Sprint - Nextel 2012 Annual Report Download - page 56

Table of Contents
Network Capital Expenditures
In October 2011, we announced our intention to accelerate the timeline associated with Network Vision. In addition to Network Vision, we
are currently experiencing rapid growth in data usage driven by more subscribers on the Sprint platform and a continuing shift in our subscriber base
to smartphones, which requires additional capital for legacy equipment to meet our customers' needs and to maintain customer satisfaction. Our
accelerated timeline coupled with our capital needs to maintain and operate our existing infrastructure are expected to require substantial amounts of
additional capital expenditures during the period of deployment. In addition to our expectation of increased capital expenditures, we also expect
network operating expenditures to increase during the Network Vision deployment period, as well as expected cash requirements to meet existing
obligations associated with the decommissioning of the Nextel platform.
SoftBank Transaction
On October 15, 2012, we entered into the Merger Agreement for the SoftBank Merger. In addition, on October 15, 2012, Sprint and SoftBank
entered into the Bond Agreement.
Bond Agreement
Pursuant to the Bond Agreement, on October 22, 2012, Sprint issued a convertible bond (Bond) to New Sprint with a face amount of $3.1
billion, stated interest rate of 1%, and maturity date of October 15, 2019, which is convertible into 590,476,190 shares of Sprint common stock at $5.25
per share, or approximately
16.4% upon conversion of the Bond (based on Sprint common shares outstanding as of December 31, 2012 ), subject to
adjustment in accordance with the terms of the Bond Agreement. Interest on the Bond will be due and payable in cash semiannually in arrears on April
15 and October 15 of each year, commencing on April 15, 2013. Upon receipt of regulatory approval, the Bond will be converted into Sprint shares
immediately prior to consummation of the SoftBank Merger and may not otherwise be converted prior to the termination of the Merger Agreement.
Conversion of the Bond is subject in any case to receipt of any required approvals and, subject to certain exceptions, receipt of waivers under the
Company's existing credit facilities. Subject to certain exceptions, SoftBank may not transfer the Bond without Sprint's consent.
Merger Agreement
Upon consummation of the SoftBank Merger, which is subject to various conditions, including Sprint stockholder and regulatory approval,
SoftBank will fund New Sprint with additional capital of approximately $17.0 billion, of which approximately $12.1 billion will be distributed to Sprint
stockholders as merger consideration with the remaining $4.9 billion held in the cash balance of New Sprint for general corporate purposes, including
but not limited to the Clearwire Acquisition. Pursuant to the terms and subject to the conditions described in the Merger Agreement, upon
consummation of the SoftBank Merger, outstanding shares of Sprint common stock, except as otherwise provided for in the Merger Agreement, will be
converted, at the election of Sprint stockholders, into (i) cash in an amount equal to $7.30 for each share of Sprint common stock or (ii) one share of
New Sprint common stock for each share of Sprint common stock, subject in each case to proration such that a stockholder may receive a combination
of cash and New Sprint common stock.
Upon consummation of the SoftBank Merger, SoftBank will receive a five
- year warrant to purchase 54,579,924 shares in New Sprint at $5.25
per share which would yield approximately $300 million in proceeds upon exercise. Upon consummation of the SoftBank Merger, (i) Sprint will become
a wholly
- owned subsidiary of New Sprint, (ii) New Sprint will be a publicly traded company, (iii) SoftBank will indirectly own approximately 70% of
New Sprint on a fully diluted basis, and (iv) the former stockholders and other equityholders of Sprint will own approximately 30% of the fully diluted
equity of New Sprint. The SoftBank Merger is subject to various conditions, including receipt of required regulatory approvals and approval of
Sprint's stockholders, and is expected to close in mid
- 2013.
Under the terms of the EDC facility and the secured equipment credit facility consummation of the SoftBank Merger would constitute a
change of control that would require repayment of all outstanding balances thereunder. Amounts outstanding under the EDC facility and secured
equipment credit facility, which were approximately $796 million in the aggregate at December 31, 2012 , would become due and payable at the time of
closing. Sprint is currently in discussions with the existing lenders under the EDC and the secured equipment credit facility and intends to amend
these facilities to, among other things, exclude the SoftBank Merger from the change of control provisions.
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