| entitled to outplacement services for 12 months following termination. All such amounts are “double-trigger” (i.e., they are contingent upon a qualifying termination of employment). |
| Name |
Insurance Benefits ($) |
Outplacement ($) |
Office and Executive Assistant ($) |
|||||||||
| Named Executive Officers |
||||||||||||
| John J. Legere |
6,516 | 6,500 | 450,000 | |||||||||
| J. Braxton Carter |
13,912 | 6,500 | ||||||||||
| G. Michael Sievert |
19,316 | 6,500 | ||||||||||
| Neville R. Ray |
20,975 | 6,500 | ||||||||||
| Thomas C. Keys |
19,395 | 6,500 | ||||||||||
Transactions with Deutsche Telekom
Certain members of the T-Mobile board of directors are executives of Deutsche Telekom, and Deutsche Telekom is the beneficial holder of a majority of the outstanding shares of T-Mobile common stock as of the T-Mobile record date.
T-Mobile is party to a number of existing related person transactions with Deutsche Telekom and its affiliates that may be affected by the merger transactions if the merger transactions are completed. These transactions include important financing arrangements and commercial arrangements pursuant to which T-Mobile obtains or provides various services and/or licenses intellectual property or technology. See “Transactions with Related Persons and Approval—Transactions with Deutsche Telekom” in T-Mobile’s annual proxy statement filed with the SEC on April 26, 2018, which is incorporated herein by reference, for more information regarding these transactions. In addition, Deutsche Telekom and its affiliates are and will be parties to several agreements and arrangements related to the merger transactions to which T-Mobile also is or will be a party, including the business combination agreement, the amended and restated stockholders’ agreement, the license agreement amendment and the financing matters agreement. See “The Business Combination Agreement,” “Stockholders’ and Proxy Agreements—Amended and Restated Stockholders’ Agreement,” “The Merger Transactions—Other Agreements—Trademark License,” and “Description of Financing.” With respect to any of these agreements or arrangements, the interests of Deutsche Telekom may be different from, or in addition to, the interests of T-Mobile’s stockholders generally.
Interests of Certain Executive Officers and Directors of Sprint in the Merger Transactions
Sprint’s directors and executive officers may have interests in the merger transactions that are different from or in addition to those of Sprint’s stockholders generally. The Sprint board of directors and the Sprint independent committee were aware of and considered these interests to the extent such interests existed at the time, among other matters, in evaluating the business combination agreement, in approving the business combination agreement and the terms of the merger transactions and in recommending that the business combination agreement be approved by the stockholders of Sprint.
The merger transactions contemplated by the business combination agreement will be a “change in control” for purposes of the Sprint executive compensation and benefit plans described below.
Leadership Following the Merger Transactions
Certain members of the Sprint board of directors and certain executive officers of Sprint may serve as members of the combined company board of directors or executive officers of the combined company following the effective time. See “—Board of Directors and Management of the Combined Company.”
Certain Assumptions
Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section entitled “—Interests of Certain Executive Officers and Directors of Sprint in the Merger Transactions,” the following assumptions were used:
| • | The relevant price per share of Sprint common stock is $5.34, which is the average closing price per share of Sprint common stock as reported on the NYSE over the first five business days following the first public announcement of the merger transactions on April 29, 2018; |
| • | The effective time is June 30, 2018, which is the assumed date of the closing of the merger transactions solely for purposes of the disclosure in this section entitled “—Interests of Certain Executive Officers and Directors of Sprint in the Merger Transaction”; |
| • | The employment of each executive officer of Sprint was terminated by Sprint without “cause,” or a term of similar import, or due to the officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements), or a term of similar import, in either case immediately following the assumed effective time of June 30, 2018; and |
| • | The service of each non-employee member of Sprint’s board of directors was involuntary terminated immediately following the assumed effective time of June 30, 2018. |
As the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate as of the date referenced, the actual amounts, if any, that may be paid or become payable may materially differ from the amounts set forth below.
Treatment of Sprint Equity-Based Awards
Stock Options. Each option to purchase shares of Sprint common stock (other than under the Sprint Employees Stock Purchase Plan), whether vested or unvested, that is outstanding immediately prior to the effective time, as of the effective time, will be automatically converted into an option to purchase, on the same terms and conditions (including, if applicable, any continuing vesting requirements) under the applicable plan and award agreement in effect immediately prior to the effective time, a number of shares of T-Mobile common stock, rounded down to the nearest whole share, equal to the product determined by multiplying (a) the total number of shares of Sprint common stock subject to such Sprint option immediately prior to the effective time, by (b) 0.10256, at an exercise price per share equal to the quotient (rounded up to the nearest whole cent) of (x) the per share exercise price for the Sprint common stock subject to such option as of immediately prior to the effective time, divided by (y) 0.10256.
Time-Based Restricted Stock Units. Each award of time-based restricted stock units in respect of shares of Sprint common stock, whether vested or unvested, that is outstanding as of immediately prior to the effective time, as of the effective time, will be automatically converted into a restricted stock unit award, on the same terms and conditions (including, if applicable, any continuing vesting requirements) under the applicable plan and award agreement in effect immediately prior to the effective time, in respect of a number of shares of T-Mobile common stock equal to the product (rounded up to the nearest whole share) of (a) the number of shares of Sprint common stock subject to such restricted stock unit as of immediately prior to the effective time multiplied by (b) 0.10256. Any accrued but unpaid dividend equivalents with respect to any award of time-based restricted stock units in respect of shares of Sprint common stock will be assumed and become an obligation with respect to the applicable award of restricted stock units in respect of shares of T-Mobile common stock.
Performance-Based Restricted Stock Units. Each award of performance-based restricted stock units in respect of shares of Sprint common stock, whether vested or unvested, that is outstanding as of immediately prior to the effective time, as of the effective time, will be automatically converted into a restricted stock unit, on the same terms and conditions (including, if applicable, any continuing vesting requirements, but not the
performance-based vesting conditions applicable to such performance-based restricted stock unit in respect of Sprint common stock immediately prior to the effective time) under the applicable plan and award agreement in effect immediately prior to the effective time, in respect of a number of shares of T-Mobile common stock equal to the product (rounded up to the nearest whole share) of (a) the number of shares of Sprint common stock subject to such restricted stock unit as of immediately prior to the effective time, multiplied by (b) 0.10256. Any accrued but unpaid dividend equivalents with respect to any award of performance-based restricted stock units in respect of shares of Sprint common stock will be assumed and become an obligation with respect to the applicable award of restricted stock units in respect of shares of T-Mobile common stock. The number of shares of Sprint common stock subject to each performance-based restricted stock unit outstanding as of immediately prior to the effective time will be based on the assumed level of performance equal to (x) in the case of a “turnaround incentive award” issued in respect of Sprint common stock, the greatest of (1) the volume-weighted average price of Sprint common stock over any 150-calendar day period as specified in the applicable award agreement as of the effective time, (2) the volume-weighted average price of Sprint common stock over the five consecutive trading day period ending with the second complete trading day prior to the effective time, and (3) the volume-weighted average price of Sprint common stock equal to 100% of the target award; and (y) in the case of an award of performance-based restricted stock units issued in respect of shares of Sprint common stock that is not a “turnaround incentive award,” in respect of outstanding performance periods as of the effective time, the target number of shares of Sprint common stock underlying such award of performance-based restricted stock units, and in respect of completed performance periods as of the effective time, the actual number of shares of Sprint common stock underlying such award of performance-based restricted stock units.
Treatment of Equity Awards Following the Effective Time. At the effective time, the outstanding Sprint stock options, Sprint time-based restricted stock units and Sprint performance-based restricted stock units held by Sprint’s executive officers that convert into equity awards with respect to T-Mobile common stock in the manner described above will remain subject to the same service-based vesting conditions, if any. Pursuant to the terms of these awards, if an executive officer’s employment is terminated without “cause” or by the executive officer under circumstances which would constitute “good reason,” in each case, during the 18 months following a change of control, all outstanding converted equity awards held by such executive officer would fully vest and become exercisable, as applicable, upon such termination of employment. In general, for purposes of the converted equity awards, “cause” and “good reason” have the meanings applicable to the executive officers under the Severance Plan (as defined below) or the executive officer’s applicable employment agreement.
Each non-employee member of Sprint’s board of directors holds restricted stock units. The vesting of the restricted stock units will be accelerated upon the director’s involuntary termination of board service following the effective time.
See “Quantification of Potential Payments and Benefits to Sprint’s Named Executive Officers in Connection with the Merger Transactions” for an estimate of the amounts that would become payable to each of Sprint’s named executive officers in respect of their unvested equity awards. Based on the assumptions described above under “—Certain Assumptions,” (1) the estimated aggregate amounts that would become payable to Sprint’s three executive officers who are not named executive officers in respect of their unvested equity awards is as follows: unvested Sprint stock options—$161,389; Sprint restricted stock units—$2,028,661; and Sprint performance-based restricted stock units—$10,204,147 and (2) the estimated aggregate amount that would become payable to Sprint’s six non-employee directors in respect of their unvested equity awards is as follows: Sprint restricted stock units—$1,112,076.
For more information on equity holdings of Sprint’s non-employee directors and executive officers, see “Principal Stockholders of Sprint.”
Potential Severance Payments Upon a Qualifying Termination Following the Effective Time
Change in Control Severance Plan. Sprint maintains the Change in Control Severance Plan (which we refer to as the “Severance Plan”). Each current executive officer participates in the Severance Plan, except for Messrs.
Claure, Schieber and Davies. The Severance Plan provides that in the event that a participating executive’s employment is terminated (1) by Sprint without “cause” (as defined in the Severance Plan) 6 months prior to a change in control at the request of a third party in contemplation of a change in control or (2) by Sprint without “cause” (as defined in the Severance Plan) or by the executive officer for “good reason” (as defined in the Severance Plan) within 18 months following a change in control, then the participant would be entitled to the following benefits, subject to the execution of a general release:
| • | An amount equal to the participant’s applicable severance multiple multiplied by the sum of (a) base salary and (b) target annual bonus, in each case, for the year in which the participant’s termination occurs (unless such termination is for good reason due to a reduction of the participant’s target bonus, in which case the target bonus used in this calculation will be such target bonus in effect immediately before the reduction), payable in lump sum; |
| • | Prorated target annual bonus if the termination of employment occurs in the same calendar year as the change in control and prorated annual bonus based on actual performance if the termination of employment occurs after the calendar year of the change in control; |
| • | Continued participation in health and life insurance plans through the earlier of the expiration of the applicable post-termination period or the participant’s eligibility for comparable benefits from a new employer or otherwise; and |
| • | Outplacement services for the period ending on the second calendar year following the year of termination, up to $35,000. |
The applicable severance multipliers/applicable post-termination periods are as follows: two times/two years for Messrs. Combes, Cano and Crull and one-and-half (1.5) times 18 months for Messrs. Draper, Gracia and Saw. In addition, in the event that Mr. Combes’s employment with Sprint terminates and he subsequently commences employment with SoftBank, or is offered, but refuses to accept, a comparable employment position with SoftBank following the closing of the merger transactions, then in each case he will not be entitled to receive certain severance compensation and other benefits under certain conditions as specified in his employment agreement.
The Severance Plan provides that Sprint may reduce any payments and benefits that constitute “parachute payments” subject to the excise tax imposed by Section 4999 of the Code such that no portion of such amounts will be subject to the excise tax under Section 280G of the Code (if, and to the extent, such reduction would result in a greater after-tax return to the participant than receiving all of the payments and benefits and paying the resulting excise tax).
Claure Employment Agreement
Mr. Claure is not eligible to participate in the Severance Plan and he is not eligible to receive any cash severance payments (other than accrued benefits) upon any termination of employment from Sprint, other than a pro-rated annual incentive based on actual performance. If Mr. Claure remains employed through the closing of the merger transactions, then his employment with Sprint will terminate immediately after such closing and, subject to Mr. Claure’s execution and delivery to Sprint of a release, such termination will be treated as a termination by Sprint without “cause” for purposes of certain outstanding option and performance-based restricted stock unit awards. In addition, Mr. Claure will continue to receive certain perquisites, including indemnification and directors’ and officers’ liability insurance.
Davies Employment Letter Agreement
Mr. Davies is not eligible for severance benefits pursuant to his employment letter agreement or under the Severance Plan.
Schieber Employment Arrangements
Sprint previously entered into an employment agreement with Mr. Schieber. Pursuant to the employment agreement, in the event that Mr. Schieber’s employment is terminated by Sprint without “cause,” by Mr. Schieber as a result of a “constructive discharge” (as defined in the employment agreement) or because he is required to be based anywhere other than his location at the time or the Kansas City metropolitan area, within one year following a change in control then he would be entitled to the following benefits:
| • | For 18 months following his termination of employment, continued payment of base salary, payable in accordance with regular payroll practices; |
| • | Annual bonus, based on actual performance, up to target, during the 18-month period following his termination of employment and pro-rated to reflect any partial year; |
| • | Continued participation for 18 months following his termination of employment in any executive medical, dental, life and qualified and non-qualified retirement benefits which Mr. Schieber was entitled to receive at the time of his termination of employment, other than long- and short-term disability benefits; |
| • | Outplacement services until the earlier of (a) the date he becomes employed or (b) December 31st of the second calendar year following the calendar year of his termination of employment; and |
| • | Continued receipt for 18 months following his termination of employment of all applicable executive perquisites except country club membership dues and accrual of vacation, currently consisting of mobile phone service. |
In addition, Mr. Schieber previously entered into a Retention Award Letter pursuant to which he is eligible to receive (1) a retention payment of $40,000 if he remains an active Sprint employee in its finance organization through January 15, 2019, and (2) a retention payment of $60,000 if he remains an active Sprint employee in its finance organization through January 15, 2020. If, prior to a retention payment date, Mr. Schieber’s employment is involuntarily terminated without cause and he becomes eligible to receive severance benefits, he will receive the outstanding retention payment or payments. Finally, under Sprint’s short-term incentive plan, Mr. Schieber is entitled to a pro-rated payment, based on actual performance, in connection with his termination of employment as the result of death, disability, or involuntary termination by Sprint without cause.
Robbiati
Mr. Robbiati’s employment terminated with Sprint on January 31, 2018. He is no longer eligible for additional severance pursuant to his employment agreement or under the Severance Plan.
Restrictive Covenants. Participants in the Severance Plan are subject to certain restrictive covenants as set forth in their employment agreements. Messrs. Claure, Combes, Cano and Crull are subject to a 24-month post-employment noncompete and nonsolicit covenant and Messrs. Draper, Gracia and Saw are subject to an 18-month post-employment noncompete and nonsolicit covenant. Mr. Davies is subject to a 12-month post-employment noncompete and nonsolicit covenant pursuant to his grant of equity-based awards. Mr. Schieber will not be subject to a post-employment noncompete and nonsolicit covenant following his termination of employment in connection with the merger transactions.
See “Quantification of Potential Payments and Benefits to Sprint’s Named Executive Officers in Connection with the Merger Transactions” for the estimated amounts that each of Sprint’s named executive officers would receive under the Severance Plan upon a qualifying termination of employment. Based on the assumptions described above under “—Certain Assumptions,” the estimated aggregate amount of the cash severance payments (including prorated bonus payments) to be provided to Sprint’s three executive officers who are not named executive officers under the Severance Plan or Mr. Schieber’s employment arrangements upon a qualifying termination of employment is $5,317,693. The estimated aggregate amount of the cash severance
payments does not attempt to quantify any reductions to “parachute payments” as defined by Section 280G of the Code in order to avoid any applicable excise tax.
Deferred Compensation Plan
Participants in the Sprint Deferred Compensation Plan (as amended and restated effective November 20, 2014) are fully vested in their account balances and have elected a time and form of payment to receive these balances (e.g., in installments on separation from service, in lump sum on a future specified date, etc.). Notwithstanding a participant’s earlier election, for deferrals made on or prior to August 29, 2013, upon a separation from service within 12 months following a change in control, the participant’s account balance will be paid in lump sum on the last business day of the calendar month in which the participant separates from service, subject to potential delay as may be required under Section 409A of the Code. For deferrals made after August 29, 2013, to the extent that the participant has not elected otherwise, upon a separation from service within 18 months following a change in control, the participant’s account balance will be paid in lump sum on the last business day of the calendar month in which the participant separates from service, subject to potential delay as may be required under Section 409A of the Code. Messrs. Cano, Saw and Schieber are participants in the Sprint Deferred Compensation Plan.
Grantor Trust
As of the effective time of the merger transactions, an amount of up to approximately $462,000 will be contributed to a grantor trust established by Sprint for purposes of funding certain existing deferred compensation obligations in respect of Sprint directors and executive officers under certain Sprint plans and agreements.
Indemnification and Insurance
The business combination agreement provides for certain indemnification arrangements for Sprint’s current officers and directors and the continuation of certain insurance arrangements for Sprint’s current officers and directors for six years after the completion of the merger transactions.
Arrangements with T-Mobile
Prior to the effective time, T-Mobile may in its discretion initiate negotiations of agreements, arrangements and understandings with certain of Sprint’s executive officers regarding compensation and benefits and may enter into definitive agreements with certain of Sprint’s executive officers regarding employment with T-Mobile, in each case taking effect at the effective time.
Quantification of Potential Payments and Benefits to Sprint’s Named Executive Officers in Connection with the Merger Transactions
The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about certain compensation for each named executive officer of Sprint that is based on, or otherwise relates to, the contemplated merger transactions. For additional details regarding the terms of the payments and benefits described below, see the discussion under the caption “Interests of Sprint’s Directors and Executive Officers in the Merger Transactions” above.
The amounts shown in the table below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below and in the footnotes to the table, and do not reflect certain compensation actions that may occur before completion of the merger transactions. For purposes of calculating such amounts, the following assumptions were used:
| • | The relevant price per share of Sprint common stock is $5.34, which is the average closing price per share of Sprint common stock as reported on the NYSE over the first five business days following the first public announcement of the merger transactions on April 29, 2018; |
| • | The effective time is June 30, 2018, which is the assumed date of the closing of the merger transactions solely for purposes of the disclosure in this section; and |
| • | The employment of each executive officer of Sprint was terminated without “cause” or due to the executive officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements), in either case immediately following the assumed effective time of June 30, 2018. |
| Name |
Cash ($)(2) |
Equity ($)(3) |
Perquisites/ Benefits ($)(4) |
Total ($)(5) |
||||||||||||
| Marcelo Claure |
501,370 | 53,400,000 | — | 53,901,370 | ||||||||||||
| Michel Combes |
9,747,945 | 22,462,536 | 45,412 | 32,255,893 | ||||||||||||
| Andrew Davies |
— | — | — | |||||||||||||
| Nestor Cano |
5,524,110 | 11,810,569 | 62,022 | 17,396,701 | ||||||||||||
| Kevin Crull |
3,399,452 | 18,438,768 | 59,430 | 21,897,650 | ||||||||||||
| Jorge Gracia |
2,355,753 | 4,961,693 | 49,309 | 7,366,755 | ||||||||||||
| Tarek Robbiati(1) |
— | — | — | — | ||||||||||||
| (1) | Mr. Robbiati’s employment terminated with Sprint on January 31, 2018. He is no longer eligible for additional severance benefits pursuant to his employment agreement or under the Severance Plan, nor is he eligible for equity acceleration under the terms of his equity award agreements. |
| (2) | The amounts in this column represent the estimated cash payments set forth below. The amounts shown in this column are “double-trigger” and will not be payable unless the named executive officer’s employment is terminated by the employer without “cause” or by the named executive officer for “good reason” within 18 months following the closing of the merger transactions, or during the six-month period prior to a change in control, if the named executive officer’s employment is terminated without “cause” at the request of a third party in contemplation of a change in control, in each case other than for each of Mr. Claure and Mr. Davies. Mr. Davies is not eligible for cash severance benefits pursuant to his agreement or under the Severance Plan. Mr. Claure is not eligible for cash severance benefits pursuant to his agreement or under the Severance Plan, other than a pro-rated annual incentive based on actual performance. In addition, in the event that Mr. Combes’s employment with Sprint terminates and he subsequently commences employment with SoftBank, or is offered, but refuses to accept, a comparable employment position with SoftBank following the closing of the merger transactions, then in each case he will not be entitled to receive certain severance compensation and other benefits under certain conditions as specified in his employment agreement. For further details regarding potential severance payable in connection with the merger transactions, see “—Potential Severance Payments Upon a Qualifying Termination Following the Effective Time.” |
| Name |
Cash Severance ($)(a) |
Prorated Annual Incentive ($)(b) |
||||||
| Marcelo Claure |
— | 501,370 | ||||||
| Michel Combes |
9,000,000 | 747,945 | ||||||
| Nestor Cano |
5,200,000 | 324,110 | ||||||
| Kevin Crull |
3,200,000 | 199,452 | ||||||
| Jorge Gracia |
2,175,000 | 180,753 | ||||||
| a. | For Messrs. Combes, Cano and Crull, the amounts in this column represent a lump-sum cash severance amount equal to two times the sum of the named executive officer’s base salary and target annual bonus. For Mr. Gracia, the amounts in this column represent a lump-sum cash severance amount equal to one and a half times the sum of the named executive officer’s base salary and target annual bonus. If a named executive officer terminates for good reason due to a reduction of his target bonus, the target bonus used in this calculation will be such target bonus in effect immediately before the reduction. |
| b. | The amounts in this column represent a pro-rated target annul bonus for the year in which the change in control occurs. |
| (3) | The amounts in this column represent the value of the accelerated vesting of Sprint unvested stock option awards, Sprint time-based restricted stock unit awards and Sprint performance-based restricted stock unit awards upon a qualifying termination of employment (a “double trigger” benefit). The amounts in this column do not include 141,509 time-based restricted stock units and 141,509 performance-based restricted stock units granted to Mr. Davies on July 2, 2018, with an aggregate accelerated vesting value of $1,511,316. For further details regarding the treatment of Sprint equity-based awards in connection with the merger transactions, see “—Treatment of Sprint Equity-Based Awards.” |
| Unvested Stock Options |
Time-Based Restricted Stock Units |
Performance-Based Restricted Stock Units |
||||||||||||||||||||||
| Name |
Number (#) |
Value ($) |
Number (#) |
Value ($) |
Number (#) |
Value ($) |
||||||||||||||||||
| Named Executive Officers |
||||||||||||||||||||||||
| Marcelo Claure |
— | — | — | — | 10,000,000 | 53,400,000 | ||||||||||||||||||
| Michel Combes |
132,802 | 6,640 | 536,707 | 2,866,015 | 3,668,517 | 19,589,881 | ||||||||||||||||||
| Andrew Davies |
— | — | — | — | — | — | ||||||||||||||||||
| Nestor Cano |
61,303 | — | 194,641 | 1,039,383 | 2,017,076 | 10,771,186 | ||||||||||||||||||
| Kevin Crull |
180,056 | 229,262 | 339,175 | 1,811,195 | 3,070,845 | 16,398,312 | ||||||||||||||||||
| Jorge Gracia |
108,034 | 137,558 | 225,947 | 1,206,557 | 677,449 | 3,617,578 | ||||||||||||||||||
| Tarek Robbiati |
— | — | — | — | — | — | ||||||||||||||||||
| (4) | The amounts in this column represent an estimated amount equal to the sum of (1) continued health and welfare benefits for two years for Messrs. Combes, Cano and Crull and 18 months for Mr. Gracia following the date of termination and (2) $35,000 in outplacement services. The amounts shown in this column are “double-trigger” and will not be payable unless the named executive officer’s employment is terminated by the employer without “cause” or by the named executive officer for “good reason” within 18 months following the closing of the merger transactions, or if the executive officer’s employment is terminated without “cause” at the request of a third party in contemplation of a change in control during the six-month period prior to a change in control. For further details regarding these benefits in connection with the merger transactions, see “—Potential Severance Payments Upon a Qualifying Termination Following the Effective Time.” |
The total amounts do not reflect any reductions to “parachute payments” as defined by Code Section 280G in order to avoid any applicable excise tax. A definitive analysis of the need, if any, for such reductions will depend on the effective time, the date of termination (if any) of the named executive officer and certain other assumptions used in the applicable calculations.
Certain members of the Sprint board of directors are executives or members of the board of directors of SoftBank or its subsidiaries, and SoftBank, through its wholly-owned subsidiaries, is the controlling stockholder of Sprint. Sprint is party to a number of existing related person transactions with SoftBank and its affiliates that may be affected by the merger transactions if the merger transactions are completed. See “Certain Relationships and Related Party Transactions” in Sprint’s annual proxy statement filed with the SEC on June 26, 2018, which is incorporated herein by reference, for more information. In addition, SoftBank and its affiliates are parties to several agreements and arrangements related to the merger transactions, including the business combination agreement, the amended and restated stockholders’ agreement, and the proxy agreement. See “The Business Combination Agreement” and “Stockholders’ and Proxy Agreements—Amended and Restated Stockholders’ Agreement.” With respect to any of these agreements or arrangements, the interests of SoftBank may be different from, or in addition to, the interests of Sprint’s stockholders generally.
Board of Directors and Management of the Combined Company
Board of Directors of the Combined Company
Under the business combination agreement, T-Mobile, Sprint, Deutsche Telekom and SoftBank have agreed to cooperate to take all actions necessary to cause the T-Mobile board of directors as of immediately following the effective time to consist of a total of 14 directors as follows:
| • | Deutsche Telekom will designate nine of such 14 directors prior to the effective time. Of the nine designees, (1) at least two of the designees will be designated following consultation with SoftBank and the independent directors of T-Mobile and will qualify as an “independent director” under the listing standards of NASDAQ and the applicable rules of the SEC and (2) one of the designees will be the chief executive officer of Deutsche Telekom as of immediately prior to the effective time; |
| • | SoftBank will designate four of such 14 directors prior to the effective time. Of the four designees, (1) at least two of the designees will be designated following consultation with Deutsche Telekom and the independent directors of Sprint and will qualify as an “independent director” under the listing standards of NASDAQ and the applicable rules of the SEC, one of whom will also qualify as the “security director” (or equivalent) to the extent required by the national security agreement among Sprint, SoftBank, the Department of Justice, the Department of Homeland Security and the Department of Defense, or any successor or replacement agreement or arrangement that may be entered into in connection with the merger transactions or by the amended and restated stockholders’ agreement or the proxy agreement (which we refer to as the “NSA”), and (2) one of the designees will be the chief executive officer of SoftBank as of the date of the business combination agreement (or, if such person is unable to serve, another person designated by SoftBank); and |
| • | the remaining director will be the chief executive officer of the combined company. |
In addition, immediately following the effective time, the chairperson of the T-Mobile board of directors will be the chief executive officer of Deutsche Telekom as of immediately prior to the effective time.
Management of the Combined Company
Following the completion of the merger transactions, the executive officers of T-Mobile will include Mr. Legere, who will continue as the chief executive officer of the combined company, and Mr. Sievert, who will continue as president and chief operating officer of the combined company. The remaining executive officers of the combined company have not yet been determined but will be individuals agreed upon before the effective time by T-Mobile and Sprint, through a process overseen by their respective chief executive officers and in consultation with Deutsche Telekom and SoftBank, cooperating in good faith.
Regulatory Approvals Required for the Merger Transactions
T-Mobile and Sprint can provide no assurance that the required regulatory and other governmental consents will be obtained. In addition, even if all required regulatory and other governmental consents are obtained and the closing conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals or clearances.
Required Regulatory Consents
HSR Act
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (which we refer to as the “HSR Act”), and the rules and regulations promulgated thereunder by the U.S. Federal Trade Commission (which we refer to as the “FTC”), the merger transactions cannot be completed until, among other things, notifications have been given and certain information has been provided to the FTC and the Antitrust Division of the Department of Justice (which we refer to as the “Antitrust Division”) and all applicable waiting periods have been terminated or have expired.
Under the business combination agreement, it is a condition to each party’s obligation to effect the merger transactions that the waiting period (and any extension thereof) applicable to the merger transactions under the HSR Act has been terminated or has expired. On May 24, 2018, each of T-Mobile and Sprint filed a Pre-Merger Notification and Report Form pursuant to the HSR Act with the FTC and the Antitrust Division. T-Mobile and Sprint intend to cooperate fully with the Antitrust Division.
FCC Approval
T-Mobile and Sprint are subject to regulation by the FCC under the Federal Communications Act of 1934, as amended (which we refer to as the “Communications Act”). Each of T-Mobile and Sprint holds licenses issued by the FCC necessary for the operation of its wireless and wireline assets used to provide telecommunications, broadband and other services. The FCC must approve the transfer of control of the licenses held by Sprint to T-Mobile as a result of the merger transactions. The FCC must also approve the pro forma transfer of control of certain licenses held by T-Mobile, as the merger transactions will cause Deutsche Telekom, T-Mobile’s controlling stockholder, to fall below majority ownership while still retaining control through board appointment and voting agreement rights. The FCC likely will not issue its approval until it receives the consent of certain executive branch government agencies that undertake a national security review of transactions involving potential foreign ownership of U.S. telecommunications assets. These agencies include the Department of Justice, the Federal Bureau of Investigation, the Department of Homeland Security and the Department of Defense. Under the Communications Act, indirect foreign ownership of wireless common carrier licenses in excess of 25% is permitted, unless the FCC determines that the public interest will be served by refusing to permit such holdings. Following the merger transactions, indirect foreign ownership of the combined company’s licenses is expected to be in excess of 25%.
Under the business combination agreement, it is a condition to each party’s obligation to effect the merger transactions that all consents required to be obtained from the FCC in connection with the transactions contemplated by the business combination agreement are obtained. On June 18, 2018, T-Mobile and Sprint filed the required applications with the FCC. These applications are subject to public comment and possible opposition by third parties. T-Mobile and Sprint intend to cooperate fully with the FCC.
Other Governmental Consents
Other Regulatory Approvals
T-Mobile, Sprint and their respective subsidiaries hold certificates, licenses and service authorizations issued by various state and territorial public utility commissions (which we refer to as “PUCs”) and similar foreign public utility bodies regulating telecommunications businesses. Certain PUCs require formal applications for the transfer of control of these certificates, licenses and authorizations in connection with the merger transactions. Applications for state approvals are subject to public comment and possible opposition by third parties. In addition to these applications, T-Mobile and Sprint may file prior notifications of the merger transactions in certain states and foreign jurisdictions where formal applications are not required, and some of these or other state commissions or foreign bodies could initiate proceedings investigating the merger transactions.
Under the business combination agreement, it is a condition to each party’s obligation to effect the merger transactions that all consents required to be obtained from any PUCs or similar state and foreign regulatory bodies in connection with the transactions contemplated by the business combination agreement are obtained. T-Mobile and Sprint intend to cooperate fully with the relevant PUCs or other regulatory bodies.
CFIUS Clearance and DSS Approval
The merger transactions are subject to review and clearance by the Committee on Foreign Investment in the United States (which we refer to as “CFIUS”) under the Defense Production Act of 1950, as amended, including
amendments made by the Foreign Investment and National Security Act of 2007, and the regulations promulgated by CFIUS thereunder (which we refer to collectively as “Section 721”), which provide for national security reviews of transactions involving acquisition of control by a foreign party of U.S. businesses that may have an impact on national security. In addition, for certain foreign acquisitions of interests in businesses engaged in work for U.S. federal government agencies involving access to classified information, the Defense Security Service (which we refer to as “DSS”), acting pursuant to the National Industrial Security Program Operating Manual (which we refer to as “NISPOM”), typically requires that the parties take certain actions to mitigate foreign ownership, control or influence. Such measures are intended to protect against unauthorized disclosures of classified or other sensitive information and technologies as well as other risks to classified information.
Under the business combination agreement, it is a condition to each party’s obligation to effect the merger transactions that (1) CFIUS has completed its review and, where applicable, investigation under Section 721 without unresolved national security concerns with respect to the transactions contemplated by the business combination agreement, and (2) DSS has approved a plan to operate pursuant to a FOCI mitigation agreement those NISPOM covered activities of T-Mobile, Sprint and their respective subsidiaries that DSS determines are necessary to be operated pursuant to such an agreement, or has accepted a commitment from the parties to implement such FOCI mitigation agreement following the closing. T-Mobile and Sprint intend to cooperate fully with CFIUS and DSS.
Listing of T-Mobile Common Stock
It is a condition to the closing that the shares of T-Mobile common stock to be issued in the merger transactions have been approved for listing on NASDAQ, subject to official notice of issuance, prior to the closing date. It is expected that, following the merger transactions, the T-Mobile common stock will continue to trade on NASDAQ under the ticker symbol “TMUS.”
Delisting and Deregistration of Sprint Common Stock
Following the merger transactions, the Sprint common stock will be delisted from the NYSE and deregistered under the Exchange Act and cease to be publicly traded.
T-Mobile and Sprint currently estimate that, upon the effective time, transaction-related costs incurred by the combined company, including fees and expenses relating to the merger transactions, will be approximately $[ ]. Such costs are allocated as follows:
| • | T-Mobile and Sprint will share equally the costs and expenses incurred in connection with the filing, printing and mailing of this joint consent solicitation statement/prospectus and the registration statement of which it is a part, including SEC filing fees; |
| • | T-Mobile is required to pay 67%, and Sprint is required to pay 33%, of the HSR and FCC filing fees; |
| • | T-Mobile is required to pay 67%, and Sprint is required to pay 33%, of the out-of-pocket fees, costs, penalties, premiums and expenses incurred in connection with any pre-merger financing transaction (as defined under “The Business Combination Agreement—Covenants and Agreements—Financing Matters”), and any interest on or prepayment penalties with respect to any pre-funded indebtedness (including indebtedness funded into escrow) incurred as part of any pre-merger financing transaction, including any costs and expenses incurred prior to the date of the business combination agreement (subject to disclosures in the Sprint disclosure letter); and |
| • | other fees and expenses are to be paid by the party incurring such fees and expenses. |
T-Mobile and Sprint prepare their financial statements in accordance with GAAP. The merger transactions will be accounted for in accordance with FASB ASC Topic 805, Business Combinations, with T-Mobile considered as the accounting acquirer and Sprint as the accounting acquiree. Accordingly, T-Mobile will measure the assets acquired and liabilities assumed at their fair values including net tangible and identifiable intangible assets acquired and liabilities assumed as of the closing, with any excess purchase price over those fair values being recorded as goodwill.
The accounting policies used in the preparation of the unaudited pro forma condensed combined financial information included in this joint consent solicitation statement/prospectus are those set out in T-Mobile’s audited consolidated financial statements as of and for the year December 31, 2017 and interim condensed consolidated financial statements for the quarter ended March 31, 2018. Certain adjustments are necessary to conform Sprint’s financial statements to the accounting policies used by T-Mobile, which are described in the pro forma condensed combined financial information. T-Mobile is still in the process of evaluating the adjustments necessary to conform the accounting policies of Sprint to those of T-Mobile and expects further adjustments may be necessary as T-Mobile conducts a more detailed review of Sprint’s accounting policies.
Deutsche Telekom Support Agreement
Subsequent to the execution of the business combination agreement, Deutsche Telekom and Deutsche Telekom Holding entered into a support agreement under which they agreed, promptly (and in any event within two business days) following their receipt of this joint consent solicitation statement/prospectus, to execute and deliver a written consent with respect to all of the outstanding shares of T-Mobile common stock held by Deutsche Telekom Holding, representing approximately [ ]% of the outstanding shares of T-Mobile common stock as of the T-Mobile record date, approving the T-Mobile proposals. The delivery of the Deutsche Telekom written consent will constitute receipt by T-Mobile of the T-Mobile stockholder approval. See “Support Agreements—Deutsche Telekom Support Agreement.”
SoftBank Support Agreement
Subsequent to the execution of the business combination agreement, SoftBank, SoftBank UK, Starburst and Galaxy entered into a support agreement under which they agreed, promptly (and in any event within two business days) following their receipt of this joint consent solicitation statement/prospectus, to execute and deliver (or cause to be delivered) a written consent with respect to all of the outstanding shares of Sprint common stock held by Starburst and Galaxy, representing approximately [ ]% of the outstanding shares of Sprint common stock as of the Sprint record date, approving the Sprint proposals. The delivery of the SoftBank written consent will constitute receipt by Sprint of the Sprint stockholder approval. See “Support Agreements—SoftBank Support Agreement.”
Stockholders’ and Proxy Agreements
Stockholders’ Agreement
Pursuant to the business combination agreement, prior to the closing, T-Mobile, Deutsche Telekom and SoftBank will enter into an amendment and restatement (which we refer to as the “amended and restated stockholders’ agreement”) of the stockholder’s agreement (which we refer to as the “stockholder’s agreement”), dated as of April 30, 2013, by and between Deutsche Telekom and T-Mobile. The amended and restated stockholders’ agreement includes provisions setting forth the rights of Deutsche Telekom and SoftBank to designate a number of individuals to be nominees for election to the T-Mobile board of directors and any committees thereof. The amended and restated stockholders’ agreement also sets forth specified actions that the
combined company may not take without the prior written consent of Deutsche Telekom or SoftBank, as applicable, including with respect to material acquisitions, dispositions and equity issuances by the combined company. The amended and restated stockholders’ agreement provides SoftBank with a match right in connection with a possible sale of the combined company and sets forth certain rights of Deutsche Telekom with respect to debt defaults and certain rights and limitations of each of Deutsche Telekom and SoftBank with respect to information rights, related party transaction approval rights and registration rights. Additionally, the amended and restated stockholders’ agreement restricts each of Deutsche Telekom and SoftBank and certain of their respective affiliates with respect to certain acquisitions and dispositions of T-Mobile common stock and the conduct of certain business activities that would compete with the combined company in the United States, Puerto Rico and the territories and protectorates of the United States during specified time periods, subject to certain exceptions. The amended and restated stockholders’ agreement is described in more detail in the section of this joint consent solicitation statement/prospectus entitled “Stockholders’ and Proxy Agreements—Amended and Restated Stockholders’ Agreement.”
Proxy Agreement
Pursuant to the business combination agreement, prior to the closing, Deutsche Telekom and SoftBank will enter into a proxy, lock-up and ROFR agreement (which we refer to as the “proxy agreement”). The proxy agreement will establish between Deutsche Telekom and SoftBank certain rights and obligations in respect of the shares of T-Mobile common stock that will be owned by each of Deutsche Telekom, SoftBank and certain of their respective affiliates following the completion of the merger transactions. Pursuant to the proxy agreement, at any meeting of the stockholders of the combined company, SoftBank is obligated to vote or not vote all of its shares of T-Mobile common stock in the manner directed by Deutsche Telekom, which obligation will terminate upon the earliest of: (1) with respect to each such share of T-Mobile common stock, the date on which such share is transferred to a third party in accordance with the terms of the proxy agreement, subject to certain exceptions, (2) the date on which Deutsche Telekom’s voting percentage equals or exceeds 55% and (3) the date on which Deutsche Telekom has transferred an aggregate number of shares representing 5% or more of the outstanding T-Mobile common stock as of immediately following the effective time. The proxy agreement also contains certain restrictions on the ability of each of SoftBank and Deutsche Telekom to transfer or acquire shares of T-Mobile common stock, including that each of SoftBank and Deutsche Telekom is not permitted to transfer its shares without the prior written consent of the other stockholder from and after the effective time until the fourth anniversary of the effective time, subject to certain exceptions, including for transfers of up to specified percentages of the T-Mobile common stock outstanding as of the effective time beginning after the first anniversary of the effective time. The proxy agreement is described in more detail in the section of this joint consent solicitation statement/prospectus entitled “Stockholders’ and Proxy Agreements—Proxy Agreement.”
Trademark License
Pursuant to the business combination agreement, prior to the closing, T-Mobile and Deutsche Telekom will enter into an amendment (which we refer to as the “license agreement amendment”) to the license agreement, dated as of April 30, 2013, by and between T-Mobile and Deutsche Telekom (which we refer to as the “trademark license”), the form of which is attached as Exhibit G to the business combination agreement and is incorporated by reference into this joint consent solicitation statement/prospectus. The license agreement amendment provides, among other things, that, so long as the business combination agreement is not terminated, the license fee payable by T-Mobile to Deutsche Telekom under the trademark license, which otherwise would have been calculated based on the net revenue of the combined company without a cap, will be subject to a cap of $80.0 million per year from January 1, 2019 through December 31, 2028. In 2017, T-Mobile paid Deutsche Telekom royalties totaling approximately $78.9 million under the terms of the trademark license. Absent the license agreement amendment, following the closing of the merger, the license fee payable by the combined company to Deutsche Telekom pursuant to the trademark license would have been calculated based on the net revenue of the combined company without a cap.
Roaming Agreement
Concurrently with the execution of the business combination agreement, T-Mobile and Sprint entered into a Domestic LTE Roaming Data Services Agreement (which we refer to as the “roaming agreement”). Pursuant to the roaming agreement, T-Mobile will provide Sprint with access to roaming LTE data services on T-Mobile’s network in consideration for the per-gigabyte fees set forth therein. If the business combination agreement is terminated, the roaming agreement will continue in effect for a period of four years following such termination, subject to the terms and conditions of the roaming agreement.
