merger Manner and Procedure for Exchanging Virgin
Mobile USA Shares; No Fractional Shares. |
4
SUMMARY
This summary highlights selected information contained in
this proxy statement/prospectus. It may not contain all of the
information that is important to you. You are urged to carefully
read the entire proxy statement/prospectus and the other
documents referred to in this proxy statement/prospectus in
their entirety because the information in this section does not
provide all of the information that might be important to you
with respect to the merger agreement and the merger. See
Where You Can Find More Information beginning on
page 141. Each item in this summary refers to the page of
this proxy statement/prospectus on which that subject is
discussed in more detail.
Information
about the Companies (page 31)
Sprint
Nextel Corporation
Sprint Nextel Corporation, a Kansas corporation, is a global
communications company offering a comprehensive range of
wireless and wireline communications products and services that
are designed to meet the needs of its targeted customer groups:
individuals, small- to mid-sized businesses, large enterprises
and government customers. Sprint Nextel has organized its
operations to meet the needs of its targeted customer groups
through focused communications solutions that incorporate the
capabilities of its wireless and wireline services. Sprint
Nextel is one of the three largest wireless companies in the
United States based on the number of wireless subscribers.
Sprint Nextel owns extensive wireless networks and a global long
distance, Tier 1 Internet backbone.
The Sprint Nextel common stock is listed on the NYSE under the
symbol S. The principal executive offices of Sprint
Nextel are located at 6200 Sprint Parkway, Overland Park, Kansas
66251, and its telephone number is
(800) 829-0965.
Additional information about Sprint Nextel is included in
documents incorporated by reference into this proxy
statement/prospectus. See Where You Can Find More
Information beginning on page 141.
Sprint
Mozart, Inc.
Sprint Mozart, Inc., which we sometimes refer to as Merger Sub
or Sprint Mozart, is a direct wholly-owned subsidiary of Sprint
Nextel formed solely for the purpose of consummating the merger.
Sprint Mozart has not carried on any activities to date, except
for activities incidental to its formation and activities
undertaken in connection with the transactions contemplated by
the merger agreement. The principal executive offices of Sprint
Mozart are located at 6200 Sprint Parkway, Overland Park, Kansas
66251, and its telephone number is
(800) 829-0965.
Virgin
Mobile USA, Inc.
Virgin Mobile USA, Inc., a Delaware corporation, through its
subsidiary, the Operating Partnership, is a leading national
provider of wireless communications services, offering prepaid
and postpaid services. Customers are attracted to Virgin Mobile
USAs products and services because of its flexible terms,
easy to understand and value-oriented pricing structures,
stylish handsets offered at affordable prices and relevant
mobile data and entertainment content. Virgin Mobile USAs
prepaid product and service offerings have no annual contract or
credit check and they attract a wide range of customers,
approximately half of whom are ages 35 and under. Virgin
Mobile USAs voice and data plans allow customers to talk,
use text messaging, picture messaging, email and instant
messaging on a per usage basis or according to the terms of
monthly hybrid plans.
5
Virgin Mobile USAs Class A common stock is listed on
the NYSE under the symbol VM. The principal
executive offices of Virgin Mobile USA are located at 10
Independence Boulevard, Warren, New Jersey 07059, and its
telephone number is
(908) 607-4000.
Additional information about Virgin Mobile USA and its
subsidiaries is included in documents incorporated by reference
into this proxy statement/prospectus. See Where You Can
Find More Information beginning on page 141.
The
Merger (page 35)
Sprint Nextel, Virgin Mobile USA and Merger Sub entered into the
merger agreement on July 27, 2009. Subject to the terms and
conditions of the merger agreement, Merger Sub will be merged
with and into Virgin Mobile USA, with Virgin Mobile USA
continuing as the surviving corporation. Upon the completion of
the merger, Virgin Mobile USA will be a wholly-owned subsidiary
of Sprint Nextel, and all shares of Virgin Mobile USA
(comprised of shares of Class A common stock, Class B
common stock, Class C common stock and preferred stock)
will no longer be outstanding and Class A common stock will
no longer be publicly traded.
A copy of the merger agreement is attached as
Annex A to this proxy statement/prospectus. You are
encouraged to read the merger agreement carefully in its
entirety because it is the legal agreement that governs the
merger.
Merger
Consideration (page 81)
Subject to stockholder approval as described in this proxy
statement/prospectus and satisfaction or waiver of the other
conditions specified in the merger agreement, in connection with
the merger:
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all stockholders of Virgin Mobile USA, excluding the Virgin
Group, SK Telecom and Sprint Nextel, will be entitled to receive
a number of shares of Sprint Nextel common stock for each
outstanding share of Class A common stock that they own,
and cash in lieu of fractional shares, based on the exchange
ratio described below;
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the Virgin Group will be entitled to receive a number of shares
of Sprint Nextel common stock for each outstanding share of
Class A common stock and Class C common stock that it
owns, and cash in lieu of fractional shares, based on the
exchange ratio multiplied by 93.09%;
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SK Telecom will be entitled to receive a number of shares of
Sprint Nextel common stock for each outstanding share of
Class A common stock that it owns, and cash in lieu of
fractional shares, based on the exchange ratio multiplied by
89.84%;
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the Virgin Group and SK Telecom will be entitled to receive a
number of shares of Sprint Nextel common stock for each
outstanding share of preferred stock that they own, and cash in
lieu of fractional shares, equal to the number of shares of
Class A common stock into which each share of preferred stock is
convertible, multiplied by (1) in the case of the Virgin
Group, the exchange ratio multiplied by 93.09%, and (2) in
the case of SK Telecom, the exchange ratio multiplied by
89.84%; and
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the Virgin Group and SK Telecom will be entitled to receive
consideration in connection with certain contractual obligations
of Virgin Mobile USA, which consideration will be payable in
cash or Sprint Nextel common stock, at Sprint Nextels
election, as described in this proxy statement/prospectus.
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The exchange ratio will be equal to the number determined by
dividing $5.50 by the average of the closing prices of Sprint
Nextel common stock on the NYSE for the 10 trading days ending
on the second
6
trading day immediately preceding the effective time of the
merger, which we refer to as the Average Parent Stock Price.
However, in no event will the exchange ratio be less than 1.0630
or greater than 1.3668.
Sprint Nextel will not issue any fractional shares of Sprint
Nextel common stock in the merger. Instead, a Virgin Mobile USA
stockholder who otherwise would have received a fraction of a
share of Sprint Nextel common stock will receive an amount in
cash rather than a fractional share.
As described above, the Virgin Group and SK Telecom agreed to
receive a number of shares of Sprint Nextel common stock in
respect of each of their Virgin Mobile USA shares that is less
than the number of shares of Sprint Nextel common stock that
will be received by Virgin Mobile USAs unaffiliated
stockholders with respect to each of their Virgin Mobile USA
shares. This agreement was the result of a negotiation process
in which a special committee of the board of directors of Virgin
Mobile USA, which we refer to as the Transaction Committee,
sought, and Sprint Nextel agreed to, an increase in the per
share consideration to unaffiliated stockholders. Sprint
Nextels agreement with respect to that increase was based
upon the agreement of the Virgin Group and SK Telecom to accept
a reduction in the per share consideration applicable to their
shares, as well as the Virgin Groups agreement to a
reduction in the amount payable to it under a termination and
mutual release agreement dated July 27, 2009, by and among
Virgin Mobile USA, Sprint Nextel and the Virgin Group, which we
refer to as the tax receivable termination agreement. See
The Merger Voting Agreements and Other
Transaction Agreements Tax Receivable Termination
Agreement. For further discussion of these negotiations,
see The Merger Background of the Merger.
The following table sets forth the number of shares of Sprint
Nextel common stock that the stockholders of Virgin Mobile USA
would receive for each outstanding Virgin Mobile USA share they
own and that the Virgin Group and SK Telecom would receive with
respect to the contractual obligations of Virgin Mobile USA,
assuming that the merger had been completed as of
October 22, 2009 (the latest practicable date prior to the
date of this proxy statement/prospectus) and that Sprint Nextel
had elected to pay in shares of Sprint Nextel common stock the
obligations under the tax receivable termination agreement, a
payoff and termination agreement dated July 27, 2009, by
and among the Operating Partnership, Sprint Nextel, Virgin
Entertainment and SK Telecom, which we refer to as the payoff
agreement, and a second amended and restated trademark license
agreement, dated July 27, 2009, by and among Virgin
Enterprises Limited, an affiliate of the Virgin Group, which we
refer to as Virgin Enterprises, and the Operating Partnership,
which we refer to as the amended trademark license agreement
(see The Merger Voting Agreements and Other
Transaction Agreements Payoff Agreement and
The Merger Voting Agreements and Other
Transaction Agreements Amended Trademark License
Agreement):
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Number of Shares of Sprint Nextel
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Stockholder
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Common Stock
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Public
stockholders(1)
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Per share of Class A common stock
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1.3668
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The Virgin Group
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Per share of Class A common stock
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1.2724
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Per share of Class C common stock
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1.2724
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Per share of preferred stock
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149.6941
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Contractual
obligations(2)
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27,204,277
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SK Telecom
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Per share of Class A common stock
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1.2279
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Per share of preferred stock
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144.4588
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Contractual
obligations(3)
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3,423,539
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Sprint Nextel
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0
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(1) |
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Excludes the Virgin Group, SK Telecom and Sprint Nextel. |
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(2) |
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Consists of 9,781,540, 13,821,944 and 3,600,793 shares of
Sprint Nextel common stock issuable to the Virgin Group by
Sprint Nextel under the payoff agreement, tax receivable
termination agreement and |
7
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amended trademark license agreement, respectively. If Sprint
Nextel had elected to pay these obligations in cash instead of
stock, the amounts payable under the payoff agreement, tax
receivable termination agreement and amended trademark license
agreement would have been approximately $34,499,494, $48,750,000
and $12,700,000, respectively. |
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(3) |
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Represents shares of Sprint Nextel common stock issuable to SK
Telecom by Sprint Nextel under the payoff agreement. If Sprint
Nextel had elected to pay this obligation in cash instead of
stock, the amount payable under the payoff agreement would have
been $12,074,823. |
As discussed above, the Average Parent Stock Price to be used to
determine the actual merger consideration will be based on the
period preceding the effective time of the merger. In addition,
the amounts payable to the Virgin Group and SK Telecom under the
payoff agreement and tax receivable termination agreement, as
applicable, will be determined as of the closing date of the
merger. As a result, the actual amount of consideration,
including the number of shares of Sprint Nextel common stock to
be issued, will not be determined until immediately preceding
the closing of the merger and may differ from the amounts
specified above.
Virgin
Mobile USAs Reasons for the Merger; Recommendation of the
Virgin Mobile USA Board of Directors (page 48)
The Virgin Mobile USA board of directors believes that the
merger agreement and the merger are advisable and fair to, and
in the best interests of, Virgin Mobile USA and its stockholders
and has approved the merger and the merger agreement. The
Virgin Mobile USA board of directors recommends that Virgin
Mobile USA stockholders vote FOR adoption of the
merger agreement.
For the factors considered by the Virgin Mobile USA board of
directors in reaching its decision to approve the merger
agreement, see The Merger Virgin Mobile
USAs Reasons for the Merger; Recommendation of the Virgin
Mobile USA Board of Directors.
Opinion
of Virgin Mobile USAs Financial Advisor
(page 52)
In connection with the merger, the Transaction Committee
received an opinion, dated July 27, 2009, from Deutsche
Bank Securities Inc., which we refer to as Deutsche Bank, as to
the fairness, from a financial point of view and as of the date
of the opinion, of the merger consideration to be received by
holders of Class A common stock, excluding Sprint Nextel,
the Virgin Group, SK Telecom and their affiliates. The full text
of Deutsche Banks written opinion, which sets forth, among
other things, the procedures followed, assumptions made, matters
considered, and limitations, qualifications and conditions of
the review undertaken in rendering its opinion, is attached as
Annex B to this proxy statement/prospectus. The
opinion was directed to the Transaction Committee and addresses
only the fairness, from a financial point of view, of the merger
consideration to be received by holders of Class A common
stock, excluding Sprint Nextel, the Virgin Group, SK Telecom and
their affiliates. The opinion does not address any other aspect
of the proposed merger and does not constitute a recommendation
to any stockholder as to how the stockholder should vote or act
with respect to any matters relating to the merger agreement.
Sprint
Nextels Reasons for the Merger (page 60)
After careful consideration, the Sprint Nextel board of
directors approved the merger agreement and the merger. For the
factors considered by the Sprint Nextel board of directors in
reaching its decision to approve the merger agreement, see
The Merger Sprint Nextels Reasons for
the Merger.
Board of
Directors of Sprint Nextel Following Completion of the Merger
(page 69)
There are no changes to the composition of the Sprint Nextel
board of directors contemplated in connection with the merger.
Information about the current Sprint Nextel directors and
executive officers can be found in the documents listed under
Where You Can Find More Information.
8
Interests
of Certain Persons in the Merger (page 63)
In considering the recommendation of the Virgin Mobile USA board
of directors with respect to the merger agreement, stockholders
should be aware that members of the Virgin Mobile USA board of
directors and Virgin Mobile USAs executive officers, as
well as the strategic stockholders of Virgin Mobile USA, have
interests in the merger that may be different from, or in
addition to, the interests of Virgin Mobile USA stockholders
generally. For the executive officers, the completion of the
merger will result in, among other things, the conversion of
certain outstanding and unexercised Virgin Mobile USA stock
options and other equity-based awards into stock options and
other equity-based awards of Sprint Nextel, the modification of
certain performance-based vesting conditions and the payment of
certain severance benefits in the event the executive officer
were to be involuntarily terminated without cause or were to
voluntarily terminate employment for good reason
within a specified period of the transaction date. For Virgin
Mobile USAs non-employee directors, the completion of the
merger will result in the acceleration of all of their unvested
and outstanding equity-based awards. For the approximate value
of the potential benefits that could be received by the
executive officers and the directors, see The
Merger Interests of Certain Persons in the
Merger Effect on Equity-Based Awards Outstanding
Under the Omnibus Plan. The members of the Virgin Mobile
USA board of directors were aware of these interests, and
considered them, when they approved the merger agreement.
For further discussion, see The Merger
Interests of Certain Persons in the Merger.
Treatment
of Virgin Mobile USA Stock Options and Other Equity-Based Awards
(pages 70 and 82)
Stock Options. Each Virgin Mobile USA stock
option granted under Virgin Mobile USAs 2007 Omnibus
Incentive Compensation Plan, which we refer to as the Omnibus
Plan, outstanding as of the effective time of the merger under
which the option price to purchase a share of Class A
common stock exceeds the fair market value of a share of
Class A common stock immediately prior to the effective
time of the merger will be canceled without payment or
consideration pursuant to the terms of the Omnibus Plan as a
result of the merger. Each other outstanding option will cease
to represent a right to acquire shares of Class A common
stock and will be converted into an option to purchase a number
of shares of Sprint Nextel common stock equal to the product of
the number of shares of Class A common stock subject to the
Virgin Mobile USA stock option and the exchange ratio. Any
resulting fractional shares will be rounded down to the nearest
whole share. The exercise price per share of Sprint Nextel
common stock under each converted stock option will be equal to
the exercise price per share under the Virgin Mobile USA stock
option prior to conversion divided by the exchange ratio,
rounded up to the nearest cent. The duration and other terms of
each converted stock option, after giving effect to any rights
resulting exclusively from the merger and pursuant to the
Omnibus Plan, the award agreement under the plan and the
applicable employment agreement, will be the same as the
corresponding Virgin Mobile USA stock option.
Other Equity-Based Awards. Each Virgin Mobile
USA stock-based right or award outstanding immediately prior to
the effective time of the merger will be converted into a right
or award with respect to a number of shares of Sprint Nextel
common stock equal to the product of the number of shares of
Virgin Mobile USA common stock subject to the stock-based award
and the exchange ratio. Any resulting fractional shares will be
rounded down to the nearest whole share. After giving effect to
any rights resulting exclusively from the merger and pursuant to
the Omnibus Plan, the award agreements under the plan and any
applicable employment agreement, converted stock-based awards
will otherwise remain subject to the terms of the Omnibus Plan
and the agreements or letters evidencing grants under the plan.
Some of the outstanding Virgin Mobile USA stock-based awards are
subject to performance-based vesting requirements based on
Virgin Mobile USAs performance for 2009 and for 2010. The
awards with performance-based vesting requirements related to
performance for 2009 will remain subject to those requirements,
but the determination as to whether those requirements have been
met will be based on actual performance through the end of the
month, which ends on, or immediately precedes, the closing date
of the
9
merger and comparing this performance to the pro rata portion of
the applicable annual performance target for the Virgin Mobile
USA stock-based award based on the number of months in 2009
completed on or prior to the closing date of the merger. The
performance requirements for 2010 will be deemed met on
December 31, 2010 without regard to actual performance for
2010.
Regulatory
Approvals Required for the Merger (page 75)
Sprint Nextel and Virgin Mobile USA have agreed to use their
reasonable best efforts to obtain all regulatory approvals
required to complete the transactions contemplated by the merger
agreement. Sprint Nextel and Virgin Mobile USA have filed the
required notification under the
Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, which we refer to
as the HSR Act, with the Federal Trade Commission, which we
refer to as the FTC, and the Antitrust Division of the
Department of Justice, which we refer to as the DOJ. Sprint
Nextel and Virgin Mobile USA have received early termination of
the waiting period under the HSR Act from the FTC and DOJ.
Virgin Mobile USA and Sprint Nextel have also jointly filed
transfer of control applications with the Federal Communications
Commission, which we refer to as the FCC, with respect to the
certificates of authority, which we refer to as the
international Section 214 authorizations, under
Section 214 of the U.S. Communications Act of 1934, as
amended, which we refer to as the Communications Act, held by
Virgin Mobile USA through its Operating Partnership and the
operating subsidiaries of Helio LLC. The FCC approved these
authorizations effective September 11, 2009.
Expected
Timing of the Merger (page 76)
Virgin Mobile USA and Sprint Nextel currently expect to complete
the merger in the fourth quarter of 2009 or the first quarter of
2010, subject to receipt of Virgin Mobile USA stockholder
approval, governmental and regulatory approvals and the
satisfaction or waiver of other closing conditions. However, no
assurance can be given as to when, or if, the merger will occur.
If the merger has not been completed by March 31, 2010,
either Sprint Nextel or Virgin Mobile USA may terminate the
merger agreement (so long as the party terminating is not in
breach of its obligations under the merger agreement).
Risk
Factors (page 23)
In evaluating the merger, the merger agreement and the Sprint
Nextel common stock to be received in connection with the
merger, you should carefully read this proxy
statement/prospectus and especially consider the factors
discussed in the section entitled Risk Factors.
Accounting
Treatment (page 76)
As a result of the proposed merger, Sprint Nextel will own all
outstanding Virgin Mobile USA shares. Consequently, Sprint
Nextels accounting for the purchase of Virgin Mobile USA
will include adjusting each asset and liability of Virgin Mobile
USA to fair value and consolidating Virgin Mobile USAs
assets, liabilities and operations with those of Sprint Nextel.
Material
U.S. Federal Income Tax Consequences of the Merger
(page 76)
Virgin Mobile USA and Sprint Nextel intend for the merger to
qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended, which we refer to as the Code, for U.S. federal
income tax purposes. Assuming the merger qualifies for this
treatment, a holder of Virgin Mobile USA shares generally will
not recognize any gain or loss for U.S. federal income tax
purposes upon the exchange of the holders Virgin Mobile
USA shares for shares of Sprint Nextel common stock pursuant to
the merger, except with respect to cash, if any, received in
lieu of a fractional share of Sprint Nextel common stock. The
completion of the merger is conditioned on, among other things,
the receipt by Virgin Mobile USA of a tax opinion from Simpson
Thacher & Bartlett LLP, counsel to Virgin Mobile USA,
dated as of the
10
closing date of the merger, that the merger will be treated for
U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code.
For a more complete description of the material
U.S. federal income tax consequences of the merger, see
The Merger Material U.S. Federal Income
Tax Consequences of the Merger.
The tax consequences of the merger to you may depend on your own
situation. In addition, you may be subject to state, local or
foreign tax laws that are not addressed in this proxy
statement/prospectus. You are urged to consult with your own tax
advisor for a full understanding of the tax consequences of the
merger to you.
No
Appraisal Rights (page 79)
Under Delaware law, stockholders of Virgin Mobile USA do not
have any dissenters rights or rights to an
appraisal of the value of their shares in connection with the
merger. Please see The Merger No Appraisal
Rights.
Listing
of Sprint Nextel Common Stock (page 79)
Application will be made by Sprint Nextel to have the shares of
Sprint Nextel common stock to be issued in connection with the
merger approved for listing on the NYSE, where the Sprint Nextel
common stock is currently traded. If the merger is consummated,
the Virgin Mobile USA Class A common stock will no longer
be listed on the NYSE and will be deregistered under the
Securities Exchange Act of 1934, as amended, which we refer to
as the Exchange Act.
Litigation
Relating to the Merger (page 79)
Since the announcement on July 28, 2009 of the signing of
the merger agreement, seven putative shareholder class action
lawsuits related to the merger have been filed, two in federal
court in the District of New Jersey and five in the Superior
Court of New Jersey. Two of the state cases were filed by the
same plaintiffs who filed the federal lawsuits. On
August 13, 2009, one of the federal court lawsuits was
dismissed for lack of jurisdiction and refiled on
August 18, 2009 in the Superior Court of New Jersey
(becoming the fourth state complaint). The state court
complaints name as defendants Virgin Mobile USA and its
directors, Sprint Nextel and Sprint Mozart. The lawsuits
generally allege, among other things, that the consideration
agreed to in the merger agreement is inadequate and unfair to
Virgin Mobile USA stockholders and that the individual
defendants (and, in some cases, Virgin Mobile USA) breached
their fiduciary duties in approving the merger agreement and
that those breaches were aided and abetted by Sprint Nextel,
among others. The lawsuits seek, among other things, injunctive
and monetary relief and attorneys fees. On October 6,
2009, Virgin Mobile USA, the members of its board of directors,
Sprint Nextel and Sprint Mozart entered into a memorandum of
understanding with the plaintiffs in the state cases reflecting
an agreement in principle to settle the cases based on their
agreement to include in this proxy statement/prospectus certain
additional disclosures relating to the transaction. The
memorandum of understanding is subject to customary conditions
including the completion of appropriate settlement
documentation, completion of due diligence to confirm the
fairness of the settlement, approval by the Superior Court of
New Jersey, and consummation of the merger. If the settlement is
consummated, the state cases will be dismissed with prejudice.
Also on October 6, 2009, the parties to the memorandum of
understanding agreed that the remaining federal lawsuit would be
voluntarily dismissed by the plaintiffs in that case.
In addition, on September 10, 2009, a complaint was filed
against Sprint Nextel by three subsidiaries of iPCS, Inc.
claiming, among other things, that the merger would breach
certain exclusivity provisions under iPCS
subsidiaries management agreements with Sprint Nextel.
This lawsuit seeks declaratory and injunctive relief with
respect to the merger. On October 19, 2009, Sprint Nextel
and iPCS announced that they entered into an agreement for
Sprint Nextel to acquire iPCS. In connection with this proposed
acquisition, Sprint
11
Nextel and iPCS, and certain of their subsidiaries, entered
into a settlement agreement pursuant to which they have agreed
to seek an immediate stay of all pending litigation between the
parties, with a final resolution to become effective upon
closing of the acquisition. On October 19, 2009, the
Circuit Court of Cook County, Illinois, Chancery Division,
entered a stay of the litigation. The acquisition is subject to
the successful completion of a tender offer, receipt of
customary regulatory approvals and other customary closing
conditions, and is expected to be completed either late in the
fourth quarter of 2009 or early 2010.
No
Solicitation by Virgin Mobile USA (page 90)
Virgin Mobile USA has agreed that it and its representatives
will not:
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solicit any inquiries or make any proposal or offer with respect
to a tender offer or exchange offer, merger, consolidation or
other business combination involving Virgin Mobile USA
and/or its
subsidiaries;
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solicit any inquiries or make any proposal or offer with respect
to any acquisition proposal; or
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participate in or knowingly encourage any negotiations or
discussions concerning, or provide information or data to, any
person relating to an acquisition proposal.
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Virgin Mobile USA has agreed to, among other things, immediately
cease and cause to be terminated any existing activities with
respect to any acquisition proposal and to promptly notify
Sprint Nextel in writing of the receipt of any acquisition
proposal after the date of the execution of the merger agreement
and to keep Sprint Nextel reasonably informed of the status and
details of any proposal.
Prior to the adoption of the merger agreement by Virgin Mobile
USA stockholders, Virgin Mobile USA may engage in certain
activities in response to an unsolicited bona fide acquisition
proposal. The merger agreement provides that if, at any time
prior to the adoption of the merger agreement by Virgin Mobile
USA stockholders, the Virgin Mobile USA board of directors
determines, in response to an unsolicited acquisition proposal
that did not otherwise result from a material breach of the
applicable provisions of the merger agreement described above,
that the acquisition proposal is a superior proposal, then
Virgin Mobile USA or its board of directors may, among other
things, terminate the merger agreement. Additionally, the voting
agreements with the Virgin Group and SK Telecom will terminate
upon termination of the merger agreement. See The
Merger Voting Agreements and Other Transaction
Agreements.
For a more complete description of the provisions, including
what constitutes an acquisition proposal and a
superior proposal, see The Merger
Agreement Agreement Not to Solicit Other
Offers.
Conditions
to Completion of the Merger (page 98)
The obligations of each of Virgin Mobile USA, Sprint Nextel
and/or
Merger Sub to effect the merger are subject to the satisfaction
or waiver, prior to the effective time of the merger, of the
following conditions, among others:
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adoption of the merger agreement by Virgin Mobile USA
stockholders;
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the registration statement on
Form S-4,
of which this proxy statement/prospectus forms a part, having
been declared effective by the Securities and Exchange
Commission, which we refer to as the SEC, and the absence of a
stop order suspending the effectiveness of the
Form S-4
or proceedings pending before, or threatened by, the SEC for
that purpose;
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approval for listing on the NYSE of the shares of Sprint Nextel
common stock to be issued to Virgin Mobile USAs
stockholders in connection with the merger, subject to official
notice of issuance;
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12
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the representations and warranties of Virgin Mobile USA, Sprint
Nextel and Merger Sub being true and correct, subject to various
materiality thresholds, and Virgin Mobile USA, Sprint Nextel and
Merger Sub having performed or complied with, in all material
respects, all of its obligations, agreements and covenants under
the merger agreement;
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absence of any instituted or pending action, investigation or
proceeding by any governmental entity, or by any other person
before any governmental entity, that would adversely affect the
merger, Sprint Nextel or Virgin Mobile USA;
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the other transaction agreements entered into in connection with
the merger agreement being in force and effect at the effective
time of the merger and Daniel H. Schulman, Virgin Mobile
USAs Chief Executive Officer, not having rescinded his
employment agreement with Sprint Nextel entered into at the time
of the merger agreement or advised Sprint Nextel that he is
unwilling to continue employment following the effective time of
the merger;
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receipt by Sprint Nextel of documentation evidencing that all
outstanding indebtedness and all other obligations under Virgin
Mobile USAs senior and subordinated credit agreements have
been paid, discharged or otherwise terminated; and
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receipt by Virgin Mobile USA of an opinion of its counsel
relating to the U.S. federal income tax treatment of the
merger.
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Sprint Nextel and Virgin Mobile USA cannot provide assurance as
to when or if all of the conditions to the merger can or will be
satisfied or waived by the appropriate party, or that the merger
will be completed. As of the date of this proxy
statement/prospectus, Sprint Nextel and Virgin Mobile USA have
no reason to believe that any of these conditions will not be
satisfied.
Termination
of the Merger Agreement (page 100)
The merger agreement may be terminated at any time prior to the
effective time of the merger, even after the adoption by Virgin
Mobile USAs stockholders, by:
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the mutual written consent of Sprint Nextel, Merger Sub and
Virgin Mobile USA;
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Sprint Nextel or Virgin Mobile USA, provided that the party
terminating is not in breach of its obligations under the merger
agreement, if the effective time of the merger has not occurred
on or before March 31, 2010;
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Virgin Mobile USA if, prior to the merger agreement being
adopted by its stockholders, Virgin Mobile USA receives an
acquisition proposal that its board of directors determines
constitutes a superior proposal, in which case Virgin Mobile USA
would be obligated to pay the termination fee described below;
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Sprint Nextel if, prior to the merger agreement being adopted by
the Virgin Mobile USA stockholders, the Virgin Mobile USA board
of directors has withdrawn, modified or qualified its
recommendation to the Virgin Mobile USA stockholders to adopt
the merger agreement, which we refer to as a change of
recommendation, or has publicly proposed to recommend, adopt or
approve another acquisition proposal;
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Sprint Nextel or Virgin Mobile USA if the other party has
breached its representations, warranties, covenants or
agreements under the merger agreement such that the applicable
closing conditions would not be satisfied (and the breach is
incapable of being cured prior to March 31, 2010); or
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13
Sprint Nextel or Virgin Mobile USA if the merger
agreement is not adopted by the Virgin Mobile USA stockholders
at the Virgin Mobile USA special meeting.
Termination
Fees and Expenses (page 101)
Under the terms of the merger agreement, Virgin Mobile USA is
obligated to pay Sprint Nextel a cash termination fee of
$14.2 million in the event that:
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Virgin Mobile USA exercises its right to terminate the merger
agreement upon the receipt of a superior proposal;
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Sprint Nextel exercises its right to terminate the merger
agreement upon the Virgin Mobile USA board of directors
effecting a change of recommendation or having recommended,
adopted or approved another acquisition proposal; or
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Sprint Nextel or Virgin Mobile USA exercises its right to
terminate the merger agreement (1) due to a failure of the
merger to be consummated on or before March 31, 2010 or the
failure of Virgin Mobile USA stockholders to adopt the merger
agreement (other than following a change of recommendation or
the recommendation by the Virgin Mobile USA board of directors
of another acquisition proposal, as described above),
(2) prior to the termination an acquisition proposal is
made public or known to the Virgin Mobile USA board of directors
and is not withdrawn, and (3) within twelve months after
the termination, Virgin Mobile USA enters into a definitive
agreement with respect to, or consummates, the acquisition
proposal.
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The term acquisition proposal with respect to any
termination fee has the meaning described in The Merger
Agreement Agreement Not to Solicit Other
Offers, except that references to 10% or more
are changed to more than 50%.
Rights of
Virgin Mobile USA Stockholders Will Change as a Result of the
Merger (page 121)
Virgin Mobile USA is a Delaware corporation. Sprint Nextel is a
Kansas corporation. The shares of Sprint Nextel common stock
that Virgin Mobile USA stockholders will receive in connection
with the merger will be shares of a Kansas corporation.
Stockholder rights under Delaware and Kansas law are different.
In addition, Virgin Mobile USA stockholders receiving merger
consideration will have different rights once they become Sprint
Nextel stockholders due to differences between the governing
documents of Sprint Nextel and Virgin Mobile USA. These
differences are described in detail under Comparison of
Rights of Sprint Nextel Stockholders and Virgin Mobile USA
Stockholders.
Virgin
Mobile USA Special Meeting (page 32)
The meeting will be held on November 24, 2009 at
9:00 a.m., local time, at the Courtyard by Marriott Basking
Ridge, 595 Martinsville Road, Basking Ridge,
New Jersey 07920. At the meeting, Virgin Mobile USA
stockholders will be asked to vote on the following proposals:
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to adopt the merger agreement; and
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to approve the adjournment of the meeting, if necessary or
appropriate, to solicit additional proxies if there is an
insufficient number of votes to adopt the merger agreement at
the time of the meeting.
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Record Date. Only holders of record at the
close of business on October 22, 2009 will be entitled to
vote at the meeting, provided that the shares remain outstanding
on the date of the meeting. As of the close of business on the
record date, there were 67,354,173 shares of Class A
common stock, one share of Class B common stock,
115,062 shares of Class C common stock and
53,000 shares of preferred stock outstanding and entitled
to vote
14
at the meeting. Each holder of Class A common stock and
Class C common stock is entitled to one vote. Sprint
Ventures, Inc., a wholly-owned subsidiary of Sprint Nextel,
which is the only holder of Class B common stock, is
entitled to a number of votes that is equal to the number of
shares of Class A common stock for which the partnership
units it holds in the Operating Partnership are exchangeable. As
of the record date, the partnership units held by Sprint
Ventures are exchangeable for 12,058,626 shares of
Class A common stock and Sprint Ventures is therefore
entitled to 12,058,626 votes with respect to its share of
Class B common stock. Each holder of preferred stock is
entitled to one vote for each share of Class A common stock
into which the share of preferred stock is convertible as of the
record date. As of the record date, each share of preferred
stock was convertible into 117.64706 shares of Class A
common stock and therefore entitled to 117.64706 votes per share
of preferred stock.
Required Vote. To adopt the merger agreement,
the holders of a majority of the combined voting power of
outstanding Virgin Mobile USA shares entitled to vote on the
proposal, voting together as a single class, must vote in favor
of adoption of the merger agreement. Because approval is based
on the affirmative vote of a majority of the combined voting
power of the shares outstanding, a Virgin Mobile USA
stockholders failure to vote or an abstention will have
the same effect as a vote against adoption of the merger
agreement.
The proposal to adjourn the meeting to solicit additional
proxies will be decided by the affirmative vote of the holders
of a majority of the combined voting power of all outstanding
shares present in person or represented by proxy at the meeting
and entitled to vote on the proposal in accordance with Virgin
Mobile USAs second amended and restated bylaws, which we
refer to as Virgin Mobile USAs bylaws, regardless of
whether a quorum is present. Because approval of this matter is
based on the affirmative vote of the holders of a majority of
the combined voting power of all outstanding shares present in
person or by proxy and entitled to vote, abstentions will have
the same effect as a vote against this matter, but failures to
be present to vote will have no effect.
Under voting agreements entered into with Sprint Nextel, each of
the Virgin Group and SK Telecom agreed that at the meeting it
will vote a number of its Virgin Mobile USA shares (in the case
of the Virgin Group, the number constituting not less than
14,362,279 shares, or approximately 16.8% of the total
voting power of Virgin Mobile USA as of the record date, and in
the case of SK Telecom, the number constituting not less than
7,735,790 shares, or approximately 9.0% of the total voting
power of Virgin Mobile USA as of the record date) that are
entitled to vote, in each case:
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in favor of the adoption of the merger agreement, approval of
the merger or any other action of the stockholders of Virgin
Mobile USA reasonably requested by Sprint Nextel in furtherance
thereof;
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against any action or agreement that is in opposition to, or
competitive or inconsistent with, the merger or that would
result in a breach of any covenant, representation or warranty
of the Virgin Group or SK Telecom contained in its respective
voting agreement;
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against any other acquisition proposal; and
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against any other action, agreement or transaction that would
otherwise materially interfere with, delay, postpone,
discourage, frustrate the purposes of or adversely affect the
merger or the other transactions contemplated by the merger
agreement or each respective voting agreement or the performance
by the Virgin Group or SK Telecom of its obligations under its
respective voting agreement.
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As of the close of business on the record date:
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Sprint Nextel and its direct or indirect wholly-owned
subsidiaries had the right to vote one share of Class B
common stock entitled to an equivalent of 12,058,626 votes (and
no shares of Class A common stock, Class C common
stock or preferred stock), or approximately 14.1% of the
combined voting power of the outstanding shares of Virgin Mobile
USA entitled to be voted at the meeting;
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the Virgin Group had the right to vote 22,904,055 shares of
Class A common stock, 115,062 shares of Class C
common stock and 26,500 shares of preferred stock, or
approximately 30.5% of the combined voting power of the
outstanding shares of Virgin Mobile USA entitled to be voted at
the meeting;
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SK Telecom had the right to vote 11,192,741 shares of
Class A common stock and 26,500 shares of preferred
stock (and no shares of Class C common stock), or
approximately 16.7% of the combined voting power of the
outstanding shares of Virgin Mobile USA entitled to be voted at
the meeting; and
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directors and executive officers of Virgin Mobile USA and their
affiliates had the right to vote 971,872 shares of
Class A common stock (and no shares of Class C common
stock or preferred stock), or approximately 1.1% of the combined
voting power of the outstanding shares of Virgin Mobile USA
entitled to be voted at the meeting.
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No Sprint
Nextel Stockholder Approval (page 76)
Sprint Nextel stockholders are not required to adopt the merger
agreement or approve the merger or the issuance of shares of
Sprint Nextel common stock in connection with the merger.
16
Comparative
Per Share Data
The following table sets forth selected unaudited comparative
historical per share data for Sprint Nextel and Virgin Mobile
USA and selected unaudited pro forma combined per share data
after giving effect to the proposed merger. The unaudited pro
forma combined earnings per share data have been prepared
assuming that the proposed transaction was consummated on
January 1, 2008. The unaudited pro forma combined book
value per share data are based on the assumption that the
proposed merger was consummated as of the relevant balance sheet
date.
The unaudited pro forma combined per share data include
estimates to adjust assets and liabilities of Virgin Mobile USA
to their respective fair values based on information available
at this time. These estimates may vary from estimates at the
time of closing as additional information becomes available. Pro
forma amounts are not necessarily indicative of the results of
operations or financial position that would have resulted had
the proposed merger been consummated on the dates indicated and
should not be construed as being indicative of future
performance. The information below should be read in conjunction
with the financial statements and accompanying notes of Sprint
Nextel and Virgin Mobile USA, which are incorporated by
reference into this proxy statement/prospectus. See Where
You Can Find More Information. We urge you also to read
Selected Historical Consolidated Financial
Data of Sprint Nextel and Selected
Historical Consolidated Financial Data of Virgin Mobile
USA.
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Historical
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Pro Forma
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Virgin Mobile
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Virgin
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Sprint Nextel
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USA Equivalent
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Sprint
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Mobile
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Unaudited
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Unaudited
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As of and for the Six Months
Ended June 30, 2009
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Nextel
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USA
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Pro Forma
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Pro Forma(1)
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Income (loss) from continuing operations per common share:
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Basic
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$
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(0.34
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)
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$
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0.47
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$
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(0.33
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)
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$
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(0.45
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)
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Diluted
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$
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(0.34
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$
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0.42
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$
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(0.33
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$
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(0.45
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Cash dividends per common share
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$
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$
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$
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$
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Book value per common
share(2)
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$
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6.52
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$
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(3.98
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)
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$
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6.47
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$
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8.85
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As of and for the Year Ended December 31, 2008
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Income (loss) from continuing operations per common share:
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Basic
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$
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(0.98
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$
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0.13
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$
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(0.98
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)
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$
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(1.34
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)
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Diluted
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$
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(0.98
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$
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0.13
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$
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(0.98
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$
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(1.34
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Cash dividends per common share
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$
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$
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$
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$
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Book value per common
share(2)
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$
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6.86
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$
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(5.49
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)
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$
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6.80
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$
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9.30
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(1) |
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Virgin Mobile USA Equivalent Unaudited Pro Forma amounts are
calculated by multiplying the Sprint Nextel per share amounts
set forth under the column heading Sprint Nextel Unaudited
Pro Forma by an assumed exchange ratio of 1.3668, which
exchange ratio may vary as described under The Merger
Agreement Merger Consideration. |
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(2) |
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The Sprint Nextel unaudited pro forma book value per common
share amounts set forth under the column heading Sprint
Nextel Unaudited Pro Forma were calculated by dividing the
total combined pro forma equity by the pro forma equivalent
shares outstanding, which does not assume Sprint Nextel equity
issuances for items that Sprint Nextel can elect to pay in cash
or shares, as of the relevant balance sheet date. The number of
pro forma shares to be issued as part of the proposed merger was
calculated by using an assumed exchange ratio of 1.3668 and the
closing price on the NYSE of a share of Sprint Nextel common
stock of $3.95 as of September 30, 2009. |
17
Market
Prices and Dividend Information
The Sprint Nextel common stock and Virgin Mobile USA
Class A common stock are listed on the NYSE under the
symbols S and VM, respectively. The
following table shows the closing sale prices of the Sprint
Nextel common stock and Virgin Mobile USA Class A common
stock as reported on the NYSE on July 27, 2009, the last
trading day before the merger agreement was announced, and on
October 22, 2009, the last full trading day before the date
of this proxy statement/prospectus. This table also shows the
implied value of the merger consideration proposed for each
share of Class A common stock, which was calculated by
multiplying the closing price on the NYSE of a share of Sprint
Nextel common stock as of the specified date by the exchange
ratio applicable to the specified group of stockholders. For
purposes of determining the exchange ratio, the Average Parent
Stock Price was calculated using the 10 trading day period
ending on the second trading day immediately preceding the
specified date. As discussed in Merger
Consideration above, the Average Parent Stock Price to be
used to determine the actual merger consideration will be based
on the corresponding period preceding the effective time of the
merger.
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Closing Sale Price
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Implied per Share
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Implied per Share
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Implied per Share
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Closing Sale Price
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of Virgin Mobile
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Value of Merger
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Value of Merger
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Value of Merger
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of Sprint Nextel
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USA Class A
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Consideration to
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Consideration to
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Consideration to
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Common Stock
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Common Stock
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Public
Stockholders(1)
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the Virgin Group
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SK Telecom
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July 27, 2009
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$
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4.55
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$
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4.21
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$
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5.50
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$
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5.12
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$
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4.94
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October 22, 2009
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$
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3.38
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$
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4.50
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$
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4.62
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$
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4.30
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$
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4.15
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(1) |
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Excludes the Virgin Group, SK Telecom and Sprint Nextel. |
The market price of the Sprint Nextel common stock and Virgin
Mobile USA Class A common stock will fluctuate prior to the
merger. You should obtain current market quotations for the
shares.
Sprint Nextel declared and paid a dividend of $0.025 per share
on the Sprint Nextel common stock and its Series 2 common
stock in each of the quarters of 2006 and 2007 and a dividend of
$0.025 per share on its non-voting common stock in each of the
quarters of 2006. Sprint Nextel did not declare any dividends on
its shares in 2008 and has not declared any dividend on its
shares to date in 2009. In light of conditions in the business
and financial markets, Sprint Nextel decided in early 2008 that
it will not pay dividends for the foreseeable future. In
addition, under its revolving bank credit facility, Sprint
Nextel is currently restricted from paying any cash dividends as
a result of its ratio of total indebtedness to trailing four
quarters earnings before interest, taxes, depreciation and
amortization and other non-cash gains or losses, such as
goodwill impairment charges. Under its revolving bank credit
facility, Sprint Nextel may not pay cash dividends unless this
ratio is less than 2.5 to 1.0.
Virgin Mobile USA has never declared or paid a cash dividend on
its common stock and does not anticipate paying any cash
dividends on its common stock in the foreseeable future. Any
future determination to pay dividends will be at the discretion
of its board of directors and will be dependent upon
then-existing conditions, including its financial condition and
results of operations, contractual restrictions, business
prospects and other factors that its board of directors
considers relevant. Its ability to pay dividends is also
restricted by the terms of its credit agreements. Virgin Mobile
USAs preferred stock carries a cumulative 6% annual
dividend payable semi-annually. The preferred stock dividend is
payable with additional shares of preferred stock at the stated
value of $1,000 per share. Virgin Mobile USA is currently
restricted from declaring or paying any dividends on its shares
under the terms of the merger agreement, except for the
preferred stock dividends payable on September 30, 2009.
18
Selected
Historical Consolidated Financial Data of Sprint
Nextel
The following selected historical consolidated financial data of
Sprint Nextel have been derived from the audited historical
consolidated financial statements and related notes of Sprint
Nextel as of and for each of the five years in the period ended
December 31, 2008 and from the unaudited consolidated
financial statements of Sprint Nextel as of and for the
six-month periods ended June 30, 2009 and 2008. The
selected historical consolidated financial data provide only a
summary and should be read in conjunction with the audited
consolidated financial statements and notes thereto, other
financial information and Managements Discussion and
Analysis of Financial Condition and Results of Operations
contained in Sprint Nextels filings with the SEC. See
Where You Can Find More Information beginning on
page 141. Historical results are not necessarily indicative
of any results to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
As of and for the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
|
|
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
16,350
|
|
|
$
|
18,389
|
|
|
$
|
35,635
|
|
|
$
|
40,146
|
|
|
$
|
41,003
|
|
|
$
|
28,771
|
|
|
|
$ 21,647
|
|
(Loss) income from continuing
operations(1)
|
|
|
(978
|
)
|
|
|
(849
|
)
|
|
|
(2,796
|
)
|
|
|
(29,444
|
)
|
|
|
995
|
|
|
|
821
|
|
|
|
(2,006
|
)
|
Discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
980
|
|
|
|
994
|
|
Cumulative effect of change in accounting principle, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
(Loss) Earnings per Share and Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per common share from
continuing
operations(1)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(10.27
|
)
|
|
$
|
0.34
|
|
|
$
|
0.40
|
|
|
|
$ (1.40)
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.11
|
|
|
|
0.48
|
|
|
|
0.69
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
Dividends per common
share(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.30
|
|
|
|
See (2) below
|
|
Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets(3)
|
|
$
|
55,885
|
|
|
$
|
62,805
|
|
|
$
|
58,252
|
|
|
$
|
64,295
|
|
|
$
|
97,161
|
|
|
$
|
102,760
|
|
|
|
$ 41,321
|
|
Total debt and capital lease obligations (including equity unit
notes)
|
|
|
19,618
|
|
|
|
22,358
|
|
|
|
21,610
|
|
|
|
22,130
|
|
|
|
22,154
|
|
|
|
25,014
|
|
|
|
16,425
|
|
Seventh series redeemable preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
|
|
247
|
|
|
|
|
(1) |
|
For the six months ended June 30, 2009, Sprint Nextel
recorded net charges of $729 million primarily related to
severance and exit costs and equity in losses of unconsolidated
investments. For the six months ended June 30, 2008, Sprint
Nextel recorded net charges of $455 million related to
severance and exit costs and merger and integration costs. In
2008, Sprint Nextel recorded net charges of $1.910 billion
primarily related to asset and goodwill impairments, severance
and exit costs, and merger and integration costs. In 2007,
Sprint Nextel recorded net charges of $30.605 billion
primarily related to merger and integration costs, asset and
goodwill impairments, and severance and exit costs. In 2006,
Sprint Nextel recorded net charges of $620 million
primarily related to merger and integration costs, asset
impairments, and severance and exit costs. In 2005, Sprint
Nextel recorded net charges of $723 million primarily
related to merger and integration costs, asset impairments, and
severance and hurricane-related costs. In 2004, Sprint Nextel
recorded net charges of $3.7 billion primarily related to
severance and the wireline network impairment, partially offset
by recoveries of fully reserved receivables. |
19
|
|
|
(2) |
|
Sprint Nextel did not declare any dividends on its shares in
2008 or, as of June 30, 2009, in 2009. In the first and
second quarter of 2005, a dividend of $0.125 per share was paid.
In the third and fourth quarter of 2005 and for each quarter of
2006 and 2007, the dividend was $0.025 per share. Before the
recombination of its two tracking stocks, shares of PCS common
stock did not receive dividends. For the year ended
December 31, 2004, Sprint Nextel shares (before the
conversion of shares of PCS common stock) received dividends of
$0.50 per share. In the first quarter of 2004, Sprint Nextel
shares received a dividend of $0.125 per share. In the second,
third and fourth quarter of 2004, Sprint Nextel shares, which
included shares resulting from the conversion of shares of PCS
common stock, received quarterly dividends of $0.125 per share. |
|
(3) |
|
During 2008 and 2007, Sprint Nextel performed its annual
assessment of goodwill for impairment and recorded non-cash
impairment charges of $963 million and
$29.649 billion, respectively. |
20
Selected
Historical Consolidated Financial Data of Virgin Mobile
USA
Virgin Mobile USA is a holding company formed in 2007 in
connection with its initial public offering, which we refer to
as the IPO, which occurred on October 16, 2007. Virgin
Mobile USA accounted for its reorganization transactions, for
periods prior to the IPO, using a carryover basis, similar to a
pooling-of-interest
as the reorganization transactions were premised on a
non-substantive exchange in order to facilitate the IPO. This is
consistent with Financial Accounting Standards Board Technical
Bulletin 85-5,
Issues Relating to Accounting for Business Combinations,
including Costs of Closing Duplicate Facilities of an Acquirer;
Stock Transactions between Companies under Common Control;
Down-Stream Mergers, Identical Common Shares for a Pooling of
Interests; and Pooling of Interests by Mutual and Cooperative
Enterprises. Under this method of accounting, Virgin Mobile
USA treated the companies as if they had always been combined
for accounting and financial reporting purposes and, therefore,
the consolidated financial statements for the years ended and as
of December 31, 2006, 2005, and 2004 are presented on the
same basis as that for the years ended and as of
December 31, 2008 and 2007.
The selected financial data of Virgin Mobile USA as of
December 31, 2008 and 2007 and for each of the years ended
December 31, 2008, 2007 and 2006 are derived from Virgin
Mobile USAs audited consolidated financial statements and
related notes contained in its Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
by reference into this proxy statement/prospectus. The selected
financial data as of December 31, 2006 have been derived
from Virgin Mobile USAs audited consolidated financial
statements for such year, which have not been incorporated by
reference into this proxy statement/prospectus, and the selected
financial data for the years ended and as of December 31,
2005 and 2004 have been derived from Virgin Mobile USAs
accounting records. The selected financial data of Virgin Mobile
USA as of and for the six months ended June 30, 2009 and
June 30, 2008 have been derived from Virgin Mobile
USAs unaudited condensed consolidated financial statements
and related notes contained in its Quarterly Reports on
Form 10-Q
for the quarters ended June 30, 2009 and June 30,
2008, respectively. Virgin Mobile USAs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009 is incorporated by
reference into this proxy statement/prospectus. The information
set forth below is only a summary and is not necessarily
indicative of the results of operations for the full year ending
December 31, 2009 or other future periods of Virgin Mobile
USA, and you should read the following information together with
Virgin Mobile USAs consolidated financial statements, the
notes related thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations
contained in Virgin Mobile USAs Annual Report on
Form 10-K
for the year ended December 31, 2008 and Quarterly Report
on
Form 10-Q
for the quarter ended June 30, 2009.
Effective October 1, 2008, Virgin Mobile USA elected to
change the method of accounting for regulatory fees and tax
surcharges, primarily the Universal Service Fund, or USF,
contributions from a net basis to a gross basis in the statement
of operations. As originally reported, Virgin Mobile USA
accounted for USF contributions on a net basis so that USF
remittances to government agencies were recorded as cost of
service and the surcharge for USF collected from customers was
recorded as a reduction of cost of service. Virgin Mobile USA
changed its accounting policy to account for USF contributions
on a gross basis so that the surcharge for USF collected from
customers is recorded in net service revenue and remittances to
government agencies are recorded in cost of service. This change
in accounting policy, which was applied retroactively, increased
both net service revenue and cost of service by
$13.3 million, $12.5 million, $2.9 million, and
$0.3 million during the years ended December 31, 2008,
2007, 2006, and 2005, respectively. Virgin Mobile USA did not
collect any surcharges for USF contributions from its customers
during the year ended December 31, 2004. This change in
accounting policy does not change previously reported operating
income (loss) or net income (loss).
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
As of and for the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net service revenue
|
|
$
|
608,064
|
|
|
$
|
600,814
|
|
|
$
|
1,235,870
|
|
|
$
|
1,239,533
|
|
|
$
|
1,022,927
|
|
|
$
|
884,116
|
|
|
$
|
567,006
|
|
Net equipment and other revenue
|
|
|
36,789
|
|
|
|
49,067
|
|
|
|
87,623
|
|
|
|
85,890
|
|
|
|
90,524
|
|
|
|
106,116
|
|
|
|
123,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
644,853
|
|
|
|
649,881
|
|
|
|
1,323,493
|
|
|
|
1,325,423
|
|
|
|
1,113,451
|
|
|
|
990,232
|
|
|
|
690,638
|
|
Net
income(1)(2)
|
|
|
40,885
|
|
|
|
10,255
|
|
|
|
10,309
|
|
|
|
4,218
|
|
|
|
(36,941
|
)
|
|
|
(108,665
|
)
|
|
|
(176,236
|
)
|
Earnings (loss) per weighted average common share
basic(2)
|
|
$
|
0.47
|
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
(1.45
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
(7.36
|
)
|
Earnings (loss) per weighted average common share
diluted(2)
|
|
$
|
0.42
|
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.08
|
|
|
$
|
(1.45
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
(7.36
|
)
|
Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
320,687
|
|
|
$
|
255,159
|
|
|
$
|
367,068
|
|
|
$
|
282,039
|
|
|
$
|
276,947
|
|
|
$
|
221,232
|
|
|
$
|
165,394
|
|
Total debt and capital lease obligations
|
|
|
257,094
|
|
|
|
300,372
|
|
|
|
267,174
|
|
|
|
323,751
|
|
|
|
553,298
|
|
|
|
497,527
|
|
|
|
98,965
|
|
Redeemable preferred
stock(3)
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net income for the year ended December 31, 2008 has been
recast to reflect the adoption of Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements on January 1, 2009, which
removed the impact of net income attributable to the
noncontrolling interest from the calculation of net income. |
|
(2) |
|
Virgin Mobile USA recorded charges of $1 million and
$9 million for the six months ended June 30, 2009 and
the year ended December 31, 2008, respectively, for
restructuring activities related to outsourcing of information
technology services to IBM, employee reductions associated with
the acquisition of Helio LLC, and a reduction in force to reduce
operating costs. For the year ended December 31, 2005,
Virgin Mobile USA recorded charges for an estimated loss of
$30 million related to patent infringement litigation.
During the year ended December 31, 2006, Virgin Mobile USA
entered into a settlement agreement with the patent holder that
resulted in a release from all prior claims related to those
patents in exchange for cash payments. Also during 2006, Virgin
Mobile USA reached a settlement agreement with a provider of a
billing solution regarding that vendors obligation to
indemnify Virgin Mobile USA for certain claims arising from the
use of its products and services. As a result of these
settlements and agreements, in 2006 Virgin Mobile USA reversed
$15 million of the estimated loss that had been accrued in
2005. |
|
(3) |
|
On August 22, 2008, in connection with the acquisition of
Helio LLC, Virgin Mobile USA issued 50,000 shares of
preferred stock with a stated value of $1,000 per share. As of
February 23, 2009, each share of the preferred stock became
mandatorily convertible into 117.64706 shares of
Class A common stock, at the earlier of
(1) August 22, 2012 and (2) such time as the
market price of Class A common stock exceeds $8.50 per
share for a specified period. The preferred stock is also
convertible at the option of the holder on or after
February 22, 2010. Following the approval of the conversion
feature by Virgin Mobile USA stockholders on February 23,
2009, the preferred stock is no longer potentially redeemable
for cash and is reflected as stockholders equity in Virgin
Mobile USAs balance sheet. |
22
RISK
FACTORS
In addition to the other information included and
incorporated by reference in this proxy statement/prospectus,
including the matters addressed in the section entitled
Cautionary Statement Regarding Forward-Looking
Statements, you should carefully consider the following
risks before deciding whether to vote for adoption of the merger
agreement.
Risk
Factors Relating to Sprint Nextel and Virgin Mobile
USA
Sprint Nextels and Virgin Mobile USAs businesses are
subject to the risks described below relating to the merger. In
addition, Sprint Nextel and Virgin Mobile USA are and will
continue to be subject to the risks described in Part 1,
Item 1A of their respective Annual Reports on
Form 10-K
for the year ended December 31, 2008 and Sprint Nextel is
and will continue to be subject to the risks described in
Part II, Item 1A of its Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, which reports have
been filed with the SEC. If any of the risks described in this
proxy statement/prospectus or in the annual reports and
quarterly reports incorporated by reference into this proxy
statement/prospectus actually occurs, the respective businesses,
financial results, financial condition or stock prices of Sprint
Nextel or Virgin Mobile USA could be materially adversely
affected. The following risks should be considered along with
the other risks described in the reports incorporated by
reference into this proxy statement/prospectus. See Where
You Can Find More Information beginning on page 141
for the location of information incorporated by reference into
this proxy statement/prospectus.
Risk
Factors Relating to the Merger
Because
the market price of Sprint Nextel common stock will fluctuate,
Virgin Mobile USA stockholders cannot be sure of the precise
value of the merger consideration they will
receive.
Under the terms of the merger agreement, each share of
Class A common stock, Class C common stock and
preferred stock (on an as-converted basis) outstanding
immediately prior to the merger will be converted into the right
to receive a number of shares of Sprint Nextel common stock
based on an exchange ratio determined by reference to the
average of the closing prices of Sprint Nextel common stock in a
period prior to the completion of the merger. The Virgin Group
and SK Telecom will receive shares of Sprint Nextel common stock
based on the applicable percentages of the exchange ratio. The
exchange ratio is subject to a maximum and a minimum, but
between these amounts it will fluctuate based on the Average
Parent Stock Price. The average share price of Sprint Nextel
common stock may differ from the closing price per share of the
Sprint Nextel common stock on the date that the parties entered
into the merger agreement, on the date that the parties
announced the merger, on the date that this proxy
statement/prospectus was mailed, at the effective time of the
merger, and on the date that you receive the merger
consideration. In addition, because the merger agreement
provides that the exchange ratio may not exceed a specified
maximum, the number of shares of Sprint Nextel common stock to
be received by Virgin Mobile USA stockholders will be limited by
the ceiling of the exchange ratio of 1.3668 if the Average
Parent Stock Price were to be lower than $4.02.
Accordingly, at the time of the special meeting, Virgin Mobile
USA stockholders will not be able to calculate the precise value
of the merger consideration that they would receive upon
completion of the merger. From January 2, 2009 to
October 22, 2009, the trading price of Sprint Nextel common
stock on the NYSE ranged from a high of $5.94 to a low of $1.83.
If the merger had been completed on October 22, 2009, the
Average Parent Stock Price would have been $3.527. Changes in
the average share price of Sprint Nextel common stock and the
share price of Sprint Nextel common stock generally may result
from a variety of factors, including general market, economic
and political conditions; changes in Sprint Nextels
business, operations and prospects; regulatory considerations;
legal proceedings and developments; market assessments of the
benefits of the merger, likelihood the merger will be
consummated and timing of consummation; the prospects of
post-merger operations; and other factors. A majority of these
factors is beyond the parties control and could negatively
impact the value of the merger consideration you receive.
23
Sprint
Nextel may fail to realize all of the anticipated benefits of
the merger, which may adversely affect the value of the Sprint
Nextel common stock that you receive in the
merger.
Sprint Nextel and Virgin Mobile USA entered into the merger
agreement with the expectation that the merger would result in
various benefits including, among other things, strengthening
Sprint Nextels position in the prepaid segment; enhancing
cross-selling of the full suite of Sprint Nextel products and
services across a larger target audience; free cash flow
accretion before synergies; synergies to be derived from general
and administrative cost reductions, operational efficiencies,
and streamlined distribution; and Sprint Nextel gaining deeper
managerial talent with particular expertise in the prepaid
segment of the wireless market.
Achieving the anticipated benefits of the merger will depend, in
part, on Sprint Nextels ability to realize the strategic
advantages and cost savings from integrating the business and
operations of Virgin Mobile USA into Sprint Nextel. If Sprint
Nextel is not able to achieve its objectives within the
anticipated time frame, or at all, the anticipated benefits of
the merger may not be realized fully or at all, or may take
longer to realize than expected. If such a result occurs, the
value of Sprint Nextel common stock could be adversely affected.
Sprint Nextel and Virgin Mobile USA have operated and, until the
completion of the merger, will continue to operate,
independently. It is possible that the integration process could
result in the loss of key employees, result in the disruption of
each companys ongoing businesses or identify
inconsistencies in standards, controls, procedures and policies
that adversely affect Sprint Nextels ability to maintain
relationships with customers, suppliers, distributors, creditors
or lessors, or to achieve the anticipated benefits of the merger.
Specifically, issues that must be addressed in integrating the
operations of Virgin Mobile USA into Sprint Nextels
operations in order to realize the anticipated benefits of the
merger include, among other things:
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managing diverse product and service offerings, subscriber
plans, and sales and marketing approaches;
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preserving subscriber, supplier and other important
relationships and resolving potential conflicts that may arise
as a result of the merger;
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consolidating and integrating duplicative operations, including
back-office systems; and
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addressing differences in business cultures, preserving employee
morale and retaining key employees, while maintaining focus on
providing consistent, high quality customer service and meeting
the operational and financial goals of Sprint Nextel after the
merger.
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Integration efforts between the two companies could also divert
management attention and resources. An inability to realize the
full extent of, or any of, the anticipated benefits of the
merger, as well as any delays encountered in the integration
process, could have an adverse effect on Sprint Nextels
business and results of operations, which may affect the value
of Sprint Nextel common stock after the completion of the merger.
In addition, the actual integration may result in additional and
unforeseen expenses, and the anticipated benefits of the
integration plan may not be realized. Actual cost and sales
synergies, if achieved at all, may be lower than Sprint Nextel
expects and may take longer to achieve than anticipated. If
Sprint Nextel is not able to adequately address these
challenges, it may be unable to successfully integrate Virgin
Mobile USAs operations into its own, or to realize some or
all of the anticipated benefits of the integration of the two
companies, which could negatively impact Sprint Nextels
future results of operations and the value of Sprint Nextel
common stock.
24
The
market price of Sprint Nextel common stock after the merger may
be affected by factors different from those affecting the shares
of Virgin Mobile USA or Sprint Nextel currently.
Upon completion of the merger, holders of Virgin Mobile USA
shares will become holders of Sprint Nextel common stock. The
businesses of Sprint Nextel differ from those of Virgin Mobile
USA in important respects and, accordingly, the results of
operations of Sprint Nextel and the market price of Sprint
Nextel common stock following the merger may be affected by
factors different from those currently affecting the independent
results of operations of Virgin Mobile USA. For a discussion of
the businesses of Sprint Nextel and Virgin Mobile USA and of
some factors to consider in connection with those businesses,
see the documents incorporated by reference into this proxy
statement/prospectus referred to under Where You Can Find
More Information beginning on page 141.
Failure
to complete the merger could negatively impact the stock price
and the future business and financial results of Sprint Nextel
and Virgin Mobile USA.
If the merger is not completed, the ongoing businesses of Sprint
Nextel and Virgin Mobile USA may be adversely affected and,
without realizing any of the benefits of having completed the
merger, Sprint Nextel and Virgin Mobile USA will be subject to a
number of risks, including the following:
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the current market price of each companys common stock may
reflect a market assumption that the merger will occur and a
failure to complete the merger could result in a negative
perception of either or both companies by equity investors and
result in a decline in the market price of the common stock of
that company;
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Virgin Mobile USA may be required to pay Sprint Nextel a
termination fee of $14.2 million if the merger is
terminated under circumstances as described in the merger
agreement and summarized in this proxy statement/prospectus;
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Sprint Nextel and Virgin Mobile USA will be required to pay
transaction costs relating to the merger, whether or not the
merger is completed;
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under the merger agreement, Virgin Mobile USA is subject to
restrictions on the conduct of its business prior to completing
the merger which may affect its ability to execute some of its
business strategies; and
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matters relating to the merger (including integration planning)
may require substantial commitments of time and resources by
Sprint Nextel and Virgin Mobile USA management, which could
otherwise have been devoted to other opportunities that may have
been beneficial to Sprint Nextel and Virgin Mobile USA as
separate companies.
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Sprint Nextel and Virgin Mobile USA also may be subject to
litigation related to any failure to complete the merger or
related to any enforcement proceeding commenced against Sprint
Nextel or Virgin Mobile USA to perform their respective
obligations under the merger agreement. If the merger is not
completed, these risks may materialize and may adversely affect
Sprint Nextels and Virgin Mobile USAs business,
financial results and stock price.
The
completion of the merger is subject to various requirements,
including the receipt of consents and approvals from various
government agencies and the continued employment of Daniel H.
Schulman, which may jeopardize or delay completion of the merger
or reduce the anticipated benefits of the merger.
Completion of the merger is conditioned upon filings with, and
the receipt of required consents, clearances and approvals from,
various governmental agencies. Although Sprint Nextel and Virgin
Mobile
25
USA have agreed in the merger agreement to use their reasonable
best efforts to obtain the requisite governmental approvals,
there can be no assurance that these approvals will be obtained.
Additionally, contemporaneously with the execution of the merger
agreement, Daniel H. Schulman, Virgin Mobile USAs Chief
Executive Officer, entered into an employment agreement with
Sprint Nextel which will become effective upon the completion of
the merger. Under the merger agreement, if Mr. Schulman
rescinds his employment agreement with Sprint Nextel or advises
Sprint Nextel that he is unwilling to continue employment with
Sprint Nextel after the effective time of the merger, Sprint
Nextel will not be obligated to complete the merger. If the
merger is not completed, Virgin Mobile USA and Sprint Nextel may
be negatively impacted, as described above.
Virgin
Mobile USA, its board of directors and Sprint Nextel are
defendants in lawsuits challenging the merger that could delay
or prevent completion of the merger, and Virgin Mobile USA and
Sprint Nextel may incur substantial costs in defending against
the litigation, all of which could adversely affect the
respective businesses, financial results or stock prices of
Virgin Mobile USA and Sprint Nextel.
Since the announcement on July 28, 2009 of the signing of
the merger agreement, seven putative shareholder class action
lawsuits related to the merger have been filed, two in federal
court in the District of New Jersey and five in the Superior
Court of New Jersey. On August 13, 2009, one of the federal
cases was dismissed. The five state cases, which are purported
class action lawsuits brought by Virgin Mobile USA
non-affiliated stockholders, name as defendants Virgin Mobile
USA, the members of its board of directors, Sprint Nextel and
Sprint Mozart and challenge the proposed merger, seeking, among
other things, to enjoin the defendants from consummating the
merger on the
agreed-upon
terms. On October 6, 2009, Virgin Mobile USA, the members
of its board of directors, Sprint Nextel and Sprint Mozart
entered into a memorandum of understanding with the plaintiffs
in the state cases reflecting an agreement in principle to
settle the cases based on their agreement to include in this
proxy statement/prospectus certain additional disclosures
relating to the transaction. The memorandum of understanding is
subject to customary conditions including the completion of
appropriate settlement documentation, completion of due
diligence to confirm the fairness of the settlement, approval by
the Superior Court of New Jersey, and consummation of the
merger. If the settlement is consummated, the state cases will
be dismissed with prejudice. Also on October 6, 2009, the
parties to the memorandum of understanding agreed that the
remaining federal lawsuit would be voluntarily dismissed by the
plaintiffs in that case.
In addition, on September 10, 2009, a complaint was filed
against Sprint Nextel by three subsidiaries of iPCS claiming,
among other things, that the merger would breach certain
exclusivity provisions under iPCS subsidiaries
management agreements with Sprint Nextel. This lawsuit seeks
declaratory and injunctive relief with respect to the merger. On
October 19, 2009, Sprint Nextel and iPCS announced that
they entered into an agreement for Sprint Nextel to acquire
iPCS. In connection with this proposed acquisition, Sprint
Nextel and iPCS, and certain of their subsidiaries, entered into
a settlement agreement pursuant to which they have agreed to
seek an immediate stay of all pending litigation between the
parties, with a final resolution to become effective upon
closing of the acquisition. On October 19, 2009, the
Circuit Court of Cook County, Illinois, Chancery Division,
entered a stay of the litigation. The acquisition is subject to
the successful completion of a tender offer, receipt of
customary regulatory approvals and other customary closing
conditions, and is expected to be completed either late in the
fourth quarter of 2009 or early 2010.
A delay in the merger as a result of the litigation may cause
the attention of management of Sprint Nextel and Virgin Mobile
USA to be focused on the litigation and the delayed merger
rather than on their respective businesses and operations, which
could have an adverse affect on the business, financial results
and stock price of Sprint Nextel and Virgin Mobile USA. A
failure to complete the merger as a result of the litigation
could disrupt the operations of Sprint Nextel and Virgin Mobile
USA and cause their respective ongoing and future business to
suffer. In addition, Sprint Nextel and Virgin Mobile USA will
have incurred costs associated with the merger without realizing
the benefits of having the merger completed. For a more complete
discussion of the possible adverse affects of not completing the
merger, see the risk factor entitled
26
Failure to complete the merger could
negatively impact the stock price and the future business and
financial results of Sprint Nextel and Virgin Mobile USA
beginning on page 25.
If the merger is completed, Sprint Nextel and Virgin Mobile USA
may have incurred substantial costs in defending against the
litigation which could have an adverse effect on the business
and financial results of Sprint Nextel and Virgin Mobile USA.
Moreover, there could be ongoing litigation that could result in
significant monetary damages and, in the case of iPCS, if the
closing of the acquisition of iPCS by Sprint Nextel does not
occur, a possible future injunction against the use of the
Virgin Mobile brand in certain geographic areas. In the event
that the acquisition of iPCS by Sprint Nextel does not occur and
the injunction is denied, the court may nevertheless consider
whether Sprint Nextels ownership and operation of Virgin
Mobile USA, in iPCSs territory, is a breach of the
management agreements between Sprint Nextel and iPCS. If the
court concluded that there was a breach, Sprint Nextel may not
be able to sell products and services under the Virgin Mobile
brand in certain geographic locations. For a description of the
legal proceedings, see the section entitled The
Merger Litigation Relating to the Merger
beginning on page 79.
Sprint
Nextel and Virgin Mobile USA must continue to retain, motivate
and recruit executives and other key employees, which may be
difficult in light of uncertainty regarding the merger, and
failure to do so could negatively affect the combined
company.
For the merger to be successful, during the period before the
merger is completed, both Sprint Nextel and Virgin Mobile USA
must continue to retain, motivate and recruit executives and
other key employees. Sprint Nextel also must be successful at
retaining key employees following the completion of the merger.
Experienced employees in the telecommunications industry are in
high demand and competition for their talents can be intense.
Employees of both Sprint Nextel and Virgin Mobile USA may
experience uncertainty about their future role with Sprint
Nextel until, or even after, strategies with regard to the
combined company are announced or executed. These potential
distractions of the merger may adversely affect the ability of
Sprint Nextel or Virgin Mobile USA to attract, motivate and
retain executives and other key employees and keep them focused
on applicable strategies and goals. A failure by Sprint Nextel
or Virgin Mobile USA to retain and motivate executives and other
key employees during the period prior to or after the completion
of the merger could have a negative impact on the business of
Sprint Nextel or Virgin Mobile USA and the ability of Sprint
Nextel to achieve the benefits of the merger.
The
shares of Sprint Nextel common stock to be received by Virgin
Mobile USA stockholders in connection with the merger will have
different rights from the shares of Class A common
stock.
Upon completion of the merger, Virgin Mobile USA stockholders
will become Sprint Nextel stockholders and their rights as
stockholders will be governed by Sprint Nextels amended
and restated articles of incorporation and bylaws, as well as by
Kansas law. The rights associated with Virgin Mobile USA shares
are different from the rights associated with Sprint Nextel
common stock and could be perceived as less beneficial to you or
negatively impact the value of your Class A common stock
and/or the
consideration you receive in the merger. See Comparison of
Rights of Sprint Nextel Stockholders and Virgin Mobile USA
Stockholders beginning on page 121 for a discussion
of the different rights associated with Sprint Nextel common
stock.
The
merger agreement limits Virgin Mobile USAs ability to
pursue an alternative acquisition proposal and requires Virgin
Mobile USA to pay a termination fee of $14.2 million if it
does.
The merger agreement prohibits Virgin Mobile USA from
soliciting, initiating, encouraging or facilitating certain
alternative acquisition proposals with any third party, subject
to exceptions set forth in the merger agreement. See The
Merger Agreement Agreement Not to Solicit Other
Offers beginning on page 90. The merger agreement
also provides for the payment by Virgin Mobile USA of a
termination fee of $14.2 million if the merger agreement is
terminated in certain circumstances. See The Merger
Agreement Termination Fee Payable by Virgin Mobile
USA. These provisions limit Virgin Mobile USAs
ability to pursue offers from third parties that could result in
greater value to Virgin Mobile USA stockholders. The
27
obligation to make the termination fee payment also may
discourage a third party from pursuing an alternative
acquisition proposal. In addition, each of the Virgin Group, SK
Telecom and Sprint Nextel has a contractual consent right to
certain alternative acquisition proposals, which may discourage
a third party from pursuing an acquisition proposal or prevent
Virgin Mobile USA from consummating an alternative acquisition
proposal. See The Merger Background of the
Merger.
Some
of the directors and executive officers of Virgin Mobile USA, as
well as the strategic stockholders of Virgin Mobile USA, have
interests in the merger that are different from other Virgin
Mobile USA stockholders.
When considering the recommendation of the Virgin Mobile USA
board of directors with respect to the merger proposal, Virgin
Mobile USA stockholders should be aware that some directors and
executive officers of Virgin Mobile USA have interests in the
merger that are different from, or are in addition to, the
interests of the unaffiliated holders of Class A common
stock. In addition, Virgin Mobile USA has engaged in various
related party transactions with affiliates of the Virgin Group
and SK Telecom. As a result, the Virgin Group and SK Telecom may
have interests that are different from, or in addition to, the
interests of the unaffiliated holders of Class A common
stock. The Virgin Group and SK Telecom, which together have five
designees on the Virgin Mobile USA board of directors, have
significant equity interests in Virgin Mobile USA and will
receive additional consideration in connection with certain
agreements with Virgin Mobile USA, as described in The
Merger Voting Agreements and Other Transaction
Agreements. In addition, four of Virgin Mobile USAs
current executive officers, including Daniel H. Schulman, have
executed employment agreements with Sprint Nextel providing for
their employment after the completion of the merger. These
interests also include, among others, the fact that the
completion of the merger will result in the conversion of
in-the-money
options to purchase Virgin Mobile USA shares into corresponding
options to purchase Sprint Nextel common stock, the conversion
of other equity-based awards into corresponding awards with
respect to Sprint Nextel common stock, the deemed satisfaction
of the performance-based vesting requirements for 2010 for the
Virgin Mobile USA stock-based awards that are subject to the
requirements for 2010, the continuance of Virgin Mobile
USAs annual and mid-term incentive plans for 2009, and the
continuance of indemnification of Virgin Mobile USA directors
and executive officers. See The Merger
Interests of Certain Persons in the Merger and The
Merger Treatment of Virgin Mobile USA Stock Options
and Other Equity-Based Awards.
Stockholders should consider these interests in conjunction with
the recommendation of the directors of Virgin Mobile USA for the
adoption of the merger agreement.
28
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents that are
incorporated by reference into this proxy statement/prospectus
contain certain estimates, projections and other forward-looking
statements. 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. Specifically,
forward looking statements include:
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statements relating to the benefits of the merger, including
anticipated synergies and cost savings estimated to result from
the merger;
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statements relating to future business prospects, revenue,
income and financial condition; and
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statements preceded by, followed by or that include the words
estimate, plan, project,
forecast, intend, expect,
anticipate, believe, seek,
target or similar expressions.
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These statements reflect judgments of the management of Sprint
Nextel and Virgin Mobile USA 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, the management of Sprint Nextel and
Virgin Mobile USA have made assumptions regarding, among other
things, the rate of growth in the prepaid wireless segment,
expected synergies from the merger, and whether and when the
transactions contemplated by the merger agreement will be
consummated.
Future performance cannot be assured. Actual results may differ
materially from those in the forward-looking statements. Some
factors that could cause actual results to differ include:
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the failure to realize synergies from the merger in the
timeframe expected or at all;
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unexpected costs or liabilities;
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the result of the review of the proposed merger by various
regulatory agencies and any conditions imposed in connection
with the consummation of the merger;
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approval of the merger agreement by the stockholders of Virgin
Mobile USA and satisfaction of various other conditions to the
closing of the merger;
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Sprint Nextels ability to attract and retain subscribers;
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the effects of vigorous competition in a highly penetrated
market;
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the effect of limiting capital and operating expenditures on
Sprint Nextels ability to improve and enhance its networks
and service offerings, implement its business strategies and
provide competitive new technologies;
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volatility in the trading price of Sprint Nextel common stock,
current economic conditions and Sprint Nextels ability to
access capital;
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the impact of third parties, such as suppliers and vendors, not
meeting Sprint Nextels contractual requirements with
Sprint Nextel due to disruptions in their business;
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the costs and business risks associated with providing new
services and entering new geographic markets;
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the financial performance of Clearwire Corporation and its
deployment of a WiMAX network;
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unexpected results of litigation filed against Sprint Nextel or
its suppliers or vendors;
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29
the impact of adverse network performance;
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the costs
and/or
potential customer impacts of compliance with regulatory
mandates;
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equipment failure, natural disasters, terrorist acts, or other
breaches of network or information technology security;
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changes in political, economic or other factors such as monetary
policy, legal and regulatory changes or other external factors
over which Sprint Nextel has no control; and
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other risks referenced from time to time in filings by Sprint
Nextel and Virgin Mobile USA with the SEC and those factors
listed in this proxy statement/prospectus under Risk
Factors beginning on page 23.
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You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date of
this proxy statement/prospectus, or in the case of a document
incorporated by reference, as of the date of that document.
Except as required by law, neither Sprint Nextel nor Virgin
Mobile USA undertakes any obligation to publicly update or
release any revisions to these forward-looking statements to
reflect any events or circumstances after the date of this proxy
statement/prospectus or to reflect the occurrence of
unanticipated events.
Additional factors that could cause actual results to differ
materially from those expressed in the forward-looking
statements are discussed in reports filed with the SEC by Sprint
Nextel and Virgin Mobile USA. See Where You Can Find More
Information beginning on page 141 for a list of the
documents incorporated by reference into this proxy
statement/prospectus.
30
INFORMATION
ABOUT THE COMPANIES
Sprint
Nextel Corporation
Sprint Nextel Corporation, a Kansas corporation, is a global
communications company offering a comprehensive range of
wireless and wireline communications products and services that
are designed to meet the needs of its targeted customer groups:
individuals, small- to mid-sized businesses, large enterprises
and government customers. Sprint Nextel has organized its
operations to meet the needs of its targeted customer groups
through focused communications solutions that incorporate the
capabilities of its wireless and wireline services. Sprint
Nextel is one of the three largest wireless companies in the
United States based on the number of wireless subscribers.
Sprint Nextel owns extensive wireless networks and a global long
distance, Tier 1 Internet backbone.
Sprint Nextel offers digital wireless service to subscribers in
all 50 states, Puerto Rico and the U.S. Virgin Islands
under the
Sprint®
brand name utilizing wireless code division multiple access, or
CDMA, technology. Sprint Nextel also provides CDMA wireless
services on a wholesale basis to many of the largest resellers
in the nation on the CDMA network. Sprint Nextel offers digital
wireless services under its
Nextel®
brand name using integrated Digital Enhanced Network, or
iDEN®,
technology. Sprint Nextel is a reseller of Worldwide
Interoperability for Microwave Access, or WiMAX, fourth
generation, or 4G, wireless services as provided by Clearwire
Corporation.
Sprint Nextel offers its direct wireless services on a post-paid
payment basis, as well as on a prepaid payment basis under the
Boost
Mobile®
brand. Sprint Nextel is one of the largest providers of long
distance services and one of the largest carriers of Internet
traffic in the nation.
The Sprint Nextel common stock trades on the NYSE under the
symbol S. The principal executive offices of Sprint
Nextel are located at 6200 Sprint Parkway, Overland Park, Kansas
66251, and its telephone number is
(800) 829-0965.
Additional information about Sprint Nextel is included in
documents incorporated by reference into this proxy
statement/prospectus. See Where You Can Find More
Information beginning on page 141.
Sprint
Mozart, Inc.
Sprint Mozart is a direct wholly-owned subsidiary of Sprint
Nextel formed solely for the purpose of consummating the merger.
Sprint Mozart has not carried on any activities to date, except
for activities incidental to its formation and activities
undertaken in connection with the transactions contemplated by
the merger agreement. The principal executive offices of Sprint
Mozart are located at 6200 Sprint Parkway, Overland Park, Kansas
66251, and its telephone number is
(800) 829-0965.
Virgin
Mobile USA, Inc.
Virgin Mobile USA, Inc., a Delaware corporation, through its
subsidiary, the Operating Partnership, is a leading national
provider of wireless communications services, offering prepaid
and postpaid services. Customers are attracted to Virgin Mobile
USAs products and services because of its flexible terms,
easy to understand and value-oriented pricing structures,
stylish handsets offered at affordable prices and relevant
mobile data and entertainment content. Virgin Mobile USAs
prepaid product and service offerings have no annual contract or
credit check and they attract a wide range of customers,
approximately half of whom are ages 35 and under. Virgin
Mobile USAs voice and data plans allow customers to talk,
use text messaging, picture messaging, email and instant
messaging on a per usage basis or according to the terms of
monthly hybrid plans.
Virgin Mobile USAs Class A common stock is listed on
the NYSE under the symbol VM. The principal
executive offices of Virgin Mobile USA are located at 10
Independence Boulevard, Warren, New Jersey 07059, and its
telephone number is
(908) 607-4000.
Additional information about Virgin Mobile USA and its
subsidiaries is included in documents incorporated by reference
into this proxy statement/prospectus. See Where You Can
Find More Information beginning on page 141.
31
THE
VIRGIN MOBILE USA SPECIAL MEETING
Date,
Time and Place
The special meeting will be held on November 24, 2009 at
9:00 a.m., local time, at the Courtyard by Marriott Basking
Ridge, 595 Martinsville Road, Basking Ridge,
New Jersey 07920.
Purpose
At the special meeting, Virgin Mobile USA stockholders will be
asked to vote on the following proposals:
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to adopt the merger agreement; and
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to approve the adjournment of the meeting, if necessary or
appropriate, to solicit additional proxies if there is an
insufficient number of votes to adopt the merger agreement at
the time of the meeting.
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Virgin
Mobile USA Record Date; Stock Entitled to Vote
Only holders of record at the close of business on
October 22, 2009 will be entitled to vote at the meeting,
provided that the shares remain outstanding on the date of the
meeting.
As of the close of business on the record date, there were
67,354,173 shares of Class A common stock, one share
of Class B common stock, 115,062 shares of
Class C common stock and 53,000 shares of preferred
stock outstanding and entitled to vote at the meeting. Each
holder of Class A common stock and Class C common
stock is entitled to one vote. Sprint Ventures, which is the
only holder of Class B common stock, is entitled to a
number of votes that is equal to the number of shares of
Class A common stock for which the partnership units it
holds in the Operating Partnership are exchangeable. As of the
record date, the partnership units held by Sprint Ventures were
exchangeable for 12,058,626 shares of Class A common
stock, and Sprint Ventures is therefore entitled to 12,058,626
votes with respect to its share of Class B common stock.
Each holder of preferred stock is entitled to one vote for each
share of Class A common stock into which the share of
preferred stock is convertible as of the record date. As of the
record date, each share of preferred stock was convertible into
117.64706 shares of Class A common stock and therefore
entitled to 117.64706 votes per share of preferred stock.
Quorum
A majority of the outstanding shares having voting power being
present in person or represented by proxy constitutes a quorum
for the meeting.
Required
Vote; Voting Agreements; Stock Ownership of Virgin Mobile USA
Directors and Executive Officers
To adopt the merger agreement, the holders of a majority of the
combined voting power of the outstanding Virgin Mobile USA
shares entitled to vote on the proposal, voting together as a
single class, must vote in favor of adoption of the merger
agreement. Because approval is based on the affirmative vote
of a majority of the combined voting power of all shares
outstanding, a Virgin Mobile USA stockholders failure to
vote or an abstention will have the same effect as a vote
against adoption of the merger agreement.
A proposal to adjourn the meeting to solicit additional proxies,
if necessary or appropriate, will be decided by the affirmative
vote of the holders of a majority of the combined voting power
of all outstanding shares present in person or represented by
proxy at the meeting and entitled to vote on the proposal in
accordance with Virgin Mobile USAs bylaws. Because
approval of this matter is based on the affirmative vote of the
holders of a majority of the combined voting power of all
outstanding shares present in person or by proxy and entitled to
vote, abstentions will have the same effect as a vote against
this matter, but failures to be present to vote will have no
effect.
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Under voting agreements entered into with Sprint Nextel, each of
the Virgin Group and SK Telecom agreed that at the meeting it
will vote a number of its Virgin Mobile USA shares (in the case
of the Virgin Group, the number constituting not less than
14,362,279 shares, or approximately 16.8% of the total
voting power of Virgin Mobile USA as of the record date, and in
the case of SK Telecom, the number constituting not less than
7,735,790 shares, or approximately 9.0% of the total voting
power of Virgin Mobile USA as of the record date) that are
entitled to vote, in each case:
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in favor of the adoption of the merger agreement, approval of
the merger or any other action of the stockholders of Virgin
Mobile USA reasonably requested by Sprint Nextel in furtherance
thereof;
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against any action or agreement that is in opposition to, or
competitive to or inconsistent with, the merger or that would
result in a breach of any covenant, representation or warranty
of the Virgin Group or SK Telecom contained in its respective
voting agreement;
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against any other acquisition proposal; and
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against any other action, agreement or transaction that would
otherwise materially interfere with, delay, postpone,
discourage, frustrate the purposes of or adversely affect the
merger or the other transactions contemplated by the merger
agreement or each respective voting agreement or the performance
by the Virgin Group or SK Telecom of its obligations under its
respective voting agreement.
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As of the close of business on the record date:
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Sprint Nextel and its direct or indirect wholly-owned
subsidiaries had the right to vote one share of Class B
common stock entitled to 12,058,626 votes (and no shares of
Class A common stock, Class C common stock or
preferred stock), or approximately 14.1% of the combined voting
power of the outstanding shares of Virgin Mobile USA entitled to
be voted at the meeting;
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the Virgin Group had the right to vote 22,904,055 shares of
Class A common stock, 115,062 shares of Class C
common stock and 26,500 shares of preferred stock (and no
shares of Class B common stock), or approximately 30.5% of
the combined voting power of the outstanding shares of Virgin
Mobile USA entitled to be voted at the meeting;
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SK Telecom had the right to vote 11,192,741 shares of
Class A common stock and 26,500 shares of preferred
stock (and no shares of Class B common stock or
Class C common stock), or approximately 16.7% of the
combined voting power of the outstanding shares of Virgin Mobile
USA entitled to be voted at the meeting; and
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directors and executive officers of Virgin Mobile USA and their
affiliates had the right to vote 971,872 shares of
Class A common stock (and no shares of Class B common
stock, Class C common stock or preferred stock), or
approximately 1.1% of the combined voting power of the
outstanding shares of Virgin Mobile USA entitled to be voted at
the meeting.
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Abstentions
Abstentions are counted as present and entitled to vote for
purposes of determining a quorum. For the proposal to adopt the
merger agreement, abstentions have the same effect as a vote
against adoption of the merger agreement. For a proposal to
adjourn the meeting to solicit additional proxies, if necessary
or appropriate, abstentions are treated as present and entitled
to vote at the meeting and therefore have the same effect as a
vote against these proposals.
Voting of
Proxies by Holders of Record
If you hold shares in your own name you may submit a proxy for
your shares by using the toll-free number or the Internet web
site if your proxy card includes instructions for using these
quick, cost-effective and easy
33
methods for submitting proxies. You also may submit a proxy in
writing by simply filling out, signing and dating your proxy
card and mailing it in the prepaid envelope included with these
proxy materials. If you submit a proxy by telephone or the
Internet web site, please do not return your proxy card by mail.
You will need to follow the instructions when you submit a proxy
using any of these methods to make sure your shares will be
voted at the meeting. You also may vote by submitting a ballot
in person if you attend the meeting. However, we encourage you
to submit a proxy by mail by completing your proxy card, by
telephone or via the Internet even if you plan to attend the
meeting. If you hold shares through a broker or other nominee,
you may instruct your broker or other nominee to vote your
shares by following the instructions that the broker or nominee
provides to you with these materials. Most brokers offer the
ability for stockholders to submit voting instructions by mail
by completing a voting instruction card, by telephone and via
the Internet. If you hold shares through a broker or other
nominee and wish to vote your shares at the meeting, you must
obtain a legal proxy from your broker or nominee and present it
to the inspector of election with your ballot when you vote at
the meeting.
Your vote is important. Accordingly, please submit your proxy by
telephone, through the Internet or by mail, whether or not you
plan to attend the meeting in person. Proxies must be received
by 11:59 p.m., local time, on November 23, 2009.
Shares Held
in Street Name
If your shares are held in an account at a broker, you must
instruct the broker on how to vote your shares. If you do not
provide voting instructions to your broker, your shares will not
be voted on any proposal on which your broker does not have
discretionary authority to vote. This is called a broker
non-vote. In these cases, the broker can register your shares as
being present at the meeting for purposes of determining the
presence of a quorum, but will not be able to vote on those
matters for which specific authorization is required. Under the
current rules of the NYSE, brokers do not have discretionary
authority to vote on the proposal to adopt the merger agreement.
A broker non-vote will have the same effect as a vote against
adoption of the merger agreement.
Revocability
of Proxies
You may revoke your proxy and change your vote at any time
before the meeting. If you are a stockholder of record, you can
revoke your proxy before it is exercised by written notice to
the Corporate Secretary of Virgin Mobile USA, by timely delivery
of a valid, later-dated proxy card or a later-dated proxy
submitted by telephone or via the Internet, or by voting by
ballot in person if you attend the meeting. Simply attending the
meeting will not revoke your proxy. If you hold shares through a
broker or other nominee, you may submit new voting instructions
by contacting your broker or other nominee.
Solicitation
of Proxies
This proxy statement/prospectus is furnished in connection with
the solicitation of proxies by the Virgin Mobile USA board of
directors to be voted at Virgin Mobile USAs special
meeting of stockholders to be held on November 24, 2009 at
9:00 a.m., local time, at the Courtyard by Marriott Basking
Ridge, 595 Martinsville Road, Basking Ridge,
New Jersey 07920. Stockholders will be admitted to the
meeting beginning at 8:00 a.m., local time.
This proxy statement/prospectus and the proxy card are first
being sent to Virgin Mobile USA stockholders on or about
October 23, 2009.
Virgin Mobile USA has engaged Innisfree to assist in the
solicitation of proxies for the meeting and Virgin Mobile USA
estimates that it will pay Innisfree a fee of approximately
$20,000. Virgin Mobile USA has also agreed to reimburse
Innisfree for reasonable
out-of-pocket
expenses and disbursements incurred in connection with the proxy
solicitation and to indemnify Innisfree against certain losses,
costs and expenses. In addition, our officers and employees may
request the return of proxies by telephone or in person, but no
additional compensation will be paid to them.
34
THE
MERGER
The following is a discussion of the proposed merger and the
merger agreement. This is a summary only and may not contain all
of the information that is important to you. A copy of the
merger agreement is attached to this proxy statement/prospectus
as Annex A and is incorporated by reference herein.
Virgin Mobile USA stockholders are urged to read this entire
proxy statement/prospectus, including the merger agreement, for
a more complete understanding of the merger. See The
Merger Agreement.
Structure
of the Merger
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, Merger Sub will be merged with
and into Virgin Mobile USA, with Virgin Mobile USA surviving the
merger and becoming a wholly-owned subsidiary of Sprint Nextel.
At the effective time of the merger:
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all stockholders of Virgin Mobile USA, excluding the Virgin
Group, SK Telecom and Sprint Nextel, will be entitled to receive
a number of shares of Sprint Nextel common stock for each
outstanding share of Class A common stock that they own,
and cash in lieu of fractional shares, based on the exchange
ratio described below;
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the Virgin Group will be entitled to receive a number of shares
of Sprint Nextel common stock for each outstanding share of
Class A common stock and Class C common stock that it
owns, and cash in lieu of fractional shares, based on the
exchange ratio multiplied by 93.09%;
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SK Telecom will be entitled to receive a number of shares of
Sprint Nextel common stock for each outstanding share of
Class A common stock that it owns, and cash in lieu of
fractional shares, based on the exchange ratio multiplied by
89.84%;
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the Virgin Group and SK Telecom will be entitled to receive a
number of shares of Sprint Nextel common stock for each
outstanding share of preferred stock that they own, and cash in
lieu of fractional shares, equal to the number of shares of
Class A common stock into which each share of preferred stock is
convertible, multiplied by (1) in the case of the Virgin
Group, the exchange ratio multiplied by 93.09%, and (2) in
the case of SK Telecom, the exchange ratio multiplied by 89.84%;
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the Virgin Group and SK Telecom will be entitled to receive
consideration in connection with certain contractual obligations
of Virgin Mobile USA, which consideration will be payable in
cash or Sprint Nextel common stock, at Sprint Nextels
election, as described in Voting Agreements
and Other Transaction Agreements; and
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all shares of Class B common stock and shares held in the
treasury of Virgin Mobile USA will be canceled at the effective
time of the merger, without any consideration paid to the
holders of these shares.
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The exchange ratio will be equal to the number determined by
dividing $5.50 by the average of the closing prices of Sprint
Nextel common stock on the NYSE for the 10 trading days ending
on the second trading day immediately preceding the effective
time of the merger. However, in no event will the exchange ratio
be less than 1.0630 or greater than 1.3668. See The Merger
Agreement Merger Consideration beginning on
page 81 for a discussion of the exchange ratio and the
consideration to be received by Virgin Mobile USA stockholders
in connection with the merger.
If the number of shares of Sprint Nextel common stock changes
before the merger is completed because of a reclassification,
recapitalization, stock split, combination, exchange or
readjustment of shares, or any dividend thereon with a record
date within this period, the exchange ratio will be adjusted so
that the holders of Virgin Mobile USA common stock will be
provided with the same economic effect, as contemplated by the
merger agreement.
35
Background
of the Merger
Virgin Mobile USA was formed as a joint venture between the
Virgin Group and Sprint Nextel in 2001. Virgin Mobile USA
launched services in July 2002 and uses the nationwide Sprint
PCS network under a services agreement with Sprint Nextel, which
we refer to as the PCS services agreement.
Virgin Mobile USA completed the IPO and a related reorganization
in October 2007, and it has since conducted its business affairs
through the Operating Partnership. As a result of the
reorganization, Sprint Nextel became a limited partner in the
Operating Partnership. Since the IPO, Sprint Nextel has held its
ownership interest in Virgin Mobile USA through its limited
partnership interest in the Operating Partnership and its
ownership of one share of Class B common stock. In
addition, Sprint Nextel has had representation on the Virgin
Mobile USA board of directors at all times since the IPO. As of
July 31, 2009, Sprint Nextel owned an approximately 15.2%
limited partnership interest in the Operating Partnership and
had one representative on the Virgin Mobile USA board of
directors. The Sprint Nextel representative on the Virgin Mobile
USA board of directors did not participate in any discussion
relating to the merger and did not attend any special meetings
of the board of directors or any portion of the regular meetings
of the board of directors in which the proposed acquisition by
Sprint Nextel or a potential transaction with any other party
was discussed.
In keeping with its obligations to the companys
stockholders, the Virgin Mobile USA board of directors has,
together with its senior management, regularly reviewed
strategic opportunities and business development strategies,
including potential alliances, synergies, opportunities for
organic growth and acquisitions as they arose or were proposed
to the company from time to time in the ordinary course of
business. In addition, Sprint Nextel has continually reviewed
its entire spectrum of strategic opportunities in connection
with its investment in Virgin Mobile USA and its ongoing
wireless network wholesale relationship with Virgin Mobile USA.
To this end, since Virgin Mobile USAs inception, with the
authorization of its board of directors, executives from Virgin
Mobile USA have from time to time informally discussed various
possibilities relating to the two companies with executives from
Sprint Nextel.
On November 4, 2008, Keith O. Cowan, Sprint Nextels
President of Strategic Planning and Corporate Initiatives and
presently the Acting President of CDMA, first discussed a
possible new strategic transaction involving Virgin Mobile USA
with Sprint Nextels board of directors during a
presentation regarding a wide range of potential investment
opportunities for Sprint Nextel.
On November 20, 2008, Mr. Cowan called Daniel H.
Schulman, Virgin Mobile USAs Chief Executive Officer, to
follow up on prior discussions between Mr. Schulman and
representatives of Sprint Nextel regarding commercial
relationships between the companies. During the course of this
conversation, Mr. Cowan informed Mr. Schulman that
Sprint Nextel might, at some point in the future, be interested
in going beyond the then-current arrangements with Virgin Mobile
USA and that it would like to discuss ways to establish a closer
relationship between the two companies.
In response to the discussions with Sprint Nextel, on
December 3, 2008, Virgin Mobile USA executives initiated
discussions with representatives of Deutsche Bank relating to
Virgin Mobile USAs strategic alternatives.
On December 10, 2008, Mr. Cowan, Christopher Rogers,
Sprint Nextels Senior Vice President of Corporate
Development and Spectrum, and Matt Madden, Sprint Nextels
then-Director
of Corporate Development, met with Mr. Schulman and David
Messenger, Virgin Mobile USAs Chief Administration and
Corporate Development Officer, at the offices of
King & Spalding LLP, legal counsel to Sprint Nextel,
in New York City. The discussions were focused on the respective
parties high level views of valuation of Virgin Mobile USA
in connection with a potential business combination between the
two companies and touched on potential revenue and cost
synergies that might stem from such a business combination.
On January 20, 2009, Messrs. Rogers, Madden and Brett
Garr, Sprint Nextels Manager of Corporate Development,
contacted Mr. Messenger by phone and discussed, in a
general and exploratory manner, the
36
concept that any potential price that Sprint Nextel would
consider offering to acquire Virgin Mobile USA could only be
based on a premium relative to the applicable trading price of
Class A common stock (which was under $1.00 per share at
the time) and that the consideration to be paid by Sprint Nextel
would be shares of Sprint Nextel common stock. Virgin Mobile
USAs management notified the Virgin Mobile USA board of
directors of these discussions with Sprint Nextel. After careful
review and consideration of the exploratory discussions and in
light of other options, the Virgin Mobile USA board of directors
determined that Sprint Nextels indicative valuation did
not constitute a bona fide offer and that the valuation approach
was unacceptable because it did not reflect the intrinsic value
of Virgin Mobile USA; accordingly, the Virgin Mobile USA board
of directors advised executives of Virgin Mobile USA not to
proceed on the basis of the implied per share price.
On January 23, 2009, Sprint Nextel held a meeting of its
board of directors. Robert H. Brust, Sprint Nextels Chief
Financial Officer, and Charles R. Wunsch, Sprint Nextels
General Counsel and Corporate Secretary, were also present.
Mr. Cowan presented an update on the exploratory
discussions held with Virgin Mobile USA and Sprint Nextels
initial view of valuation. No action was taken by Sprint
Nextels board of directors with respect to the discussions
with Virgin Mobile USA.
In response to a voicemail left by Daniel R. Hesse, Sprint
Nextels Chief Executive Officer and President, on
February 13, 2009, Mr. Schulman called Mr. Hesse
on February 17, 2009 and discussed the merits of a
potential business combination. Mr. Hesse stated that it
could be worthwhile for Mr. Cowan to continue to talk to
Mr. Schulman and explore possibilities between the two
companies.
At a meeting of the Virgin Mobile USA board of directors held on
February 25 and 26, 2009, representatives of Deutsche Bank
discussed the state of the wireless industry and Virgin Mobile
USAs historical and projected enterprise valuation.
Deutsche Bank also discussed a number of strategic alternatives
with the board of directors, including the business plan then in
effect and potential strategic transactions.
On February 27, 2009, Mr. Cowan called
Mr. Schulman and revisited those topics previously
discussed by Messrs. Hesse and Schulman. Mr. Schulman
indicated that Virgin Mobile USA was not prepared to engage in
discussions as its board of directors was in the process of
evaluating strategic options for the company but suggested
another call in one month to continue discussions.
On March 18, 2009, at a special meeting of the Virgin
Mobile USA board of directors, representatives of Deutsche Bank
discussed strategic alternatives for Virgin Mobile USA, with
specific reference to a potential acquisition of Virgin Mobile
USA by Sprint Nextel. Deutsche Bank also discussed a timeline
for approaching Company X regarding a potential transaction.
Deutsche Bank noted that among all potential acquirers in the
market Company X would be the company most interested in
acquiring Virgin Mobile USA other than Sprint Nextel, based on
its perceived financial strength, similar business model and
past management dialogue with Virgin Mobile USA. Deutsche Bank
also noted that the inclusion of other parties in the process
was likely to increase the transaction execution and business
risk for Virgin Mobile USA without a commensurate enhancement to
the value of a potential acquisition. At the same meeting, the
Virgin Mobile USA board of directors approved the engagement of
Deutsche Bank to serve as its financial advisor, subject to the
successful negotiation of terms in an engagement letter.
On March 26, 2009, Mr. Cowan called Mr. Schulman
to express Sprint Nextels interest in continuing a
discussion of an acquisition of Virgin Mobile USA.
Mr. Schulman told Mr. Cowan that the Virgin Mobile USA
board of directors was considering Sprint Nextels
expression of interest and was reviewing its options, including
other strategic alternatives. Mr. Schulman indicated that
he would respond to Mr. Cowan when the board of directors
had finished its evaluation.
On April 1, 2009, at a special meeting of the Virgin Mobile
USA board of directors, representatives of Deutsche Bank
discussed the companys strategic alternatives,
specifically addressing the benefits of a transaction between
Virgin Mobile USA and Sprint Nextel related to their existing
relationship. Deutsche Bank
37
also reviewed with the board a draft presentation intended for
Sprint Nextel, including an update of Virgin Mobile USAs
recent results, financial projections and transaction
considerations. At the same meeting, the board of directors
authorized Virgin Mobile USAs management to respond to the
inquiry from Sprint Nextel and to have Deutsche Bank contact
Company Xs executive officers.
On April 3, 2009, representatives from Deutsche Bank
contacted the chief financial officer of Company X to assess
Company Xs interest in a strategic transaction involving
Virgin Mobile USA.
On April 7, 2009, Mr. Schulman called Mr. Hesse
and requested a meeting at Sprint Nextels headquarters in
Overland Park, Kansas on April 15, 2009. Mr. Hesse
agreed to the meeting.
On April 15, 2009, Mr. Schulman and Jean Manas, who
was then the Vice Chairman of Deutsche Banks
Mergers & Acquisitions group, met with
Messrs. Hesse and Cowan at Sprint Nextels
headquarters in Overland Park, Kansas, and presented a proposal
that Sprint Nextel acquire Virgin Mobile USA in an all stock
transaction at an exchange ratio of 1.193 shares of Sprint
Nextel common stock for each share of Virgin Mobile USA common
stock. Based on the Sprint Nextel common stock price of $4.19
per share at that time, this proposal valued each share of
Virgin Mobile USA common stock at $5.00. Mr. Hesse
indicated that he would provide a general indication of interest
following Sprint Nextels next board meeting, scheduled for
mid-May. That evening, Mr. Schulman had dinner with
Mr. Hesse at Mr. Hesses home.
On April 17, 2009, at a special meeting of the Virgin
Mobile USA board of directors, Mr. Schulman and Deutsche
Bank discussed the meeting with Sprint Nextel on April 15,
2009, and Mr. Schulman noted that Company X had responded
to Deutsche Banks inquiry on Virgin Mobile USAs
behalf with an expression of interest. The board agreed that
management would continue conversations with Sprint Nextel while
simultaneously continuing to explore Company Xs interest.
Mr. Schulman committed to provide a non-disclosure
agreement to Company X and to schedule a meeting with Company
Xs representatives when possible.
On the same day, Messrs. Cowan and Rogers had a conference
call with representatives of Wells Fargo Securities (formerly
Wachovia Securities), which we refer to as Wells Fargo, to
engage Wells Fargo to initiate financial analyses in support of
a potential transaction with Virgin Mobile USA.
On April 27, 2009, Deutsche Bank contacted the chief
financial officer of Company X on behalf of Virgin Mobile USA to
relay further process-related details and to discuss terms and
the timing of a meeting between representatives of Virgin Mobile
USA and Company X.
On April 28, 2009, Mr. Hesse called Mr. Schulman
and the two discussed possible joint marketing strategies
following a merger between Sprint Nextel and Virgin Mobile USA.
On May 1, 2009, at a meeting of the Virgin Mobile USA board
of directors, Mr. Schulman briefed the board on the status
of the separate discussions with Sprint Nextel and Company X.
Mr. Schulman reported that Sprint Nextel had retained Wells
Fargo as a financial advisor to represent it in the potential
transaction, noting that Wells Fargo had provided a due
diligence request list to Virgin Mobile USA. Mr. Schulman
further reported that a meeting among Virgin Mobile USA,
Deutsche Bank, Sprint Nextel and Wells Fargo had been scheduled
for May 4 and 6, 2009 to discuss potential synergies resulting
from a business combination between Sprint Nextel and Virgin
Mobile USA. Mr. Schulman also reported that Company X had
to reschedule its meeting with Virgin Mobile USA, but that
Company X understood that Virgin Mobile USA was in discussions
with another potential acquirer and had agreed to provide a
prompt response following the initial meeting.
On May 4, 2009, Mr. Messenger, John Feehan, Virgin
Mobile USAs Chief Financial Officer, and Peter Lurie,
Virgin Mobile USAs General Counsel and Corporate
Secretary, along with representatives of Deutsche Bank,
representatives from Sprint Nextel and representatives from
Wells Fargo, held a management meeting at the offices of
Deutsche Bank in New York. During this presentation, preliminary
due diligence material,
38
including managements financial projections, relating to
Virgin Mobile USA was provided to Sprint Nextel and discussed in
detail.
On May 6, 2009, Messrs. Messenger and Feehan and
representatives of Deutsche Bank engaged in general discussions
with Rodger Smith, Sprint Nextels Director of Corporate
Development, Tom Lee, Sprint Nextels Director of Corporate
Development, Eric Lew, Sprint Nextels Corporate
Development Manager, Cary Baker, Sprint Nextels Director
of Financial Operations for Boost, and representatives of Wells
Fargo regarding estimates of cost synergies that could be
realized in a business combination. Mr. Schulman had
another call with Mr. Hesse on the same day regarding high
level discussions on the potential organizational structure
envisioned in connection with a potential transaction.
On May 11, 2009, the finance committee of Sprint
Nextels board of directors held a meeting at the
companys headquarters in Overland Park, Kansas.
Messrs. Hesse, Brust, Cowan, Gregory Block, Sprint
Nextels Vice President and Treasurer, and Timothy
OGrady, Sprint Nextels Vice President of Securities
and Governance, were also present. At the meeting,
Mr. Cowan gave a presentation on the current status of the
potential acquisition. The finance committee authorized Sprint
Nextels management to continue with discussions of a
potential transaction with Virgin Mobile USA.
On May 12, 2009, Sprint Nextel held a meeting of its board
of directors. At this meeting, Robert R. Bennett, a member of
Sprint Nextels board of directors and its finance
committee, summarized the finance committees discussions
regarding various matters, including the status of the potential
transaction with Virgin Mobile USA.
On May 14, 2009, Mr. Cowan called Mr. Schulman to
discuss a potential non-binding bid.
On May 16, 2009, Company X executed a non-disclosure
agreement with Virgin Mobile USA.
On May 18, 2009, Sprint Nextel submitted a non-binding
proposal to acquire Virgin Mobile USA in which Sprint Nextel
would acquire Virgin Mobile USA in a stock-for-stock
transaction. Sprint Nextels proposal provided for a
valuation of Class A common stock at $5.00 per share based
on an exchange ratio derived from the average share price of
Sprint Nextel common stock for 10 days prior to the signing
of the merger agreement. At the time of the offer, the exchange
ratio was 0.959 based on the price of $5.22 per share of Sprint
Nextel common stock. The closing price of Class A common
stock on that day was $4.00 per share. The proposal provided for
repayment of Virgin Mobile USAs senior debt at closing at
par and for repayments in cash or, at Sprint Nextels
election, Sprint Nextel common stock (1) to the Virgin
Group and SK Telecom, in satisfaction of loans extended to
Virgin Mobile USA by the Virgin Group and SK Telecom pursuant to
Virgin Mobile USAs subordinated credit agreement (valued
at an aggregate of approximately $80 million outstanding as
of March 31, 2009), and (2) to the Virgin Group in an
aggregate amount of $40 million pursuant to proposed
amendments to Virgin Mobile USAs existing tax receivable
agreement and trademark license agreement with the Virgin Group,
which represented a substantial discount to the amounts payable
to the Virgin Group under the existing tax receivable and
trademark license agreements.
On May 19, 2009, Messrs. Schulman, Feehan, Lurie and
Messenger met with the chief financial officer of Company X in
New York City. Preliminary due diligence material, including
managements financial projections, relating to Virgin
Mobile USA was provided to Company X and discussed in detail
during the meeting.
On May 20, 2009, at a regularly scheduled meeting of the
Virgin Mobile USA board of directors, representatives of
Deutsche Bank discussed the terms of Sprint Nextels
non-binding proposal of May 18, 2009, noting, among other
matters, the exchange ratio that the non-binding proposal
represented. A discussion ensued about an appropriate
counteroffer. Deutsche Bank also summarized a meeting with the
chief financial officer of Company X, stating that it produced a
productive and dynamic dialogue. Alan M. Klein, a partner of
Simpson Thacher & Bartlett LLP, legal counsel to
Virgin Mobile USA, joined the meeting and advised the
39
board of directors of its fiduciary duties. The Virgin Mobile
USA board of directors then authorized the formation of the
Transaction Committee to consist solely of the companys
independent directors, L. Kevin Cox, Thomas O. Ryder, chairman
of the board of directors, and Kenneth T. Stevens. The
Transaction Committee would be responsible for reviewing
strategic alternatives and establishing a process by which
Virgin Mobile USA would solicit indications of interest from
potential bidders and engage in discussions regarding a
potential transaction. After the formation of the Transaction
Committee, Deutsche Banks engagement as financial advisor
to Virgin Mobile USA was transferred from the full board of
directors to the Transaction Committee.
The Transaction Committee of the Virgin Mobile USA board of
directors held its first meeting on May 22, 2009, attended
by Messrs. Schulman, Feehan, Lurie and Messenger, during
which Deutsche Bank reviewed strategic alternatives, including
the pursuit of the companys current business plan as a
stand-alone entity, implementing a revised business plan that
increased earnings at the expense of growth, and the sale of the
company to one of the two interested parties, Sprint Nextel and
Company X. Deutsche Bank also reviewed the April 15, 2009
discussions among Messrs. Schulman, Hesse, Cowan and
Deutsche Bank and the terms of the non-binding offer made by
Sprint Nextel on May 18, 2009. The committee proceeded to
discuss the various options facing Virgin Mobile USA and
authorized Messrs. Schulman and Messenger to present a
counteroffer to Sprint Nextel.
Between May 23, 2009 and June 3, 2009,
Mr. Schulman engaged in multiple, parallel conversations
with Messrs. Hesse and Cowan and the chief financial
officer of Company X.
On May 26, 2009, Mr. Messenger provided a counteroffer
to Messrs. Cowan and Rogers, reflecting an implied equity
value of $6.37 per share based on the initial exchange ratio of
1.193 used in Virgin Mobile USAs proposal on
April 15, 2009 and adjusted for the movements in share
price since that date. The terms of Virgin Mobile USAs
counterproposal also included revised terms to the tax
receivable and trademark license agreements with the Virgin
Group approved in advance by the Virgin Group.
On May 27, 2009, the chief executive officer of Company X
called Mr. Schulman and stated that his company would
imminently provide a letter containing an expression of
interest. On the same day, Wells Fargo called Deutsche
Bank and, acting on behalf of Sprint Nextel, rejected Virgin
Mobile USAs counteroffer. On or about May 31, 2009,
Mr. Schulman called Mr. Hesse to discuss Virgin Mobile
USAs counteroffer.
On June 1, 2009, Company X submitted a letter of interest
to Virgin Mobile USA, offering a preliminary proposal to acquire
the company based on an offer price of 4.75x to 5.25x of Virgin
Mobile USAs adjusted 2009 EBITDA, an implied price of
$4.27 to $5.00 per share of Class A common stock based on
Virgin Mobile USAs financial data as of March 31,
2009, to be paid in cash. Company X also proposed to repay all
outstanding loans to Virgin Mobile USA by its stockholders.
On June 3, 2009, at a meeting of the Transaction Committee,
also attended by Messrs. Schulman and Lurie, who attended
all subsequent meetings of the Transaction Committee
(Messrs. Schulman and Lurie did not participate in any
portion of the meetings of the Transaction Committee in which
proposed terms of their continued employment and compensation by
Sprint Nextel were discussed), Mr. Schulman compared the
terms of the two competing bids to acquire Virgin Mobile USA.
Mr. Schulman also detailed his conversations since
May 22, 2009 with Mr. Hesse and, separately, the chief
financial officer of Company X. The Transaction Committee also
approved the terms of the engagement letters with respect to the
engagement of Deutsche Bank and Colonnade Securities LLC, an
advisory firm Jean Manas joined as an independent contractor on
such date before starting his own advisory firm, Foros Advisors
LLC, as Virgin Mobile USAs financial advisors in
connection with the potential contemplated transaction and
authorized Virgin Mobile USA to enter into such engagements.
On June 4, 2009, Mr. Schulman called Mr. Cowan to
discuss the gap in valuation between Sprint Nextels
outstanding proposal and Virgin Mobile USAs counteroffer.
Mr. Schulman explained that the $6.37 per share
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of Class A common stock counteroffer was based on the
initial exchange ratio used in Virgin Mobile USAs
April 15, 2009 proposal and the benefits that the potential
transaction had for both companies. Mr. Cowan restated
Sprint Nextels position that $5.00 per share was a fair
and appropriate price for the proposed transaction.
From June 4, 2009 to June 15, 2009, Deutsche Bank and
Company Xs financial advisor continued to have discussions
with respect to finalizing preparations for the due diligence
session between Company X and Virgin Mobile USA and their
respective financial and legal advisors.
On June 15 and 16, 2009, Messrs. Schulman, Feehan, Lurie
and Messenger participated in due diligence meetings with
Company X, along with Virgin Mobile USAs financial
advisors, Simpson Thacher & Bartlett LLP, and
financial and legal advisors to Company X.
On June 18, 2009, Mr. Hesse contacted
Mr. Schulman to reiterate Sprint Nextels interest in
an acquisition of Virgin Mobile USA and to highlight possible
flexibility with respect to Sprint Nextels proposed
amendments to the tax receivable agreement between Virgin Mobile
USA and the Virgin Group. Mr. Hesse also reaffirmed the
$5.00 per share valuation and stated that Sprint Nextel would
consider a share price protection mechanism consisting of
floating exchange ratios within a fixed range.
On June 19, 2009, Company X submitted a revised written
offer based on its due diligence meetings with Virgin Mobile
USA, in which it proposed to pay cash for all outstanding shares
of Virgin Mobile USA at a more defined valuation based on a
price of $4.75 per share of Class A common stock,
representing the upper half of the range it had offered on
June 1, 2009. Company X indicated that it would repay the
Virgin Group and SK Telecom in full for all amounts outstanding
under the subordinated credit agreement, at par. The valuation
offered was subject to there being in place arrangements with
Sprint Nextel and the Virgin Group relating to each of the tax
receivable agreements between Virgin Mobile USA and each of the
Virgin Group and Sprint Nextel, each of the trademark license
agreements between Virgin Mobile USA and each of the Virgin
Group and Sprint Nextel, and the PCS services agreement between
Virgin Mobile USA and Sprint Nextel.
On the same day, at a meeting of the Transaction Committee, also
attended by Messrs. Feehan, Lurie, Messenger and Klein and
Virgin Mobile USAs financial advisors, Mr. Schulman
compared the terms of the Sprint Nextel and Company X offers and
recounted his June 18, 2009 telephone conversation with
Mr. Hesse, noting that he was scheduled to attend an
industry event held by Sprint Nextel the following day and would
meet Mr. Hesse then. Representatives of Deutsche Bank
reviewed both offers and also noted that each offer reflected
the upper end of the range of estimated equity values per share
of Virgin Mobile USA based on several valuation methodologies
including but not limited to discounted cash flow, historical
trading range and relative multiples. Mr. Manas stated that
Virgin Mobile USAs financial advisors would contact
Company X the following week, urging it to submit a revised
proposal. Mr. Klein discussed various fiduciary obligations
of the committee. The Transaction Committee authorized Virgin
Mobile USA management to continue negotiations with Sprint
Nextel and Company X.
On June 20, 2009, Messrs. Schulman and Hesse met and
discussed prospective valuations of Virgin Mobile USA and
possible ways to reconcile the differences in the parties
respective offers.
On June 23, 2009, Mr. Schulman contacted the chief
financial officer of Company X and relayed that Company Xs
offer was less favorable in several key respects than an offer
received from another party. Mr. Schulman urged Company X
to reconsider its offer and strengthen its proposal. On the same
day, Mr. Manas also contacted Company Xs financial
advisor on behalf of Virgin Mobile USA, as had been decided on
June 19, 2009, and urged the same, requesting a response by
June 26, 2009. Company Xs financial advisor stated
that Company X would consider revising certain terms regarding
contractual arrangements with Virgin Mobile USAs strategic
stockholders, but was unlikely to increase its valuation of the
company.
41
On June 24, 2009, representatives of Sprint Nextel and
Wells Fargo met with Mr. Schulman and Robert Samuelson, one
of the three representatives designated by the Virgin Group on
the Virgin Mobile USA board of directors, at the residence of
Mr. Rogers in Prouts Neck, Maine to discuss proposed
amendments to the tax receivable and trademark license
agreements between Virgin Mobile USA and the Virgin Group.
Mr. Samuelson indicated that the Virgin Group would be
willing to accept an amount that was less than it would
otherwise be entitled to receive under the terms and in
satisfaction of those agreements in connection with a change of
control of Virgin Mobile USA, regardless of whether or not
Virgin Mobile USA engaged in a transaction with Sprint Nextel.
At the same meeting, Messrs. Schulman and Cowan discussed
the merger consideration, and Mr. Cowan indicated the
willingness of Sprint Nextel to increase the price per share to
approximately $5.12 in exchange for the Virgin Group agreeing to
a reduction of $11 million in the aggregate amount that it
would receive under the tax receivable termination and amended
trademark license agreements to offset all of the cost to Sprint
Nextel resulting from the increased offer of $5.12 per share.
On the same day, Mr. Hesse indicated to Mr. Schulman
that Sprint Nextels finance committee was to meet on
June 29, 2009 to review the proposed terms for a potential
transaction with Virgin Mobile USA.
On June 26, 2009, the Transaction Committee met and
received an update from Mr. Schulman. The Transaction
Committee directed Mr. Schulman to propose to Sprint Nextel
a fixed price per share of Class A common stock to be based
on the average share price during a prescribed period prior to
closing, and, if Sprint Nextel rejected this approach, to
attempt to negotiate an exchange ratio determined as of the date
of the signing of a definitive agreement, subject to a collar
mechanism that would adjust the exchange ratio within an
acceptable range of the share price of Sprint Nextels
common stock. The Transaction Committee also directed
Mr. Schulman to seek a more favorable offer from Company X.
The Transaction Committee authorized Virgin Mobile USAs
management to proceed with negotiating key agreements for, and
preparing for a more in-depth due diligence process with, each
of Sprint Nextel and Company X, as appropriate. Mr. Klein
noted that both prospective acquirers had stated that they
required employment agreements with selected executives of
Virgin Mobile USA as a condition of any transaction. Virgin
Mobile USAs position to date had been that such employment
agreements should only be discussed following the signing of any
definitive sale and purchase or merger agreement. The
Transaction Committee directed management not to discuss
employment terms or negotiate employment agreements with any
counterparty until the Transaction Committee had been satisfied
that the key terms of a potential transaction had been
sufficiently agreed upon with a potential acquirer and
explicitly permitted such discussions to ensue.
On June 29, 2009, Sprint Nextels finance committee
met via conference call to review the current status of the
potential transaction. Messrs. Hesse, Brust, Cowan and
Wunsch also participated.
On July 1, 2009, a draft merger agreement was provided by
Virgin Mobile USA to Sprint Nextel and King & Spalding
LLP. On the same day, a virtual data room, consisting of
relevant diligence materials prepared by Virgin Mobile USA, was
opened for Sprint Nextel and King & Spalding LLP to
begin due diligence.
On July 1, 2009, representatives of Company Xs
financial advisor contacted representatives of Deutsche Bank to
inquire about process updates.
During the week of July 3, 2009, Virgin Mobile USA
management had discussions with Sprint Nextel executives, in the
course of which Sprint Nextel representatives and its legal and
financial advisors continued to conduct appropriate due
diligence.
During the same week, Mr. Schulman had a series of
discussions with the chief financial officer of Company X while
Deutsche Bank had a separate series of discussions with Company
Xs financial advisor. Both sets of discussions were
focused on the process necessary for Company X to submit a
competitive offer for a potential transaction and to complete
its due diligence. Mr. Schulman spoke with the chief
executive officer of Company X on July 6 and July 7, 2009
to discuss details regarding Company Xs offer, during the
42
course of which Mr. Schulman noted that certain key terms
were missing from Company Xs offer, including proposed
amendments to key agreements with Virgin Mobile USAs
strategic stockholders, such as the PCS services agreement, the
tax receivable agreements and the trademark license agreements.
On July 8, 2009, Sprint Nextel conducted a second due
diligence call with Virgin Mobile USA management.
Mr. Schulman and Mr. Hesse had a separate call to
discuss the post-closing organizational structure and plans for
the business. Following these conversations, Sprint Nextel
provided due diligence material to Virgin Mobile USA and its
financial advisors.
On July 9, 2009, Virgin Mobile USA and Simpson
Thacher & Bartlett LLP received proposed changes to
the draft merger agreement from King & Spalding LLP.
The revised draft, among other things, added as conditions to
closing that certain Virgin Mobile USA employees enter into
employment agreements with Sprint Nextel, deleted Virgin Mobile
USAs right to terminate the merger agreement upon receipt
of a superior proposal and included a substantially higher
termination fee payable to Sprint Nextel upon a termination of
the merger agreement in connection with an alternative
acquisition proposal.
On July 10, 2009, Company X submitted a revised proposal to
Virgin Mobile USA that increased the cash consideration to be
paid to $5.00 per share but did not propose terms or amendments
to any key agreements with Virgin Mobile USAs strategic
stockholders.
On the same day, at a meeting of the Transaction Committee,
Mr. Schulman reviewed recent developments with Sprint
Nextel and Company X. Representatives of Deutsche Bank noted
that while Company X had increased the value of its offer,
Company X had not, despite several requests, specified its
assumptions and proposed amendments, if any, to the PCS services
agreement, the trademark license agreements and the tax
receivable agreements. Mr. Klein discussed the timing of
negotiations regarding the employment agreements and the
Transaction Committee agreed that no such discussions should
occur until the parties had resolved all key terms of the merger
agreement.
On July 11, 2009, Virgin Mobile USAs financial
advisors informed Company Xs financial advisor of the
Transaction Committees request that Company X clarify and
enhance certain aspects of its proposal in order to be
competitive with other alternatives being evaluated by Virgin
Mobile USA and to provide a response by July 14, 2009.
On July 13, 2009, Simpson Thacher & Bartlett LLP
provided a revised draft of the merger agreement to
King & Spalding LLP, reverting to Virgin Mobile
USAs original position with respect to the condition to
closing relating to the employment agreements and proposing a
two-tiered termination fee, whereby Virgin Mobile USA would only
be required to reimburse Sprint Nextel for expenses incurred in
the event that the merger agreement were terminated within the
first 30 days, which would help preserve Virgin Mobile
USAs ability to receive and consider alternative
acquisition proposals following the announcement of the
transaction, and thereafter the fee would increase to a small
percentage of Virgin Mobile USAs total equity value.
On July 14, 2009, Company X submitted a revised proposal to
Virgin Mobile USA with an offer price of $5.00 per share based
on its valuation of Virgin Mobile USAs total enterprise
value using net debt as of March 31, 2009. Company X
indicated that, to the extent Virgin Mobile USAs net debt
was lower, the value per share should be correspondingly higher.
Based on the net debt level as of June 30, 2009, the
implied offer was $5.23 per share. The offer did not provide any
of the previously requested clarifications as to Company
Xs intentions regarding the tax receivable agreements, the
trademark license agreements and the PCS services agreement.
On July 14, 2009, at a meeting of the Transaction
Committee, Mr. Schulman presented the revised offer from
Company X. Mr. Klein noted that it would be necessary to
consider whether the strategic stockholders were likely to
exercise their consent rights under Virgin Mobile USAs
bylaws and stockholders agreement. The Transaction
Committee decided that Virgin Mobile USA should approach two of
its strategic
43
stockholders, the Virgin Group and SK Telecom, to discuss
revised terms for a transaction that would increase the
consideration to Virgin Mobile USAs public stockholders
and the likelihood that each would consent to a transaction with
Company X.
On July 14, 2009, King & Spalding LLP provided a
revised draft of the merger agreement to Simpson
Thacher & Bartlett LLP, which required Virgin Mobile
USA to pay a higher termination fee than Virgin Mobile USA had
previously proposed (both with respect to the first thirty days
following the signing of the merger agreement and for the period
thereafter). The draft also revised the closing condition to
require only Mr. Schulman to enter into a new employment
agreement, which agreement would need to be effective at the
closing without Mr. Schulman having rescinded it or advised
Sprint Nextel that he is unwilling to continue his employment
with Sprint Nextel following the closing. Mr. Cowan also
provided Mr. Schulman with a lengthy list of open issues in
connection with the amended trademark license agreement with the
Virgin Group, including the scope of the license, the Virgin
Groups ability to use the licensed trademarks,
requirements for business practices, whether or not there should
be a proposed cap on the number of customers beyond which an
additional license fee would be payable, provisions related to
an adverse change of control and assignment, and whether the
license should include a gross-up payable to the Virgin Group in
respect of its license fees.
On July 15, 2009, Virgin Mobile USAs financial
advisors reiterated to Company Xs financial advisor the
Transaction Committees request that Company X provide
greater specificity and clarity with respect to its valuation
methodology in terms of offer price, key terms of the proposal
concerning the tax receivable agreements, the trademark license
agreements and the PCS services agreement, and the confirmatory
due diligence needed to enter into, and the time needed to sign,
a definitive agreement. Deutsche Bank requested that Company X
respond by July 17, 2009.
On July 16, 2009, Mr. Schulman conversed by phone with
Mr. Ryder and Gordon McCallum, one of the three
representatives designated by the Virgin Group on the Virgin
Mobile USA board of directors, regarding the desire for the
unaffiliated public stockholders to receive a higher price for
their Class A common stock in a potential transaction.
On July 17, 2009, at a special meeting of the Virgin Mobile
USA board of directors, Mr. Schulman discussed the progress
of the negotiations with Sprint Nextel and Company X.
Mr. Schulman noted that negotiations and due diligence with
Sprint Nextel had advanced, with a limited number of remaining
issues on the necessary transaction documents, though key terms
for the amended trademark license agreement remained unresolved
and negotiations would continue. Mr. Schulman also noted
that Virgin Mobile USAs management would not engage in
discussions regarding the employment agreements until the
parties had resolved all other material issues in the
transaction agreements. Mr. Schulman proceeded to note that
although Company X had completed its initial due diligence, its
offer was predicated upon confirmatory work and the negotiation
of revised terms for the trademark license agreements, the tax
receivable agreements and the PCS services agreement with Virgin
Mobile USAs strategic stockholders, though Company X had
not, despite repeated requests, proposed terms to amend these
agreements. Mr. Schulman advised the board that there was
considerably less certainty of completing the transaction with
Company X.
Mr. Schulman described discussions that he held separately
with Messrs. Hesse and Cowan, in which both
Messrs. Hesse and Cowan specifically stated that Sprint
Nextel holds a contractual consent right with respect to any
sale of Virgin Mobile USA pursuant to Virgin Mobile USAs
bylaws and stockholders agreement, would have no
obligation to consent to any other transaction, and would
seriously consider whether or not to refrain from giving its
consent to any transaction that would create or strengthen a
competitor. Moreover, the sale of Virgin Mobile USA to a
strategic competitor of Sprint Nextel would allow Sprint Nextel
to significantly shorten the term of the PCS services agreement
in accordance with the PCS services agreement. Based on the
statements of Messrs. Hesse and Cowan, the Virgin Mobile
USA board of directors concluded that Sprint Nextel would likely
withhold its consent to the possible transaction with Company X.
The board then discussed whether a counteroffer should be
extended to Company X and determined that a counteroffer should
not be extended to Company X because of the possibility that
such a
44
course of action could endanger the transaction with Sprint
Nextel. Finally, the board provided the Transaction Committee
with the authority to take all necessary actions in connection
with a possible transaction.
Over the weekend of July 18 and July 19, 2009,
Messrs. Cowan, Hesse and Schulman discussed a
bifurcated pricing proposal whereby Sprint Nextel
would offer $5.30 per share to the unaffiliated public
stockholders of Virgin Mobile USA and $5.12 per share to the
Virgin Group and SK Telecom provided that the Virgin Group and
SK Telecom agreed to reduce in the aggregate amount of
$7.1 million the amounts to be paid to them under the tax
receivable termination agreement, the amended trademark license
agreement
and/or the
payoff agreement to offset the cost to Sprint Nextel resulting
from the increased $5.30 per share offer price.
On July 20, 2009, at a meeting of the Transaction
Committee, Mr. Schulman provided an update regarding the
limited number of open issues remaining in connection with the
potential transaction with Sprint Nextel. Mr. Ryder
reviewed discussions he had with the Virgin Group, noting that
the Virgin Group had specifically stated that it had a
contractual consent right under Virgin Mobile USAs bylaws
and stockholders agreement to an alternative transaction
and that it would have to evaluate its consent right with
respect to terms regarding its tax receivable agreement,
trademark license agreement and subordinated credit agreement.
Based on that statement, the Transaction Committee believed that
the Virgin Group would likely withhold its consent to the
possible transaction with Company X because the terms regarding
the Virgin Groups tax receivable agreement, trademark
license agreement and subordinated credit agreement offered by
Company X were neither as certain nor as favorable as those
offered by Sprint Nextel. After the discussion, it was agreed
that increasing the consideration to unaffiliated stockholders
to $5.50 would provide significantly more favorable terms, and
the Transaction Committee directed Virgin Mobile USAs
management to seek to obtain these terms for the unaffiliated
stockholders.
During the week of July 20, 2009, King & Spalding
LLP and Simpson Thacher & Bartlett LLP continued to
negotiate various provisions of the merger agreement, the voting
agreements and other related documents, principally relating to
the size of the termination fee, the closing condition relating
to Mr. Schulmans employment agreement and the
consideration to be paid to the strategic stockholders of Virgin
Mobile USA under the merger agreement, as well as the Virgin
Groups agreement to a reduction in the amount payable to
it under the tax receivable termination agreement.
On July 20, 2009 and July 21, 2009, Mr. Schulman
contacted Mr. Cowan to discuss a proposed increase in the
consideration to unaffiliated stockholders to $5.50 per share
and a reduction in amounts to be paid to the strategic
stockholders under the tax receivable termination agreement, the
amended trademark license agreement
and/or the
payoff agreement with Virgin Mobile USA to partially offset the
cost to Sprint Nextel resulting from the increased $5.50 per
share offer price. Mr. Cowan gave no commitment at this
time that Sprint Nextel would be willing to accept the proposed
increase.
On July 21, 2009, at the offices of King &
Spalding LLP in New York, Messrs. Cowan and Rogers met with
Mr. McCallum to negotiate the terms of the amended
trademark license agreement between Virgin Mobile USA and the
Virgin Group, which revised agreement would become effective
upon the completion of a transaction with Sprint Nextel.
Messrs. Schulman and Lurie and Clark Lackert, a partner of
King & Spalding LLP, also participated in the meeting.
In addition, Josh Bayliss, the Virgin Groups General
Counsel, and Mark James, the Virgin Groups director of
Intellectual Property, participated in the discussion by phone.
Each of the outstanding issues between the parties to the
amended trademark license agreement was discussed in detail, and
King & Spalding LLP, together with representatives of
Virgin Mobile USA and the Virgin Group, produced a revised draft
that incorporated revisions to certain key defined terms and
provisions related to the scope of the license, royalties, the
limit on the number of customers that may be served using the
brand without increasing the royalty rate, customer service
levels, assignment and termination.
On the same day, at a meeting of the Transaction Committee,
Mr. Schulman provided an update on the discussions among
Virgin Mobile USA, Sprint Nextel and the Virgin Group regarding
the amended trademark
45
license agreement between Virgin Mobile USA and the Virgin
Group. Mr. Schulman also provided an update on discussions
with Sprint Nextel, the Virgin Group and SK Telecom regarding
the consideration that would be paid to unaffiliated public
stockholders for their shares of Class A common stock and
amounts due to strategic stockholders in connection with their
contractual arrangements with Virgin Mobile USA. He stated that
following Virgin Mobile USAs request for a higher offer at
$5.50 per share for unaffiliated public stockholders, Sprint
Nextel indicated it would consider increasing the consideration
payable to Virgin Mobile USAs unaffiliated public
stockholders to $5.30 per share provided that the Virgin Group
and SK Telecom agreed to reduce the amounts due to them
respectively under the tax receivable termination agreement, the
amended trademark license agreement and the payoff agreement to
offset the cost to Sprint Nextel resulting from the increased
$5.30 per share offer price (as noted in the discussions on July
18 and 19, 2009 described above). The Transaction Committee
noted that the proposed terms with Sprint Nextel were materially
more favorable to the unaffiliated public stockholders than the
terms Company X offered and that there were substantial risks
regarding Company Xs ability to complete the transaction
given that its offer was subject to completion of due diligence,
negotiations with strategic stockholders regarding Virgin Mobile
USAs contractual commitments to them, and obtaining the
consent of such strategic stockholders, which the Transaction
Committee, based on discussions with two strategic stockholders,
believed that these stockholders were unlikely to provide. The
Transaction Committee determined that the material issues
relating to the transaction between Virgin Mobile USA and Sprint
Nextel were resolved and directed Mr. Schulman and other
executives to begin negotiations regarding employment agreements
with Sprint Nextel, on the condition that any individuals
engaged in such discussions cease participating in negotiations
regarding other terms of the potential transaction.
Also on the same day, representatives of Company Xs
financial advisor contacted representatives of Deutsche Bank to
ask for an update about the process and logistics regarding a
potential transaction. Deutsche Bank responded that Virgin
Mobile USA was continuing to evaluate all possible strategic
alternatives.
On July 22, 2009, Mr. Schulman submitted a proposal to
Sprint Nextel regarding employment terms for him and certain
members of management and had an ensuing discussion with
representatives of Sprint Nextel, including customary terms of
compensation structure and Mr. Schulmans ability to
terminate his employment agreement. Sprint Nextel agreed that
Messrs. Feehan, Lurie and Messenger would enter into
binding term sheets and Mr. Schulman would enter into an
employment agreement as of the signing of the merger agreement,
with the closing condition to the merger limited to
Mr. Schulman not having intentionally rescinded his
employment agreement or advised Sprint Nextel that he is
unwilling to continue his employment with Sprint Nextel
following the closing.
On the same day, at a meeting of the Transaction Committee, the
Transaction Committee continued its July 21, 2009
discussion of the consideration that Sprint Nextel would pay to
Virgin Mobile USAs unaffiliated stockholders. It was also
decided during the meeting that, in light of the increased
authority granted by the Virgin Mobile USA board of directors to
the Transaction Committee, the Transaction Committee and not the
compensation committee would review the employment terms and
compensation matters.
On July 23, 2009, the Virgin Mobile USA board of directors
entered into an engagement letter with respect to the engagement
of Foros Advisors LLC, an advisory firm founded by Jean Manas,
previously associated with the companys other financial
advisors.
On July 24, 2009, Company X informed Virgin Mobile USA and
its financial advisors that it was withdrawing its offer and no
reason was provided.
On July 25, 2009, Mr. Cowan sent an email to
Messrs. Smith and Rogers, Douglas Lunenfeld, Sprint
Nextels Senior Counsel, a representative of
King & Spalding LLP and a representative of Wells
Fargo summarizing the open items which needed to be resolved in
order to finalize the merger agreement and the other transaction
documents and seeking input from this group. Following Sprint
Nextels internal discussions on these open points,
Mr. Cowan presented to Mr. Schulman in a telephone
conversation Sprint Nextels position on approximately
eight open issues, which, if resolved to Sprint Nextels
satisfaction, would allow
46
Sprint Nextel to offer a trifurcated consideration
pricing structure under which the consideration to be delivered
to the unaffiliated public stockholders would be increased to
$5.50 per share under the same terms as originally proposed by
Mr. Schulman on July 20 and 21, 2009 (as described above),
the consideration to be delivered to the Virgin Group would
remain at $5.12 per share, and the consideration to be delivered
to SK Telecom would be set at $4.94 per share. The reduction in
the per share consideration to be paid to SK Telecom was agreed
to by SK Telecom in lieu of its agreeing to any reduction in the
amounts payable to it under the subordinated credit agreement as
was originally proposed by Sprint Nextel, as noted in the
discussions on July 18 and 19, 2009 described above.
Messrs. Cowan and Schulman agreed to move forward with the
preparation of final transaction documents reflecting these
terms, which terms included allowing Virgin Mobile USA to speak
with third parties who proposed alternative acquisitions which
were likely to lead to superior proposals and to terminate the
merger agreement by paying a reasonable, single-tiered
termination fee in the amount of $14.2 million,
representing a small percentage of Virgin Mobile USAs
equity value, upon the acceptance by Virgin Mobile USA of a
superior acquisition proposal from a third party.
On July 26, 2009, at a meeting of the Transaction
Committee, Mr. Klein reviewed the principal terms of the
transaction with Sprint Nextel and the fiduciary obligations of
the committee and the full board of directors. Representatives
of Deutsche Bank reviewed the valuation framework regarding
Virgin Mobile USA and the contemplated transaction with Sprint
Nextel.
On the same day, a conference call occurred among
Mr. Cowan, Melissa Jobe, Sprint Nextels Senior
Counsel, and Messrs. McCallum and Bayliss to discuss and
resolve all outstanding issues regarding the amended trademark
license agreement. Mr. Lurie participated in discussions
with both Sprint Nextel and the Virgin Group to address
outstanding issues relating to this agreement, including royalty
payments, the customer cap, the Virgin Groups use of the
licensed trademarks, customer service levels, definitions for
several key terms, and termination rights and procedures.
On July 27, 2009, Messrs. Messenger, Feehan and Lurie
and executives of Sprint Nextel, along with the financial and
legal advisors of Virgin Mobile USA and the financial advisors
of Sprint Nextel, participated in a final mutual due diligence
call. On that call and throughout the rest of the day, the open
issues discussed during the July 26, 2009 conference call, as
well as all other outstanding issues related to the amended
trademark license agreement, were resolved to each partys
satisfaction.
On the same day, Sprint Nextels finance committee held a
meeting attended by Messrs. Hesse, Brust, Cowan and Wunsch
and Sandra Price, Sprint Nextels Senior Vice President of
Human Resources. Mr. Cowan presented the material terms of,
and the rationale for, the potential transaction with Virgin
Mobile USA, and the finance committee agreed to recommend to
Sprint Nextels board of directors that it approve the
transaction.
Also on the same day, after the meeting of Sprint Nextels
finance committee, Sprint Nextels board of directors held
a meeting attended by Messrs. Hesse, Brust, Cowan and
Wunsch and Ms. Price. Mr. Cowan presented the material
terms of, and the rationale for, the potential transaction with
Virgin Mobile USA. Sprint Nextels finance committee
recommended the transaction to Sprint Nextels board of
directors and Sprint Nextels board of directors approved
the transaction with Virgin Mobile USA.
Also on the same day, at a meeting of the Transaction Committee,
the Transaction Committee approved the transaction with Sprint
Nextel and recommended that the Virgin Mobile USA board of
directors similarly approve the transaction. At the
July 27, 2009 meeting of the Transaction Committee,
Deutsche Bank delivered its oral opinion, subsequently confirmed
in writing as of the same date to the Transaction Committee, to
the effect that, as of the date of the opinion, based upon and
subject to the assumptions, limitations, qualifications and
conditions set forth in the opinion, the merger consideration
was fair, from a financial point of view, to the holders of
Class A common stock, excluding Sprint Nextel, the Virgin
Group, SK Telecom and their affiliates. At a special meeting of
the Virgin Mobile USA board of directors held the same day,
Mr. Klein reviewed the terms of the transaction and the
fiduciary obligations of the board of directors. Based on the
47
recommendation of the Transaction Committee and its approval of
the merger agreement, the Virgin Mobile USA board of directors
determined that the merger agreement and the terms of the merger
are fair to and in the best interests of Virgin Mobile USA and
its stockholders, declared the advisability of the merger
agreement, approved the merger and the merger agreement and
recommended the adoption of the merger agreement by Virgin
Mobile USAs stockholders.
A merger agreement in the form approved by the Virgin Mobile USA
board of directors was executed by representatives of Virgin
Mobile USA and Sprint Nextel along with the payoff agreement,
the tax receivable termination agreement and the amended
trademark license agreement.
On July 28, 2009, Sprint Nextel and Virgin Mobile USA
issued a joint press release announcing the proposed transaction.
Virgin
Mobile USAs Reasons for the Merger; Recommendation of the
Virgin Mobile USA Board of Directors
The Virgin Mobile USA board of directors carefully evaluated the
merger agreement and related transactions. The board of
directors, under the direction and based upon the recommendation
of the Transaction Committee, which was comprised of all
independent directors of the board and had broad authority to
review, evaluate and approve the proposed transaction, carefully
evaluated and determined that the merger agreement and the
transactions contemplated thereby, including the proposed
merger, are advisable and fair to, and in the best interests of
Virgin Mobile USA and its stockholders. At a meeting held on
July 27, 2009, the board of directors resolved to approve
the merger agreement and the transactions contemplated thereby,
including the proposed merger, and to recommend to the
stockholders of Virgin Mobile USA that they vote for the
adoption of the merger agreement.
In the course of reaching its recommendation, the Transaction
Committee consulted with the companys senior management,
financial advisors and outside legal counsel and considered a
number of substantive factors, both positive and negative, and
potential benefits and detriments of the merger to Virgin Mobile
USA and its stockholders. The Transaction Committee believed
that, taken as a whole, the following factors supported its
decision to approve the proposed merger:
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Challenges facing stand-alone growth prospects for Virgin Mobile
USA:
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the overall U.S. wireless market has matured rapidly and
the future growth of Virgin Mobile USA would primarily need to
come from attracting consumers from other wireless providers.
While there is still growth opportunity in the prepaid segment,
partly due to the recession spurring consumers to re-evaluate
prepaid services, it is a highly competitive segment in which
margins were likely to face continued pressure;
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Virgin Mobile USA faced challenges in developing and
implementing growth opportunities, seeking external growth at a
time of increased market competition and achieving its future
projections and revenue growth; and
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many of Virgin Mobile USAs challengers have substantially
greater financial, technical, personnel and marketing resources,
as well as a larger market share.
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Strong strategic rationale based on increased growth
opportunities and reduced integration risks:
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the alignment of Virgin Mobile USA with Sprint Nextels
network and marketing resources would enable Virgin Mobile USA
to increase its growth rate and take advantage of increasing
consumer interest in prepaid wireless service;
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the integration of Virgin Mobile USAs strong brand
recognition and marketing strategy with Sprint Nextels
portfolio, including Boost Mobile and postpaid services, would
enable Virgin Mobile USA
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48
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to target segments of the wireless market more effectively and
create new opportunities in distribution and life cycle
management;
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the combination of Virgin Mobile USAs operations with
Boost Mobile and Sprint Nextel would create significant
efficiencies and synergies, including potentially substantial
reductions in operating expenditures relating to general and
administrative, sales and marketing, IT, customer care services,
handset costs and subsidies, and product development costs,
estimated by Virgin Mobile USA to be in excess of $100 million
within two years on an annualized basis;
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the possibility that Virgin Mobile USA may realize additional
strategic business relationships with, and benefit from the
resources of, Sprint Nextel, including access to Sprint
Nextels greater financial, technical and marketing
resources;
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the minimization of integration risks given Virgin Mobile
USAs current use of Sprint Nextels network platform
and technology; and
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the fact that Sprint Nextels management has deep knowledge
of Virgin Mobile USAs business and organization since
Virgin Mobile USAs inception, which further minimizes
integration risks and enhances the ability of Sprint Nextel and
Virgin Mobile USA to achieve efficiencies and synergies that
have the potential to increase stockholder value.
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Superior value to strategic alternatives:
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the Transaction Committee, in consultation with its financial
advisors, considered a range of strategic alternatives,
including continuing Virgin Mobile USAs existing business
plan or pursuing an alternative business plan to maximize
returns to Virgin Mobile USAs stockholders by limiting
growth, with its attendant expenses, thereby increasing earnings
and cash flow, in addition to aggressively seeking other offers
for Virgin Mobile USA;
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the Transaction Committee believed, after consultation with its
financial advisors, that none of the available alternative
strategies would have provided a premium to the trading range of
Class A common stock after Virgin Mobile USAs results
for the quarter ended March 31, 2009 had been announced in
May 2009, noting, in particular, that the trading range of Class
A common stock for the week immediately following the
announcement of such results represented a 52-week high and that
none of the alternative strategies were projected to deliver a
premium to such a trading range;
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the Transaction Committee believed, after consultation with its
financial advisors, that it was unlikely that another purchaser
would make a higher offer for Virgin Mobile USA given that,
among all potential acquirers in the market, Company X would be
the company most interested in acquiring Virgin Mobile USA other
than Sprint Nextel;
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the Transaction Committee noted that, although Company X had
approached Virgin Mobile USA prior to the signing of the merger
agreement, Company X ultimately suggested a possible transaction
value below the implied offer price made by Sprint Nextel, the
proposal may have created a taxable event for Virgin Mobile USA
stockholders and there were substantial risks regarding the
ability of Company X to complete the merger, including that
(1) Sprint Nextel had specifically stated that it had no
obligation to consent to any other transaction with respect to
its contractual consent right under Virgin Mobile USAs
bylaws and stockholders agreement and that it would have
to seriously consider whether or not to refrain from giving its
consent with respect to any transaction that would create or
strengthen a competitor; (2) the Virgin Group had
specifically stated that it had a contractual consent right
under Virgin Mobile USAs bylaws and stockholders
agreement to an alternative transaction and that it would have
to evaluate its consent right with respect to terms regarding
its tax receivable agreement, trademark license agreement and
subordinated credit agreement; and (3) based on the
statements made by Sprint Nextel and the Virgin Group, the
Transaction Committee believed that (i) Sprint Nextel would
likely withhold its consent to the possible transaction with
Company X and (ii) the Virgin Group would likely withhold its
consent to the possible transaction with Company X because the
terms regarding its tax receivable agreement,
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49
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trademark license agreement and subordinated credit agreement
offered by Company X were neither as certain nor as favorable as
the terms offered by Sprint Nextel. See
Background of the Merger above for more
details;
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the all stock merger consideration from Sprint Nextel
represented a per share value for holders of Class A common
stock (other than the Virgin Group, SK Telecom and Sprint
Nextel) of $5.50 based on the merger agreement, a premium of
approximately:
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§
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41.8% over $3.88 per share, which was the closing price of
Class A common stock as of July 24, 2009, the last
business day prior to the day of the meeting of the Virgin
Mobile USA board of directors to approve the merger agreement;
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§
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10.0 - 188.0% over $1.91 - $5.00 per share,
which was the closing trading price range of Class A common
stock for the three months prior to July 24, 2009;
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§
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45.5% over $3.78 per share, which was the two-week
volume-weighted average price of Class A common stock for
the two weeks prior to July 24, 2009; and
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§
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42.5% over $3.86 per share, which was the one-week
volume-weighted average price of Class A common stock for
the one week prior to July 24, 2009.
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the business diversification and larger market capitalization
and public float of Sprint Nextel compared to Virgin Mobile USA
would provide Virgin Mobile USA stockholders with greater
liquidity and the opportunity to hold liquid stock allowing them
to elect to continue to participate in the growth and
development of the combined company or dispose of their shares;
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the expectation that the merger would qualify as a
reorganization within the meaning of Section 368(a) of the
Code, in which case the receipt of the merger consideration,
except in connection with any cash received in lieu of
fractional shares of Sprint Nextel common stock, generally would
be tax-free to Virgin Mobile USA stockholders;
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the written opinion of Deutsche Bank that, as of July 27,
2009, based upon and subject to the procedures followed,
assumptions made, matters considered, and limitations,
qualifications and conditions set forth in its opinion, the
merger consideration to be received in the merger was fair from
a financial point of view to the holders of Class A common
stock, excluding Sprint Nextel, the Virgin Group, SK Telecom and
their affiliates; and
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the fact that Sprint Nextel was able to reach agreement with
Virgin Mobile USAs other strategic stockholders, the
Virgin Group and SK Telecom, relating to the repayment amounts
under the tax receivable termination and amended trademark
license agreements with the Virgin Group and the payoff
agreement.
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Fair terms of the merger agreement:
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the conditions to effect the merger as described in The
Merger Agreement Conditions to Completion of the
Merger are mostly limited to those that are likely to be
within the control of the parties and can be satisfied with high
likelihood;
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the merger agreement is not subject to approval by Sprint Nextel
stockholders, thus increasing the likelihood that the merger
will be consummated;
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no external financing is required for the transaction, which
increases the likelihood that the merger will be consummated;
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the provisions of the merger agreement allow Virgin Mobile USA
to engage in negotiations with, and provide information to,
third parties in response to credible inquiries from third
parties regarding alternative acquisition proposals; and
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the ability of Virgin Mobile USA to specifically enforce the
terms of the merger agreement.
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50
The Transaction Committee also considered and, as appropriate,
balanced against the potential benefits of the merger a number
of neutral and potentially negative factors, including the
following:
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the precise value of the merger consideration that would be
delivered to Virgin Mobile USA stockholders upon closing is not
certain because the merger consideration is based on an exchange
ratio determined by reference to the Average Parent Stock Price.
Based on a review of Sprint Nextels trading history and
analysts forecasts for the Sprint Nextel common stock, the
Transaction Committee negotiated a collar mechanism to provide
some protection against a significant decline of Sprint
Nextels stock price prior to the effective time of the
merger;
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the number of shares of Sprint Nextel common stock to be
received by the public holders of Class A common stock in
connection with the merger is limited by the ceiling of the
exchange ratio of 1.3668 if the Average Parent Stock Price were
to be lower than $4.02;
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the loss of control over the future operations of Virgin Mobile
USA following the merger;
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the risk that the voting agreements with the Virgin Group and SK
Telecom, the non-solicitation provision in the merger agreement,
the termination fee and related provisions in the merger
agreement could discourage third parties from seeking to
negotiate a superior proposal for a business combination with
Virgin Mobile USA, although they would not preclude bona fide
alternative proposals;
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the requirement under the merger agreement that Virgin Mobile
USA obtain Sprint Nextels consent before it can take
specified actions as described in The Merger
Agreement Conduct of Business Prior to Closing
and that Virgin Mobile USA is otherwise restricted in the
conduct of its business, so that, among other things, Virgin
Mobile USAs ability to enter into financing arrangements
during this pre-closing period is limited;
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the possible disruptions to Virgin Mobile USAs business
that could result from the announcement of the merger and the
completion of the transactions required to effect the merger,
including the diversion of management and employee attention,
employee attrition, the potential inability of Virgin Mobile USA
to retain, recruit and motivate its key personnel and the
potential negative effect on business and customer relationships;
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the risks and costs to Virgin Mobile USA if the merger does not
close, and the potential effect of the resulting public
announcement of termination of the merger agreement on, among
other things, the market price for Class A common stock,
which may reflect a market assumption that the merger will
occur, and the perception of Virgin Mobile USA by equity
investors, Virgin Mobile USAs operating results and Virgin
Mobile USAs ability to complete an alternative
transaction; and
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other matters described in Risk Factors.
|
The Transaction Committee concluded that the potentially
negative factors associated with the proposed merger were
outweighed by the potential benefits that it expected Virgin
Mobile USAs stockholders would realize as a result of the
merger, including the belief that the proposed merger would
maximize the immediate value of Virgin Mobile USAs
stockholders shares and eliminate certain risks associated
with Virgin Mobile USAs strategic plan, including those
risks associated with being a stand-alone mobile virtual network
operator in a market with increasing competition related to
airtime pricing, having to rely on Sprint Nextel to provide
lower network rates from time to time under the PCS services
agreement, and having to rely on other third parties, such as
handset suppliers and retail partners, to continue to do
business with the company on favorable terms. Accordingly, the
Virgin Mobile USA board of directors, under the direction and
based upon the recommendation of the Transaction Committee,
determined that the merger agreement and the transactions
contemplated thereby, including the merger, are advisable and
fair to, and in the best interests of, Virgin Mobile USA and its
stockholders.
51
In addition, the Virgin Mobile USA board of directors and the
Transaction Committee were aware of and considered the interests
that the companys directors and executive officers may
have with respect to the merger that differ from, or are in
addition to, their interests as stockholders of Virgin Mobile
USA generally, as described in Interests of
Certain Persons in the Merger beginning on page 63.
The foregoing discussion of the information and factors
considered by the Virgin Mobile USA board of directors and the
Transaction Committee is not exhaustive, but Virgin Mobile USA
believes it includes all of the material factors considered by
the board of directors and the Transaction Committee. In view of
the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters,
the board of directors did not consider it practicable or useful
to, and did not attempt to, quantify or otherwise assign
relative or specific weight or values to any of these factors.
Rather, each of the board of directors and the Transaction
Committee viewed its position and recommendation as being based
on an overall analysis and on the totality of the information
presented to and factors considered by it. In reaching their
decisions, individual directors may have weighted the factors
described above differently. After considering this information,
the board of directors approved the merger agreement and the
merger, and recommended that Virgin Mobile USA stockholders
adopt the merger agreement.
This explanation of Virgin Mobile USAs reasons for the
merger and other information presented in this section is
forward-looking in nature and, therefore, should be read in
light of the factors described under Cautionary Statement
Regarding Forward-Looking Statements.
Opinion
of Virgin Mobile USAs Financial Advisor
Opinion of Deutsche Bank. Deutsche Bank has
acted as financial advisor to the Transaction Committee. At the
July 27, 2009 meeting of the Transaction Committee,
Deutsche Bank delivered its oral opinion, subsequently confirmed
in writing as of the same date to the Transaction Committee, to
the effect that, as of the date of the opinion, based upon and
subject to the assumptions, limitations, qualifications and
conditions set forth in the opinion, the merger consideration
was fair, from a financial point of view, to the holders of
Class A common stock, excluding Sprint Nextel, the Virgin
Group, SK Telecom and their affiliates.
The full text of the Deutsche Bank opinion, which sets forth,
among other things, the assumptions made, matters considered,
and limitations, qualifications and conditions of the review
undertaken by Deutsche Bank in connection with the opinion, is
attached as Annex B to this proxy
statement/prospectus and is incorporated herein by reference.
The Deutsche Bank opinion was approved and authorized for
issuance by a fairness opinion review committee and is addressed
to, and for the use and benefit of, the Transaction Committee.
It is not a recommendation to Virgin Mobile USAs
stockholders to approve the merger. At the Transaction
Committees request, the Deutsche Bank opinion is limited
to the fairness, from a financial point of view, of the merger
consideration to the holders of Class A common stock,
excluding Sprint Nextel, the Virgin Group, SK Telecom and their
affiliates. No limitations were placed on this request. Deutsche
Bank was not asked to, and the Deutsche Bank opinion does not,
address the fairness of the merger, or any consideration
received in connection therewith, as to the holders of any other
class of securities, creditors or other constituencies of Virgin
Mobile USA, nor does it address the fairness of the contemplated
benefits of the merger. Deutsche Bank expressed no opinion as to
the merits of the underlying decision by Virgin Mobile USA to
engage in the merger, or the relative merits of the merger as
compared to any alternative business strategies, nor did it
express an opinion as to how any holder of shares of
Class A common stock should vote with respect to the
merger. Deutsche Bank did not express any view or opinion as
to the fairness, financial or otherwise, of the amount or nature
of any compensation payable to or to be received by any of
Virgin Mobile USAs officers, directors, or employees, or
any group of these people in connection with the merger,
relative to the merger consideration to be received by the
holders of Class A common stock. Further, Deutsche Bank
expressed no view as to, and its opinion did not address, the
relative impact on the holders of Class A common stock of
any payments (other than the payment of the merger consideration
in respect of shares of Class A common stock) to be made by
Virgin Mobile USA, Sprint Nextel or their affiliates in
connection with the merger, or any arrangements entered into by
Virgin Mobile USA or Sprint Nextel, including any of the
agreements or arrangements as described
52
in Voting Agreements and Other Transaction
Agreements. Deutsche Bank assumed with the Transaction
Committees permission, that the payments and arrangements
were negotiated on arms-length terms and are fair to the holders
of Class A common stock. Deutsche Bank also assumed with
the Transaction Committees permission that no agreements
or arrangements with the holders of any class of securities,
creditors or other constituencies of Virgin Mobile USA, other
than the agreements and arrangements contemplated in the merger
agreement, are being entered into, amended, or terminated as
part of the merger. You are urged to read the Deutsche Bank
opinion carefully and in its entirety. This summary of the
Deutsche Bank opinion set forth in this proxy
statement/prospectus is qualified in its entirety by reference
to the full text of the Deutsche Bank opinion.
In connection with Deutsche Banks role as financial
advisor to the Transaction Committee, and in arriving at its
opinion, Deutsche Bank, among other things, reviewed certain
publicly available financial and other information concerning
Virgin Mobile USA and Sprint Nextel, including certain publicly
available financial forecasts relating to the business and
financial prospects of Sprint Nextel prepared by certain
research analysts. These forecasts included business and
financial metrics such as subscribers, revenue and EBITDA.
Deutsche Bank also reviewed certain internal analyses, financial
forecasts and other information relating to Virgin Mobile USA
prepared by management of Virgin Mobile USA. Deutsche Bank also
held discussions with members of Virgin Mobile USAs
management regarding the businesses and prospects of Virgin
Mobile USA. In addition, Deutsche Bank, (1) reviewed the
reported prices and trading activity of Class A common
stock and Sprint Nextel common stock, (2) to the extent
publicly available, compared certain financial and stock market
information for Virgin Mobile USA and Sprint Nextel with similar
information for certain other companies it considered relevant
whose securities are publicly traded, (3) to the extent
publicly available, reviewed the financial terms of certain
recent business combinations it deemed relevant,
(4) reviewed the merger agreement and certain related
documents, as described in Voting Agreements
and Other Transaction Agreements, and (5) performed
any other studies and analyses and considered any other factors
as it deemed appropriate. With respect to the Deutsche Bank
opinion, Sprint Nextel did not provide internally prepared
analyses and did not comment on any publicly available forecasts
relating to its business and financial prospects. Deutsche Bank
assumed, with the Transaction Committees permission, that
certain publicly available financial forecasts relating to the
business and financial prospects of Sprint Nextel were a
reasonable basis upon which to evaluate the business and
financial prospects of Sprint Nextel. Deutsche Bank expressed no
view as to any of these analyses, estimates or forecasts,
including the assumptions on which they were based.
Deutsche Bank did not assume responsibility for the independent
verification of, and did not independently verify, any
information, whether publicly available or furnished to it,
concerning Virgin Mobile USA and Sprint Nextel, including,
without limitation, any financial information considered in
connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, Deutsche Bank, with the Transaction
Committees permission, assumed and relied upon the
accuracy and completeness of all relevant information. Deutsche
Bank did not conduct a physical inspection of any of the
properties or assets, and did not prepare or obtain any
independent evaluation or appraisal of any of the assets or
liabilities (including any contingent, derivative or off-balance
sheet liabilities), of Virgin Mobile USA or Sprint Nextel or any
of their respective subsidiaries, nor did Deutsche Bank evaluate
the solvency or fair value of Virgin Mobile USA or Sprint Nextel
under any state or federal law relating to bankruptcy,
insolvency or similar matters. With respect to the financial
forecasts made available to Deutsche Bank and used in its
analyses, Deutsche Bank assumed with the Transaction
Committees permission that they had been reasonably
prepared on bases reflecting the best currently available
estimates and judgments of the management of Virgin Mobile USA
as to the matters covered thereby. In rendering its opinion,
Deutsche Bank expressed no view as to the reasonableness of the
forecasts or the assumptions on which they are based. The
Deutsche Bank opinion is necessarily based upon the economic,
market and other conditions, and information made available to
Deutsche Bank, as of the date of the opinion. Deutsche Bank
expressly disclaimed any undertaking or obligation to advise any
person of any change in any fact or matter affecting the
Deutsche Bank opinion of which it becomes aware after the date
of the opinion.
For purposes of rendering its opinion, Deutsche Bank assumed
with the Transaction Committees permission that, in all
respects material to its analysis, the merger would be
consummated in accordance with its terms, without any material
waiver, modification or amendment of any term, condition or
agreement, and
53
without any adjustment in the exchange ratio attributable to
changes in the outstanding shares of capital stock of Sprint
Nextel or Virgin Mobile USA by reason of any reclassification,
recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon. Deutsche
Bank assumed that all material governmental, regulatory,
contractual or other approvals and consents required in
connection with the consummation of the merger will be obtained
and that in connection with obtaining any approvals and
consents, no material restrictions or conditions will be
imposed. Deutsche Bank is not a legal, regulatory, tax or
accounting expert and relied on the assessments made by Virgin
Mobile USA and its advisors with respect to these issues.
Deutsche Banks Financial Analysis. The
following is a summary of the material financial analyses
underlying the Deutsche Bank opinion, delivered to the
Transaction Committee in connection with the merger at a meeting
of the Transaction Committee on July 27, 2009. The order of
the analyses described below does not represent relative
importance or weight given to those analyses by Deutsche Bank or
the Transaction Committee. Considering the data below without
considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
Deutsche Banks financial analyses.
Historical Stock Performance. Deutsche Bank
analyzed the initial value of the consideration of $5.50 to be
received by public holders of Class A common stock pursuant
to the merger agreement (based upon an exchange ratio calculated
as if the signing date were the closing date, referred to herein
as the initial value) in relation to the closing price as of
July 24, 2009, the closing prices over three months prior
to July 24, 2009, the two-week volume-weighted average
price prior to July 24, 2009 and the one-week
volume-weighted average price prior to July 24, 2009. This
analysis indicated that the value per share of Class A
common stock to be received by public stockholders of Virgin
Mobile USA pursuant to the merger agreement represented:
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a premium of 41.8% based upon the closing price of $3.88 per
share as of July 24, 2009;
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a premium of 10.0 - 188.0% based upon the closing trading price
range of $1.91 - $5.00 per share for three months prior to
July 24, 2009;
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a premium of 45.5% based upon the two-week volume-weighted
average price of $3.78 per share prior to July 24,
2009; and
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a premium of 42.5% based upon the one-week volume-weighted
average price of $3.86 per share prior to July 24, 2009.
|
Analysis of Equity Analyst Price Targets. As
of July 27, 2009, equity analysts covering Virgin Mobile
USA were expecting the following Virgin Mobile USA share prices:
Virgin
Mobile USA
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Price Target for
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Publication Date
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Analyst
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Next 12 Months
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June 14, 2009
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Thomas Weisel
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$
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3.00
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May 13, 2009
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Macquarie
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4.00
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May 12, 2009
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Barclays Capital
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4.50
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These analysts represented the entire coverage of Virgin Mobile
USA as reported by the applicable Bloomberg page. Deutsche Bank
compared these expectations with the initial value of the
consideration offered to each public stockholder of Virgin
Mobile USA, and noted that this value of $5.50 per share
represented a premium of 37.5% - 103.7% per share.
54
Analysis of Selected Publicly Traded
Companies. Deutsche Bank compared certain
financial information and commonly used valuation measurements
for Virgin Mobile USA to corresponding information and
measurements for a group of five publicly traded wireless
telecommunications companies consisting of MetroPCS
Communications Inc., Leap Wireless International, Inc., Sprint
Nextel, United States Cellular Corporation, and iPCS Inc., which
we refer to collectively as the Selected Companies. The
financial information and valuation measurements included
(1) common equity market valuation and (2) ratios of
common equity market value as adjusted for debt and cash, which
we refer to as Total Enterprise Value, to EBITDA. To calculate
the trading multiples for Virgin Mobile USA and the Selected
Companies, Deutsche Bank used publicly available information
concerning historical and projected financial performance,
including published historical financial information and
earnings estimates reported by selected equity research analysts.
The following are the multiples for Total Enterprise Value (TEV)
to EBITDA estimated by Deutsche Bank as of July 24, 2009:
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Selected Companies TEV/
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Virgin Mobile USA Historical TEV/
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2009 Estimated EBITDA
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Forward EBITDA
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MetroPCS
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7.0
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x
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|
Q1-09
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3.4
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x
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Leap
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6.9
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Q4-08
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2.8
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iPCS
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6.4
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Q3-08
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3.5
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Sprint Nextel
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4.4
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Q2-08
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4.1
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United States Cellular
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4.2
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Q1-08
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4.3
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Q4-07
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7.7
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Deutsche Bank noted that, based on the ratio of Total Enterprise
Value to EBITDA, the initial value of the consideration offered
to the public stockholders of Virgin Mobile USA was within the
range of ratios of the comparable companies. Deutsche Bank
further noted that the implied Total Enterprise Value to EBITDA
based on the initial value of the consideration offered to the
public stockholders of Virgin Mobile USA was above the range of
ratios observed by Virgin Mobile USA over the past
18 months of public trading activity.
As Virgin Mobile USA was the only public company operating under
a mobile virtual network operator business model at the time,
none of the companies utilized as a comparison is identical to
Virgin Mobile USA. Accordingly, Deutsche Bank believed that the
Selected Companies collectively represented the most similar
business model to Virgin Mobile USA as wireless
telecommunications service providers with a balance of offerings
to both prepaid and postpaid subscribers. As such, the analysis
of publicly traded comparable companies is not simply
mathematical. Rather, it involves complex considerations and
qualitative judgments, reflected in Deutsche Banks
opinion, concerning differences in financial and operating
characteristics of the comparable companies and other factors
that could affect the public trading value of the comparable
companies.
Analysis of Discounted Cash Flows. Deutsche
Bank performed an illustrative discounted unlevered free cash
flow analysis to determine indications of implied equity value
per share of Class A common stock derived from Virgin
Mobile USAs managements estimates. In performing the
illustrative discounted cash flow analysis, Deutsche Bank
applied discount rates ranging from 13.0% to 15.0% to projected
unlevered free cash flows of Virgin Mobile USA for each of the
years ending December 31, 2009, 2010 and 2011.
55
Deutsche Bank estimated Virgin Mobile USAs discount rate
using a standard industry calculation for weighted average cost
of capital. This calculation contained the following market data
and assumptions:
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Market risk premium
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6.5%
|
Size premium (based on companies with market capitalizations
between $218.7 million and $453.3 million)
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2.7%
|
Risk free rate (10-year average of 10-year treasury yield)
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|
4.6%
|
Estimated cost of Virgin Mobile USA debt
|
|
10.5%
|
Corporate tax rate
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|
35%
|
Unlevered Beta
|
|
1.15 - 1.35
|
Debt/Capital
|
|
0.4 - 0.6
|
The terminal values of Virgin Mobile USA were calculated based
on a range of unlevered free cash flow perpetuity growth rates
of -1.0% to 1.0%, which reflect several factors, including the
increasingly competitive landscape in which Virgin Mobile USA
operates and managements outlook on the business
prospects within this landscape, the business scale of Virgin
Mobile USA relative to its competitors and the financial
resources available to Virgin Mobile USA that would impact its
ability grow its subscriber base. Deutsche Bank derived implied
equity value per share of Class A common stock ranging from
$3.20 to $4.94.
Analysis of Discounted Virgin Mobile USA Future Share
Price. Deutsche Bank performed an illustrative
discounted future share price analysis to determine indications
of a range of implied potential forward equity value per share
of Class A common stock derived from Virgin Mobile
USAs managements estimates of EBITDA and expected
net debt balances. In performing the illustrative discounted
future stock price analysis, Deutsche Bank applied a range of
Total Enterprise Value to EBITDA multiples to 2011 Adjusted
EBITDA as provided by Virgin Mobile USAs management, and
discussed beginning on page 61 of this proxy
statement/prospectus, subtracted ending 2010 expected net debt
as provided by Virgin Mobile USA management, and applied equity
discount rates ranging from 17.5% to 22.5%.
The equity discount rate range was estimated using a standard
industry calculation, containing the following market data and
assumptions:
|
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Market risk premium
|
|
6.5%
|
Size premium (based on companies with market capitalizations
between $218.7 million and $453.3 million)
|
|
2.7%
|
Risk free rate (10-year average of 10-year treasury yield)
|
|
4.6%
|
Unlevered Beta
|
|
1.15 - 1.35
|
Debt/Capital
|
|
0.4 - 0.6
|
Deutsche Bank derived an implied equity value per share of
Class A common stock ranging from $3.91 to $4.82.
Analysis of Discounted Dividend
Strategy. Deutsche Bank performed an illustrative
discounted cash return analysis to determine indications of cash
return per share of Virgin Mobile USA common stock derived from
Virgin Mobile USAs managements estimates of an
illustrative Dividend Strategy. In performing the
illustrative discounted cash return analysis, Deutsche Bank
applied equity discount rates ranging from 14.0% to 16.0% to
projected cash returned to common stockholders of Virgin Mobile
USA for each of the years ending December 31, 2009, 2010,
2011 and 2012. As the Discounted Dividend Strategy envisions
Virgin Mobile USA stockholders realizing the cash potential of
the business based on the existing subscriber base only,
Deutsche Bank believed that the cash flows estimated under this
methodology entailed less risk than the Virgin Mobile USA
management projections evaluated in the Discounted Future Share
Price Analysis, and as such, a lower equity discount rate was
appropriate for this methodology. The analysis assumes that any
remaining value, less rationalization costs, is returned to
stockholders as cash in 2013. Deutsche Bank derived implied cash
returns per share of Class A common stock ranging from
$3.70 to $3.90. The Discounted
56
Dividend Strategy Analysis provided one of a number of
benchmarks to evaluate competing alternatives considered by
Virgin Mobile USA. This methodology was intended to form a
benchmark of the cash potentially available to Virgin Mobile USA
stockholders if the company were to focus on paying down debt
and returning capital to stockholders, versus pursuing a more
growth-oriented strategy.
Historical Exchange Ratio. Deutsche Bank
analyzed the initial exchange ratio of 1.196 per share of Sprint
Nextel common stock, as well as the maximum exchange ratio of
1.3668 per share of Sprint Nextel common stock and minimum
exchange ratio of 1.0630 per share of Sprint Nextel common
stock, for each public stockholders share of Class A
common stock pursuant to the merger agreement. This analysis
indicated that the exchange ratio offered to the public
stockholders of Virgin Mobile USA pursuant to the merger
agreement represented:
|
|
|
|
|
a premium of 39.3% based upon the initial exchange ratio, and
23.9% premium based on the minimum exchange ratio, to the
exchange ratio implied by the closing prices of Sprint Nextel
and Virgin Mobile USA as of July 24, 2009;
|
|
|
|
a premium of 46.9% based upon the initial exchange ratio, and
30.6% premium based on the minimum exchange ratio, to the
exchange ratios implied by the one-month average share prices of
Sprint Nextel and Virgin Mobile USA as of July 24, 2009;
|
|
|
|
a premium of 58.3% based upon the initial exchange ratio, and
40.8% premium based on the minimum exchange ratio, to the
exchange ratios implied by the three-month average share prices
of Sprint Nextel and Virgin Mobile USA as of July 24, 2009;
|
|
|
|
a premium of 111.0% based upon the initial exchange ratio, and
87.5% premium based on the minimum exchange ratio, to the
exchange ratios implied by the six-month average share prices of
Sprint Nextel and Virgin Mobile USA as of July 24,
2009; and
|
|
|
|
a premium of 142.5% based upon the initial exchange ratio, and
115.6% premium based on the minimum exchange ratio, to the
exchange ratios implied by average share prices of Sprint Nextel
and Virgin Mobile USA since the Virgin Mobile USA initial public
offering, as of July 24, 2009.
|
Price Protection Mechanism. Deutsche Bank
reviewed the price protection mechanism to be received by the
public stockholders of Class A common stock as part of its
analysis of the transaction. This analysis indicated that the
range of Sprint Nextel common stock share prices at which the
price protection mechanism would no longer be employed was
approximately $4.02 to $5.17 per share of Sprint Nextel common
stock, as compared to the average equity analyst Sprint Nextel
common stock share price target of $5.39. As of July 27,
2009, the range of Sprint Nextel common stock equity analyst
share price targets was as follows:
57
Sprint
Nextel
|
|
|
|
|
|
|
|
|
|
|
Price Target for
|
Publication Date
|
|
Analyst
|
|
Next 12 Months
|
|
July 14, 2009
|
|
Sanford C. Bernstein
|
|
$
|
3.00
|
|
July 13, 2009
|
|
FBR Capital Markets
|
|
|
8.00
|
|
July 10, 2009
|
|
BMO
|
|
|
5.50
|
|
July 9, 2009
|
|
BAS-ML
|
|
|
5.50
|
|
July 6, 2009
|
|
Piper Jaffray
|
|
|
5.00
|
|
July 6, 2009
|
|
Auriga USA
|
|
|
7.00
|
|
July 5, 2009
|
|
Soleil Securities
|
|
|
5.00
|
|
June 29, 2009
|
|
UBS
|
|
|
5.00
|
|
June 15, 2009
|
|
Thomas Weisel
|
|
|
5.70
|
|
May 5, 2009
|
|
Barclays Capital
|
|
|
5.00
|
|
May 5, 2009
|
|
Macquarie
|
|
|
7.00
|
|
May 5, 2009
|
|
Morgan Stanley
|
|
|
1.00
|
|
May 5, 2009
|
|
Pali International
|
|
|
7.50
|
|
May 5, 2009
|
|
RBC
|
|
|
5.00
|
|
May 5, 2009
|
|
Robert W. Baird
|
|
|
6.00
|
|
May 4, 2009
|
|
Citi
|
|
|
5.50
|
|
May 4, 2009
|
|
Goldman Sachs
|
|
|
5.00
|
|
Summary:
|
|
|
|
|
|
|
Mean
|
|
$
|
5.39
|
|
High
|
|
$
|
8.00
|
|
Low
|
|
$
|
1.00
|
|
The foregoing summary describes all analyses and factors that
Deutsche Bank deemed material in its presentation to the
Transaction Committee of the board of directors, but is not a
comprehensive description of all analyses performed and factors
considered by Deutsche Bank in connection with preparing its
opinion. The preparation of a fairness opinion is a complex
process involving the application of subjective business
judgment in determining the most appropriate and relevant
methods of financial analysis and the application of those
methods to the particular circumstances and, therefore, is not
readily susceptible to summary description. Deutsche Bank
believes that its analyses must be considered as a whole and
that considering any portion of these analyses and of the
factors considered without considering all analyses and factors
could create a misleading view of the process underlying the
opinion. In arriving at its fairness determination, Deutsche
Bank did not assign specific weights to any particular analyses.
In conducting its analyses and arriving at its opinion, Deutsche
Bank utilized a variety of generally accepted valuation methods.
The analyses were prepared solely for the purpose of enabling
Deutsche Bank to provide its opinion to the Transaction
Committee as to the fairness of the merger consideration to the
public holders of Class A common stock and do not purport
to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are
inherently subject to uncertainty. In connection with its
analyses, Deutsche Bank made, and was provided by Virgin Mobile
USA management with, numerous assumptions with respect to
industry performance, general business and economic conditions
and other matters, many of which are beyond Virgin Mobile
USAs control. Analyses based on estimates or forecasts of
future results are not necessarily indicative of actual past or
future values or results, which may be significantly more or
less favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of Virgin Mobile
USA or its advisors, neither Virgin Mobile USA nor Deutsche Bank
nor any other person assumes responsibility if future results or
actual values are materially different from these forecasts or
assumptions.
58
The terms of the merger were determined through negotiations
between Virgin Mobile USA and Sprint Nextel and were approved by
the Virgin Mobile USA board of directors. Although Deutsche Bank
provided advice to the Transaction Committee during the course
of these negotiations, the decision to enter into the merger was
solely that of the Virgin Mobile USA board of directors. As
described above, the opinion and presentation of Deutsche Bank
to the Transaction Committee were only two of a number of
factors taken into consideration by the Virgin Mobile USA board
of directors in making its determination to approve the merger.
Deutsche Banks opinion was provided to the Transaction
Committee to assist it in connection with its consideration of
the merger and does not constitute a recommendation to any
holder of Virgin Mobile USA common stock as to how to vote with
respect to the merger.
Virgin Mobile USA selected Deutsche Bank as financial advisor in
connection with the merger based on Deutsche Banks
qualifications, expertise, reputation and experience in mergers
and acquisitions. Virgin Mobile USA has retained Deutsche Bank
pursuant to a letter agreement dated June 2, 2009, which we
refer to as the engagement letter. For services rendered in
connection with the merger and the delivery of its opinion,
Virgin Mobile USA has agreed to pay Deutsche Bank approximately
$900,000. Additionally, assuming the 10-day average price of
Sprint Nextel common stock is between $4.02 and $5.17 per share,
Virgin Mobile USA will pay Deutsche Bank a fee of approximately
$3.8 million which is contingent upon the consummation of
the merger, providing Deutsche Bank a total fee of
$4.7 million. Regardless of whether the merger is
consummated, Virgin Mobile USA has agreed to reimburse Deutsche
Bank for its reasonable expenses incurred in connection with the
merger or otherwise arising out of the retention of Deutsche
Bank under the engagement letter. Virgin Mobile USA has also
agreed to indemnify Deutsche Bank and certain related persons to
the full extent lawful against certain liabilities, including
certain liabilities under the federal securities laws arising
out of its engagement or the merger.
Deutsche Bank is an internationally recognized investment
banking firm experienced in providing advice in connection with
mergers and acquisitions and related transactions. Deutsche Bank
is an affiliate of Deutsche Bank AG, which, together with its
affiliates, we refer to as the DB Group. One or more members of
the DB Group have, from time to time, provided investment
banking, commercial banking (including extension of credit) and
other financial services unrelated to the merger to Sprint
Nextel, Virgin Mobile USA and Virgin Mobile USAs other
strategic stockholders and their respective affiliates for which
it has received compensation. Excluding the compensation payable
to Deutsche Bank as described above in connection with the
merger, during the past two years, the DB Group has received in
the aggregate approximately $2.0 million from Virgin Mobile
USA as compensation for investment banking and other financial
services. The DB Group may provide investment and commercial
banking services to Virgin Mobile USA and Sprint Nextel in the
future, for which the DB Group would expect to receive
compensation. In the ordinary course of its business, members of
the DB Group may actively trade in the securities and other
instruments and obligations of Virgin Mobile USA, Sprint Nextel
and Virgin Mobile USAs other strategic stockholders and
their respective affiliates. Accordingly, the DB Group may at
any time hold a long or short position in these securities,
instruments and obligations.
Virgin Mobile USAs Other Financial
Advisors. In connection with the merger, Virgin
Mobile USA also engaged as its financial advisors both Colonnade
Securities LLC, an advisory firm that Jean Manas (who was
previously with Deutsche Bank) joined as an independent
contractor before starting Foros Advisors LLC, and, at a later
date, Foros Advisors LLC. For the services rendered by Colonnade
Securities LLC, Virgin Mobile USA will pay Colonnade Securities
LLC a fee of approximately $50,000. Assuming the
10-day
average price of Sprint Nextel common stock is between $4.02 and
$5.17 per share, Virgin Mobile USA will pay Colonnade Securities
LLC an additional fee of approximately $1.53 million upon
the consummation of the merger, for a total compensation of
approximately $1.58 million. Foros Advisors LLC was
retained on July 23, 2009 and will not be paid a fee in
connection with the merger.
59
Sprint
Nextels Reasons for the Merger
The Sprint Nextel board of directors reasons for entering
into the merger agreement include:
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|
|
Sprint Nextels belief that the transaction will
enhance its ability to compete in the growing prepaid
business. Customer usage of prepaid wireless
services is growing with consumers keenly focused on value.
Sprint Nextel believes that this transaction will strengthen its
position in the growing prepaid business by bringing together
under one umbrella the Virgin Mobile brand with
Sprint Nextels Boost Mobile business. These
complementary prepaid brands, each with a distinctive offer,
style and appeal to different customer demographics, will
continue to serve existing and prospective customers following
the completion of the transaction.
|
|
|
|
Sprint Nextels expectation of obtaining financial
benefits as a result of the transaction. The
merger is expected to be free cash flow accretive for Sprint
Nextel before synergies and is expected to reduce Sprint
Nextels debt to EBITDA ratio. Furthermore, significant
synergies are expected to be derived from general and
administrative reductions, operational efficiencies, and
streamlined distribution. In addition, the
stock-for-stock
structure assists in Sprint Nextels goal of preserving
cash.
|
|
|
|
Sprint Nextel would gain deeper managerial talent with
additional expertise in the prepaid
business. Daniel H. Schulman, Virgin Mobile
USAs current Chief Executive Officer, would be responsible
for the strategy, growth and operations of Sprint Nextels
prepaid business after the completion of the merger. Sprint
Nextel believes Mr. Schulman would bring exceptional
telecom leadership credentials to Sprint Nextel. In addition to
Mr. Schulman, the transaction would bring to Sprint Nextel
a talented group of executives with deep experience in the
prepaid business.
|
|
|
|
The transaction would enhance Sprint Nextels ability
to cross-sell its full suite of products and services across a
larger target audience. As a part of Sprint
Nextel, Virgin Mobile USA would get voice and data capacity at
more favorable economics, have better access to handsets and
wireless devices, each of which should position Virgin Mobile
USA for growth in the prepaid segment. In addition, as customers
choose to move from prepaid to post-paid (or vice versa), Sprint
Nextel believes it would have a greater opportunity to move
customers between the Sprint brand and the Virgin Mobile USA
brand.
|
|
|
|
The transaction enabled Sprint Nextel and Virgin Mobile
USA to negotiate an extension of the term and scope of the
trademark license agreement with the Virgin
Group. Under an amended agreement which would
become effective upon the completion of the merger, the term and
scope of the trademark license agreement with the Virgin Group
will be expanded, with the potential overall term extending
(with renewal options) through 2046.
|
In evaluating the potential transaction, Sprint Nextels
board of directors weighed the potential benefits described
above against the potential risks of the transaction, including
in particular that Sprint Nextel would not be successful in
achieving the expected synergies and that, as a result, Sprint
Nextel would not obtain the financial benefits of the merger it
had expected.
In view of the wide variety of factors considered in connection
with its evaluation of the merger and the complexity of these
matters, the Sprint Nextel board of directors did not find it
useful and did not attempt to assign any relative or specific
weights to the various factors that it considered in reaching
its determination to approve the merger and the merger
agreement. In addition, individual members of the Sprint Nextel
board of directors may have given differing weights to different
factors. The Sprint Nextel board of directors conducted an
overall analysis of the factors described above, including
through discussions with, and inquiry of, Sprint Nextels
management, which in turn discussed some of the matters
described above with Sprint Nextels outside legal and
financial advisors.
60
Virgin
Mobile USA Unaudited Prospective Financial Information
Virgin Mobile USA does not as a matter of course make public
long-term projections as to future revenues, earnings or other
results because of, among other reasons, the uncertainty of the
underlying assumptions and estimates. Virgin Mobile USA is
including this prospective financial information in this proxy
statement/prospectus, however, to provide its stockholders
access to certain non-public unaudited prospective financial
information that was made available to the Sprint Nextel board
of directors in accordance with the terms of a confidentiality
agreement between Sprint Nextel and Virgin Mobile USA, the
Virgin Mobile USA board of directors and Virgin Mobile
USAs financial advisors in connection with the merger.
This information included Virgin Mobile USAs senior
managements estimates of net service revenue, adjusted
EBITDA and free cash flow.
The unaudited prospective financial information was not prepared
with a view toward public disclosure, and the inclusion of this
information should not be regarded as an assurance by Virgin
Mobile USA, its financial advisors or Sprint Nextel that the
prospective financial information is predictive of actual future
results; actual future results could materially differ. Virgin
Mobile USAs financial advisors did assume with the
Transaction Committees permission that the financial
information had been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the
management of Virgin Mobile USA as to the matters covered
thereby.
The unaudited prospective financial information reflects
numerous estimates and assumptions with respect to industry
performance, general business, economic, regulatory, litigation,
market and financial conditions, interest on investments, and
matters specific to Virgin Mobile USAs business, such as
approval and successful launch of new products and competitive
conditions, many of which are beyond Virgin Mobile USAs
control. The unaudited prospective financial information was, in
general, prepared solely for internal use and is subjective in
many respects. As a result, there can be no assurance that the
prospective results will be realized or that actual results will
not be significantly higher or lower than estimated. Virgin
Mobile USAs stockholders are urged to review Virgin Mobile
USAs most recent SEC filings for a description of risk
factors with respect to Virgin Mobile USAs business. See
Cautionary Statement Regarding Forward-Looking
Statements beginning on page 29 and Where You
Can Find More Information beginning on page 141. The
unaudited prospective financial information was not prepared
with a view toward complying with GAAP, the published guidelines
of the SEC regarding projections or the guidelines established
by the American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. Neither Virgin Mobile USAs independent
registered public accounting firm, nor any other independent
accountants, have compiled, examined, or performed any
procedures with respect to the unaudited prospective financial
information contained herein, nor have they expressed any
opinion or any other form of assurance on the information or its
achievability. The report of Virgin Mobile USAs
independent registered public accounting firm contained in
Virgin Mobile USAs Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
by reference into this proxy statement/prospectus, relates to
Virgin Mobile USAs historical financial information. It
does not extend to the unaudited prospective financial
information and should not be read to do so. Furthermore, the
unaudited prospective financial information does not take into
account any circumstances or events occurring after the date it
was prepared.
The following table presents prospective net service revenue,
adjusted EBITDA and free cash flow for the fiscal years ending
2009 through 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ending December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Net service
revenue(1)
|
|
$
|
1,146.7
|
|
|
$
|
1,214.3
|
|
|
$
|
1,297.5
|
|
Adjusted
EBITDA(2)
|
|
|
126.9
|
|
|
|
136.1
|
|
|
|
154.1
|
|
Free cash
flow(3)
|
|
|
58.4
|
|
|
|
71.4
|
|
|
|
89.5
|
|
61
|
|
|
(1) |
|
Net service revenue consists primarily of voice and mobile data
services, reduced primarily by sales and E911 taxes. |
|
(2) |
|
Adjusted EBITDA is calculated as net income (loss) plus interest
expense - net, income tax expense, tax receivable agreements
expense, depreciation and amortization (including the
amortization of intangibles associated with the acquisition of
Helio LLC), write-offs of property and equipment, non-cash
compensation expense, equity issued to a member and debt
extinguishment costs. |
|
(3) |
|
Free cash flow is calculated as net cash provided by operating
activities less capital expenditures. Free cash flow is a
non-GAAP indicator of cash generated by the business after
operating expenses, capital expenditures and interest expense. |
In preparing the above unaudited prospective financial
information, Virgin Mobile USA made the following material
assumptions for the period from 2009 to 2011:
|
|
|
|
|
no legislative changes affecting the wireless industry;
|
|
|
|
no significant economic or regulatory changes;
|
|
|
|
no significant impact from pending litigation;
|
|
|
|
no significant increase in total gross adds and churn as
compared to Virgin Mobile USAs latest results;
|
|
|
|
continuation of Virgin Mobile USAs recent trends of an
increased mix shift of gross adds and resulting customer base
from prepaid to hybrid customers;
|
|
|
|
no significant increase in average revenue per user, which we
refer to as ARPU, for each type of prepaid, hybrid and postpaid
customer;
|
|
|
|
total ARPU and resulting net service revenue would increase
marginally on a year-on-year basis due to a mix shift in
customer base;
|
|
|
|
equipment margin would increase with the shift in customer base;
|
|
|
|
no significant change in cost of service as a percentage of
revenue; and
|
|
|
|
no significant change in operating expenses.
|
No assurances can be given that these assumptions will
accurately reflect future conditions. In addition, the above
unaudited prospective financial information reflects numerous
assumptions and estimates as to future events made by Virgin
Mobile USAs management that Virgin Mobile USAs
management believed were reasonable at the time the unaudited
prospective financial information was prepared. The unaudited
prospective financial information above does not give effect to
the merger.
Readers of this proxy statement/prospectus are cautioned not to
unduly rely on the unaudited prospective financial information
set forth above. No representation is made by Virgin Mobile USA,
Sprint Nextel or any other person to any stockholder of Virgin
Mobile USA regarding the ultimate performance of Virgin Mobile
USA compared to the information included in the unaudited
prospective financial information above. The inclusion of
unaudited prospective financial information in this proxy
statement/prospectus should not be regarded as an indication
that this prospective financial information will be an accurate
prediction of future events, and they should not be relied on as
an accurate prediction of future events.
VIRGIN MOBILE USA DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE
THE PROSPECTIVE FINANCIAL INFORMATION ABOVE TO REFLECT
CIRCUMSTANCES EXISTING
62
AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE
EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS
UNDERLYING THIS PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER
APPROPRIATE.
Interests
of Certain Persons in the Merger
Some Virgin Mobile USA directors and executive officers have
interests in the merger that are different from, or are in
addition to, the interests of Virgin Mobile USAs
unaffiliated holders of Class A common stock.
Interests
of Directors Designated by Virgin Mobile USAs Strategic
Stockholders
The Virgin Mobile USA board of directors consists of ten
directors, including Douglas B. Lynn, who is designated by
Sprint Nextel; Gordon D. McCallum, Mark Poole and Robert W.
Samuelson, who are designated by the Virgin Group; and Richard
H. Chin and Sungwon Suh, who are designated by SK Telecom.
In connection with the merger and the other transactions
contemplated by the merger agreement, Virgin Entertainment
Holdings, Inc., an affiliate of the Virgin Group, which we refer
to as Virgin Entertainment, and SK Telecom will receive from
Sprint Nextel, at the effective time of the merger, the amount
necessary for the Operating Partnership to pay off and terminate
its obligations under the subordinated credit agreement, as
described in Voting Agreements and Other
Transaction Agreements Payoff Agreement
beginning on page 72; the Virgin Group will receive from
Sprint Nextel, on the first business day that is at least two
days after the effective time of the merger, the amount
necessary for the release of obligations under the tax
receivable agreement, as described in Voting
Agreements and Other Transaction Agreements Tax
Receivable Termination Agreement beginning on
page 73; and Virgin Enterprises Limited, an affiliate of
the Virgin Group, which we refer to as Virgin Enterprises, will
receive from Sprint Nextel, at the effective time of the merger,
an amount representing the initial payment for certain exclusive
rights to use Virgin Mobile USA and related brands
under the amended trademark license agreement, as described in
Voting Agreements and Other Transaction
Agreements Amended Trademark License Agreement
beginning on page 73. As a result of these agreements, the
Virgin Group and SK Telecom have interests in the merger that
may be different from, or in addition to, the interests of
Virgin Mobile USAs unaffiliated holders of Class A common
stock.
As a result of these potential conflicts of interest, Virgin
Mobile USA established a special committee of independent and
disinterested directors to consider the merger and to make a
recommendation to the full board of directors. Moreover,
Mr. Lynn did not participate in any discussion relating to
the proposed transaction and did not attend any of the meetings
of the board of directors in which the proposed transaction was
discussed. See Background of the Merger.
Effect
on Equity-Based Awards Outstanding Under the Omnibus
Plan
As discussed below under Treatment of Virgin
Mobile USA Stock Options and Other Equity-Based Awards,
upon completion of the merger, the outstanding and unexercised
Virgin Mobile USA stock options and equity-based awards will be
converted into stock options and equity-based awards of Sprint
Nextel (or cancelled without payment or consideration, in the
case of underwater Virgin Mobile USA stock options).
Under the merger agreement, while the service-based vesting
conditions applicable to the converted stock options and
equity-based awards will remain unchanged, the performance-based
vesting conditions for some equity-based awards will be modified
(in the case of vesting conditions linked to 2009 performance)
or automatically deemed to be met at the end of 2010 (in the
case of vesting conditions linked to 2010 performance). In
addition, pursuant to the Omnibus Plan and applicable equity
award or employment agreements, if an equity award holders
employment or service as a member of the Virgin Mobile USA board
of directors is terminated by Virgin Mobile USA or the surviving
corporation without cause or by the participant for good reason,
in either case within six to 12 months (depending on the
applicable agreement)
63
immediately following a change in control transaction such as
the contemplated merger, then that equity award holders
unvested stock options and other equity-based awards will become
immediately vested. Upon the effective time of the merger, all
existing members of the Virgin Mobile USA board of directors
will be removed from the board and therefore deemed
involuntarily terminated without cause by Virgin Mobile USA and,
in accordance with the Omnibus Plan and applicable award
agreements, all of the directors outstanding equity-based
awards will fully vest.
The following table sets forth the approximate value of
(1) equity-based awards that would become fully vested for
each of the executive officers and the members of the Virgin
Mobile USA board of directors if each executive officers
employment and each directors service on the board were to
be terminated upon the consummation of the merger and
(2) the value of other severance payments and benefits for
each of the executive officers pursuant to the respective new
employment agreements described below in New
Employment Agreements (assuming restricted stock unit
grants and performance-based awards have been made under such
agreements), in the case of Messrs. Schulman, Feehan, Lurie
and Messenger, and pursuant to Mr. Marchbanks and
Ms. Gihuleys existing employment agreements, in the
event the executive officer were to be terminated without cause
upon the consummation of the merger, assuming an
October 31, 2009 closing date and that the per share value
of Class A common stock is $5.00 as of that date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Other
|
|
|
|
Value of Accelerated
|
|
|
Severance Payments
|
|
|
|
Equity-Based Awards
|
|
|
and Benefits
|
|
|
Executive Officers:
|
|
|
|
|
|
|
|
|
Daniel H. Schulman
|
|
$
|
11,546,195
|
|
|
$
|
4,516,667
|
|
John D. Feehan Jr.
|
|
|
3,045,945
|
|
|
|
1,550,000
|
|
Jonathan H. Marchbank
|
|
|
2,525,610
|
|
|
|
1,650,000
|
|
David R.J. Messenger
|
|
|
2,909,410
|
|
|
|
1,550,000
|
|
Peter Lurie
|
|
|
2,800,110
|
|
|
|
1,275,000
|
|
Marie Gihuley
|
|
|
504,475
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,331,745
|
|
|
$
|
10,921,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
|
|
|
|
|
|
|
Equity-Based Awards
|
|
|
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
Kenneth T. Stevens
|
|
$
|
173,335
|
|
|
|
|
|
Richard Chin
|
|
|
160,000
|
|
|
|
|
|
L. Kevin Cox
|
|
|
173,335
|
|
|
|
|
|
Gordon McCallum
|
|
|
160,000
|
|
|
|
|
|
Mark Poole
|
|
|
173,335
|
|
|
|
|
|
Thomas O. Ryder
|
|
|
260,005
|
|
|
|
|
|
Robert W. Samuelson
|
|
|
173,335
|
|
|
|
|
|
Sung Won Suh
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,433,345
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|
|
|
|
|
|
|
|
|
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|
|
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The executive officer table above does not include any
gross-up
payments for excise and related taxes that may be payable to
Mr. Schulman in connection with a change in control under
his employment agreement. In general, Section 4999 of the
Code imposes a 20% excise tax on an executive officer on some
payments made in connection with a change in control.
Annual
and Mid-Term Incentive Plans
Some of the employees of Virgin Mobile USA (including the
executive officers) participate in the Virgin Mobile USA 2009
Incentive Plan and the Virgin Mobile USA 2009 Mid-Term Incentive
Plan. Under the merger
64
agreement, Sprint Nextel has agreed to continue, or to cause the
surviving corporation to continue, these incentive plans through
the end of the current performance cycles ending on
December 31, 2009 and to pay the bonuses, if any, earned
for the current performance cycles pursuant to the terms and
conditions set forth in the plans. However, the extent to which
the applicable performance conditions for a bonus under the
plans are met will be determined based on Virgin Mobile
USAs actual performance (adjusted in a manner reasonably
acceptable to Sprint Nextel to eliminate the impact of costs
relating to the negotiation, closing, transition and integration
of the transactions contemplated by the merger agreement)
through the end of the calendar month which ends on, or
immediately precedes, the closing date of the merger and
comparing the performance to Virgin Mobile USAs targeted
year-to-date
performance goals through the end of that calendar month.
In addition, under the terms of the incentive plans, in the
event of a participants termination of employment without
cause or for good reason within a specified period following the
consummation of the merger, the participant will remain entitled
to receive bonus payments under the plans to the extent not
previously paid, based on actual or targeted performance, as set
forth under the plans.
New
Employment Agreements
Amended
and Restated Employment Agreement with Daniel H. Schulman,
Sprint Nextels President Prepaid
Contemporaneously with entering into the merger agreement on
July 27, 2009, Sprint Nextel entered into an employment
agreement with Mr. Schulman. Mr. Schulmans
employment agreement will become effective upon and subject to
the completion of the merger and will supersede his current
agreement with Virgin Mobile USA. Under the terms of the merger
agreement, one of the conditions to Sprint Nextels
obligations to effect the merger is that Mr. Schulman will
not have rescinded his employment agreement with Sprint Nextel
or advised Sprint Nextel that he is unwilling to continue
employment following the effective time of the merger. The
following is a summary of the terms of the employment agreement.
This summary does not cover all of the provisions of the
employment agreement.
Mr. Schulmans employment agreement does not provide
for a specified term, but instead provides that
Mr. Schulmans employment term will end upon a
termination of his employment. Under his employment agreement,
Mr. Schulman will receive an annual base salary equal to
$750,000, subject to increases from time to time, as determined
in the discretion of the compensation committee of Sprint
Nextels board of directors. Mr. Schulman will also be
eligible to earn short-term and long-term incentive awards for
the 2009, 2010 and 2011 calendar years.
Mr. Schulmans short-term and long-term incentives for
2009 will be based on the achievement of the performance goals
set under the corresponding short-term and long-term Virgin
Mobile USA incentive plans currently in effect except that the
level of achievement will be determined at the effective time
using
year-to-date
performance against
year-to-date
target.
Mr. Schulmans short-term incentives for 2010 and 2011
will be based on the achievement of objectives set by the
compensation committee of Sprint Nextels board of
directors with input from Mr. Schulman, which objectives
will be based on the criteria set forth in a schedule to the
employment agreement, and on Mr. Schulman satisfying
employment requirements at the end of 2010 and 2011, subject to
exceptions set forth in the employment agreement.
Mr. Schulmans bonus for 2010 and for 2011 at target
for each year is 125% of his annual base salary, and his maximum
bonus is 250% of his annual base salary.
Mr. Schulmans long-term aggregate target incentive
opportunity for 2010 and 2011 is $6,000,000, 25% of which will
be awarded in restricted stock units granted under Sprint
Nextels 2007 Omnibus Incentive Plan and will vest, subject
to exceptions set forth in the employment agreement, based on
Mr. Schulman satisfying employment requirements at the end
of 2010 and 2011, and the balance of which will be awarded as
performance-based awards subject to a maximum payout of 150% of
the performance-based awards. These performance-based awards
will be payable at the discretion of the compensation committee
in cash or in shares of Sprint Nextel stock, granted under
Sprint Nextels 2007 Omnibus
65
Incentive Plan and will vest, subject to exceptions set forth in
the employment agreement, based on the achievement of
performance objectives for 2010 and 2011 set by the compensation
committee with input from Mr. Schulman, which objectives
will be consistent with the criteria set forth in a schedule to
the employment agreement, and on the satisfaction of an
employment requirement at the end of 2011.
If Mr. Schulmans employment is terminated by reason
of death or disability or by Sprint Nextel without cause (as
defined in his employment agreement) or Mr. Schulman
resigns for good reason (as defined in his employment
agreement), Mr. Schulman will generally be entitled to
receive severance payments and benefits consisting of:
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a lump sum payment equal to two times the sum of (1) his
annual base salary in effect on the closing date of the merger
and (2) his short-term target bonus amount for 2009;
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a pro rata portion (based on actual performance) of the actual
bonuses for any uncompleted measuring period that he would have
been entitled to receive; and
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full vesting of any unvested restricted stock units and a pro
rata payment of his performance-based awards (based on actual
performance), if any.
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Mr. Schulman will have the shorter of two years or the
remaining term of the option following any termination by Sprint
Nextel without cause or resignation for good reason to exercise
any vested stock options previously granted by Virgin Mobile
USA, unless he breaches any of his restrictive covenant
obligations under his employment agreement.
For purposes of Mr. Schulmans employment agreement,
except with respect to equity awards granted to
Mr. Schulman after the effective time of the merger, good
reason includes (in addition to customary constructive
termination triggering events) either (1) a resignation by
Mr. Schulman for any reason during a
30-day
period commencing on the date that is six months after a change
in control of Sprint Nextel, or (2) a resignation by
Mr. Schulman for any reason during a
60-day
period commencing on January 1, 2012.
If, within six months following the effective time of the
merger, either (1) Mr. Schulman is still employed by
Sprint Nextel or (2) his employment is terminated by reason
of death, disability, by Sprint Nextel without cause or he
resigns for good reason, all unvested equity awards previously
granted to him by Virgin Mobile USA will fully vest and any
restricted stock units will be distributed as provided in the
applicable award agreements.
If, within 24 months of a change in control of Sprint
Nextel, Mr. Schulmans employment is terminated by
reason of death, disability, by Sprint Nextel without cause or
Mr. Schulman resigns for good reason, all unvested future
equity awards granted before 2012 will fully vest, except that
some awards subject to multiple levels of performance-vesting
will vest based on required achievement, as established by
Sprint Nextels compensation committee.
If, within six months prior to a change in control of Sprint
Nextel and in anticipation of the change in control,
Mr. Schulmans employment is terminated by Sprint
Nextel without cause or Mr. Schulman resigns for good
reason, all unvested future equity awards granted before 2012
will fully vest as if the date of termination was immediately
after the date of the change in control, but payment of the
amounts will be made at that time as if a change in control had
not occurred.
If Mr. Schulmans employment is terminated under the
terms of a mutually agreed succession plan with respect to the
position of Sprint Nextels President Prepaid
prior to the occurrence of any of the events that
66
constitute good reason, Mr. Schulman will generally be
entitled to receive severance payments and benefits consisting
of:
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a lump sum payment equal to the sum of (1) his annual base
salary in effect on the date of termination and (2) his
target bonus amount for the year in which the termination occurs;
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a pro rata portion of the actual bonuses for any uncompleted
measuring period that he would have been entitled to
receive; and
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full vesting of any unvested restricted stock units and a pro
rata payment of his performance-based awards, if any.
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If any payments
and/or
benefits that Mr. Schulman is entitled to receive in
connection with the merger between Virgin Mobile USA and Sprint
Nextel give rise to an excise tax liability under
Section 280G of the Code, Mr. Schulman is entitled to
a gross-up
payment in an amount equal to the lesser of (1) $5,000,000
and (2) the amount necessary so that after payment by
Mr. Schulman of all federal, state and local taxes, he
retains an amount of such payment from Sprint Nextel equal to
the excise tax imposed upon these payments. If Mr. Schulman
becomes subject to Section 280G excise tax liability in
connection with a future change of control of Sprint Nextel, he
will be entitled to
gross-up
rights equivalent to those provided to Sprint Nextels
Chief Executive Officer.
Mr. Schulmans employment agreement provides for
customary protections of Sprint Nextels confidential
information and intellectual property and provides that
Mr. Schulman will not, during his employment term and for a
period of one year following his period of employment, compete
with Sprint Nextel or hire/solicit employees of Sprint Nextel.
Amended
and Restated Employment Agreements with John D.
Feehan, Jr., Peter Lurie and David R.J. Messenger
On September 3, 2009, Sprint Nextel entered into additional
employment agreements with the following Virgin Mobile USA
executive officers, each of which will become effective upon and
is subject to the completion of the merger: John D.
Feehan, Jr.; Peter Lurie; and David R.J. Messenger.
Jonathan H. Marchbank, Virgin Mobile USAs current
Chief Operating Officer, did not enter into a new employment
agreement with Sprint Nextel and, assuming the merger is
consummated prior to January 1, 2010, his employment with
Virgin Mobile USA will terminate effective January 1, 2010.
The new employment agreements with Messrs. Feehan, Lurie
and Messenger will each supersede and replace the
executives current employment agreements with Virgin
Mobile USA at the effective time of the merger. The following is
a summary of the terms of the employment agreements. This
summary does not cover all of the provisions of the employment
agreements.
The employment agreements provide for an initial term commencing
on the consummation of the merger and terminating on
March 31, 2012, with automatic one-year renewal periods,
unless either party provides notice of non-renewal. Under the
employment agreements, the executives will each serve as a
Senior Vice President and receive an annual base salary equal to
$400,000, $400,000 and $375,000 for Messrs. Feehan,
Messenger and Lurie, respectively, subject to increases from
time to time. The executives will also be eligible to earn
short-term and long-term incentive awards for the 2009, 2010 and
2011 calendar years.
The executives short-term and long-term incentives for
2009 will be based on the achievement of the performance goals
set under the corresponding short-term and long-term Virgin
Mobile USA incentive plans currently in effect except that the
level of achievement will be determined at the effective time
using
year-to-date
performance against
year-to-date
target.
67
The executives short-term incentives for 2010 and 2011
will be based on the achievement of objectives set by the
compensation committee of Sprint Nextels board of
directors with input from Sprint Nextels
President Prepaid, which objectives will be based on
the criteria set forth in a schedule to the employment
agreements. An executives bonus for 2010 and for 2011 at
target for each year is 75% of his annual base salary, and his
maximum bonus is 150% of his annual base salary subject to the
executive satisfying the employment requirement set forth in his
employment agreement, subject to exceptions set forth in the
employment agreement. Each executive has a long-term aggregate
target incentive opportunity for 2010 and 2011, which is
$2,348,000, $2,348,000 and $1,898,000 for Messrs. Feehan,
Messenger and Lurie, respectively, 25% of which will be awarded
in restricted stock units granted under Sprint Nextels
2007 Omnibus Incentive Plan and will vest, subject to exceptions
set forth in the employment agreement, based on the executives
satisfying employment requirements at the end of 2010 and 2011
and the balance of which will be awarded as performance-based
awards subject to a maximum payout of 150% of the
performance-based awards. These performance-based awards will be
payable at the discretion of the compensation committee in cash
or in shares of Sprint Nextel stock, granted under Sprint
Nextels 2007 Omnibus Incentive Plan and will vest, subject
to exceptions set forth in the employment agreements, based on
the achievement of performance objectives for 2010 and 2011 set
by the compensation committee with input from the
President Prepaid, which objectives will be
consistent with the criteria set forth in a schedule to the
employment agreements, and on the satisfaction of an employment
requirement at the end of 2011.
If an executives employment is terminated by reason of
death or disability or by Sprint Nextel without cause (as
defined in each employment agreement) or the executive resigns
for good reason (as defined in each employment agreement), each
executive will be entitled to receive severance payments and
benefits consisting of:
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payment of either (1) base salary in effect on the closing
date of the merger and continued health, death and disability
benefits, each for 12 months following the date of
termination or (2) in the event the termination occurs
within 12 months of the effective time of the merger or a
subsequent change in control of Sprint Nextel, a lump sum amount
equal to the executives annual base salary in effect on
the closing date of the merger;
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an amount equal to the executives target short-term bonus
for 2009;
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a pro rata portion (based upon actual performance) of the actual
bonuses for any uncompleted measuring period (or, in the case of
an executives mid-term bonus for 2009, full payment of the
amounts payable pursuant to Virgin Mobile USAs 2009
Mid-Term Incentive Plan);
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full vesting of any outstanding equity awards held by the
executive as of the effective time of the merger; and
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full vesting of any unvested restricted stock units and a pro
rata payment of performance-based awards (based upon actual
performance), if any.
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For purposes of each executives employment agreement,
except with respect to equity awards granted after the effective
time of the merger, good reason includes, in addition to
customary constructive termination triggering events, a
resignation by an executive for any reason during a
60-day
period commencing on January 1, 2012 and for which at least
60 days prior written notice has been provided to
Sprint Nextel.
If any payments
and/or
benefits that an executive is entitled to receive in connection
with the merger with Virgin Mobile USA or any subsequent change
of control of Sprint Nextel would subject the executive to an
excise tax under Section 280G of the Code, the payments
and/or
benefits will be reduced to the extent necessary to avoid
subjecting the executive to the excise tax, unless the executive
determines that he would be in a better net-after-tax position
without the reduction in payments and benefits, in which case
there would be no reduction in payments and benefits.
68
Under the employment agreements, each executive reaffirms his
obligations under his employment responsibilities agreement,
previously entered into with Virgin Mobile USA, which contains
customary restrictive covenants and a definition of
competition which includes Sprint Nextels
business.
Indemnification
and Insurance of Virgin Mobile USA Directors and Executive
Officers
The merger agreement provides that, following completion of the
merger, Sprint Nextel will indemnify and hold harmless each
present and former officer, director or employee of Virgin
Mobile USA or any of its subsidiaries and any fiduciary under
any Virgin Mobile USA benefit plan, determined as of the
effective time of the merger, as provided in Virgin Mobile
USAs amended and restated certificate of incorporation,
which we refer to as Virgin Mobile USAs certificate of
incorporation, and Virgin Mobile USAs bylaws.
The merger agreement also provides that Sprint Nextel will
obtain tail insurance policies with a claims period
of six years from the completion of the merger from an insurance
carrier with the same or better credit rating as Virgin Mobile
USAs current insurance carrier with respect to
directors and officers liability insurance and
fiduciary liability insurance, which we refer to collectively as
D&O insurance, for the persons covered by Virgin Mobile
USAs existing D&O insurance, with terms, conditions,
retentions and levels of coverage at least as favorable as
Virgin Mobile USAs existing D&O insurance with
respect to matters existing or occurring prior to the effective
time of the merger (including in connection with the merger
agreement and the actions contemplated thereby). See The
Merger Agreement Other Covenants and
Agreements Indemnification and Insurance for
more information.
Board of
Directors of Sprint Nextel Following Completion of the
Merger
There are no changes to the composition of the Sprint Nextel
board of directors contemplated in connection with the merger.
Information about the current Sprint Nextel directors and
executive officers can be found in the documents listed under
Where You Can Find More Information.
Sprint
Nextels Dividend Policy
In light of conditions in its business and financial markets,
Sprint Nextel decided in early 2008 that it will not pay
dividends for the foreseeable future, and Sprint Nextel did not
declare any dividends on its shares in 2008 or to date in 2009.
In addition, under Sprint Nextels revolving bank credit
facility, Sprint Nextel is restricted from paying cash dividends
unless its ratio of total indebtedness to trailing four quarters
earnings before interest, taxes, depreciation and amortization
and other non-cash gains or losses, such as goodwill impairment
charges, is less than 2.5 to 1.0. Currently, Sprint Nextel is
restricted from paying dividends due to this covenant.
Manner
and Procedure for Exchanging Virgin Mobile USA Shares; No
Fractional Shares
The conversion of Class A common stock, Class C common
stock and preferred stock into the right to receive the merger
consideration will occur automatically at the effective time of
the merger. Prior to the effective time of the merger, Sprint
Nextel will appoint Computershare Limited (or another commercial
bank or trust company reasonably acceptable to Virgin Mobile
USA) to act as the exchange agent, for the purpose of exchanging
Virgin Mobile USA shares for the merger consideration.
Simultaneously with or prior to the effective time of the
merger, Sprint Nextel will deposit or cause to be deposited with
the exchange agent
book-entry
shares of Sprint Nextel common stock representing the aggregate
stock portion of the merger consideration payable to Virgin
Mobile USAs stockholders and a cash amount in immediately
available funds sufficient to pay the aggregate cash in lieu of
fractional shares portion of the merger consideration.
Promptly after the effective time of the merger, each holder of
Virgin Mobile USA shares will receive a letter from Sprint
Nextel indicating any documents that may be required from the
holder and the number of shares of Sprint Nextel common stock
and amount of cash in lieu of fractional shares, if any, that
the holder will receive in exchange for the holders Virgin
Mobile USA shares. Upon receipt of any required documents,
holders of Virgin
69
Mobile USA shares will automatically receive the merger
consideration. The exchanged Virgin Mobile USA shares will then
be canceled. The merger consideration paid to you will be
reduced by any applicable tax withholding.
If the merger consideration is to be issued to a person other
than the person in whose name the surrendered shares are
registered, the surrendered shares must be properly endorsed or
otherwise be in proper form for transfer (as determined by the
exchange agent in its sole discretion) and the person requesting
issuance of the merger consideration must have paid any required
transfer taxes and other similar charges or established that no
transfer taxes or other charges are applicable.
One year after the effective time of the merger, the surviving
corporation will be entitled to require the exchange agent to
deliver to it any shares of Sprint Nextel common stock and cash
in lieu of fractional shares of Sprint Nextel common stock that
were to be issued as merger consideration and remain unclaimed
by holders of Virgin Mobile USA shares. Thereafter, all
remaining holders of Virgin Mobile USA shares will be entitled
to look to Sprint Nextel and the surviving corporation (subject
to abandoned property, escheat or other similar laws) only as
general creditors thereof with respect to the merger
consideration issuable upon due surrender of their Virgin Mobile
USA shares. None of Sprint Nextel, Virgin Mobile USA, Merger
Sub, the surviving corporation or the exchange agent will be
liable to any person in respect of any amount paid to a public
official pursuant to any applicable abandoned property, escheat
or similar law.
If any Virgin Mobile USA shares have not been surrendered prior
to six years after the effective time of the merger, any merger
consideration and other amounts payable will, to the extent
permitted by applicable law, become the property of Sprint
Nextel.
No dividends or other distributions with respect to shares of
Sprint Nextel common stock issuable with respect to Virgin
Mobile USA shares will be paid to a holder of any Virgin Mobile
USA shares until the Virgin Mobile USA shares are surrendered in
accordance with the procedures outlined above. Upon surrender,
holders of shares of Sprint Nextel common stock received in
exchange for Virgin Mobile USA shares will receive, without
interest, the dividends or other distributions payable with
respect to those shares of Sprint Nextel common stock with a
record date on or after the date of the effective time of the
merger but prior to surrender and a payment date on or prior to
the date of the surrender and not previously paid.
Sprint Nextel will not issue any fractional shares of Sprint
Nextel common stock in the merger. Instead, a Virgin Mobile USA
stockholder who otherwise would have received a fraction of a
share of Sprint Nextel common stock will receive an amount in
cash rather than a fractional share. This cash amount will be
determined by multiplying the fraction of a share of Sprint
Nextel common stock to which the holder would otherwise be
entitled by the per share closing price on the effective date of
the merger, as reported on the Composite Tape of the NYSE.
Treatment
of Virgin Mobile USA Stock Options and Other Equity-Based
Awards
Stock Options. Each Virgin Mobile USA stock
option granted under the Omnibus Plan outstanding as of the
effective time of the merger under which the option price to
purchase a share of Virgin Mobile USA common stock exceeds the
fair market value of a share of Virgin Mobile USA common stock
immediately prior to the effective time of the merger will be
canceled without payment or consideration pursuant to the terms
of the Omnibus Plan as a result of the merger. Each other
outstanding option will cease to represent a right to acquire
shares of Virgin Mobile USA common stock and will be converted
into an option to purchase a number of shares of Sprint Nextel
common stock.
Other Equity-Based Awards. Each Virgin Mobile
USA stock-based award, all of which are either restricted stock
unit awards or restricted stock awards, outstanding immediately
prior to the effective time of the merger will be converted into
an award with respect to a number of shares of Sprint Nextel
common stock.
70
Some of the outstanding Virgin Mobile USA stock-based awards are
subject to performance-based vesting requirements based on
Virgin Mobile USAs performance for 2009 and for 2010.
For more information on the basis for converting options and
awards and the vesting of performance-based awards, see
The Merger Agreement Treatment of Virgin
Mobile USA Options and Other Equity-Based Awards.
Voting
Agreements and Other Transaction Agreements
The following summary and the summary under
Interests of Certain Persons in the
Merger New Employment Agreements above
describe the material provisions of certain agreements that have
been or will be entered into in connection with the completion
of the merger. Some of these agreements are filed as exhibits to
the registration statement of which this proxy
statement/prospectus forms a part and are incorporated by
reference into this proxy statement/prospectus. The rights and
obligations of the parties to these agreements are governed by
the express terms and conditions of the agreements and not by
this summary. This summary may not contain all of the
information about the agreements that may be important to you
and is qualified in its entirety by reference to the complete
text of the incorporated agreements. We encourage you to read
the incorporated agreements carefully and in their entirety for
a more complete understanding of these agreements.
Voting
Agreements
In connection with the merger agreement, on July 27, 2009,
Sprint Nextel entered into voting agreements with each of the
Virgin Group and SK Telecom with respect to the Virgin Mobile
USA shares beneficially owned by them.
The voting agreements were entered into as an inducement for
Sprint Nextel to enter into the merger agreement. Under the
voting agreements, the Virgin Group and SK Telecom have agreed
to vote a portion of the Virgin Mobile USA shares owned by them
that, when aggregated with the Virgin Mobile USA shares owned by
Sprint Nextel, comprise approximately 40% of the outstanding
voting power of Virgin Mobile USA as of July 27, 2009. The
voting agreements are described in more detail below.
Under the Virgin Group voting agreement, the Virgin Group
represented that as of July 27, 2009 it beneficially owned,
within the meaning of
Rule 13d-3
under the Exchange Act, 22,901,389 shares of Class A
common stock, 115,062 shares of Class C common stock
and 25,750 shares of preferred stock (which subsequently
increased to 26,500 shares of preferred stock as a result
of a dividend of 750 shares of preferred stock paid on
September 30, 2009), which collectively represent
approximately 30.5% of the total voting power of Virgin Mobile
USA (taking into account the September 30, 2009 preferred
stock dividend) as of the record date and are referred to as the
Virgin Group subject shares.
Under the SK Telecom voting agreement, SK Telecom represented
that as of July 27, 2009 it beneficially owned, within the
meaning of
Rule 13d-3
under the Exchange Act, 10,999,373 shares of Class A
common stock, excluding 193,368 shares of Class A
common stock beneficially owned by Helio, Inc. currently
controlled by SK Telecom, and 25,750 shares of preferred
stock (which subsequently increased to 26,500 shares of
preferred stock as a result of a dividend of 750 shares of
preferred stock paid on September 30, 2009), which,
excluding the shares beneficially owned by Helio, Inc.,
collectively represent approximately 16.5% of the total voting
power of Virgin Mobile USA (taking into account the
September 30, 2009 preferred stock dividend) as of the
record date and are referred to as the SK Telecom subject shares.
Agreement to Vote. Under the voting
agreements, each of the Virgin Group and SK Telecom has agreed
that at the special meeting it will vote a number of its subject
shares (in the case of the Virgin Group, the number constituting
not less than 14,362,279 shares, or approximately 16.8% of
the total voting power of Virgin Mobile USA as of the record
date, and in the case of SK Telecom, the number constituting not
less
71
than 7,735,790 shares, or approximately 9.0% of the total
voting power of Virgin Mobile USA as of the record date) that
are entitled to vote, in each case:
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in favor of the adoption of the merger agreement, approval of
the merger or any other action of the stockholders of Virgin
Mobile USA reasonably requested by Sprint Nextel in furtherance
thereof;
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against any action or agreement that is in opposition to, or
competitive or inconsistent with, the merger or that would
result in a breach of any covenant, representation or warranty
of the Virgin Group or SK Telecom contained in the voting
agreements;
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against any other acquisition proposal; and
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against any other action, agreement or transaction that would
otherwise materially interfere with, delay, postpone,
discourage, frustrate the purposes of or adversely affect the
merger or the other transactions contemplated by the merger
agreement or the voting agreements or the performance by the
Virgin Group or SK Telecom of its respective obligations under
the voting agreements.
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Restrictions. Each of the voting agreements
includes restrictions on the transfer of securities of Virgin
Mobile USA held by the Virgin Group and SK Telecom,
respectively, until the termination of the agreement, subject to
exceptions. In addition, each of the Virgin Group and SK Telecom
has agreed not to, and to cause its executive officers,
directors and representatives not to, solicit, propose or
recommend any other acquisition proposal.
Termination. The voting agreements will
terminate on the earlier to occur of the effective time of the
merger and the date of termination of the merger agreement in
accordance with its terms. In addition, each of the Virgin Group
and SK Telecom has the right to terminate its respective voting
agreement in the event of certain amendments to the merger
agreement.
Payoff
Agreement
On July 27, 2009, the Operating Partnership, Sprint Nextel,
Virgin Entertainment and SK Telecom entered into the payoff
agreement, pursuant to which, at the effective time of the
merger, Sprint Nextel, on behalf of the Operating Partnership,
will pay Virgin Entertainment and SK Telecom the amount
necessary to pay off and terminate the obligations of the
Operating Partnership under the subordinated credit agreement.
Payoff. As of July 27, 2009, the payoff
amount to Virgin Entertainment was $51,372,096.06 and the payoff
amount to SK Telecom was $17,980,233.62. The total payoff
amounts will be increased by the amount of any increase in
principal or interest accrued and unpaid pursuant to the
subordinated credit agreement and reduced by the amount of any
payments or prepayments of the revolving loans for the account
of Virgin Entertainment or SK Telecom, as applicable, pursuant
to the subordinated credit agreement during the period between
July 27, 2009 and ending prior to the effective time of the
merger. Outstanding loans under the subordinated credit
agreement bear interest at a Eurodollar rate (determined for a
three-month period, and after giving effect to Eurodollar
currency reserve requirements) plus an applicable margin of
either 4.50% or 4.95% (determined based on Virgin Mobile
USAs consolidated leverage ratio), or 12% if the
Eurodollar rate cannot be ascertained. This interest rate was
5.4225% and 4.7855% as of July 27, 2009 and
October 22, 2009, respectively.
At the effective time of the merger, the payoff amounts will be
paid by Sprint Nextel, on behalf of the Operating Partnership,
in cash or, at the election of Sprint Nextel at least five
business days prior to the effective time of the merger and
subject to any tax withholding requirements, Sprint Nextel
common stock. If Sprint Nextel elects to pay the payoff amounts
in Sprint Nextel common stock, the number of shares will be
determined by dividing the amount to be paid by the Average
Parent Stock Price, rounded down to the nearest whole share. If
payment of the payoff amount to a payee is subject to any
applicable withholding tax, any payoff amount withheld and paid
to the relevant taxing authority will be treated as having been
paid to the payee. As an example, if the merger had been
completed on October 22, 2009 and Sprint Nextel had elected
to pay the payoff amounts in Sprint Nextel common stock, Virgin
Entertainment would have received 9,781,540 shares of
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Sprint Nextel common stock and SK Telecom would have received
3,423,539 shares of Sprint Nextel common stock. However,
the Average Parent Stock Price to be used to determine the
actual number of shares of Sprint Nextel common stock will be
based on the period preceding the effective time of the merger
and the payoff amounts will be determined as of the effective
time of the merger. As a result, the actual number of shares of
Sprint Nextel common stock to be issued will not be determined
until immediately preceding the closing of the merger and may
differ from the amounts specified above.
Termination. Upon payment in full to Virgin
Entertainment and SK Telecom of the payoff amounts:
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all principal of and interest on all revolving loans and any
fees thereon will be paid and satisfied in full and discharged,
terminated and released;
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any commitments to make loans to the Operating Partnership under
the subordinated credit agreement will be terminated;
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all security interests and other liens granted to or held by
Virgin Entertainment and SK Telecom will be automatically
satisfied, released and discharged;
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all other obligations of the Operating Partnership contained in
the subordinated credit agreement will be satisfied in full and
automatically released and discharged; and
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the subordinated credit agreement and all other related loan
documents will be terminated and will be null and void and have
no further force or effect.
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Tax
Receivable Termination Agreement
On July 27, 2009, Virgin Mobile USA, Sprint Nextel and the
Virgin Group entered into the tax receivable termination
agreement to effect a mutual release of the respective
obligations of each party under the tax receivable agreement,
dated as of October 16, 2007, between Virgin Mobile USA and
the Virgin Group.
Termination. Under the terms of the tax
receivable termination agreement, on the first business day that
is at least two days after the effective time of the merger,
Sprint Nextel will contribute to Virgin Mobile USA, and Virgin
Mobile USA will pay to the Virgin Group, $48,750,000 (reduced by
any amounts previously paid by Virgin Mobile USA to the Virgin
Group under the tax receivable agreement) in cash or, at the
election of Sprint Nextel at least five business days prior to
the effective time of the merger, Sprint Nextel common stock. If
Sprint Nextel elects to pay the amount due in Sprint Nextel
common stock, the number of shares will be determined by
dividing the amount to be paid by the Average Parent Stock
Price, rounded down to the nearest whole share. As an example,
if the merger had been completed on October 22, 2009 and
Sprint Nextel had elected to pay the amount due in Sprint Nextel
common stock, the Virgin Group would have received
13,821,944 shares of Sprint Nextel common stock. However,
the Average Parent Stock Price to be used to determine the
actual number of shares of Sprint Nextel common stock will be
based on the period preceding the effective time of the merger
and the amount due under the tax receivable termination
agreement will not be determined until that time. As a result,
the actual number of shares of Sprint Nextel common stock to be
issued will not be determined until the closing of the merger
and may differ from the amount specified above.
Mutual Release. Upon payment in full to the
Virgin Group of the termination amount and the termination of
the tax receivable agreement, Virgin Mobile USA and the Virgin
Group will be deemed for all purposes to have been fully
released, discharged and waived against each other with respect
to any and all claims in connection with the tax receivable
agreement.
Amended
Trademark License Agreement
On July 27, 2009, Virgin Enterprises and the Operating
Partnership entered into the amended trademark license
agreement, to be effective as of the effective time of the
merger, in order to modify the parties amended and
restated trademark license agreement dated October 16,
2007. Set forth below is a summary of
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the terms of the amended trademark license agreement, which will
be effective upon the completion of the merger.
Trademark License. Virgin Enterprises will
grant to the Operating Partnership an exclusive license to use
the Virgin Mobile name, along with certain related
marks and domain names, in the United States, U.S. Virgin
Islands and Puerto Rico, which we refer to as the Territory, in
relation to wireless services (and certain related content,
applications and services) and wireless devices. Virgin
Enterprises will retain the right to use or license other
Virgin marks in the Territory, except in connection
with wireless services or devices or activities exclusively
licensed to the Operating Partnership and subject to the rights
of first refusal described below.
Right of First Refusal. If (1) Virgin
Enterprises receives an offer from certain third parties for
adjacent services (which are generally defined as replacements
or reasonable substitutes for wireless services or wireless
devices) or (2) Virgin Enterprises (or its affiliate)
wishes to sell or receives an offer from certain third parties
to sell ancillary wireless devices (which are generally defined
as devices that include access to wireless services but whose
primary purpose or functionality is not, and is not reliant
upon, such access), in each case, Virgin Enterprises will first
offer the Operating Partnership a right of first refusal with
respect to these services or devices. The parties will have an
exclusive
60-day
period to reach an agreement, after which Virgin Enterprises
may, with respect to adjacent services, negotiate with the third
party to sell adjacent services or, with respect to ancillary
wireless devices, sell the ancillary wireless devices itself or
negotiate with the third party to sell ancillary wireless
devices.
Content/Applications. If Virgin Enterprises or
any of its licensees offers any wireless carrier in the
Territory any content, applications or services covered by the
amended trademark license agreement, it will (or will use
commercially reasonable efforts to cause its licensee to) offer
the Operating Partnership the same items on substantially
similar terms. Further, Virgin Enterprises and its licensees
will not offer any content, applications or services covered by
the amended trademark license agreement exclusively to any other
wireless carrier.
Term. The amended trademark license
agreements first term extends through the end of 2021 and
will renew for a second term through the end of 2026, unless the
Operating Partnership, at its discretion, provides notice of
non-renewal prior to 2020. The amended trademark license
agreement will then renew for a renewal period of 20 years
to the end of 2046, unless:
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the Operating Partnership, at its discretion, provides notice of
non-renewal before the end of 2024; or
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(1) Virgin Enterprises, at its discretion, provides notice
of non-renewal on or before April 1, 2025, and (2) the
Operating Partnership has less than 2,000,000 wireless customers
and gross sales of less than $800 million for the calendar
year 2024.
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From 2027 through 2046, the amended trademark license agreement
will automatically renew every five years, unless:
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the Operating Partnership, at its discretion, provides notice of
non-renewal before the end of the third year of the then-current
five-year period; or
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(1) Virgin Enterprises at its discretion, provides notice
of non-renewal before the end of the third year of the
then-current five-year period, and (2) the Operating
Partnership has less than 2,000,000 wireless customers and gross
sales of less than $800 million for the second year of the
then-current five-year period.
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The amended trademark license agreement provides for a phase out
process that will apply if a party elects to terminate the
agreement.
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Termination. Either party may terminate the
amended trademark license agreement if the other party:
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fails to cure a non-payment after 30 days (or other
material breach after 60 days);
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ceases to do business as a going concern;
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is unable to pay its debts; or
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enters into bankruptcy.
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Further, Virgin Enterprises may terminate the amended trademark
license agreement, effective 24 months after receipt of
notice of termination by the Operating Partnership, if
(1) Sprint Nextel divests or sells the Operating
Partnership or (2) the Operating Partnership fails to meet
certain criteria for using and promoting the Virgin
Mobile name and has less than an annual mean of 2,000,000
wireless customers.
Royalties. Virgin Enterprises will be entitled
to be paid the following royalties:
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for the first term through 2021, $12.7 million at the
effective time of the merger, in cash or, at the election of
Sprint Nextel at least five business days prior to the effective
time of the merger, Sprint Nextel common stock (if Sprint Nextel
elects to pay the amounts due in Sprint Nextel common stock, the
number of shares will be determined by dividing the amount to be
paid by the Average Parent Stock Price, rounded down to the
nearest whole share);
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for the second term through 2026, $10 million (to be
adjusted for inflation) in 2022, in cash; and
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for each five-year term after 2026, a scheduled prepaid royalty
based on the Operating Partnerships gross sales under the
Virgin Mobile brand in the calendar year immediately
preceding the term.
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With respect to the payment of $12.7 million for the first
term through 2021, as an example, if the merger had been
completed on October 22, 2009 and Sprint Nextel had elected
to pay the amount due in Sprint Nextel common stock, Virgin
Enterprises would have received 3,600,793 shares of Sprint
Nextel common stock. However, the Average Parent Stock Price to
be used to determine the actual number of shares of Sprint
Nextel common stock will be based on the period preceding the
effective time of the merger. As a result, the actual number of
shares of Sprint Nextel common stock to be issued will not be
determined until immediately preceding the closing of the merger
and may differ from the amount specified above.
Additional Royalties. From 2009 through 2025,
if the Operating Partnership averages more than 10 million
wireless customers in any calendar year, the Operating
Partnership will be required to pay an additional $0.50 royalty
for each customer over 10 million (to be adjusted for
inflation, with a $0.70 cap). After 2027, if either party
terminates the renewal term, the Operating Partnership will be
required to pay an additional royalty for the last two years of
the then-current five-year term, if the Operating
Partnerships gross sales during the term exceed a defined
threshold, of 0.25% of gross sales in excess of the threshold.
Assignment/Sublicensing. The Operating
Partnership will be permitted to assign the amended trademark
license agreement to an affiliate or to a successor or purchaser
of Sprint Nextel, and may sublicense the amended trademark
license agreement to retailers, as required for the Operating
Partnership to operate its business in the ordinary course, to
certain operators of wireless networks and certain other third
parties.
Regulatory
Approvals Required for the Merger
Sprint Nextel and Virgin Mobile USA have agreed to use their
reasonable best efforts to obtain all regulatory approvals
required to complete the transactions contemplated by the merger
agreement. Sprint Nextel and Virgin Mobile USA have filed the
required notification under the HSR Act with the FTC and the DOJ
and have received early termination of the waiting period under
the HSR Act from the FTC and DOJ. Virgin Mobile USA and Sprint
Nextel have jointly filed transfer of control applications with
the FCC with respect to the international Section 214
authorizations held by Virgin Mobile USA through its Operating
Partnership and the operating subsidiaries of Helio LLC under
the Communications Act. The FCCs approval of these
authorizations is required
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as a result of the merger. The transfer of control applications
for the international Section 214 authorizations with
respect to the provision of global or limited global
international resold services by the Operating Partnership and
global or limited global international facilities-based and
resold services by the operating subsidiaries of Helio LLC were
filed on August 12, 2009 and August 20, 2009,
respectively. The FCC approved these authorizations effective
September 11, 2009. In addition, Virgin Mobile USA and Sprint
Nextel have made filings in some state jurisdictions in
connection with the merger but believe that none of these
filings are material.
Expected
Timing of the Merger
Virgin Mobile USA and Sprint Nextel currently expect to complete
the merger in the fourth quarter of 2009 or the first quarter of
2010, subject to receipt of Virgin Mobile USA stockholder
approval, governmental and regulatory approvals and the
satisfaction or waiver of other closing conditions. However, no
assurance can be given as to when, or if, the merger will occur.
If the merger has not been completed by March 31, 2010,
either Sprint Nextel or Virgin Mobile USA may terminate the
merger agreement (so long as the party terminating is not in
breach of its obligations under the merger agreement).
No Sprint
Nextel Stockholder Approval
Sprint Nextel stockholders are not required to adopt the merger
agreement or approve the merger or the issuance of shares of
Sprint Nextel common stock in connection with the merger.
Merger
Expenses, Fees and Costs
Generally, all expenses incurred in connection with the merger
agreement and related transactions will be paid by the party
incurring the expense. Virgin Mobile USA will bear the expenses
incurred in connection with the filing, printing and mailing of
this proxy statement. Under the merger agreement, termination
fees are payable by Virgin Mobile USA if the merger agreement is
terminated under certain circumstances. See The Merger
Agreement Termination Fee Payable by Virgin Mobile
USA for more information.
Accounting
Treatment
As a result of the proposed merger, Sprint Nextel will own all
outstanding Virgin Mobile USA shares. Consequently, Sprint
Nextels accounting for the purchase of Virgin Mobile USA
will include adjusting each asset and liability of Virgin Mobile
USA to fair value and consolidating Virgin Mobile USAs
assets, liabilities and operations with those of Sprint Nextel.
The cost of the purchase will be based on the fair value (with
reference to the Sprint Nextel share price at the acquisition
date) of the Sprint Nextel common stock issued and cash paid to
Virgin Mobile USA stockholders and others plus the fair value of
Sprint Nextels historical interest in Virgin Mobile USA.
In the Sprint Nextel consolidated financial statements, the cost
of the purchase will be allocated to the Virgin Mobile USA
assets acquired and liabilities assumed, based on their
estimated fair values at the acquisition date, with any excess
of the costs over the amounts allocated being recognized as
goodwill. As a result, Sprint Nextels carrying value of
the assets acquired and liabilities assumed in connection with
the merger may be substantially different from the former
carrying values.
Material
U.S. Federal Income Tax Consequences of the Merger
The following discussion sets forth the material
U.S. federal income tax consequences of the merger to
U.S. holders (as defined below) of Virgin Mobile USA shares
that exchange their Virgin Mobile USA shares for Sprint Nextel
common stock in the merger.
This discussion does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction, or
under any U.S. federal laws other than those pertaining to
income tax. This discussion is based upon the Code, the Treasury
regulations promulgated under the Code and court and
administrative
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rulings and decisions, all as in effect on the date hereof.
These laws may change, possibly retroactively, and any change
could affect the accuracy of the statements and conclusions set
forth in this discussion.
This discussion addresses only those holders of Virgin Mobile
USA shares that hold their shares as a capital asset within the
meaning of Section 1221 of the Code. Further, this
discussion does not address all aspects of U.S. federal
income taxation that may be relevant to holders of Virgin Mobile
USA shares in light of their particular circumstances or that
may be applicable to them if they are subject to special
treatment under the U.S. federal income tax laws,
including, without limitation a holder that is:
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a bank or other financial institution;
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a tax-exempt organization;
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an S corporation or other pass-through entity for
U.S. federal income tax purposes;
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an insurance company;
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a mutual fund;
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a dealer or broker in stocks and securities, or currencies;
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a trader in securities that elects the
mark-to-market
method of accounting;
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a holder of Virgin Mobile USA shares subject to the alternative
minimum tax provisions of the Code;
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a holder of Virgin Mobile USA shares that received Virgin Mobile
USA shares through the exercise of an employee stock option,
pursuant to a tax qualified retirement plan or otherwise as
compensation;
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a person that has a functional currency other than the
U.S. dollar;
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a holder of Virgin Mobile USA shares that holds Virgin Mobile
USA shares as part of a hedge, straddle, constructive sale,
conversion or other integrated transaction;
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a U.S. expatriate; or
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a holder of more than 5% of the outstanding stock of Virgin
Mobile USA.
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The determination of the actual tax consequences of the
merger to a holder of Virgin Mobile USA shares will depend on
the holders specific situation. Holders of Virgin Mobile
USA shares should consult their own tax advisors as to the tax
consequences of the merger in their particular circumstances,
including the applicability and effect of the alternative
minimum tax and any state, local, foreign or other tax laws and
of changes in those laws.
For purposes of this discussion, the term
U.S. holder means a beneficial owner of Virgin
Mobile USA shares that is for U.S. federal income tax
purposes (1) an individual citizen or resident of the
United States; (2) a corporation, including any entity
treated as a corporation for U.S. federal income tax
purposes, created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
(3) a trust if (x) a U.S. court is able to
exercise primary supervision over the trusts
administration and one or more U.S. persons are authorized
to control all substantial decisions of the trust, or
(y) it has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a
U.S. person; or (4) an estate that is subject to
U.S. federal income tax on its income regardless of its
source.
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If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes holds Virgin Mobile USA
shares, the tax treatment of a partner in the partnership
generally will depend upon the status of the partner and the
activities of the partnership. Partnerships and partners in a
partnership should consult their tax advisors about the tax
consequences of the merger to them.
The completion of the merger is conditioned on, among other
things, the receipt by Virgin Mobile USA of a tax opinion from
Simpson Thacher & Bartlett LLP, dated as of the
closing date of the merger, that the merger will be treated for
United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. This
opinion will be based on certain customary assumptions and
representations provided by Sprint Nextel and Virgin Mobile USA.
This tax opinion will not be binding on the IRS. Neither Virgin
Mobile USA nor Sprint Nextel intends to request any ruling from
the IRS as to the U.S. federal income tax consequences of
the merger. Consequently, no assurance can be given that the IRS
will not assert, or that a court would not sustain, a position
contrary to any of those set forth below. In addition, if any of
the representations or assumptions upon which the opinion
described above is based is inconsistent with the actual facts,
the U.S. federal income tax consequences of the merger
could be adversely affected.
Assuming that the merger is completed according to the terms of
the merger agreement and based upon facts, factual
representations and assumptions contained in the representation
letters provided by Sprint Nextel and Virgin Mobile USA, all of
which must continue to be true and accurate in all material
respects as of the effective time of the merger, and subject to
the assumptions and qualifications contained in their respective
opinions, it is the opinion of each of King & Spalding LLP,
counsel to Sprint Nextel, and Simpson Thacher & Bartlett
LLP, counsel to Virgin Mobile USA, that the merger qualifies as
a reorganization within the meaning of Section 368(a) of the
Code.
As a result of the merger qualifying as a reorganization within
the meaning of Section 368(a) of the Code:
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you will not recognize gain or loss when you exchange your
Virgin Mobile USA shares for Sprint Nextel common stock, except
with respect to any cash received in lieu of a fractional share
of Sprint Nextel common stock (as discussed below);
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your aggregate tax basis in the Sprint Nextel common stock that
you receive in the merger (including any fractional share
interest you are deemed to receive and exchange for cash) will
equal your aggregate tax basis in the Virgin Mobile USA shares
you surrender; and
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your holding period for the Sprint Nextel common stock that you
receive in the merger will include your holding period for the
shares of Virgin Mobile USA shares that you surrender in the
exchange.
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If you acquired different blocks of Virgin Mobile USA shares at
different times and at different prices, your tax basis and
holding period in your Sprint Nextel common stock may be
determined with reference to each block of Virgin Mobile USA
shares.
Cash in Lieu of Fractional Shares. You will
generally recognize capital gain or loss on any cash received in
lieu of a fractional share of Sprint Nextel common stock equal
to the difference between the amount of cash received and the
tax basis allocated to the fractional share. Any gain or loss
will constitute long-term capital gain or loss if your holding
period in Virgin Mobile USA shares surrendered in the merger is
greater than one year as of the date of the merger.
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Backup Withholding. If you are a non-corporate
holder of Virgin Mobile USA shares, you may be subject to
information reporting and backup withholding on any cash
payments received in lieu of a fractional share of Sprint Nextel
common stock. You will not be subject to backup withholding,
however, if you:
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furnish a correct taxpayer identification number and certify
that you are not subject to backup withholding on the substitute
Form W-9
or successor form included in the letter to be delivered to you
following the completion of the merger; or
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otherwise establish an exemption from backup withholding.
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Any amounts withheld under the backup withholding rules will be
allowed as a refund or credit against your United States federal
income tax liability, provided you furnish the required
information to the IRS.
Reporting Requirements. If you receive Sprint
Nextel common stock as a result of the merger, you will be
required to retain records pertaining to the merger and you will
be required to file with your U.S. federal income tax
return for the year in which the merger takes place a statement
setting forth certain facts relating to the merger.
This summary of the material U.S. federal income tax
consequences of the merger to holders of Virgin Mobile USA
shares is for general information only and is not tax advice.
The determination of the actual tax consequences of the merger
to a holder of Virgin Mobile USA shares will depend on the
holders specific situation. Holders of Virgin Mobile USA
shares should consult their own tax advisors as to the tax
consequences of the merger in their particular circumstances,
including the applicability and effect of the alternative
minimum tax and any state, local, foreign or other tax laws and
of changes in those laws.
No
Appraisal Rights
Under Delaware law, stockholders of Virgin Mobile USA do not
have any dissenters rights or rights to an
appraisal of the value of their shares in connection with the
merger.
Stock
Exchange Listing of Sprint Nextel Common Stock and Delisting and
Deregistration of Class A Common Stock
Application will be made to have the shares of Sprint Nextel
common stock to be issued in connection with the merger approved
for listing on the NYSE, where the Sprint Nextel common stock is
currently traded. If the merger is consummated, the Virgin
Mobile USA Class A common stock will no longer be listed on
the NYSE and will be deregistered under the Exchange Act.
Litigation
Relating to the Merger
Since the announcement on July 28, 2009 of the signing of
the merger agreement, seven putative shareholder class action
lawsuits related to the merger have been filed, two in federal
court in the District of New Jersey and five in the Superior
Court of New Jersey. The complaints are captioned as follows:
Seymour v. Schulman, et al.,
No. C-16019-09
(N.J. Super. Law Div. Warren County) (in the process of being
transferred to the chancery division); Fay v. Virgin
Mobile USA, Inc., et al.,
No. C-16019-09
(N.J. Super. Chan. Div. Warren County); Kerdman v.
Schulman, et al.,
No. C-12062-09
(N.J. Super. Chan. Div. Somerset County); Johnson v. Virgin
Mobile USA, Inc. et al., No. C-16022-09 (N.J. Super. Chan.
Div. Warren County); Rida v. Schulman, et al.,
No. 3:09-cv-03923-MLC-TJB
(D.N.J.); and Seymour v. Schulman, et al.,
No. 3:09-cv-03847-JAP-LHG
(D.N.J). By order dated August 13, 2009, the Rida
complaint was dismissed for lack of jurisdiction and refiled
on August 18, 2009 in the Superior Court of New Jersey as
Rida v. Schulman, et al., No. C-016021-09 (N.J.
Super., Chan. Div. Warren County).
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All of the complaints name as defendants Virgin Mobile USA and
the members of the Virgin Mobile USA board of directors, which
we refer to as the individual defendants. Four of the complaints
additionally name Sprint Nextel, and two of those complaints
also name Sprint Mozart, as defendants. The lawsuits generally
allege, among other things, that the consideration agreed to in
the merger agreement is inadequate and unfair to the Virgin
Mobile USA stockholders and that the individual defendants (and,
in some cases, Virgin Mobile USA) breached their fiduciary
duties in approving the merger agreement and pursuing the merger
as described therein by failing to maximize shareholder value,
by conducting an unfair sale process, and by otherwise putting
the personal interests of certain Virgin Mobile USA directors
ahead of the interests of the stockholders. Several of the
lawsuits also allege aiding and abetting against Virgin Mobile
USA and Sprint Nextel with respect to the alleged breach of
fiduciary duties by the individual defendants (and, in some
cases, Virgin Mobile USA and Sprint Nextel). The lawsuits seek,
among other things, to enjoin the defendants from consummating
the merger on the
agreed-upon
terms, monetary damages and attorneys fees and costs.
On October 6, 2009, Virgin Mobile USA, the members of its
board of directors, Sprint Nextel and Sprint Mozart entered into
a memorandum of understanding with the plaintiffs in the state
cases reflecting an agreement in principle to settle the cases
based on their agreement to include in this proxy statement/
prospectus certain additional disclosures relating to the
transaction. Virgin Mobile USA, the members of its board of
directors, Sprint Nextel and Sprint Mozart each deny that they
have committed or aided and abetted in the commission of any
violation of law or engaged in any of the wrongful acts alleged
in the complaints, and expressly maintain that they diligently
and scrupulously complied with their fiduciary and legal duties.
Virgin Mobile USA, the members of its board of directors, Sprint
Nextel and Sprint Mozart believe the lawsuits are without merit,
and they entered into the memorandum of understanding solely to
avoid the risk of delaying the merger and to minimize the
expense of litigation. The memorandum of understanding is
subject to customary conditions including the completion of
appropriate settlement documentation, completion of due
diligence to confirm the fairness of the settlement, approval by
the Superior Court of New Jersey, and consummation of the
merger. Also on October 6, 2009, the parties to the
memorandum of understanding agreed that the remaining federal
lawsuit would be voluntarily dismissed by the plaintiffs in that
case.
If the settlement is consummated, the state cases will be
dismissed with prejudice and the defendants and other released
persons will receive from or on behalf of all of Virgin Mobile
USAs non-affiliated public stockholders who held Virgin
Mobile USAs common stock at any time from July 28,
2009 through the date of the consummation of the merger a
release of all claims relating to the merger, the merger
agreement and the transactions contemplated therein, and the
disclosures made in connection therewith. Members of the
purported plaintiff class will be sent notice of the proposed
settlement, and a hearing date before the Superior Court of New
Jersey will be scheduled regarding, among other things, approval
of the proposed settlement and any application by
plaintiffs counsel for an award of attorneys fees
and expenses.
In addition, on September 10, 2009, a complaint was filed
against Sprint Nextel by three subsidiaries of iPCS, captioned
as iPCS Wireless, Inc. et al. v. Sprint Nextel
Corporation, et al.,
No. CH-32574
(I.L. Chan. Div. Cook County). The complaint claims, among
other things, that the merger would breach certain exclusivity
provisions under iPCS subsidiaries management
agreements with Sprint Nextel and seeks, among other things, to
enjoin the closing of the merger until the merger complies with
the terms of such management agreements. On October 19,
2009, Sprint Nextel and iPCS announced that they entered into an
agreement for Sprint Nextel to acquire iPCS. In connection with
this proposed acquisition, Sprint Nextel and iPCS, and certain
of their subsidiaries, entered into a settlement agreement
pursuant to which they have agreed to seek an immediate stay of
all pending litigation between the parties, with a final
resolution to become effective upon closing of the acquisition.
On October 19, 2009, the Circuit Court of Cook County,
Illinois, Chancery Division, entered a stay of the litigation.
The acquisition is subject to the successful completion of a
tender offer, receipt of customary regulatory approvals and
other customary closing conditions, and is expected to be
completed either late in the fourth quarter of 2009 or early
2010.
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THE
MERGER AGREEMENT
The following summary describes material provisions of the
merger agreement. This summary does not purport to be complete
and may not contain all of the information about the merger
agreement that is important to you. This summary is subject to,
and qualified in its entirety by reference to, the merger
agreement, which is attached to this proxy statement/prospectus
as Annex A and is incorporated by reference into
this proxy statement/prospectus. You are urged to read the
merger agreement carefully and in its entirety, as it is the
legal document governing the merger.
The merger agreement summary below is included in this proxy
statement/prospectus only to provide you with information
regarding the terms and conditions of the merger agreement, and
not to provide any other factual information regarding Virgin
Mobile USA, Sprint Nextel or their respective businesses.
Accordingly, the representations and warranties and other
provisions of the merger agreement should not be read alone, but
instead should be read only in conjunction with the information
provided elsewhere in this proxy statement/prospectus and in the
documents incorporated by reference into this proxy
statement/prospectus. See Where You Can Find More
Information.
The
Merger
Each of the Virgin Mobile USA board of directors and the Sprint
Nextel board of directors has approved the merger agreement,
which provides for the merger of Merger Sub with and into Virgin
Mobile USA upon the terms, and subject to the conditions, of the
merger agreement. Virgin Mobile USA will be the surviving
corporation in the merger and, following the merger, will be a
wholly-owned subsidiary of Sprint Nextel. Upon consummation of
the merger, the directors of Merger Sub will be the initial
directors of the surviving corporation and the initial officers
of the surviving corporation will be officers designated by
Sprint Nextel prior to the merger.
Closing
Under the terms of the merger agreement, the closing of the
merger will occur on the third business day following the
satisfaction or, subject to applicable law, waiver of the
conditions to closing (other than conditions that by their terms
are not to be satisfied until the closing of the merger, but
subject to fulfillment or waiver of those conditions at the
closing).
Effective
Time
At the closing of the merger, Virgin Mobile USA will file a
certificate of merger with the Secretary of State of Delaware.
The merger will become effective when the certificate of merger
is filed with the Secretary of State of the State of Delaware or
at a later time as agreed to by Sprint Nextel and Virgin Mobile
USA and set forth in the certificate of merger.
Merger
Consideration
Common
Stock
At the effective time of the merger, each share of Virgin Mobile
USA common stock except for shares held by Sprint Nextel and its
wholly-owned subsidiaries (which will be canceled as a result of
the merger) and shares held directly or indirectly by the Virgin
Group or SK Telecom (which will be converted into a number of
shares of Sprint Nextel common stock as described below), will
be converted into the right to receive, subject to adjustments
as described below, that number of shares of Sprint Nextel
common stock as determined by the exchange ratio. The exchange
ratio will be equal to the number determined by dividing $5.50
by the average of the closing prices of Sprint Nextel common
stock as reported on the Composite Tape of the NYSE for the ten
trading days ending on the second trading day immediately
preceding the effective time of the merger. However, in no event
will the exchange ratio be less than 1.0630 or greater than
1.3668.
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Therefore, the value of the shares of Sprint Nextel common stock
received by Virgin Mobile USA stockholders in the merger will
depend on the market price of Sprint Nextel common stock at the
time the merger is completed.
Each share of Virgin Mobile USA common stock held by the Virgin
Group will be converted into the right to receive that number of
shares of Sprint Nextel common stock equal to the product of the
exchange ratio and 93.09%. Each share of Virgin Mobile USA
common stock held by SK Telecom will be converted into the right
to receive that number of shares of Sprint Nextel common stock
equal to the product of the exchange ratio and 89.84%.
All shares of Class B common stock and shares held in the
treasury of Virgin Mobile USA will be canceled at the effective
time of the merger, without any consideration paid to the
holders of these shares.
Preferred
Stock
Each share of preferred stock issued and outstanding immediately
prior to the effective time of the merger and held directly or
indirectly by the Virgin Group and SK Telecom will be converted
into the right to receive that number of shares of Sprint Nextel
common stock equal to the product of:
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the number of shares of Virgin Mobile USA Class A common
stock into which each share of preferred stock is
convertible; and
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the exchange ratio multiplied by, in the case of the Virgin
Group, 93.09% and, in the case of SK Telecom, 89.84%.
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Adjustments
Sprint Nextel will not issue any fractional shares of Sprint
Nextel common stock in the merger. Instead, a Virgin Mobile USA
stockholder who otherwise would have received a fraction of a
share of Sprint Nextel common stock will receive an amount in
cash. This cash amount will be determined by multiplying the
fraction of a share of Sprint Nextel common stock to which the
holder would otherwise be entitled by the per share closing
price on the effective date of the merger, as reported on the
Composite Tape of the NYSE.
If the number of shares of Sprint Nextel common stock changes
before the merger is completed because of a reclassification,
recapitalization, stock split, combination, exchange or
readjustment of shares, or any dividend thereon with a record
date within this period, the exchange ratio will be adjusted so
that the holders of Virgin Mobile USA common stock will be
provided with the same economic effect.
At the time of the execution of the merger agreement, the number
of shares of Sprint Nextel common stock expected to be issued in
the merger constituted less than 20% of Sprint Nextels
outstanding shares of common stock. A vote by Virgin Mobile USA
stockholders for the adoption of the merger agreement
constitutes approval of the merger whether or not the exchange
ratio is adjusted as described above.
Treatment
of Virgin Mobile USA Stock Options and Other Equity-Based
Awards
Stock Options. Each Virgin Mobile USA stock
option granted under the Omnibus Plan outstanding as of the
effective time of the merger under which the option price to
purchase a share of Virgin Mobile USA common stock exceeds the
fair market value of a share of Class A common stock
immediately prior to the effective time of the merger will be
canceled without payment or consideration pursuant to the terms
of the Omnibus Plan as a result of the merger. Each other
outstanding option will cease to represent a right to acquire
shares of Class A common stock and be converted into an
option to purchase a number of shares of Sprint Nextel common
stock equal to the product of the number of shares of
Class A common stock subject to the Virgin Mobile USA stock
option and the exchange ratio. Any resulting fractional shares
will be rounded
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down to the nearest whole share. The exercise price per share of
Sprint Nextel common stock under each converted stock option
will be equal to the exercise price per share under the Virgin
Mobile USA stock option prior to conversion divided by the
exchange ratio, rounded up to the nearest cent. The duration and
other terms of each converted stock option, after giving effect
to any rights resulting exclusively from the merger and pursuant
to the Omnibus Plan, and the award agreements under the plan and
any applicable employment agreement, will be the same as the
applicable Virgin Mobile USA stock option.
Other Equity-Based Awards. Each Virgin Mobile
USA stock-based award, all of which are either restricted stock
unit awards or restricted stock awards, outstanding immediately
prior to the effective time of the merger will be converted into
an award with respect to a number of shares of Sprint Nextel
common stock equal to the product of the number of shares of
Class A common stock subject to the Virgin Mobile USA
stock-based award and the exchange ratio. Any resulting
fractional shares will be rounded down to the nearest whole
share. After giving effect to any rights resulting exclusively
from the merger and pursuant to the Omnibus Plan, the award
agreement under the plan and any applicable employment
agreement, converted stock-based awards otherwise will remain
subject to the terms of the Omnibus Plan and the agreements or
letters evidencing grants under the plan.
Some of the outstanding Virgin Mobile USA stock-based awards are
subject to performance-based vesting requirements based on
Virgin Mobile USAs performance for 2009 and for 2010.
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2009 Performance Requirements For converted
Virgin Mobile USA stock-based awards with performance-based
vesting requirements linked to calendar year 2009 performance,
the determination of whether the applicable performance
requirements have been met will be made based on Virgin Mobile
USAs actual performance through the end of the calendar
month that ends on, or immediately precedes, the closing date of
the merger and comparing this performance to the pro rata
portion of the applicable annual performance target for the
Virgin Mobile USA stock-based award based on the number of
months in 2009 completed on or prior to the closing date of the
merger. This performance will be adjusted in a manner reasonably
acceptable to Sprint Nextel to eliminate the impact of costs
relating to the negotiation, closing, transition and integration
of the transactions contemplated by the merger agreement.
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2010 Performance Requirements For converted
Virgin Mobile USA stock-based awards with performance-based
vesting linked to calendar year 2010 performance, the
performance requirements will be deemed satisfied in full as of
December 31, 2010 without regard to the actual performance
by either Virgin Mobile USA or Sprint Nextel.
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Except as described above with respect to the performance-based
vesting requirements for 2009 and 2010 related to Virgin Mobile
USA stock-based awards, Virgin Mobile USA will not exercise its
discretion under the Omnibus Plan to accelerate the vesting or
eliminate the performance requirements related to any company
stock options or stock-based awards or make any payments with
respect to the stock options that are cancelled pursuant to the
terms of the Omnibus Plan.
Surrender
and Conversion of Shares
The conversion of Virgin Mobile USA common stock into the right
to receive the merger consideration will occur automatically at
the effective time of the merger. For a description of the
manner and procedure for exchanging Virgin Mobile USA shares for
the merger consideration, see The Merger
Manner and Procedure for Exchanging Virgin Mobile USA Shares; No
Fractional Shares.
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Representations
and Warranties
The merger agreement contains representations and warranties by
Virgin Mobile USA, subject in some cases to specified exceptions
and qualifications, relating to a number of matters, including
the following:
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the organization, valid existence, good standing and
qualification to do business of Virgin Mobile USA and its
subsidiaries;
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the certificates of incorporation and bylaws (or equivalent
organizational documents) of Virgin Mobile USA and its
subsidiaries;
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the capitalization of Virgin Mobile USA;
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the corporate authority of Virgin Mobile USA and the Operating
Partnership, to enter into and perform the obligations
contemplated by the merger agreement and each of the other
transaction agreements, enforceability of the merger agreement
and the other transaction agreements, approval of the merger
agreement and other transaction agreements by the Virgin Mobile
USA board of directors and voting requirements to consummate the
merger and the other transactions contemplated by the merger
agreement;
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the absence of conflicts with, or violations of, organizational
documents, other contracts and applicable laws, in each case, as
a result of the merger;
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required governmental filings and consents;
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compliance with applicable laws;
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the timely filing and accuracy of filings with the SEC since
January 1, 2007, conformance with GAAP, compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 and the
applicable listing and corporate governance rules and
regulations of the NYSE, establishment of internal controls over
financial reporting and disclosure controls, proper disclosure
to the auditor and the audit committee and the absence of
certain undisclosed liabilities;
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the absence of certain changes or events since December 31,
2008, including any change, event or occurrence which has had,
or would, individually or in the aggregate, reasonably be
expected to have, a material adverse effect (as described below);
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the absence of certain legal proceedings (pending or threatened)
and orders;
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employment and labor matters affecting Virgin Mobile USA and its
subsidiaries, including matters relating to their employee
benefit plans;
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matters with respect to insurance policies;
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title to, or leasehold interest in, properties and assets;
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tax matters;
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accuracy of information supplied by Virgin Mobile USA for
inclusion in this proxy statement/prospectus and the
registration statement of which it forms a part;
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the delivery of a fairness opinion from Deutsche Bank to the
Virgin Mobile USA board of directors and fees payable to the
financial advisors in connection with the merger;
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brokers fees payable in connection with the merger;
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compliance with takeover and anti-takeover statutes and
regulations;
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intellectual property matters;
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environmental matters;
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matters with respect to material contracts, including contracts
that contain covenants binding upon Virgin Mobile USA and its
subsidiaries, contracts that would prevent, materially delay or
materially impede Virgin Mobile USAs ability to consummate
the merger, contracts in excess of $1 million related to
the borrowing of money or any guarantee, and contracts that
restrict pricing; and
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the absence of certain related party transactions.
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The merger agreement contains representations and warranties by
Sprint Nextel and Merger Sub, subject in some cases to specified
exceptions and qualifications, relating to a number of matters,
including the following:
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the organization, valid existence, good standing and
qualification to do business of Sprint Nextel and Merger Sub;
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the capitalization of Sprint Nextel;
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the corporate authority of Sprint Nextel and Merger Sub to enter
into and perform the obligations contemplated by the merger
agreement and each of the other transaction agreements, as well
as the enforceability of the merger agreement and the other
transaction agreements;
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the absence of conflicts with, or violations of, organizational
documents, other contracts and applicable laws, in each case, as
a result of the merger;
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required governmental filings and consents;
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the timely filing and accuracy of filings with the SEC since
January 1, 2007, conformance with GAAP, compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 and the
applicable listing and corporate governance rules and
regulations of the NYSE, establishment of disclosure controls,
proper disclosure to the auditor and the audit committee and the
absence of certain undisclosed liabilities;
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the absence of certain changes or events since December 31,
2008, including any change, event or occurrence which has had,
or would, individually or in the aggregate, reasonably be
expected to have, a material adverse effect (as described below);
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the absence of certain legal proceedings (pending or threatened)
and orders;
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the absence of certain liabilities under the Employee Retirement
Income Security Act of 1974, as amended;
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the accuracy of information supplied by Sprint Nextel or Merger
Sub for inclusion in this proxy statement/prospectus and the
registration statement of which it forms a part;
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brokers fees payable in connection with the merger;
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the activities of Merger Sub;
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the ownership of Virgin Mobile USA capital stock and limited
partnership interests in the Operating Partnership by Sprint
Nextel; and
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that no vote of the stockholders of Sprint Nextel is required in
connection with the merger agreement or the transactions
contemplated thereby.
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Many of the representations and warranties of Virgin Mobile USA
and Sprint Nextel are qualified by a material adverse effect
standard. For purposes of the merger agreement, material
adverse effect, with respect to either party, is defined
to mean any change, event or effect that has occurred or been
threatened that, when taken together with all other adverse
changes, events or effects that have occurred or been
threatened, (1) is or would reasonably be expected to be
materially adverse to the business, operations, financial
condition, assets or liabilities of that party and its
subsidiaries taken as a whole, or (2) does, or would
reasonably be expected to, prevent or materially delay the
performance by that party of any of its obligations under the
merger agreement and the other transaction agreements or the
consummation of the merger or the other transactions
contemplated by the merger agreement and the other transaction
agreements. With respect to clause (1) of the preceding
sentence, a material adverse effect will be deemed not to
include effects to the extent resulting from:
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changes in general economic, financial market or geopolitical
conditions (excluding changes, effects or circumstances that do
not affect that party or its subsidiaries disproportionately
relative to other companies operating in the same industry);
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general changes or developments in any of the industries in
which that party or its subsidiaries operate (excluding changes,
effects or circumstances that do not affect that party or its
subsidiaries disproportionately relative to other companies
operating in the same industry);
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the announcement of the merger agreement and the transactions
contemplated thereby, including any termination of, reduction in
or similar negative impact on relationships, contractual or
otherwise, with any customers, suppliers, partners or employees
of that party and its subsidiaries, or any adverse impact on
that partys credit rating from credit rating agencies, to
the extent due to the announcement and performance of the merger
agreement or the identity of the parties to the merger
agreement, or the performance of the merger agreement and the
transactions contemplated thereby, including compliance with the
covenants set forth in the merger agreement;
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changes in any applicable laws or regulations or applicable
accounting regulations or principles or interpretations thereof,
including changes in GAAP (excluding changes, effects or
circumstances that do not affect that party or its subsidiaries
disproportionately relative to other companies operating in the
same industry);
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any attack on, or by, outbreak or escalation of hostilities or
war or any act of terrorism (excluding changes, effects or
circumstances that do not affect that party or its subsidiaries
disproportionately relative to other companies operating in the
same industry); or
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any failure by that party to meet any published analyst
estimates or expectations of that partys revenue, earnings
or other financial performance or results of operations for any
period, in and of itself, or any failure by that party to meet
its internal or published projections, budgets, plans or
forecasts of its revenues, earnings or other financial
performance or results of operations or any change in the price
of that partys common stock, in and of itself.
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Conduct
of Business Prior to Closing
Virgin
Mobile USA
Virgin Mobile USA has agreed that, until the effective time of
the merger and except as expressly contemplated by the merger
agreement and the other transaction agreements or as required by
applicable law or with Sprint Nextels prior written
approval, which approval is not to be unreasonably withheld,
conditioned or delayed, Virgin Mobile USA and its subsidiaries
will:
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conduct their business in the ordinary course of business;
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use their reasonable best efforts to preserve substantially
intact their business organizations, to keep available the
services of their current officers and employees and to preserve
their present relationships with customers, suppliers and other
persons with which they have material business
relations; and
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comply in all material respects with all applicable laws
wherever their business is conducted, including the timely
filing of all reports, forms or other documents with the SEC
under the Securities Act of 1933, as amended, which we refer to
as the Securities Act, or the Exchange Act.
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Virgin Mobile USA has further agreed that until the effective
time of the merger, with certain exceptions and except with
Sprint Nextels prior written consent, which is not to be
unreasonably withheld or delayed, neither Virgin Mobile USA nor
any of its subsidiaries will take any of the following actions:
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amend or otherwise change the organizational documents of Virgin
Mobile USA or its subsidiaries;
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issue, deliver, sell, pledge, dispose of or encumber any shares
of capital stock, ownership interests or voting securities, or
any options, warrants, convertible securities or other rights of
any kind to acquire or receive any shares of capital stock, any
other ownership interests or any voting securities (including
stock appreciation rights, phantom stock or similar instruments)
of Virgin Mobile USA or any of its subsidiaries, except for:
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the issuance of Virgin Mobile USA shares upon the exercise of
Virgin Mobile USA stock options outstanding as of the date of
the merger agreement or in connection with Virgin Mobile USA
stock-based awards outstanding as of the date of the merger
agreement, in each case in accordance with the terms of any
Virgin Mobile USA benefit plan; or
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dividends on shares of preferred stock payable on
September 30, 2009;
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declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock;
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reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire any shares of capital stock of Virgin Mobile
USA (other than the acquisition of Virgin Mobile USA shares
tendered by employees or former employees in connection with a
cashless exercise of Virgin Mobile USA stock options or in order
to pay taxes in connection with the exercise of Virgin Mobile
USA options or the lapse of restrictions in respect of
restricted stock or Virgin Mobile USA stock-based awards), or
reclassify, combine, split or subdivide any capital stock or
other ownership interests of any of Virgin Mobile USAs
subsidiaries;
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(1) acquire (whether by merger, consolidation or
acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or division thereof
or any assets, in each case, which is or are, individually or in
the aggregate, material to Virgin Mobile USA and its
subsidiaries taken as a whole; (2) sell or otherwise
dispose of (whether by merger, consolidation or acquisition of
stock or assets or otherwise) any corporation, partnership or
other business organization or division
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thereof or any assets, other than sales or dispositions of
assets in the ordinary course of business or pursuant to
existing contracts; (3) authorize or make any new capital
expenditures which are, in the aggregate, in excess of the
Virgin Mobile USAs capital expenditure budget;
(4) enter into any new line of business; (5) other
than in the ordinary course of business consistent with past
practice, enter into, amend in any material respect or waive any
of its material rights under any material contract; or
(6) mortgage or pledge any of its assets;
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incur or modify in any material respect the terms of any
indebtedness for borrowed money, or assume, guarantee or
endorse, or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans, advances
or capital contributions to, or investments in, any other person
(other than a subsidiary of Virgin Mobile USA) in each case,
other than:
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borrowings under existing lines of credit in the ordinary course
of business consistent with past practice; or
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any letter of credit entered into in the ordinary course of
business consistent with past practice;
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other than as required under any Virgin Mobile USA benefit plan
or as required by applicable law or regulation or existing
contract:
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increase the compensation, bonus or fringe benefits of, or make
any other change in employment terms for, any of its directors,
officers or employees;
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grant or provide any severance or termination pay not provided
for, or otherwise increase any severance or termination pay,
under any Virgin Mobile USA benefit plan or existing contract;
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enter into any employment, consulting, change of control or
severance agreement or arrangement with any of its present or
former directors, officers or other employees; or
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establish, adopt, enter into or amend or terminate any Virgin
Mobile USA benefit plan;
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make any material change in any accounting principles, except as
may be required to conform to changes in statutory or regulatory
accounting rules or GAAP;
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other than in the ordinary course of business or as required by
applicable law:
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make or change any material tax election or change any method of
tax accounting;
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enter into any settlement or compromise of any material tax
liability;
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file any claim for refund or amended tax return with respect to
any material tax; or
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take any action that could reasonably be expected to prevent the
merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code;
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settle, compromise or discharge any litigation or claim, other
than settlements, compromises or discharges of litigation or
claims which (1) do not exceed, individually or in the
aggregate, $2,500,000 (after taking into account the amount
reserved for these matters by Virgin Mobile USA or amounts
covered by insurance) and (2) do not include any
obligations to be performed by Virgin Mobile USA or any of its
subsidiaries following the effective time of the merger;
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release or permit the release of any person from, waive or
permit the waiver of any right under, fail to enforce any
provision of, or grant any consent or make any election under,
any confidentiality,
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standstill or similar agreement to which Virgin
Mobile USA or any subsidiary thereof is a party, except, in each
case, to the extent the Virgin Mobile USA board of directors
determines in good faith, after consultation with its outside
legal counsel, that failure to take the action would be
inconsistent with its fiduciary duties under applicable law, but
in such case only after providing Sprint Nextel with prior
written notice of the determination;
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fail to renew or maintain existing insurance policies or
comparable replacement policies, other than in the ordinary
course of business consistent with past practice;
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agree to take any of the actions described above; or
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take any action that would, or would reasonably be expected to,
individually or in the aggregate, prevent, materially delay or
materially impede the consummation of the merger or the other
transactions contemplated by the merger agreement and the other
transaction agreements (except that the Virgin Mobile USA board
of directors will not be restricted from taking any action in
connection with the exercise of its fiduciary duties under
applicable law).
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Sprint
Nextel and Merger Sub
Each of Sprint Nextel and Merger Sub has agreed that, until the
earlier of the effective time of the merger and except as
expressly contemplated by the merger agreement and the other
transaction agreements or as required by applicable law or with
Virgin Mobile USAs prior written approval, which approval
is not to be unreasonably withheld, conditioned or delayed,
Sprint Nextel and its subsidiaries will:
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conduct their business in order to maintain the primary nature
of Sprint Nextels business; and
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comply in all material respects with all applicable laws
wherever their business is conducted, including the timely
filing of all reports, forms or other documents with the SEC
under the Securities Act or the Exchange Act.
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Sprint Nextel has further agreed in the merger agreement that
until the effective time of the merger, with certain exceptions
and except with Virgin Mobile USAs prior written consent,
which is not to be unreasonably withheld, conditioned or
delayed, Sprint Nextel will not, and will not permit any of its
subsidiaries to, among other things, undertake the following
actions:
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amend or otherwise change Sprint Nextels articles of
incorporation or bylaws or any similar governing instruments, in
each case, that would reasonably be expected to prevent or
materially delay the ability of Virgin Mobile USA to consummate
the merger;
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reclassify, combine, split or subdivide any shares of capital
stock of Sprint Nextel or Merger Sub;
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take any action that could reasonably be expected to prevent the
merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code;
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sell, transfer or convey all or substantially all of its
properties and assets to any person; or
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agree to take any of the actions described above.
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Agreement
to Use Reasonable Best Efforts With Respect to Certain
Matters
Subject to the terms and conditions of the merger agreement,
each of Sprint Nextel and Virgin Mobile USA has agreed to use
its reasonable best efforts to, among other things:
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take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the merger as soon
as practicable;
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cooperate in all respects with each other in connection with any
filing or submission and in connection with any investigation or
other inquiry, including any proceeding initiated by a private
party;
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keep the other party reasonably informed of any communication
received from, or given by such party to, the FTC, the DOJ or
any other governmental entity and of any communication received
or given in connection with any proceeding by a private party,
in each case regarding any of the transactions contemplated by
the merger agreement;
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permit the other party to review any communication given by it
to, and consult with each other in advance of any meeting or
conference with, the FTC, the DOJ or any other governmental
entity or, in connection with any proceeding by a private party,
with any other person, and to the extent permitted by the FTC,
the DOJ or any other applicable governmental entity or other
person, give the other party the opportunity to attend and
participate in the meetings and conferences;
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if any objections are asserted under any antitrust law or if any
suit is brought or threatened by the FTC, the DOJ or any other
party challenging any of the transactions contemplated by the
merger agreement as violative of any antitrust law or which
would otherwise prevent, materially impede or materially delay
the consummation of the merger, resolve any objections or suits
so as to permit the merger to be consummated, including:
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resolving suits that if not so resolved could reasonably be
expected to prevent, materially impede or materially delay the
consummation of the merger or the other transactions
contemplated by the merger agreement;
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selling, holding separate or otherwise disposing of or
conducting its business; or
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agreeing or permitting to doing any of the above in a manner
which would resolve the objections or suits; and
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in the event that any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) by a
governmental entity or private party challenging the merger or
any other transaction contemplated by the merger agreement, or
any other agreement contemplated hereby, contest and resist the
action or proceeding and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent, that is in effect
and that prohibits, prevents or restricts consummation of the
merger.
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However, none of Virgin Mobile USA, Sprint Nextel or Merger Sub
is required to take any action that would materially deprive
Sprint Nextel of the benefits of the transactions contemplated
by the merger agreement and the other transaction agreements.
Agreement
Not to Solicit Other Offers
Virgin Mobile USA has agreed that it and its executive officers
and directors will not, its subsidiaries and their executive
officers and directors will not, and it will use its reasonable
best efforts to ensure that its and its subsidiaries
agents and representatives will not, directly or indirectly:
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solicit, initiate, knowingly encourage or knowingly facilitate
any inquiries or the making of any proposal or offer with
respect to:
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a tender offer or exchange offer, proposal for a merger,
consolidation or other business combination involving Virgin
Mobile USA
and/or its
subsidiaries; or
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any acquisition proposal (as described below); or
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participate in or knowingly encourage any negotiations or
discussions concerning, or provide access to its properties,
books and records or any confidential information or data to,
any person relating to or take any other action to knowingly
facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an
acquisition proposal.
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However, prior to the adoption of the merger agreement by Virgin
Mobile USAs stockholders, Virgin Mobile USA may:
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take and disclose to its stockholders a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act or make any disclosure to
Virgin Mobile USA stockholders as, in the good faith judgment of
the board of directors of Virgin Mobile USA, after receiving
advice from outside counsel, is consistent with its obligations
under the merger agreement and required by applicable law;
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provide access to its properties, books and records and provide
information or data to a person in response to an unsolicited
bona fide acquisition proposal if the Virgin Mobile USA board of
directors receives an executed confidentiality agreement from
the person requesting the information, which agreement must be
on terms substantially similar to those contained in the
confidentiality agreement between Virgin Mobile USA and Sprint
Nextel, if and only to the extent that (1) the Virgin
Mobile USA board of directors determines in good faith, after
consultation with its outside legal counsel and its financial
advisor, that the acquisition proposal constitutes, or is
reasonably likely to lead to, a superior proposal (as described
below), and that the failure to take action would be
inconsistent with its fiduciary duties under applicable law, and
(2) prior to taking action, Virgin Mobile USA provides
written notice of the matter to Sprint Nextel;
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contact and engage in discussions with any person who has made
an unsolicited bona fide acquisition proposal solely for the
purpose of clarifying the acquisition proposal and any material
terms and the conditions to consummation so as to determine
whether the acquisition proposal is, or may reasonably be
expected to lead to, a superior proposal; and/or
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contact and engage in any negotiations or discussions with any
person who has made an unsolicited bona fide acquisition
proposal (which negotiations or discussions are not solely for
clarification purposes), if and only to the extent that
(1) the Virgin Mobile USA board of directors determines in
good faith, after consultation with its outside legal counsel
and its financial advisor, that the acquisition proposal
constitutes, or is reasonably likely to lead to, a superior
proposal, and that the failure to take action would be
inconsistent with its fiduciary duties under applicable law, and
(2) prior to taking action, Virgin Mobile USA provides
written notice of the matter to Sprint Nextel.
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Virgin Mobile USA has agreed:
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to immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons
conducted prior to the execution of the merger agreement with
respect to any acquisition proposal or any potential acquisition
proposal;
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to promptly (and in any event within one business day after
receipt) notify Sprint Nextel in writing of the receipt of any
acquisition proposal (or any request for information or other
inquiry that may reasonably be expected to lead to an
acquisition proposal) after the date of the execution of the
merger agreement and to keep Sprint Nextel reasonably informed
of the status and details (including any material developments
with respect to the acquisition proposal);
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that neither its board of directors nor any committee thereof
will recommend, adopt or approve, or propose publicly to
recommend, adopt or approve, any acquisition proposal or
acquisition proposal documentation; and
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that its board of directors or any committee thereof will not,
and neither it nor any of its subsidiaries will, execute any
letter of intent, memorandum of understanding, agreement in
principle, merger agreement, acquisition agreement, option
agreement, joint venture agreement, partnership agreement or
other similar agreement constituting an acquisition proposal.
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However, the merger agreement provides that if, at any time
prior to the adoption of the merger agreement by Virgin Mobile
USAs stockholders, the Virgin Mobile USA board of
directors determines, in response to an unsolicited acquisition
proposal that did not otherwise result from a material breach of
the applicable provisions of the merger agreement described
above, the acquisition proposal is a superior proposal, then:
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Virgin Mobile USA or its board of directors may terminate the
merger agreement;
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the Virgin Mobile USA board of directors may approve or
recommend the superior proposal to Virgin Mobile USA
stockholders; and/or
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concurrently with the termination of the merger agreement,
Virgin Mobile USA may enter into or execute any acquisition
proposal documentation with respect to the superior proposal.
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In each case described above, Virgin Mobile USA must provide
Sprint Nextel with a notice three days prior to taking any
action, specifying the material terms and conditions of the
superior proposal and identifying the person making the superior
proposal. During the three day period, Sprint Nextel may, in its
sole discretion, propose adjustments to the terms and conditions
of the merger agreement so that the acquisition proposal would
no longer constitute a superior proposal. In addition, Virgin
Mobile USA or its board of directors may not terminate the
merger agreement in response to any the superior proposal unless
it pays to Sprint Nextel the termination fee described below in
Termination Fee Payable by Virgin Mobile
USA.
As used in the merger agreement, an acquisition
proposal means any proposal or offer to acquire in any
manner, other than the transactions contemplated by the merger
agreement:
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10% or more of the equity interests (measured by economic or
voting power) in Virgin Mobile USA on a consolidated
basis; or
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10% or more of the assets of Virgin Mobile USA on a consolidated
basis.
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As used in the merger agreement, a superior proposal
means any acquisition proposal made by a third party for more
than 50% of the outstanding equity interests in Virgin Mobile
USA or more than 50% of the consolidated assets of Virgin Mobile
USA and its subsidiaries, taken as a whole, which is:
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on terms that the Virgin Mobile USA board of directors
determines in good faith, after consultation with Virgin Mobile
USAs outside legal and financial advisors, and after
considering any factors the Virgin Mobile USA board of directors
considers to be appropriate (including the conditionality and
the timing and likelihood of consummation of the proposal), are
more favorable to Virgin Mobile USAs stockholders from a
financial point of view than the transactions contemplated by
the merger agreement; and
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reasonably capable of being consummated, including the receipt
of the approvals of the Virgin Group, SK Telecom and Sprint
Nextel or their respective affiliates pursuant to contractual
approval or consent rights, such as those contained in Virgin
Mobile USAs bylaws and the stockholders agreement to
which Virgin Mobile USA and each of those stockholders is a
party.
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Recommendation
of the Virgin Mobile USA Board of Directors
The Virgin Mobile USA board of directors adopted a resolution
recommending that Virgin Mobile USAs stockholders adopt
the merger agreement. Under the merger agreement, other than as
described below, Virgin Mobile USA agreed that its board of
directors would recommend adoption of the merger agreement to
its stockholders and not withdraw, modify or qualify (or
publicly propose to withdraw, modify or qualify) this
recommendation in any manner adverse to Sprint Nextel, which we
refer to as a change of recommendation. However, the Virgin
Mobile USA board of directors may make a change of
recommendation upon three business days prior written
notice to Sprint Nextel in response to an intervening event (as
described below) if the Virgin Mobile USA board of directors
concludes in good faith, after consultation with outside counsel
and in light of the intervening event, that the failure to
effect a change of recommendation would result in a breach of
its fiduciary duties under applicable law.
As used in the merger agreement, an intervening
event means a material development or change in
circumstances occurring or arising after the date of execution
of the merger agreement that was neither known to the Virgin
Mobile USA board of directors nor reasonably foreseeable as of
or prior to the date of execution of the merger agreement (and
not relating to any acquisition proposal).
Any change of recommendation will not change the approval of the
merger agreement, the voting agreements or any other approval of
the Virgin Mobile USA board of directors. Unless the merger
agreement is terminated in accordance with its terms, including
as the result of Virgin Mobile USA receiving a superior
proposal, the obligation of Virgin Mobile USA to call, give
notice of, convene, hold and submit the merger agreement for a
vote at the stockholders meeting as promptly as practicable will
not be limited or otherwise affected by a change of
recommendation or by the commencement, disclosure, announcement
or submission to Virgin Mobile USA of any acquisition proposal.
Virgin Mobile USA will not be required to hold the stockholders
meeting if it elects to terminate the merger agreement in
accordance with its terms. Additionally, the voting agreements
with the Virgin Group and SK Telecom will terminate upon
termination of the merger agreement. See The
Merger Voting Agreements and Other Transaction
Agreements.
Employee
Matters
Sprint Nextel has agreed for a period of 18 months
commencing at the effective time of the merger, to maintain the
Virgin Mobile USA severance plan and the existing severance
practices of Virgin Mobile USA, and to make severance payments
to any eligible Virgin Mobile USA employee terminated during
this
18-month
period in accordance with the severance plan and severance
practices.
Sprint Nextel has agreed for a period of 12 months
commencing at the effective time of the merger, to:
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compensate Virgin Mobile USA employees who continue to be
employed in good standing at substantially the same base
salaries or base hourly wages as are in effect immediately prior
to the effective time of the merger;
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either (1) continue to provide benefits substantially
comparable in the aggregate to the benefits provided under the
Virgin Mobile USA employee benefit plans at the effective time
of the merger, or (2) provide benefits substantially
comparable in the aggregate to the benefits provided by Sprint
Nextel to its similarly situated employees; and
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provide for the bonuses, if any, earned by Virgin Mobile USA
employees through December 31, 2009 pursuant to the terms
of the Virgin Mobile USA annual and mid-term incentive plans,
except that the determination of whether the applicable
performance requirements have been met will be made based on
Virgin Mobile USAs actual performance through the end of
the calendar month which ends on, or immediately precedes, the
closing date of the merger and comparing that performance to the
year-to-date
performance target through the end of the calendar month.
Performance will be adjusted in
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a manner reasonably acceptable to Sprint Nextel to eliminate the
impact of costs relating to the negotiation, closing, transition
and integration of the transactions contemplated by the merger
agreement.
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Additionally, from and after the effective time of the merger,
Sprint Nextel will:
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give Virgin Mobile USA employees who continue to be employed in
good standing, full service credit for purposes of eligibility,
vesting and, under limited circumstances, benefit accruals under
any employee benefit plans provided by Sprint Nextel for the
benefit of these employees, to the same extent service was
recognized by Virgin Mobile USA immediately prior to the
effective time of the merger;
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honor the terms of the Virgin Mobile USA benefit plans, as these
plans may be amended; and
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make the matching contribution for 2009, which is called for
under the terms of the Virgin Mobile USA
401(k) Plan.
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Other
Covenants and Agreements
The merger agreement contains other covenants and agreements
relating to, among other things:
Virgin
Mobile USA Stockholders Meeting
Virgin Mobile USA has agreed to take all necessary action to
call, give notice of, convene and hold a meeting of stockholders
of Virgin Mobile USA on a date as soon as reasonably practicable
following the execution of the merger agreement, for the purpose
of obtaining stockholder approval of the adoption of the merger
agreement. Virgin Mobile USA has further agreed to:
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include in this proxy statement/prospectus that its board of
directors has approved the merger agreement and declared it
advisable, determined that the terms of the merger agreement are
fair to, and in the best interests of, Virgin Mobile USA and its
stockholders and recommends to its stockholders the adoption of
the merger agreement and the approval of the merger; and
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use its reasonable best efforts to obtain the adoption of the
merger agreement by a majority of the combined voting power of
outstanding Virgin Mobile USA shares entitled to vote at the
stockholders meeting. Except as otherwise permitted in the
merger agreement and set forth above under
Agreement Not to Solicit Other Offers,
Virgin Mobile USAs board of directors will not withdraw,
modify or qualify, or publicly propose to withdraw, modify or
qualify, in any manner adverse to Sprint Nextel its
recommendation to Virgin Mobile USAs stockholders that
they adopt the merger agreement.
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Certain
Filings
Virgin Mobile USA has agreed to prepare and file with the SEC
this proxy statement/prospectus, with the assistance of Sprint
Nextel, and Sprint Nextel has agreed to prepare and file with
the SEC the registration statement of which this proxy
statement/prospectus forms a part, with the assistance of Virgin
Mobile USA. Each of Virgin Mobile USA and Sprint Nextel further
agreed to use its reasonable best efforts to have the proxy
statement/prospectus cleared by the SEC and the registration
statement declared effective as promptly as practicable after
filing and to keep the registration statement effective as long
as necessary to consummate the merger. Virgin Mobile USA and
Sprint Nextel will cooperate with each other in the preparation
of the proxy statement/prospectus and the registration
statement, including by furnishing the other party with any
information required to be disclosed by the Securities Act and
the Exchange Act, correcting any information that becomes false
or misleading and notifying the other party and providing copies
of any comments or correspondence received from the SEC in
relation to the proxy statement/prospectus or the registration
statement.
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Resignation
of Directors
At the closing of the merger, Virgin Mobile USA will deliver to
Sprint Nextel evidence reasonably satisfactory to Sprint Nextel
of the resignation of all the directors of Virgin Mobile USA and
its subsidiaries as specified by Sprint Nextel in writing, with
the resignations to be effective at the effective time of the
merger.
Access
to Information and Employees
During the period prior to the effective time of the merger,
Virgin Mobile USA has agreed to, and will cause each of its
subsidiaries to, afford to Sprint Nextel and its representatives
upon reasonable prior notice to Virgin Mobile USA reasonable
access during normal business hours to its and its
subsidiaries officers, employees, properties, offices and
other facilities and all books and records, and Virgin Mobile
USA will furnish all financial, operating and other information
as Sprint Nextel and its representatives may reasonably request
in writing. Any investigation or consultation by Sprint Nextel
or its representatives must be conducted in a manner so as to
not unreasonably interfere with the business or operations of
Virgin Mobile USA. Virgin Mobile USA may restrict access or
disclosure to the extent that access or disclosure would violate
or prejudice the rights of its clients, jeopardize the
attorney-client privilege of Virgin Mobile USA or its
subsidiaries or contravene any law, regulation, order, judgment,
decree or binding agreement entered into prior the execution of
the merger agreement.
Each of Sprint Nextel, Merger Sub and Virgin Mobile USA will,
and will cause its officers, employees, auditors and other
authorized representatives to, hold and treat confidential any
information furnished to any of them in connection with the
transactions contemplated by the merger agreement in accordance
with the confidentiality agreement between Sprint Nextel and
Virgin Mobile USA.
Indemnification
and Insurance
Prior to the effective time of the merger, Virgin Mobile USA
will obtain and fully pay for tail insurance
policies with respect to D&O insurance from an insurance
carrier with the same or better credit rating as Virgin Mobile
USAs current insurance carrier for the persons covered by
Virgin Mobile USAs existing D&O insurance. The terms,
conditions, retentions and levels of coverage of the D&O
insurance will be at least as favorable as Virgin Mobile
USAs existing D&O insurance and will have a claims
period of six years from and after the effective time of the
merger. If Virgin Mobile USA is unable to obtain and fully pay
for this D&O insurance, Sprint Nextel will cause the
surviving corporation to obtain and fully pay for the required
D&O insurance. If the tail insurance policies
have been obtained, Sprint Nextel will cause the surviving
corporation to maintain these policies in full force and effect
for their full terms.
If Virgin Mobile USA and the surviving corporation for any
reason fail to obtain tail insurance policies as of
the effective time of the merger, the surviving corporation
will, and Sprint Nextel will cause the surviving corporation to,
continue to maintain in effect the existing D&O insurance,
at no expense to the beneficiaries and for a period of at least
six years from and after the effective time of the merger, for
the persons covered by Virgin Mobile USAs D&O
insurance in place as of the date of the merger agreement with
terms, conditions, retentions and levels of coverage at least as
favorable as provided in Virgin Mobile USAs existing
policies as of the date of the merger agreement. If such
insurance is unavailable, the surviving corporation will, and
Sprint Nextel will cause the surviving corporation to, purchase
the best available D&O insurance for the six-year period
from an insurance carrier with the same or better credit rating
as Virgin Mobile USAs current insurance carrier with
respect to Virgin Mobile USAs existing D&O insurance
with terms, conditions, retentions and levels of coverage at
least as favorable as provided in Virgin Mobile USAs
existing policies as of the date of the merger agreement.
However, neither Sprint Nextel nor the surviving corporation is
required to expend an annual premium for these policies in
excess of 300% of the annual premiums currently paid by Virgin
Mobile USA for insurance. To the extent that the annual premiums
for
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coverage exceed that amount, the surviving corporation has
agreed to obtain a policy with the greatest coverage available
for a cost not exceeding that amount.
From and after the effective time of the merger, Sprint Nextel
and the surviving corporation will indemnify, defend and hold
harmless each present and former officer, director or employee
of Virgin Mobile USA or any of its subsidiaries and any
fiduciary under any Virgin Mobile USA benefit plan, which we
refer to collectively as indemnified parties, against any costs,
expenses (including attorneys fees and disbursements),
judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding,
inquiries or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to
(1) the fact that the indemnified party is or was an
officer, director, employee, fiduciary or agent of Virgin Mobile
USA or any of its subsidiaries, or (2) matters existing or
occurring at or prior to the effective time of the merger
agreement (including the merger agreement and the actions
contemplated thereby) whether asserted or claimed prior to, at
or after the effective time of the merger, as provided in Virgin
Mobile USAs certificate of incorporation or bylaws, as in
effect on the date of the merger agreement, or pursuant to any
other agreement as in effect on the date of the merger agreement.
The certificate of incorporation and bylaws of the surviving
corporation will contain provisions no less favorable with
respect to indemnification, advancement of expenses and
exculpation of former or present directors and officers than
those included in Virgin Mobile USAs certificate of
incorporation and bylaws. These provisions will not be amended,
repealed or modified for a period of six years from the
effective time of the merger in any manner that would adversely
affect the rights of any individuals under the documents, except
as may be required by law.
If Sprint Nextel or the surviving corporation, or any of their
respective successors or assigns, consolidates or merges into
any other person and is not the continuing or surviving
corporation or entity of the consolidation or merger or
transfers all or a majority of its properties and assets to any
person, then proper provisions will be made so that the
successors and assigns of Sprint Nextel or the surviving
corporation assume all of the obligations set forth in the
applicable provisions of the merger agreement relating to
employment and employee benefits matters, indemnification and
D&O insurance.
The rights of the indemnified parties under the merger agreement
are intended to be for the benefit of, and may be enforced by,
the indemnified parties, including their successors, heirs and
legal representatives, will be binding on all successors and
assigns of Sprint Nextel and may not be terminated, amended or
modified in any manner so as to adversely affect the indemnified
parties, including their successors, heirs and legal
representatives, without the consent of the indemnified party,
including their successors, heirs and legal representatives,
affected thereby.
The rights of the indemnified parties under the merger agreement
are in addition to any rights the indemnified parties may have
under the certificate of incorporation or bylaws, or equivalent
documents, of Virgin Mobile USA or any of its subsidiaries, or
under any applicable contracts or laws. Sprint Nextel will cause
the surviving corporation to honor and perform under all
indemnification agreements entered into by Virgin Mobile USA or
any of its subsidiaries.
Stockholder
Litigation
Virgin Mobile USA or Sprint Nextel will give the other party the
opportunity to participate in the defense or settlement of any
stockholder litigation against Virgin Mobile USA and its
directors or Sprint Nextel and its directors relating to the
transactions contemplated by the merger agreement and the other
transaction agreements. No settlement of any such litigation may
be agreed to without Virgin Mobile USAs or Sprint
Nextels consent, which consent may not be unreasonably
withheld.
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Public
Announcements
Sprint Nextel, Merger Sub and Virgin Mobile USA have agreed that
no public release or announcement concerning the transactions
contemplated by the merger agreement may be issued by any party
without the prior written consent of Virgin Mobile USA and
Sprint Nextel, which consent may not be unreasonably withheld or
delayed. However, any of the parties may issue a release or
announcement to the extent required by law or the rules or
regulations of any applicable governmental entity, in which case
the party required to make the release or announcement will use
its reasonable best efforts to allow each other party reasonable
time to comment on the release or announcement in advance of
issuance.
Listing
Sprint Nextel has agreed to use its reasonable best efforts to
cause the shares of Sprint Nextel common stock to be issued or
reserved for issuance in connection with the merger, including
shares of Sprint Nextel common stock to be reserved for issuance
upon the exercise of Virgin Mobile USA stock options, to be
authorized for listing on the NYSE.
Section 16
Matters
Virgin Mobile USA has agreed that prior to the effective time of
the merger it will take all steps necessary to exempt under
Rule 16b-3
under the Exchange Act any dispositions of Virgin Mobile USA
capital stock, including derivative securities with respect to
this capital stock, that result from the merger and are treated
as dispositions by each director or officer of Virgin Mobile USA
who is subject to the reporting requirements of
Section 16(a) of the Exchange Act.
Notification
Each of Virgin Mobile USA and Sprint Nextel has agreed to
promptly notify the other party of any change or event
(1) that has, or would, individually or in the aggregate,
reasonably be expected to have, a material adverse effect, as
described above in Representations and
Warranties, or (2) that it believes results or would
reasonably be expected to result in a failure to satisfy the
conditions to the obligations of the other party to effect the
merger, as described below in Conditions to
Completion of the Merger. If any event or matter arises
after the date of the merger agreement that, if existing or
occurring on the date of the merger agreement, would have been
required to be described in Virgin Mobile USAs disclosure
schedule to the merger agreement or that is necessary to correct
any information in the disclosure schedule, then Virgin Mobile
USA will promptly supplement or amend the disclosure schedule
and deliver the supplement or amendment to Sprint Nextel.
Net
Debt
Virgin Mobile USA has agreed to use its reasonable best efforts
to cause its net debt, as described below, immediately prior to
the effective time of the merger to be not greater than:
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$217,000,000 if the effective time of the merger occurs on or
after August 31, 2009 but before September 30, 2009;
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$205,000,000 if the effective time of the merger occurs on or
after September 30, 2009 but before November 30, 2009;
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$204,000,000 if the effective time of the merger occurs on or
after November 30, 2009 but before December 31, 2009;
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$197,000,000 if the effective time of the merger occurs on or
after December 31, 2009 but prior to January 31,
2010; and
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$192,000,000 if the effective time of the merger occurs on or
after January 31, 2010.
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For purposes of the merger agreement, net debt means
all amounts outstanding under the senior credit agreement and
subordinated credit agreement of Virgin Mobile USA, less any
cash or marketable securities held by Virgin Mobile USA and its
subsidiaries, except that the amount of net debt will not
include any amounts relating to any transition or integration
costs incurred by Virgin Mobile USA at the request of Sprint
Nextel after the termination or expiration of the applicable
waiting period under the HSR Act.
Conditions
to Completion of the Merger
The obligations of each of Virgin Mobile USA, Sprint Nextel and
Merger Sub to effect the merger are subject to the satisfaction
or waiver, prior to the effective time of the merger, of the
following conditions:
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adoption of the merger agreement by Virgin Mobile USAs
stockholders;
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the absence of any statute, law, rule, regulation, judgment,
executive order, decree, ruling, injunction or other order
(whether temporary, preliminary or permanent), enacted, entered,
promulgated or enforced by any court or other governmental
entity that prohibits, restrains or the consummation of the
merger;
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the applicable waiting period (and any extension thereof) under
the HSR Act having expired or been terminated;
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the registration statement on
Form S-4,
of which this proxy statement/prospectus forms a part, having
been declared effective by the SEC and the absence of a stop
order suspending the effectiveness of the registration statement
or proceedings pending before, or threatened by, the SEC for
such purpose; and
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approval for listing on the NYSE of the shares of Sprint Nextel
common stock to be issued to Virgin Mobile USAs
stockholders in the merger, subject to official notice of
issuance.
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The obligations of Sprint Nextel and Merger Sub to effect the
merger are further subject to the satisfaction or waiver, prior
to the effective time of the merger, of the following conditions:
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(1) the representations and warranties of Virgin Mobile USA
regarding capitalization, authority and compliance with takeover
statutes being true and correct in all respects; (2) the
representations and warranties of Virgin Mobile USA qualified as
to materiality or material adverse effect, other than those
described in clause (1) of this paragraph, being true and
correct; and (3) the representations and warranties of
Virgin Mobile USA, other than those described in
clauses (1) and (2) of this paragraph, that are not
qualified by materiality or by material adverse effect, being
true in all material respects, in each case as of the date of
the merger agreement and as of the effective time of the merger
as if the representations and warranties were made on and as of
the effective time of the merger (unless any representation or
warranty is made only as of a specific date, in which case it
will be true and correct in all material respects as of that
specified date), except in the case of representations and
warranties described in clause (3) above, where the failure
to be true and correct, in the aggregate, has not had and would
not reasonably be expected to have a material adverse effect on
Virgin Mobile USA;
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Virgin Mobile USA having performed or complied with, in all
material respects, all of its obligations, agreements and
covenants under the merger agreement at or prior to the
effective time of the merger;
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absence of any instituted or pending action, investigation or
proceeding by any governmental entity, or by any other person
before any governmental entity, which is reasonably likely to be
determined adversely to Sprint Nextel, (1) challenging or
seeking to make illegal, to delay materially or otherwise,
directly or indirectly, to restrain or prohibit the merger or
seeking to obtain material damages relating to the transactions
contemplated by the merger; (2) seeking to restrain,
prohibit or materially delay the exercise of full rights of
ownership or operation by Sprint Nextel or its subsidiaries of
all or any material portion of the business or assets of Virgin
Mobile USA and its subsidiaries, taken as a whole,
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or of Sprint Nextel or any of its subsidiaries; (3) seeking
to impose a condition on Sprint Nextel or any of its
subsidiaries that would materially deprive Sprint Nextel of the
benefits of the transactions contemplated by the merger
agreement and the other transaction agreements; or (4) that
otherwise would reasonably be expected to have a material
adverse effect on Virgin Mobile USA;
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receipt by Sprint Nextel of a certificate executed by an
executive officer or chief financial officer of Virgin Mobile
USA as to the satisfaction of the conditions described in the
preceding two paragraphs;
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each of the payoff agreement, the amended trademark license
agreement, the tax receivable termination agreement and
Mr. Schulmans employment agreement entered into in
connection with the merger being in force and effect at the
effective time of the merger, and Mr. Schulman not having
rescinded the employment agreement entered into at the time of
the merger agreement or advised Sprint Nextel that he is
unwilling to continue employment following the effective time of
the merger;
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receipt by Sprint Nextel of documentation evidencing that all
outstanding indebtedness and all other obligations under the
senior credit agreement and the subordinated credit agreement
having been paid, discharged or otherwise terminated so that
each of the senior credit agreement and the subordinated credit
agreement will have been effectively terminated in accordance
with their terms, and that all related liens and security
interests have been released; and
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receipt by Sprint Nextel of releases and acknowledgements from
each party to the senior credit agreement and the subordinated
credit agreement that all liens and security interests have been
released upon payment to such party of the amount of the
indebtedness allocable to that party.
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Virgin Mobile USAs obligation to effect the merger is
further subject to the satisfaction or waiver of the following
conditions:
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the representations and warranties of Sprint Nextel and Merger
Sub being true and correct in all material respects as of the
date of the merger agreement and as of the effective time of the
merger as if the representations and warranties were made on and
as of the effective time of the merger (unless any
representation or warranty is made only as of a specific date,
in which case it will be true and correct in all material
respects as of that specified date);
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Sprint Nextel and Merger Sub having performed or complied with,
in all material respects, all of its obligations, agreements and
covenants under the merger agreement at or prior to the
effective time of the merger;
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receipt by Virgin Mobile USA of certificates of an executive
officer of each of Parent and Merger Sub, certifying that the
conditions set forth in the preceding two paragraphs have been
satisfied;
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receipt by Virgin Mobile USA of the opinion of Simpson
Thacher & Bartlett LLP, dated the closing date of the
merger, to the effect that the merger will be treated for
U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code; and
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Sprint Nextel having performed, at or prior to the effective
time of the merger, all of its obligations under the payoff
agreement and tax receivable termination agreement, including
the payment of all amounts due by Sprint Nextel to the relevant
parties to these agreements pursuant to the terms of these
agreements.
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Some of the conditions to the completion of the merger have
already been satisfied. Sprint Nextel and Virgin Mobile USA have
already received early termination of the waiting period under
the HSR Act from the FTC and DOJ. Additionally, the FCC has
approved the international Section 214 authorizations.
However, the pending litigation related to the merger could
affect the timing of the merger. See Risk
Factors Virgin Mobile USA, its board of directors
and Sprint Nextel are defendants in lawsuits challenging the
merger that
99
could delay or prevent completion of the merger, and Virgin
Mobile USA and Sprint Nextel may incur substantial costs in
defending against the litigation, all of which could adversely
affect the respective businesses, financial results or stock
prices of Virgin Mobile USA and Sprint Nextel. We expect
that the other closing conditions will be satisfied or waived
prior to the effective time of the merger.
Under Delaware law, the merger cannot become effective unless
the merger agreement is adopted by the stockholders of Virgin
Mobile USA. Accordingly, the parties to the merger agreement may
not waive this condition to the completion of the merger. At any
time prior to the effective time of the merger, the parties to
the merger agreement may waive the satisfaction of any of the
other conditions to the completion of the merger set forth in
the merger agreement. See Amendment, Waiver
and Extension of the Merger Agreement.
In the event that any party determines to waive a material
condition to completion of the merger and such change in the
terms of the merger renders the disclosure that we previously
provided materially misleading, we intend to re-solicit
stockholder approval.
Sprint Nextel and Virgin Mobile USA cannot provide assurance as
to when or if all of the conditions to the merger can or will be
satisfied or waived by the appropriate party, or that the merger
will be completed. As of the date of this proxy
statement/prospectus, Sprint Nextel and Virgin Mobile USA have
no reason to believe that any of these conditions will not be
satisfied.
Termination
of the Merger Agreement
The merger agreement may be terminated at any time prior to the
effective time of the merger, even after the approval by Virgin
Mobile USAs stockholders, by:
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mutual written consent of Sprint Nextel, Merger Sub and Virgin
Mobile USA;
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Sprint Nextel or Virgin Mobile USA if any court or other
governmental entity having jurisdiction within the United States
has issued a final order, decree or ruling or taken any other
final action restraining, enjoining or otherwise prohibiting the
merger and the order, decree, ruling or other action is or will
have become final and non-appealable, as long as the party
seeking to terminate the merger agreement pursuant to this
paragraph used its reasonable best efforts to prevent, oppose
and remove the order, decree or ruling or other action and the
issuance of the final, non-appealable order, decree or ruling or
other action is not primarily due to the failure of the party to
perform any of its obligations under the merger
agreement; or
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Sprint Nextel or Virgin Mobile USA if the effective time of the
merger has not occurred on or before March 31, 2010, but
neither party may terminate the merger agreement pursuant to
this paragraph if its action (or, in the case of Sprint Nextel,
the action of Merger Sub) or failure (or, in the case of Sprint
Nextel, the failure of Merger Sub) to timely perform any of its
obligations under the merger agreement is the cause of, or
resulted in, the failure of the effective time of the merger to
occur on or before March 31, 2010.
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The merger agreement also may be terminated by Virgin Mobile USA
if:
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there has been a breach of any representation, warranty,
covenant or agreement by Sprint Nextel or Merger Sub under the
merger agreement such that the applicable closing conditions
will not have been satisfied and the breach is incapable of
being cured by March 31, 2010, as long as Virgin Mobile USA
is not then in material breach of any its covenants or
agreements under the merger agreement and has provided Sprint
Nextel with at least 20 days prior written notice of
its intention to terminate the merger agreement;
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all of the closing conditions under the merger
agreement have been satisfied, other than those conditions that
by their terms are not to be satisfied until the closing, and
Sprint Nextel or Merger Sub has failed to consummate the merger
promptly following satisfaction of the conditions; or
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prior to its stockholders adopting the merger agreement, Virgin
Mobile USA receives an acquisition proposal that its board of
directors determines constitutes a superior proposal, in which
case Virgin Mobile USA or its board of directors may terminate
the agreement in accordance with the applicable terms of the
merger agreement, as described above in
Agreement Not to Solicit Other Offers,
including payment of the required termination fee, as described
below in Termination Fee Payable by Virgin
Mobile USA.
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The merger agreement also may be terminated by Sprint Nextel if:
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there has been a breach of any representation, warranty,
covenant or agreement by Virgin Mobile USA under the merger
agreement such that the applicable closing conditions will not
have been satisfied and the breach is incapable of being cured
by March 31, 2010, as long as Sprint Nextel is not then in
material breach of any its covenants or agreements under the
merger agreement; or
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prior to obtaining the Virgin Mobile USAs stockholders
adopting the merger agreement, the Virgin Mobile USAs
board of directors or any committee thereof (1) has made a
change of recommendation, as described above in
Recommendation of the Virgin Mobile USA Board
of Directors, or (2) has recommended, adopted or
approved, or publicly proposed to recommend, adopt or approve,
any acquisition proposal or acquisition proposal documentation.
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In addition, the merger agreement may be terminated by either
Sprint Nextel or Virgin Mobile USA if the merger agreement is
not adopted by a majority in voting power of the outstanding
Virgin Mobile USA shares entitled to vote at the Virgin Mobile
USA special meeting.
Any termination described above requires the approval of the
respective board of directors of the party electing to terminate.
Effect of
Termination
If the merger agreement is terminated, it will become void, and
there will be no liability on the part of Sprint Nextel, Merger
Sub or Virgin Mobile USA, except that (1) each party will
remain liable for any fraud or willful and material breach of
the merger agreement, and (2) designated provisions of the
merger agreement will survive the termination, including those
relating to the confidential treatment of information, payment
of fees and expenses, and the governing law and interpretation
of the merger agreement.
Expenses
and Fees
In general, each of Sprint Nextel and Virgin Mobile USA will be
responsible for its own expenses incurred by it in connection
with the negotiation and completion of the transactions
contemplated by the merger agreement. Virgin Mobile USA will
bear the expenses incurred in connection with the filing,
printing and mailing of this proxy statement.
Termination
Fee Payable by Virgin Mobile USA
Under the terms of the merger agreement, Virgin Mobile USA is
obligated to pay Sprint Nextel a cash termination fee of
$14.2 million in the event that:
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Virgin Mobile USA exercises its right to terminate the merger
agreement upon the receipt of a superior proposal;
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Sprint Nextel exercises its right to terminate the merger
agreement upon the Virgin Mobile USA board of directors
effecting a change of recommendation or having recommended,
adopted or approved an acquisition proposal or acquisition
proposal documentation;
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Sprint Nextel or Virgin Mobile USA exercises its right to
terminate the merger agreement upon the failure of Virgin Mobile
USAs stockholders to adopt the merger agreement at the
special meeting if, prior to the vote, the Virgin Mobile USA
board of directors effected a change of recommendation or
recommended, adopted or approved an acquisition proposal or
acquisition proposal documentation;
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Sprint Nextel or Virgin Mobile USA exercises its right to
terminate the merger agreement (1) due to a failure of the
merger to be consummated on or before March 31, 2010 or the
failure of Virgin Mobile USAs stockholders to adopt the
merger agreement, other than following a change of
recommendation or the recommendation by the Virgin Mobile USA
board of directors of an acquisition proposal, as described in
the preceding paragraph; (2) prior to termination an
acquisition proposal is made public or known to the Virgin
Mobile USA board of directors and is not withdrawn; and
(3) within twelve months after termination, Virgin Mobile
USA enters into a definitive agreement with respect to, or
consummates, the acquisition proposal; or
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Sprint Nextel exercises its right to terminate the merger
agreement (1) due to a breach by Virgin Mobile USA of any
of its representations, warranties, covenants or agreements
under the merger agreement; (2) prior to termination or
breach giving rise to Sprint Nextels right to terminate an
acquisition proposal is made public or known to the Virgin
Mobile USA board of directors and is not withdrawn; and
(3) within twelve months after termination, Virgin Mobile
USA enters into a definitive agreement with respect to, or
consummates, the acquisition proposal.
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As set forth in the merger agreement, the term acquisition
proposal, as used in determining whether the termination
fee is payable, has the meaning described above in
Agreement Not to Solicit Other Offers,
except that references to 10% or more are changed to
more than 50%.
Specific
Performance
The merger agreement provides that each party is entitled to
seek an injunction to prevent a breach of the merger agreement
and to enforce specifically the terms and provisions of the
merger agreement in the Court of Chancery of the State of
Delaware or, if under applicable law exclusive jurisdiction is
vested in the federal courts, in any court of the United States
located in the State of Delaware. This remedy is in addition to
any other remedy to which the parties are entitled at law or in
equity.
Amendment,
Waiver and Extension of the Merger Agreement
Subject to applicable law, the parties may amend the merger
agreement by action taken or authorized by each of their
respective boards of directors and signed in writing by each of
the parties. However, after the adoption of the merger agreement
by Virgin Mobile USAs stockholders, there may not be,
without further approval of Virgin Mobile USA stockholders, any
amendment of the merger agreement that requires their further
approval in accordance with applicable law (including the rules
of any relevant stock exchange).
At any time prior to the completion of the merger, each of
Sprint Nextel, Merger Sub and Virgin Mobile USA may, by written
instrument signed by each of the parties to be bound:
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extend the time for the performance of any of the obligations or
other acts of the other parties;
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waive any inaccuracies in the representations and warranties of
the other parties; and
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waive compliance by the other party with any of the other
agreements or conditions contained in the merger agreement,
subject to the requirements of any applicable law.
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CONTRACTS
BETWEEN VIRGIN MOBILE USA AND SPRINT NEXTEL PRIOR TO THE
MERGER
Virgin Mobile USA was originally founded in July 2002 as a joint
venture between Sprint Nextel and the Virgin Group. After Virgin
Mobile USAs IPO in October 2007, Sprint Ventures remained
a principal stockholder of Virgin Mobile USA. Sprint Nextel or a
subsidiary of Sprint Nextel has entered into various contracts
with Virgin Mobile USA or the Operating Partnership, as
discussed below. Each of the agreements described below have
been filed by Virgin Mobile USA with the SEC. See Where
You Can Find More Information beginning on page 141.
Amended
and Restated Stockholders Agreement
In connection with Virgin Mobile USAs IPO, Sprint Nextel
and the Virgin Group entered into a stockholders agreement
with Virgin Mobile USA, which set forth specific rights,
obligations and agreements of Sprint Nextel and the Virgin Group
as holders of Virgin Mobile USA shares. In connection with its
acquisition of Helio LLC, Virgin Mobile USA entered into an
amended and restated stockholders agreement dated
August 22, 2008, pursuant to which SK Telecom was joined as
a party to the stockholders agreement.
The stockholders agreement contains various governance
provisions, including provisions relating to the voting of
Sprint Nextels, the Virgin Groups and SK
Telecoms voting interests in Virgin Mobile USA. The
stockholders agreement provides that Sprint Nextel, the
Virgin Group and SK Telecom will vote their shares of
Class A common stock, Class B common stock and
Class C common stock to elect to the board of directors of
Virgin Mobile USA nominees as described in Comparison of
Rights of Sprint Nextel Stockholders and Virgin Mobile USA
Stockholders Number, Election, Vacancy and Removal
of Directors Virgin Mobile USA. For a
description of additional restrictions imposed by the
stockholders agreement, see Comparison of Rights of
Sprint Nextel Stockholders and Virgin Mobile USA
Stockholders Restrictions Imposed by
Stockholders Agreement Virgin Mobile USA.
Under the terms of the stockholders agreement and subject
to some exceptions, Sprint Nextel, the Virgin Group and SK
Telecom have the right to subscribe for and purchase a pro rata
share of any new securities that Virgin Mobile USA issues or
proposes to issue.
In addition, subject to some exceptions, Virgin Mobile USA has
agreed to indemnify stockholders that are parties to the
agreement against losses arising from (1) the purchase
and/or
ownership of Virgin Mobile USAs equity securities, and
(2) any litigation to which such stockholder is made a
party in its capacity as a holder of Virgin Mobile USAs
securities.
Sprint
Nextel Tax Receivable Agreement
In connection with the IPO, Virgin Mobile USA entered into a tax
receivable agreement with Sprint Ventures. The tax receivable
agreement provides for the payment by Virgin Mobile USA to
Sprint Nextel of the amount of the cash savings, if any, in
U.S. federal, state and local income tax that Virgin Mobile
USA actually realizes as a result of increases in tax basis of
assets owned by the Operating Partnership that results from the
exchange of its partnership units for shares of Class A
common stock. For purposes of the tax receivable agreement, cash
savings in income tax are generally computed by comparing Virgin
Mobile USAs income tax liability (assuming no contribution
of net operating losses by the Virgin Group) to the amount of
these taxes that Virgin Mobile USA would have been required to
pay if (1) there had been no increase to the tax basis of
the assets of the Operating Partnership allocable to Virgin
Mobile USA as a result of the initial sale and the future
exchanges; (2) Virgin Mobile USA had not entered into the
tax receivable agreement; and (3) the Virgin Group had not
contributed any net operating losses. This amount is adjusted to
the extent that the aggregate hypothetical value of benefits
contributed by both the Virgin Group and Sprint Nextel exceeds
Virgin Mobile USAs actual cash savings from these
benefits. The term of the tax receivable agreement commenced
upon consummation of the IPO of Virgin Mobile USA and will
continue until all tax benefits have been utilized or have
expired.
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If Virgin Mobile USA undergoes a change in control and does not
elect to terminate the tax receivable agreement as discussed
below, cash savings in income tax will be computed with the
additional assumption that Virgin Mobile USA has sufficient
income in each subsequent year to claim all of the tax benefits
attributable to the increase to the tax basis of the assets of
the Operating Partnership and to utilize any loss carryovers
attributable to the increase in basis. Additionally, if Virgin
Mobile USA or a direct or indirect subsidiary transfers any
asset to a corporation with which Virgin Mobile USA does not
file a consolidated tax return, Virgin Mobile USA will be
treated as having sold that asset in a taxable transaction for
purposes of determining the cash savings in income tax under the
tax receivable agreement.
Under the tax receivable agreement, prior to agreeing to engage
in any business combination, sale or purchase of assets, or
reorganization outside the ordinary course of its business which
would not constitute a change of control for purposes of the tax
receivable agreement and which could adversely affect the
expected value of the benefits payable to Sprint Nextel under
the tax receivable agreement, Virgin Mobile USA is required to
obtain the consent of Sprint Nextel, which may be conditioned
upon its agreement to make a make-whole payment to Sprint Nextel
to compensate it for the reduction in benefits.
The tax receivable agreement provides that in the event that
Virgin Mobile USA breaches any of its material obligations under
the tax receivable agreement, whether as a result of Virgin
Mobile USAs failure to make any payment when due (subject
to a specified cure period), failure to honor any other material
obligation under the tax receivable agreement or by operation of
law as a result of the rejection of the tax receivable agreement
in a case commenced under the Bankruptcy Code or otherwise, then
all of Virgin Mobile USAs payment and other obligations
under the tax receivable agreement will be accelerated and will
become due and payable. These payments could be substantial and
could exceed Virgin Mobile USAs actual cash tax savings
under the tax receivable agreement. Additionally, Virgin Mobile
USA has the right to terminate the tax receivable agreement with
respect to previous exchanges (or, in certain circumstances,
including if Virgin Mobile USA undergoes a change of control,
with respect to all previous and future exchanges). If Virgin
Mobile USA terminates the tax receivable agreement, Virgin
Mobile USAs payment and other obligations under the tax
receivable agreement will be accelerated and will become due and
payable. These payments could be substantial and could exceed
Virgin Mobile USAs actual cash tax savings under the tax
receivable agreement.
Registration
Rights Agreement
In connection with its IPO, Virgin Mobile USA entered into a
registration rights agreement with Sprint Nextel, the Virgin
Group and two minority stockholders pursuant to which Virgin
Mobile USA is required to register under the Securities Act,
under certain circumstances and subject to certain restrictions,
shares of Class A common stock (and other securities
convertible into or exchangeable or exercisable for shares of
Class A common stock) held or acquired by Sprint Nextel,
the Virgin Group and the two minority stockholders, their
respective affiliates and certain of their respective
transferees. The securities registered under any registration
statement will be available for sale in the open market unless
restrictions apply. In connection with the acquisition of Helio
LLC in August 2008, Virgin Mobile USA entered into an amendment
to the original registration rights agreement, pursuant to which
SK Telecom and EarthLink, Inc. were joined as parties to the
registration rights agreement.
Under the terms of the registration rights agreement, each of
Sprint Nextel, the Virgin Group and SK Telecom has the right to
demand that Virgin Mobile USA register its common stock on at
least five occasions, subject to the conditions set forth in the
registration rights agreement. Each of the parties to the
agreement also has the right to piggyback on any
registration statements that Virgin Mobile USA files on an
unlimited basis, subject to the conditions set forth in the
registration rights agreement. In addition, if Virgin Mobile USA
is eligible to file a registration statement on
Form S-3,
the stockholders with
S-3
registration rights under the registration rights agreement can
request that Virgin Mobile USA register their shares. The
registration rights under the registration rights agreement will
expire, with respect to an individual holder, when that holder
is able to sell all of its shares pursuant to Rule 144
under the Securities Act in any three-month period.
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Virgin
Mobile USA, L.P. Amended and Restated Partnership
Agreement
In connection with Virgin Mobile USAs IPO, Sprint Nextel
entered into a limited partnership agreement with the Operating
Partnership, Virgin Mobile USA and the other parties thereto,
which was amended and restated in August 2008 in connection with
Virgin Mobile USAs acquisition of Helio LLC. Sprint Nextel
holds partnership units in the Operating Partnership, which are
exchangeable for 12,058,626 shares of Class A common
stock.
Purpose
The partnership agreement provides that the Operating
Partnerships purpose is to engage in any lawful act or
activity for which limited partnerships may be formed under the
Delaware Revised Uniform Limited Partnership Act.
Management
and Control
The partnership agreement further provides that VMU GP1, LLC as
general partner, manages and controls the business and affairs
of the Operating Partnership. VMU GP1, LLC is an indirect,
wholly-owned subsidiary of Virgin Mobile USA.
Persons holding operating partnership units have the right to
vote on certain amendments to the partnership agreement of the
Operating Partnership, as well as on certain other matters.
Units;
Percentage Interests
Each limited partner in the Operating Partnership was issued
common units representing interests in the Operating
Partnership, and the percentage interest of each partner was
determined based on the ratio of the number of common units held
by the partner to the number of outstanding common units in the
partnership, or, in the case of the preferred stock, an equal
number of units of preferred stock with designations,
preferences and other rights, terms and conditions that are
substantially the same as the designations, preferences and
other rights, terms and conditions of the preferred stock,
registered in the name of the issuer. As of July 31, 2009,
Virgin Mobile USA and Sprint Nextel held approximately 84.8% and
15.2%, respectively, of the common units in the Operating
Partnership.
In the event Virgin Mobile USA redeems, repurchases, acquires,
cancels or terminates a share of Class A common stock or
Class C common stock, other than in connection with a
conversion of shares of Class C common stock into shares of
Class A common stock, one common unit of the Operating
Partnership will automatically be cancelled for the same
consideration paid by Virgin Mobile USA for each share of
Class A common stock or Class C common stock. At any
time a share of preferred stock is redeemed, repurchased,
acquired, cancelled or terminated by or on Virgin Mobile
USAs behalf, one unit of preferred stock registered in
Virgin Mobile USAs name or, at the election of VMU GP1,
LLC in its sole discretion, any of its direct or indirect
subsidiaries, will be redeemed, repurchased, acquired, cancelled
or terminated by the Operating Partnership for the same
consideration, if any, as the consideration paid by or on Virgin
Mobile USAs behalf so that the number of units of
preferred stock held by the ultimate parent and any of its
direct or indirect subsidiaries, including the general partner,
at all times equals the number of shares of preferred stock
outstanding. The general partner will revise the register to
reflect any redemption, repurchase, acquisition, cancellation or
termination. Similarly, in the event Virgin Mobile USA or its
subsidiaries issue a share of Class A common stock,
Class C common stock or preferred stock, other than in
connection with a conversion of shares of Class C common
stock or preferred stock to shares of Class A common stock,
the net proceeds received by Virgin Mobile USA or its subsidiary
with respect to each share will be concurrently transferred to
the Operating Partnership, which will in return issue to Virgin
Mobile USA or its subsidiary one common unit or unit of
preferred stock, as applicable, in the Operating Partnership. If
Virgin Mobile USA or its subsidiary do not receive any net
proceeds from the issuance of any security (including an
issuance of Class A common stock pursuant to the tax
receivable agreement between Virgin Mobile USA and the Virgin
Group), the Operating
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Partnership will issue an equal number of units of partnership
interest with the same terms as the securities issued by Virgin
Mobile USA or its subsidiary and will make a pro rata issuance
of units of partnership interest to the other holders of common
units unless the securities were issued pursuant to an employee
incentive plan of Virgin Mobile USA or certain other exceptions
apply. Accordingly, every time Virgin Mobile USA issues shares
of Class A common stock or preferred stock to the Virgin
Group under the tax receivable agreement, the Operating
Partnership will be required to issue additional limited
partnership units to Sprint Nextel.
Common partnership units are exchangeable for shares of
Class A common stock and other partnership units are
exchangeable for the securities that triggered their issuance,
in each case on a one for one basis, subject to adjustment.
Distributions;
Tax Distributions
VMU GP1, LLC has the right to determine when distributions will
be made to the partners of the Operating Partnership and the
amount of any distribution. All distributions will generally be
made to the partners holding common units pro rata in accordance
with their respective percentage ownership interests in the
Operating Partnership. The Operating Partnership may make
distributions to Virgin Mobile USA without pro rata
distributions to other partners in order to pay
(1) consideration, if any, for redemption, repurchase,
acquisition, cancellation or termination of Class A common
stock or Class C common stock, and (2) overhead and
some other fees and expenses. The Operating Partnership may also
make loans to Virgin Mobile USA or its subsidiaries for bona
fide business purposes, subject to some restrictions and
requirements as to repayment.
The holders of the partnership units in the Operating
Partnership, including Bluebottle USA Holdings L.P. and Sprint
Ventures, may be subject to U.S. federal, state and local
income taxes on their proportionate share of any net taxable
income of the Operating Partnership. Net profits and net losses
of the Operating Partnership are generally allocated to the
partners pro rata in accordance with their respective percentage
interests (as determined in accordance with the partnership
agreement). The partnership agreement permits the Operating
Partnership to make cash distributions to its partners to enable
its partners to satisfy their tax liabilities. If the Operating
Partnership makes these tax distributions in the future, these
tax distributions will generally be computed based on the net
taxable income of the Operating Partnership allocable directly
and indirectly to Virgin Mobile USA multiplied by an assumed tax
rate equal to the highest effective marginal combined
U.S. federal, state and local income tax rate prescribed
for a corporate resident of the state of New York (taking into
account the nondeductibility of some expenses and the character
of Virgin Mobile USAs income) with proportionate
distributions to each other holder of partnership units based on
the relative interests of the partners at the date of the
distribution.
Indemnification
Under the terms of the partnership agreement, the Operating
Partnership indemnifies all of the partners, including the
general partner, against any and all losses and expenses related
thereto incurred by reason of the fact that such person was a
partner of the Operating Partnership. In the event that losses
are incurred as a result of a partners fraud or willful
misconduct, that partner is not entitled to indemnification
under the partnership agreement.
Dissolution
The Operating Partnership may be dissolved only upon the
occurrence of the voluntary agreement of all partners, any act
constituting dissolution under applicable law or other events
specified in the partnership agreement. Upon dissolution, the
Operating Partnership will be liquidated and the proceeds from
any liquidation will be applied and distributed in the following
manner: (1) first, to creditors (including to the extent
permitted by law, creditors who are partners) in satisfaction of
the liabilities of the Operating Partnership, and
(2) second, to the partners in proportion to their
respective percentage interests.
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PCS
Services Agreement
Virgin Mobile USA is party to a PCS services agreement with
Sprint Spectrum, L.P., a subsidiary of Sprint Nextel, under
which Sprint Spectrum provides Virgin Mobile USA with access to
its wireless voice and data services operating on the nationwide
Sprint PCS network. This access includes adjunct nationwide
Sprint PCS network services which are a fundamental component of
Sprint Spectrums service offerings. Virgin Mobile USA and
Sprint Nextel agreed to amend the PCS services agreement in
October 2007; March, May, June and December 2008; and March,
April and September 2009. The following is a summary of the
terms of the PCS services agreement, as amended to date.
Access
to Network and Services
Sprint Spectrum makes substantially all existing CDMA network
and network-connected services available to Virgin Mobile USA.
In addition, Sprint Spectrum must make new CDMA network services
and network-connected services available to Virgin Mobile USA,
unless the services are marketed as unique to Sprint Nextel. In
these instances, Sprint Spectrum will not be required to make
the service available to Virgin Mobile USA until three months
after the services have been made available to Sprint
Nextels customers. The PCS services agreement permits
Virgin Mobile USA to purchase
non-network
services from third party sources not directly related to the
nationwide Sprint PCS network. Sprint Spectrum may, but is not
required to, provide Virgin Mobile USA with these
non-network
services.
Virgin Mobile USA may request customized services from Sprint
Spectrum. If the requested services are within then-existing
capabilities of Sprint Spectrums core network, Sprint
Spectrum will provide Virgin Mobile USA with the requested
customized service. If the requested services are not within
Sprint Spectrums existing capabilities, Sprint Spectrum
may elect, at its discretion, to develop the requested
customized service. As part of the PCS services agreement,
Sprint Spectrum must use reasonable efforts to provide location
services to Virgin Mobile USA.
Virgin Mobile USA must use Sprint Spectrum and its third party
PCS affiliates as its exclusive provider of mobile voice and
data services in the United States, the U.S. Virgin Islands
and Puerto Rico. In addition, as long as Sprint Spectrum or any
Sprint Nextel affiliate owns more than 10% of Virgin Mobile
USAs equity, Sprint Nextel will be its preferred
telecommunications services provider.
If Sprint Spectrum migrates a significant number of customers to
a successor network and ceases activation of new customers on
the nationwide Sprint PCS network or a significant number of
Sprint Spectrums activation of new voice and data
customers are on a successor network, Virgin Mobile USA will
begin negotiations with Sprint Spectrum regarding a possible
arrangement to provide Virgin Mobile USA with access to that
successor network. If at any time Sprint Spectrum offers terms
and conditions for the use of the successor network that are
substantially similar to those under the PCS services agreement,
Virgin Mobile USA must accept the offer. If after a specified
negotiation period, Virgin Mobile USA cannot reach an agreement
with Sprint Spectrum, or Sprint Spectrum has not offered terms
for the successor network that are substantially similar to
those under the PCS services agreement, then Virgin Mobile USA
must elect to either (1) use the successor network
exclusively at the same level of functionality as the nationwide
PCS network at rates fixed at those applicable to Virgin Mobile
USA for the services on the CDMA network under the PCS services
agreement, or (2) terminate the agreement and continue to
use the CDMA network for a period of approximately two years
pursuant to the terms and conditions of the PCS services
agreement, subject to a cap on rates at those applicable to
Virgin Mobile USA as of the beginning of the negotiation period.
If Virgin Mobile USA elects to terminate the agreement under
(2) above, Virgin Mobile USAs exclusivity obligations
cease and Virgin Mobile USA may negotiate with other network
providers to obtain mobile services during this period and
thereafter. In all cases, Sprint Spectrum reserves the right to
discontinue providing services over the CDMA network after
expiration of a two-year migration period and Virgin Mobile USA
will bear the costs (if any) of migrating end users to a new
network if necessary. The PCS services agreement does not give
Virgin Mobile USA the right to use the WiMax network operated by
Clearwire Corporation.
107
Cost
of Services
Under the terms of the PCS services agreement, Virgin Mobile USA
pays fixed rates for voice, messaging and data traffic. Sprint
Nextel will provide Virgin Mobile USA with a $2.50 network usage
credit for each gross customer addition between July 1,
2008 and December 31, 2009, up to a maximum of
$10 million, provided that no undisputed amounts are past
due. If the merger is not completed, Virgin Mobile USA expects
to negotiate with Sprint Nextel for rates and other terms
applicable to 2011 and beyond, but if Virgin Mobile USA fails to
reach an agreement, 2010 rates will apply.
On February 25, 2009, Virgin Mobile USA entered into the
Eighth Amendment to the PCS services agreement with Sprint
Nextel. Under the terms of the Eighth Amendment, Virgin Mobile
USA required minimum payment for the year ended
December 31, 2008 decreased from $318 million to
$317.2 million. In addition to the network usage credits
for gross additions between July 1, 2008 and
December 31, 2009 described above, Sprint Nextel provided
Virgin Mobile USA with an additional network usage credit of
$2.00 for each gross addition between October 1, 2008 and
December 31, 2008. During the year ended December 31,
2008, Virgin Mobile USA recorded a credit of $7.1 million
in cost of service for both network usage credits.
On April 7, 2009, Virgin Mobile USA entered into the Ninth
Amendment to the PCS services agreement with Sprint Nextel.
Under the terms of the Ninth Amendment, effective April 1,
2009, Virgin Mobile USA pays fixed, lower rates for domestic
network usage for each minute of use each month exceeding a base
amount. If the merger is not completed, beginning
January 1, 2010, Virgin Mobile USA will pay a fixed rate
for messages, regardless of volume, but will no longer be
eligible to receive a discount for messaging rates in 2010 based
on aggregate payments for all usage during 2009. Virgin Mobile
USA will be eligible to receive a discount to existing rates for
data services relative to aggregate payments for all usage
during 2009.
On September 25, 2009, Virgin Mobile USA and Sprint Spectrum
entered into a letter agreement which amended the PCS services
agreement. Pursuant to the letter agreement, Sprint Nextel will
apply a discount to the total charges under the PCS services
agreement for voice and data services for each monthly billing
cycle from August 1, 2009 through December 31, 2009.
Quality
of Services
The services which Sprint Spectrum provides to Virgin Mobile USA
cannot be of inferior quality (as measured by metrics including,
but not limited to, dropped calls, blocked calls, call setup,
transmission speeds, and
E-911
capabilities) or clarity than that of the generally available
PCS services provided by Sprint Spectrum to its own customers.
If Virgin Mobile USA requests customized services from Sprint
Spectrum and Sprint Spectrum elects to develop and use the
required services, Virgin Mobile USA will share the costs of the
development evenly with Sprint Spectrum. If Sprint Spectrum
develops but does not use the services, Virgin Mobile USA bears
the entire development cost.
The PCS services agreement also includes a qualified most
favored nation clause. In the event that Sprint Spectrum
(1) enters into a wireless service agreement to sell PCS
services to one of Virgin Mobile USAs direct strategic
competitors, (2) the agreement is similar to the PCS
services agreement, (3) Sprint Nextel owns less than 37.5%
of the counterparty to the agreement, and (4) the agreement
commits Sprint Spectrum to sell wireless voice
and/or data
services at a lower price in the aggregate than Virgin Mobile
USA pays, then Sprint Spectrum will make the services available
to Virgin Mobile USA at the same price and under the same terms.
108
Liability
Under the terms of the PCS services agreement, both
parties liability for direct damages to the other party
will not exceed $10 million, except with respect to unpaid
amounts due under the PCS services agreement. Subject to
exceptions enumerated in the agreement, neither party is liable
for special, indirect, incidental, exemplary, punitive or
consequential damages, including loss of profits arising out of
the performance of the agreement.
Mobile
Telephone Numbers
Sprint Spectrum administers mobile identification telephone
numbers, or MINs, on Virgin Mobile USAs behalf and for
Virgin Mobile USAs benefit. This administration includes
obtaining and managing MINs in accordance with Virgin Mobile
USAs anticipated MIN needs (to the extent possible in
consideration of factors affecting MIN availability outside of
Sprint Spectrums control). Under the PCS services
agreement, Virgin Mobile USA must take affirmative steps to
decrease the number of assigned and inactive MINs in the event
Virgin Mobile USA adopts a policy of deactivating customers in
excess of 180 days after a customers last
replenishment and this policy results in a number of assigned
inactive MINs that is significantly greater than the industry.
If Virgin Mobile USA assigned inactive MINs exceed the industry
average level after 60 days notice from Sprint
Spectrum, Sprint Spectrum may restrict Virgin Mobile USAs
MIN availability.
Intellectual
Property
Under the PCS services agreement, Sprint Spectrum granted to
Virgin Mobile USA a non-transferable, royalty-free,
non-exclusive license to use and sell at retail the Sprint
Spectrum handset proprietary information, solely to permit
Virgin Mobile USA and its customers to use the Virgin Mobile USA
service. Virgin Mobile USA and Sprint Spectrum retain all right,
title and interest in and to Virgin Mobile USA and Sprint
Spectrums respective proprietary intellectual property,
which we refer to as IP, that is developed outside of the scope
of the agreement. The agreement provides that Sprint Spectrum
will own all IP related to improvements, modifications or work
derived from any activity related to the agreement, other than
certain services that are not developed by Sprint Spectrum. In
addition, Virgin Mobile USA generally retains ownership of any
IP related to improvements, modifications and derivative works
to Virgin Mobile USAs customized services that are not
provided by Sprint Spectrum.
Payment
Terms
Sprint Nextel provides Virgin Mobile USA monthly invoices of
charges incurred by Virgin Mobile USA. Payment of the undisputed
portion of each invoice is due within ten business days of the
due date. Amounts not paid by the due date accrue interest at
the rate of 1% per month. If Virgin Mobile USA fails to make a
payment (other than payments that are being disputed in good
faith) and this failure continues for more than 30 days
after written notice from Sprint Nextel, it will constitute a
default under the PCS services agreement.
Virgin Mobile USA incurred costs of approximately
$145.0 million and $133.9 million in the six months
ended June 30, 2009 and 2008, respectively, and
approximately $295.0 million, $294.5 million and
$225.3 million in the years ended December 31, 2008,
2007 and 2006, respectively, relating to services provided by
Sprint Nextel pursuant to the PCS services agreement.
Term
and Termination
The original term of the PCS Services agreement expires in 2027.
Both parties to the agreement are granted customary termination
rights in case of breaches of the agreement such as
failure to pay amounts when due, or failure to comply with
material representations or obligations which are
not cured within a specified period of time and are materially
damaging to the other party, in case of the insolvency of the
other party or if either party institutes a voluntary
proceeding, or becomes the subject of an involuntary proceeding
109
which is not dismissed within 30 days, under any bankruptcy
act, insolvency law or any law for the relief of debtors. In
addition, in the event that a direct strategic competitor of
Sprint Nextel acquires control of Virgin Mobile USA, otherwise
assuming continued compliance with the terms of the agreement,
Sprint Spectrum may notify Virgin Mobile USA during the period
beginning on the date of the transaction and ending 90 days
after the closing date of the transaction resulting in a change
of control of its intention to terminate the agreement
24 months following the date of this notice. Similarly, if
a direct strategic competitor of the Virgin Group acquires
control of Virgin Mobile USA, Virgin Enterprises may terminate
its trademark license agreement with Virgin Mobile USA. If
Virgin Enterprises exercises its right to terminate its
trademark license agreement, Sprint Spectrum may terminate the
PCS services agreement as of the same date. If Sprint Spectrum
exercises this termination right, Virgin Mobile USAs
obligation to use the nationwide Sprint PCS network exclusively
ceases from the date Sprint Spectrum gives notice of termination
to Virgin Mobile USA.
If Sprint Spectrum sells a material portion of the nationwide
Sprint PCS network (for example, its spectrum and network
facilities in a specific geographic region), it must use
commercially reasonable efforts to ensure that Virgin Mobile USA
is able to procure PCS service, whether through Sprint Spectrum,
the acquirer of the material portion of its business, or a third
party. If PCS service cannot be obtained on this basis, then
Virgin Mobile USAs exclusivity obligations to Sprint
Spectrum or its successor are waived in the affected region.
Board
Representation
So long as the PCS services agreement remains in effect, Sprint
Ventures has the right to appoint at least one of Virgin Mobile
USAs directors.
Sprint
Nextel Trademark License Agreement
Virgin Mobile USA is a party to a trademark license agreement
with Sprint Communications Company, L.P., a subsidiary of Sprint
Nextel, which governs its use of the Sprint and
Sprint PCS brand in relation to the provision and
marketing of mobile voice and data services and other related
services. In connection with the consummation of its IPO, Virgin
Mobile USA amended and restated the Sprint Nextel trademark
license agreement. The following is a summary of the terms of
this agreement.
Scope
of Right to Use Trademark
Sprint Communications grants to Virgin Mobile USA the right to
use the Sprint name and logo in the United States,
U.S. Virgin Islands and Puerto Rico for mobile voice and
data services and related services, such as voicemail and
messaging, subject to some limitations.
Royalties
Virgin Mobile USA pays royalties to Sprint Communications in an
amount equal to 0.25% of gross revenues, exclusive of the sale
of handsets, up to an annual limit of $4 million, adjusted
annually for inflation.
Term
and Termination
The Sprint Nextel trademark license agreement will expire on
December 31, 2027. Both parties to the agreement are
granted customary termination rights in case of breaches of the
agreement such as failure to pay amounts when due or
failure to comply with material representations and obligations
which are not cured within a specified period of
time, or in case of the insolvency of the other party. In
addition, in the event that the PCS Service Agreement is
terminated or expires, this trademark license agreement expires
automatically.
Virgin Mobile USA must comply with several additional conditions
on the use of the marks, including the condition that the marks
not be used other than in a manner that is consistent with
guidelines approved by Sprint Communications.
110
Virgin Mobile USA incurred costs of approximately
$1.5 million in each of the six months ended June 30,
2009 and 2008 and approximately $3.0 million,
$1.5 million and $1.3 million in the years ended
December 31, 2008, 2007 and 2006, respectively, for royalty
expenses under the trademark license agreement.
Subordinated
Credit Agreement
On July 19, 2006, Virgin Mobile USA entered into the
subordinated credit agreement with Virgin Entertainment and
Sprint Spectrum, under which Virgin Entertainment and Sprint
Spectrum agreed to make up to $100 million in revolving
credit loans. Sprint Spectrum ceased to be a party to the
agreement when it was amended on September 21, 2007 in
connection with the IPO.
Distribution
Arrangements
Virgin Mobile USA distributes its products through Sprint Nextel
stores. Virgin Mobile USA recognized revenue of $243,000 and
$171,000 in the six months ended June 30, 2009 and 2008,
respectively, and $411,000, $281,000 and $10.4 million in
the years ended December 31, 2008, 2007 and 2006,
respectively, related to Virgin Mobile USAs distribution
arrangements with Sprint Nextel.
In addition, Virgin Mobile USA has a distribution agreement with
Sprint Nextel that enables Virgin Mobile USA to sell its
products in RadioShack stores. Sprint Nextel has agreed, subject
to some conditions including the right to terminate on
90 days notice, to permit Virgin Mobile USA to sell
its handsets on consignment through RadioShack stores, and
Virgin Mobile USA currently sells all its handsets to this
retailer under an agreement between RadioShack and Virgin Mobile
USA.
Master
Services Agreement
In January 2003, Virgin Mobile USA entered into a master
services agreement with an affiliate of Sprint Nextel to
purchase wireline communications services for Virgin Mobile
USAs operations, which was amended and restated in June
2008. Virgin Mobile USA incurred costs related to the agreement
of approximately $4.3 million and $4.6 million in the
six months ended June 30, 2009 and 2008, respectively, and
approximately $9.6 million, $15.0 million and
$10.1 million in the years ended December 31, 2008,
2007 and 2006, respectively.
Federal
Excise Tax Refund Agreement
Virgin Mobile USA entered into an agreement with Sprint Spectrum
in September 2007 pursuant to which Sprint Spectrum agreed that
Virgin Mobile USA is entitled to claim any refund paid by the
IRS relating to federal communications excise taxes previously
paid in connection with prepaid wireless communications services
involving
Top-Up cards
sold to Sprint Spectrum for resale in certain Sprint-branded
retail locations. In 2007, Virgin Mobile USA partially settled
its refund claim with the IRS and received a refund relating to
the Sprint branded retail location sales.
111
DESCRIPTION
OF SHARE CAPITAL OF SPRINT NEXTEL
The following discussion is a summary of the terms of the
capital stock of Sprint Nextel and should be read in conjunction
with Comparison of Rights of Sprint Nextel Stockholders
and Virgin Mobile USA Stockholders beginning on
page 121. This summary is not meant to be complete and is
qualified by reference to the relevant provisions of the Kansas
General Corporation Code, which we refer to as the KGCC, and
Sprint Nextels amended and restated articles of
incorporation and bylaws. You are urged to read those documents
carefully. Copies of Sprint Nextels articles of
incorporation, which we refer to as Sprint Nextels
articles of incorporation, and Sprint Nextels amended and
restated bylaws are incorporated by reference in this proxy
statement/prospectus and will be sent to Virgin Mobile USA
stockholders upon request. See Where You Can Find More
Information beginning on page 141.
Authorized
Capital Stock
Sprint Nextels articles of incorporation provide that the
total number of shares of capital stock which may be issued by
Sprint Nextel is 6,620,000,000, and the designation, the number
of authorized shares and the par value of the shares of each
class or series are as follows:
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Number of
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Designation
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Class
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Series
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Shares
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Par Value
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Series 1 common stock
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Common Stock
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Series 1
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6,000,000,000
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$2.00 per share
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Series 2 common stock
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Common Stock
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Series 2
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500,000,000
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$2.00 per share
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Non-voting common stock
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Non-Voting Common Stock
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100,000,000
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$0.01 per share
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Preferred stock
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Preferred Stock
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Sixth Series
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3,000,000
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No par value
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Seventh Series
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300,000
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No par value
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Ninth Series
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232,745
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No par value
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An additional 16,467,255 shares of preferred stock, no par
value, are available for future issuances in one or more series
to be designated by the Sprint Nextel board of directors.
Description
of Common Stock
Voting
Powers
General. Except as otherwise provided by law,
as set forth in Sprint Nextels articles of incorporation
or as otherwise provided by the terms of any outstanding
non-voting common stock or any outstanding series of preferred
stock, the holders of Sprint Nextel common stock and
Series 2 common stock, vote together with the holders of
all other classes or series of capital stock that have general
voting power on all matters as a single class. The holders of
Sprint Nextel common stock and Series 2 common stock,
voting together as a separate class, are entitled to vote on a
proposed amendment to Sprint Nextels articles of
incorporation if the amendment would:
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increase or decrease the number of authorized shares of Sprint
Nextel common stock or Series 2 common stock;
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increase or decrease the par value of the shares of Sprint
Nextel common stock or Series 2 common stock; or
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alter or change the powers, preferences or special rights of the
shares of Sprint Nextel common stock or Series 2 common
stock so as to affect them adversely.
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Except as otherwise provided by law or as described below, the
holders of non-voting common stock will have no right to vote on
any matter. Sprint Nextels articles of incorporation
provide that the holders of non-voting common stock will have
the right to vote, as a separate class, on any fundamental
change in which shares of non-voting common stock would be
treated differently from shares of Sprint Nextel common stock. A
fundamental change is any merger, consolidation, reorganization
or reclassification by Sprint Nextel of its shares of capital
stock, any amendment to its amended and restated articles of
incorporation or any liquidation, dissolution or winding up of
Sprint Nextel. However, the holders of the non-voting common
stock will not have the right to vote on a fundamental change in
which the only difference in treatment is that the holders of
Sprint Nextel common stock would be entitled to receive equity
securities with full voting rights and the holders of non-voting
common stock would be entitled to receive equity securities that
have voting rights substantially identical to the voting rights
of the non-voting common stock and that are convertible upon any
Voting Conversion Event (as defined below under
Optional Conversion of Non-Voting Common
Stock) on a share for share basis into the voting
securities to which the holders of the Sprint Nextel common
stock are entitled, but which are otherwise identical to those
voting securities.
Votes Per Share. Except as specified below, on
each matter to be voted on by the holders of Sprint Nextel
common stock and Series 2 common stock:
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each outstanding share of Sprint Nextel common stock will be
entitled to one vote per share; and
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each outstanding share of Series 2 common stock will be
entitled to
1/10
of a vote per share.
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In any vote in which the Sprint Nextel common stock and
Series 2 common stock are entitled to vote together as a
separate class and are voting as a separate class, each share
will be entitled to one vote, except that in any vote in which
the holders of Sprint Nextel common stock and Series 2
common stock vote together as a separate class solely because
the shares of Sprint Nextel common stock and Series 2
common stock are the only voting securities of Sprint Nextel
that are outstanding, or are the only securities of Sprint
Nextel entitled to vote on the matter, and neither applicable
law nor Sprint Nextels articles of incorporation entitle
the Sprint Nextel common stock and Series 2 common stock to
vote as a separate class, the vote per share as described in the
paragraph immediately above will apply.
In addition, (1) if shares of only one series of Sprint
Nextel common stock or Series 2 common stock are
outstanding on the record date for determining the holders
entitled to vote on any matter, then each share of the
outstanding series will be entitled to one vote, and (2) if
either the Sprint Nextel common stock or Series 2 common
stock votes as a single class with respect to any matter, each
share of that series will, for purposes of that vote, be
entitled to one vote on that matter.
In any vote in which the holders of the non-voting common stock
are entitled to vote together as a separate class, each share of
non-voting common stock will be entitled to one vote.
Cumulative Voting. Stockholders of Sprint
Nextel are not entitled to cumulative voting of their shares in
elections of directors.
Liquidation
Rights
In the event of the voluntary or involuntary liquidation,
dissolution or winding up of Sprint Nextel, the prior rights of
creditors and the aggregate liquidation preference of any
preferred stock then outstanding must first be satisfied. The
holders of Sprint Nextel common stock, Series 2 common
stock and non-voting common stock will be entitled to share in
the remaining assets of Sprint Nextel on a pro rata basis.
Neither the merger nor consolidation of Sprint Nextel, nor the
transfer of all or part of the Sprint Nextel assets, will be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up of Sprint Nextel within the meaning of this
paragraph.
113
Dividends
Generally. Dividends on Sprint Nextel common
stock, Series 2 common stock and the non-voting common
stock, which we refer to collectively as the Sprint Nextel
shares, may be declared and paid only out of the funds of the
company legally available therefor.
The per share dividends on the Sprint Nextel shares, when and if
declared, will be an equivalent amount for all classes and
series of Sprint Nextel shares and will be payable on the same
date, except that if a dividend is paid in Sprint Nextel shares,
or in options, warrants or rights to acquire Sprint Nextel
shares, or in securities convertible into or exchangeable into
Sprint Nextel shares, the dividend on each series or class of
Sprint Nextel shares will be paid in shares of that series or
class of stock, or options, warrants or rights to acquire shares
of that series or class of common stock, or securities
convertible into or exchangeable for shares of that series or
class of common stock.
Share Distributions. The board of directors
may declare and pay dividends or distributions of Sprint Nextel
shares (or securities convertible into or exchangeable or
exercisable for Sprint Nextel shares) on Sprint Nextel shares or
preferred stock only as follows:
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dividends or distributions of shares of Sprint Nextel common
stock (or securities convertible into or exchangeable or
exercisable for shares of Sprint Nextel common stock) on shares
of Sprint Nextel common stock, as well as on preferred stock;
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dividends or distributions of shares of Series 2 common
stock (or securities convertible into or exchangeable or
exercisable for shares of Series 2 common stock) on shares
of Series 2 common stock, as well as on preferred
stock; and
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dividends or distributions of shares of non-voting common stock
(or securities convertible into or exchangeable or exercisable
for shares of non-voting common stock) on shares of non-voting
common stock, as well as on preferred stock.
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Preemptive
Rights
No holder of shares of any class or series of capital stock of
Sprint Nextel or holder of any security or obligation
convertible into shares of any class or series of capital stock
of Sprint Nextel will have any preemptive right to subscribe
for, purchase or otherwise acquire shares of any class or series
of capital stock of Sprint Nextel.
Redemption
of Shares Held By Aliens
Sprint Nextels articles of incorporation permit, by action
of the board of directors, the redemption of shares of Sprint
Nextel common stock and Series 2 common stock held by
aliens if necessary to comply with the foreign ownership
limitations set forth in Section 310 of the
U.S. Communications Act of 1934, as amended. The provisions
permit Sprint Nextel common stock held by aliens to be redeemed
at a price equal to the market price (i.e. the closing price of
the Sprint Nextel common stock on the previous trading day) of
the shares on the third business day before mailing the notice
of redemption, except that the redemption price with respect to
shares of Sprint Nextel common stock purchased by any alien
after November 21, 1995 and within one year of the
redemption date would not, unless otherwise determined by the
board of directors of Sprint Nextel, exceed the purchase price
paid for those shares by the alien. The provisions also permit
Series 2 common stock held by aliens to be redeemed at a
price equal to the market price of a share of Sprint Nextel
common stock on the redemption date.
Sprint Nextel will give written notice of the redemption date at
least 30 days before the redemption date to the record
holders of the shares selected to be redeemed, except that the
redemption date may be the date
114
on which notice is given if the cash or redemption securities
necessary to effect the redemption have been deposited in trust
for the benefit of record holders and are subject to immediate
withdrawal by them when they surrender their stock certificates.
The redemption price may be paid in cash, any debt or equity
securities of Sprint Nextel or its subsidiaries, or any
combination of those securities or any combination of cash and
those securities, provided that the securities, together with
any cash to be paid as part of the redemption price, will, in
the opinion of an investment banking firm of recognized national
standing selected by the board of directors of Sprint Nextel,
have a market price, at the time notice of redemption is given,
at least equal to the redemption price.
No
Dilution or Impairment; Certain Tender Offers
Sprint Nextels articles of incorporation will not permit
Sprint Nextel to effect any reclassification, subdivision or
combination of the outstanding shares of Sprint Nextel common
stock (including any reclassification, subdivision or
combination effected pursuant to a consolidation, merger or
liquidation) unless at the same time shares of all series or
classes of common stock of Sprint Nextel are reclassified,
subdivided or combined on an equal per share basis so that the
holders of shares of each series or class of common stock:
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are entitled, in the aggregate, to the same percentage of the
voting power as they had immediately before the
reclassification, subdivision or combination; and
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maintain all of the rights associated with that series or class
of common stock set forth in Sprint Nextels articles of
incorporation, subject to the limitations, restrictions and
conditions on those rights contained in Sprint Nextels
articles of incorporation.
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In the case of any consolidation or merger of Sprint Nextel with
or into any other entity (other than a merger which does not
result in any reclassification, conversion, exchange or
cancellation of the Sprint Nextel common stock) or any
reclassification of the Sprint Nextel common stock into any
other form of capital stock of Sprint Nextel, each holder of
Series 2 common stock will, after the consolidation, merger
or reclassification, have the right to convert each share of
Series 2 common stock held by that holder into the kind and
amount of shares of stock and other securities and property
which that holder would have been entitled to receive upon the
consolidation, merger or reclassification if that holder had
converted its shares of Series 2 common stock into Sprint
Nextel common stock immediately before the merger, consolidation
or reclassification.
Exclusionary
Tender Offers
If the board of directors does not oppose a tender offer by a
person other than a Cable Holder (as described below) for voting
securities of Sprint Nextel representing not less than 35% of
the voting power of Sprint Nextel, and the terms of the tender
offer do not permit the holders of Series 2 common stock to
sell an equal or greater percentage of their shares as the
holders of Sprint Nextel common stock are permitted to sell
taking into account any proration, then each holder of
Series 2 common stock will have the right (but not the
obligation) to deliver to Sprint Nextel a written notice
requesting conversion of certain shares of Series 2 common
stock designated by that holder into Sprint Nextel common stock.
Subject to limitations set forth in Sprint Nextels
articles of incorporation, each share of Series 2 common
stock so designated will automatically convert (without the
payment of any consideration) into one duly issued, fully paid
and nonassessable share of Sprint Nextel common stock.
Cable Holder means, generally, any of
Tele-Communications, Inc., a Delaware corporation, Comcast
Corporation, a Pennsylvania corporation, or Cox Communications,
Inc., a Delaware corporation, or any of their affiliates or
successors.
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Issuer
Tender Offers
Sprint Nextel may not conduct an issuer tender offer (as defined
in
Rule 13e-4
under the Exchange Act) with respect to the Sprint Nextel common
stock unless:
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the tender offer provides for the participation of the holders
of Series 2 common stock on an equal basis with the Sprint
Nextel common stock; and
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Sprint Nextel accepts for repurchase the number of shares
tendered by the holders of Sprint Nextel common stock and
Series 2 common stock in proportion to the number of shares
of each series tendered.
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This restriction will not prevent Sprint Nextel from
administering in good faith an odd-lot program in
connection with the issuer tender offer and will not apply to
customary acquisitions of Sprint Nextel common stock or
Series 2 common stock made by Sprint Nextel on the open
market for purposes of maintaining Sprint Nextel stock option
plans.
Automatic
Conversion of Series 2 Common Stock
If the total number of converted votes (that is, treating the
Series 2 common stock as having one vote per share)
represented by the aggregate number of issued and outstanding
shares of Series 2 common stock is below 1% of the
outstanding voting power of Sprint Nextel for more than 90
consecutive days (we refer to the date on which the
90-day
period ends as the Conversion Trigger Date), then each
outstanding share of Series 2 common stock will
automatically convert into one duly issued, fully paid and
nonassessable share of Sprint Nextel common stock on the
90th day following the Conversion Trigger Date.
Certain
Transfers
When the ownership of shares of Series 2 common stock is
transferred to someone other than a Cable Holder, each
transferred share will automatically convert into one duly
issued, fully paid and nonassessable share of Sprint Nextel
common stock as of the date of the transfer.
Optional
Conversion of Non-Voting Common Stock
Under the circumstances described below, each share of
non-voting common stock is convertible into one duly issued,
fully paid and non-assessable share of Sprint Nextel common
stock. On the occurrence, or expected occurrence, of any Voting
Conversion Event (as described below), each share of non-voting
common stock which is being or has been distributed, disposed of
or sold in connection with the Voting Conversion Event will be
convertible at the option of the holder into one duly issued,
fully paid and nonassessable share of Sprint Nextel common stock.
Voting Conversion Event means:
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any public offering or public sale of securities of Sprint
Nextel, including a public offering registered under the
Securities Act and a public sale under Rule 144 under the
Securities Act;
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any sale of securities of Sprint Nextel to a person or group if,
after the sale, that person or group would own or control
securities which possess in the aggregate the voting power to
elect a majority of the board of directors, if the sale has been
approved by the Sprint Nextel board of directors or a committee
of the board;
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any sale of securities of Sprint Nextel to a person or group if,
after the sale, that person or group would own or control
securities (excluding any non-voting common stock being
converted and disposed of in
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connection with the Voting Conversion Event) which possess in
the aggregate the voting power to elect a majority of the board
of directors;
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any sale of securities of Sprint Nextel to a person or group if,
after the sale, that person or group would not, in the
aggregate, own, control or have the right to acquire more than
2% of the outstanding securities of any class of voting
securities; and
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any distribution, disposition or sale of any securities of
Sprint Nextel to a person or group in connection with a merger,
consolidation or similar transaction if, after the transaction,
that person or group would own or control securities which
constitute in the aggregate the voting power to elect a majority
of the surviving corporations directors, if the
transaction has been approved by the Sprint Nextel board of
directors or a committee of the board.
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Anti-takeover
Provisions
The KGCC and Sprint Nextels articles of incorporation and
bylaws contain provisions which could discourage or make more
difficult a change in control of the company without the support
of the board of directors. A summary of these provisions follows.
Vote Required for Certain Business
Combinations. Under the KGCC, the board of
directors and the holders of a majority of the shares entitled
to vote must approve a merger, consolidation or sale of all or
substantially all of a corporations assets. However,
unless the corporation provides otherwise in its articles of
incorporation, no shareholder vote of a constituent corporation
surviving a merger is required if:
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the merger agreement does not amend the constituent
corporations articles of incorporation;
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each share of stock of the constituent corporation outstanding
before the merger is an identical outstanding or treasury share
of the surviving corporation after the merger; and
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either no shares of common stock of the surviving corporation
are to be issued or delivered by way of the merger or, if common
stock will be issued or delivered, it will not increase the
number of outstanding shares of common stock immediately before
the merger by more than 20%.
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Sprint Nextels articles of incorporation require that
certain business combinations initiated by a beneficial owner of
10% or more of Sprint Nextel common stock and Series 2
common stock, together with its affiliates and associates, which
we refer to collectively as an interested stockholder, must be
approved by the holders of 80% of the outstanding Sprint Nextel
common stock and Series 2 common stock, unless
(1) approved by a majority of continuing directors where at
least seven continuing directors are present, or (2) the
consideration received by Sprint Nextel stockholders in the
business combination is not less than the highest price per
share paid by the interested stockholder for its shares. The
types of business combinations covered by this provision include:
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a merger or consolidation of Sprint Nextel or any of its
subsidiaries with an interested shareholder or its affiliate;
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a sale, lease, exchange, pledge, transfer or other disposition
(in one transaction or a series of transactions) of assets with
a fair market value of $1 million or more to or with an
interested shareholder or its affiliate;
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the issuance or transfer by Sprint Nextel or any of its
subsidiaries (in one transaction or a series of transactions) of
Sprint Nextels securities or securities of any of its
subsidiaries in exchange for cash, securities or other property
having an aggregate fair market value of $1 million or more
to an interested shareholder or its affiliate;
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the adoption of a plan or proposal for Sprint Nextels
liquidation or dissolution proposed by an interested shareholder
or its affiliate; or
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any reclassification of securities or recapitalization of Sprint
Nextel or other transaction that has the effect of increasing
the proportionate share of its equity securities or equity
securities of any subsidiary owned directly or indirectly by the
interested shareholder or its affiliate.
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In order to qualify as a continuing director, the director
cannot be affiliated with the interested stockholder and must
have been a director before the time the interested stockholder
became an interested stockholder (or any successor director
recommended by a majority of the continuing directors).
Restriction
on Purchase of Equity Securities by Sprint Nextel
If the beneficial owner of 5% or more of a class of Sprint
Nextels equity securities has held any of the securities
for less than two years, Sprint Nextels articles of
incorporation prohibits Sprint Nextel from purchasing equity
securities of the same class as the securities held for less
than two years from the 5% security holder at a premium over
market price unless Sprint Nextel obtains the approval of the
holders of a majority of the voting power of Sprint
Nextels outstanding capital stock, excluding the shares
held by the 5% security holder.
The approval of stockholders is not required in connection with:
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any purchase or other acquisition of securities made as part of
a tender or exchange offer to purchase securities of the same
class on the same terms to all holders of those equity
securities;
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any purchase, redemption, conversion or other acquisition by
Sprint Nextel of Series 2 common stock from a holder of
that stock pursuant to the provisions of Sprint Nextels
articles of incorporation; or
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any purchase, redemption, conversion or other acquisition by
Sprint Nextel of non-voting common stock from a holder of that
stock.
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Notice
Provisions Relating to Stockholder Proposals and
Nominees
Sprint Nextels amended and restated bylaws contain
provisions requiring stockholders to give advance written notice
to the company of a proposal or director nomination in order to
have the proposal or the nominee considered at an annual meeting
of stockholders. The notice must usually be given not less than
120 days and not more than 150 days before the first
anniversary of the preceding years annual meeting. Under
Sprint Nextels amended and restated bylaws, a special
meeting of stockholders may be called only by the Chairman of
the Board, the Chief Executive Officer or a majority of the
board of directors.
Business
Combination Statute
The KGCC has a business combination statute that limits certain
business combinations between Kansas corporations, like Sprint
Nextel, and interested stockholders, who are certain persons
beneficially owning a significant percentage of the voting stock
of the corporation. For a description of the Kansas business
combination statute, see Comparison of Rights of Sprint
Nextel Stockholders and Virgin Mobile USA
Stockholders State Anti-takeover Statutes.
Control
Share Acquisition Statute
The KGCC also contains a control share acquisition
statute which provides, unless otherwise provided in a
companys articles of incorporation or bylaws, that any
person or group must obtain shareholder approval before
acquiring any shares of stock of a publicly traded Kansas
corporation if, after the acquisition, that
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person would have a triggering level of voting power, beginning
at 20%, as set forth in the statute. Sprint Nextel amended its
bylaws to opt out of the control share acquisition statute.
Blank
Check Preferred
Sprint Nextels articles of incorporation provide for
20,000,000 shares of preferred stock, of which only
3,532,745 have been designated. The existence of authorized but
unissued shares of preferred stock may enable the board of
directors of Sprint Nextel to render more difficult or to
discourage an attempt to obtain control of Sprint Nextel by
means of a merger, tender offer or otherwise. To the extent the
board of directors of Sprint Nextel causes shares of its
preferred stock to be issued, the voting or other rights of a
potential acquirer might be diluted. The board of directors of
Sprint Nextel has the authority to issue shares of its preferred
stock without any action by its shareholders. These issuances
may have the effect of delaying, deterring or preventing a
change of control of Sprint Nextel.
Description
of Preferred Stock
General
Provisions Relating to Preferred Stock
The preferred stock may be issued from time to time in one or
more series, each of which is to have the voting powers,
designation, preferences and relative, participating, optional
or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed in Sprint
Nextels articles of incorporation, or in a resolution or
resolutions providing for the issue of that series adopted by
the board of directors.
The board of directors has the authority to create one or more
series of preferred stock and, with respect to each series, to
fix or alter as permitted by law:
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the number of shares and the distinctive designation of the
series;
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the dividend rights;
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any redemption rights, terms and prices;
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the terms of any retirement or sinking funds;
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the rights, terms and prices, if any, by which the shares may be
convertible into, or exchangeable for, other shares;
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the voting power, if any; and
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any other terms, conditions, special rights and protective
provisions.
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Dividends
No dividend may be declared and set apart for payment on any
series of preferred stock unless a ratable dividend has likewise
been paid, or declared and set apart for payment, on all
outstanding shares of preferred stock of each other series
entitled to cumulative dividends which rank equally as to
dividends.
Dissolution
Rights
If, in the event of any dissolution of Sprint Nextel, the assets
that are available for distribution among the holders of
preferred stock that are (1) entitled to a preference over
the holders of common stock, and (2) rank equally in
connection with any distribution are insufficient to pay in full
the preferential amount to which the
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holders of preferred stock are entitled, then the assets, or the
proceeds of the assets, will be distributed among the holders of
each applicable series of preferred stock ratably in accordance
with the sums that would be payable on the distribution if all
sums payable were discharged in full.
Designations
of Preferred Stock
No shares of preferred stock of Sprint Nextel are outstanding.
Sixth Series Preferred Stock. In
connection with Sprint Nextel entering into a rights agreement
with UMB Bank, n.a., the Sprint Nextel board of directors
designated a class of preferred stock as the Preferred
Stock-Sixth Series, Junior Participating, which we refer
to as the sixth series preferred stock. The sixth series
preferred stock was only issuable under the circumstances
contemplated under the rights agreement. Any right to purchase
shares of sixth series preferred stock under the rights
agreement expired on June 25, 2007, and no rights were
exercised prior to expiration.
Seventh Series Preferred Stock. Sprint
Nextel redeemed all of its outstanding shares of seventh series
preferred stock, and pursuant to Sprint Nextels articles
of incorporation, Sprint Nextel cannot re-issue shares of its
seventh series preferred stock as shares of the same series.
Ninth Series Preferred Stock. Sprint
Nextel has no plans to issue shares of its ninth series
preferred stock.
Transfer
Agent and Registrar
The transfer agent and registrar for the Sprint Nextel common
stock is Computershare Trust Company, N.A., Canton,
Massachusetts.
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COMPARISON
OF RIGHTS OF SPRINT NEXTEL STOCKHOLDERS
AND VIRGIN MOBILE USA STOCKHOLDERS
Virgin Mobile USA is a Delaware corporation and is governed by
the Delaware General Corporation Law, which we refer to as the
DGCL. Sprint Nextel is a Kansas corporation. Sprint Nextel will
continue to be a Kansas corporation following the merger and
will continue to be governed by the KGCC. The KGCC is modeled
closely on the DGCL and is therefore generally interpreted by
Kansas courts in a manner that is consistent with the judicial
decisions of Delaware courts interpreting the DGCL. Upon
completion of the merger, Virgin Mobile USA stockholders will
receive shares of Sprint Nextel common stock.
The following description summarizes the material differences
that may affect the rights of the stockholders of Sprint Nextel
and Virgin Mobile USA, but is not a complete statement of all
those differences, or a complete description of the specific
provisions referred to in this summary. Stockholders should read
carefully the relevant provisions of the KGCC and Sprint
Nextels amended and restated articles of incorporation and
amended and restated bylaws, as well as Virgin Mobile USAs
certificate of incorporation, the Virgin Mobile USA bylaws and
certificate of designations of the preferred stock. For more
information on how to obtain the documents that are not attached
to this proxy statement/prospectus, see Where You Can Find
More Information.
Capitalization
Sprint
Nextel
The total number of shares of all classes of capital stock
authorized under Sprint Nextels articles of incorporation
is 6,620,000,000, which is divided into:
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6,000,000,000 shares of Sprint Nextel common stock, par
value $2.00 per share;
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500,000,000 shares of Series 2 common stock, par value
$2.00 per share;
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100,000,000 shares of non-voting common stock, par value
$0.01 per share;
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3,000,000 shares of sixth series preferred stock, no par
value;
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300,000 shares of seventh series preferred stock, no par
value; and
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232,745 shares of ninth series zero coupon convertible
preferred stock due 2013, no par value.
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No shares of non-voting common stock are outstanding, and Sprint
Nextel has no plans to issue shares of non-voting common stock.
An additional 16,467,255 shares of preferred stock, no par
value, are available for future issuance in one or more series
to be designated by the Sprint Nextel board of directors. No
shares of sixth series preferred stock, seventh series preferred
stock and ninth series preferred stock are outstanding. The
sixth series preferred stock was only issuable under the
circumstances contemplated under the rights agreement, which
expired on June 25, 2007. Sprint Nextel redeemed all of its
outstanding shares of preferred stock-seventh series, and
pursuant to Sprint Nextels articles of incorporation,
Sprint Nextel cannot re-issue shares of its preferred
stock-seventh series as shares of the same series. In addition,
Sprint Nextel has no plans to issue new shares of ninth series
preferred stock.
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Virgin
Mobile USA
The total number of shares of all classes of capital stock
authorized under Virgin Mobile USAs certificate of
incorporation is 226,000,001, which is divided into:
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25,000,000 shares of preferred stock, par value $0.01 per
share, including 51,500 shares of Series A convertible
preferred stock, par value $0.01 per share;
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200,000,000 shares of Class A common stock, par value
$0.01 per share;
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two shares of Class B common stock, par value $0.01 per
share; and
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999,999 shares of Class C common stock, par value
$0.01 per share.
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Subject to the transfer restrictions set forth in the
partnership agreement, certain holders of partnership units of
the Operating Partnership may exchange their units for shares of
Class A common stock on a
one-for-one
basis, subject to customary conversion rate adjustments for
stock splits, stock dividends and reclassifications.
Each share of Class C common stock is convertible at any
time at the option of the holder into one share of Class A
common stock. In addition, each share of Class C common
stock will convert automatically into one share of Class A
common stock upon any transfer, whether or not for value, except
for certain transfers described in Virgin Mobile USAs
certificate of incorporation, including the following:
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transfers between the Virgin Group and Sprint Nextel; and
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transfers to trusts, corporations and partnerships controlled by
a holder of Class C common stock.
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Once transferred and converted into Class A common stock,
the Class C common stock will not be reissued.
Each share of preferred stock may be converted at the option of
the holder into 117.64706 duly authorized, validly issued, fully
paid and non-assessable shares of Class A common stock,
reflecting an effective conversion price of $8.50 per share,
which we refer to as the conversion price. Any conversion by a
holder of preferred stock will be for all of the shares of
preferred stock held by the holder.
Voting
Rights
Sprint
Nextel
Each outstanding share of:
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Sprint Nextel common stock is entitled to one vote; and
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Series 2 common stock is entitled to
1/10
of one vote.
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In any vote in which holders of Sprint Nextel common stock and
Series 2 common stock are entitled, either by law or by
Sprint Nextels articles of incorporation, such as in the
case of a proposed amendment to Sprint Nextels articles of
incorporation if the amendment would (1) increase or
decrease the aggregate number of authorized shares of Sprint
Nextel common stock and Series 2 common stock;
(2) increase or decrease the par value of the shares of
Sprint Nextel common stock and Series 2 common stock; or
(3) alter or change the powers, preferences or special
rights of the shares of Sprint Nextel common stock and
Series 2 common stock so as to affect them adversely, to
vote together as a separate class, each share is generally
entitled to one vote.
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The holders of non-voting common stock generally have no right
to vote on any matters to be voted upon by the stockholders.
However, the holders of non-voting common stock have the right
to vote, as a separate class (with each share having one vote)
on any fundamental change in which shares of non-voting common
stock would be treated differently than shares of voting common
stock. A fundamental change is any merger, consolidation,
reorganization or reclassification of Sprint Nextel or its
shares of capital stock, any amendment to Sprint Nextels
articles of incorporation or any liquidation, dissolution or
winding up of Sprint Nextel. Nevertheless, holders of non-voting
common stock do not have separate class voting rights or any
other voting rights with respect to an event constituting a
fundamental change in which the only difference in the treatment
of non-voting common stock is that the holders of Sprint Nextel
common stock and Series 2 common stock receive equity
securities with full voting rights and the holders of non-voting
common stock receive equity securities which have voting rights
substantially identical to the voting rights of non-voting
common stock and are convertible into voting securities in the
same manner as provided in Sprint Nextels articles of
incorporation.
Virgin
Mobile USA
Each outstanding share of:
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Class A common stock is entitled to one vote;
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Class B common stock is entitled to a number of votes that
is equal to the number of shares of Class A common stock
for which the partnership units of the Operating Partnership
held of record by the holder are then exchangeable pursuant to
the partnership agreement and Virgin Mobile USAs
certificate of incorporation on all matters on which
stockholders are generally entitled to vote;
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Class C common stock is entitled to one vote; and
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preferred stock is entitled to one vote for each share of
Class A common stock into which the preferred stock would
be convertible and, with respect to the vote, the holder will
have full voting rights and powers equal to the voting rights
and powers of the holders of Class A common stock and is
entitled to notice of any stockholders meeting or written
consent in lieu thereof in accordance with Virgin Mobile
USAs certificate of incorporation and Virgin Mobile
USAs bylaws, and is entitled to vote together as a single
class with holders of Class A common stock with respect to
any question upon which holders of Class A common stock
have the right to vote.
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Holders of Class A common stock, Class B common stock
and Class C common stock have no voting power with respect
to any amendment to Virgin Mobile USAs certificate of
incorporation that relates solely to the terms of one or more
outstanding series of preferred stock if the holders of the
affected series are entitled, either separately or together with
the holders of one or more other series, to vote thereon
pursuant to Virgin Mobile USAs certificate of
incorporation or pursuant to the DGCL.
Holders of Class A common stock, Class B common stock
and Class C common stock will vote together as a single
class on all matters except with respect to the amendment of
certain provisions of Virgin Mobile USAs certificate of
incorporation or as required by law.
Stockholder
Action by Written Consent
Sprint
Nextel
The KGCC only allows action to be taken by shareholders by
written consent without an annual or special meeting of
shareholders if that consent is unanimous. As a Kansas
corporation, the shareholders of Sprint Nextel will not be able
to take action by written consent without an annual or special
meeting unless consent is unanimous.
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Virgin
Mobile USA
The DGCL allows action to be taken by the stockholders of the
minimum number of votes that would be needed to approve a matter
at an annual or special meeting of stockholders, unless this
right to act by written consent is denied in Virgin Mobile
USAs certificate of incorporation or bylaws.
Virgin Mobile USAs certificate of incorporation states
that any action required or permitted to be taken by the holders
of stock of Virgin Mobile USA must be effected at a duly called
annual or special meeting of the holders and may not be effected
by any consent in writing by the holders. However, any action
required or permitted to be taken by the holders of preferred
stock, voting separately as a series or separately as a class
with one or more other the series, may be taken without a
meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, is or
are signed by the holders of outstanding shares of the relevant
class or series having not less than the minimum number of votes
that would be necessary to authorize or take action at a meeting
at which all shares of preferred stock entitled to vote thereon
were present and voted.
Dividends
Sprint
Nextel
The holders of Sprint Nextel common stock, Series 2 common
stock and non-voting common stock receive ratably dividends, if
any, as may be declared from time to time by the Sprint Nextel
board of directors out of funds that are legally available for
the payment of dividends. If the board of directors declares a
dividend on any of the Sprint Nextel common stock, Series 2
common stock or non-voting common stock, it must declare the
same dividend on the other series of common stock.
Upon the issuance of a new series of preferred stock, the board
of directors may provide for dividend restrictions on the common
stock as to that series of preferred stock.
Virgin
Mobile USA
Subject to applicable law and the rights, if any, of the holders
of any outstanding series of preferred stock or any class or
series of stock having a preference over or the right to
participate with Class A common stock and Class C
common stock with respect to the payment of dividends, dividends
may be declared and paid on Class A common stock and
Class C common stock out of the assets of Virgin Mobile USA
that are by law available therefor, at times and in amounts as
determined by the board of directors in its discretion. Holders
of Class C common stock are entitled to receive dividends
at the same rate as holders of Class A common stock when
and if declared by the board of directors out of funds legally
available therefor. Dividends will not be declared or paid on
Class B common stock. In no event will any cash or stock
dividends, stock splits, combinations of stock or distributions
be declared or made on Class A common stock or Class C
common stock unless the shares of Class A common stock and
Class C common stock at the time outstanding are treated
equally.
Each holder of preferred stock is entitled to receive, when, as
and if dividends are declared by the board of directors out of
Virgin Mobile USAs funds legally available therefor:
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dividends on each outstanding share of preferred stock that will
accrue at a rate per annum of 6.00%, which we refer to as the
annual dividend rate; and
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participating dividends of the same type as any dividends or
other distribution, whether cash, in kind or other property,
payable or to be made on outstanding shares of Class A
common stock equal to the amount of the dividends or other
distribution as would be made on the number of shares of
Class A
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common stock into which the share of preferred stock could be
converted on the date of payment of dividends or other
distribution on Class A common stock.
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The preferred stock dividends are payable semi-annually in
arrears on September 30 and March 31 of each year. The amount of
preferred stock dividends payable on the preferred stock for
each full dividend period will be computed by multiplying the
liquidation preference by one-half of the annual dividend rate.
Preferred stock dividends in respect of each dividend period are
paid in additional shares of preferred stock. So long as any
shares of preferred stock are outstanding, unless full
cumulative dividends on all outstanding shares of preferred
stock for all past dividends have contemporaneously been
declared and paid in full or declared, then no dividend (other
than a dividend payable solely in shares of parity securities or
junior securities) will be declared or paid upon, or any sum set
apart for the payment of dividends upon, any shares of parity
securities. So long as any shares of preferred stock are
outstanding, unless full cumulative dividends on all outstanding
shares of preferred stock for all past dividends have
contemporaneously been declared, then no dividend (other than a
dividend payable solely in shares of junior securities) will be
declared or paid upon, or any sum set apart for the payment of
dividends upon, any shares of junior securities. So long as any
shares of preferred stock are outstanding, no dividend may be
declared or paid or set aside for payment or other distribution
declared or made upon any Virgin Mobile USA common stock unless
full participating dividends on all shares of preferred stock
have been or are contemporaneously declared and paid.
Liquidation
Sprint
Nextel
In the event of the liquidation, dissolution or winding up of
Sprint Nextel, the holders of Sprint Nextel common stock,
Series 2 common stock and non-voting common stock of Sprint
Nextel will be entitled to share ratably in any remaining assets
of Sprint Nextel after satisfaction of the prior rights of
creditors and the aggregate liquidation preference of any
preferred stock then outstanding.
Virgin
Mobile USA
In the event of the liquidation, dissolution or winding up of
the affairs of Virgin Mobile USA, each of the holders of the
then outstanding shares of preferred stock will be entitled to
be paid out of Virgin Mobile USAs assets available for
distribution to its stockholders before any payment or
distribution of Virgin Mobile USAs assets will be made to
or set apart for the holders of Class A common stock,
Class B common stock and Class C common stock and each
other class or series of capital stock of Virgin Mobile USA
created which expressly ranks junior to the preferred stock, an
amount in cash per share equal to the greater of (1) the
sum of the preferred stock liquidation preference plus all
unpaid cumulated and accrued dividends on the share of preferred
stock, or (2) an amount equal to the amount the holders of
preferred stock would have received upon a liquidation had the
holders converted their shares of preferred stock into shares of
Class A common stock immediately prior to the liquidation,
the greater amount of which we refer to as the Series A
liquidation payment amount. Upon liquidation and after the
holders of preferred stock have been paid in full, the remaining
Virgin Mobile USA assets will be distributed to the holders of
Class A common stock, Class C common stock and each
other class or series of capital stock of Virgin Mobile USA
created which expressly ranks junior to the preferred stock. The
holders of Class B common stock will not be entitled to
receive any assets of Virgin Mobile USA in any liquidation,
distribution or winding up of the affairs of Virgin Mobile USA.
Special
Redemption or Conversion Provisions
Sprint
Nextel
Sprint Nextels articles of incorporation permit the
redemption of shares of Sprint Nextel common stock and
Series 2 common stock held by aliens, as defined in the
Communications Act, if necessary to comply with the foreign
ownership limitations set forth in Section 310 of the
Communications Act, as amended. The provisions permit Sprint
Nextel common stock and Series 2 common stock to be
redeemed at a price equal to
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the closing price of the Sprint Nextel common stock on the
trading day before the third business day prior to the date of
notice of redemption, except that, in general, the redemption
price in respect of shares purchased by any alien within one
year of the redemption date would not, unless otherwise
determined by the board of directors, exceed the purchase price
paid for those shares by the alien.
Virgin
Mobile USA
At any time and from time to time on or after February 22,
2010, each share of preferred stock may be converted at the
option of the holder of the share of preferred stock into
117.64706 duly authorized, validly issued, fully paid and
non-assessable shares of Class A common stock. Any
conversion by a holder of preferred stock will be for all of the
shares of preferred stock held by the holder.
Each share of preferred stock is convertible automatically into
117.64706 duly authorized, validly issued, fully paid and
non-assessable shares of Class A common stock at the
conversion price upon the earlier of (1) the time at which
the closing price of Class A common stock exceeds the
conversion price for ten trading days during any 20 consecutive
trading day period, and (2) August 22, 2012. The
number of shares of Class A common stock into which each
share of the preferred stock is convertible will be determined
by dividing the Series A liquidation payment amount in
effect at the time of conversion by the conversion price in
effect at the time of conversion.
Number,
Election, Vacancy and Removal of Directors
Sprint
Nextel
Under the KGCC, a majority of the directors in office can fill
any vacancy or newly created directorship. A director may be
removed with or without cause by a majority of the shares
entitled to vote at an election of the directors. However, if
the board is divided into classes, unless the articles or
certificate of incorporation provide otherwise, a director may
only be removed for cause.
Under Sprint Nextels articles of incorporation, the number
of directors of Sprint Nextel may not be less than eight nor
more than 20 as determined from time to time by the affirmative
vote of a majority of the board of directors. The holders of
voting securities of Sprint Nextel have the right to elect that
number of directors equal to the excess of (1) the total
number of directors over (2) the number of directors, if
any, that the holders of preferred stock, voting separately by
class or series, are entitled to elect under Sprint
Nextels articles of incorporation. Any vacancy on the
board of directors, whether resulting from an increase in the
total number of directors, the departure of one of the directors
or otherwise, may be filled by the affirmative vote of a
majority of the directors then in office or by a sole remaining
director. If there are no directors then serving, the
stockholders will fill the vacancy. Each director will be
elected for a one-year term. Directors may be removed, with or
without cause, upon the receipt of a majority of the votes
entitled to be cast on a proposal for removal. The holders of
all classes and series of stock are entitled to vote in the
election of directors with the number of votes specified above.
Sprint Nextel stockholders are not entitled to cumulative voting
rights in the election of directors.
Virgin
Mobile USA
Under the DGCL, a majority of the directors in office can fill
any vacancy or newly created directorship. A director may be
removed with or without cause by a majority of the shares
entitled to vote at an election of the directors. However, if
the board is divided into classes, unless the articles or
certificate of incorporation provide otherwise, a director may
only be removed for cause.
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The number of directors as of the date of Virgin Mobile
USAs bylaws was initially established as 11 and will be
established from time to time by resolution of the board by a
majority of the board of directors, of whom:
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two will be designees of SK Telecom;
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two will be designees of Sprint Nextel;
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three will be designees of the Virgin Group;
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three will be independent directors (as the term is
used in the listing requirements of the NYSE or any other stock
exchange or securities market on which Class A common stock
of Virgin Mobile USA is at any time listed or quoted); and
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one will be the Chief Executive Officer of Virgin Mobile USA in
office at the time of designation, unless otherwise determined
by the affirmative vote of a majority of all directors then
serving on the board of directors at the time of the designation.
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However:
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if at any time the Percentage Interest, as described below, held
by SK Telecom:
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is less than 10% but more than or equal to 5%, then SK Telecom
will have the right to designate one director to the board of
directors; and
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is less than 5%, then SK Telecom will not have the right to
designate any directors to the board of directors pursuant to
Virgin Mobile USAs bylaws;
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if at any time the Percentage Interest held by Sprint Nextel:
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is less than 10% but more than or equal to 5%, then Sprint
Nextel will have the right to designate one director to the
board of directors; and
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is less than 5%, then Sprint Nextel will not have the right to
designate any directors to the board of directors pursuant to
Virgin Mobile USAs bylaws, except that so long as the PCS
services agreement remains in effect, Sprint Nextel will have
the right to designate one director to the board of directors,
irrespective of Sprint Nextels Percentage
Interest; and
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if at any time the Percentage Interest held by the Virgin Group:
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is less than 25% but more than or equal to 10%, then the Virgin
Group will have the right to designate two directors to the
board of directors;
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is less than 10% but more than or equal to 5%, then the Virgin
Group will have the right to designate one director to the board
of directors; and
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is less than 5%, then the Virgin Group will not have the right
to designate any directors to the board of directors pursuant to
Virgin Mobile USAs bylaws, except that so long as the
trademark license agreement between Virgin Mobile USA and the
Virgin Group remains in effect, the Virgin Group will have the
right to designate one director to the board of directors,
irrespective of the Virgin Groups Percentage Interest.
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The term Percentage Interest means, at the time of
determination with respect to any of Sprint Nextel, the Virgin
Group or SK Telecom, the voting power collectively held by any
of Sprint Nextel, the Virgin Group
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or SK Telecom as a percentage of the voting power attributable
to all shares of any class of equity securities of Virgin Mobile
USA then outstanding which are then entitled to vote generally
in the election of directors.
Furthermore, on the date that is one year after the date on
which Virgin Mobile USA ceases to qualify as a controlled
company within the meaning of the rules of the NYSE, the
Virgin Group will cease to have the right to designate more than
two designees to the board of directors, Sprint Nextel will
cease to have the right to designate more than one designee to
the board of directors and SK Telecom will cease to have the
right to designate more than one designee to the board of
directors. The vacancies created thereby will be filled with a
number of independent directors
and/or the
size of the board of directors will be decreased to eliminate
any further vacancies, in each case so that the number of
independent directors will thereafter constitute at least a
majority of the board of directors.
Any person to be designated to the board of directors as an
independent director will be nominated by the audit committee of
Virgin Mobile USAs board of directors, except that, so
long as any of Sprint Nextel, the Virgin Group, SK Telecom or
their respective affiliates has the right to designate at least
one director, each independent director will be reasonably
acceptable to each of Sprint Nextel, the Virgin Group and SK
Telecom.
For so long as (1) Virgin Mobile USA qualifies as a
controlled company within the meaning of the rules
of the NYSE, and (2) the Virgin Group has the right to
designate three directors, the Virgin Group will have the right
to designate one of its designees to the board of directors as
the Chairman of the Board.
Restrictions
Imposed by Stockholders Agreement
Sprint
Nextel
Sprint Nextel does not have a stockholders agreement in
place.
Virgin
Mobile USA
In addition to the composition of Virgin Mobile USAs board
of directors described above, the Virgin Mobile USA
stockholders agreement provides that, as long as each of
Sprint Nextel and the Virgin Group have ownership interests in
Virgin Mobile USA of at least 10% and SK Telecom has an
ownership interest in Virgin Mobile USA of at least 15%, the
following actions will require the consent of each of Sprint
Nextel, the Virgin Group and SK Telecom:
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the merger, consolidation, reorganization or sale of all or
substantially all of the assets of Virgin Mobile USA;
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the change of control of Virgin Mobile USA to a direct strategic
competitor of Sprint Nextel, the Virgin Group, SK Telecom or
Virgin Mobile USA;
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the dissolution or liquidation of Virgin Mobile USA;
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the issuance of equity securities, subject to exceptions;
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the sale of assets representing 50% of Virgin Mobile USAs
assets based on the most recently available audited balance
sheet;
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changing the size of the board of directors; and
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amending provisions of Virgin Mobile USAs bylaws that
relate to the election of directors and the consent rights of
Sprint Nextel, the Virgin Group and SK Telecom.
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However, Virgin Mobile USA may take the actions described above
despite a failure to receive a consent from SK Telecom in the
event that it receives prior approval of the action by more than
75% of the total outstanding voting power attributable to all of
its equity securities.
The following actions by Virgin Mobile USA require the
affirmative vote of a majority of all of the directors serving
on the Virgin Mobile USA board of directors:
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dissolution, liquidation or bankruptcy;
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the creation or issuance of any debt or the creation or issuance
of any equity securities;
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an amendment to Virgin Mobile USAs bylaws;
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the incurrence of indebtedness in an amount in excess of
$50 million; and
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the adoption of a material change to Virgin Mobile USAs
strategy or business.
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Registration
Rights Agreement
Sprint
Nextel
Under a Registration Rights Agreement, dated November 23,
1998, as holders of Series 2 common stock, each of TCI
Telephony Services, Inc., Cox Communications, Inc. and their
successors and assigns are entitled to rights with respect to
registration of their shares under the Securities Act.
Virgin
Mobile USA
Under a Registration Rights Agreement, dated October 16,
2007, as amended, the Virgin Group, Sprint Nextel, SK Telecom,
Earthlink, Inc. and certain other holders of Class A common
stock are entitled to rights with respect to the registration of
their shares under the Securities Act. See Contracts
between Virgin Mobile USA and Sprint Nextel Prior to the
Merger Registration Rights Agreement.
Corporate
Opportunities
Sprint
Nextel
Sprint Nextels articles of incorporation and bylaws do not
address the duties of its stockholders with respect to corporate
opportunities.
Virgin
Mobile USA
Virgin Mobile USAs amended and restated certificate of
incorporation provides that none of Sprint Nextel, the Virgin
Group or SK Telecom or their respective affiliates has any duty
to refrain from:
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engaging directly or indirectly in a corporate opportunity in
the same or similar lines of business as Virgin Mobile USA now
engages or proposes to engage; or
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doing business with any of Virgin Mobile USAs clients,
customers or vendors.
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In addition, in the event that any of Sprint Nextel, the Virgin
Group or SK Telecom acquires knowledge of a potential
transaction or other business opportunity that may be a
corporate opportunity for itself or its affiliates and for
Virgin Mobile USA or its affiliates, it has no obligation to
communicate or offer the transaction or business opportunity to
Virgin Mobile USA and may take the business opportunity for
itself or offer it to another person or entity. None of Sprint
Nextel, the Virgin Group or SK Telecom, nor any officer,
director or employee
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thereof, will be liable to Virgin Mobile USA or to any of its
stockholders for breach of any fiduciary or other duty by
engaging in the business opportunity or activity and Virgin
Mobile USA waives and renounces any claim based on the business
opportunity or activity. This provision applies even if the
business opportunity is one that Virgin Mobile USA might
reasonably be deemed to have pursued or had the ability or
desire to pursue if granted the opportunity to do so. Virgin
Mobile USAs amended and restated certificate of
incorporation provides that any amendment or repeal of the
provisions related to corporate opportunities described above
requires the affirmative vote of 80% of the voting power of all
of the then-outstanding shares of stock of Virgin Mobile USA
entitled to vote generally in the election of directors, voting
together as a single class.
Amendments
to Articles or Certificate of Incorporation
Sprint
Nextel
Under the KGCC, an amendment to the articles of incorporation
requires approval by both the board of directors and a majority
of the votes entitled to be cast. Any proposed amendment to
Sprint Nextels articles of incorporation that would
increase or decrease the authorized shares of a class of stock,
increase or decrease the par value of the shares of a class of
stock, or alter or change the powers, preferences or special
rights of the shares of a class of stock requires approval of
the holders of a majority of the outstanding shares of the
affected class, voting as a separate class, in addition to the
approval of a majority of the shares entitled to vote on that
proposed amendment. If any proposed amendment would alter or
change the powers, preferences or special rights of any series
of a class of stock so as to affect them adversely, but does not
affect the entire class, then only the shares of the series
affected by the proposed amendment is considered a separate
class for purposes of the immediately preceding sentence.
Except for the special voting rights of preferred stock, the
Sprint Nextel common stock and Series 2 common stock and
the non-voting common stock described above under
Voting Rights, Sprint Nextels
articles of incorporation do not contain any special provisions
regarding approval of amendments to Sprint Nextels
articles of incorporation.
Virgin
Mobile USA
Under the DGCL, an amendment to the certificate of incorporation
requires approval by both the board of directors and a majority
of the votes entitled to be cast. Any proposed amendment to
Virgin Mobile USAs certificate of incorporation that would
increase or decrease the authorized shares of a class of stock,
increase or decrease the par value of the shares of a class of
stock, or alter or change the powers, preferences or special
rights of the shares of a class of stock requires approval of
the holders of a majority of the outstanding shares of the
affected class, voting as a separate class, in addition to the
approval of a majority of the shares entitled to vote on that
proposed amendment. If any proposed amendment would alter or
change the powers, preferences or special rights of any series
of a class of stock so as to affect them adversely, but does not
affect the entire class, then only the shares of the series
affected by the proposed amendment is considered a separate
class for purposes of the immediately preceding sentence.
Virgin Mobile USAs certificate of incorporation may be
amended, except that:
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no amendment or repeal of Virgin Mobile USAs certificate
of incorporation may adversely affect the rights of the holders
of Class A common stock, Class B common stock or
Class C common stock, respectively, unless the holders of
Class A common stock, Class B common stock or
Class C common stock, as the case may be, voting separately
as a class, by majority vote approve the amendment;
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no provision of Virgin Mobile USAs certificate of
incorporation may be amended, altered or repealed without the
affirmative vote of the holders of at least
662/3%
of the then outstanding stock of Virgin Mobile USA entitled to
vote generally in the election of directors;
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the provisions providing for the exchange of partnership units
of the Operating Partnership may be amended, altered or repealed
only with the affirmative vote of the holders of at least a
majority in voting power of the Class B common
stock; and
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the provisions pertaining to corporate opportunities and duties
of the Virgin Group, SK Telecom and Sprint Nextel may be
amended, altered or repealed with the affirmative vote of the
holders of at least 80% of the voting power of all the then
outstanding shares of stock of Virgin Mobile USA entitled to
vote generally in the election of directors, voting together as
a single class.
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For purposes of any class vote of the Class B common stock,
each holder of a share of Class B common stock (or fraction
thereof) will be entitled to a number of votes that is equal to
the number of shares of Class A common stock for which the
partnership units of the Operating Partnership held of record by
that holder are then exchangeable pursuant to the partnership
agreement and Virgin Mobile USAs certificate of
incorporation.
Amendments
to Bylaws
Sprint
Nextel
Sprint Nextels articles of incorporation provide that
Sprint Nextels amended and restated bylaws may be amended
by the board of directors, subject to the power of the
stockholders to amend Sprint Nextels amended and restated
bylaws. Sprint Nextels amended and restated bylaws provide
that the board of directors may only amend, alter or repeal, or
adopt new bylaw provisions with respect to, (1) any
provision of Sprint Nextels amended and restated bylaws
that at the time requires the vote of more than two-thirds of
the entire board of directors for action to be taken, or
(2) the amendment provision of Sprint Nextels amended
and restated bylaws, if, in either case, a resolution is adopted
by a vote of more than two-thirds of the entire board of
directors.
Virgin
Mobile USA
Virgin Mobile USAs bylaws may be amended, altered, or
repealed and new bylaws adopted by resolution of the board of
directors. The Virgin Mobile USA stockholders are only able to
adopt, amend, alter or repeal the bylaws by an affirmative vote
of not less than
662/3%
in voting power of all outstanding shares of stock of Virgin
Mobile USA entitled to vote generally at an election of
directors, voting together as a single class. As long as any of
Sprint Nextel, the Virgin Group or SK Telecom has the right to
designate at least one director, Virgin Mobile USAs bylaws
may not be amended without the affirmative vote of a majority of
all directors then serving on the board of directors at the time
of the applicable vote.
Notice of
Certain Stockholder Actions
Sprint
Nextel
Sprint Nextels amended and restated bylaws provide that a
stockholder may only nominate directors for election or present
an action to be taken at an annual stockholders meeting if
the stockholder gives advance notice not less than 120 days
and not more than 150 days before the first anniversary of
the preceding years annual meeting. In order for business
to be conducted at a special meeting of stockholders, it must be
(1) properly brought before the meeting by a stockholder,
(2) specified in the notice of meeting given by or at the
direction of the Sprint Nextel board of directors, or
(3) otherwise properly brought before the meeting by or at
the direction of the Sprint Nextel board of directors.
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Virgin
Mobile USA
For nominations or other business to be properly brought before
a Virgin Mobile USA annual meeting by a stockholder, a
stockholder must have given timely notice thereof in writing to
the Secretary of Virgin Mobile USA and any proposed business
other than the nominations of persons for election to the board
of directors must constitute a proper matter for stockholder
action. To be timely, a stockholders notice must be
delivered to the Secretary at the principal executive offices of
Virgin Mobile USA not later than the close of business on the
90th day, nor earlier than the close of business on the 120th
day, prior to the first anniversary of the preceding years
annual meeting.
In the event Virgin Mobile USA calls a special meeting of
stockholders for the purpose of electing one or more directors
to the board of directors, any stockholder entitled to vote in
the election of directors may nominate a person or persons for
election to the position(s) as specified in Virgin Mobile
USAs notice of meeting, if the stockholders notice
is delivered to the Secretary at the principal executive offices
of Virgin Mobile USA not earlier than the close of business on
the 120th day prior to the special meeting and not later than
the close of business on the later of the 90th day prior to the
special meeting or the tenth day following the day on which
public announcement is first made of the date of the special
meeting and of the nominees proposed by the board of directors
to be elected at the meeting.
Special
Stockholder Meetings
Sprint
Nextel
A special meeting of the stockholders or the holders of any one
or more classes of the capital stock of Sprint Nextel entitled
to vote as a class or classes with respect to any matter, as
required by law or as provided in Sprint Nextels articles
of incorporation, may be called only by, and may be at any time
and place determined by, the Chairman of the board of directors,
the Chief Executive Officer or a majority of the board of
directors.
Virgin
Mobile USA
Special meetings of stockholders may be called only by a
majority of the board of directors, the Chairman of the board of
directors or the Chief Executive Officer for any purpose.
However, each of Sprint Nextel, the Virgin Group and SK Telecom
may call a special meeting of stockholders so long as the
stockholder holds shares of common stock of Virgin Mobile USA
representing at least 25% of the aggregate voting power in
Virgin Mobile USA.
Limitation
of Personal Liability of Directors and Indemnification
Sprint
Nextel
Sprint Nextels articles of incorporation provide that no
Sprint Nextel director will be personally liable to Sprint
Nextel or its stockholders for monetary damages for breach of
fiduciary duty by that director as a director. However, this
limitation does not eliminate or limit the liability of a
director to the extent provided by applicable law (1) for
any breach of the directors duty of loyalty to Sprint
Nextel or its stockholders; (2) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law; (3) for violation of the KGCC
regarding unlawful payment of dividends or unlawful stock
purchases or redemptions; or (4) for any transaction from
which the director derived an improper personal benefit.
Sprint Nextels amended and restated bylaws provide for
indemnification of directors, officers or employees of Sprint
Nextel, or any person serving at the request of Sprint Nextel as
a director, officer or employee of another enterprise, against
expenses, judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by them, with respect to any
action, suit or proceeding if the director, officer, employee or
person acted in good faith and in a manner they reasonably
believed to be in or not opposed to
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the best interests of Sprint Nextel, or the other enterprise,
and with respect to a criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. Sprint
Nextels amended and restated bylaws also provide for
indemnification of directors, officers or employees of Sprint
Nextel, or any person serving at the request of Sprint Nextel as
a director, officer or employee of another enterprise, against
expenses, actually and reasonably incurred by them, with respect
to any action, suit or proceeding by or in the right of Sprint
Nextel if the standard of conduct described in the immediately
preceding sentence is satisfied.
Virgin
Mobile USA
Virgin Mobile USAs certificate of incorporation provides
that no director of Virgin Mobile USA will have any personal
liability to Virgin Mobile USA or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except
to the extent the exemption from liability or limitation thereof
is not permitted under the DGCL as the same exists or hereafter
may be amended.
Virgin Mobile USAs certificate of incorporation and Virgin
Mobile USAs bylaws provide for indemnification of any
person who was or is made or is threatened to be made a party to
or is otherwise involved in any threatened, pending or completed
proceeding (brought in the right of Virgin Mobile USA or
otherwise) by reason of the fact that the person, or a person
for whom that person was the legal representative, is or was a
director, officer or employee of Virgin Mobile USA or, while a
director, officer or employee of Virgin Mobile USA, is or was
serving at the request of Virgin Mobile USA as a director,
officer, partner, trustee, manager, employee or agent of another
corporation, partnership, joint venture, trust, limited
liability company, nonprofit entity or other enterprise, for and
against all loss and liability suffered and expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement reasonably incurred by the person or the heirs,
executors or administrators in connection with the action, suit
or proceeding, including appeals. Notwithstanding the preceding
sentence (and except as otherwise provided in Virgin Mobile
USAs certificate of incorporation), Virgin Mobile USA will
be required to indemnify a person described in such sentence in
connection with any action, suit or proceeding (or part thereof)
commenced by the person only if the commencement of the action,
suit or proceeding (or part thereof) by the person was
authorized by the board of directors.
Mergers,
Consolidations and Other Transactions
Sprint
Nextel
Under the KGCC, the board of directors and the holders of a
majority of the shares entitled to vote must approve a merger,
consolidation or sale of all or substantially all of a
corporations assets. However, unless the corporation
provides otherwise in its articles or certificate of
incorporation, no stockholder vote of a constituent corporation
surviving a merger is required if:
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the merger agreement does not amend the constituent
corporations articles or certificate of incorporation;
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each share of stock of the constituent corporation outstanding
before the merger is an identical outstanding or treasury share
of the surviving corporation after the merger; and
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either no shares of common stock of the surviving corporation
are to be issued or delivered by way of the merger or, if common
stock will be issued or delivered, it will not increase the
number of outstanding shares of common stock immediately before
the merger by more than 20%.
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Sprint Nextels articles of incorporation require that
certain business combinations with an interested stockholder
must be approved by the holders of 80% of the outstanding Sprint
Nextel common stock and Series 2 common stock, unless
(1) approved by a majority of continuing directors (as long
as the approval occurred at a meeting of directors at which at
least seven continuing directors were present), or (2) the
consideration received by
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Sprint Nextel stockholders in the business combination is not
less than the highest price per share paid by the interested
stockholder for its shares. The types of business combinations
covered by this provision include:
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merger or consolidation with an interested stockholder or its
affiliate;
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a sale or other disposition of assets with a fair market value
of $1 million or more to or with an interested stockholder
or its affiliate;
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the issuance or transfer of securities of Sprint Nextel with an
aggregate fair market value of $1 million or more to an
interested stockholder or its affiliate;
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the adoption of a plan or proposal for the liquidation or
dissolution of Sprint Nextel proposed by an interested
stockholder or its affiliate; or
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a reclassification or recapitalization of Sprint Nextel or other
transaction which has the effect of increasing the proportionate
share of the equity securities of Sprint Nextel owned directly
or indirectly by the interested stockholder or its affiliate.
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In order to qualify as a continuing director, the director
cannot be affiliated with the interested stockholder and must
have been a director before the time the interested stockholder
became an interested stockholder (or any successor director
recommended by a majority of the continuing directors).
Virgin
Mobile USA
Under the DGCL, the board of directors and the holders of a
majority of the shares entitled to vote must approve a merger,
consolidation or sale of all or substantially all of a
corporations assets. However, unless the corporation
provides otherwise in its articles or certificate of
incorporation, no stockholder vote of a constituent corporation
surviving a merger is required if:
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the merger agreement does not amend the constituent
corporations articles or certificate of incorporation;
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each share of stock of the constituent corporation outstanding
before the merger is an identical outstanding or treasury share
of the surviving corporation after the merger; and
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either no shares of common stock of the surviving corporation
are to be issued or delivered by way of the merger or, if common
stock will be issued or delivered, it will not increase the
number of outstanding shares of common stock immediately before
the merger by more than 20%.
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In addition to the affirmative vote of a majority of all
directors then serving on the board of directors at the time of
the applicable vote, the consent or waiver of consent of each of
Sprint Nextel, the Virgin Group and SK Telecom is required for:
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the merger, consolidation, reorganization or sale of all or
substantially all of the assets of Virgin Mobile USA; and
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the change of control of Virgin Mobile USA to a direct strategic
competitor of Sprint Nextel, the Virgin Group, Virgin Mobile USA
or SK Telecom.
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However, (1) the consent or a waiver of consent of the
Virgin Group or Sprint Nextel or their respective affiliates
will not be required in the event that the Virgin Group or
Sprint Nextel or their respective affiliates, as the case may
be, holds a Percentage Interest that is less than 10%, and
(2) the consent or a waiver of consent of SK Telecom or its
affiliates will not be required in the event that SK Telecom or
its affiliates holds a Percentage Interest that is less than
15%, in each case at the time of the action.
134
State
Anti-takeover Statutes
Sprint
Nextel
Business Combination Statute. The KGCC
contains a business combination statute, which
restricts business combinations between a domestic
corporation and an interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder. A business
combination means one of various types of transactions,
including mergers, that increases the proportionate voting power
of the interested stockholder. An interested
stockholder means any person, or its affiliate or
associate, that owns or controls 15% or more of the outstanding
shares of the corporations voting stock.
Under this statute, a domestic corporation may not engage in a
business combination with an interested stockholder for a period
of three years following the time the interested stockholder
became an interested stockholder, unless:
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before that time the corporations board of directors
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the corporations voting
stock outstanding at the time the transaction commenced,
excluding shares owned by persons who are directors and also
officers and shares held by specified employee stock ownership
plans; or
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at or after that time the business combination is approved by
the board of directors and authorized at a stockholders
meeting by the affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
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The business combination restrictions of this statute do not
apply if, among other things:
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the holders of a majority of the corporations voting stock
approve an amendment to its articles of incorporation or bylaws
expressly electing not to be governed by the anti-takeover
provisions, which election will be effective 12 months
after the adoption of the amendment and would not apply to any
business combination with a person who was an interested
stockholder at or before the time the amendment was
approved; or
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a stockholder becomes an interested stockholder
inadvertently and as soon as possible thereafter
divests itself of a sufficient number of shares so that the
stockholder ceases to be an interested stockholder and would
not, at any time within the three-year period immediately before
a business combination between the corporation and the
interested stockholder, have been an interested stockholder, but
for the inadvertent acquisition.
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Sprint Nextel has not opted out of the Kansas business
combination statute.
Control Share Acquisition Statute. The KGCC
also contains a control share acquisition statute,
which provides that any person or group must obtain stockholder
approval before acquiring any shares of stock of a publicly
traded Kansas corporation if, after the acquisition, that person
would have a triggering level of voting power, beginning at 20%,
as set forth in the statute. If the acquiring person fails to
obtain stockholder approval, the acquired shares lose their
voting rights. These voting rights may be retained or restored
only if the statutory disclosure requirements are met and upon
the approval by both a majority of the outstanding voting stock
and a majority of the outstanding voting stock excluding
interested shares. Interested shares
means all shares owned by the acquiring person or group, by the
corporations directors who are also its employees, and by
the corporations officers.
135
Sprint Nextel has opted out of the control share acquisition
statute pursuant to Sprint Nextels amended and restated
bylaws.
Virgin
Mobile USA
Business Combination Statute. The DGCL
contains a business combination statute, which
restricts business combinations between a domestic
corporation and an interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder. A business
combination means one of various types of transactions,
including mergers that increase the proportionate voting power
of the interested stockholder. An interested
stockholder means any person, or its affiliate or
associate, that owns or controls 15% or more of the outstanding
shares of the corporations voting stock.
Under this statute, a domestic corporation may not engage in a
business combination with an interested stockholder for a period
of three years following the time the interested stockholder
became an interested stockholder, unless:
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before that time the corporations board of directors
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the corporations voting
stock outstanding at the time the transaction commenced,
excluding shares owned by persons who are directors and also
officers and shares held by specified employee stock ownership
plans; or
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at or after that time the business combination is approved by
the board of directors and authorized at a stockholders
meeting by the affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
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The business combination restrictions of this statute do not
apply if, among other things:
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the holders of a majority of the corporations voting stock
approve an amendment to its articles of incorporation or bylaws
expressly electing not to be governed by the anti-takeover
provisions, which election will be effective 12 months
after the adoption of the amendment and would not apply to any
business combination with a person who was an interested
stockholder at or before the time the amendment was
approved; or
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a stockholder becomes an interested stockholder
inadvertently and as soon as possible thereafter
divests itself of a sufficient number of shares so that the
stockholder ceases to be an interested stockholder and would
not, at any time within the three-year period immediately before
a business combination between the corporation and the
interested stockholder, have been an interested stockholder, but
for the inadvertent acquisition.
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Neither Virgin Mobile USAs certificate of incorporation
nor Virgin Mobile USAs bylaws exclude Virgin Mobile USA
from the restrictions imposed under the Delaware business
combination statute.
Appraisal
Rights
Sprint
Nextel
The KGCC provides that a stockholder of a Kansas corporation is
generally entitled to demand an appraisal and to obtain payment
of the fair value of his or her shares in the event of certain
mergers, except that, unless
136
Sprint Nextels articles of incorporation otherwise
provide, this right to demand an appraisal does not apply to
holders of shares of any class or series of stock, or depository
receipts in respect thereof, which are either:
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listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.,
which we refer to as the NASD; or
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held of record by not less than 2,000 holders.
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In addition, appraisal rights will not apply to any of the
shares of stock of the corporation surviving a merger if the
merger did not require approval of the stockholders of that
corporation.
Appraisal rights are available for holders of shares of any
class or series of stock, or depository receipts in respect
thereof, of a Kansas corporation if holders are required by the
terms of the merger or consolidation agreement to accept in
exchange for their stock or depository receipts, anything except:
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stock, or stock and cash in lieu of fractional shares, of the
corporation surviving or resulting from the merger or
consolidation;
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stock, or stock and cash in lieu of fractional shares of any
other corporation which, at the effective time of the merger or
consolidation, will be listed on a national securities exchange,
or designated as a national market system security on an
interdealer quotation system by the NASD, or held of record by
at least 2,000 holders; or
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a combination of the above, or in the case of any reference to
stock above, depository receipts in respect of the stock, or in
the case of any reference to fractional shares above, fractional
depository receipts in respect of the fractional shares.
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Virgin
Mobile USA
The DGCL provides that a stockholder of a Delaware corporation
is generally entitled to demand an appraisal and to obtain
payment of the fair value of his or her shares in the event of
certain mergers, except that, unless Virgin Mobile USAs
certificate of incorporation otherwise provide, this right to
demand an appraisal does not apply to holders of shares of any
class or series of stock, or depository receipts in respect
thereof, which are either:
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listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the NASD; or
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held of record by not less than 2,000 holders.
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In addition, appraisal rights will not apply to any of the
shares of stock of the corporation surviving a merger if the
merger did not require approval of the stockholders of that
corporation.
Appraisal rights are available for holders of shares of any
class or series of stock, or depository receipts in respect
thereof, of a Delaware corporation if holders are required by
the terms of the merger or consolidation agreement to accept in
exchange for their stock or depository receipts, anything except:
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stock, or stock and cash in lieu of fractional shares, of the
corporation surviving or resulting from the merger or
consolidation;
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stock, or stock and cash in lieu of fractional shares of any
other corporation which, at the effective time of the merger or
consolidation, will be listed on a national securities exchange
or held of record by at least 2,000 holders; or
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137
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a combination of the above, or in the case of any reference to
stock above, depository receipts in respect of the stock, or in
the case of any reference to fractional shares above, fractional
depository receipts in respect of the fractional shares.
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Restriction
on Purchase of Equity Securities from Large Holders
Sprint
Nextel
If the beneficial owner of 5% or more of a class of Sprint
Nextels equity securities has held any of the securities
for less than two years, Sprint Nextels articles of
incorporation prohibit Sprint Nextel from purchasing equity
securities of the same class as the securities held for less
than two years from the 5% security holder at a premium over
market price unless the company obtains the approval of the
holders of a majority of the voting power of the companys
outstanding capital stock, excluding the shares held by the 5%
security holder.
The approval of stockholders is not required in connection with:
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any purchase or other acquisition of securities made as part of
a tender or exchange offer to purchase securities of the same
class on the same terms to all holders of those equity
securities;
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any purchase, redemption, conversion or other acquisition by the
company of Series 2 common stock from a holder of that
stock pursuant to the provisions of Sprint Nextels
articles of incorporation; or
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any purchase, redemption, conversion or other acquisition by
Sprint Nextel of non-voting common stock from a holder thereof.
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Virgin
Mobile USA
Virgin Mobile USAs certificate of incorporation does not
limit the right to repurchase shares from persons owning more
than a specified percentage of its outstanding equity securities.
138
ADJOURNMENT
OF THE MEETING
Adjournment
of the Meeting
Although it is not currently expected, the meeting may be
adjourned to solicit additional proxies if there are not
sufficient votes to adopt the merger agreement. In that event,
Virgin Mobile USA may ask its stockholders to consider the
adjournment of the meeting to solicit additional proxies.
In this proposal, we are asking you to authorize the holder of
any proxy solicited by the Virgin Mobile USA board of directors
to vote in favor of granting discretionary authority to the
proxies or attorneys-in-fact to adjourn the meeting for the
purpose of soliciting additional proxies. If Virgin Mobile USA
stockholders approve the adjournment proposal, we could adjourn
the meeting and any adjourned session of the meeting and use the
additional time to solicit additional proxies, including the
solicitation of proxies from stockholders that have previously
returned properly executed proxies or authorized a proxy by
telephone or via the Internet web site. Additionally, we may
seek to adjourn the meeting if a quorum is not present at the
meeting.
Vote
Required and Board Recommendation
Approval of the proposal to adjourn the meeting requires an
affirmative vote of the holders of a majority of the combined
voting power of Virgin Mobile USA capital stock present in
person or by proxy at the meeting and entitled to vote on the
proposal, voting together as a single class, regardless of
whether a quorum is present. No proxy that is specifically
marked AGAINST adoption of the merger agreement will
be voted in favor of the adjournment proposal, unless it is
specifically marked FOR the proposal to adjourn the
meeting.
The Virgin Mobile USA board of directors recommends that you
vote FOR the proposal to adjourn the meeting, if
necessary, to solicit additional proxies if there are not
sufficient votes to adopt the merger agreement.
LEGAL
MATTERS
The validity of the Sprint Nextel common stock to be issued in
connection with the merger will be passed upon for Sprint Nextel
by Polsinelli Shughart PC, Kansas City, Missouri. Certain
U.S. federal income tax consequences relating to the merger
will be passed upon for Sprint Nextel by its tax counsel, King
& Spalding LLP, and for Virgin Mobile USA by its tax
counsel, Simpson Thacher & Bartlett LLP.
EXPERTS
The consolidated financial statements and financial statement
schedule of Sprint Nextel and its subsidiaries as of
December 31, 2008 and 2007, and for each of the years in
the three-year period ended December 31, 2008, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2008,
have been incorporated by reference herein and in the
registration statement of which this proxy statement/prospectus
forms a part in reliance upon the report of KPMG LLP,
independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing. The audit report refers to a change
in the method of quantifying errors in 2006.
The consolidated financial statements, financial statement
schedule and managements assessment of the effectiveness
of internal control over financial reporting (which is included
in Managements Report on Internal Control over Financial
Reporting) of Virgin Mobile USA incorporated in this proxy
statement/prospectus by reference to Virgin Mobile USAs
Annual Report on
Form 10-K
for the year ended December 31, 2008 have been
139
so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
FUTURE
STOCKHOLDER PROPOSALS
If the merger is consummated, there will be no annual meeting of
Virgin Mobile USA stockholders. If the merger is not
consummated, next years annual meeting will be held on
May 20, 2010, unless the board of directors declares
otherwise. Stockholders who, in accordance with
Rule 14a-8
under the Exchange Act, wish to present proposals for inclusion
in the proxy materials to be distributed by Virgin Mobile USA in
connection with its 2010 annual meeting must submit their
proposals to Virgin Mobile USA on or before December 4,
2009. Proposals should be sent to Virgin Mobile USAs
Corporate Secretary at its principal executive offices or may be
sent via facsimile to
(908) 607-4078,
Attention: General Counsel and Corporate Secretary. Any proposal
must meet the requirements set forth in the rules and
regulations of the SEC, including
Rule 14a-8,
in order for the proposal to be eligible for inclusion in Virgin
Mobile USAs proxy statement for the 2010 annual meeting.
In addition, Virgin Mobile USAs bylaws establish an
advance notice procedure with regard to certain matters,
including nominations of persons for election as directors or
stockholder proposals, to be brought before an annual meeting of
stockholders. In accordance with these bylaws, in order to be
properly brought before the 2010 annual meeting, a
stockholders notice of the matter which the stockholder
wishes to present must be delivered to Virgin Mobile USAs
Corporate Secretary at its principal executive offices, not less
than 90 days nor more than 120 days prior to the
anniversary date of the preceding years annual meeting and
must contain specified information about the stockholder and the
matters to be brought before the meeting. Therefore, to be
presented at Virgin Mobile USAs 2010 annual meeting, a
proposal must be received by Virgin Mobile USA on or after
December 21, 2009 but no later than January 20, 2010.
If Virgin Mobile USAs 2010 annual meeting date is more
than 30 days before or more than 70 days after the
first anniversary date of the 2009 annual meeting, notice by the
stockholder to be timely must be delivered not earlier than
120 days prior to the annual meeting and not later than the
close of business on the later of the 90th day prior to the
annual meeting or the 10th day following the day on which
public announcement of the date of the meeting is first made.
Public announcement of an adjournment of an annual meeting does
not commence a new time period for notifying stockholders.
However, if the number of directors to be elected to the board
of directors of Virgin Mobile USA at an annual meeting is
increased and Virgin Mobile USA does not announce the naming of
all of the nominees for director or specifying the size of the
increased board of directors at least 100 calendar days prior to
the first anniversary of the prior years annual meeting,
then the notice to stockholders will be considered timely with
respect to nominees for any new positions created by the
increase if it is received by Virgin Mobile USAs Corporate
Secretary not later than the close of business on the
10th calendar day following the day on which the public
announcement is first made by Virgin Mobile USA.
STOCKHOLDERS
SHARING AN ADDRESS
Only one copy of this proxy statement/prospectus is being
delivered to multiple stockholders of Virgin Mobile USA sharing
an address unless Virgin Mobile USA has previously received
contrary instructions from one or more of such stockholders. If
you share an address with other stockholders of record and your
household receives one copy of the proxy statement/prospectus
and you decide you want a separate copy of this proxy
statement/prospectus, Virgin Mobile USA will promptly deliver
your separate copy if you telephone Virgin Mobile USAs
Investor Relations Department at
(908) 607-4000
or write to Virgin Mobile USAs Director of Investor
Relations, Virgin Mobile USA, 10 Independence Boulevard, Warren,
New Jersey 07059. The proxy statement/prospectus can also be
found at http://investorrelations.virginmobileusa.com.
Stockholders sharing an address who wish, in the future, to
receive separate copies or a single copy of Virgin Mobile
USAs
140
proxy statements and annual reports should provide written or
oral notice to Virgin Mobile USAs Corporate Secretary at
the address and telephone number set forth above.
WHERE YOU
CAN FIND MORE INFORMATION
Sprint Nextel has filed with the SEC a registration statement
under the Securities Act, of which this proxy
statement/prospectus forms a part, which registers the shares of
Sprint Nextel common stock to be issued to Virgin Mobile USA
stockholders in connection with the merger. The registration
statement, including the attached exhibits and schedules,
contains additional relevant information about Sprint Nextel and
its common stock. The rules and regulations of the SEC allow
Sprint Nextel and Virgin Mobile USA to omit certain information
included in the registration statement from this document.
Virgin Mobile USA and Sprint Nextel file annual, quarterly and
current reports, proxy statements and other information with the
SEC. You may read and copy this information at the Public
Reference Room of the SEC at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. You may obtain
information on the operation of the SECs Public Reference
Room by calling the SEC at
1-800-SEC-0330.
You can also inspect reports, proxy statements and other
information about Sprint Nextel and Virgin Mobile USA at the
offices of the NYSE, 20 Broad Street, New York, New York
10005. You may also obtain copies of this information by mail
from the Public Reference Section of the SEC,
100 F Street, N.E., Room 1580,
Washington, D.C. 20549, at prescribed rates, or from
commercial document retrieval services. The SEC also maintains
an internet website that contains reports, proxy statements and
other information about issuers, like Sprint Nextel and Virgin
Mobile USA, who file electronically with the SEC. The address of
the site is www.sec.gov. The reports and other
information filed by Sprint Nextel with the SEC are also
available at Sprint Nextels website at
www.sprint.com. The reports and other information filed
by Virgin Mobile USA with the SEC are also available at Virgin
Mobile USAs website at www.virginmobileusa.com. The
web addresses of the SEC, Sprint Nextel and Virgin Mobile USA
have been included as inactive textual references only. Except
as specifically incorporated by reference into this proxy
statement/prospectus, information on those web sites is not part
of this proxy statement/prospectus.
The SEC allows Sprint Nextel and Virgin Mobile USA to
incorporate by reference information into this proxy
statement/prospectus. This means that Sprint Nextel and Virgin
Mobile USA can disclose important information to you by
referring you to another document filed separately with the SEC.
The information incorporated by reference is considered to be a
part of this proxy statement/prospectus, except for any
information that is superseded by information that is included
in a document subsequently filed with the SEC or that is
included directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the
documents listed below that Sprint Nextel and Virgin Mobile USA
previously filed with the SEC. They contain important
information about the companies and their financial condition.
Sprint
Nextel Filings (SEC File
No. 001-04721)
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, filed on
February 27, 2009;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009, filed on May 8, 2009 and August 4, 2009,
respectively;
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Current Reports on
Form 8-K
filed on January 26, 2009, as amended by Forms
8-K/A filed
on January 27, 2009 and August 5, 2009, March 3,
2009, March 27, 2009, July 9, 2009, July 28,
2009, August 11, 2009, October 16, 2009 and
October 19, 2009; and
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141
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Amendment No. 8 to
Form 8-A,
filed on August 12, 2005, including any amendments or
reports filed with the SEC for the purpose of updating such
description.
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Virgin
Mobile USA Filings (SEC File
No. 001-33735)
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, filed on
March 9, 2009;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009, filed on May 11, 2009 and August 10, 2009,
respectively; and
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Current Reports on
Form 8-K
and 8-K/A
filed on January 16, 2009, February 27, 2009,
March 13, 2009, April 9, 2009, July 13, 2009,
July 28, 2009, July 31, 2009, September 14, 2009
and September 29, 2009.
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In addition, Sprint Nextel and Virgin Mobile USA also
incorporate by reference any additional documents that they may
file with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act between the date of this proxy
statement/prospectus and the date of the special meeting in
connection with the merger. These documents include periodic
reports, such as Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
as well as proxy statements. To the extent that any information
contained in any Current Report on
Form 8-K,
or any exhibit thereto, is furnished, rather than filed, with
the SEC, the information or exhibit is specifically not
incorporated by reference into this proxy statement/prospectus.
Sprint Nextel has supplied all information contained or
incorporated by reference into this proxy statement/prospectus
relating to Sprint Nextel, and Virgin Mobile USA has supplied
all information relating to Virgin Mobile USA.
Documents incorporated by reference are available from Sprint
Nextel and Virgin Mobile USA without charge, excluding any
exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this proxy
statement/prospectus. You can obtain documents incorporated by
reference into this document by requesting them in writing or by
telephone from the appropriate company at the following
addresses:
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Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: Investor Relations
Telephone:
(800) 259-3755
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Virgin Mobile USA, Inc.
10 Independence Boulevard
Warren, New Jersey 07059
Attention: General Counsel and
Corporate Secretary
Telephone: (908) 607-4000
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Virgin Mobile USA stockholders requesting documents should
do so by November 17, 2009 to receive them before the
Virgin Mobile USA special meeting. You will
not be charged for any of these documents that you request. If
you request any document incorporated by reference into this
proxy statement/prospectus, it will mailed to you by first class
mail, or another equally prompt means, within one business day
after your request is received.
You may also obtain documents incorporated by reference into
this document by requesting them in writing or by telephone from
Innisfree, Virgin Mobile USAs proxy solicitor, at the
following addresses and telephone numbers:
Innisfree M&A Incorporated
501 Madison Avenue,
20th
Floor
New York, NY 10022
Telephone:
(888) 750-5834
142
Neither Sprint Nextel nor Virgin Mobile USA has authorized
anyone to give any information or make any representation about
the merger or the respective companies that is different from,
or in addition to, that contained in this proxy
statement/prospectus or in any of the materials that have been
incorporated by reference into this proxy statement/prospectus.
Therefore, if anyone does give you information of this sort, you
should not rely on it. If you are in a jurisdiction where offers
to exchange or sell, or solicitations of offers to exchange or
purchase, the securities offered by this proxy
statement/prospectus or the solicitation of proxies is unlawful,
or if you are a person to whom it is unlawful to direct these
types of activities, then the offer presented in this proxy
statement/prospectus does not extend to you. The information
contained in this proxy statement/prospectus speaks only as of
the date of this proxy statement/prospectus unless the
information specifically indicates that another date applies.
143
ANNEX A
AGREEMENT
AND PLAN OF MERGER
among
SPRINT NEXTEL CORPORATION,
SPRINT MOZART, INC.
and
VIRGIN MOBILE USA, INC.
Dated as of July 27, 2009
TABLE OF
CONTENTS
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Page
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ARTICLE I THE MERGER
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A-2
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Section 1.1
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The Merger
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A-2
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Section 1.2
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Closing; Effective Time
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A-2
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Section 1.3
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Effects of the Merger
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A-2
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Section 1.4
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Certificate of Incorporation; Bylaws
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A-2
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Section 1.5
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Directors and Officers
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A-2
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ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
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A-2
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Section 2.1
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Conversion of Securities
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A-2
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Section 2.2
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Treatment of Company Options and other Company Stock-Based Awards
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A-4
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Section 2.3
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Surrender of Company Shares
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A-5
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Section 2.4
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Withholding Rights
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A-6
|
|
|
|
|
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
|
|
|
A-7
|
|
Section 3.1
|
|
Organization and Qualification; Subsidiaries
|
|
|
A-7
|
|
Section 3.2
|
|
Certificate of Incorporation and Bylaws
|
|
|
A-8
|
|
Section 3.3
|
|
Capitalization
|
|
|
A-8
|
|
Section 3.4
|
|
Authority
|
|
|
A-9
|
|
Section 3.5
|
|
No Conflict; Required Filings and Consents
|
|
|
A-9
|
|
Section 3.6
|
|
Compliance with Law
|
|
|
A-10
|
|
Section 3.7
|
|
SEC Filings; Financial Statements; No Undisclosed Liability
|
|
|
A-10
|
|
Section 3.8
|
|
Absence of Certain Changes or Events
|
|
|
A-12
|
|
Section 3.9
|
|
Absence of Litigation
|
|
|
A-12
|
|
Section 3.10
|
|
Employee Benefit Plans
|
|
|
A-12
|
|
Section 3.11
|
|
Labor and Employment Matters
|
|
|
A-13
|
|
Section 3.12
|
|
Insurance
|
|
|
A-14
|
|
Section 3.13
|
|
Properties and Assets
|
|
|
A-14
|
|
Section 3.14
|
|
Tax Matters
|
|
|
A-14
|
|
Section 3.15
|
|
Proxy Statement
|
|
|
A-15
|
|
Section 3.16
|
|
Opinion of Financial Advisor
|
|
|
A-15
|
|
Section 3.17
|
|
Brokers
|
|
|
A-15
|
|
Section 3.18
|
|
Takeover Statutes
|
|
|
A-15
|
|
Section 3.19
|
|
Intellectual Property
|
|
|
A-16
|
|
Section 3.20
|
|
Environmental Matters
|
|
|
A-17
|
|
Section 3.21
|
|
Contracts
|
|
|
A-17
|
|
Section 3.22
|
|
Related Party Transactions
|
|
|
A-18
|
|
Section 3.23
|
|
No Other Representations or Warranties
|
|
|
A-18
|
|
|
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
|
|
|
A-19
|
|
Section 4.1
|
|
Organization and Qualification
|
|
|
A-19
|
|
Section 4.2
|
|
Capitalization
|
|
|
A-20
|
|
Section 4.3
|
|
Authority
|
|
|
A-20
|
|
Section 4.4
|
|
No Conflict; Required Filings and Consents
|
|
|
A-20
|
|
Section 4.5
|
|
SEC Filings; Financial Statements
|
|
|
A-21
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Section 4.6
|
|
Absence of Certain Changes or Events
|
|
|
A-22
|
|
Section 4.7
|
|
Absence of Litigation
|
|
|
A-22
|
|
Section 4.8
|
|
ERISA
|
|
|
A-22
|
|
Section 4.9
|
|
Proxy Statement
|
|
|
A-22
|
|
Section 4.10
|
|
Brokers
|
|
|
A-23
|
|
Section 4.11
|
|
Operations of Merger Sub
|
|
|
A-23
|
|
Section 4.12
|
|
Ownership of Company Shares
|
|
|
A-23
|
|
Section 4.13
|
|
Vote/Approval Required
|
|
|
A-23
|
|
Section 4.14
|
|
No Other Representations or Warranties
|
|
|
A-23
|
|
|
|
|
|
|
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER
|
|
|
A-23
|
|
Section 5.1
|
|
Conduct of Business of the Company Pending the Merger
|
|
|
A-23
|
|
Section 5.2
|
|
Conduct of Business of Parent and Merger Sub Pending the Merger
|
|
|
A-25
|
|
Section 5.3
|
|
No Control of Other Partys Business
|
|
|
A-26
|
|
|
|
|
|
|
ARTICLE VI ADDITIONAL AGREEMENTS
|
|
|
A-26
|
|
Section 6.1
|
|
Stockholders Meeting
|
|
|
A-26
|
|
Section 6.2
|
|
Certain Filings
|
|
|
A-27
|
|
Section 6.3
|
|
Resignation of Directors
|
|
|
A-27
|
|
Section 6.4
|
|
Access to Information; Confidentiality
|
|
|
A-27
|
|
Section 6.5
|
|
Acquisition Proposals
|
|
|
A-28
|
|
Section 6.6
|
|
Employment and Employee Benefits Matters
|
|
|
A-29
|
|
Section 6.7
|
|
Indemnification; Directors and Officers Insurance
|
|
|
A-31
|
|
Section 6.8
|
|
Stockholder Litigation
|
|
|
A-32
|
|
Section 6.9
|
|
Notification of Certain Matters
|
|
|
A-32
|
|
Section 6.10
|
|
Further Action; Efforts
|
|
|
A-33
|
|
Section 6.11
|
|
Public Announcements
|
|
|
A-34
|
|
Section 6.12
|
|
Section 16 Matters
|
|
|
A-34
|
|
Section 6.13
|
|
Listing
|
|
|
A-34
|
|
Section 6.14
|
|
Waiver
|
|
|
A-34
|
|
Section 6.15
|
|
Net Debt
|
|
|
A-34
|
|
|
|
|
|
|
ARTICLE VII CONDITIONS OF MERGER
|
|
|
A-35
|
|
Section 7.1
|
|
Conditions to Obligation of Each Party to Effect the Merger
|
|
|
A-35
|
|
Section 7.2
|
|
Conditions to Obligations of Parent and Merger Sub
|
|
|
A-35
|
|
Section 7.3
|
|
Conditions to Obligations of the Company
|
|
|
A-36
|
|
|
|
|
|
|
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
|
|
|
A-37
|
|
Section 8.1
|
|
Termination
|
|
|
A-37
|
|
Section 8.2
|
|
Effect of Termination
|
|
|
A-38
|
|
Section 8.3
|
|
Expenses
|
|
|
A-39
|
|
Section 8.4
|
|
Procedure for Termination or Amendment
|
|
|
A-39
|
|
Section 8.5
|
|
Waiver
|
|
|
A-39
|
|
|
|
|
|
|
ARTICLE IX GENERAL PROVISIONS
|
|
|
A-39
|
|
Section 9.1
|
|
Non-Survival of Representations, Warranties, Covenants and
Agreements
|
|
|
A-39
|
|
Section 9.2
|
|
Notices
|
|
|
A-39
|
|
A-iii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Section 9.3
|
|
Certain Definitions
|
|
|
A-40
|
|
Section 9.4
|
|
Severability
|
|
|
A-41
|
|
Section 9.5
|
|
Entire Agreement; Assignment
|
|
|
A-41
|
|
Section 9.6
|
|
Parties in Interest
|
|
|
A-41
|
|
Section 9.7
|
|
Governing Law
|
|
|
A-41
|
|
Section 9.8
|
|
Headings
|
|
|
A-41
|
|
Section 9.9
|
|
Counterparts
|
|
|
A-41
|
|
Section 9.10
|
|
Specific Performance
|
|
|
A-42
|
|
Section 9.11
|
|
Jurisdiction
|
|
|
A-42
|
|
Section 9.12
|
|
Interpretation
|
|
|
A-42
|
|
|
|
|
|
|
Exhibits
|
|
|
|
|
Exhibit A Daniel H. Schulman Employment Agreement
|
|
|
|
|
Exhibit B Certificate of Incorporation of the
Surviving Corporation
|
|
|
|
|
Exhibit C Bylaws of the Surviving Corporation
|
|
|
|
|
A-iv
INDEX OF
DEFINED TERMS
|
|
|
|
|
Acquisition Proposal
|
|
|
A-28
|
|
Acquisition Proposal Documentation
|
|
|
A-29
|
|
affiliate
|
|
|
A-40
|
|
Agreement
|
|
|
A-1
|
|
Antitrust Law
|
|
|
A-33
|
|
associate
|
|
|
A-40
|
|
Average Parent Stock Price
|
|
|
A-3
|
|
Book-Entry Shares
|
|
|
A-5
|
|
Burdensome Condition
|
|
|
A-34
|
|
business day
|
|
|
A-40
|
|
Certificate of Merger
|
|
|
A-2
|
|
Change of Recommendation
|
|
|
A-26
|
|
Class A Common Stock
|
|
|
A-2
|
|
Class B Common Stock
|
|
|
A-8
|
|
Class C Common Stock
|
|
|
A-2
|
|
Closing
|
|
|
A-2
|
|
Closing Date
|
|
|
A-2
|
|
Code
|
|
|
A-1
|
|
Company
|
|
|
A-1
|
|
Company Bylaws
|
|
|
A-8
|
|
Company Certificate of Incorporation
|
|
|
A-8
|
|
Company Common Stock
|
|
|
A-2
|
|
Company Disclosure Schedule
|
|
|
A-7
|
|
Company Employees
|
|
|
A-12
|
|
Company Option
|
|
|
A-4
|
|
Company Plans
|
|
|
A-12
|
|
Company Preferred Stock
|
|
|
A-3
|
|
Company Requisite Vote
|
|
|
A-9
|
|
Company SEC Reports
|
|
|
A-7
|
|
Company Securities
|
|
|
A-8
|
|
Company Shares
|
|
|
A-3
|
|
Company Stock Plan
|
|
|
A-8
|
|
Company Stock-Based Award
|
|
|
A-5
|
|
Company Termination Fee
|
|
|
A-38
|
|
Compensation Protection Period
|
|
|
A-30
|
|
Confidentiality Agreement
|
|
|
A-28
|
|
Contract
|
|
|
A-10
|
|
control
|
|
|
A-40
|
|
controlled
|
|
|
A-40
|
|
controlled by
|
|
|
A-40
|
|
Converted Award
|
|
|
A-5
|
|
Converted Option
|
|
|
A-4
|
|
D&O Insurance
|
|
|
A-31
|
|
DGCL
|
|
|
A-1
|
|
A-v
|
|
|
|
|
DOJ
|
|
|
A-33
|
|
Effective Time
|
|
|
A-2
|
|
employee benefit plan
|
|
|
A-12
|
|
Employment Agreement
|
|
|
A-1
|
|
Environmental Laws
|
|
|
A-17
|
|
Environmental Permits
|
|
|
A-17
|
|
ERISA
|
|
|
A-12
|
|
Exchange Act
|
|
|
A-7
|
|
Exchange Agent
|
|
|
A-5
|
|
Exchange Ratio
|
|
|
A-3
|
|
executive officer
|
|
|
A-40
|
|
Financial Advisor
|
|
|
A-15
|
|
FTC
|
|
|
A-33
|
|
Governmental Entity
|
|
|
A-10
|
|
HSR Act
|
|
|
A-10
|
|
Indemnified Parties
|
|
|
A-31
|
|
Intellectual Property Rights
|
|
|
A-16
|
|
Intervening Event
|
|
|
A-26
|
|
IRS
|
|
|
A-12
|
|
knowledge
|
|
|
A-40
|
|
Law
|
|
|
A-40
|
|
Licensed Rights
|
|
|
A-16
|
|
Licenses
|
|
|
A-10
|
|
Litigation
|
|
|
A-12
|
|
Material Adverse Effect
|
|
|
A-7
|
|
Material Contract
|
|
|
A-18
|
|
Materials of Environmental Concern
|
|
|
A-17
|
|
Merger
|
|
|
A-1
|
|
Merger Consideration
|
|
|
A-3
|
|
Merger Sub
|
|
|
A-1
|
|
NYSE
|
|
|
A-10
|
|
officer
|
|
|
A-41
|
|
Operating Partnership
|
|
|
A-1
|
|
Parent
|
|
|
A-1
|
|
Parent Common Shares
|
|
|
A-20
|
|
Parent Material Adverse Effect
|
|
|
A-19
|
|
Parent Options
|
|
|
A-20
|
|
Parent Plan
|
|
|
A-30
|
|
Parent SEC Reports
|
|
|
A-19
|
|
Parent Securities
|
|
|
A-20
|
|
Parent Shares
|
|
|
A-3
|
|
person
|
|
|
A-41
|
|
Proxy Statement
|
|
|
A-15
|
|
Registered Intellectual Property Rights
|
|
|
A-16
|
|
Report
|
|
|
A-10
|
|
A-vi
|
|
|
|
|
Representatives
|
|
|
A-28
|
|
S-4
|
|
|
A-15
|
|
Sarbanes-Oxley Act
|
|
|
A-10
|
|
SEC
|
|
|
A-7
|
|
Securities Act
|
|
|
A-10
|
|
Senior Debt Agreement
|
|
|
A-36
|
|
Series 2 Shares
|
|
|
A-20
|
|
SK Exchange Ratio
|
|
|
A-3
|
|
SK Stockholders
|
|
|
A-3
|
|
Stockholders Meeting
|
|
|
A-26
|
|
Stockholders Agreement
|
|
|
A-23
|
|
Subordinated Debt Agreement
|
|
|
A-1
|
|
Subordinated Debt Termination Agreement
|
|
|
A-1
|
|
subsidiaries
|
|
|
A-41
|
|
subsidiary
|
|
|
A-41
|
|
Superior Proposal
|
|
|
A-29
|
|
Surviving Corporation
|
|
|
A-2
|
|
Tax
|
|
|
A-15
|
|
Tax Receivable Termination Agreement
|
|
|
A-1
|
|
Tax Return
|
|
|
A-15
|
|
Taxes
|
|
|
A-15
|
|
Termination Date
|
|
|
A-37
|
|
Trademark License Agreement
|
|
|
A-1
|
|
Transaction Documents
|
|
|
A-1
|
|
U.S. GAAP
|
|
|
A-7
|
|
under common control with
|
|
|
A-40
|
|
Under Water Option
|
|
|
A-4
|
|
Virgin Group Exchange Ratio
|
|
|
A-3
|
|
Virgin Group Stockholders
|
|
|
A-3
|
|
Voting Agreements
|
|
|
A-1
|
|
willful and material breach
|
|
|
A-38
|
|
A-vii
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 27, 2009
(this Agreement), among Sprint Nextel
Corporation, a Kansas corporation (Parent),
Sprint Mozart, Inc., a Delaware corporation and a direct
wholly-owned subsidiary of Parent (Merger
Sub), and Virgin Mobile USA, Inc., a Delaware
corporation (the Company).
WHEREAS, the Board of Directors of each of Parent, Merger Sub
and the Company has approved and declared it advisable to enter
into this Agreement and the merger (the
Merger) of Merger Sub with and into the
Company in accordance with the General Corporation Law of the
State of Delaware (the DGCL), upon the terms
and subject to the conditions set forth herein;
WHEREAS, the Boards of Directors of each of Parent, Merger Sub
and the Company have each declared that it is in the best
interests of their respective companies and stockholders, to
consummate the Merger provided for herein;
WHEREAS, as a condition to Parent entering into this Agreement
and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, Parent is
entering into a Voting Agreement with (i) Corvina Holdings
Limited and Cortaire Limited and (ii) SK Telecom Co., Ltd.
(the Voting Agreements) pursuant to which,
among other things, each of such stockholders has agreed to vote
certain of their Company Shares beneficially owned by such
stockholders in favor of the adoption of the Merger and the
transactions contemplated hereby;
WHEREAS, as a condition to Parent entering into this Agreement
and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, Daniel H.
Schulman is entering into an employment agreement with Parent,
substantially in the form attached hereto as
Exhibit A (the Employment
Agreement) to be effective at the Effective Time;
WHEREAS, as a condition to Parent entering into this Agreement
and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, Parent,
Virgin Mobile USA, L.P. (the Operating
Partnership), Virgin Entertainment Holdings, Inc. and
SK Telecom Co., Ltd. are entering into a Termination and Payoff
Agreement (the Subordinated Debt Termination
Agreement) relating to the Subordinated Credit
Agreement among the Operating Partnership, Virgin Entertainment
Holdings, Inc. and SK Telecom Co., Ltd., dated July 19,
2006, as amended, restated, supplemented or otherwise modified
(the Subordinated Debt Agreement);
WHEREAS, as a condition to Parent entering into this Agreement
and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, (i) the
Operating Partnership and Virgin Enterprises Limited are
entering into a Second Amended and Restated Trademark License
Agreement (the Trademark License Agreement),
to be effective at the Effective Time, and (ii) the
Company, Parent and Corvina Holdings Limited are entering into a
Termination and Mutual Release Agreement relating to the Corvina
Holdings Limited Tax Receivable Agreement, dated
October 16, 2007 (the Tax Receivable Termination
Agreement and, together with this Agreement, the
Voting Agreements, the Employment Agreement, the Subordinated
Debt Termination Agreement and the Trademark License Agreement,
the Transaction Documents); and
WHEREAS, it is intended that, for United States federal income
tax purposes (i) the Merger shall qualify as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code) and (ii) this
Agreement shall constitute a plan of reorganization within the
meaning of Treasury
Regulation Section 1.368-2(g).
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein
contained, subject to the conditions set forth herein, and
intending to be legally bound hereby, Parent, Merger Sub and the
Company hereby agree as follows:
A-1
ARTICLE I
THE MERGER
Section 1.1 The
Merger. Upon the terms and subject to the
conditions of this Agreement, and in accordance with the DGCL,
at the Effective Time (as defined below), Merger Sub shall be
merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation of the
Merger (the Surviving Corporation).
Section 1.2 Closing;
Effective Time. The closing of the Merger (the
Closing) shall take place at 10:00 a.m.,
local time, at the offices of King & Spalding LLP,
1185 Avenue of the Americas, New York, New York, as soon as
practicable, but in no event later than the third business day
after the satisfaction or waiver of the conditions set forth in
Article VII (other than those conditions that by their
terms are not to be satisfied until the Closing, but subject to
the satisfaction or waiver of such conditions at the Closing),
or the Closing may be consummated at such other place or on such
other date as Parent and the Company may mutually agree. The
date on which the Closing actually occurs is hereinafter
referred to as the Closing Date. At the
Closing, the Company shall cause the Merger to be consummated by
filing a certificate of merger (the Certificate of
Merger) with the Secretary of State of the State of
Delaware, in such form as required by, and executed by the
Company in accordance with, the relevant provisions of the DGCL
(the date and time of the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, or such
later date and time as is specified in the Certificate of Merger
and as is agreed to by the parties hereto, being hereinafter
referred to as the Effective Time), and the
parties hereto shall make all other filings or recordings
required under the DGCL or other applicable Law in connection
with the Merger.
Section 1.3 Effects
of the Merger. The Merger shall have the effects
set forth herein and in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the property, rights,
privileges, immunities, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation and all
debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.4 Certificate
of Incorporation; Bylaws.
(a) At the Effective Time, the certificate of incorporation
of the Company shall be amended and restated so as to read in
its entirety as is set forth on Exhibit B hereto,
and, as so amended, shall be the certificate of incorporation of
the Surviving Corporation until thereafter amended in accordance
with its terms and as provided by applicable Law.
(b) At the Effective Time, the bylaws of the Company shall
be amended and restated so as to read in their entirety in the
form as is set forth on Exhibit C hereto, and, as so
amended, shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with their terms, the
certificate of incorporation of the Surviving Corporation and as
provided by applicable Law.
Section 1.5 Directors
and Officers. From and after the Effective Time,
the directors of Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each
to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation. The
initial officers of the Surviving Corporation shall be the
officers designated by Parent prior to the Effective Time.
ARTICLE II
EFFECT OF
THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1 Conversion
of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub,
the Company or the holders of any of the following securities:
(a) Subject to Section 2.1(h), (i) each share of
Class A common stock, par value $0.01 per share, of the
Company (the Class A Common Stock) and
each share of Class C common stock, par value $0.01 per
share, of the Company (the Class C Common
Stock and, together with the Class A Common Stock
and the Class B Common Stock (as defined below), the
Company Common Stock) issued and
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outstanding immediately prior to the Effective Time (other than
(1) any shares of Company Common Stock described in
clauses (ii) and (iii) of this Section 2.1(a) and
(2) any shares of Company Common Stock to be canceled
pursuant to Section 2.1(c)) shall be automatically
converted into the right to receive that number (rounded to the
nearest 1/10,000 of a share) (as may be adjusted pursuant to
this Section 2.1(a) and Section 2.1(g), the
Exchange Ratio) of validly issued, fully paid
and nonassessable shares of Series 1 voting common stock,
par value $2.00 per share, of Parent (Parent
Shares) equal to the number determined by dividing
$5.50 by the Average Parent Stock Price, (ii) each share of
Class A Common Stock and Class C Common Stock held by
Corvina Holdings Limited, Cortaire Limited and any of their
affiliates to which any such shares are transferred on or after
the date hereof (collectively, the Virgin Group
Stockholders) shall be automatically converted into
the right to receive that number (rounded to the nearest
1/10,000 of a share) of Parent Shares equal to the product of
the Exchange Ratio and 93.09% (the Virgin Group
Exchange Ratio) and (iii) each share of
Class A Common Stock and Class C Common Stock held by
SK Telecom Co., Ltd. and any of its affiliates to which any such
shares are transferred on or after the date hereof
(collectively, the SK Stockholders) (such
shares of Company Common Stock, together with the shares of
Company Common Stock described in clauses (i) and
(ii) of this Section 2.1(a) and the Company Preferred Stock
(as defined below) issued and outstanding immediately prior to
the Effective Time, the Company Shares) shall
be automatically converted into the right to receive that number
(rounded to the nearest 1/10,000 of a share) of Parent Shares
equal to the product of the Exchange Ratio and 89.84% (the
SK Exchange Ratio); provided, however,
that (x) if the number determined by dividing $5.50 by the
Average Parent Stock Price is less than or equal to 1.0630, the
Exchange Ratio shall be 1.0630 and (y) if the number
determined by dividing $5.50 by the Average Parent Stock Price
is greater than or equal to 1.3668, the Exchange Ratio shall be
1.3668 (together with the amount of Parent Shares to be issued
pursuant to Section 2.1(b) and any cash in lieu of
fractional Parent Shares pursuant to Section 2.1(h), the
Merger Consideration) upon surrender of such
Company Shares in accordance with Section 2.3.
Average Parent Stock Price means the average
of the closing prices of Parent Shares, as such price is
reported on the Composite Tape of the New York Stock Exchange
(as reported by Bloomberg Financial Markets or, if not reported
thereby, such other authoritative source as the parties shall
otherwise agree), for the ten trading days ending on the second
trading day immediately preceding the Effective Time;
(b) Subject to Section 2.1(h), each share of the
Series A Convertible Preferred Stock, par value $0.01 per
share, of the Company (the Company Preferred
Stock) issued and outstanding immediately prior to the
Effective Time, if any, shall be converted into the right to
receive that number (rounded to the nearest 1/10,000 of a share)
of Parent Shares equal to the product of (x) the number of
shares of Class A Common Stock into which each share of
Company Preferred Stock is convertible and (y) (i) in the
case of the Virgin Group Stockholders, the Virgin Group Exchange
Ratio and (ii) in the case of the SK Stockholders, the SK
Exchange Ratio;
(c) Each share of Class B Common Stock shall be
canceled without any conversion thereof and no consideration
shall be delivered in respect thereto;
(d) Each Company Share held in the treasury of the Company
and each Company Share owned by Parent and Merger Sub
immediately prior to the Effective Time shall be canceled
without any conversion thereof and no consideration shall be
delivered in respect thereto;
(e) Each Company Share beneficially owned by any direct or
indirect wholly-owned subsidiary of Parent or the Company shall
be canceled without any conversion thereof and no consideration
shall be delivered in respect thereto;
(f) Each share of common stock, par value $1.00 per share,
of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully
paid and nonassessable share of common stock, par value $1.00
per share, of the Surviving Corporation and shall constitute the
only outstanding shares of capital stock of the Surviving
Corporation; and
(g) Adjustments. If at any time during
the period between the date of this Agreement and the Effective
Time, any change in the outstanding shares of capital stock of
Parent or the Company shall
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occur by reason of any reclassification, recapitalization, stock
split or combination, exchange or readjustment of shares, or any
stock dividend thereon with a record date during such period,
the Exchange Ratio and the number of Parent Shares issuable
pursuant to Section 2.1, if any, shall be appropriately
adjusted.
(h) Fractional Shares.
(i) No certificates representing fractional Parent Shares
will be issued upon the surrender for exchange of Company
Shares, and such fractional share interests will not entitle the
owner thereof to vote or to any other rights of a shareholder of
Parent.
(ii) Notwithstanding any other provision of this Agreement,
each holder of Company Shares converted pursuant to the Merger
who would otherwise have been entitled to receive a fraction of
a Parent Share (after taking into account all Book-Entry Shares
(as defined below) delivered by such holder) will receive, in
lieu thereof, cash (without interest) in an amount equal to the
product of (A) such fractional Parent Share multiplied by
(B) the per share closing price on the Closing Date of
Parent Shares reported on the Composite Tape of the New York
Stock Exchange (as reported by Bloomberg Financial Markets or,
if not reported thereby, such other authoritative source as the
parties shall otherwise agree).
Section 2.2 Treatment
of Company Options and other Company Stock-Based
Awards.
(a) At the Effective Time, each option (a Company
Option) granted by the Company under the Company Stock
Plan to purchase shares of Company Common Stock which is
outstanding and unexercised as of the Effective Time (other than
an Under Water Option, as defined in this Section 2.2(a))
shall cease to represent a right to acquire shares of Company
Common Stock and shall be converted automatically into an option
to purchase a number of Parent Shares (a Converted
Option) at an exercise price determined as provided
below (and the Converted Option otherwise shall remain subject
to the terms of the Company Stock Plan and the agreements or
letters evidencing grants thereunder):
(i) the number of Parent Shares to be subject to the
Converted Option shall be equal to the product of (x) the
number of shares of Company Common Stock subject to the Company
Option and (y) the Exchange Ratio, provided that any
fractional Parent Shares resulting from such multiplication
shall be rounded down to the nearest whole share; and
(ii) the exercise price per Parent Share under the
Converted Option shall be equal to the exercise price per share
of Company Common Stock under the Company Option divided by the
Exchange Ratio, provided that such exercise price shall be
rounded up to the nearest cent.
Except as otherwise provided in this Section 2.2, the
duration and other terms of each Converted Option shall be the
same as the applicable Company Option (after giving effect to
any rights resulting exclusively from the transaction
contemplated under this Agreement pursuant to the Company Stock
Plan and the award agreements thereunder) except that all
references to the Company shall be deemed to be references to
Parent and all references to the Board of Directors of the
Company shall be deemed to be references to the Board of
Directors of Parent.
For purposes of this Section 2.2(a), an Under
Water Option is a Company Option with respect to which
the Option Price (as such term is defined in the Company Stock
Plan) to purchase a share of Company Common Stock under such
option exceeds the Fair Market Value (as such term is defined in
the Company Stock Plan) of a share of Company Common Stock
immediately before the Effective Time. At the Effective Time,
each Under Water Option shall (pursuant to the terms of the
Company Stock Plan) be canceled and shall have no further force
or effect whatsoever.
(b) At the Effective Time, each right of any kind,
contingent or accrued, to receive shares of the Company Common
Stock or benefits measured by the value of a number of shares of
Company Common Stock, and each award of any kind consisting of
shares of Company Common Stock, granted under the Company Stock
Plan (including restricted stock, restricted stock units,
deferred stock units, performance shares (or units), phantom
stock units and dividend equivalents), other than Company
Options (each, a
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Company Stock-Based Award), which is
outstanding immediately prior to the Effective Time shall cease
to represent a right or award with respect to shares of Company
Common Stock and shall be converted, at the Effective Time, into
a right or award with respect to a number of Parent Shares (a
Converted Award) equal to the product of
(x) the number of shares of Company Common Stock subject to
the Company Stock-Based Award and (y) the Exchange Ratio,
provided that any fractional Parent Shares resulting from such
multiplication shall be rounded down to the nearest whole share
and the Converted Awards otherwise shall remain subject to the
terms of the Company Stock Plan and the agreements or letters
evidencing grants thereunder after giving effect to any rights
resulting exclusively from the transactions contemplated under
this Agreement pursuant to the Company Stock Plan and the award
agreements thereunder. Any performance-based Company Stock-Based
Award with respect to which the vesting terms thereunder is
contingent (in whole or in part) upon the timely satisfaction of
any performance conditions for any period which extends beyond
the Effective Time shall remain subject to all service based
vesting conditions through the end of the applicable performance
period and shall be subject to the following adjustments with
respect to the applicable performance vesting conditions:
(i) 2009 Performance Awards. In the case
of a Company Stock-Based Award with a vesting condition linked
to calendar year 2009 performance, the determination of whether
the applicable performance vesting requirement has been met with
respect to the corresponding Converted Award shall be determined
based on the Companys actual performance (adjusted in a
manner reasonably acceptable to Parent to eliminate the impact
of costs relating to the negotiation, closing, transition and
integration of the transactions contemplated by this Agreement)
through the end of the calendar month which ends on, or
immediately precedes, the Closing Date and comparing such
performance to the product of (x) the applicable annual
performance target for such Company Stock-Based Award multiplied
by (y) a fraction, the numerator of which is the number of
completed calendar months for 2009 ending with the calendar
month which ends on, or immediately precedes, the Closing Date,
and the denominator of which is 12.
(ii) 2010 Performance Awards. In the case
of a Company Stock-Based Award with a vesting condition linked
to calendar year 2010 performance, the performance condition
shall be deemed satisfied in full as of December 31, 2010
with respect to the corresponding Converted Award (without
regard to actual performance by the Company or Parent).
(c) Except as set forth under Section 2.2(b) with
respect to the waiver of performance conditions related to
Company Stock-Based Awards, the Company shall not exercise its
discretion under the Company Stock Plan to accelerate the
vesting or eliminate the performance conditions related to any
Company Options or Company Stock-Based Awards or make any
payments with respect to any Under Water Option.
Section 2.3 Surrender
of Company Shares.
(a) Prior to the Effective Time, Parent shall appoint
Computershare Limited (or such other commercial bank or trust
company reasonably satisfactory to the Company) to act as agent
(the Exchange Agent) for the purpose of
exchanging for the Merger Consideration Company Shares
represented by book-entry (Book-Entry
Shares). Parent shall deposit with the Exchange Agent,
to be held in trust for the holders of Company Shares,
certificates (if such shares shall be certificated) representing
Parent Shares issuable pursuant to Section 2.1 and cash in
lieu of fractional Parent Shares payable pursuant to
Section 2.1(h) in exchange for outstanding Company Shares.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each record holder, as
of the Effective Time, of Book-Entry Shares, a form of letter of
transmittal (which shall be in customary form and shall specify
that delivery shall be effected, and risk of loss and title to
the Book-Entry Shares shall pass, only upon adherence to the
procedures set forth in the letter of transmittal) and
instructions for use in effecting the surrender of such Company
Shares for distribution of the Merger Consideration therefor.
Upon surrender to the Exchange Agent of Book-Entry Shares,
together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such
instructions, the holder of such Book-Entry Shares shall be
entitled to
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receive in exchange therefor Parent Shares and any cash in lieu
of fractional Parent Shares in an amount equal to the Merger
Consideration for each Company Share formerly represented by
such Book-Entry Shares (less any required withholding taxes) and
such Book-Entry Shares shall then be canceled. No interest shall
be paid or accrued for the benefit of holders of the Book-Entry
Shares on the Merger Consideration issued in respect of the
Book-Entry Shares. If issuance of the Merger Consideration is to
be made to a person other than the person in whose name the
surrendered Book-Entry Shares is registered, it shall be a
condition of issuance that the Book-Entry Shares so surrendered
shall be properly endorsed or shall be otherwise in proper form
for transfer, in the sole discretion of the Exchange Agent, and
that the person requesting such issuance shall have paid any
transfer and other taxes required by reason of the issuance of
the Merger Consideration to a person other than the registered
holder of the Book-Entry Shares surrendered or shall have
established to the satisfaction of the Surviving Corporation
that such tax either has been paid or is not applicable. Until
surrendered as contemplated by, and in accordance with, this
Section 2.3, each Book-Entry Share (other than Book-Entry
Shares representing Company Shares to be canceled pursuant to
Section 2.1(c), 2.1(d) or 2.1(e)) shall be deemed at any
time after the Effective Time to represent only the right to
receive upon such surrender the applicable Merger Consideration
as contemplated by this Article II.
(c) At any time following the date that is twelve months
after the Effective Time, the Surviving Corporation shall be
entitled to require the Exchange Agent to deliver to it any
Parent Shares and any cash in lieu of fractional Parent Shares
to be issued in respect of Company Shares pursuant to this
Article II that remain unclaimed by holders of Book-Entry
Shares and thereafter such holders shall be entitled to look to
Parent and the Surviving Corporation (subject to abandoned
property, escheat or other similar Laws) only as general
creditors thereof with respect to the Merger Consideration
issuable upon due surrender of their Book-Entry Shares. The
Surviving Corporation shall pay all charges and expenses,
including those of the Exchange Agent, in connection with the
exchange of Company Shares for the Merger Consideration.
Notwithstanding the foregoing, none of Parent, Merger Sub, the
Company, the Surviving Corporation or the Exchange Agent shall
be liable to any person in respect of any amount paid to a
public official pursuant to any applicable abandoned property,
escheat or similar Law. The Merger Consideration paid in
accordance with the terms of this Article II in respect of
Book-Entry Shares that have been surrendered in accordance with
the terms of this Agreement shall be deemed to have been paid in
full satisfaction of all rights pertaining to the Company Shares
represented thereby. If any Company Shares shall not have been
surrendered prior to six years after the Effective Time (or
immediately prior to such earlier date on which any Merger
Consideration, any dividends or distributions payable to the
holder of such Company Shares or any cash payable in lieu of
fractional Parent Shares, would otherwise escheat to or become
the property of any Governmental Entity), any such Merger
Consideration or dividends or distributions in respect thereof
shall, to the extent permitted by applicable Law, become the
property of Parent, free and clear of any claims or interest of
any person previously entitled thereto.
(d) After the Effective Time, the stock transfer books of
the Company shall be closed and thereafter there shall be no
further registration of transfers of Company Shares that were
outstanding prior to the Effective Time. After the Effective
Time, Book-Entry Shares presented to the Surviving Corporation
for transfer shall be canceled and exchanged for the
consideration provided for, and in accordance with the
procedures set forth in, this Article II.
(e) No dividends or other distributions with respect to
Parent Shares issuable with respect to the Company Shares shall
be paid to the holder of any unsurrendered Book-Entry Shares
until those Book-Entry Shares are surrendered as provided in
this Article II. Upon surrender of the Book-Entry Shares,
in accordance with this Article II, there shall be issued
and/or paid
to the holder of Parent Shares, issued in exchange therefor,
without interest, at the time of surrender, the dividends or
other distributions payable with respect to those Parent Shares
with a record date on or after the date of the Effective Time
but prior to such surrender and a payment date on or prior to
the date of the surrender and not previously paid.
Section 2.4 Withholding
Rights. Parent, Merger Sub, the Surviving
Corporation and the Exchange Agent, as the case may be, shall be
entitled to deduct and withhold from the consideration payable
pursuant to this Agreement to any holder of Company Shares an
amount not in excess of the amount it is required to deduct and
withhold with respect to the payment of such consideration under
the Code and the rules and regulations
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promulgated thereunder, or any provision of state, local or
foreign tax or other Law. To the extent that amounts are so
withheld by or on behalf of Parent, Merger Sub, the Surviving
Corporation and the Exchange Agent, as the case may be, such
withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Company
Shares in respect of which such deduction and withholding was
made.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger
Sub that, except as otherwise disclosed in the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 or its other
reports and forms filed with or furnished to the Securities and
Exchange Commission (the SEC) under
Sections 12, 13, 14 or 15(d) of the Securities Exchange Act
of 1934 (the Exchange Act) after
December 31, 2008 (the Company SEC
Reports) and before the date of this Agreement
(excluding any disclosures set forth in any section of a filed
or furnished Company SEC Report entitled Risk
Factors or Forward-Looking Statements or any
other disclosures included in such documents to the extent that
they are similarly non-specific or predictive or forward-looking
in nature) and except as set forth on the Company Disclosure
Schedule delivered by the Company to Parent and Merger Sub prior
to, or concurrently with, the execution of this Agreement (the
Company Disclosure Schedule), it being
understood and agreed that each item in a particular section of
the Company Disclosure Schedule applies to any section to which
its relevance is reasonably apparent:
Section 3.1 Organization
and Qualification; Subsidiaries. The Company and
each of its subsidiaries is duly organized, validly existing and
in good standing (with respect to jurisdictions that recognize
the concept of good standing) under the Laws of the jurisdiction
of its formation or organization, as applicable, and has all
necessary government approvals and all requisite corporate or
similar power and authority to own, lease and operate its
properties and to carry on its business as it is now being
conducted, except where any such failure to be so organized,
existing or in good standing or to have such power or authority
would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect (as defined below).
The Company and each of its subsidiaries is duly qualified or
licensed to do business in each jurisdiction where the character
of its properties owned, leased or operated by it or the nature
of its activities makes such qualification or licensing
necessary, except for any such failure to be so qualified or
licensed or in good standing which has not had, and would not,
individually or in the aggregate, reasonably be expected to
have, a Material Adverse Effect. The term Material
Adverse Effect shall mean, with respect to the
Company, any change, event or effect shall have occurred or been
threatened that, when taken together with all other adverse
changes, events or effects that have occurred or been
threatened, (i) is or would reasonably be expected to be
materially adverse to the business, operations, financial
condition, assets or liabilities of the Company and its
subsidiaries taken as a whole (provided, however, that with
respect to this clause (i), Material Adverse Effect will be
deemed not to include effects to the extent resulting from
(A) changes in general economic, financial market or
geopolitical conditions, (B) general changes or
developments in any of the industries in which the Company or
its subsidiaries operate, (C) the announcement of this
Agreement and the transactions contemplated hereby, including
any termination of, reduction in or similar negative impact on
relationships, contractual or otherwise, with any customers,
suppliers, partners or employees of the Company and its
subsidiaries, or any adverse impact on the Companys credit
rating from credit rating agencies, to the extent due to the
announcement and performance of this Agreement or the identity
of the parties to this Agreement, or the performance of this
Agreement and the transactions contemplated hereby, including
compliance with the covenants set forth herein, (D) changes
in any applicable Laws or regulations or applicable accounting
regulations or principles or interpretations thereof (including,
changes in accounting principles generally accepted in the
United States of America (U.S. GAAP)),
(E) any attack on, or by, outbreak or escalation of
hostilities or war or any act of terrorism or (F) any
failure by the Company to meet any published analyst estimates
or expectations of the Companys revenue, earnings or other
financial performance or results of operations for any period,
in and of itself, or any failure by the Company to meet its
internal or published projections, budgets, plans or forecasts
of its revenues, earnings or other financial performance or
results of operations or any change in the price of the Company
Common Stock, in and of itself (it being understood that the
facts or occurrences giving rise or
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contributing to such failure that are not otherwise excluded
from the definition of a Material Adverse Effect may
be taken into account in determining whether there has been a
Material Adverse Effect); provided that, in the case of
the immediately preceding clauses (A), (B), (D) or (E),
such changes, effects or circumstances do not affect the Company
or its subsidiaries disproportionately relative to other
companies operating in the same industry) or (ii) does, or
would reasonably be expected to, prevent or materially delay the
performance by the Company of any of its obligations under the
Transaction Documents or the consummation of the Merger or the
other transactions contemplated by the Transaction Documents.
Section 3.2 Certificate
of Incorporation and Bylaws. The Company has
heretofore furnished or otherwise made available to Parent a
complete and correct copy of the amended and restated
certificate of incorporation of the Company, as amended to date
(the Company Certificate of Incorporation),
and the bylaws of the Company, as amended to date (the
Company Bylaws) and the certificate of
incorporation and bylaws (or equivalent organizational
documents) of each subsidiary, each as amended to date, as
currently in effect. Such certificates of incorporation, bylaws
or equivalent organizational documents are in full force and
effect and no other organizational documents are applicable to
or binding upon the Company or any subsidiary. Neither the
Company nor any of its subsidiaries is in violation of any
provisions of its certificate of incorporation or bylaws (or
equivalent organizational documents).
Section 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 200,000,000 shares of Class A Common Stock,
(ii) two (2) shares of Class B common stock, par
value $0.01 per share (Class B Common
Stock), (iii) 999,999 shares of Class C
Common Stock and (iv) 25,000,000 shares of Company
Preferred Stock, of which 51,500 of such shares are designated
as Series A Preferred Stock. As of July 25, 2009,
(i) 67,121,668 shares of Class A Common Stock,
one (1) share of Class B Common Stock and
115,062 shares of Class C Common Stock were issued and
outstanding, all of which were validly issued, fully paid and
nonassessable and were issued free of preemptive rights,
(ii) 51,500 shares of Company Preferred Stock were
outstanding, all of which were validly issued, fully paid and
nonassessable and were issued free of preemptive rights,
(iii) an aggregate of 9,765,825 shares of Class A
Common Stock were subject to or otherwise deliverable in
connection with outstanding equity-based awards or the exercise
of outstanding Company Options issued pursuant to the
Companys 2007 Omnibus Incentive Compensation Plan, as
amended through the date hereof (the Company Stock
Plan), (iv) 1,571,318 shares of Class A
Common Stock were authorized and reserved for future issuance
pursuant to the Company Stock Plan and
(v) 39,161 shares of Class A Common Stock were
held in treasury of the Company. From the close of business on
July 25, 2009 until the date of this Agreement, no options
to purchase shares of Company Common Stock or Company Preferred
Stock have been granted and no shares of Company Common Stock or
Company Preferred Stock have been issued, except for shares
issued pursuant to the exercise of Company Options or pursuant
to previously granted Company Stock-Based Awards, in each case,
in accordance with their terms. Except as set forth above, as of
the date of this Agreement, (A) there are no outstanding or
authorized (I) shares of capital stock or other voting
securities of the Company, (II) securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company or (III) options, warrants
or other rights to acquire from the Company or any of its
subsidiaries, and no obligation of the Company or any of its
subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or
voting securities of the Company or any of its subsidiaries
(collectively, Company Securities),
(B) there are no outstanding obligations of the Company or
any of its subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities or to pay any dividend or make
any other distribution in respect thereof or to provide funds
to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any person and (C) there are
no other options, calls, warrants or other rights, agreements,
arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or any of its
subsidiaries to which the Company or any of its subsidiaries is
a party. Each of the outstanding shares of capital stock of each
of the Companys subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and were issued free of
preemptive rights, and all such shares are owned by the Company
or another wholly-owned subsidiary of the Company and are
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owned free and clear of all security interests, liens, adverse
claims, pledges, limitations in voting rights, charges or other
encumbrances (other than limitations on transfer under
applicable Law). None of the Companys subsidiaries owns
any Company Shares. The Company and its subsidiaries do not own
an equity interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest
in, any other corporation, partnership or entity or any
participating interest in the revenues or profits of any person,
other than in each of their subsidiaries. No bonds, debentures,
notes or other indebtedness of the Company or its subsidiaries
having the right to vote on any matter on which stockholders may
vote are issued or outstanding. All Company Shares are
uncertificated and represented by book-entry.
(b) All subsidiaries of the Company, their respective
jurisdictions of organization, their respective forms of
organization and the holders of their respective outstanding
capital stock or other equity interests are identified in
Section 3.3(b) of the Company Disclosure Schedule.
Section 3.4 Authority. Each
of the Company and the Operating Partnership has all necessary
corporate power and authority to execute and deliver the
Transaction Documents to which it is a party, to perform its
obligations thereunder and (assuming the Company Requisite Vote
is received) to consummate the transactions contemplated
thereby. The execution, delivery and performance by each of the
Company and the Operating Partnership of the Transaction
Documents to which it is a party and the consummation by the
Company and the Operating Partnership of the transactions
contemplated thereby have been duly and validly authorized by
all necessary corporate action and, assuming the accuracy of the
representations and warranties of Parent and Merger Sub set
forth in Section 4.12, no other corporate proceedings on
the part of the Company or the Operating Partnership are
necessary to authorize the Transaction Documents to which it is
a party or to consummate the transactions so contemplated (other
than (i) the adoption of this Agreement by the holders of
at least a majority in voting power of the outstanding Company
Shares (the Company Requisite Vote) and
(ii) the filing with the Secretary of State of the State of
Delaware of the Certificate of Merger as required by the DGCL).
Each of the Transaction Documents to which the Company or the
Operating Partnership is a party has been duly executed and
delivered by the Company and the Operating Partnership, as
applicable, and, assuming the due authorization, execution and
delivery hereof by Parent and Merger Sub, constitutes a legal,
valid and binding obligation of each of the Company and the
Operating Partnership enforceable against each of the Company
and the Operating Partnership in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar Laws
relating to or affecting creditors rights generally and
general equitable principles (whether considered in a proceeding
in equity or at Law). As of the date of this Agreement, the
Board of Directors of the Company has (i) approved, and
declared advisable, each of the Transaction Documents to which
the Company or the Operating Partnership is a party,
(ii) determined that the terms of this Agreement are fair
to, and in the best interests of, the Company and its
stockholders and (iii) recommended that the stockholders of
the Company adopt this Agreement at the Stockholders Meeting.
Assuming the accuracy of representations and warranties of
Parent and Merger Sub set forth in Section 4.12, the only
vote of the stockholders of the Company required to adopt this
Agreement and approve the transactions contemplated hereby is
the Company Requisite Vote.
Section 3.5 No
Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by the Company
and the Operating Partnership of each of the Transaction
Documents to which the Company or the Operating Partnership is a
party, as applicable, and the consummation of the Merger and the
other transactions contemplated by the Transaction Documents do
not and will not (i) conflict with or violate the Company
Certificate of Incorporation or the Company Bylaws or equivalent
documents of any of its subsidiaries, (ii) assuming that
all consents, approvals and authorizations contemplated by
clauses (i) through (v) of subsection (b) below
have been obtained, and all filings described in such clauses
have been made, conflict with or violate any Law, order,
judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective
properties and assets are bound or affected or (iii) result
in any breach or violation of or constitute a default (or an
event which with notice or lapse of time or both would become a
default), result in the loss of a benefit under, or give rise to
any right of termination, cancellation, amendment or
acceleration of, result in triggering any payment or other
obligations or result
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in the creation of a lien or other encumbrance on any property
or asset of the Company or any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease,
license, franchise, permit or other instrument or obligation
(each, a Contract) to which the Company or
any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or its or any of their respective
properties or assets are bound except, in the case of
clauses (ii) and (iii), for any such conflict, violation,
breach, default, loss, right or other occurrence which has not
had, and would not, individually or in the aggregate, reasonably
be expected to have, a Material Adverse Effect.
(b) The execution, delivery and performance by each of the
Company and the Operating Partnership of each of the Transaction
Documents to which the Company or the Operating Partnership is a
party and the consummation of the Merger and the other
transactions contemplated by the Transaction Documents by the
Company and the Operating Partnership do not and will not
require any consent, approval, authorization or permit of,
action by, filing with or notification to, any governmental or
regulatory (including stock exchange) authority, agency, court,
commission, or other foreign, federal or state governmental body
(each, a Governmental Entity) or any consent,
approval or authorization of, or notification to, any other
person, except for (i) applicable requirements of the
Exchange Act and the rules and regulations promulgated
thereunder (including the filing of the Proxy Statement), the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), and state securities, takeover and blue
sky Laws, (ii) the applicable requirements of the New
York Stock Exchange (the NYSE),
(iii) the filing with the Secretary of State of the State
of Delaware of the Certificate of Merger as required by the DGCL
and (iv) any such consent, approval, authorization, permit,
action, filing or notification the failure of which to make or
obtain would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
Section 3.6 Compliance
with Law. (a) Neither the Company nor any of
its subsidiaries is or has been in violation of any Law, order,
judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective
properties, business or assets are bound or affected except for
any such violation which has not had, and would not,
individually or in the aggregate, reasonably be expected to
have, a Material Adverse Effect, and (b) the Company and
its subsidiaries have all permits, licenses, authorizations,
exemptions, orders, consents, approvals and franchises
(Licenses) from Governmental Entities
required to conduct their respective businesses as now being
conducted, except for any such Licenses the absence of which has
not had, and would not, individually or in the aggregate,
reasonably be expected to have, a Material Adverse Effect.
Section 3.7 SEC
Filings; Financial Statements; No Undisclosed
Liability.
(a) The Company and its subsidiaries have timely filed and
furnished all reports, registrations, schedules, forms,
statements and other documents, together with any amendments
required to be made with respect thereto (each, a
Report), that they were required to file or
furnish since January 1, 2007 with (i) the SEC,
(ii) any state or other federal regulatory authority (other
than any taxing authority, which is covered by
Section 3.14) and (iii) any foreign regulatory
authority (other than any taxing authority, which is covered by
Section 3.14), and have paid all fees and assessments due
and payable in connection therewith, except in each case where
the failure to file such Report, or to pay such fees and
assessments, has not had, and would not, individually or in the
aggregate, reasonably be expected to have, a Material Adverse
Effect. Each Report filed with or furnished to the SEC complied
as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the
Securities Act), and the rules and
regulations promulgated thereunder, the Exchange Act and the
rules and regulations promulgated thereunder, and the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley
Act) and the rules and regulations thereunder, each as
in effect on the date so filed or furnished. None of the Reports
of the Company filed with or furnished to the SEC contained,
when so filed or furnished, any untrue statement of a material
fact or omitted to state a material fact required to be stated
or incorporated by reference therein or necessary in order to
make the statements therein, in the light of the circumstances
under which they were made, not misleading. No executive officer
of the Company has failed in any respect to make the
certifications required of him or her under Section 302 or
906 of the Sarbanes-Oxley Act, and no enforcement action has
been initiated against the Company, and to the
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knowledge of the Company no enforcement action has been
threatened, by the SEC relating to disclosures contained in any
Report of the Company made with the SEC.
(b) The audited consolidated financial statements of the
Company and its consolidated subsidiaries (including any related
notes thereto) included in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed with the
SEC have been prepared in accordance with U.S. GAAP in all
material respects applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes
thereto) and present fairly, in all material respects, the
related financial position of the Company and its consolidated
subsidiaries at the respective dates thereof and the
consolidated statements of operations and comprehensive income,
cash flows and changes in stockholders equity for the
periods indicated. The unaudited consolidated financial
statements of the Company (including any related notes thereto)
contained in the Companys quarterly report on
Form 10-Q
for the three-month period ended March 31, 2009 have been
prepared in accordance with the instructions to
Form 10-Q
and
Rule 10-01
of
Regulation S-X
for interim financial information in all material respects
applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto) and present
fairly, in all material respects, the consolidated financial
position of the Company and its consolidated subsidiaries as of
the respective dates thereof and the consolidated statements of
operations and comprehensive income, cash flows and changes in
stockholders equity for the periods indicated (subject to
normal period-end adjustments that are immaterial in nature and
consistent with past experience).
(c) Since the enactment of the Sarbanes-Oxley Act, the
Company has been and is in compliance in all material respects
with (A) the applicable provisions of the Sarbanes-Oxley
Act and (B) the applicable listing and corporate governance
rules and regulations of the NYSE.
(d) The Company and its subsidiaries have designed and
maintain a system of internal controls over financial reporting
(as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) sufficient to provide reasonable assurances
regarding the reliability of financial reporting. The Company
has designed and maintains disclosure controls and procedures
(as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act) to ensure that material information required
to be disclosed by the Company in the Reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms and is accumulated and communicated
to the Companys Chief Executive Officer and Chief
Financial Officer by others as appropriate to allow timely
decisions regarding required disclosure.
(e) The Company has disclosed, based on its most recent
evaluation prior to the date of this Agreement, to the
Companys auditors and the audit committee of the
Companys Board of Directors (A) any significant
deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting which are
reasonably likely to adversely affect in any material respect
the Companys 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 Companys internal controls
over financial reporting.
(f) Neither the Company nor any of its subsidiaries has any
liabilities of a nature required by U.S. GAAP to be
reflected in a consolidated balance sheet, except liabilities
that (i) are accrued or reserved against in the most recent
financial statements included in the Company SEC Reports filed
prior to the date of this Agreement or are reflected in the
notes thereto, (ii) were incurred in the ordinary course of
business consistent with past practice and which have not had,
and would not, individually or in the aggregate, reasonably be
expected to have, a Material Adverse Effect, (iii) have
been discharged or paid in full prior to the date of this
Agreement, or will be discharged or paid in full prior to the
Effective Time, in the ordinary course of business consistent
with past practice and which have not had, and would not,
individually or in the aggregate, reasonably be expected to
have, a Material Adverse Effect or (iv) are incurred
pursuant to the transactions contemplated by the Transaction
Documents.
(g) The Company has heretofore furnished or made available
to Parent a complete and correct copy of any amendments or
modifications which have not yet been filed with the SEC to
agreements,
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documents or other instruments which previously had been filed
by the Company with the SEC or incorporated by reference as
exhibits to the Company SEC Reports pursuant to the Securities
Act and the rules and regulations promulgated thereunder or the
Exchange Act and the rules and regulations promulgated
thereunder.
Section 3.8 Absence
of Certain Changes or Events. Since
December 31, 2008 through the date of this Agreement,
except as contemplated by this Agreement, the Company and its
subsidiaries have conducted their business in all material
respects in the ordinary course consistent with past practice
and, since such date, there has not been: (i) any change,
event or occurrence which has had, or would, individually or in
the aggregate, reasonably be expected to have, a Material
Adverse Effect; (ii) any declaration, setting aside or
payment of any dividend or other distribution in cash, stock,
property or otherwise in respect of the Companys or any of
its subsidiaries capital stock or any dividend or
distribution by a subsidiary of the Company; (iii) any
redemption, repurchase or other acquisition of any shares of
capital stock of the Company or any of its subsidiaries;
(iv) any material change by the Company in its accounting
principles, methods or practices, except as may be appropriate
to conform to changes in statutory or regulatory accounting
rules or U.S. GAAP or regulatory requirements with respect
thereto; (v) any material change in the Companys
internal controls over financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act); or (vi) any action of the type described
in Section 5.1 that had such action been taken after the
date of this Agreement would be in violation of such Section.
Section 3.9 Absence
of Litigation. Section 3.9 of the Company
Disclosure Schedule sets forth a true, correct and complete list
of all material claims, suits, actions, governmental
investigations, indictments or administrative, arbitration or
other legal proceedings (excluding patent inquiry letters and
unsolicited ideas) (Litigation) pending or,
to the knowledge of the Company, threatened against the Company
or any of its subsidiaries. There are no suits, claims, actions,
arbitrations or other proceedings pending or, to the knowledge
of the Company, threatened against the Company or any of its
subsidiaries, that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. As of
the date of this Agreement, neither the Company nor any of its
subsidiaries nor any of their respective assets or properties is
or are subject to any order, writ, judgment, injunction, decree
or award (whether rendered by a court, administrative agency, or
by arbitration, pursuant to a grievance or other procedure)
except for those that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
Section 3.10 Employee
Benefit Plans.
(a) Section 3.10(a) of the Company Disclosure Schedule
contains a true and complete list, as of the date of this
Agreement, of each employee benefit plan
(within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended
(ERISA)), and each other director and
employee plan, program, agreement or arrangement, vacation, sick
pay or other paid time off policy, fringe benefit plan, and
compensation, severance or employment agreement for the benefit
of any current or former employee, officer, consultant,
independent contractor or director of the Company or any of its
subsidiaries (collectively, the Company
Employees) with respect to which the Company or any of
its subsidiaries has any material liability (such plans,
programs, policies, agreements and arrangements, collectively,
Company Plans).
(b) With respect to each Company Plan, the Company has made
available to Parent a current, accurate and complete copy
thereof (or, if a plan is not written, a written description
thereof) and, to the extent applicable, (i) any related
trust agreement or other funding instrument, (ii) the most
recent determination letter received from the Internal Revenue
Service (the IRS), (iii) any summary
plan description and (iv) for the most recent year
(A) the Form 5500 and attached schedules,
(B) audited financial statements and (C) actuarial
valuation reports, if any.
(c) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, each
Company Plan has been established and administered in accordance
with its terms and in compliance with the applicable provisions
of ERISA, the Code and other applicable Laws, rules and
regulations.
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(d) Neither the Company nor any of its subsidiaries
contributes to or has any liability with respect to any
multiemployer plan, as defined in Section 3(37)
of ERISA or a multiple employer welfare arrangement
as defined in Section 3(40) of ERISA.
(e) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, with
respect to each Company Plan, as of the date of this Agreement,
no actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the
knowledge of the Company, threatened.
(f) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect,
(i) the Company has not incurred any liability under
Title IV of ERISA that has not been satisfied in full, and
(ii) to the knowledge of the Company, no condition exists
that presents a risk to the Company of incurring any such
liability other than liability for premiums due the Pension
Benefit Guaranty Corporation.
(g) (i) Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect, each Company Plan which is intended to be qualified
under Section 401(a) of the Code is so qualified,
(ii) each such Company Plan has received a determination
letter to that effect from the Internal Revenue Service and
(iii) to the knowledge of the Company, no circumstances
exist which would reasonably be expected to materially adversely
affect such qualification or exemption.
(h) The execution, delivery of and performance by the
Company of its obligations under the transactions contemplated
by the Transaction Documents will not (either alone or upon
occurrence of any additional or subsequent events) result in
excess parachute payments within the meaning of
Section 280G(b)(1) of the Code or result in, cause the
accelerated vesting or delivery of, or increase the amount or
value of, any payment to the benefit to any director, officer or
employee of the Company or any subsidiary.
(i) No Company Plan is subject to any ongoing or pending
or, to the knowledge of the Company, threatened audit or
investigation or other material legal proceeding initiated by
any Governmental Entity or by any other person (other than such
persons claims for benefits made in the ordinary course),
and to the knowledge of the Company there exists no set of facts
which could reasonably be expected to give rise to any such
audit or investigation or other similar legal proceeding.
(j) The only outstanding Company Stock-Based Awards are
awards of restricted stock and restricted stock units made or
otherwise outstanding under the Company Stock Plan (including,
without limitation, awards that were initially granted under the
Companys 2007 Restricted Stock Unit Plan and any other
Predecessor Plans, as defined under the Company
Stock Plan, which are considered to be awards governed by the
Company Stock Plan pursuant to Article XVIII thereof).
Section 3.11 Labor
and Employment Matters.
(a) As of the date of this Agreement, neither the Company
nor any subsidiary is a party to any collective bargaining
agreement with any labor organization or other representative of
any Company Employees, nor is any such agreement presently being
negotiated by the Company. There are no unfair labor practice
complaints pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries before
the National Labor Relations Board or any other labor relations
tribunal or authority. There are no strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material
grievances, or other material labor disputes or labor organizing
activities pending or, to the knowledge of the Company,
threatened against or involving the Company or any of its
subsidiaries. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect, the Company and each of its subsidiaries has complied
with all applicable labor and employment laws, including the
Worker Adjustment and Retraining Notification Act.
(b) There are no material investigations, administrative
proceedings, charges or formal complaints of discrimination
(including discrimination based upon sex, age, marital status,
race, national origin, sexual preference, disability, handicap,
veteran status, or other protected category) pending or
threatened before
A-13
the Equal Employment Opportunity Commission or any federal,
state or local agency or court against or involving the Company
or any of its subsidiaries that involve allegations of disparate
impact, pattern or practice or
class-wide
discrimination.
Section 3.12 Insurance. All
material insurance policies of the Company and its subsidiaries
(a) are in full force and effect and provide insurance in
such amounts and against such risks as is reasonable and
customary for the Companys business and (b) neither
the Company nor any of its subsidiaries is in breach or default,
and neither the Company nor any of its subsidiaries has taken
any action or failed to take any action which, with notice or
the lapse of time, would constitute such a breach or default, or
permit termination or modification of, any of such insurance
policies.
Section 3.13 Properties
and Assets. Except as would not, individually or
in the aggregate, reasonably be expected to have a Material
Adverse Effect, the Company or one of its subsidiaries
(i) has good title to all the properties and assets
reflected in the latest audited balance sheet included in the
Company SEC Reports as being owned by the Company or one of its
subsidiaries or acquired after the date thereof (except
properties sold or otherwise disposed of since the date thereof
in the ordinary course of business consistent with past
practice), free and clear of all claims, liens, charges,
security interests or encumbrances of any nature whatsoever,
except (A) statutory liens securing payments not yet due,
(B) such imperfections or irregularities of title, claims,
liens, charges, security interests, easements, covenants and
other restrictions or encumbrances as do not materially affect
the use of the properties or assets subject thereto or affected
thereby or otherwise materially impair business operations at
such properties and (C) mortgages, deeds of trust, security
interests or other encumbrances on title related to indebtedness
properly reflected on the consolidated financial statements of
the Company, and (ii) is the lessee of all leasehold
estates reflected in the latest audited financial statements
included in the Company SEC Reports or acquired after the date
thereof (except for leases that have expired by their terms
since the date thereof or have been assigned, terminated or
otherwise disposed of in the ordinary course of business
consistent with past practice) and is in possession of the
properties purported to be leased thereunder, and each such
lease is valid without default thereunder by the lessee or, to
the Companys knowledge, the lessor.
Section 3.14 Tax
Matters. (a) (i) All material Tax Returns
required to be filed by the Company and its subsidiaries have
been timely filed (except those under valid extension),
(ii) all material Taxes of the Company and its subsidiaries
have been paid or adequately provided for on the most recent
financial statements included in the Company SEC Reports filed
prior to the date hereof, (iii) neither the Company nor any
of its subsidiaries has received written notice of any claim
from any Governmental Entity with respect to any material Taxes,
(iv) there are no liens for any material Taxes (other than
Taxes not yet due and payable) upon any of the assets of the
Company or any of its subsidiaries, (v) the Company and
each of its subsidiaries has withheld and paid over to the
relevant Governmental Entity all material Taxes required to have
been withheld and paid in connection with payments to employees,
independent contractors, creditors, shareholders or other third
parties, (vi) neither the Company nor any of its
subsidiaries has waived any statute of limitations in respect of
any material Taxes or agreed to any extension of time with
respect to a material Tax assessment or deficiency,
(vii) no foreign, federal, state, or local Tax audits or
administrative or judicial Tax proceedings are pending or being
conducted with respect to any material Taxes of the Company or
any of its subsidiaries, (viii) neither the Company nor any
of its subsidiaries has taken any action or knows of any fact or
circumstance that could reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code, (ix) neither the Company
nor any of its subsidiaries (A) has been a member of an
affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company
or one of its subsidiaries), (B) is a party to or is bound
by any material Tax sharing, allocation or indemnification
agreement or arrangement (other than (i) any Tax sharing or
allocation agreement between the Company and its subsidiaries,
(ii) customary provisions contained in credit or other
commercial lending arrangements, employment agreements, or
arrangements with lessors, customers and vendors, and
(iii) the tax receivable agreements among (x) the
Company, the Operating Partnership and Sprint Ventures, Inc. and
(y) the Company and Corvina Holdings Limited, each entered
into as of October 16, 2007 or (C) has any liability
for any material Taxes of any person (other than the Company or
any of its subsidiaries) under Treasury
Regulation Section 1.1502-6
(or any similar provision of state, local or
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foreign Law), as a transferee or successor, by contract or
otherwise, (x) neither the Company nor any of its
subsidiaries will be required to include any material item of
income in, or exclude any material item of deduction from,
taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any (A) change
in method of accounting made in a taxable period ending on or
before the Closing Date, (B) closing agreement
as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign
income Tax law) executed on or before the Closing Date or
(C) prepaid amount received on or before the Closing Date,
and (xi) neither the Company nor any of its subsidiaries
has engaged in any listed transaction as defined in
Treasury
Regulation Section 1.6011-4(b).
(b) For purposes of this Agreement, Tax
or Taxes shall mean any taxes of any kind,
including but not limited to those on or measured by or referred
to as income, gross receipts, capital, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax imposed by
any Governmental Entity. For purposes of this Agreement,
Tax Return shall mean any return, report or
statement required to be filed with any Governmental Entity with
respect to Taxes, including any schedule or attachment thereto
or amendment thereof.
Section 3.15 Proxy
Statement. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement on
Form S-4
or any amendment or supplement thereto pursuant to which Parent
Shares issuable in the Merger will be registered with the SEC
(the
S-4)
shall at the time the
S-4 is
declared effective by the SEC (or, with respect to any
post-effective amendment or supplement, at the time such
post-effective amendment or supplement becomes effective) or at
the Effective Time contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were not, not
misleading. None of the information supplied or to be supplied
by the Company for inclusion in the proxy statement to be sent
to the stockholders of the Company in connection with the
Stockholders Meeting (such proxy statement as amended or
supplemented, the Proxy Statement) shall, on
the date the Proxy Statement is first mailed to the stockholders
of the Company and during the pendency of the Stockholders
Meeting, at the time of the Company Requisite Vote, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Notwithstanding the foregoing, the Proxy Statement will, at the
time of the Stockholders Meeting, comply as to form in all
material respects with the requirements of the Exchange Act and
the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information
supplied by Parent or Merger Sub or any of their respective
representatives which is contained or incorporated by reference
in the Proxy Statement.
Section 3.16 Opinion
of Financial Advisor. Deutsche Bank Securities
Inc. (the Financial Advisor) has delivered to
the Board of Directors of the Company its written opinion (or an
oral opinion to be confirmed in writing), dated as of the date
of this Agreement, that, as of such date, the Merger
Consideration is fair, from a financial point of view, to the
holders of the Company Common Stock, and such opinion has not
been withdrawn or adversely modified. True and complete copies
of all agreements and understandings between the Company and the
Financial Advisor, Colonnade Advisors LLC and Foros Advisors LLC
relating to the Merger and the other transactions contemplated
by the Transaction Documents, including any fees or other
payments payable or that may become payable to the Financial
Advisor, Colonnade Advisors LLC and Foros Advisors LLC, have
been made available to Parent.
Section 3.17 Brokers. No
broker, finder or investment banker (other than the Financial
Advisor, Colonnade Advisors LLC and Foros Advisors LLC) is
entitled to any brokerage, finders or other fee or
commission in connection with the transactions contemplated by
the Transaction Documents based upon arrangements made by and on
behalf of the Company or any of its subsidiaries.
Section 3.18 Takeover
Statutes. Assuming the accuracy of the
representations and warranties of Parent and Merger Sub set
forth in Section 4.12, the Board of Directors of the
Company has taken, or shall have
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taken prior to the Closing, all actions necessary to ensure that
no restrictions included in any fair price,
moratorium, control share acquisition,
business combination or other similar antitakeover
statute or regulation (including Section 203 of the DGCL)
enacted under state or federal Laws in the United States
applicable to the Company is applicable to the Merger or the
other transactions contemplated hereby. The Company is not a
party to or otherwise subject to a stockholder rights plan or
similar arrangement.
Section 3.19 Intellectual
Property. Except as has not had, and would not,
individually or in the aggregate, reasonably be expected to
have, a Material Adverse Effect:
(a) (i) The Company owns and has good and exclusive
title to each item of the Registered Intellectual Property
Rights; (ii) the Registered Intellectual Property Rights
are unexpired and subsisting, and to the knowledge of the
Company, are valid and enforceable; (iii) the Intellectual
Property Rights are free and clear of any liens, claims or
encumbrances, are not subject to any material license (royalty
bearing or royalty free) and are not subject to any other
arrangement requiring any payment to any person or the
obligation to grant such rights to any person in exchange for
payment or other consideration; (iv) to the knowledge of
the Company, the Companys rights in the Licensed Rights
are free and clear of any liens, claims, encumbrances, royalties
or other obligations (except any of the foregoing set forth in
the applicable license agreement); and (v) the Intellectual
Property Rights and the Licensed Rights are all those material
intellectual property rights necessary to the conduct of the
business of each of the Company and its subsidiaries as
presently conducted. The validity of the Intellectual Property
Rights and the ownership and title thereto, (A) have not
been questioned in any prior litigation; (B) are not being
questioned in any pending litigation; and (C) to the
knowledge of the Company, are not the subject of any threatened
or proposed litigation.
(b) To the knowledge of the Company, the business of each
of the Company and its subsidiaries, as presently conducted,
does not conflict with or infringe on and has not been alleged
to conflict with or infringe on any patents, trademarks, trade
names, service marks, copyrights, trade secrets or other
intellectual property rights of others or to constitute unfair
competition or trade practices under the laws of any
jurisdiction in which the Company and its subsidiaries operate.
(c) The consummation of the transactions contemplated by
the Transaction Documents will not result in the loss or
impairment of any of the Registered Intellectual Property Rights
or the Companys or its subsidiaries right to use any
of the material Licensed Rights. To the knowledge of the
Company, there are no third parties materially infringing any of
the Intellectual Property Rights material to the business of the
Company or its subsidiaries as presently conducted.
(d) Each of the Company and its subsidiaries exclusively
owns, or possesses valid rights to use, all computer software
programs that are material to the conduct of the business of the
Company and its subsidiaries. To the Companys knowledge,
there are no infringement or misappropriation suits, actions or
proceedings pending or threatened against the Company or any of
its subsidiaries with respect to any software owned or licensed
by the Company or any of its subsidiaries. The use by each of
the Company and its subsidiaries of computer software licensed
by others to the Company or any of its subsidiaries does not
breach any terms of any license or other contract between the
Company or its subsidiaries and any third party. The Company and
its subsidiaries are in compliance with the terms and conditions
of all license agreements in favor of the Company and its
subsidiaries relating to computer software programs licensed by
others for use by the Company or its subsidiaries.
(e) For purposes of this Section 3.19,
(i) Intellectual Property Rights means
all, whether in the United States or in foreign countries,
patents and patent applications, trademark and service mark
applications and registrations and common law unregistered
trademarks and service marks, trade names, designs, know-how,
show how, inventions, registered and unregistered copyrights,
software, domain names, trade dress, trade secrets and all other
intellectual property rights of any kind or nature owned by the
Company or any of its subsidiaries, and does not include
Licensed Rights; (ii) Registered Intellectual
Property Rights means all registrations and
applications included in the Intellectual Property Rights, all
as set forth on Section 3.19(e)(ii) of the Company
Disclosure Schedule, and (iii) Licensed
Rights means all, whether in the United States or in
foreign countries, patents and patent applications, trademark
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and service mark applications and registrations and common law
unregistered trademarks and service marks, trade names, designs,
know-how, show how, inventions, registered and unregistered
copyrights, software, domain names, trade dress, trade secrets
and all other intellectual property rights of any kind or nature
licensed to the Company or any of its subsidiaries, any of which
that are individually material to the operation of the Company
or any of its subsidiaries as a whole are as set forth on
Section 3.19(e)(iii) of the Company Disclosure Schedule.
Section 3.20 Environmental
Matters.
(a) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect:
(i) the Company and each of its subsidiaries comply with
all applicable Environmental Laws (as defined below), and
possess and comply with all applicable Environmental Permits (as
defined below) required under such Laws to operate as it
presently operates; (ii) there are no Materials of
Environmental Concern (as defined below) at any property owned
or operated by the Company or any of its subsidiaries, under
circumstances that are likely to result in liability of the
Company or any of its subsidiaries under any applicable
Environmental Law; (iii) neither the Company nor any of its
subsidiaries has received any written notification alleging that
it is liable for, or request for information pursuant to
section 104(e) of the Comprehensive Environmental Response,
Compensation and Liability Act or similar state statute or
regulation, concerning any release or threatened release of
Materials of Environmental Concern at any location except, with
respect to any such notification or request for information
concerning any such release or threatened release, to the extent
such matter has been resolved with the appropriate federal,
state or local regulatory authority or otherwise; and
(iv) neither the Company nor any of its subsidiaries has
received any written claim or complaint, or is subject to any
proceeding, relating to noncompliance with Environmental Laws or
any other liabilities pursuant to Environmental Laws. The
Company has provided true and exact copies of all environmental
reports, permits, filings and other documents in the possession
of the Company or any of its subsidiaries that relate to:
compliance by the Company or any of its subsidiaries with
Environmental Laws; releases or suspected releases of Materials
of Environmental Concern; or any other fact or circumstance that
could give rise to a claim under Environmental Laws.
(b) Notwithstanding any other representations and
warranties in this Agreement, the representations and warranties
in this Section 3.20 are the only representations and
warranties in this Agreement with respect to Environmental Laws
or Materials of Environmental Concern.
(c) For purposes of this Agreement, the following terms
shall have the meanings assigned below:
Environmental Laws shall mean all
federal, state, or local statutes, regulations, ordinances,
codes, or decrees protecting the quality of the ambient air,
soil, surface water or groundwater, in effect as of the date of
this Agreement.
Environmental Permits shall mean all
permits, licenses, registrations, and other authorizations
required under applicable Environmental Laws.
Materials of Environmental Concern
shall mean any hazardous, acutely hazardous, or toxic substance
or waste defined and regulated as such under applicable
Environmental Laws, including the federal Comprehensive
Environmental Response, Compensation and Liability Act or the
federal Resource Conservation and Recovery Act.
Section 3.21 Contracts.
(a) Except for this Agreement, none of the Company or any
of its subsidiaries is a party to or bound by: (i) any
Contract that would be required to be filed by the Company as a
material contract pursuant to Item 601(b)(10)
of
Regulation S-K
under the Securities Act; (ii) any Contract containing
covenants binding upon the Company or any of its subsidiaries
that materially restricts the ability of the Company or any of
its subsidiaries (or which, following the consummation of the
Merger, could materially restrict the ability of the Surviving
Corporation) to compete in any business or with any person or in
any geographic area, except for any such Contract that may be
canceled without penalty by the Company or
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any of its subsidiaries upon notice of 120 days or less;
(iii) any Contract with respect to a material joint venture
or material partnership agreement (excluding information
technology Contracts); (iv) any Contract that would
prevent, materially delay or materially impede the
Companys ability to consummate the Merger or the other
transactions contemplated by the Transaction Documents;
(v) any Contract in excess of $1,000,000 relating to the
borrowing of money or any guarantee in respect of any
indebtedness of any person (other than the endorsement of
negotiable instruments for collection in the ordinary course of
business); (vi) any Contract that restricts pricing
(including most favored nations or similar
provisions) or relates to compensation to be paid by the Company
or any of its subsidiaries in respect of the retail price of
their products or services; (vii) any Contract between the
Company or any of its subsidiaries, on the one hand, and any of
the Companys stockholders (in their capacity as such), on
the other hand; or (viii) any Contract relating to any
guaranty, warranty or indemnity by the Company or any of its
subsidiaries (other than any such Contracts made in the ordinary
course of business consistent with past practice). Each such
Contract described in clauses (i) through (viii) is
referred to herein as a Material Contract and
neither the Company nor any of its subsidiaries knows of, or has
received written notice of, any violation of any Material
Contract by any of the other parties thereto that has had, or
would, individually or in the aggregate, reasonably be expected
to have, a Material Adverse Effect.
(b) Each of the Material Contracts is valid and binding on
the Company and each of its subsidiaries party thereto and, to
the knowledge of the Company, each other party thereto and is in
full force and effect, except for such failures to be valid and
binding or to be in full force and effect that would not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect. There is no default under any
Material Contract by the Company or any of its subsidiaries and
no event has occurred that with the lapse of time or the giving
of notice or both would constitute a default thereunder by the
Company or any of its subsidiaries, in each case except as would
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company has no knowledge of
any pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any party to any Material Contract.
Section 3.21(b) of the Company Disclosure Schedule
identifies each Material Contract that requires the consent of
the other party or parties thereto to avoid any breach, default
or violation such Material Contract in connection with the
Merger and the other transactions contemplated hereby.
Section 3.22 Related
Party Transactions. To the knowledge of the
Company, no executive officer or director of the Company owns or
holds, directly or indirectly, any interest in (excepting
holdings solely for passive investment purposes of securities of
publicly held and traded entities constituting less than 5% of
the equity of any such entity), or is an officer, director,
employee or consultant of any person that is, a competitor,
lessor, lessee or supplier of the Company. No executive officer
or director of the Company or any of its subsidiaries
(a) owns or holds, directly or indirectly, in whole or in
part, any intellectual property used by the Company or any of
its subsidiaries, (b) to the knowledge of the Company, has
any claim, charge, action or cause of action against the Company
or any of its subsidiaries, except for claims for reasonable
unreimbursed travel or entertainment expenses, accrued vacation
pay or accrued benefits under any employee benefit plan existing
on the date hereof, (c) to the knowledge of the Company,
has made, on behalf of the Company or any of its subsidiaries,
any payment or commitment to pay any commission, fee or other
amount to, or to purchase or obtain or otherwise contract to
purchase or obtain any goods or services from, any other person
of which any officer or director of the Company or any of its
subsidiaries is a partner or shareholder (except holdings solely
for passive investment purposes of securities of publicly held
and traded entities constituting less than 5% of the equity of
any such entity), (d) owes any money to the Company or any
of its subsidiaries, (e) has any material interest in any
property, real or personal, tangible or intangible, used in or
pertaining to the business or operations of the Company or any
of its subsidiaries or (f) is a party to any material
transaction, contract, agreement, commitment, arrangement,
lease, license or other instrument to which the Company or any
of its subsidiaries is or was a party.
Section 3.23 No
Other Representations or Warranties. Except for
the representations and warranties contained in this
Article III, each of Parent and Merger Sub acknowledges
that neither the Company nor any other person on behalf of the
Company makes any other express or implied representation or
warranty with respect to the Company or with respect to any
other information provided to Parent or Merger Sub. Neither
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the Company nor any other person will have or be subject to any
liability or indemnification obligation to Parent, Merger Sub or
any other person resulting from the distribution to Parent or
Merger Sub, or Parents or Merger Subs use of, any
such information, including any information, documents,
projections, forecasts or other material made available to
Parent or Merger Sub in certain data rooms or
management presentations in expectation of the transactions
contemplated by the Transaction Documents.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent
and warrant to the Company that, except as otherwise disclosed
in Parents Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 or its other
reports and forms filed with or furnished to the SEC under
Sections 12, 13, 14 or 15(d) of the Exchange Act after
December 31, 2008 (the Parent SEC
Reports) and before the date of this Agreement
(excluding any disclosures set forth in any section of a filed
or furnished Parent SEC Report entitled Risk Factors
or Forward-Looking Statements or any other
disclosures included in such documents to the extent that they
are similarly non-specific or predictive or forward-looking in
nature):
Section 4.1 Organization
and Qualification. Each of Parent and Merger Sub
is duly organized, validly existing and in good standing (with
respect to jurisdictions that recognize the concept of good
standing) under the Laws of the jurisdiction of its formation or
organization, as applicable, and has all necessary government
approvals and all requisite corporate or similar power and
authority to own, lease and operate its properties and to carry
on its business as it is now being conducted, except where any
such failure to be so organized, existing or in good standing or
to have such power or authority would not, individually or in
the aggregate, reasonably be expected to have a Parent Material
Adverse Effect (as defined below). Each of Parent and Merger Sub
is duly qualified or licensed to do business in each
jurisdiction where the character of its properties owned, leased
or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for any such
failure to be so qualified or licensed or in good standing which
has not had, and would not, individually or in the aggregate,
reasonably be expected to have, a Parent Material Adverse
Effect. Parent Material Adverse Effect shall
mean, with respect to Parent, any change, event or effect shall
have occurred or been threatened that, when taken together with
all other adverse changes, events or effects that have occurred
or been threatened, (i) is or would reasonably be expected
to be materially adverse to the business, operations, financial
condition, assets or liabilities of the Parent and its
subsidiaries taken as a whole (provided, however, that with
respect to this clause (i), Parent Material Adverse Effect will
be deemed not to include effects to the extent resulting from
(A) changes in general economic, financial market or
geopolitical conditions, (B) general changes or
developments in any of the industries in which the Parent or its
subsidiaries operate, (C) the announcement of this
Agreement and the transactions contemplated hereby, including
any termination of, reduction in or similar negative impact on
relationships, contractual or otherwise, with any customers,
suppliers, partners or employees of Parent and its subsidiaries,
or any adverse impact on Parents credit rating from credit
rating agencies, to the extent due to the announcement and
performance of this Agreement or the identity of the parties to
this Agreement, or the performance of this Agreement and the
transactions contemplated hereby, including compliance with the
covenants set forth herein, (D) changes in any applicable
Laws or regulations or applicable accounting regulations or
principles or interpretations thereof (including changes in
U.S. GAAP), (E) any attack on, or by, outbreak or
escalation of hostilities or war or any act of terrorism or
(F) any failure by Parent to meet any published analyst
estimates or expectations of Parents revenue, earnings or
other financial performance or results of operations for any
period, in and of itself, or any failure by Parent to meet its
internal or published projections, budgets, plans or forecasts
of its revenues, earnings or other financial performance or
results of operations or any change in the price of Parent
Shares, in and of itself (it being understood that the facts or
occurrences giving rise or contributing to such failure that are
not otherwise excluded from the definition of a Parent
Material Adverse Effect may be taken into account in
determining whether there has been a Parent Material Adverse
Effect); provided that, in the case of the immediately
preceding clauses (A), (B), (D) or (E), such changes,
effects or circumstances do not affect Parent or its
subsidiaries disproportionately relative to other companies
operating in the same industry) or (ii) does, or would
reasonably be expected to, prevent or materially delay the
performance by Parent of any
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of its obligations under the Transaction Documents or the
consummation of the Merger or the other transactions
contemplated by the Transaction Documents.
Section 4.2 Capitalization. The
authorized capital stock of Parent consists of
(i) 6,000,000,000 Parent Shares;
(ii) 500,000,000 shares of Series 2 voting common
stock, par value $2.00 per share (the
Series 2 Shares and, together with
Parent Shares, the Parent Common Shares);
(iii) 100,000,000 shares of non-voting common stock,
par value $0.01 per share; and (iv) 20,000,000 shares
of preferred stock, no par value per share. As of June 30,
2009, (i) 2,876,209,311 Parent Shares were issued and
outstanding, all of which were validly issued, fully paid and
nonassessable and were issued free of preemptive rights,
(ii) 60,000,000 Series 2 Shares were issued and
outstanding, (iii) 263,893,361 Parent Common Shares were
authorized and reserved for future issuance pursuant to
Parents stock option plans, employee stock purchase plan
and convertible debt, and (iv) 64,553,009 Parent Common
Shares were held in treasury of Parent. From the close of
business on June 30, 2009 until the date of this Agreement,
no Parent Shares have been issued, except for shares issued
pursuant to the exercise of options (the Parent
Options), other stock-based awards, employee stock
purchase plan or convertible debt, in each case in accordance
with their respective terms. Except as set forth above, as of
the date of this Agreement, (A) there are not outstanding
or authorized any (I) shares of capital stock or other
voting securities of Parent or Merger Sub, (II) securities
of Parent or Merger Sub convertible into or exchangeable for
shares of capital stock or voting securities of Parent or Merger
Sub or (III) options, warrants or other rights to acquire
from Parent or Merger Sub, and no obligation of Parent or Merger
Sub to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities of Parent or Merger Sub (collectively,
Parent Securities) and (B) there are no
other options, calls, warrants or other rights, agreements,
arrangements or commitments of any character relating to the
issued or unissued capital stock of Parent or Merger Sub or any
of Parents subsidiaries to which Parent or Merger Sub or
any of Parents subsidiaries is a party.
Section 4.3 Authority. Each
of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver the Transaction Documents to
which it is a party, to perform its obligations thereunder and
to consummate the transactions contemplated thereby. The
execution, delivery and performance of by each of Parent and
Merger Sub of the Transaction Documents to which it is a party
and the consummation by Parent and Merger Sub of the
transactions contemplated thereby have been duly and validly
authorized by all necessary action by the Boards of Directors of
Parent and Merger Sub and, immediately following the execution
of this Agreement, will be duly and validly authorized by all
necessary action by Parent as the sole stockholder of Merger
Sub, and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to authorize the Transaction Documents
or to consummate the transactions so contemplated, and the
filing with the Secretary of State of the State of Delaware of
the Certificate of Merger as required by the DGCL). Each of the
Transaction Documents to which the Parent or the Merger Sub is a
party has been duly and validly executed and delivered by Parent
and Merger Sub, as applicable, and, assuming the due
authorization, execution and delivery hereof by the Company,
constitutes a legal, valid and binding obligation of each of
Parent and Merger Sub enforceable against each of Parent and
Merger Sub in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar Laws relating to or
affecting creditors rights generally and general equitable
principles (whether considered in a proceeding in equity or at
Law).
Section 4.4 No
Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by Parent and
Merger Sub of each of the Transaction Documents to which Parent
or Merger Sub is a party, as applicable, and the consummation of
the Merger and the other transactions contemplated by the
Transaction Documents do not and will not (i) conflict with
or violate the respective certificates of incorporation or
bylaws (or similar organizational documents) of Parent or Merger
Sub, (ii) assuming that all consents, approvals and
authorizations contemplated by clauses (i) through
(v) of subsection (b) below have been obtained, and
all filings described in such clauses have been made, conflict
with or violate any Law, order, judgment or decree applicable to
Parent or Merger Sub or by which either of them or any of their
respective properties and assets are bound or affected or
(iii) result in any breach or violation of or constitute a
default (or an event which with notice or lapse of time or both
would become a default), result in the loss of a benefit under,
or give rise to any
A-20
right of termination, cancellation, amendment or acceleration
of, result in triggering any payment or other obligations or
result in the creation of a lien or other encumbrance on any
property or asset of the Company or any of its subsidiaries
pursuant to any Contracts to which Parent or Merger Sub is a
party or by which Parent or Merger Sub or its or any of their
respective properties or assets are bound, except, in the case
of clauses (ii) and (iii), for any such conflict,
violation, breach, default, acceleration, loss, right or other
occurrence which has not had, and would not, individually or in
the aggregate, reasonably be expected to have, a Parent Material
Adverse Effect.
(b) The execution, delivery and performance by each of
Parent and Merger Sub of each of the Transaction Documents to
which Parent or Merger Sub is a party and the consummation of
the Merger and the other transactions contemplated by the
Transaction Documents by each of Parent and Merger Sub do not
and will not require any consent, approval, authorization or
permit of, action by, filing with or notification to, any
Governmental Entity or any consent, approval or authorization
of, or notification to, any other person, except for
(i) applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder, the HSR Act, and
state securities, takeover and blue sky Laws,
(ii) the applicable requirements of the NYSE,
(iii) the filing with the Secretary of State of the State
of Delaware of the Certificate of Merger as required by the DGCL
and (iv) any such consent, approval, authorization, permit,
action, filing or notification the failure of which to make or
obtain would not, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
Section 4.5 SEC
Filings; Financial Statements.
(a) Parent and each of its subsidiaries have timely filed
and furnished all Reports that they were required to file or
furnish since January 1, 2007 with (i) the SEC,
(ii) any state or other federal regulatory authority and
(iii) any foreign regulatory authority, and have paid all
fees and assessments due and payable in connection therewith,
except in each case where the failure to file such Report, or to
pay such fees and assessments, has not had, and would not,
individually or in the aggregate, reasonably be expected to
have, a Parent Material Adverse Effect. Each such Report filed
with or furnished to the SEC complied as to form in all material
respects with the applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder, the
Exchange Act and the rules and regulations promulgated
thereunder, and the Sarbanes-Oxley Act and the rules and
regulations thereunder, each as in effect on the date so filed
or furnished. None of such Reports of Parent filed with or
furnished to the SEC contained, when so filed or furnished, any
untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. No executive officer of Parent has failed in any
respect to make the certifications required of him or her under
Section 302 or 906 of the Sarbanes-Oxley Act, and no
enforcement action has been initiated against Parent by the SEC
relating to disclosures contained in any such Report of Parent
made with the SEC.
(b) The audited consolidated financial statements of Parent
and its consolidated subsidiaries (including any related notes
thereto) included in Parents Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed with the
SEC have been prepared in accordance with U.S. GAAP in all
material respects applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes
thereto) and present fairly, in all material respects, the
related financial position of Parent and its consolidated
subsidiaries at as of December 31, 2008 and 2007 and the
consolidated results of operations, cash flows and changes in
shareholders equity for each of the years in the
three-year period ended December 31, 2008. The unaudited
consolidated financial statements of Parent (including any
related notes thereto) contained in Parents quarterly
report on
Form 10-Q
for the three-month period ended March 31, 2009 have been
prepared in accordance with the instructions to
Form 10-Q
and
Rule 10-01
of
Regulation S-X
for interim financial information in all material respects
applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto) and present
fairly, in all material respects, the related financial position
of Parent and its consolidated subsidiaries as of March 31,
2009 and the consolidated results of operations and cash flows
for the three-
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month period ended March 31, 2009 and 2008 (subject to
normal period-end adjustments that are immaterial in nature and
consistent with past experience).
(c) Since the enactment of the Sarbanes-Oxley Act, Parent
has been and is in compliance in all material respects with
(A) the applicable provisions of the Sarbanes-Oxley Act and
(B) the applicable listing and corporate governance rules
and regulations of the NYSE, except for any such noncompliance
which would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.
(d) Parent has designed disclosure controls and procedures
to ensure that material information relating to Parent,
including its subsidiaries, is made known to the Chief Executive
Officer and the Chief Financial Officer of Parent by others
within those entities.
(e) Parent has disclosed, based on its most recent
evaluation prior to the date of this Agreement, to Parents
auditors and the audit committee of Parents Board of
Directors (A) any significant deficiencies and material
weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely
affect in any material respect Parents 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
Parents internal controls over financial reporting.
(f) Neither Parent nor any of its consolidated subsidiaries
has any liabilities of a nature required by U.S. GAAP to be
reflected in a consolidated balance sheet, except liabilities
that (i) are accrued or reserved against in the most recent
financial statements included in the Parent SEC Reports filed
prior to the date of this Agreement or are reflected in the
notes thereto, (ii) were incurred in the ordinary course of
business consistent with past practice and which would not,
individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect, (iii) have been
discharged or paid in full prior to the date of this Agreement,
or will be discharged or paid in full prior to the Effective
Time, in the ordinary course of business consistent with past
practice and which have not had, and would not, individually or
in the aggregate, reasonably be expected to have, a Parent
Material Adverse Effect, or (iv) are incurred pursuant to
the transactions contemplated by the Transaction Documents.
Section 4.6 Absence
of Certain Changes or Events. Since
December 31, 2008 through the date of this Agreement,
except as contemplated by this Agreement, Parent and its
subsidiaries have conducted their business in all material
respects in the ordinary course and, since such date, there has
not been any change, event or occurrence which has had, or
would, individually or in the aggregate, reasonably be expected
to have, a Parent Material Adverse Effect.
Section 4.7 Absence
of Litigation. There are no suits, claims,
actions, arbitrations or other proceedings pending or, to the
knowledge of Parent, threatened against Parent or any of its
subsidiaries that would, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
As of the date of this Agreement, neither Parent nor any of its
subsidiaries nor any of their respective assets or properties is
or are subject to any order, writ, judgment, injunction, decree
or award (whether rendered by a court, administrative agency, or
by arbitration, pursuant to a grievance or other procedure)
except for those that would not, individually or in the
aggregate, reasonably be expected to have a Parent Material
Adverse Effect.
Section 4.8 ERISA. Except
as would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect,
(i) neither Parent nor Merger Sub has incurred any
liability under Title IV of ERISA that has not been
satisfied in full, and (ii) to the knowledge of Parent or
Merger Sub, no condition exists that presents a risk to Parent
or Merger Sub of incurring any such liability other than
liability for premiums due the Pension Benefit Guaranty
Corporation.
Section 4.9 Proxy
Statement. None of the information supplied or to
be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in the
S-4 shall at
the time the
S-4 is
declared effective by the SEC (or, with respect to any
post-effective amendment or supplement, at the time such
post-effective amendment or supplement becomes effective) or at
the Effective Time contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein,
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in light of the circumstances under which they were not, not
misleading. None of the information supplied or to be supplied
by Parent or Merger Sub for inclusion in the Proxy Statement
shall, on the date the Proxy Statement is first mailed to the
stockholders of the Company and during the pendency of the
Stockholders Meeting, and at the time of the Company Requisite
Vote, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information
supplied by the Company or any of its representatives which is
contained or incorporated by reference in the Proxy Statement.
Section 4.10 Brokers. Except
for Wells Fargo Securities, LLC, no broker, finder or investment
banker is entitled to any brokerage, finders or other fee
or commission in connection with the transactions contemplated
by the Transaction Documents based upon arrangements made by and
on behalf of Parent or Merger Sub.
Section 4.11 Operations
of Merger Sub. Merger Sub has been formed solely
for the purpose of engaging in the transactions contemplated
hereby and prior to the Effective Time will have engaged in no
other business activities and will have incurred no liabilities
or obligations other than as contemplated herein. All of the
outstanding shares of capital stock of Merger Sub is, and as of
the Effective Time will be, owned directly or indirectly by
Parent.
Section 4.12 Ownership
of Company Shares. As of the date of this
Agreement, Parent owns (directly or indirectly, beneficially or
of record) one share of Class B Common Stock and 12,058,626
limited partnership units of the Operating Partnership which are
exchangeable as of the date hereof, in accordance with the
Company Certificate of Incorporation and the partnership
agreement of the Operating Partnership, for
12,058,626 shares of Class A Common Stock, and neither
Parent nor any of its subsidiaries holds any rights to acquire
or vote any other Company Shares except pursuant to this
Agreement, the Voting Agreement and the Amended and Restated
Stockholders Agreement, dated as of August 22, 2008,
among the Company and the other parties thereto (the
Stockholders Agreement).
Section 4.13 Vote/Approval
Required. No vote or consent of the holders of
any class or series of capital stock of Parent is necessary to
approve this Agreement or the Merger or the transactions
contemplated hereby. The vote or consent of Parent as the sole
stockholder of Merger Sub (which shall have occurred prior to
the Effective Time) is the only vote or consent of the holders
of any class or series of capital stock of Merger Sub necessary
to approve this Agreement or the Merger or the transactions
contemplated hereby.
Section 4.14 No
Other Representations or Warranties. Except for
the representations and warranties contained in this
Article IV, the Company acknowledges that none of Parent,
Merger Sub or any other person on behalf of Parent or Merger Sub
makes any other express or implied representation or warranty
with respect to Parent or Merger Sub or with respect to any
other information provided to the Company. None of Parent,
Merger Sub or any other person will have or be subject to any
liability or indemnification obligation to the Company or any
other person resulting from the distribution to the Company, or
the Companys use of, any such information, including any
information, documents, projections, forecasts or other material
made available to the Company in certain management
presentations in expectation of the transactions contemplated by
the Transaction Documents.
ARTICLE V
CONDUCT OF
BUSINESS PENDING THE MERGER
Section 5.1 Conduct
of Business of the Company Pending the
Merger. The Company covenants and agrees that,
during the period from the date of this Agreement until the
Effective Time, except as expressly contemplated by the
Transaction Documents or as required by applicable Law, or
unless Parent shall otherwise consent in writing (which consent
shall not be unreasonably withheld, conditioned or delayed),
(i) the business of the Company and its subsidiaries shall
be conducted in its ordinary course of business, (ii) the
Company and its subsidiaries shall use their reasonable best
efforts to preserve substantially intact their business
organizations, to keep available the services of their current
officers and employees and to preserve their
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present relationships with customers, suppliers and other
persons with which they have material business relations and
(iii) the Company and its subsidiaries will comply in all
material respects with all applicable Laws wherever their
business is conducted, including the timely filing of all
reports, forms or other documents with the SEC required pursuant
to the Securities Act or the Exchange Act. Between the date of
this Agreement and the Effective Time, except as otherwise
expressly contemplated by the Transaction Documents or as
required by Law, neither the Company nor any of its subsidiaries
shall without the prior written consent of Parent (which consent
shall not be unreasonably withheld or delayed):
(a) amend or otherwise change the Company Certificate of
Incorporation or Company Bylaws or other equivalent
organizational documents of the Companys subsidiaries;
(b) issue, deliver, sell, pledge, dispose of or encumber
any shares of capital stock, ownership interests or voting
securities, or any options, warrants, convertible securities or
other rights of any kind to acquire or receive any shares of
capital stock, any other ownership interests or any voting
securities (including but not limited to stock appreciation
rights, phantom stock or similar instruments), of the Company or
any of its subsidiaries (except for (A) the issuance of
Company Shares upon the exercise of Company Options outstanding
as of the date of this Agreement or in connection with Company
Stock-Based Awards outstanding as of the date of this Agreement,
in each case, in accordance with the terms of any Company Plan
or (B) the grant of restricted shares, stock units and
Company Options (and issuances of Company Shares pursuant
thereto) made in the ordinary course of business to existing
officers or employees or to attract new employees in an
aggregate amount not to exceed the amount provided in
Section 5.1(b) of the Company Disclosure Schedule);
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase
or otherwise acquire any shares of capital stock of the Company
(other than the acquisition of Company Shares tendered by
employees or former employees in connection with a cashless
exercise of Company Options or in order to pay taxes in
connection with the exercise of Company Options or the lapse of
restrictions in respect of restricted stock or Company
Stock-Based Awards), or reclassify, combine, split or subdivide
any capital stock or other ownership interests of any of the
Companys subsidiaries;
(e) (i) acquire (whether by merger, consolidation or
acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or division thereof
or any assets, in each case, which is or are, individually or in
the aggregate, material to the Company and its subsidiaries
taken as a whole, other than purchases of assets in the ordinary
course of business or pursuant to existing Contracts and, for
the avoidance of doubt, other than capital expenditures
permitted pursuant to clause (iii) of this paragraph;
(ii) sell or otherwise dispose of (whether by merger,
consolidation or acquisition of stock or assets or otherwise)
any corporation, partnership or other business organization or
division thereof or any assets, other than sales or dispositions
of assets in the ordinary course of business or pursuant to
existing Contracts; (iii) authorize or make any new capital
expenditures which are, in the aggregate, in excess of the
Companys capital expenditure budget set forth in
Section 5.1(e)(iii) of the Company Disclosure Schedule;
(iv) enter into any new line of business; (v) other
than in the ordinary course of business consistent with past
practice, enter into, amend in any material respect or waive any
of its material rights under any Material Contract; or
(vi) mortgage or pledge any of its assets;
(f) incur or modify in any material respect the terms of
any indebtedness for borrowed money, or assume, guarantee or
endorse, or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans, advances
or capital contributions to, or investments in, any other person
(other than a subsidiary of the Company), in each case, other
than (i) borrowings under existing lines of credit in the
ordinary course of business consistent with past practice or
(ii) any letter of credit entered into in the ordinary
course of business consistent with past practice;
(g) except (x) as contemplated by Section 6.6 or
(y) to the extent required under any Company Plan or as
required by applicable Law or regulation or existing Contract,
(i) increase the compensation, bonus
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or fringe benefits of, or make any other change in employment
terms for, any of its directors, officers or employees (except
in the ordinary course of business consistent with past practice
with respect to employees who are not directors or officers),
(ii) grant or provide any severance or termination pay not
provided for, or otherwise increase any severance or termination
pay, under any Company Plan or existing Contract,
(iii) enter into any employment, consulting, change of
control or severance agreement or arrangement with any of its
present or former directors, officers or other employees, except
for offers of employment in the ordinary course of business
consistent with past practice to employees who are not currently
directors or officers or (iv) establish, adopt, enter into
or amend or terminate any Company Plan;
(h) make any material change in any accounting principles,
except as may be required to conform to changes in statutory or
regulatory accounting rules or U.S. GAAP;
(i) other than in the ordinary course of business or as
required by applicable Law, (i) make or change any material
Tax election or change any method of Tax accounting,
(ii) enter into any settlement or compromise of any
material Tax liability, (iii) file any claim for refund or
amended Tax Return with respect to any material Tax or
(iv) take any action that could reasonably be expected to
prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code;
(j) settle, compromise or discharge any litigation or
claim, other than settlements, compromises or discharges of
litigation or claims which (i) do not exceed, individually
or in the aggregate, $2,500,000 (after taking into account the
amount reserved for such matters by the Company or amounts
covered by insurance) and (ii) do not include any
obligations to be performed by the Company or any of its
subsidiaries following the Effective Time;
(k) release or permit the release of any person from, waive
or permit the waiver of any right under, fail to enforce any
provision of, or grant any consent or make any election under,
any confidentiality, standstill or similar agreement
to which the Company or any subsidiary thereof is a party,
except, in each case, to the extent the Board of Directors of
the Company shall have determined in good faith, after
consultation with its outside legal counsel, that failure to
take such action would be inconsistent with its fiduciary duties
under applicable Law but in such case only after providing
Parent with prior written notice of such determination;
(l) fail to renew or maintain existing insurance policies
or comparable replacement policies, other than in the ordinary
course of business consistent with past practice;
(m) agree to take any of the actions described in
Section 5.1(a) through Section 5.1(l); or
(n) take any action that would, or would reasonably be
expected to, individually or in the aggregate, prevent,
materially delay or materially impede the consummation of the
Merger or the other transactions contemplated by the Transaction
Documents (it being understood that nothing in this
clause (n) shall preclude or restrict the Board of
Directors of the Company from taking any action in connection
with the exercise of its fiduciary duties under applicable Law).
Section 5.2 Conduct
of Business of Parent and Merger Sub Pending the
Merger. Each of Parent and Merger Sub covenants
and agrees that, during the period from the date of this
Agreement until the Effective Time, except as expressly
contemplated by the Transaction Documents or as required by
applicable Law, or unless the Company shall otherwise consent in
writing (which consent shall not be unreasonably withheld,
conditioned or delayed), (i) the business of each of
Parent, Merger Sub and Parents subsidiaries shall be
conducted in order to maintain the primary nature of
Parents business as of the date hereof and (ii) each
of Parent, Merger Sub and Parents subsidiaries will comply
in all material respects with all applicable Laws wherever their
business is conducted, including the timely filing of all
reports, forms or other documents with the SEC required pursuant
to the Securities Act or the Exchange Act. Between the date of
this Agreement and the Effective Time, except as otherwise
expressly contemplated by the Transaction Documents or as
required
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by Law, neither Parent nor Merger Sub shall without the prior
written consent of the Company (which consent shall not be
unreasonably withheld or delayed):
(a) amend or otherwise change the Parent Certificate of
Incorporation or Parent Bylaws or any similar governing
instruments, in each case, that would reasonably be expected to
prevent or materially delay the ability of the Company to
consummate the Merger;
(b) reclassify, combine, split or subdivide any shares of
capital stock of Parent or Merger Sub;
(c) take any action that could reasonably be expected to
prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code;
(d) sell, transfer or convey all or substantially all of
its properties and assets to any person; or
(e) agree to take any of the actions described in
Section 5.2(a) through Section 5.2(d).
Section 5.3 No
Control of Other Partys Business. Nothing
contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the Companys or
its subsidiaries operations prior to the Effective Time,
and nothing contained in this Agreement shall give the Company,
directly or indirectly, the right to control or direct
Parents or its subsidiaries operations prior to the
Effective Time. Prior to the Effective Time, each of the Company
and Parent shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision
over its and its subsidiaries respective operations.
ARTICLE VI
ADDITIONAL
AGREEMENTS
Section 6.1 Stockholders
Meeting.
(a) As soon as reasonably practicable following the date of
this Agreement, the Company, acting through its Board of
Directors, shall (i) take all action necessary to duly
call, give notice of, convene and hold a meeting of its
stockholders for the purpose of adopting this Agreement (the
Stockholders Meeting), (ii) include in
the Proxy Statement that the Board of Directors of the Company
(x) has approved, and declared advisable this Agreement,
(y) determined that the terms of this Agreement are fair
to, and in the best interests of, the Company and its
stockholders and (z) recommends that the stockholders of
the Company adopt this Agreement and approve the Merger at such
meeting (except to the extent that the Company has effected a
Change of Recommendation in accordance with this
Section 6.1(a)) and, subject to the consent of any
Financial Advisor, the written opinion of any Financial Advisor,
dated as of the date of this Agreement, that, as of such date,
the Merger Consideration is fair, from a financial point of
view, to the holders of the Company Common Stock and
(iii) use its reasonable best efforts to obtain the Company
Requisite Vote (except to the extent that the Company has
effected a Change of Recommendation in accordance with this
Section 6.1(a)). The Company shall keep Parent updated with
respect to proxy solicitation results as reasonably requested by
Parent. Neither the Board of Directors of the Company nor any
committee thereof shall, directly or indirectly, withdraw (or
modify or qualify in a manner adverse to Parent or Merger Sub),
or publicly propose to withdraw (or modify or qualify in a
manner adverse to Parent or Merger Sub), the recommendation of
the Board of Directors pursuant to the foregoing
clause (ii) of this Section 6.1(a) (any such action
being referred to as a Change of
Recommendation) it being understood that any
stop, look and listen or similar communication of
the type contemplated by
Rule 14d-9(f)
of the Exchange Act shall not be deemed to be a Change of
Recommendation); provided, that, notwithstanding anything
herein to the contrary, at any time prior to obtaining the
Company Requisite Vote, the Board of Directors of the Company
may, in response to a material development or change in
circumstances occurring or arising after the date hereof that
was neither known to the Board of Directors of the Company nor
reasonably foreseeable as of or prior to the date hereof (and
not relating to any Acquisition Proposal) (such material
development or change in circumstances, an Intervening
Event), effect a Change of Recommendation if
(i) the Board of Directors shall have determined in good
faith, after consultation with, and taking into account the
advice of, outside counsel to the Company, that, in light of
such Intervening Event, the failure of the Board of Directors to
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effect a Change of Recommendation would result in a breach of
its fiduciary duties under applicable Law and (ii) the
Company has provided Parent with at least three business
days prior written notice of such Change of Recommendation.
(b) Any Change of Recommendation shall not change the
approval of this Agreement, the Voting Agreements or any other
approval of the Board of Directors of the Company, including in
any respect that would have the effect of causing any state
(including Delaware) corporate takeover statute or other similar
statute to be applicable to the transactions contemplated hereby
or thereby, including the Merger. Notwithstanding anything to
the contrary contained in this Agreement, unless this Agreement
is terminated in accordance with Section 8.1, the
obligation of the Company to call, give notice of, convene,
hold, and submit this Agreement and the Merger for a vote at the
Stockholders Meeting as promptly as practicable after the date
of this Agreement shall not be limited or otherwise affected by
the commencement, disclosure, announcement or submission to it
of any Acquisition Proposal or by a Change of Recommendation.
For the avoidance of doubt, the Company shall not be required to
hold the Stockholders Meeting if this Agreement is terminated in
accordance with Section 8.1.
Section 6.2 Certain
Filings. As soon as reasonably practicable
following the date of this Agreement, the Company shall, with
the assistance of Parent, prepare and file with the SEC the
Proxy Statement, and Parent, with the assistance of the Company,
shall prepare and file with the SEC the
S-4 (in
which the Proxy Statement will be included). Each of Parent and
the Company shall use its reasonable best efforts to have the
Proxy Statement cleared by the SEC and the
S-4 declared
effective under the Securities Act as promptly as practicable
after the filing thereof and to keep the
S-4
effective as long as necessary to consummate the Merger. Parent
and the Company will cooperate with each other in the
preparation of each of the Proxy Statement and the
S-4 and each
of the Company and Parent and its counsel shall be given a
reasonable opportunity to review and comment on such Proxy
Statement and
S-4, which
comments shall be reasonably considered by the other party.
Without limiting the generality of the foregoing, each of Parent
and the Company will furnish to the other party the information
relating to it required by the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder to be set
forth in the Proxy Statement and the
S-4. Each of
Parent and the Company agree to correct any information provided
by it for use in the Proxy Statement or
S-4 which
shall have become false or misleading. Each of Parent and the
Company shall (i) notify the other party of the receipt of
any comments from the SEC with respect to the Proxy Statement or
S-4 and any
request by the SEC for any amendment to the Proxy Statement or
S-4 or for
additional information and (ii) provide the other party
with copies of all written correspondence between each of Parent
and the Company and its employees and other authorized
representatives, on the one hand, and the SEC, on the other
hand, with respect to the Proxy Statement or
S-4.
Section 6.3 Resignation
of Directors. At the Closing, the Company shall
deliver to Parent evidence reasonably satisfactory to Parent of
the resignation of all directors of the Company and its
subsidiaries specified by Parent in writing reasonably in
advance of the Closing (but in no event less than five business
days prior to the Closing Date), in each case, effective at the
Effective Time.
Section 6.4 Access
to Information; Confidentiality.
(a) From the date of this Agreement to the Effective Time
or the earlier termination of this Agreement, to the extent
permitted by applicable Law or regulation, upon reasonable prior
written notice, the Company shall, and shall use its reasonable
best efforts to cause its subsidiaries, officers, directors and
employees to, afford Parents officers, employees, auditors
and other authorized representatives reasonable access during
normal business hours to its officers, employees, properties,
offices, and other facilities and to all books and records, and
shall furnish Parent with all financial, operating and other
data and information as Parent, through its officers, employees
or authorized representatives, may from time to time reasonably
request in writing, whether related to the transactions
contemplated by the Transaction Documents, transition planning
or post-closing integration; provided that any such
investigation or consultation shall be conducted in such a
manner as not to interfere unreasonably with the business or
operations of the Company or its subsidiaries or otherwise
result in any significant interference with the prompt and
timely discharge by such employees of their normal duties.
Notwithstanding anything herein
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to the contrary, neither the Company nor any of its subsidiaries
shall be required to provide access to or to disclose
information where such access or disclosure would violate or
prejudice the rights of its clients, jeopardize the
attorney-client privilege of the Company or its subsidiaries or
contravene any Law, rule, regulation, order, judgment, decree or
binding agreement entered into prior to the date of this
Agreement.
(b) Each of the Company, Parent and Merger Sub will hold
and treat and will cause its officers, employees, auditors and
other authorized representatives to hold and treat in confidence
all documents and information concerning the other party and its
subsidiaries furnished to such party in connection with the
transactions contemplated by this Agreement in accordance with
the Confidentiality Agreement, dated December 19, 2008,
between the Company and Parent (the Confidentiality
Agreement) which Confidentiality Agreement shall
remain in full force and effect in accordance with its terms.
The Confidentiality Agreement shall survive any termination of
this Agreement.
(c) No investigation pursuant to this Section 6.4
shall affect any representation or warranty in this Agreement of
any party or any condition to the obligations of the parties.
Section 6.5 Acquisition
Proposals.
(a) The Company agrees that (i) it and its executive
officers and directors shall not, (ii) its subsidiaries and
its subsidiaries executive officers and directors shall
not and (iii) it shall use reasonable best efforts to
ensure that its and its subsidiaries agents and
representatives (Representatives) shall not,
(A) directly or indirectly, solicit, initiate, knowingly
encourage or knowingly facilitate any inquiries or the making of
any proposal or offer with respect to (x) a tender offer or
exchange offer, proposal for a merger, consolidation or other
business combination involving the Company
and/or its
subsidiaries or (y) any proposal or offer to acquire in any
manner (1) 10% or more of the equity interests (measured by
economic or voting power) in the Company on a consolidated
basis, or (2) 10% or more of the assets of the Company on a
consolidated basis, other than the transactions contemplated by
this Agreement (any such proposal or offer being hereinafter
referred to as an Acquisition Proposal), or
(B) directly or indirectly participate in or knowingly
encourage any negotiations or discussions concerning, or provide
access to its properties, books and records or any confidential
information or data to, any person relating to or take any other
action to knowingly facilitate any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to
lead to, an Acquisition Proposal. The Company agrees that it
will, and it will cause its subsidiaries and Representatives to,
immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons
conducted heretofore with respect to any Acquisition Proposal or
any potential Acquisition Proposal. The Company shall
(I) promptly (and in any event within one business day
after receipt) notify Parent in writing of the receipt of any
Acquisition Proposal (or any request for information or other
inquiry that may reasonably be expected to lead to an
Acquisition Proposal) after the date of this Agreement, which
notice shall include the identity of the person making such
Acquisition Proposal and the material terms thereof and
(II) keep Parent reasonably informed of the status and
details (including any material developments with respect to
such Acquisition Proposal). Notwithstanding the foregoing,
nothing contained in this Agreement shall prevent the Company or
its Board of Directors from: (i) taking and disclosing to
its stockholders a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act (or any similar communication
to stockholders in connection with the making or amendment of a
tender offer or exchange offer) or from making any disclosure to
the Companys stockholders as, in the good faith judgment
of the Board of Directors of the Company, after receiving advice
from outside counsel, is consistent with its obligations
hereunder and is required by applicable Law; (ii) prior to
obtaining the Company Requisite Vote, providing access to its
properties, books and records and providing information or data
in response to a request therefor by a person who has made an
unsolicited bona fide Acquisition Proposal if the Board of
Directors receives from the person so requesting such
information an executed confidentiality agreement on terms
substantially similar to those contained in the Confidentiality
Agreement (except for such changes specifically necessary in
order for the Company to be able to comply with its obligations
under this Agreement); (iii) prior to obtaining the Company
Requisite Vote, contacting and engaging in discussions with any
person who has made an unsolicited bona fide Acquisition
Proposal solely for the purpose of clarifying such Acquisition
Proposal and any
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material terms thereof and the conditions to consummation so as
to determine whether such Acquisition Proposal is, or may
reasonably be expected to lead to, a Superior Proposal; and
(iv) prior to obtaining the Company Requisite Vote,
contacting and engaging in any negotiations or discussions with
any person who has made an unsolicited bona fide Acquisition
Proposal (which negotiations or discussions are not solely for
clarification purposes), if and only to the extent that in
connection with the foregoing clauses (ii) or (iv),
(1) the Board of Directors of the Company shall have
determined in good faith, after consultation with its outside
legal counsel and its financial advisor that, (x) such
Acquisition Proposal constitutes, or is reasonably likely to
lead to, a Superior Proposal, and (y) that the failure to
take such action would be inconsistent with its fiduciary duties
under applicable Law and (2) prior to taking such action,
the Company shall provide written notice to Parent of such
matter.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i) recommend, adopt or approve, or
propose publicly to recommend, adopt or approve, any Acquisition
Proposal or Acquisition Proposal Documentation (as defined
below) or (ii) execute (or allow the Company or any of its
subsidiaries to execute) any letter of intent, memorandum of
understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement, joint venture
agreement, partnership agreement or other similar agreement
constituting an Acquisition Proposal (other than a
confidentiality agreement pursuant to Section 6.5(a)) (any
such documentation, Acquisition Proposal
Documentation). Notwithstanding the foregoing or any
other provision of this Section 6.5 to the contrary, if, at
any time prior to obtaining the Company Requisite Vote, the
Companys Board of Directors determines, in response to an
Acquisition Proposal that was unsolicited and that did not
otherwise result from a material breach of Section 6.5(a),
that such Acquisition Proposal is a Superior Proposal,
(A) the Company or its Board of Directors may terminate
this Agreement, (B) the Board of Directors of the Company
may approve or recommend such Superior Proposal to its
stockholders
and/or
(C) concurrently with the termination of this Agreement,
the Company may enter into or execute any Acquisition
Proposal Documentation with respect to such Superior
Proposal; provided, that the Company may only take such
actions at a time that is after the third business day following
Parents receipt of written notice advising Parent that the
Board of Directors of the Company has received a Superior
Proposal. Such written notice shall specify the material terms
and conditions of such Superior Proposal and identify the person
making such Superior Proposal. During such three business day
period, the Company shall provide an opportunity for Parent to
propose such adjustments to the terms and conditions of this
Agreement so that such Acquisition Proposal ceases to constitute
a Superior Proposal; provided, however, that any
such proposed adjustment shall be at the discretion of Parent at
the time. The Company or its Board of Directors may not
terminate this Agreement pursuant to this Section 6.5(b),
and any purported termination pursuant to this sentence shall be
void and of no force or effect, unless the Company prior to or
concurrently with such termination pursuant to this Section
6.5(b) pays to the Parent the Company Termination Fee.
(c) For purposes of this Agreement, Superior
Proposal shall mean any Acquisition Proposal made by a
third party for more than 50% of the outstanding equity
interests in the Company or more than 50% of the consolidated
assets of the Company and its subsidiaries, taken as a whole,
(i) on terms that the Board of Directors of the Company
determined in good faith, after consultation with the
Companys outside legal and financial advisors, and
considering such factors as the Board of Directors of the
Company considers to be appropriate (including the
conditionality and the timing and likelihood of consummation of
such proposal), are more favorable to the Companys
stockholders from a financial point of view than the
transactions contemplated by this Agreement and (ii) is
reasonably capable of being consummated, including, without
limitation, the receipt of the approvals of Corvina Holdings
Limited, SK Telecom Co., Ltd. and Parent or their respective
affiliates pursuant to contractual approval or consent rights.
Section 6.6 Employment
and Employee Benefits Matters.
(a) Without limiting any additional rights that any Company
Employee may have under any Company Plan, Parent shall cause the
Surviving Corporation and each of its subsidiaries, for a period
commencing at the Effective Time and ending on the
18-month
anniversary thereof, to maintain (i) the
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Company Severance Plan and (ii) existing severance
practices as described in Section 6.6(a) of the Company
Disclosure Schedule, each as currently in effect, and (subject
to all of the terms and conditions set forth in such plan) to
make severance payments to any eligible Company Employee
terminated during that
18-month
period in accordance with such Company Severance Plan and
severance practices.
(b) Parent shall cause the Surviving Corporation and each
of its subsidiaries (i) to continue for the period
commencing at the Effective Time and ending on the
12-month
anniversary thereof (the Compensation Protection
Period) to compensate the Company Employees who
continue to be employed in good standing at substantially the
same base salaries or base hourly wages as in effect for such
employees immediately before the Effective Time, (ii) to
provide for the bonuses, if any, earned through
December 31, 2009 pursuant to Section 6.6(e), and
(iii) during the Compensation Protection Period, to either
(A) continue (subject to Sections 6.6(a) and 6.6(e))
to provide benefits which are substantially comparable in the
aggregate to the benefits provided under the Company Plans at
the Effective Time or (B) provide benefits which are
substantially comparable in the aggregate to the benefits
provided directly or indirectly by Parent to employees who
provide similar services to or perform similar functions for
Parent or its subsidiaries.
(c) As of and after the Effective Time, Parent will, or
will cause the Surviving Corporation to, give Company Employees
who continue to be employed in good standing full service credit
for purposes of eligibility and vesting and benefit accruals
(but not for purposes of benefit accruals (i) under any
defined benefit pension plans or under any plan which provides
post-retirement medical or dental or prescription drug or other
post-retirement welfare benefits or for vacation if any payment
has been made in lieu of vacation or (ii) which would
result in any duplication of benefits for the same period of
service) under any employee benefit plans, programs and policies
which are provided for the benefit of Company Employees as of
and after the Effective Time by Parent, its subsidiaries or the
Surviving Corporation for such Company Employees service
with the Company, its subsidiaries and their predecessor
entities (each, a Parent Plan) to the same
extent such service was recognized by the Company immediately
prior to the Effective Time under any corresponding Company Plan
or program or policy of the Company. With respect to each Parent
Plan that is a welfare benefit plan (as defined in
Section 3(1) of ERISA), Parent or its subsidiaries shall
(i) cause there to be waived for any Company Employee any
pre-existing condition limitation or eligibility limitation to
the extent neither such employee nor his or her eligible
dependents were subject to any such limitation under the
corresponding Company Plan and (ii) give effect, in
determining any deductible and maximum
out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts
reimbursed to, Company Employees under any Company Plan
immediately prior to the Effective Time as if the claims had
been incurred and the amounts had been paid or reimbursed under
a corresponding Parent Plan.
(d) From and after the Effective Time, Parent will honor,
and will cause its subsidiaries to honor, the terms of the
Company Plans, as such Company Plans may be amended pursuant to
their terms, in each case to the extent legally binding on the
Company or any of its subsidiaries. Further, Parent will, or
will cause the Surviving Corporation to, make the matching
contribution for 2009 which is called for under the terms of the
Companys 401(k) Plan pursuant to the terms of such plan as
in effect on the date of this Agreement.
(e) Parent will, or will cause the Surviving Corporation
to, continue the Operating Partnerships 2009 Incentive
Plan (which also is known as the Companys Annual Incentive
Plan) and the Operating Partnerships 2009 Mid-Term
Incentive Plan through the performance cycles which for each
plan end on December 31, 2009 and pay the bonuses, if any,
earned for each such cycle pursuant to the terms and conditions
set forth in each such plan; provided, however, that
(1) the extent to which the applicable performance
conditions for a bonus under such plans are met shall be
determined based on the Companys actual performance
(adjusted in a manner reasonably acceptable to Parent to
eliminate the impact of costs relating to the negotiation,
closing, transition and integration of the transactions
contemplated by this Agreement) through the end of the calendar
month which ends on, or immediately precedes, the Closing Date
and comparing such performance to the Companys targeted
year-to-date
performance goals through the end of such calendar month,
(2) the payment of the bonuses earned under
A-30
the Operating Partnerships 2009 Incentive Plan shall be
paid in accordance with the terms of such plan in February, 2010
except as otherwise expressly called for under the terms of the
Operating Partnerships 2009 Incentive Plan or, if and to
the extent applicable, an employment agreement and (3) the
payment of the bonuses earned under the Operating
Partnerships Mid-Term Incentive Plan shall be paid in
accordance with the terms of such plan, 30% in February, 2010,
30% in August, 2010 and 40% in February, 2011 except as
otherwise expressly called for under the terms of the Operating
Partnerships 2009 Mid-Term Incentive Plan or, if and to
the extent applicable, an employment agreement.
(f) No person other than the Company, Parent and Merger Sub
shall have any rights with respect to the provisions of this
Section 6.6.
Section 6.7 Indemnification;
Directors and Officers Insurance.
(a) From and after the Effective Time, each of Parent and
the Surviving Corporation agrees that it will indemnify, defend
and hold harmless each present and former officer, director or
employee of the Company or any of its subsidiaries and any
fiduciary under any Company Plan (in each case, when acting in
such capacity), determined as of the Effective Time (the
Indemnified Parties), against any costs or
expenses (including attorneys fees and disbursements),
judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding,
inquires or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to
(i) the fact that the Indemnified Party is or was an
officer, director, employee, fiduciary or agent of the Company
or any of its subsidiaries or (ii) matters existing or
occurring at or prior to the Effective Time (including this
Agreement and the transactions and actions contemplated hereby)
whether asserted or claimed prior to, at or after the Effective
Time, as provided in the Company Certificate of Incorporation or
Company Bylaws, in each case as in effect on the date of this
Agreement, or pursuant to any other agreements in effect on the
date hereof, copies of which have been provided to Parent. For
the avoidance of doubt, the parties agree that this
Section 6.7 does not purport to limit any rights that any
Indemnified Party may have under any employment agreement or
Company Plan.
(b) The certificate of incorporation and bylaws of the
Surviving Corporation shall contain provisions no less favorable
with respect to indemnification, advancement of expenses and
exculpation of former or present directors and officers than are
set forth in the Company Certificate of Incorporation and
Company Bylaws, which provisions shall not be amended, repealed
or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the
rights thereunder of any such individuals, except as may be
required by Law.
(c) Prior to the Effective Time, the Company shall and, if
the Company is unable to, Parent shall cause the Surviving
Corporation as of the Effective Time to obtain and fully pay, at
no expense to the beneficiaries, for tail insurance
policies with a claims period of six years from and after the
Effective Time from an insurance carrier with the same or better
credit rating as the Companys current insurance carrier
with respect to directors and officers liability
insurance and fiduciary liability insurance (collectively,
D&O Insurance), for the persons who are
covered by the Companys existing D&O Insurance, with
terms, conditions, retentions and levels of coverage at least as
favorable as the Companys existing D&O Insurance with
respect to matters existing or occurring at or prior to the
Effective Time (including in connection with this Agreement or
the transactions or actions contemplated hereby), and Parent
shall cause the Surviving Corporation to maintain such D&O
Insurance in full force and effect for their full terms. If the
Company and the Surviving Corporation for any reason fail to
obtain such tail insurance policies as of the
Effective Time, the Surviving Corporation shall, and Parent
shall cause the Surviving Corporation to, continue to maintain
in effect, at no expense to the beneficiaries, for a period of
six years from and after the Effective Time for the persons who
are covered by the Companys D&O Insurance in place as
of the date of this Agreement with terms, conditions, retentions
and levels of coverage at least as favorable as provided in the
Companys existing policies as of the date of this
Agreement, or, if such insurance is unavailable, the Surviving
Corporation shall, and Parent shall cause the Surviving
Corporation to, purchase the best available D&O Insurance
for such six-year period from an insurance carrier with the same
or better credit rating as the Companys current insurance
carrier with
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respect to the Companys existing D&O Insurance with
terms, conditions, retentions and with levels of coverage at
least as favorable as provided in the Companys existing
policies as of the date of this Agreement. Notwithstanding
anything in the foregoing, in no event shall Parent or the
Surviving Corporation be required to expend for such policies an
annual premium amount in excess of 300% of the annual premiums
currently paid by the Company for such insurance; and
provided further, that if the annual premiums of
such insurance coverage exceed such amount, the Surviving
Corporation shall obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
(d) If Parent or the Surviving Corporation or any of their
respective successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or a
majority of its properties and assets to any individual,
corporation or other entity, then, and in each such case, proper
provisions shall be made so that the successors and assigns of
Parent or the Surviving Corporation shall assume all of the
obligations set forth in Section 6.6 and this Section 6.7.
(e) The provisions of this Section 6.7 are intended to
be for the benefit of, and shall be enforceable by, each of the
Indemnified Parties and their respective successors, heirs and
legal representatives, shall be binding on all successors and
assigns of Parent and the Surviving Corporation and shall not be
amended in any matter that is adverse to the Indemnified Parties
(including their successors, heirs and legal representatives)
without the consent of the Indemnified Party (including the
successors, heirs and legal representatives) affected thereby.
(f) The rights of the Indemnified Parties under this
Section 6.7 shall be in addition to any rights such
Indemnified Parties may have under the Company Certificate of
Incorporation or Company Bylaws or equivalent documents of any
of its subsidiaries, or under any applicable Contracts or Laws,
and Parent shall, and shall cause the Surviving Corporation to,
honor and perform under all indemnification agreements entered
into by the Company or any of its subsidiaries.
Section 6.8 Stockholder
Litigation. The Company or Parent shall give the
other party the opportunity to participate in the defense or
settlement of any stockholder litigation against the Company and
its directors or Parent and its directors, as the case may be,
relating to the transactions contemplated by the Transaction
Documents or the Merger; provided, however, that no such
settlement of any such litigation shall be agreed to without the
Companys or Parents consent, which consent will not
be unreasonably withheld.
Section 6.9 Notification
of Certain Matters. The Company shall give prompt
notice to Parent of any change or event (i) that has, or
would, individually or in the aggregate, reasonably be expected
to have, a Material Adverse Effect or (ii) that it believes
results or would reasonably be expected to result in a failure
of the conditions set forth in Section 7.2. Parent shall
give prompt notice to the Company of any change or event
(i) that has had, or would, individually or in the
aggregate, reasonably be expected to have, a Parent Material
Adverse Effect or (ii) that it believes results or would
reasonably be expected to result in a failure of the conditions
set forth in Section 7.3. The delivery of any notice
pursuant to this Section 6.9, however, shall not limit or
otherwise affect the remedies available hereunder to the party
receiving such notice. If any event or matter arises after the
date of this Agreement that, if existing or occurring at the
date of this Agreement, would have been required to be set forth
or described in the Company Disclosure Schedule or that is
necessary to correct any information in the Company Disclosure
Schedule that has been rendered inaccurate thereby, then the
Company shall promptly supplement, or amend the Company
Disclosure Schedule that it has delivered pursuant to this
Agreement and deliver such supplement or amendment to Parent;
provided that such supplement or amendment shall be for
informational purposes only and shall not enlarge, reduce or
otherwise modify the rights of the parties hereunder (including
the right of any party to assert the failure of a condition to
Closing set forth in Article VII without regard to any such
supplement or amendment). Any noncompliance with this
Section 6.9 shall not constitute the failure of a condition
set forth in Article VII to be satisfied or give rise to
any right of termination under Article VIII.
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Section 6.10 Further
Action; Efforts.
(a) Subject to the terms and conditions of this Agreement,
each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable under applicable Laws
and regulations to consummate the Merger and the other
transactions contemplated by this Agreement. In furtherance and
not in limitation of the foregoing, each party hereto agrees to
make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable and in any event
within fifteen business days of the date of this Agreement and
to supply as promptly as reasonably practicable any additional
information and documentary material that may be requested
pursuant to the HSR Act and to take all other actions necessary,
proper or advisable to cause the expiration or termination of
the applicable waiting periods under the HSR Act as soon as
practicable.
(b) Each of Parent and Merger Sub, on the one hand, and the
Company, on the other hand, shall, in connection with the
efforts referenced in Section 6.8(a) to obtain all
requisite approvals and authorizations for the transactions
contemplated by this Agreement under the HSR Act or any other
Antitrust Law, use its reasonable best efforts to
(i) cooperate in all respects with each other in connection
with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding
initiated by a private party; (ii) keep the other party
reasonably informed of any communication received by such party
from, or given by such party to, the Federal Trade Commission
(the FTC), the Antitrust Division of the
Department of Justice (the DOJ) or any other
Governmental Entity and of any communication received or given
in connection with any proceeding by a private party, in each
case regarding any of the transactions contemplated hereby; and
(iii) permit the other party to review any communication
given by it to, and consult with each other in advance of any
meeting or conference with, the FTC, the DOJ or any other
Governmental Entity or, in connection with any proceeding by a
private party, with any other person, and to the extent
permitted by the FTC, the DOJ or such other applicable
Governmental Entity or other person, give the other party the
opportunity to attend and participate in such meetings and
conferences. For purposes of this Agreement, Antitrust
Law means the Sherman Act, as amended, the Clayton
Act, as amended, the HSR Act, as amended, the Federal Trade
Commission Act, as amended, and all other federal and state
Laws, if any, statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines and other Laws that are
designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of
trade or lessening of competition through merger or acquisition.
(c) In furtherance and not in limitation of the covenants
of the parties contained in Section 6.8(a) and (b), if any
objections are asserted with respect to the transactions
contemplated hereby under any Antitrust Law or if any suit is
instituted (or threatened to be instituted) by the FTC, the DOJ
or any other applicable Governmental Entity or any private party
challenging any of the transactions contemplated hereby as
violative of any Antitrust Law or which would otherwise prevent,
materially impede or materially delay the consummation of the
transactions contemplated hereby, each of Parent, Merger Sub and
the Company shall use its reasonable best efforts to resolve any
such objections or suits so as to permit consummation of the
transactions contemplated by this Agreement, including in order
to resolve such objections or suits which, in any case if not
resolved, could reasonably be expected to prevent, materially
impede or materially delay the consummation of the Merger or the
other transactions contemplated hereby, including selling,
holding separate or otherwise disposing of or conducting its
business in a manner which would resolve such objections or
suits or agreeing to sell, hold separate or otherwise dispose of
or conduct its business in a manner which would resolve such
objections or suits or permitting the sale, holding separate or
other disposition of, any of its assets or the assets of its
subsidiaries or the conducting of its business in a manner which
would resolve such objections or suits. Without excluding other
possibilities, the transactions contemplated by this Agreement
shall be deemed to be materially delayed if unresolved
objections or suits delay or could reasonably be expected to
delay the consummation of the transactions contemplated hereby
beyond the date which is the earlier of twelve months from the
date of this Agreement and one month from the date of the
Stockholders Meeting.
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(d) Subject to the obligations under Section 6.8(c),
in the event that any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) by a
Governmental Entity or private party challenging the Merger or
any other transaction contemplated by this Agreement, or any
other agreement contemplated hereby, (i) each of Parent,
Merger Sub and the Company shall cooperate in all respects with
each other and use its respective reasonable best efforts to
contest and resist any such action or proceeding and to have
vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or
restricts consummation of the transactions contemplated by this
Agreement, and (ii) Parent, Merger Sub and the Company must
defend, at their cost and expense, any action or actions,
whether judicial or administrative, in connection with the
transactions contemplated by this Agreement; provided, none of
Parent, Merger Sub and the Company shall be required to take any
action which is not conditioned on the Closing occurring.
(e) Notwithstanding the foregoing, nothing in
Section 6.10(a), Section 6.10(c) or
Section 6.10(d) shall require Parent, Merger Sub or the
Company to take any action which would materially deprive Parent
of the benefits of the transactions contemplated by the
Transaction Documents (such condition, restriction or
requirement, a Burdensome Condition).
(f) In connection with, and without limiting the foregoing,
the Company shall (i) take all actions necessary to ensure
that no state antitakeover statute or similar statute or
regulation is or becomes operative with respect to this
Agreement, the Merger or any other transactions contemplated by
this Agreement and (ii) if any state antitakeover statute
or similar statute or regulation is or becomes operative with
respect to this Agreement, the Merger or any other transaction
contemplated by this Agreement, take all actions necessary to
ensure that this Agreement, the Merger and any other
transactions contemplated by this Agreement may be consummated
as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute
or regulation on the Merger and the other transactions
contemplated by this Agreement.
Section 6.11 Public
Announcements. Each of the Company, Parent and
Merger Sub agrees that no public release or announcement
concerning the transactions contemplated hereby shall be issued
by any party without the prior written consent of the Company
and Parent (which consent shall not be unreasonably withheld or
delayed), except as such release or announcement may be required
by Law or the rules or regulations of any applicable United
States securities exchange or regulatory or governmental body to
which the relevant party is subject, wherever situated, in which
case the party required to make the release or announcement
shall use its reasonable best efforts to allow each other party
reasonable time to comment on such release or announcement in
advance of such issuance, it being understood that the final
form and content of any such release or announcement, to the
extent so required, shall be at the final discretion of the
disclosing party.
Section 6.12 Section 16
Matters. Prior to the Effective Time, the Company
will take all such steps as may be required to cause to be
exempt under
Rule 16b-3
promulgated under the Exchange Act any dispositions of Company
Shares (including derivative securities with respect to Company
Shares) that are treated as dispositions under such rule and
result from the transactions contemplated by this Agreement by
each director or officer of the Company who is subject to the
reporting requirements of Section 16(a) of the Exchange Act
with respect to the Company.
Section 6.13 Listing. Parent
shall use reasonable best efforts to cause Parent Shares
issuable under Article II, and those Parent Shares required
to be reserved for issuance in connection with the Merger,
including Parent Shares to be reserved for issuance upon the
exercise of any Company Options, to be authorized for listing on
the NYSE, upon official notice of issuance.
Section 6.14 Waiver. Parent
hereby waives any requirement to obtain its consent to the entry
by the Company of this Agreement and the transactions
contemplated hereby pursuant to Section 2.6 of the
Stockholders Agreement or Article II, Section 3
of the Company Bylaws.
Section 6.15 Net
Debt. The Company shall use its reasonable best
efforts to cause its Net Debt immediately prior to the Effective
Time to be not greater than (i) $217,000,000 if the
Effective Time shall occur on or after August 31, 2009 but
before September 30, 2009, (ii) $205,000,000 if the
Effective Time shall occur
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on or after September 30, 2009 but before November 30,
2009, (iii) $204,000,000 if the Effective Time shall occur
on or after November 30, 2009 but before December 31,
2009, (iv) $197,000,000 if the Effective Time shall occur
on or after December 31, 2009 but prior to January 31,
2010 and (v) $192,000,000 if the Effective Time shall occur
on or after January 31, 2010; provided, however,
that the amount of Net Debt shall not include any amounts
relating to any transition or integration costs incurred by the
Company at the request of Parent after the satisfaction of the
condition set forth in Section 7.1(c). The term Net
Debt of the Company and its subsidiaries shall mean
(A) all amounts outstanding under the Senior Credit
Agreement and the Subordinated Credit Agreement less
(B) any cash or marketable securities held by the Company
and its subsidiaries.
ARTICLE VII
CONDITIONS
OF MERGER
Section 7.1 Conditions
to Obligation of Each Party to Effect the
Merger. The respective obligations of each party
to effect the Merger shall be subject to the satisfaction or
waiver at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been adopted by the
stockholders of the Company by the Company Requisite Vote;
(b) no Law, statute, rule, regulation, executive order,
decree, ruling, injunction or other order (whether temporary,
preliminary or permanent) shall have been enacted, entered,
promulgated or enforced by any supranational, federal, state or
local court or other Governmental Entity which prohibits,
restrains or enjoins the consummation of the Merger;
(c) the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been
terminated or shall have expired;
(d) the
S-4 shall
have been declared effective by the SEC, no stop order
suspending the effectiveness of the
S-4 or any
part thereof shall be in effect, and no proceedings for such
purpose shall be pending before or threatened by the
SEC; and
(e) the Parent Shares to be issued in the Merger shall have
been approved for listing on the NYSE subject to official notice
of issuance.
Section 7.2 Conditions
to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger shall
be further subject to the satisfaction or waiver at or prior to
the Effective Time of the following conditions:
(a) (i) the representations and warranties of
the Company set forth in Sections 3.3(a), 3.4 and 3.18 of
this Agreement shall be true and correct in all respects,
(ii) the representations and warranties of the Company set
forth in this Agreement other than those specified in the
foregoing clause (i) that are qualified as to materiality
or Material Adverse Effect shall be true and correct and
(iii) the representations and warranties of the Company set
forth in this Agreement other than those specified in the
foregoing clauses (i) and (ii) that are not so
qualified shall be true and correct in all material respects, in
each case, as of the date of this Agreement and as of the
Effective Time as though made on and as of such date (unless any
such representation or warranty is made only as of a specific
date, in which event such representation and warranty shall be
true and correct or true and correct in all material respects,
as the case may be, as of such specified date), except where the
failure of any such representations and warranties referred to
in this clause (iii) to be so true and correct, in the
aggregate, has not had, and would not reasonably be expected to
have, a Material Adverse Effect;
(b) the Company shall have performed in all material
respects the obligations, and complied in all material respects
with the agreements and covenants, required to be performed by,
or complied with by, it under this Agreement at or prior to the
Effective Time;
(c) there shall not be instituted or pending any action,
investigation or proceeding by any Governmental Entity, and
there shall not be instituted or pending any action or
proceeding by any other
A-35
person, domestic or foreign, before any Governmental Entity,
which is reasonably likely to be determined adversely to Parent,
(i) challenging or seeking to make illegal, to delay
materially or otherwise, directly or indirectly, to restrain or
prohibit the consummation of the Merger or seeking to obtain
material damages relating to the transactions contemplated by
the Merger, (ii) seeking to restrain, prohibit or
materially delay the exercise of full rights of ownership or
operation by Parent or its subsidiaries of all or any material
portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or of Parent or any of its
subsidiaries, (iii) seeking to impose a Burdensome
Condition on Parent or any of its subsidiaries or (iv) that
otherwise would reasonably be expected to have a Material
Adverse Effect;
(d) Parent shall have received a certificate of an
executive officer of the Company, certifying that the conditions
set forth in Section 7.2(a) and Section 7.2(b) have
been satisfied;
(e) each of the Subordinated Debt Termination Agreement,
the Trademark License Agreement, the Tax Receivable Termination
Agreement and the Employment Agreement shall be in force and
effect at the Effective Time, and Daniel H. Schulman shall not
have rescinded the Employment Agreement or advised Parent that
he is unwilling to continue employment with the relevant
employing entity specified in the Employment Agreement following
the Effective Time;
(f) Parent shall have received documentation reasonably
satisfactory to it evidencing that all outstanding indebtedness
and all other obligations under (i) the Amended and
Restated Credit Agreement among the Operating Partnership, the
Lenders thereto, JPMorgan Chase Bank, N.A., as administrative
agent and the other agents named therein, dated July 19,
2006, as amended, restated, supplemented or otherwise modified
(the Senior Debt Agreement); and
(ii) the Subordinated Credit Agreement shall have been
paid, discharged or otherwise terminated so that each of the
Senior Debt Agreement and the Subordinated Debt Agreement shall
have been effectively terminated by the parties thereto in
accordance with its terms, and that all liens and security
interests in connection therewith have been released; and
(g) Parent shall have received releases and
acknowledgements from each party to the Senior Debt Agreement
and the Subordinated Debt Agreement that all liens and security
interests have been released upon payment to such party of the
amount of the indebtedness allocable to such party.
Section 7.3 Conditions
to Obligations of the Company. The obligation of
the Company to effect the Merger shall be further subject to the
satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) the representations and warranties of Parent and Merger
Sub set forth in this Agreement shall be true and correct in all
material respects, in each case as of date of this Agreement and
as of the Effective Time as though made on and as of such date
(unless any such representation or warranty is made only as of a
specific date, in which event such representation and warranty
shall be true and correct in all material respects as of such
specified date);
(b) each of Parent and Merger Sub shall have performed in
all material respects the obligations, and complied in all
material respects with the agreements and covenants, required to
be performed by or complied with by it under this Agreement at
or prior to the Effective Time;
(c) the Company shall have received the opinion of Simpson
Thacher & Bartlett LLP, counsel to the Company, dated
the Closing Date, to the effect that the Merger will be treated
for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the
Code. In rendering such opinion, counsel to the Company shall be
entitled to rely upon customary representations and assumptions
provided by the Company, Merger Sub and Parent that counsel to
the Company reasonably deems relevant;
(d) the Company shall have received certificates of an
executive officer of each of Parent and Merger Sub, certifying
that the conditions set forth in Sections 7.3(a) and
Section 7.3(b) have been satisfied; and
(e) Parent shall have performed all of its obligations to
be performed by it at or prior to the Effective Time under the
Subordinated Debt Termination Agreement and Tax Receivable
Termination Agreement, including the payment of all amounts due
by Parent to the relevant parties thereto pursuant to the terms
thereof.
A-36
ARTICLE VIII
TERMINATION,
AMENDMENT AND WAIVER
Section 8.1 Termination. This
Agreement may be terminated and the Merger contemplated hereby
may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the
Company:
(a) by mutual written consent of Parent, Merger Sub and the
Company;
(b) by Parent or the Company if any court of competent
jurisdiction or other Governmental Entity located or having
jurisdiction within the United States shall have issued a final
order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action is or shall have
become final and non-appealable; provided that the party seeking
to terminate this Agreement pursuant to this Section 8.1(b)
shall have used efforts as required by Section 6.10 to
prevent, oppose and remove such order decree or ruling or other
action and the issuance of such final, non-appealable order,
decree or ruling or other action was not primarily due to the
failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement;
(c) by Parent or the Company if the Effective Time shall
not have occurred on or before March 31, 2010 (the
Termination Date); provided,
however, that the right to terminate this Agreement
pursuant to this Section 8.1(c) shall not be available to
the party seeking to terminate if any action of such party (or,
in the case of Parent, Merger Sub) or the failure of such party
(or, in the case of Parent, Merger Sub) to perform any of its
obligations under this Agreement required to be performed at or
prior to the Effective Time has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the
Termination Date and such action or failure to perform
constitutes a breach of this Agreement; provided,
further, that, if on a date that would otherwise have
been the Termination Date the conditions set forth in
Section 7.1(c) are the only conditions in Article VII
(other than those conditions that by their terms are not to be
satisfied until the Closing) that shall not have been satisfied
or waived on or before such date, either the Company or Parent
may extend the Termination Date by up to three months by written
notice to the other on or prior to the Termination Date, in
which case the Termination Date shall be deemed for all purposes
to be such later date.
(d) by the Company:
(i) if there shall have been a breach of any
representation, warranty, covenant or agreement on the part of
Parent or Merger Sub contained in this Agreement such that the
conditions set forth in Section 7.3(a) or
Section 7.3(b) would not be satisfied and, in either such
case, such breach is incapable of being cured or has not been
cured by the Termination Date; provided that the Company
shall have given Parent at least twenty days written notice
prior to such termination stating the Companys intention
to terminate this Agreement pursuant to this Section 8.1(d)(i);
provided further that the Company shall not have the
right to terminate this Agreement pursuant to this Section
8.1(d)(i) if the Company is then in material breach of any of
its covenants or agreements contained in this Agreement; or
(ii) if all of the conditions set forth in Section 7.1
and Section 7.2 have been satisfied (other than those
conditions that by their terms are not to be satisfied until the
Closing) and Parent or Merger Sub has failed to consummate the
Merger promptly following satisfaction of such
conditions; or
(iii) prior to the obtaining the Company Requisite Vote,
pursuant to and subject to the terms and conditions of
Section 6.5(b); or
(e) by Parent:
(i) if there shall have been a breach of any
representation, warranty, covenant or agreement on the part of
the Company contained in this Agreement such that the conditions
set forth in Section 7.2(a) or Section 7.2(b) would
not be satisfied and, in either such case, such breach is
incapable of being cured by the Termination Date;
provided that Parent shall not have the right to
A-37
terminate this Agreement pursuant to this Section 8.1(e)(i)
if Parent or Merger Sub is then in material breach of any of its
covenants or agreements contained in this Agreement; or
(ii) if, prior to receipt of the Company Requisite Vote,
the Board of Directors of the Company or any committee thereof
(A) shall have made a Change of Recommendation or
(B) shall have recommended, adopted or approved, or
publicly proposed to recommend, adopt or approve, any
Acquisition Proposal or Acquisition
Proposal Documentation; or
(f) by either Parent or the Company if, upon a vote taken
thereon at the Stockholders Meeting or any postponement or
adjournment thereof, this Agreement shall not have been adopted
by the Company Requisite Vote.
Section 8.2 Effect
of Termination.
(a) In the event of the termination of this Agreement
pursuant to Section 8.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the
part of any party hereto, except with respect to
Section 6.4(b), Section 6.11, this Section 8.2,
Section 8.3 and Article IX, and the Confidentiality
Agreement, which shall survive such termination; provided,
however, that nothing herein shall relieve any party from
liability or damages as a result of fraud or any willful and
material breach of this Agreement, in which case, the aggrieved
party shall be entitled to all remedies available at Law or in
equity. For purposes of this Agreement, willful and
material breach shall mean a material breach that is a
consequence of an act undertaken by the breaching party with the
knowledge (actual or constructive) that the taking of such act
would, or would be reasonably expected to, cause a breach of
this Agreement.
(b) Company Termination Fee.
(i) In the event that this Agreement is terminated
(x) by the Company pursuant to Section 8.1(d)(iii),
(y) by Parent pursuant to Section 8.1(e)(ii), or
(z) by Parent or the Company pursuant to
Section 8.1(f) if prior to the vote to approve this
Agreement at the Stockholders Meeting or any postponement or
adjournment thereof, the Board of Directors of the Company or
any committee thereof (A) shall have made a Change of
Recommendation or (B) shall have recommended, adopted or
approved, or publicly proposed to recommend, adopt or approve,
any Acquisition Proposal or Acquisition
Proposal Documentation, then the Company shall pay the
Company Termination Fee to Parent, at or prior to the time of
termination in the case of a termination pursuant to
Section 8.1(d)(iii) or as promptly as reasonably
practicable in the case of a termination pursuant to
Section 8.1(e)(ii) or Section 8.1(f), payable by wire
transfer of same day funds (and, in any event, within two
business days following such termination). For purposes of this
Agreement, the Company Termination Fee means
$14,200,000.
(ii) In the event that this Agreement is terminated by
either Parent or the Company pursuant to Section 8.1(c) or
Section 8.1(f) (other than in the circumstances described
in Section 8.2(b)(i)) or by Parent pursuant to
Section 8.1(e)(i) and (A) at any time after the date
of this Agreement and prior to such termination (in the case of
a termination pursuant to Section 8.1(c)), or prior to the
breach giving rise to Parents right to terminate under
Section 8.1(e)(i) (in the case of a termination pursuant to
Section 8.1(e)(i)) or prior to the taking of a vote to
approve this Agreement at the Stockholders Meeting or any
postponement or adjournment thereof (in the case of a
termination pursuant to Section 8.1(f)) an Acquisition Proposal
shall have been made known to the Board of Directors of the
Company or shall have been publicly announced or publicly made
known to the stockholders of the Company, and not withdrawn
prior to such termination, such breach or such taking of a vote
to approve this Agreement, as applicable, and (B) within
twelve months after such termination, the Company shall have
entered into a definitive agreement with respect to, or shall
have consummated, such Acquisition Proposal, then, in any such
event, the Company shall pay to Parent the Company Termination
Fee, such payment to be made upon the earlier of the Company
entering into an agreement providing for, or consummating, such
Acquisition Proposal, by wire transfer of same day funds. For
the purpose of this Section 8.2(b), all references in the
term Acquisition Proposal to 10% or more will be
deemed to be references to more than 50%.
A-38
(c) Each of the Company, Parent and Merger Sub acknowledges
that the agreements contained in this Section 8.2 are an
integral part of the transactions contemplated by this
Agreement. In the event that the Company shall fail to pay the
Company Termination Fee when due, the Company shall reimburse
Parent for all reasonable costs and expenses actually incurred
or accrued by Parent (including reasonable fees and expenses of
counsel) in connection with any action (including the filing of
any lawsuit) taken to collect payment of such amounts, together
with interest on such unpaid amounts at the prime lending rate
prevailing during such period as published in The Wall Street
Journal, calculated on a daily basis from the date such amounts
were required to be paid to the date of actual payment.
Section 8.3 Expenses. Except
as otherwise specifically provided herein, each party shall bear
its own expenses in connection with this Agreement and the
transactions contemplated hereby. The Company shall bear the
expenses incurred in connection with the filing, printing and
mailing of the Proxy Statement.
Section 8.4 Procedure
for Termination or Amendment. In order for any
amendment or termination of this Agreement to be effective, such
amendment or termination requires approval of the respective
Boards of Directors of Parent, the Company or Merger Sub, as the
case may be (or any authorized committee thereof), if such
action is to be taken at any time prior to the Effective Time;
provided, however, that, after adoption of this
Agreement by the stockholders of the Company, no amendment may
be made which by Law requires the further approval of the
stockholders of the Company without such further approval. This
Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.5 Waiver. At
any time prior to the Effective Time, any party hereto may
(i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered
pursuant hereto and (iii) subject to the requirements of
applicable Law, waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby. The failure of any party
to assert any rights or remedies shall not constitute a waiver
of such rights or remedies. The waiver of any such right with
respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and
circumstances and each such right shall be deemed an ongoing
right that may be asserted at any time and from time to time.
ARTICLE IX
GENERAL
PROVISIONS
Section 9.1 Non-Survival
of Representations, Warranties, Covenants and
Agreements. None of the representations,
warranties, covenants and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement, including any
rights arising out of any breach of such representations,
warranties, covenants and agreements, shall survive the
Effective Time, except for (i) those covenants and
agreements contained herein that by their terms apply or are to
be performed in whole or in part after the Effective Time and
(ii) this Article IX.
Section 9.2 Notices. All
notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in
person, by facsimile or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Merger Sub:
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: General Counsel
Facsimile:
(913) 523-9802
A-39
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: President Strategic Planning and
Corporate Initiatives
Facsimile:
(913) 523-8888
with an additional copy (which shall not constitute notice) to:
King & Spalding LLP
1185 Avenue of the Americas
New York, NY 10036
Attention: E. William Bates, II
Adam
M. Freiman
Facsimile:
(212) 556-2222
(b) if to the Company:
Virgin Mobile USA, Inc.
10 Independence Blvd.
Warren, NJ 07059
Attention: Peter Lurie, General Counsel
Facsimile:
(908) 607-4078
with an additional copy (which shall not constitute notice) to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Alan Klein, Esq.
Facsimile:
(212) 455-2502
Section 9.3 Certain
Definitions. For purposes of this Agreement, the
term:
(a) affiliate of a person means a person
that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the
first mentioned person;
(b) associate of a person has the
meaning ascribed to such term in
Rule 12b-2
under the Exchange Act;
(c) business day means any day on which
the principal offices of the SEC in Washington, D.C. are
open to accept filings or, in the case of determining a date
when any payment is due, any day on which banks are not required
or authorized by Law to close in New York, New York;
(d) control (including the terms
controlled, controlled by
and under common control with) means the
possession, directly or indirectly or as trustee or executor, of
the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or
otherwise;
(e) executive officer of the Company
means any of the persons listed in Section 9.3(e) of the
Company Disclosure Schedule.
(f) knowledge (i) with respect to
the Company means the actual knowledge of any of the persons
listed in Section 9.3(f) of the Company Disclosure Schedule
and (ii) with respect to Parent or Merger Sub means the
actual knowledge of the President-Strategic Planning and
Corporate Initiatives and the General Counsel of Parent;
(g) Law means any federal, state or
local law, statute or ordinance, common law, or any rule,
regulation, directive, treaty, policy, standard, judgment,
agency requirement, license or permit of any Governmental Entity.
A-40
(h) officer of the Company or any of its
subsidiaries means any of the persons listed as such in
Section 9.3(h) of the Company Disclosure Schedule.
(i) person means an individual,
corporation, partnership, limited liability company,
association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d)(3) of the Exchange Act);
(j) subsidiary or
subsidiaries of the Company, the Surviving
Corporation, Parent or any other person means any corporation,
partnership, joint venture or other legal entity of which the
Company, the Surviving Corporation, Parent or such other person,
as the case may be (either alone or through or together with any
other subsidiary), owns, directly or indirectly, 50% or more of
the stock or other equity interests the holder of which is
generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other
legal entity.
Section 9.4 Severability. If
any term or other provision of this Agreement is held to be
invalid, illegal or incapable of being enforced by any rule of
Law or public policy, the validity, legality and enforceability
of all other conditions and provisions of this Agreement shall
not be affected or impaired thereby so long as the economic or
legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the fullest extent possible and if the
parties cannot come to an agreement, such term or provision
shall be deemed reformed to the extent necessary to conform to
applicable Law and to give maximum effect to the intent of the
parties hereto.
Section 9.5 Entire
Agreement; Assignment. This Agreement (including
the Exhibits hereto), the Company Disclosure Schedule and the
Confidentiality Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and
supersede all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the
subject matter hereof. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, in
whole or in part, by operation of Law or otherwise, by any of
the parties without the prior written consent of each of the
other parties, except that Parent may assign all or any of its
rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent after providing written notice
thereof to the Company at least five business days prior to such
assignment so long as such assignment does not materially impede
or delay consumption of the transactions contemplated by this
Agreement or otherwise materially impede the rights of the
stockholders of the Company under this Agreement;
provided, however, that no such assignment shall
relieve the assigning party of its obligations hereunder. Any
purported assignment in violation of this Agreement is void.
Section 9.6 Parties
in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this
Agreement, other than (a) with respect to the provisions of
Section 6.7 which shall inure to the benefit of the persons
or entities benefiting therefrom who are intended to be
third-party beneficiaries thereof, (b) at the Effective
Time, the rights of the holders of Company Common Stock and
Company Preferred Stock to receive the Merger Consideration in
accordance with the terms and conditions of this Agreement and
(c) at the Effective Time, the rights of the holders of
Company Options and Company Stock-Based Awards to receive the
consideration contemplated by the applicable provisions of
Section 2.2(a) and Section 2.2(b), in each case, at
the Effective Time in accordance with the terms and conditions
of this Agreement.
Section 9.7 Governing
Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Delaware
(without giving effect to choice of Law principles that would
cause the Laws of another jurisdiction to apply).
Section 9.8 Headings. The
descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 9.9 Counterparts. This
Agreement may be executed and delivered (including by facsimile
or other electronic transmission) in one or more counterparts,
and by the different parties hereto in separate
A-41
counterparts, each of which when executed shall be deemed to be
an original but all of which taken together shall constitute one
and the same agreement.
Section 9.10 Specific
Performance. The parties agree that irreparable
damage would occur and that the parties and the third party
beneficiaries of the Agreement would not have any adequate
remedy at Law in the event that any of the provisions of this
Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that,
prior to the termination of this Agreement pursuant to
Section 8.1, each of the Company, Parent and Merger Sub
shall be entitled to an injunction or injunctions or other
equitable relief to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement,
this being in addition to any other remedy to which such party
is entitled at Law or in equity. The parties agree that they
shall not object to the granting of injunctive or other
equitable relief on the basis that there exists adequate remedy
at Law. The parties further agree that (x) by seeking the
remedies provided for in this Section 9.10, a party shall
not in any respect waive its right to seek any other form of
relief that may be available to a party under this Agreement,
including monetary damages in the event that this Agreement is
terminated or in the event that the remedies provided for in
this Section 9.10 are not available or are otherwise not
granted and (y) nothing in this Section 9.10 shall
restrict or limit any partys right to terminate this
Agreement in accordance with the terms of Article VIII or
pursuant any other remedies that may be available then or
thereafter.
Section 9.11 Jurisdiction. Each
of the parties hereto (i) consents to submit itself to the
personal jurisdiction of the courts of the Court of Chancery of
the State of Delaware or, if under applicable Law exclusive
jurisdiction over such matter is vested in the federal courts,
any court of the United States located in the State of Delaware,
in the event any dispute arises out of this Agreement or any of
the transactions contemplated by this Agreement,
(ii) agrees that it shall not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave
from any such court, (iii) agrees that it shall not bring
any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than Court of
Chancery of the State of Delaware or, if under applicable Law
exclusive jurisdiction over such matter is vested in the federal
courts, any court of the United States located in the State of
Delaware, and (iv) consents to service being made through
the notice procedures set forth in Section 9.2. Each of the
Company, Parent and Merger Sub hereby agrees, to the fullest
extent permitted by Law, that service of any process, summons,
notice or document by U.S. registered mail to the
respective addresses set forth in Section 9.2 shall be
effective service of process for any suit or proceeding in
connection with this Agreement or the transactions contemplated
hereby. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND WHETHER MADE BY CLAIM,
COUNTERCLAIM, THIRD PARTY CLAIM OR OTHERWISE.
Section 9.12 Interpretation. When
reference is made in this Agreement to an Article, a Section,
Exhibit or Schedule, such reference shall be to an Article of, a
Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words include,
includes or including are used in this
Agreement, they shall be deemed to be followed by the words
without limitation. The words hereof,
herein, hereby and hereunder
and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision of this Agreement. The word or shall not
be exclusive. References to this Agreement shall
include the Company Disclosure Schedule. The definitions
contained in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any
Contract, instrument or Law defined or referred to herein or in
any Contract or instrument that is referred to herein means such
Contract, instrument or Law as from time to time amended,
modified or supplemented, including (in the case of Contracts or
instruments) by waiver or consent and (in the case of Laws) by
succession of comparable successor Laws and references to all
attachments thereto and instruments incorporated therein. This
Agreement is the product of negotiation by the parties having
the assistance of counsel and other advisors, and it shall be
construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting or
causing any instrument to be drafted.
[Remainder of Page Left Blank Intentionally]
A-42
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
VIRGIN MOBILE USA, INC.
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By:
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/s/ Daniel
H. Schulman
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Name: Daniel H. Schulman
SPRINT NEXTEL CORPORATION
Name: Keith O. Cowan
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Title:
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President Strategic Planning and Corporate
Initiatives
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SPRINT MOZART, INC.
Name: Keith O. Cowan
A-43
ANNEX B
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Deutsche Bank Securities Inc. Mergers & Acquisitions 60 Wall Street New York, NY 10005
|
July 27, 2009
Transaction Committee of the Board of Directors
Virgin Mobile USA, Inc.
10 Independence Boulevard
Warren, NJ 07059
Gentlemen:
Deutsche Bank Securities Inc. (Deutsche Bank) has
acted as financial advisor to the Transaction Committee of the
Board of Directors of Virgin Mobile USA, Inc. (the
Company) in connection with the Agreement and Plan
of Merger, dated July 27, 2009 (the Merger
Agreement), among the Company, Sprint Nextel Corporation
(Parent), and Sprint Mozart, Inc., a subsidiary of
Parent (the Merger Sub), which provides, among other
things, for the merger of the Merger Sub with and into the
Company, as a result of which the Company will become a wholly
owned subsidiary of Parent (the Transaction). As set
forth more fully in the Merger Agreement, as a result of the
Transaction, (i) each share of Class A common stock,
par value $0.01 per share, of the Company (the
Class A Common Stock) and each share of
Class C common stock, par value $0.01 per share, of the
Company (the Class C Common Stock, and,
together with the Class A Common Stock and the Class B
Common Stock (as defined below), the Company Common
Stock) (other than (a) any shares of Class A
Common Stock or Class C Common Stock held by Corvina
Holdings Limited (Corvina), Cortaire Limited
(Cortaire and together with Corvina, Virgin
Group, and together with any of their affiliates to which
any such shares are transferred on or after the date hereof, the
Virgin Group Stockholders), and SK Telecom Co., Ltd.
(SK Telecom, and together with any of its affiliates
to which any such shares are transferred on or after the date
hereof, the SK Stockholders) and (b) shares
owned directly or indirectly by the Company, Parent, or Merger
Sub, or any other wholly-owned subsidiary of Parent or the
Company), will be converted into the right to receive the number
(the Exchange Ratio) of shares of Series 1
voting common stock, par value $2.00 per share, of Parent
(Parent Shares) equal to the number determined by
dividing $5.50 by the Average Parent Stock Price (as defined
below) (provided, however, that (x) if the number
determined by dividing $5.50 by the Average Parent Stock Price
is less than or equal to 1.0630, the Exchange Ratio shall be
1.0630 and (y) if the number determined by dividing $5.50
by the Average Parent Stock Price is greater than or equal to
1.3668, the Exchange Ratio shall be 1.3668); (ii) each
share of Class A Common Stock and Class C Common Stock
held by the Virgin Group Stockholders will be converted into the
right to receive the number of Parent Shares equal to the
product of the Exchange Ratio and 93.09% (the Virgin Group
Exchange Ratio); (iii) each share of Class A
Common Stock and Class C Common Stock held by the SK
Stockholders will be converted into the right to receive the
number of Parent Shares equal to the product of the Exchange
Ratio and 89.84% (the SK Exchange Ratio);
(iv) each share of the Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company (the
Company Preferred Stock) (other than shares owned
directly or indirectly by the Company, Parent, or Merger Sub, or
any other wholly-owned subsidiary of Parent or the Company)
shall be converted into the right to receive the number of
Parent Shares equal to the product of (x) the number of
shares of Class A Common Stock into which each share of
Company Preferred Stock is convertible and (y) (a) in the
case of the Virgin Group Stockholders, the Virgin Exchange Ratio
and (b) in the case of the SK Stockholders, the SK Exchange
Ratio; (v) each share of Class B common stock, par
value $0.01 per share, of the Company (the Class B
B-1
Transaction Committee of the Board of Directors of Virgin Mobile
USA, Inc.
July 27, 2009
Page 2
Common Stock) will be canceled without any conversion
thereof and no consideration will be delivered in respect
thereto; and (vi) each holder of Company Common Stock and
Company Preferred Stock converted pursuant to the Transaction
who would otherwise have been entitled to receive a fraction of
a Parent Share will receive, in lieu thereof, cash in an amount
equal to the product of (A) such fractional Parent Share
multiplied by (B) the per share closing price on the
Closing Date of Parent Shares reported on the Composite Tape of
the New York Stock Exchange (the amount of Parent Shares to be
received by the holders of the Class A Common Stock
pursuant to clause (i), and any cash in lieu of fractional
Parent Shares received by the holders of the Class A Common
Stock pursuant to clause (vi), the Merger
Consideration). Average Parent Stock Price
means the average of the closing prices of Parent Shares for the
ten trading days ending on the second trading day immediately
preceding the date of the filing of the certificate of merger
with the Secretary of State of the State of Delaware. We
understand that the Merger Consideration will be subject to
adjustment as provided in the Merger Agreement based on changes
in the outstanding shares of capital stock of Parent or the
Company by reason of any reclassification, recapitalization,
stock split or combination, exchange or readjustment of shares,
or any stock dividend thereon.
You have requested our opinion as to the fairness of the Merger
Consideration, from a financial point of view, to the holders of
the outstanding shares of Class A Common Stock, excluding
Parent, Virgin Group, SK Telecom, and their affiliates.
In connection with our role as financial advisor to the
Transaction Committee, and in arriving at our opinion, we
reviewed certain publicly available financial and other
information concerning the Company and Parent, including certain
publicly available financial forecasts relating to the business
and financial prospects of Parent prepared by certain research
analysts (the Parent Street Forecasts). We also
reviewed certain internal analyses, financial forecasts for the
Companys Fiscal Years 2009 2011 and other
information relating to the Company prepared by management of
the Company, and held discussions with members of the
Companys management regarding the businesses and prospects
of the Company. In addition, Deutsche Bank has (i) reviewed
the reported prices and trading activity for the Class A
Common Stock and Parent Shares, (ii) to the extent publicly
available, compared certain financial and stock market
information for the Company and Parent with similar information
for certain other companies we considered relevant whose
securities are publicly traded, (iii) to the extent
publicly available, reviewed the financial terms of certain
recent business combinations which we deemed relevant, and
(iv) reviewed a draft dated July 27, 2009 of the
Merger Agreement and certain related documents, including, a
draft dated July 25, 2009 of the Termination and Mutual
Release Agreement between Corvina, the Company, and Parent (the
Tax Receivable Termination Agreement), a draft dated
July 26, 2009 of the Second Amended and Restated Trademark
License Agreement between Virgin Enterprises Limited and Virgin
Mobile USA, L.P. (the Trademark License Agreement),
a draft dated July 24, 2009, of the Voting Agreement to be
executed by Parent and Virgin Group (the Virgin Group
Voting Agreement), and a draft dated July 24, 2009,
of the Voting Agreement to be executed by Parent and SK Telecom
(the SK Telecom Voting Agreement, and together with
the Virgin Group Voting Agreement, the Voting
Agreements) (the Tax Receivable Termination Agreement,
Trademark License Agreement, and the Voting Agreements, the
Related Transaction Documents), and
(v) performed such other studies and analyses and
considered such other factors as we deemed appropriate. Parent
has not provided internally prepared forecasts, analyses or
estimates and has not commented on the Parent Street Forecasts
or any other publicly available forecasts relating to the
business and financial prospects of Parent. With your consent,
we have assumed that the Parent Street Forecasts are a
reasonable basis upon which to evaluate the business and
financial prospects of Parent and used the Parent Street
Forecasts for purposes of our analyses and this opinion. We
express no view as to any such analyses, estimates or forecasts,
including the Parent Street Forecasts, including the assumptions
on which they were based.
Deutsche Bank has not assumed responsibility for independent
verification of, and has not independently verified, any
information, whether publicly available or furnished to it,
concerning the Company or Parent, including,
B-2
Transaction Committee of the Board of Directors of Virgin Mobile
USA, Inc.
July 27, 2009
Page 3
without limitation, any financial information considered in
connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, Deutsche Bank has, with your
permission, assumed and relied upon the accuracy and
completeness of all such information. Deutsche Bank has not
conducted a physical inspection of any of the properties or
assets, and has not prepared or obtained any independent
evaluation or appraisal of any of the assets or liabilities
(including any contingent, derivative or off-balance-sheet
assets and liabilities), of the Company or Parent or any of
their respective subsidiaries, nor have we evaluated the
solvency or fair value of the Company or Parent under any state
or federal law relating to bankruptcy, insolvency or similar
matters. With respect to financial forecasts relating to the
Company made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed with your permission that
they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of
the Company as to the matters covered thereby. In rendering its
opinion, Deutsche Bank expresses no view as to the
reasonableness of such forecasts or the assumptions on which
they are based. Deutsche Banks opinion is necessarily
based upon economic, market and other conditions, and the
information made available to it, as of the date hereof. We
expressly disclaim any undertaking or obligation to advise any
person of any change in any fact or matter affecting our opinion
of which we become aware after the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed
with your permission that, in all respects material to its
analysis, the Transaction will be consummated in accordance with
its terms, without any material waiver, modification or
amendment of any term, condition or agreement, and without any
adjustment in the Exchange Ratio attributable to changes in the
outstanding shares of capital stock of Parent or the Company by
reason of any reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares, or any stock
dividend thereon. Deutsche Bank has also assumed that all
material governmental, regulatory, contractual or other
approvals and consents required in connection with the
consummation of the Transaction will be obtained and that in
connection with obtaining any necessary governmental,
regulatory, contractual or other approvals and consents, no
material restrictions, terms or conditions will be imposed. We
are not legal, regulatory, tax or accounting experts and have
relied on the assessments made by the Company and its advisors
with respect to such issues. Representatives of the Company have
informed us, and we have further assumed, that the final terms
of the Merger Agreement and the Related Transaction Documents
will not differ materially from the terms set forth in the
drafts we have reviewed.
This opinion has been approved and authorized for issuance by a
fairness opinion review committee and is addressed to, and for
the use and benefit of, the Transaction Committee of the Board
of Directors of the Company. It is not a recommendation to the
stockholders of the Company to approve the Transaction. This
opinion is limited to the fairness, from a financial point of
view, of the Merger Consideration to the holders of the
Class A Common Stock, excluding Parent, Virgin Group, SK
Telecom, and their affiliates. You have not asked us to, and
this opinion does not, address the fairness of the Transaction,
or any consideration received in connection therewith, to the
holders of any other class of securities, creditors or other
constituencies of the Company, nor does it address the fairness
of the contemplated benefits of the Transaction. Deutsche Bank
expresses no opinion as to the merits of the underlying decision
by the Company to engage in the Transaction or the relative
merits of the Transaction as compared to any alternative
business strategies, nor do we express an opinion as to how any
holder of shares of Class A Common Stock should vote with
respect to the Transaction. We do not express any view or
opinion as to the fairness, financial or otherwise, of the
amount or nature of any compensation payable to or to be
received by any of the Companys officers, directors, or
employees, or any class of such persons, in connection with the
Transaction relative to the Merger Consideration to be received
by the holders of the Class A Common Stock. Further, we
express no view as to, and our opinion does not address, the
relative impact on the holders of the Class A Common Stock
of any payments (other than the payment of the Merger
Consideration in respect of shares of Class A Common Stock)
to be made by the Company or Parent or their affiliates in
connection with the Transaction, or any
B-3
Transaction Committee of the Board of Directors of Virgin Mobile
USA, Inc.
July 27, 2009
Page 4
arrangements entered into by the Company or Parent, including
any such pursuant to the Related Transaction Documents, the
Employment Agreement (the Employment Agreement)
between Daniel H. Schulman and Parent, and the Payoff and
Termination Agreement (the Subordinated Debt Termination
Agreement) between Parent, Virgin Mobile USA, L.P., Virgin
Entertainment Holdings, Inc., and SK Telecom, in connection with
the Transaction. We are assuming, with your consent, that such
payments and arrangements, including any such pursuant to the
Related Transaction Documents, the Employment Agreement, and the
Subordinated Debt Termination Agreement, were negotiated on
arms-length terms and are fair to the holders of the
Class A Common Stock. We also assume, with your consent,
that no agreements or arrangements with the holders of any class
of securities, creditors or other constituencies of the Company,
other than such agreements and arrangements contemplated in the
Merger Agreement, are being entered into, amended, or terminated
as part of the Transaction.
Deutsche Bank will be paid a fee for its services as financial
advisor to the Transaction Committee in connection with the
Transaction, a portion of which is contingent upon delivery of
this opinion and a substantial portion of which is contingent
upon consummation of the Transaction. The Company has also
agreed to reimburse Deutsche Bank for its expenses, and to
indemnify Deutsche Bank against certain liabilities, in
connection with its engagement. We are an affiliate of Deutsche
Bank AG (together with its affiliates, the DB
Group). One or more members of the DB Group have, from
time to time, provided investment banking, commercial banking
(including extension of credit) and other financial services to
Parent, the Company and the other parties to the Transaction and
their respective affiliates for which it has received
compensation, including the Virgin Mobile acquisition of Helio
LLC in 2008, the convertible bond offering by Sprint Nextel in
2008, and the share repurchase program by Sprint Nextel in 2007.
The DB Group may also provide investment and commercial banking
services to Parent, the Company or any other party to the
Transaction and their respective affiliates in the future for
which we would expect the DB Group to receive compensation,
although no specific material relationship with such parties is
currently contemplated by the DB Group. In the ordinary course
of business, members of the DB Group may actively trade in the
securities and other instruments and obligations of Parent,
Company, Virgin Group, SK Telecom and their affiliates for their
own accounts and for the accounts of their customers.
Accordingly, the DB Group may at any time hold a long or short
position in such securities, instruments and obligations.
Based upon and subject to the foregoing assumptions,
limitations, qualifications and conditions, it is Deutsche
Banks opinion that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the
holders of Class A Common Stock, excluding Parent, Virgin
Group, SK Telecom and their affiliates.
This opinion may not be disclosed, summarized, referred to, or
communicated (in whole or in part) to any other person for any
purpose whatsoever except with our prior written approval. This
opinion may be included in any disclosure document filed by the
Company with the Securities and Exchange Commission with respect
to a Transaction, provided that it is reproduced in full
and that any description of or reference to Deutsche Bank or any
B-4
Transaction Committee of the Board of Directors of Virgin Mobile
USA, Inc.
July 27, 2009
Page 5
summary of this opinion in the disclosure document is in a form
reasonably acceptable to Deutsche Bank and its counsel but may
not otherwise be disclosed publicly in any manner without our
prior written approval.
Very truly yours,
/s/ Deutsche
Bank Securities
DEUTSCHE BANK SECURITIES INC.
B-5
VIRGIN
MOBILE USA, INC.
10 INDEPENDENCE BLVD.
WARREN, NJ 07059
VOTE
BY INTERNET www.proxyvote.com
Use the Internet to transmit your voting instructions
and for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand
when you access the web site and follow the
instructions to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our
company in mailing proxy materials, you can consent
to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the
Internet. To sign up for electronic delivery, please
follow the instructions above to vote using the
Internet and, when prompted, indicate that you agree
to receive or access proxy materials electronically
in future years.
VOTE BY PHONE 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Have your
proxy card in hand when you call and then follow the
instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in
the postage-paid envelope we have provided or return
it to Vote Processing, c/o Broadridge, 51 Mercedes
Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
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M17987-S51570
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KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY |
VIRGIN MOBILE USA, INC.
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Vote on Proposals |
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UNLESS YOU INDICATE OTHERWISE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2, AS
MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. WE RECOMMEND A VOTE FOR PROPOSAL 1 AND
FOR PROPOSAL 2. |
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The Board of Directors recommends you vote FOR the following proposal(s): |
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Abstain |
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1.
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Vote to adopt the Agreement and Plan of Merger, dated as of July 27, 2009, among Sprint Nextel Corporation, Sprint Mozart,
Inc. and Virgin Mobile USA, Inc., as it may be amended from time to time.
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2.
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Vote to approve the adjournment of the meeting, if necessary or appropriate, to solicit additional proxies if there is an
insufficient number of votes at the meeting to adopt the merger agreement.
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PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE THAT IS POSTAGE
PREPAID IF MAILED INT THE UNITED STATES. |
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Please sign exactly as your name appears hereon. If the
stock is registered in the names of two or more persons,
each should sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add their titles. If
signer is a corporation, please give full corporate name
and have a duly authorized officer sign, stating title. If
signer is a partnership, please sign in partnership name by
authorized person. |
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting:
The Notice and Proxy Statement is available at www.proxyvote.com.
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ê FOLD AND DETACH HERE ê |
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M17988-S51570 |
VIRGIN MOBILE USA, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 24, 2009
If you mail your proxy card, please vote, date, sign and promptly return it in the enclosed
return envelope that is postage prepaid if mailed in the United States.
The undersigned hereby appoints Peter Lurie and Nathan D. Marinoff, and each of them, as
attorneys and proxies of the undersigned, with full power of substitution, to vote all of the
shares of stock of Virgin Mobile USA, Inc. that the undersigned may be entitled to vote at a
Special Meeting of Stockholders of Virgin Mobile USA, Inc. to be held on November 24, 2009 at 9:00
a.m. local time, at the Courtyard by Marriott Basking Ridge, 595 Martinsville Road, Basking Ridge,
New Jersey 07920, and at any and all continuations and adjournments of that meeting, with all
powers that the undersigned would possess if personally present, upon and in respect of the matters
listed on the reverse side and in accordance with the instructions designated on the reverse side,
with discretionary authority as to any and all other matters that may properly come before the
meeting.
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SEE
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SEE |
REVERSE
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REVERSE |
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(Continued and to be signed and dated on reverse side)
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