CEO Employment Agreement

Exhibit 10.1


EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this " Agreement" ), dated as of June 7, 2005 by and among SPRINT CORPORATION, a Kansas corporation (" SPRINT" ), SPRINT/UNITED MANAGEMENT COMPANY, a Kansas corporation and Subsidiary of SPRINT (" SUMC" ) (SPRINT, SUMC and their Subsidiaries are collectively referred to herein as the " Company" ; prior to the Spin-Off, " Company" may refer to SPRINT individually or to SPRINT, SUMC and their Subsidiaries collectively, as the context may require; after the Spin-Off, " Company" shall refer to SpinCo individually or to SpinCo and its Subsidiaries collectively), and Daniel R. Hesse (" Executive" ) (certain capitalized terms used herein being defined in Article 7).


WHEREAS, the Board desires to employ Executive in the position and on the terms and conditions set forth below, and Executive desires to accept such employment; and


WHEREAS, the Company and Executive desire to enter into this Agreement embodying the terms of such employment;

NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:


ARTICLE 1

POSITION; TERM OF AGREEMENT


Section 1.01 . Position. (a) On June 7, 2005, Executive shall commence service as Chief Executive Officer of Sprint' s Local Telecommunications Division, reporting directly to the Chief Executive Officer of Sprint (such commencement date, the " Effective Date" ). Immediately following the Spin-Off, Executive shall serve as President and Chief Executive Officer of SpinCo reporting directly to the Board and shall be a member of the Board. The Company' s headquarters in the Kansas City, Kansas greater metropolitan area shall be Executive' s principal job location.

(b) As Chief Executive Officer of SpinCo, Executive shall have such duties and authority, consistent with such position, as shall be determined from time to time by the Board and as is customary for the position of chief executive officer of a company of the size and nature of the business of SpinCo; provided , however, that Executive shall be the highest ranking Senior Officer of SpinCo and that prior to the Spin-Off Executive shall report to the Chief Executive Officer of Sprint and following the Spin-Off, Executive shall report only to the Board, provided, further, that following the Spin-Off all employees of SpinCo shall report, directly or indirectly, to Executive.


(c) Starting on the Effective Date, during the Employment Term Executive will devote substantially all of his business time to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive, subject to the prior written consent of the Board, from serving on any business, civic or charitable board, as long as such activities do not materially interfere with the performance of Executive' s duties hereunder. The Board shall be deemed to have consented from the Effective Date through the Spin-Off to Executive' s continuing to serve on the business, civic and charitable boards set forth on Exhibit A hereto. Following the Spin-Off, such service shall be subject to the further consent of the Board.


Section 1.02 . Term. Executive shall be employed by the Company for a period commencing on the Effective Date and, subject to earlier termination or extension as provided herein, ending on June 30, 2008 (the " Employment Term" ). On June 30, 2008 and each June 30 thereafter, the Employment Term shall automatically be extended for one additional year unless not later than 90 days prior to such date the Company or Executive shall have given written notice of its or his intention not so to extend the Employment Term. Notification requirements for a termination shall be subject to the provisions set forth in the definition of " Termination Date" as set forth in Article 7.

ARTICLE 2

COMPENSATION AND BENEFITS

Section 2.01 . Base Salary. Starting on the Effective Date, the Company shall pay Executive an annual base salary at the initial annual rate of $900,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the " Committee" ) for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. " Base Salary" shall mean Executive' s annual base salary as it may be increased from time to time.


Section 2.02 . Bonus. Subject in each case to Executive' s continued employment as contemplated hereby:

(a) (i) With respect to each fiscal year in the Employment Term, Executive shall be eligible to participate in the Company' s Short-Term Incentive Plan, with an annual target bonus opportunity of at least 120% of Base Salary (the " Basic Target Bonus Amount" ) and a maximum bonus payout not to exceed 200% of Basic Target Bonus Amount. Basic Target Bonus Amount shall be reviewed annually by the Board or the Committee for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. Except as provided in Section 2.02(a)(ii) or as may be payable pursuant to Article 3, Executive is not guaranteed the payment of any annual bonus.


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(ii) Notwithstanding the foregoing, Executive shall be entitled to a minimum annual bonus for 2005 of a pro-rata portion, based on the number of days Executive is employed with the Company in 2005, of the greater of $1,050,000 or the actual annual bonus payable based on Company performance for 2005 with respect such an annual target bonus opportunity under the Short-Term Incentive Plan. In the event Executive' s employment terminates prior to January 1, 2006, the payment of such bonus shall be subject to the provisions of Article 3; provided, however, that otherwise, such bonus shall be paid at the same time as annual bonuses for 2005 are paid to other Senior Officers (but not later than March 15, 2006).

Section 2.03 . Initial Option and Restricted Stock Unit Grants.


(a) As of the Effective Date, the Company shall cause the grant to Executive of nonqualified stock options under the Company' s 1997 Long-Term Stock Incentive Program (the " 1997 Program" ) to purchase 408,000 shares of FON Common Stock, at an exercise price equal to the Fair Market Value of a share of FON Common Stock on the Effective Date (the " Initial Options" ). Subject to the Executive' s continued employment with the Company, the Initial Options shall become exercisable as to 25% of the shares subject thereto on each of the first four anniversaries of the Effective Date. The Initial Options shall otherwise have the standard terms set forth in, and shall be subject to, the 1997 Program except that the Initial Options shall contain provisions which are consistent with the provisions of this Agreement, including without limitation Sections 3.02 and 3.05 hereof.


(b) As of the Effective Date, the Company shall cause the grant to Executive under the 1997 Program of 157,000 restricted stock units relating to and payable on a one-for-one basis in FON Common Stock (the " Initial RSUs" ). The initial RSUs shall vest in full, subject to Executive' s continued employment with the Company, on the third anniversary of the Effective Date. Unless Executive elects in the time and manner specified by the Company to defer the payment of all or a portion of the vested Initial RSUs, upon vesting such vested Initial RSUs shall be converted into shares of FON Common Stock, which shares shall be promptly distributed to Executive. Except as otherwise set forth in this Agreement, the Initial RSUs shall have the standard terms set forth in, and shall be subject to, the 1997 Program except that the Initial RSUs shall contain provisions which are consistent with the provisions of this Agreement, including without limitation Sections 3.02 and 3.05 hereof.


(c) (i) In connection with the Spin-Off, the Initial Options shall be adjusted into options relating to Sprint and/or SpinCo equity securities in such manner as may be equitably determined by the Committee.

(ii) In connection with the Spin-Off, the Initial RSUs shall be converted into restricted stock units relating to SpinCo common stock having a value equivalent to the Initial RSUs as of the Spin-Off.


(iii) All such adjusted options and converted restricted stock units shall contain provisions which are consistent with the provisions of this Agreement, including without limitation Sections 3.02 and 3.05 hereof.


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(d) The Initial Option and Initial RSU award shall contain provisions consistent with those contained in, and shall be substantially in the form of, Exhibit B hereto.


Section 2.04 . Sign-on Bonus and First Annual Equity Award. (a) On the Effective Date, the Company shall pay Executive a sign-on bonus of $600,000 in cash in a lump sum.


(b) The first annual long-term equity incentive award by the Company to Executive following the grant of the Initial Options and Initial RSUs shall be made in 2006 at the same time as such grants are made to other executives of the Company designated to be transferred to SpinCo and may consist of one or more grants, having such terms and conditions, including performance conditions, as the Committee may determine; provided, however, that such award shall contain provisions which are consistent with the provisions of this Agreement, including without limitation Sections 3.02 and 3.05 hereof., and shall have an aggregate grant date value as determined by the Committee of not less than $7,000,000 (the " First Annual Award" ). To the extent that the First Annual Award consists of stock options or restricted stock units, it shall contain provisions which are consistent with the provisions of Exhibit B hereto (subject to the provisions of Article 3 hereof) as well as any performance conditions as the Committee may determine. Provided that Executive is continuously employed by the Company through the earlier of (w) the date on which such grants are made to other executives of the Company designated to be transferred to SpinCo and (x) March 15, 2006, the First Annual Award shall be granted to Executive not later than the earlier of (y) December 31, 2006 and (z) immediately prior to the first to occur of the termination of Executive' s employment (i) without Cause, (ii) for Good Reason or (iii) for Constructive Discharge. In connection with the Spin-Off, the First Annual Award shall be converted into an award relating to Sprint and/or SpinCo equity securities in such manner as may be equitably determined by the Committee.


Section 2.05 . Employee Benefits. (a) During the Employment Term Executive shall be eligible to participate in compensation programs and to receive employee benefits, perquisites, vacation and indemnification on terms and conditions no less favorable than those made available generally to the Senior Officers designated to be transferred to SpinCo, as such compensation programs, benefits, perquisites, vacation and indemnification arrangements shall be in effect from time to time.

Section 2.06 . Business Expenses and Relocation. (a) Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies as in effect from time to time.

(b) Executive shall be required to relocate to the greater Kansas City metropolitan area promptly after the Effective Date. In connection with such relocation, Executive shall be eligible to participate in Sprint' s Executive New Employee Relocation Program, exceptions to which shall be administered in a manner consistent with Sprint' s normal exception process thereunder subject in each case to approval by the Chief Executive Officer of Sprint, including with respect to the purchase of Executive' s home, interim living arrangements, and transportation and storage of belongings.

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ARTICLE 3

CERTAIN BENEFITS


Section 3.01. Certain Events . (a) A " Qualifying Event" means the involuntary termination of Executive' s employment by the Company other than (x) for Cause, or (y) by reason of Executive' s death or Disability.


(b) A " Severance Event" means any of the following events: (i) Executive' s voluntary termination of employment for Good Reason, provided the event or events constituting Good Reason occur during the Employment Term and within the 24 month period following a Change in Control or (ii) a Qualifying Event occurring during such 24-month period.

(c) A " Separation Event" means any of the following events: (i) Executive' s voluntary termination of employment for Constructive Discharge; provided (x) the event or events constituting a Constructive Discharge occur during the Employment Term and other than during the 24-month period beginning on the date of a Change in Control and (y) such termination occurs within 90 days after the occurrence of an event constituting a Constructive Discharge; or (ii) a Qualifying Event occurring other than during the 24-month period beginning on the date of a Change in Control.

(d) In the event of any termination of employment during the Employment Term, Executive shall be entitled to receive from the Company, subject to Executive' s execution of a release in form and substance reasonably acceptable to Executive and Company, either the Severance Benefits to the extent and as described in Section 3.03, the relevant Separation Benefits to the extent and as described in Section 3.04, or the benefits to the extent and as described in Section 3.05, as the case may be.


Section 3.02. Treatment of Equity-Based Awards . (a) Notwithstanding the provisions of the 1997 Program, in the event that a Severance Event occurs during the Employment Term, or in the event of a Separation Event within two months following Abandonment of the Spin-Off, subject to Executive' s not being in willful and material breach of subsections (b)-(h) of Section 6.15 the Initial Options, Initial RSUs and First Annual Award (collectively, " Awards" ) shall continue to vest during the Continuation Period and to the extent not vested on the last day of the Continuation Period, shall become immediately vested and nonforfeitable (and to the extent such Awards are options, exercisable) on that day. Subject to Executive' s compliance with Section 6.15, such options shall remain exercisable until the expiration of six months following the last day of the Continuation Period (the " Option Termination Date" ). All other equity-based awards made to Executive during the Employment Term shall be governed by their terms upon such a termination.

(b) Notwithstanding the provisions of the 1997 Program, in the event that a Separation Event occurs during the Employment Term other than as described in Section 3.02(a), subject to Executive' s not being in willful and material breach of subsections (b)-(h) of Section 6.15, unvested Awards held by Executive shall continue to vest during the Continuation Period and to the extent not vested on the last day of the Continuation Period, the Initial Options and Initial


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RSUs shall vest on that day and any unvested portion of the First Annual Award shall be forfeited. To the extent Awards becoming so vested are options, the vested Initial Options shall remain exercisable until the Option Termination Date and the vested option portion of the First Annual Award shall remain exercisable until three months following the last day of the Continuation Period. All other equity-based awards made to Executive during the Employment Term shall be governed by their terms upon such a termination.

(c) Except as otherwise provided herein, in the event of the termination of Executive' s employment for Cause the treatment of Awards shall be governed by the standard terms set forth in the 1997 Program and in the event of Executive' s death or Disability during the Employment Term, the treatment of Awards shall be governed by Section 3.05 hereof.

(d) In the event of Executive' s voluntary termination of employment other than upon a Constructive Discharge or for Good Reason or upon the lapse of this Agreement pursuant to a notice of non-renewal by Executive under Section 1.02, all unvested Awards shall be immediately forfeited and to the extent that Awards are options that were exercisable immediately prior to such termination of employment, subject to Executive' s not being in willful and material breach of subsections (b)-(h) of Section 6.15, such vested options shall remain exercisable until the expiration of three months following the date of such termination.


Section 3.03 . Other Severance Benefits. Except to the extent provided in Section 6.07 and Section 6.08, Executive shall be entitled to the following benefits (the " Severance Benefits" ) upon a Severance Event:


(a) (i) The Company shall pay Executive as soon as practicable a lump sum, in cash, equal to Executive' s earned but unpaid Base Salary and any other earned but unpaid cash entitlements for the period through and including the date of termination of Executive' s employment, including unused earned vacation pay and unreimbursed documented business expenses (collectively, " Accrued Compensation" ).

(ii) The Company shall pay to Executive as soon as practicable an amount in cash equal to the product of (x) the greater of Executive' s target bonus opportunity for the year in which the Change in Control occurred and the year in which the Severance Event occurs (such greater amount, the " CIC Bonus Amount" ) times (y) a fraction, the numerator of which is the number of days in the year of termination through the Termination Date and the denominator of which is 365.

(iii) In addition, Executive shall be entitled to any other vested benefits earned by Executive for the period through and including the date of termination of Executive' s employment under any other employee benefit plans, policies, practices, programs and arrangements maintained by the Company, in accordance with their terms, except as modified herein (collectively, " Accrued Benefits" ).


(b) The Company shall pay Executive compensation during the Continuation Period at an annual rate equal to the sum of the amounts set forth in Clauses (i) and (ii) below, payable in


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equal monthly installments (each such installment, the " Severance Amount" ) during the Continuation Period in accordance with the applicable Company payroll system:


(i) Executive' s Base Salary at its highest annual rate in effect during the period beginning immediately prior to the date of the Change in Control to which such Severance Event relates and ending on the date of such Severance Event; and

(ii) the CIC Bonus Amount.

(c) Except as otherwise provided herein, during the Continuation Period the Company will provide Executive with all applicable executive perquisites that Executive was receiving or was entitled to receive on the Termination Date (the " Additional Benefits" ).

Section 3.04 . Other Separation Benefits. (a) Except to the extent provided in Section 6.07 and Section 6.08, upon a Separation Event Executive shall be entitled to the benefits set forth below (the " Separation Benefits" ):


(i) The Accrued Compensation;


(ii) The Accrued Benefits;


(iii) An amount in cash equal to the product of (x) Executive' s actual annual bonus under the Short-Term Incentive Plan for the year in which Executive' s employment terminates based on the actual performance for such year, times (y) a fraction, the numerator of which is the number of days in such year through the Termination Date and the denominator of which is 365 (the " Pro-Rata Bonus Amount" ). The Pro-Rata Bonus Amount shall be paid to Executive at the time benefits under the Short-Term Incentive Plan for such year are paid to other participants therein and it shall not be a requirement that Executive be employed by the Company at the time such benefits are payable to other participants; and

(iv) Compensation during the Continuation Period at an annual rate equal to the sum of (i) the Base Salary as in effect at the time of such termination and (ii) Executive' s target bonus opportunity under the Short-Term Incentive Plan for the year in which the Separation Event occurs, payable in equal monthly installments (each such installment, the " Separation Amount" ) during the Continuation Period in accordance with the applicable Company payroll system.

(b) During the Continuation Period, except as otherwise provided herein the Company will provide Executive with the Additional Benefits.

Section 3.05 . Other Terminations. Upon termination of Executive' s employment by reason of death or Disability or upon termination of Executive' s employment for Cause, Executive shall be entitled to:

(i) The Accrued Compensation; and


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(ii) The Accrued Benefits.


For the avoidance of doubt, upon termination of Executive' s employment due to death or Disability, the Initial Options, the Initial RSUs, and, if applicable, the First Annual Award shall fully vest and, in the case of death, any options attributable to the Awards shall continue to be exercisable for 12 months following death and, in the case of disability, shall continue to be exercisable for 60 months following the date of Disability. Anything herein, or in any other plan, program or arrangement of the Company, notwithstanding, the entitlements set forth in the preceding sentence shall apply whether death or Disability occurs during or following the first 12 months from the date of any such Award grant.


ARTICLE 4

CERTAIN TAX REIMBURSEMENT PAYMENTS


Section 4.01. Initial Determinations By Accounting Firm . In the event that a Change in Control or Severance Event occurs such that Executive is entitled to any payments or benefits related thereto or the Executive receives payments or benefits from the Company which are subject to the excise tax imposed by Section 4999 of the Code, the Company shall retain a national accounting firm selected by the Company and reasonably acceptable to Executive (the " Accounting Firm" ) to perform the calculations contemplated by this Article 4. The Accounting Firm shall have discretion to retain an independent appraiser with adequate expertise (the " Appraiser" ) to provide any valuations necessary for the Accounting Firm' s calculations hereunder. The Company shall pay all the fees and costs associated with the work performed by the Accounting Firm and any Appraiser retained by the Accounting Firm. If the Accounting Firm has performed services for any person, entity or group in connection with the related Change in Control, Executive may select an alternative national accounting firm to be the Accounting Firm. If the Appraiser otherwise performs work for any of the entities involved in the Change in Control or their affiliates (or has performed work for any such entity within the three years preceding the calculations hereunder), then Executive may select an alternative appraiser of national stature with adequate expertise to be the Appraiser. The Accounting Firm shall provide promptly to both the Company and Executive a written report setting forth the calculations required under this Agreement, together with a detail of all relevant supportive data, valuations and calculations. All determinations of the Accounting Firm shall be binding on Executive and the Company. When making the calculations required hereunder, Executive shall be deemed to pay: (x) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the taxable year for which any such calculation is made; and (y) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the taxable year for which any such calculation is made, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes.


The Accounting Firm shall determine (the " Initial Determination" ) the aggregate amount of all payments, benefits and distributions provided to Executive or for Executive' s benefit, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or any other agreement, plan or arrangement of the Company or otherwise (other than any payment


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pursuant to this Article 4) which are in the nature of compensation and contingent upon such Change in Control or other event which results in such compensation being subject to the excise tax imposed by Section 4999 of the Code (valued pursuant to Section 280G of the Code) (collectively the " Payments" ).


Section 4.02 . Initial Treatment of Payments. Executive shall be entitled to receive the full amount of the Payments and, if the amount of the Payments exceeds the maximum amount of the Payments Executive would be entitled to receive without being subject to the excise tax imposed by Section 4999 of the Code (such excise tax, together with any interest or penalties with respect to such excise tax, are hereinafter collectively referred to as the " Excise Tax" ), then the Company shall pay to Executive an additional payment (a " Gross-Up Payment" ) in an amount such that after payment by Executive of all taxes (including any interest and penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All determinations required to be made as to whether a Gross-Up Payment is required and the amount of such Gross-Up Payment shall be made by the Accounting Firm.


Section 4.03 . Redeterminations Based on IRS or Court Ruling. If after the date of the Initial Determination (a) Executive becomes entitled to receive additional Payments (including, without limitation, severance) contingent upon the same Change in Control or other event which results in such compensation being subject to the excise tax imposed by Section 4999 of the Code or (b) Executive becomes subject to the terms of any final binding agreement between Executive and the Internal Revenue Service or any decision of a court of competent jurisdiction which is not appealable or for which the time to appeal has lapsed (a " Final Determination" ) and which is contrary to the Initial Determination, then based upon such additional Payments or such Final Determination (as the case may be), the Accounting Firm shall recalculate: (i) the aggregate Payments (such recalculated amount, the " Redetermined Payments" ); and (ii) the related excise tax, if any, imposed by Section 4999 of the Code (such excise tax, together with any interest or penalties with respect to such excise tax, are hereinafter referred to as the " Redetermined Excise Tax" ).


Section 4.04 . Reconciliations Based on Redeterminations. If the aggregate value of the Redetermined Excise Tax exceeds the Excise Tax, then the Company shall pay to Executive an additional payment (a " Supplemental Gross-Up Payment" ) in an amount such that after payment by Executive of all taxes (including any interest and penalties imposed with respect to such taxes), including any Redetermined Excise Tax, imposed on the Supplemental Gross-Up Payment Executive retains an amount of the Supplemental Gross-Up Payment equal to the Redetermined Excise Tax; provided that if Executive has previously received a Gross-Up Payment, the amount of the Supplemental Gross-Up Payment shall be reduced by the amount of the Gross-Up Payment Executive previously received, so that Executive will be fully reimbursed, but will not receive duplicative reimbursements. If, however, the Excise Tax exceeds the Redetermined Excise Tax, the excess Gross-Up Payment that has been paid to Executive shall be repaid by Executive to the Company. Notwithstanding the foregoing, in the event any portion of the Gross-Up Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such


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portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) i ...