Item 1.01 Entry Into a Material Definitive Agreement.
On April 29, 2018, Sprint Corporation (the Company) entered into a Business Combination Agreement (the Business
Combination Agreement) with
T-Mobile
US, Inc., a Delaware corporation
(T-Mobile),
Huron Merger Sub LLC, a Delaware limited liability company and a
wholly owned subsidiary of
T-Mobile
(T-Mobile
Merger Company), Superior Merger Sub Corporation, a Delaware corporation and a wholly owned subsidiary of
T-Mobile
Merger Company (Merger Sub), Starburst I, Inc., a Delaware corporation (Starburst), Galaxy Investment Holdings, Inc., a Delaware corporation (Galaxy, and together with
Starburst, the SoftBank US HoldCos) and for the limited purposes set forth therein, Deutsche Telekom AG, an
Aktiengesellschaft
organized and existing under the laws of the Federal Republic of Germany (Deutsche
Telekom), Deutsche Telekom Holding B.V., a
besloten vennootschap met beperkte aansprakelijkheid
organized and existing under the laws of the Netherlands (DT Holding) and SoftBank Group Corp., a Japanese
kabushiki
kaisha
(SoftBank).
Pursuant to the Business Combination Agreement and upon the terms and subject to the conditions
described therein, (i) the SoftBank US HoldCos will merge with and into
T-Mobile
Merger Company, with
T-Mobile
Merger Company continuing as the surviving entity and
as a wholly owned subsidiary of
T-Mobile
(the HoldCo Mergers), and (ii) immediately following the HoldCo Mergers, Merger Sub will merge with and into the Company, with the Company continuing
as the surviving corporation and as a wholly owned indirect subsidiary of
T-Mobile
(the Merger and, together with the HoldCo Mergers, the Merger Transactions). Pursuant to the Business
Combination Agreement, (i) at the effective time of the HoldCo Mergers, all the issued and outstanding shares of common stock of Galaxy, $0.01 par value per share, and all the issued and outstanding shares of common stock of Starburst, $0.01
par value per share, held by SoftBank Group Capital Limited, a private limited company incorporated in England and Wales and a wholly owned subsidiary of SoftBank and the sole stockholder of Galaxy and Starburst (SoftBank UK), will be
converted such that SoftBank UK will receive an aggregate number of shares of common stock of
T-Mobile,
par value $0.00001 per share (the
T-Mobile
Common
Stock) equal to the product of (x) 0.10256 (the Exchange Ratio) and (y) the aggregate number of shares of common stock of the Company, par value $0.01 (Company Common Stock), held by the SoftBank US HoldCos,
collectively, immediately prior to the effective time of the HoldCo Mergers, and (ii) at the effective time of the Merger, each share of Company Common Stock issued and outstanding immediately prior to the effective time of the Merger (other
than shares of Company Common Stock that were held by the SoftBank US HoldCos or are held by the Company as treasury stock) will be converted into the right to receive a number of shares of
T-Mobile
Common
Stock equal to the Exchange Ratio. SoftBank and its affiliates will receive the same amount of
T-Mobile
Common Stock per share of Company Common Stock as all other Sprint stockholders.
Immediately following the Merger Transactions, Deutsche Telekom and SoftBank are expected to hold approximately 42% and 27% of the fully
diluted shares of
T-Mobile
Common Stock, respectively, with the remaining approximately 31% of the fully diluted shares of
T-Mobile
Common Stock held by public
stockholders.
Pursuant to the Business Combination Agreement and upon the terms and subject to the conditions described therein, in
connection with the Merger, each option to purchase Company Common Stock (other than under the Companys Employees Stock Purchase Plan) will be converted into an option to purchase
T-Mobile
Common Stock;
each time-based restricted stock unit award covering Company Common Stock will be converted into a time-based restricted stock unit award covering
T-Mobile
Common Stock; with respect to each performance stock
unit award covering Company Common Stock (a PSU Award) for which performance is measured using the volume-weighted average price of Company Common Stock (the VWAP), for the portion of such PSU Award subject to
performance-based vesting, the VWAP will be deemed equal to the greatest of (x) the VWAP over the five (5) consecutive trading day period ending with the second complete trading day prior to the effective time of the Merger, (y) the
VWAP over any 150 calendar day period as specified in the applicable award agreement as of the effective time of the Merger and (z) the VWAP corresponding to target level performance for such PSU Award, and the entire portion of
such PSU Award will be converted into a time-based restricted stock unit award covering
T-Mobile
Common Stock; with respect to each PSU Award for which performance is not measured using the VWAP, for the
portion of any such PSU award subject to performance-based vesting, performance will be deemed met at target levels, and the entire portion of such PSU award will be converted into a time-based restricted stock unit award covering
T-Mobile
Common Stock; and the purchase period underway under the Company Employees Stock Purchase Plan will terminate and each outstanding purchase right thereunder will be exercised.
The consummation of the Merger Transactions and the other transactions contemplated by the
Business Combination Agreement (collectively, the Transactions) is subject to obtaining the consent of the holders of a majority of the outstanding shares of Company Common Stock in favor of the adoption of the Business Combination
Agreement (the Company Stockholder Approval). Subsequent to the execution of the Business Combination Agreement, SoftBank entered into a support agreement (the SoftBank Support Agreement), pursuant to which it has agreed to
cause SoftBank UK, Galaxy and Starburst to deliver a written consent in favor of the adoption of the Business Combination Agreement, which will constitute receipt by the Company of the Company Stockholder Approval. As of April 25, 2018,
SoftBank beneficially owned approximately 84.85% of the Company Common Stock outstanding. Under the terms of the SoftBank Support Agreement, SoftBank and its affiliates are generally prohibited from transferring ownership of Company Common Stock
prior to the earlier of the consummation of the Merger and the termination of the Business Combination Agreement in accordance with its terms. The consummation of the Transactions is also subject to obtaining the consent of the holders of a majority
of the outstanding shares of
T-Mobile
Common Stock in favor of the issuance of
T-Mobile
Common Stock in the Merger Transactions (the
T-Mobile
Stock Issuance Approval) and in favor of the amendment and restatement of
T-Mobiles
Certificate of Incorporation in its entirety in the form
attached as Exhibit A to the Business Combination Agreement (the
T-Mobile
Charter Amendment )(collectively, the
T-Mobile
Stockholder Approval).
Subsequent to the execution of the Business Combination Agreement, Deutsche Telekom entered into a support agreement, (the Deutsche Telekom Support Agreement), pursuant to which it has agreed to deliver a written consent in favor of the
T-Mobile
Stock Issuance and the
T-Mobile
Charter Amendment, which will constitute receipt by
T-Mobile
of the
T-Mobile
Stockholder Approval. As of April 25, 2018, Deutsche Telekom beneficially owned approximately 63.5% of the
T-Mobile
Common Stock outstanding. Under the terms of
the Deutsche Telekom Support Agreement, Deutsche Telekom and its affiliates are generally prohibited from transferring ownership of
T-Mobile
Common Stock prior to the earlier of the consummation of the Merger
and the termination of the Business Combination Agreement in accordance with its terms.
The consummation of the Transactions is also
subject to the satisfaction or waiver, if legally permitted, of certain other conditions, including, among other things, (i) the accuracy of representations and warranties and performance of covenants of the parties, (ii) the effectiveness
of the registration statement for the shares of
T-Mobile
Common Stock to be issued in the Merger Transactions, and the approval of the listing of such shares on the NASDAQ Global Select Market
(NASDAQ), (iii) receipt of certain regulatory approvals, including approvals of the Federal Communications Commission, applicable state public utility commissions and expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and favorable completion of review by the Committee on Foreign Investments in the United States (CFIUS), (iv) specified minimum credit ratings for
T-Mobile
on the closing date of the Transactions (after giving effect to the Merger) from at least two of the three credit rating agencies, subject to certain qualifications, and (v) no material adverse
effect with respect to the Company or
T-Mobile
since the date of the Business Combination Agreement.
The Business Combination Agreement contains representations and warranties and covenants customary for a transaction of this nature. The
Company and SoftBank, and
T-Mobile
and Deutsche Telekom, are each subject to restrictions on their ability to solicit alternative acquisition proposals and to provide information to, and engage in discussion
with, third parties regarding such proposals, except under limited circumstances to permit the Companys and
T-Mobiles
boards of directors to comply with their respective fiduciary duties. Subject
to certain exceptions, each of the parties has agreed to use its reasonable best efforts to take or cause to be taken actions necessary to consummate the Transactions, including with respect to obtaining required government approvals. The Business
Combination Agreement also contains certain termination rights for both the Company and
T-Mobile.
In the event that
T-Mobile
terminates the Business Combination
Agreement in connection with a failure to satisfy the closing condition related to the specified minimum credit ratings noted above, then in certain circumstances,
T-Mobile
may be required to pay Sprint
$600 million.
In accordance with the Business Combination Agreement, upon consummation of the Transactions, the
T-Mobile
board of directors will consist of fourteen members, comprising nine directors designated by Deutsche Telekom (of which nine directors, at least two will be independent directors under the listing standards
of NASDAQ), four directors designated by SoftBank (of which four directors, at least two will be independent directors under the listing standards of NASDAQ), and
T-Mobiles
chief executive officer.
Pursuant to the terms of the Business Combination Agreement,
T-Mobile,
SoftBank and Deutsche Telekom will also enter into an amended and restated stockholders agreement (the Stockholders
Agreement), a form of which is attached as Exhibit E to the Business Combination Agreement, which will become effective upon the closing of the Transactions, and which will govern, among other things, the composition of
T-Mobiles
board of directors following the closing of the Transactions. The Stockholders Agreement will also set forth certain consent rights for each of SoftBank and Deutsche Telekom over certain material
transactions of
T-Mobile
and will contain a
non-compete
which will apply to SoftBank, Deutsche Telekom and their respective affiliates, subject to certain exceptions,
until such time as SoftBanks or Deutsche Telekoms ownership in
T-Mobile
has been reduced below an agreed threshold.
In addition, pursuant to the terms of the Business Combination Agreement, SoftBank and Deutsche
Telekom will enter into a proxy,
lock-up
and right of first refusal agreement (the PLR Agreement), a form of which is attached as Exhibit F to the Business Combination Agreement, which will become
effective upon the closing of the Transactions, and which will set forth certain rights and obligations in respect to the shares of
T-Mobile
Common Stock owned by each of SoftBank, Deutsche Telekom and their
respective affiliates to enable Deutsche Telekom to consolidate
T-Mobile
into Deutsche Telekoms financial statements following the consummation of the Transactions. Among other terms, these rights and
obligations will require SoftBank to agree to vote its shares of
T-Mobile
Common Stock as directed by Deutsche Telekom and will restrict SoftBank from transferring its shares of
T-Mobile
Common Stock in a manner that would prevent Deutsche Telekom from consolidating
T-Mobile
into Deutsche Telekoms financial statements following the
consummation of the Transactions, subject in each case to certain exceptions set forth in the PLR Agreement. In addition, the PLR Agreement will impose certain restrictions on SoftBanks and Deutsche Telekoms ability to transfer their
shares of
T-Mobile
Common Stock in the four year period following the closing of the Transactions and will provide each of SoftBank and Deutsche Telekom with a right of first refusal with respect to proposed
transfers of shares of
T-Mobile
Common Stock by the other party, subject in each case to certain exceptions and limitations set forth in the PLR Agreement. As a result of the PLR Agreement,
T-Mobile
is expected to continue to be a Controlled Company for purposes of NASDAQ rules following consummation of the Merger, which provides
T-Mobile
with
exemptions from certain corporate governance requirements under the NASDAQ rules.
The foregoing description of the Business Combination
Agreement, the SoftBank Support Agreement, the Deutsche Telekom Support Agreement, the Stockholders Agreement and the PLR Agreement is not complete and is qualified in its entirety by reference to the Business Combination Agreement, which is filed
as Exhibit 2.1 hereto, the form of SoftBank Support Agreement attached as Exhibit D to the Business Combination Agreement, the Deutsche Telekom Support Agreement which is filed as Exhibit 10.1 hereto, the form of Stockholders Agreement attached as
Exhibit E to the Business Combination Agreement and the form of PLR Agreement attached as Exhibit F to the Business Combination Agreement, each of which is incorporated herein by reference.
Important Statement regarding the Business Combination Agreement
. The Business Combination Agreement has been included to provide
investors with information regarding terms of the Transactions. It is not intended to provide any other factual information about the Company,
T-Mobile,
or their respective subsidiaries or affiliates. The
representations, warranties, and covenants contained in the Business Combination Agreement were made only for purposes of the Business Combination Agreement and as of specific dates, were solely for the benefit of the parties to the Business
Combination Agreement, may be subject to limitations, qualifications or other particulars agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the
parties to the Business Combination Agreement instead of establishing these matters as facts or made for other purposes, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to
investors. Investors are not third-party beneficiaries under the Business Combination Agreement and should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or
condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Business Combination Agreement, which
subsequent information may or may not be fully reflected in the Companys public disclosures.