Among the modifications is the removal of the requirement that the companies co-brand their Internet offerings with both the EarthLink and Sprint brands, and changes to the customer acquisition commitments. This change better positions both EarthLink and Sprint to achieve increased brand clarity in the minds of consumers.
In the short term, Sprint will continue to market the EarthLink Sprint co-branded service to its dial-up customers, but in the future, it may utilize EarthLink’s Internet application set on a wholesale basis, for both narrowband and broadband products, and market them as Sprint services.
Services to existing customers will not be affected by the changes in the relationship between Sprint and EarthLink. EarthLink will continue to utilize Sprint’s network services.
The industry has evolved since we first joined forces, and we felt that we needed to re-structure our business relationship to reflect the changing needs of both the market and the two companies, said William T. Esrey, chairman and CEO of Sprint. This change in our agreement gives both companies more flexibility in terms of forming relationships, but still allows us to leverage each other’s strengths.
Sprint will contract with EarthLink for a dedicated staff of Sprint wholesale product developers. In addition, Sprint will work directly with EarthLink to develop the Internet features required for Sprint’s specific products.
This will enhance Sprint’s ability to efficiently market a product set that exactly meets its customers’ needs, and will allow EarthLink to focus the majority of its product development staff on EarthLink-branded products and services.
While Sprint continues to own the shares of EarthLink it previously purchased, several of the provisions regarding EarthLink’s corporate governance have been modified. Sprint will no longer have the right to acquire EarthLink commencing in September of this year, however, Sprint will retain the right to respond to third-party acquisition offers with an acquisition offer of its own.
Sprint also relinquishes its seats on EarthLink’s Board. As before, Sprint generally cannot increase its ownership percentage of EarthLink, but Sprint does have the option to maintain its current position whenever EarthLink increases its total voting shares outstanding via the issuance of new shares.
In addition, as a result of changes in the terms of the EarthLink-Sprint relationship, EarthLink will take an $11.3 million non-cash charge in the first quarter of 2001 to write off intangible assets related to the original marketing and co-branding agreements.
