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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
VOICESTREAM WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 91-1658114
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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3650 131ST AVENUE S.E.
BELLEVUE, WA 98006
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
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COPIES TO:
ALAN R. BENDER
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
3650 131ST AVE. S.E.
BELLEVUE, WA 98006
G. SCOTT GREENBURG
MARK S. BRITTON
PRESTON GATES & ELLIS LLP
5000 COLUMBIA SEAFIRST CENTER
701 5TH AVE.
SEATTLE, WA 98104
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 586-8700
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
NONE NONE
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
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ITEM 1. BUSINESS
GENERAL
VoiceStream Wireless Corporation ("VoiceStream") is presently the 80.1%
subsidiary of Western Wireless Corporation ("Western Wireless"); however,
Western Wireless is in the process of "spinning-off" VoiceStream. See
"-- Present Relationship with Western Wireless." VoiceStream is presently a
Delaware corporation; however, prior to consummation of the spin-off transaction
(the "Spin-off"), VoiceStream will effectuate a reincorporation merger to become
a Washington corporation.
VoiceStream provides personal communications services ("PCS") under the
VoiceStream(R) brand name in 11 urban markets -- Denver, Seattle/Tacoma,
Phoenix/Tucson, Portland, Salt Lake City, Des Moines, Oklahoma City, Honolulu,
El Paso, Albuquerque and Boise -- and is currently constructing systems in San
Antonio and Austin. VoiceStream holds 111 broadband PCS licenses covering
approximately 62.6 million persons. VoiceStream served 322,400 PCS subscribers
at December 31, 1998, representing an increase of 151.0% from December 31, 1997.
VoiceStream was formed in 1994 as "Western PCS Corporation" to participate
on behalf of Western Wireless and its shareholders in auctions held by the
Federal Communications Commission ("FCC") of various personal communications
services ("PCS") licenses. It was a wholly owned subsidiary of Western Wireless
until February 1998, when Hutchison Telecommunications PCS (USA) Limited
("Hutchison USA"), a subsidiary of Hutchison Whampoa Limited ("Hutchison"),
invested $248.4 million (the "Hutchison Investment") to purchase newly issued
shares of common stock representing a 19.9% interest in VoiceStream. VoiceStream
operated as a Delaware corporation until March , 1999, when it became a
Washington corporation. The results of VoiceStream are both consolidated and
reported with the results for Western Wireless and separately maintained,
audited, and reported as the results of VoiceStream. As a result, all financial
data relating to VoiceStream herein reflect the combined operations of the PCS
operating subsidiaries of Western Wireless, but do not contain any of the
results of the cellular, paging and international operations of Western
Wireless.
BACKGROUND
THE WIRELESS COMMUNICATIONS INDUSTRY
Overview
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular, PCS and ESMR networks. Each such
application is licensed in a distinct radio frequency block.
Since its introduction in 1983, wireless service has grown dramatically. As
of June 30, 1998, according to the Cellular Telecommunications Industry
Association ("CTIA") there were over 60.8 million wireless subscribers in the
United States, representing a penetration rate of 22.4%.
In the wireless communications industry, there are two principal frequency
bands licensed by the FCC for transmitting two way voice and data signals,
"cellular" and "PCS." Cellular systems are generated at 820 to 860 MHz and can
be either analog or digital. Although all cellular systems provide analog
capabilities, digital technology has been introduced by most carriers in urban
markets. Analog technology has several limitations, including lack of privacy
and limited capacity. Digital systems convert voice or data signals into a
stream of digits that is compressed before transmission, enabling a single radio
channel to carry multiple simultaneous signal transmissions. This enhanced
capacity, along with improvements in digital signaling, allows digital-based
wireless technologies to offer new and enhanced services, such as greater call
privacy, and robust data transmission features, such as "mobile office"
applications (including facsimile, electronic mail and wireless connections to
computer/data networks, including the Internet). See "-- Operation of Wireless
Communications Systems."
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PCS is a term commonly used in the United States to describe a portion of
radio spectrum from 1850 to 1990 MHz. PCS spectrum was auctioned by the FCC in
six frequency blocks (A-F) beginning with the A and B Blocks in late 1994 and
1995. In late 1995 and in 1996 the C Block was auctioned and the FCC concluded
simultaneous auctions of the D, E and F Blocks in 1997. In 1999, the FCC intends
to reauction portions of the C, D, E and F Blocks that were returned or not
purchased in previous auctions. This portion of radio spectrum is to be used by
PCS licensees to provide wireless communications services. PCS competes directly
with existing cellular telephone, paging and specialized mobile radio services.
PCS also includes features that are not generally offered by analog cellular
providers, such as data transmissions to and from portable computers, advanced
paging services and facsimile services. In addition, wireless providers may
eventually offer mass market wireless local loop applications in competition
with wired local communications services. See "-- Governmental Regulation" for a
discussion of the FCC auction process and allocation of wireless licenses.
Operation of Wireless Communications Systems
Wireless communications system service areas, whether cellular or PCS, are
divided into multiple cells. Due to the frequencies in which they operate, a
single cell in a cellular system generally transmits over a wider radius than a
comparable PCS cell. In both cellular and PCS systems, each cell contains a
transmitter, a receiver and signaling equipment (the "Cell Site"). The Cell Site
is connected by microwave or landline telephone lines to a switch that uses
computers to control the operation of the wireless communications system for the
entire service area. The system controls the transfer of calls from cell to cell
as a subscriber's handset travels, coordinates calls to and from handsets,
allocates calls among the cells within the system and connects calls to the
local landline telephone system or to a long distance telephone carrier.
Wireless communications providers establish interconnection agreements with
local exchange carriers and interexchange carriers, thereby integrating their
system with the existing landline communications system.
Because the signal strength of a transmission between a handset and a Cell
Site declines as the handset moves away from the Cell Site, the switching office
and the Cell Site monitor the signal strength of calls in progress. When the
signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another Cell Site where the signal strength is
stronger. If a handset leaves the service area of a cellular or PCS system, the
call is disconnected unless there is a technical connection with the adjacent
system.
Wireless system operators normally agree to provide service to subscribers
from other compatible wireless systems who are temporarily located in or
traveling through their service areas in a practice called "roaming." Agreements
among system operators provide that the carrier that normally provides services
to the roaming subscriber pays the serving carrier at rates prescribed by the
serving carrier. Analog cellular handsets are functionally compatible with
cellular systems in all markets within the United States. As a result, analog
cellular handsets may be used wherever a subscriber is located, as long as a
cellular system is operational in the area and necessary roaming arrangements
exist. Although PCS and cellular systems utilize similar technologies and
hardware, they operate on different frequencies and use different technical and
network standards. Dual mode phones, however, make it possible for users of one
type of system to "roam" on a different type of system outside of their service
area.
PCS systems operate under one of three principal digital signal
transmission technologies, or standards, that have been deployed by various
operators and vendors for use in PCS systems: Global System for Mobile
Communications ("GSM"), Time Division Multiple Access ("TDMA") or Code Division
Multiple Access ("CDMA"). GSM is the most widely used digital wireless standard
in the world serving over 120 million subscribers in approximately 130
countries. A benefit associated with GSM technology is its use of an open system
architecture that allows operators to purchase network equipment from a variety
of vendors that share standard interfaces for operation. This open architecture
provides flexibility by the operator in vendor cost leveraging, and provisioning
of features, products and services.
3
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GSM and TDMA are both based upon time-division of spectrum and are
currently incompatible with each other and with CDMA. Accordingly, a subscriber
of a system that utilizes GSM technology is currently unable to use a GSM
handset when traveling in an area not served by GSM-based PCS operators, unless
the subscriber carries a dual-mode handset that permits the subscriber to use
the analog cellular system in that area. Under a memorandum of understanding
between GSM operators in the United States and Canada and the association of
TDMA operators in the United States and Canada, there are plans to promote the
interoperability of GSM and TDMA standards.
The TDMA-based PCS standard offers the same features and services offered
by the time division-based digital cellular standard currently in use by certain
cellular operators in the United States, including AT&T Wireless and
Southwestern Bell. Both the CDMA- and TDMA-based PCS standards use a closed
system architecture that will limit PCS operators' choices of equipment vendors.
The CDMA standard is the most widely adopted digital standard in the United
States. CDMA-based PCS systems offer the same features and services offered by
CDMA-based cellular systems.
THE BUSINESS OF VOICESTREAM
VoiceStream provides PCS services under the VoiceStream brand name in 11
urban markets -- Denver, Seattle/Tacoma, Phoenix/Tucson, Portland, Salt Lake
City, Des Moines, Oklahoma City, Honolulu, El Paso, Albuquerque and Boise -- and
is currently constructing systems in San Antonio and Austin. VoiceStream holds
111 broadband PCS licenses covering approximately 62.6 million persons.
VoiceStream has experienced rapid growth of its operations since commencement in
February 1996. VoiceStream's subscribers have grown to 322,400 at December 31,
1998, and revenues have grown to $168.0 million for the year ended December 31,
1998. VoiceStream believes these results reflect the strong demand for wireless
services in its markets, the success of its marketing strategy and its
management capabilities.
VoiceStream believes its PCS service offerings are more extensive than
those generally offered by cellular systems in VoiceStream's markets. Service
offerings include all of the services typically provided by cellular systems, as
well as paging, caller identification, text messaging, smart cards, voice mail,
over-the-air activation and over-the-air subscriber profile management.
VoiceStream's goal is to achieve significant market penetration by
aggressively marketing competitively priced services under its proprietary
VoiceStream brand name, offering enhanced services not generally provided by
cellular operators and providing superior customer service. In addition,
VoiceStream is well-positioned to be a low-cost provider of PCS services by
utilizing centralized management, marketing, billing and customer service
functions, and by focusing on efficient customer acquisition and retention.
VoiceStream selected GSM as the digital standard for its PCS systems
because it believes GSM has significant advantages over the other competing
digital standards. These advantages include the widest array of features and an
open system architecture that provides cost advantages in choosing from a
variety of equipment options and providers, which result from the experience of
years of proven operability in Europe and Asia. GSM is the leading digital
wireless standard in the world, with over 120 million customers in 130
countries.
VoiceStream has entered into roaming agreements with substantially all of
the licensees that have deployed the GSM standard in North America. Such
agreements will allow VoiceStream's subscribers to roam in these carriers' PCS
markets, and vice versa, when such systems are operational. VoiceStream also has
approximately 90 reciprocal roaming agreements with a variety of international
carriers who have chosen to deploy the GSM standard. In addition, VoiceStream
has entered into roaming agreements with several cellular carriers, including
Western Wireless.
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STRATEGY
VoiceStream's principal focus is on the operation of PCS systems in urban
markets in the United States. VoiceStream believes that PCS is the optimum
technology for more densely populated urban areas where cellular systems are
generally more expensive to deploy and face potential capacity constraints.
VoiceStream's operating strategy is to: (i) construct and operate high
quality systems with extensive coverage in urban areas; (ii) expand operations
through increased subscriber growth and usage; (iii) utilize centralized
management, back office functions and its own salesforce to improve operating
efficiencies and generate greater economies of scale; and (iv) acquire
additional PCS licenses in urban markets.
VoiceStream is implementing its strategy by: (i) expanding its present
systems and building new systems; (ii) offering a targeted range of products to
complement today's business and personal lifestyles at competitive prices; (iii)
continually upgrading the quality of its network; (iv) establishing brand
recognition through a strong sales and marketing program; and (v) providing a
superior level of customer service.
MARKETS AND SYSTEMS
VoiceStream owns 111 broadband PCS licenses, seven of which are for MTA
license areas and 104 of which are for Basic Training Area ("BTA") license
areas, covering a total of approximately 62.6 million persons. See
"-- Governmental Regulation, Licensing of PCS Systems." VoiceStream obtained its
licenses as follows: (i) six MTA licenses in the FCC's A Block auction in 1995;
(ii) one MTA license from another carrier in 1996; (iii) 96 BTA licenses in the
FCC's D and E Block auctions in 1997; and (iv) eight BTA licenses from another
carrier in October 1997. Cook Inlet Western Wireless PV/SS, LP ("Cook Inlet
PCS"), in which VoiceStream owns a 49.9% limited partnership interest, owns 18
PCS BTA licenses that were acquired in the FCC's C and F Block auctions. Cook
Inlet PCS provides service in the Spokane, Tulsa, Phoenix/Tucson and
Seattle/Tacoma markets. VoiceStream has also formed another joint venture with
some of the same Cook Inlet PCS partners to participate in the FCC's reauction
of C and F Block licenses. Through other joint ventures in which VoiceStream has
an interest, PCS service is available in the Wichita market and certain markets
in Iowa, and is anticipated to be available in certain markets in southern Texas
in 1999. All of these operational markets use the internationally-proven GSM
technology.
Unless the context otherwise requires, when used herein, with respect to a
licensed area, "persons" and "population" are interchangeable and refer to the
aggregate number of persons located in such licensed area. Persons and
population data are estimated for 1999 based upon 1998 estimates by Equifax
Marketing Decision Systems, Inc. ("Equifax") adjusted by VoiceStream by applying
Equifax's growth factors from 1997 to 1998.
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MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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DENVER
Casper-Gillette........................................... 140,000 B 30 MHz
Cheyenne.................................................. 109,000 B 30 MHz
Colorado Springs.......................................... 513,000 B 30 MHz
Denver.................................................... 2,478,000 B 30 MHz
Fort Collins.............................................. 231,000 B 30 MHz
Grand Junction............................................ 233,000 B 30 MHz
Greeley................................................... 160,000 B 30 MHz
Pueblo.................................................... 299,000 B 30 MHz
Rapid City................................................ 194,000 B 30 MHz
Riverton.................................................. 49,000 B 30 MHz
Rock Springs.............................................. 59,000 B 30 MHz
Scottsbluff............................................... 101,000 B 30 MHz
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4,566,000
</TABLE>
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<TABLE>
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MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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SEATTLE
Olympia-Centralia......................................... 327,000 E 10 MHz
Seattle-Tacoma............................................ 3,090,000 E 10 MHz
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3,417,000
PHOENIX
Flagstaff................................................. 119,000 D 10 MHz
Nogales................................................... 40,000 D 10 MHz
Phoenix................................................... 3,191,000 D 10 MHz
Prescott.................................................. 153,000 D 10 MHz
Sierra Vista-Douglas...................................... 114,000 D 10 MHz
Tucson.................................................... 807,000 D 10 MHz
Yuma...................................................... 126,000 D 10 MHz
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4,550,000
PORTLAND
Bend...................................................... 141,000 A 30 MHz
Coos Bay-North Bend....................................... 84,000 A 30 MHz
Eugene-Springfield........................................ 312,000 A 30 MHz
Klamath Falls............................................. 81,000 A 30 MHz
Longview.................................................. 96,000 A 30 MHz
Medford-Grants Pass....................................... 249,000 A 30 MHz
Portland.................................................. 2,041,000 A 30 MHz
Roseburg.................................................. 103,000 A 30 MHz
Salem-Albany.............................................. 514,000 A 30 MHz
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3,621,000
SALT LAKE CITY
Logan..................................................... 101,000 A 30 MHz
Provo-Orem................................................ 358,000 A 30 MHz
Salt Lake City............................................ 1,554,000 A 30 MHz
St. George................................................ 129,000 A, E 40 MHz
Boise-Nampa............................................... 538,000 A 30 MHz
Idaho Falls............................................... 211,000 A 30 MHz
Pocatello................................................. 102,000 A 30 MHz
Twin Falls................................................ 158,000 A 30 MHz
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3,151,000
EL PASO-ALBUQUERQUE
Albuquerque............................................... 792,000 A 30 MHz
Carlsbad.................................................. 54,000 A 30 MHz
Farmington-Durango........................................ 194,000 A 30 MHz
Gallup.................................................... 141,000 A 30 MHz
Las Cruces................................................ 240,000 A 30 MHz
Roswell................................................... 79,000 A 30 MHz
Santa Fe.................................................. 204,000 A 30 MHz
El Paso................................................... 772,000 A 30 MHz
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2,476,000
OKLAHOMA CITY
Ada....................................................... 54,000 A 30 MHz
Ardmore................................................... 88,000 A 30 MHz
Enid...................................................... 85,000 A, E 40 MHz
Lawton-Duncan............................................. 173,000 A 30 MHz
McAlester................................................. 53,000 A 30 MHz
Oklahoma City............................................. 1,391,000 A, E 40 MHz
Ponca City................................................ 46,000 A, E 40 MHz
Stillwater................................................ 76,000 A, E 40 MHz
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1,966,000
</TABLE>
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<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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<S> <C> <C> <C>
DES MOINES-QUAD CITIES
Burlington................................................ 137,000 A 10 MHz
Cedar Rapids.............................................. 280,000 A 10 MHz
Clinton-Sterling.......................................... 146,000 A 10 MHz
Davenport-Moline.......................................... 427,000 A 10 MHz
Des Moines(1)............................................. 776,000 A 10/30 MHz
Dubuque................................................... 177,000 A 10 MHz
Fort Dodge................................................ 126,000 A 10 MHz
Iowa City................................................. 122,000 A 10 MHz
Marshalltown.............................................. 56,000 A 10 MHz
Mason City................................................ 116,000 A 10 MHz
Ottumwa................................................... 123,000 A 10 MHz
Sioux City................................................ 341,000 A 10 MHz
Waterloo-Cedar Falls...................................... 259,000 A 10 MHz
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3,086,000
HONOLULU
Hilo...................................................... 142,000 A 30 MHz
Honolulu.................................................. 866,000 A 30 MHz
Kahului-Wailuku-Lahaina................................... 123,000 A 30 MHz
Lihue..................................................... 57,000 A 30 MHz
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1,188,000
SAN ANTONIO
San Antonio............................................... 1,805,000 D 10 MHz
DALLAS-FORT WORTH
Abilene................................................... 256,000 D 10 MHz
Amarillo.................................................. 407,000 D 10 MHz
Austin.................................................... 1,188,000 D 10 MHz
Big Spring................................................ 35,000 D 10 MHz
Brownwood................................................. 62,000 D 10 MHz
Clovis.................................................... 80,000 E 10 MHz
Hobbs..................................................... 56,000 D 10 MHz
Lubbock................................................... 404,000 E 10 MHz
Midland................................................... 122,000 D, E 20 MHz
Odessa.................................................... 217,000 D, E 20 MHz
Paris..................................................... 91,000 D 10 MHz
San Angelo................................................ 165,000 D 10 MHz
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3,083,000
ST. LOUIS
Cape Girardeau............................................ 188,000 E 10 MHz
Carbondale-Marion......................................... 218,000 E 10 MHz
Columbia.................................................. 208,000 E 10 MHz
Jefferson City............................................ 156,000 D 10 MHz
Kirksville................................................ 56,000 E 10 MHz
Mount Vernon.............................................. 122,000 D 10 MHz
Poplar Bluff.............................................. 155,000 D 10 MHz
Quincy-Hannibal........................................... 180,000 D 10 MHz
Rolla..................................................... 93,000 D 10 MHz
St. Louis................................................. 2,822,000 E 10 MHz
West Plains............................................... 75,000 D 10 MHz
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4,273,000
TULSA
Coffeyville............................................... 61,000 D 10 MHz
</TABLE>
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<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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<S> <C> <C> <C>
WICHITA
Hutchinson................................................ 124,000 D 10 MHz
Salina.................................................... 143,000 D 10 MHz
Wichita................................................... 652,000 D 10 MHz
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919,000
CHICAGO
Jacksonville.............................................. 71,000 E 10 MHz
CINCINNATI-DAYTON
Dayton-Springfield........................................ 1,209,000 E 10 MHz
CLEVELAND
Ashtabula................................................. 102,000 E 10 MHz
Canton-New Philadelphia................................... 526,000 E 10 MHz
Cleveland-Akron........................................... 2,964,000 E 10 MHz
East Liverpool-Salem...................................... 111,000 E 10 MHz
Erie...................................................... 278,000 E 10 MHz
Mansfield................................................. 226,000 E 10 MHz
Meadville................................................. 89,000 E 10 MHz
Sandusky.................................................. 140,000 E 10 MHz
Sharon.................................................... 122,000 E 10 MHz
Youngstown-Warren......................................... 480,000 E 10 MHz
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5,038,000
KANSAS CITY
Manhattan-Junction City................................... 110,000 D 10 MHz
LITTLE ROCK
Fayetteville-Springdale................................... 292,000 E 10 MHz
Fort Smith................................................ 311,000 D 10 MHz
Harrison.................................................. 87,000 D 10 MHz
Hot Springs............................................... 132,000 D 10 MHz
Jonesboro-Paragould....................................... 174,000 E 10 MHz
Little Rock............................................... 920,000 D 10 MHz
Pine Bluff................................................ 148,000 D 10 MHz
Russellville.............................................. 93,000 E 10 MHz
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2,157,000
MILWAUKEE
Milwaukee................................................. 1,789,000 D 10 MHz
MINNEAPOLIS-ST. PAUL
Aberdeen.................................................. 87,000 D 10 MHz
Bemidji................................................... 64,000 D 10 MHz
Bismarck.................................................. 127,000 E 10 MHz
Fargo..................................................... 307,000 E 10 MHz
Grand Forks............................................... 208,000 D 10 MHz
Huron..................................................... 54,000 D 10 MHz
Mitchell.................................................. 84,000 D 10 MHz
Sioux Falls............................................... 232,000 D 10 MHz
Watertown................................................. 76,000 D 10 MHz
Willmar-Marshall.......................................... 84,000 E 10 MHz
Worthington............................................... 96,000 D 10 MHz
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1,419,000
OMAHA
Grand Island.............................................. 148,000 E 10 MHz
Hastings.................................................. 72,000 E 10 MHz
Lincoln................................................... 332,000 E 10 MHz
McCook.................................................... 34,000 E 10 MHz
Norfolk................................................... 112,000 E 10 MHz
North Platte.............................................. 85,000 E 10 MHz
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783,000
</TABLE>
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<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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<S> <C> <C> <C>
RICHMOND-NORFOLK
Danville.................................................. 168,000 E 10 MHz
Lynchburg................................................. 161,000 E 10 MHz
Martinsville.............................................. 90,000 E 10 MHz
Norfolk-VA Beach.......................................... 1,763,000 E 10 MHz
Richmond-Petersburg....................................... 1,202,000 E 10 MHz
Staunton-Waynesburo....................................... 107,000 E 10 MHz
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3,491,000
SAN FRANCISCO-SAN JOSE
San Francisco............................................. 6,965,000 E 10 MHz
SPOKANE-BILLINGS
Billings.................................................. 307,000 E 10 MHz
Bozeman................................................... 77,000 E 10 MHz
Butte..................................................... 67,000 D 10 MHz
Great Falls............................................... 164,000 E 10 MHz
Helena.................................................... 67,000 D 10 MHz
Kalispell................................................. 72,000 D 10 MHz
Kennewick-Pasco........................................... 189,000 D 10 MHz
Lewiston-Moscow........................................... 123,000 E 10 MHz
Missoula.................................................. 164,000 D 10 MHz
Walla Walla-Pendleton..................................... 169,000 D 10 MHz
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1,399,000
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VOICESTREAM TOTAL........................................... 62,593,000
==========
</TABLE>
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(1) VoiceStream contributed portions of the Des Moines MTA license to Iowa
Wireless (defined below). As a result, VoiceStream owns 30 MHz of the
license for certain counties within the Des Moines BTA but only 10 MHz for
the remainder of the Des Moines BTA.
Cook Inlet PCS
Cook Inlet PCS is a Delaware limited partnership ultimately controlled by
Cook Inlet Region, Inc., an Alaska Native Regional Corporation, which qualifies
Cook Inlet PCS for additional benefits available to a small business under FCC
rules. VoiceStream holds a 49.9% partnership interest in Cook Inlet PCS. Cook
Inlet PCS began operations in the Tulsa market in June 1997, in the
Phoenix/Tucson market in November 1998 and in the Seattle/Tacoma and Spokane
markets in February 1999. Cook Inlet PCS has not yet finalized its construction
plans for the other licenses it owns. For the Phoenix/Tucson and Seattle/ Tacoma
markets, Cook Inlet PCS and VoiceStream have entered into agreements allowing
system leasing, resale and roaming, enabling each of them to operate on the
systems constructed for the markets.
Cook Inlet PCS owns FCC licenses to provide wireless communications
services in the following 18 BTA license areas. See "-- Governmental Regulation,
Licensing of PCS Systems."
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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<S> <C> <C> <C>
CINCINNATI-DAYTON
Cincinnati................................................ 2,139,000 F 10 MHz
DALLAS-FORT WORTH
Temple-Killeen............................................ 354,000 F 10 MHz
KANSAS CITY
Pittsburg-Parsons......................................... 90,000 F 10 MHz
PHOENIX
Phoenix(1)................................................ 3,191,000 F 10 MHz
Tucson(1)................................................. 807,000 F 10 MHz
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3,998,000
</TABLE>
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<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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<S> <C> <C> <C>
SEATTLE
Aberdeen.................................................. 91,000 C 15 MHz
Bellingham................................................ 161,000 F 10 MHz
Bremerton................................................. 242,000 C 15 MHz
Port Angeles.............................................. 93,000 C 15 MHz
Seattle-Tacoma(1)......................................... 3,090,000 F 10 MHz
Wenatchee................................................. 211,000 C 15 MHz
Yakima.................................................... 259,000 C 15 MHz
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4,147,000
SPOKANE-BILLINGS
Spokane................................................... 733,000 C 15 MHz
Walla Walla-Pendleton(1).................................. 169,000 C 15 MHz
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902,000
TULSA
Bartlesville.............................................. 47,000 C 15 MHz
Coffeyville(1)............................................ 61,000 C 15 MHz
Muskogee.................................................. 159,000 C 15 MHz
Tulsa..................................................... 910,000 C 15 MHz
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1,177,000
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COOK INLET PCS TOTAL........................................ 12,807,000
==========
</TABLE>
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(1) VoiceStream also owns 10 MHz E Block licenses for these BTAs.
Iowa Wireless
Iowa Wireless Services, L.P. ("Iowa Wireless") is a Delaware limited
partnership ultimately controlled by Iowa Network Services, Inc., an Iowa
corporation. VoiceStream has a 38% limited partnership interest in Iowa
Wireless. Iowa Wireless began operations in certain markets in 1998.
Iowa Wireless owns FCC licenses to provide wireless communications services
in the following 13 BTA license areas. See "-- Governmental Regulation,
Licensing of PCS Systems."
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
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<S> <C> <C> <C>
DES MOINES-QUAD CITIES
Burlington................................................ 137,000 A, D 30 MHz
Cedar Rapids.............................................. 280,000 A 20 MHz
Clinton-Sterling.......................................... 146,000 A, D 30 MHz
Davenport-Moline.......................................... 427,000 A 20 MHz
Des Moines................................................ 207,000 A 20 MHz
Dubuque................................................... 177,000 A 20 MHz
Fort Dodge................................................ 126,000 A 20 MHz
Iowa City................................................. 122,000 A 20 MHz
Marshalltown.............................................. 56,000 A, D 30 MHz
Mason City................................................ 116,000 A, D 30 MHz
Ottumwa................................................... 123,000 A 20 MHz
Sioux City................................................ 341,000 A 20 MHz
Waterloo-Cedar Falls...................................... 259,000 A 20 MHz
---------
IOWA WIRELESS TOTAL......................................... 2,517,000
=========
</TABLE>
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<PAGE> 11
Wichita PCS
VoiceStream manages the Wichita market under the VoiceStream brand name for
Omnipoint Corp. VoiceStream is reimbursed for the costs of managing this market.
Omnipoint purchases VoiceStream's D Block service at wholesale in the Wichita,
Hutchinson and Salina BTAs and resells VoiceStream service to its own customers.
These operations are referred to as Wichita PCS. Wichita PCS provides wireless
communications services using the following three FCC licenses.
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ------
<S> <C> <C> <C>
WICHITA
Hutchinson................................................ 124,000 D 10 MHz
Salina.................................................... 143,000 D 10 MHz
Wichita................................................... 652,000 D 10 MHz
-------
WICHITA PCS TOTAL........................................... 919,000
=======
</TABLE>
STPCS
STPCS Joint Venture, LLC ("STPCS") is a Delaware limited liability company
ultimately controlled by STPCS Investment, LLC. VoiceStream has an 18%
membership interest in STPCS. STPCS, through its wholly owned subsidiaries, owns
seven FCC licenses to provide wireless communications services in the following
six BTA markets. See "-- Governmental Regulation, Licensing of PCS Systems."
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ------
<S> <C> <C> <C>
SAN ANTONIO
Brownsville-Harlingen..................................... 353,000 D, F 20 MHz
Corpus Christi............................................ 556,000 D 10 MHz
Eagle Pass-Del Rio........................................ 120,000 F 10 MHz
Laredo.................................................... 215,000 D 10 MHz
McAllen................................................... 594,000 D 10 MHz
---------
1,838,000
HOUSTON
Victoria.................................................. 164,000 F 10 MHz
---------
STPCS TOTAL................................................. 2,002,000
=========
</TABLE>
Cook Inlet/VoiceStream PCS LLC
On February 12, 1999, VoiceStream formed a Delaware limited liability
company, Cook Inlet/ VoiceStream PCS LLC. This LLC, like Cook Inlet PCS, is
ultimately controlled by Cook Inlet Region, Inc., and will participate in
upcoming FCC reauctions of C Block and F Block licenses. As part of that
transaction, a subsidiary of Cook Inlet Region, Inc. has certain rights to
exchange for shares of VoiceStream Common Stock. See Item 10 -- Description of
Registrant's Securities to be Registered."
PRODUCTS AND SERVICES
VoiceStream provides a variety of wireless products and services designed
to match a range of needs for business and personal use. VoiceStream currently
offers several distinct services and features in its PCS systems, including:
- Enhanced Features -- VoiceStream's systems offer caller identification,
call hold, voice mail and numeric paging, as well as custom calling
features such as call waiting, conference calling and call forwarding.
- Messaging and Wireless Data Transmission -- Digital networks offer voice
and data communications, including text messaging, through a single
handset. VoiceStream believes that, as data transmission services
develop, a number of uses for such services will emerge.
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<PAGE> 12
- Call Security and Privacy -- Sophisticated encryption algorithms provide
increased call security, encouraging users to make private, business and
personal calls with significantly lower risk of eavesdropping than on
analog-based systems.
- Smart Card -- "Smart" cards, programmed with the user's billing
information and a specified service package, allow subscribers to obtain
PCS connectivity automatically, simply by inserting their smart cards
into compatible PCS handsets.
- Over-the-Air Activation and Over-the Air Subscriber Profile
Management -- VoiceStream is able to transmit changes in the subscriber's
feature package, including mobile number assignment and personal
directory numbers, directly to the subscriber's handset.
- Roaming -- Subscribers are able to roam throughout the United States,
either on other GSM-based PCS systems operated by current licensees or by
using dual-mode handsets that can be used on existing cellular systems.
VoiceStream has entered into roaming agreements which allow its customers
to roam on cellular systems. Dual-mode handsets allow roaming onto analog
cellular systems.
MARKETING, SALES AND CUSTOMER SERVICE
VoiceStream's sales and marketing strategy is to generate continued
subscriber growth and increased subscriber revenues. In addition, VoiceStream
targets a customer base which it believes is likely to generate higher monthly
service revenues, while attempting to achieve a low cost of adding new
subscribers. VoiceStream markets its services under a proprietary brand name,
and sells its products and services through a combination of direct and indirect
distribution channels.
- Marketing -- VoiceStream markets its PCS products and services under the
proprietary VoiceStream brand name. VoiceStream's objective is to develop
brand recognition of VoiceStream through substantial advertising and
direct marketing in each of its PCS markets. In marketing its PCS
services, VoiceStream emphasizes the enhanced features, privacy and
competitive pricing of such services. VoiceStream concentrates its
marketing efforts primarily on businesses and individuals "on-the-go,"
who benefit from integrated mobile voice, messaging and wireless data
transmission capabilities, and enhanced features and services.
- Sales -- VoiceStream sells its products and services through a
combination of direct and indirect channels. VoiceStream operates 90
company-owned retail sales locations and utilizes a direct sales force of
over 680 persons. VoiceStream's training programs provide its sales
employees with an in-depth understanding of VoiceStream's system,
products and services so that they, in turn, can provide extensive
information to prospective customers. Sales commissions generally are
linked both to subscriber revenue and subscriber retention, as well as to
activation levels.
VoiceStream believes that its local sales offices provide the physical
presence in local markets necessary to position VoiceStream as a quality
local service provider, and give VoiceStream greater control over both
its costs and the sales process. VoiceStream also utilizes indirect sales
through an extensive network of national and local merchant and specialty
retailers. VoiceStream intends to continue to use a combination of direct
and indirect sales channels, with the mix depending on the retail needs
of each particular market.
In addition, VoiceStream acts as a retail distributor of handsets and
maintains inventories of handsets. Although subscribers generally are
responsible for purchasing or otherwise obtaining their own handsets,
VoiceStream has historically sold handsets below cost to respond to
competition and general industry practice and expects to continue to do
so in the future.
- Customer Service -- Customer service is a significant element of
VoiceStream's operating philosophy. VoiceStream is committed to
attracting and retaining subscribers by providing consistently superior
customer service. In Albuquerque, New Mexico, VoiceStream maintains a
highly sophisticated monitoring and control system, a staff of customer
service personnel and a
12
<PAGE> 13
well-trained technical staff to handle both routine and complex questions
as they arise, 24 hours a day, 365 days a year.
VoiceStream implements credit check procedures at the time of sale and
continuously monitors customer churn (the rate of subscriber attrition).
VoiceStream believes that it helps manage its churn rate through an outreach
program implemented through its sales force and customer service personnel. This
program not only enhances subscriber loyalty, but also increases add-on sales
and customer referrals. The outreach program allows the sales staff to check
customer satisfaction, as well as to offer additional calling features, such as
voice mail, call waiting and call forwarding.
SUPPLIERS AND EQUIPMENT VENDORS
VoiceStream does not manufacture any of the handsets or network equipment
used in its operations. The high degree of compatibility among different
manufacturers' models of handsets and network equipment allows VoiceStream to
design, construct and operate its systems without being dependent upon any
single source of such equipment. The handsets and network equipment used in
VoiceStream's operations are available for purchase from multiple sources, and
VoiceStream anticipates that such equipment will continue to be available in the
foreseeable future. VoiceStream currently purchases handsets primarily from
Motorola Inc., Ericsson Inc., Mitsubishi Wireless Communications, Inc. and Nokia
Mobile Phones, Inc. (together with its affiliate, Nokia Telecommunications Inc.,
"Nokia"). VoiceStream currently purchases network equipment primarily from
Northern Telecom Inc. and Nokia.
COMPETITION
Competition for subscribers among wireless licensees is based principally
upon the services and features offered, the technical quality of the wireless
systems, customer service, system coverage, capacity and price. Under current
FCC rules, there may be up to seven PCS licensees in each geographic area in
addition to the two cellular licensees. Also, SMR dispatch system operators have
constructed digital mobile communications systems on existing SMR frequencies,
referred to as ESMR, in many cities throughout the United States, including some
of the markets in which VoiceStream operates.
VoiceStream's principal competitors are the cellular service providers in
its markets, many of which have been operational for a number of years, and
national PCS providers, many of which offer no or low cost roaming and tolls.
Many of VoiceStream's competitors have significantly greater financial and
technical resources than those available to VoiceStream and provide comparable
services in competition with VoiceStream's PCS systems. These competitors
include AirTouch Cellular Communications, Inc. ("AirTouch"), AT&T Wireless
Services, Inc. ("AT&T Wireless") Bell Atlantic Mobile ("Bell Atlantic"), GTE
Mobilnet, Inc. ("GTE Mobilnet"), Sprint PCS L.P. ("Sprint PCS") and U.S. West
Wireless LLC ("US West"). VoiceStream also competes with paging, dispatch and
conventional mobile telephone companies, resellers and landline telephone
service providers in its PCS markets. Potential users of wireless systems may,
however, find their communications needs satisfied by other current and
developing technologies. One or two-way paging or beeper services that feature
voice messaging and data display as well as tone only service may be adequate
for potential subscribers who do not need to speak to the caller. In the future,
wireless service may also compete more directly with traditional landline
telephone service providers.
The FCC requires all cellular and PCS licensees to provide service to
"resellers." A reseller provides wireless service to customers but does not hold
an FCC license or own facilities. The reseller buys blocks of wireless telephone
numbers and capacity from a licensed carrier and resells service through its own
distribution network to the public. Thus, a reseller is both a customer of a
wireless licensee's services and also a competitor of that licensee. Several
small resellers currently operate in competition with VoiceStream's systems.
With respect to PCS licensees, the resale obligations terminate five years after
the last group of initial licenses of currently allotted PCS spectrum is
awarded.
13
<PAGE> 14
In the future, VoiceStream expects to face increased competition from
entities providing similar services using other communications technologies.
While some of these technologies and services are currently operational, others
are being developed or may be developed in the future.
VoiceStream recognizes that technological advances and changing regulations
have led to rapid evolution of the wireless telecommunications industry. At the
end of 1996, the FCC transferred 200 MHz of spectrum previously allocated to
federal government use to the private sector. In April of 1997, the FCC
auctioned 30 MHz of spectrum for Wireless Communications Services, which can
provide fixed or mobile telecommunications service. In late 1997, the FCC also
auctioned 10 MHz of spectrum for Specialized Mobile Radio service, another
potential competitor with PCS and cellular service. Moreover, in 1998, the FCC
auctioned more than 1000 MHz of spectrum for Local Multipoint Distribution
Service ("LMDS"). VoiceStream acquired 16 licenses as a result of such auction.
During 1998, the FCC auctioned 25 MHz of spectrum for the General Wireless
Communications Service, plus additional spectrum in the 220 MHz and 39 MHz
bands. VoiceStream cannot foresee how technological progress or economic
incentive will affect competition from these new services. In all instances, the
FCC reserves the right to amend or repeal its service regulations and auction
schedule.
INTELLECTUAL PROPERTY
VoiceStream holds federal trademark registration of the marks "VoiceStream"
and "VoiceStream and Design," and has registered or applied for various other
trade and service marks with the United States Patent and Trademark Office.
ORGANIZATION
VoiceStream holds its FCC licenses and conducts all operations through a
number of direct and indirect wholly-owned subsidiaries and through certain
affiliates. Indirect wholly-owned subsidiaries of VoiceStream are the 49.9%
limited partner of Cook Inlet PCS, the 38.0% limited partner of Iowa Wireless,
the 18.0% member of STPCS, and the non-controlling member of Cook
Inlet/VoiceStream LLC. In three BTAs, VoiceStream and Cook Inlet PCS each own a
license for 10 MHz of PCS spectrum that are the subject of agreements allowing
each of VoiceStream and Cook Inlet PCS to operate on the PCS systems built by
VoiceStream in those BTAs.
GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
sale of cellular and PCS systems in the United States pursuant to the
Communications Act of 1934, as amended from time to time, and the rules,
regulations and policies promulgated by the FCC thereunder (the "Communications
Act").
LICENSING OF PCS SYSTEMS
In order to increase competition in wireless communications, promote
improved quality and service and make available the widest possible range of
wireless services, federal legislation was enacted directing the FCC to allocate
radio frequency spectrum for PCS by competitive bidding. A PCS system operates
under a protected geographic service area license granted by the FCC for a
particular market on one of six frequency blocks allocated for broadband PCS
service. The FCC has divided the United States and its possessions and
territories into PCS markets made up of 493 BTAs and 51 MTAs. Each MTA consists
of at least two BTAs. As many as seven licensees will compete in each PCS
service area. The FCC has allocated 120 MHz of radio spectrum in the 2 GHz band
for licensed PCS services. The FCC divided the 120 MHz of spectrum into six
individual blocks, each of which is allocated to serve either MTAs or BTAs. The
spectrum allocation includes two 30 MHz blocks (A and B Blocks) licensed for
each of the 51 MTAs, one 30 MHz block (C Block) (which has been split in some
BTAs into two 15 MHz blocks) licensed for each of the 493 BTAs, and three 10 MHz
blocks (D, E and F Blocks) licensed for each of the 493 BTAs. A PCS license will
be awarded for each MTA or BTA in every block, for a total of more
14
<PAGE> 15
than 2,000 licenses. During 1997, the last of these auctions was completed;
however, a reauction of certain C, D, E and F Block licenses is currently
scheduled for 1999.
Under the FCC's current rules specifying spectrum ownership limits
affecting broadband PCS licensees, no entity may hold licenses for more than 45
MHz of PCS, cellular and SMR services regulated as Commercial Mobile Radio
Service ("CMRS") where there is significant overlap in any geographic area
(significant overlap will occur when at least ten percent of the population of
the PCS licensed service area is within the Cellular Geographic Service Area
("CGSA") and/or SMR service area, as defined by the FCC). The FCC is currently
reexamining these ownership limits.
Western Wireless owns cellular licenses serving markets that are wholly or
partially within the Denver MTA and the Oklahoma City MTA, resulting in Western
Wireless exceeding the FCC's current 45 MHz CMRS cross ownership restriction
described above. Western Wireless has filed waiver requests with the FCC with
respect to both MTAs, both of which are pending, and has been allowed to delay
compliance with the ownership restriction until the FCC rules on the waiver
requests. In the event that this restriction is not waived or the rule itself
revised, either VoiceStream or Western Wireless will be obligated to divest
sufficient portions of their markets in the Denver and Oklahoma City MTA to come
into compliance with the rules. VoiceStream does not believe such restriction or
any actions Western Wireless or VoiceStream is required to take to comply
therewith will have a material adverse effect on VoiceStream.
All PCS licenses are granted for a ten year term, at the end of which they
must be renewed. The FCC has adopted specific standards to apply to PCS
renewals, under which the FCC will award a renewal expectancy to a PCS licensee
that (i) has provided substantial service during its past license term and (ii)
has substantially complied with applicable FCC rules and policies and the
Communications Act. All 30 MHz PCS licensees, including VoiceStream, must
construct facilities that offer coverage to one-third of the population of their
service area within five years of their initial license grants and to two-thirds
of the population within ten years. Licensees that fail to meet the coverage
requirements may be subject to forfeiture of the license.
FCC rules restrict the voluntary assignments or transfers of control of C
and F Block licenses. During the first five years of the license term,
assignments or transfers affecting control are permitted only to assignees or
transferees that meet the eligibility criteria for participation in the
entrepreneur block auction at the time the application for assignment or
transfer of control is filed, or if the proposed assignee or transferee holds
other licenses for C and F Blocks and, at the time of receipt of such licenses,
met the same eligibility criteria. Any transfers or assignments during the
entire ten year initial license term are subject to an unjust enrichment penalty
of acceleration of any installment payment plans should the assignee or
transferee not qualify for the same benefits. Any transfers or assignments
during the first five years of the initial license term are subject to an unjust
enrichment penalty of forfeiture of bidding credits. In the case of the C and F
Blocks, the FCC will conduct random audits to ensure that licensees are in
compliance with the FCC's eligibility rules. Violations of the Communications
Act or the FCC's rules could result in license revocations, forfeitures or
fines.
For a period of up to ten years after the grant of a PCS license (subject
to extension), a PCS licensee will share spectrum with existing licensees that
operate certain fixed microwave systems within its license area. To secure a
sufficient amount of unencumbered spectrum to operate its PCS systems
efficiently and with adequate population coverage, VoiceStream will need to
relocate many of these incumbent licensees. In an effort to balance the
competing interests of existing microwave users and newly authorized PCS
licensees, the FCC adopted (i) a transition plan to relocate such microwave
operators to other spectrum blocks and (ii) a cost sharing plan so that if the
relocation of an incumbent benefits more than one PCS licensee, the benefiting
PCS licensees will share the cost of the relocation. Initially, this transition
plan allowed most microwave users to operate in the PCS spectrum for a two-year
voluntary negotiation period and an additional one-year mandatory negotiation
period. The FCC has shortened the voluntary negotiation period by one year
(without lengthening the mandatory negotiation period) for PCS licensees in the
C, D, E and F Blocks. For public safety entities dedicating a majority of their
system communications for police, fire or emergency medical services operations,
the voluntary negotiation period
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<PAGE> 16
is three years, with an additional two year mandatory negotiation period.
Parties unable to reach agreement within these time periods may refer the matter
to the FCC for resolution, but the incumbent microwave user is permitted to
continue its operations until final FCC resolution of the matter. The transition
and cost sharing plans expire on April 4, 2005, at which time remaining
incumbents in the PCS spectrum will be responsible for their costs to relocate
to alternate spectrum locations.
TRANSFERS AND ASSIGNMENTS OF PCS LICENSES
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a license for a PCS system (proforma
transfer of control does not require prior FCC approval). In addition, the FCC
has established transfer disclosure requirements that require licensees who
transfer control of or assign a PCS license within the first three years of
their license term to file associated contracts for sale, option agreements,
management agreements or other documents disclosing the total consideration that
the licensee would receive in return for the transfer or assignment of its
license. Non-controlling interests in an entity that holds a PCS license or PCS
system generally may be bought or sold without FCC approval. Any acquisition or
sale by VoiceStream of PCS interests may also require the prior approval of the
Federal Trade Commission and the Department of Justice, if over a certain size,
as well as state or local regulatory authorities having competent jurisdiction.
FOREIGN OWNERSHIP
Under the Communications Act, no more than 25% of an FCC licensee's capital
stock may be indirectly owned or voted by non-U.S. citizens or their
representatives, by a foreign government, or by a foreign corporation, absent an
FCC finding that a higher level of alien ownership is not inconsistent with the
public interest. In November 1997, the FCC adopted new rules, effective in
February 1998, in anticipation of implementation of the World Trade Organization
Basic Telecom Agreement ("WTO Agreement"). Formerly, potential licensees had to
demonstrate that their markets offered effective competitive opportunities in
order to obtain authorization to exceed the 25% indirect foreign ownership
threshold. Under the new rules, this showing now only applies to non-WTO
members. Applicants from WTO Agreement signatories have an "open entry"
standard: they are presumed to offer effective competitive opportunities.
However, the FCC reserves the right to attach additional conditions to a grant
of authority, and, in the exceptional case in which an application poses a very
high risk to competition, to deny the application. The limitation on direct
foreign ownership in an FCC licensee remains fixed at 20%, with no opportunity
to increase the percentage, and is unaffected by the FCC's new rules.
The WTO Agreement also obligates signatories to open their domestic
telecommunications markets to foreign investment and foreign corporations. The
WTO Agreement will increase investment and competition in the United States,
potentially leading to lower prices, enhanced innovation and better service. At
the same time, market access commitments from WTO Agreement signatories will
provide U.S. service suppliers opportunities to expand abroad.
TELECOMMUNICATIONS ACT OF 1996 AND OTHER RECENT INDUSTRY DEVELOPMENTS
On February 8, 1996, the Telecommunications Act of 1996 (the
"Telecommunications Act") was signed into law, substantially revising the
regulation of communications. The goal of the Telecommunications Act is to
enhance competition and remove barriers to market entry, while deregulating the
communications industry to the greatest extent possible. To this end, local and
long-distance communications providers will, for the first time, be able to
compete in the other's market, and telephone and cable companies will likewise
be able to compete in each other's markets. To facilitate the entry of new
carriers into existing markets, the Telecommunications Act imposes certain
interconnection requirements on incumbent carriers. Additionally, all
telecommunications providers are required to make an equitable and
nondiscriminatory contribution to the preservation and advancement of universal
service. VoiceStream cannot predict the outcome of the FCC's rulemaking
proceedings to promulgate regulations to implement the new law or the effect of
the new regulations on cellular service or PCS, and there can be no assurance
that such regulations will not adversely affect VoiceStream's business or
financial condition.
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<PAGE> 17
The Telecommunications Act codifies the policy that non-regional Bell
operating company CMRS providers will not be required to provide equal access to
long distance carriers, and relieved such CMRS providers of their existing equal
access obligations. The FCC, however, may require CMRS carriers to offer
unblocked access (i.e., implemented by the subscriber's use of a carrier
identification code or other mechanisms at the time of placing a call) to the
long distance provider of a subscriber's choice. The FCC has terminated its
inquiry into the imposition of equal access requirements on CMRS providers.
On July 26, 1996, the FCC released a Report and Order establishing
timetables for making emergency 911 services available by cellular, PCS and
other mobile service providers, including "enhanced 911" services that provide
the caller's telephone number, location and other useful information. Cellular
and PCS providers must be able to process and transmit 911 calls (without call
validation), including those from callers with speech or hearing disabilities.
If a cost recovery mechanism is in place and a Public Service Answering Point
("PSAP") requests and is capable of processing the caller's telephone number and
location information, cellular, PCS, and other mobile service provider must
relay a caller's automatic number identification and Cell Site location, and by
2001 they must be able to identify the location of a 911 caller within 125
meters in 67% of all cases. State actions incompatible with the FCC rules are
subject to preemption. On December 1, 1997, the FCC required wireless carriers
to transmit all 911 calls without regard to validation procedures intended to
identify and intercept calls from non-subscribers.
On August 1, 1996, the FCC released a Report and Order expanding the
flexibility of cellular, PCS and other CMRS providers to provide fixed as well
as mobile services. Such fixed services include, but need not be limited to,
"wireless local loop" services, e.g., to apartment and office buildings, and
wireless backup to PBXs and local area networks, to be used in the event of
interruptions due to weather or other emergencies. The FCC has not yet decided
how such fixed services should be regulated, but it has proposed a presumption
that they be regulated as CMRS services.
On August 8, 1996, the FCC released its order implementing the
interconnection provisions of the Telecommunications Act. The FCC's decision is
lengthy and complex and is subject to petitions for reconsideration and judicial
review (as described below), and its precise impact is difficult to predict with
certainty. However, the FCC's order concludes that CMRS providers are entitled
to reciprocal compensation arrangements with local exchange carriers ("LECs")
and prohibits LECs from charging CMRS providers for terminating LEC-originated
traffic. Under the rules adopted by the FCC, states must set arbitrated rates
for interconnection and access to unbundled elements based upon the LECs'
long-run incremental costs, plus a reasonable share of forward-looking joint and
common costs. In lieu of such cost-based rates, the FCC has established proxy
rates to be used by states to set interim interconnection rates pending the
establishment of cost-based rates. The FCC has also permitted states to impose
"bill and keep" arrangements, under which CMRS providers would make no payments
for LEC termination of calls where LECs and CMRS providers have symmetrical
termination costs and roughly balanced traffic flows. However, the FCC has found
no evidence that these conditions presently exist. The relationship of these
charges to the payment of access charges and universal service contributions has
not yet been resolved by the FCC. LECs and state regulators filed appeals of the
interconnection order, which have been consolidated in the US Court of Appeals
for the Eighth Circuit. The Court has vacated many of the rules adopted by the
FCC, including those rules governing the pricing of interconnection services,
but specifically affirmed the FCC rules governing interconnection with CMRS
providers. In January 1998, the U.S. Supreme Court agreed to review the Eighth
Circuit decision. In January 1999, the U.S. Supreme Court reversed many aspects
of the Eighth Circuit's judgment holding that: (i) the FCC has general
jurisdiction to implement the 1996 Act's local-competition provisions; (ii) the
FCC's rules governing unbundled access are consistent with the 1996 Act, except
for Rule 319, which gives requesting carriers blanket access to network
elements; and (iii) the "pick and choose" rule is a reasonable interpretation of
the 1996 Act.
In its implementation of the Telecommunications Act, the FCC recently
established new federal universal service rules, under which wireless service
providers for the first time are eligible to receive universal service
subsidies, but also are required to contribute to both federal and state
universal service
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<PAGE> 18
funds. For the first quarter of 1998, the FCC's universal service assessments
amount to 0.72% of interstate and intrastate telecommunications revenues for
schools, libraries and rural healthcare support mechanisms and an additional
3.19% of interstate telecommunications revenues for high cost and low income
support mechanisms. Various parties have challenged the FCC's universal service
rules, and the cases have been consolidated in the U.S. Court of Appeals for the
Fifth Circuit. VoiceStream cannot predict the outcome of this proceeding.
The FCC has adopted rules on telephone number portability which will enable
subscribers to migrate their landline and cellular telephone numbers to a PCS
carrier and from a PCS carrier to another service provider. Various parties have
challenged the number portability requirements as they apply to CMRS providers.
These challenges are still pending at the FCC and in the courts. VoiceStream can
not predict the outcome of such challenges. In February 1999, the FCC extended
the deadline for CMRS carriers to implement service provider local number
portability until November 24, 2002.
PRESENT RELATIONSHIP WITH WESTERN WIRELESS
Although VoiceStream is presently an 80.1% subsidiary of Western Wireless,
Western Wireless is the process of "spinning-off" VoiceStream pursuant to an
Agreement and Plan of Distribution ("Distribution Agreement"). In the spin-off
transaction (the "Spin-off"), Western Wireless will distribute to its
shareholders one share of common stock, no par value, of VoiceStream
("VoiceStream Common Stock") for each share of Class A common stock, no par
value, of Western Wireless (the "Class A Common Stock") and Class B common
stock, no par value, of Western Wireless (the "Class B Common Stock") owned by
each shareholder (Class A Common Stock and Class B Common Stock are referred to
collectively as the "Western Wireless Common Stock"). After the Spin-off,
VoiceStream will be a separate company, no longer owned in any way by Western
Wireless, although there will be some overlapping management. See "Item 5.
Directors and Executive Officers."
Prior to the effective date of the Spin-off, Western Wireless and
VoiceStream will enter into a non-competition agreement whereby for a period of
three years after such effective date: (i) Western Wireless agrees not to pursue
any PCS opportunity unless it first presents such opportunity to VoiceStream and
VoiceStream determines not to pursue, or discontinues the pursuit of, such
opportunity; (ii) Western Wireless agrees that if it acquires businesses or
assets which include both cellular and PCS assets, it will offer VoiceStream the
opportunity to buy the PCS assets so acquired at the allocable portion of the
purchase price paid for such assets; (iii) VoiceStream agrees not to pursue any
cellular opportunity unless it first presents such opportunity to Western
Wireless and Western Wireless determines not to pursue, or discontinues the
pursuit of, such opportunity; (iv) VoiceStream agrees that if it acquires
businesses or assets which include both cellular and PCS assets, it will offer
Western Wireless the opportunity to buy the cellular assets so acquired at the
allocable portion of the purchase price paid for such assets; (v) Western
Wireless and VoiceStream agree that with respect to any wireless telephony
opportunity that is neither cellular nor PCS, they will share such opportunity
on an equal basis, unless they agree to another arrangement; and (vi) Western
Wireless and VoiceStream agree not to solicit each other's employees.
Western Wireless and VoiceStream expect to provide their own administrative
services after the Spin-off. However, for a period of up to twelve months after
the Spin-off, Western Wireless and VoiceStream will generally make their
employees available to each other as necessary to support the activities of each
party in areas including, without limitation, accounting, tax and legal advice
and services and human resources. The party rendering these services will be
entitled to receive from the other, upon the presentation of invoices therefor,
payment for its reasonable cost and expenses incurred in providing such
services.
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RISKS RELATING TO THE BUSINESS OF VOICESTREAM
There are various risks associated with VoiceStream's business. For a
discussion of such risks, please see Western Wireless' Information Statement on
Schedule 14C as filed with the Securities and Exchange Commission and dated
, 1999. Such document is incorporated herein by reference.
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<PAGE> 20
ITEM 2. FINANCIAL INFORMATION
SELECTED VOICESTREAM CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial and
operating data for VoiceStream as of and for each of the three years in the
period ended December 31, 1998, which was derived from our consolidated
financial statements and notes thereto that have been audited by Arthur Andersen
LLP, independent public accountants. All the data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations of VoiceStream" and VoiceStream's consolidated financial statements
and notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Subscriber revenues....................................... $ 123,966 $ 52,360 $ 7,794
Roamer revenues........................................... 3,506 227
Equipment revenues........................................ 40,490 25,143 9,745
----------- ----------- -----------
Total revenues..................................... 167,962 77,730 17,539
----------- ----------- -----------
Operating expenses:
Cost of service........................................... 50,978 43,183 12,470
Cost of equipment sales................................... 77,071 53,469 20,789
General and Administrative................................ 75,343 51,678 20,209
Sales and marketing....................................... 85,447 59,466 31,505
Depreciation and amortization............................. 83,767 66,875 14,395
----------- ----------- -----------
Total operating expenses........................... 372,606 274,671 99,368
----------- ----------- -----------
Operating loss.............................................. (204,644) (196,941) (81,829)
Other income (expense):
Interest and financing expense............................ (34,118) (57,558) (3,607)
Equity in net loss of unconsolidated affiliate............ (24,120) (9,327) (954)
Other, net................................................ 8,616 11 40
----------- ----------- -----------
Net loss........................................... $ (254,266) $ (263,815) $ (86,350)
=========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Current assets.............................................. $ 59,398 $ 49,945 $ 59,515
Property and equipment, net................................. 619,280 420,638 318,473
Licensing cost and other intangible assets, net............. 312,040 315,653 227,997
Other assets................................................ 60,938 36,055 8,142
----------- ----------- -----------
Total assets....................................... $ 1,051,656 $ 822,291 $ 614,127
=========== =========== ===========
Current liabilities......................................... $ 125,026 $ 126,184 $ 155,769
Long-term debt.............................................. 540,000 300,000 143,000
Other long-term liabilities................................. 173,705
Shareholders' equity........................................ 386,630 396,107 141,653
----------- ----------- -----------
Total liabilities and shareholders' equity......... $ 1,051,656 $ 822,291 $ 614,127
=========== =========== ===========
OTHER DATA:
Licensed population......................................... 62,498,000 62,808,000 19,488,000
Covered population(1)....................................... 16,121,000 11,412,000 6,133,000
Subscribers................................................. 322,400 128,600 35,500
EBITDA(2)................................................... $ (120,877) $ (130,066) $ (67,434)
CASH FLOWS PROVIDED BY (USED IN):
Operating activities........................................ $ (112,931) $ (198,129) $ (81,272)
Investing activities........................................ $ (253,633) $ (370,202) $ (342,587)
Financing activities........................................ $ 374,284 $ 563,254 $ 429,250
</TABLE>
- ---------------
(1) Represents population that is covered by our consolidated systems.
(2) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA is a measure commonly used in the industry and should
not be construed as an alternative to operating income (loss) as determined
in accordance with United States GAAP, as an alternate to cash flows from
operating activities (as determined in accordance with GAAP), or as a
measure of liquidity.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion and analysis of the consolidated financial
condition and results of operations of VoiceStream and should be read in
conjunction with VoiceStream's consolidated financial statements and notes
thereto and other financial information included herein.
OVERVIEW
VoiceStream is an 80.1% owned subsidiary of Western Wireless. The remaining
19.9% is indirectly owned by Hutchison. VoiceStream provides wireless
communications services in urban markets in the United States through the
ownership and operation of PCS licenses. VoiceStream had commenced commercial
operations in ten markets under the VoiceStream(R) brand name as of December 31,
1998 (an eleventh market commenced commercial operations in February 1999).
Additionally, VoiceStream PCS services are offered in three markets in
conjunction with joint ventures (a fourth market commenced commercial operations
in February 1999).
On February 8, 1999, Western Wireless announced its intention to separate
VoiceStream from Western Wireless' other operations. Western Wireless has
received a favorable ruling from the Internal Revenue Service for a tax free
spin-off, and the approval by its board of directors to take the necessary steps
to complete the Spin-off. Western Wireless will distribute all of its interest
in VoiceStream to its shareholders upon the Spin-off. Although certain aspects
of VoiceStream's operations have always been separate from Western Wireless'
other operations and VoiceStream has been a separate legal entity since its
inception, the Spin-off will establish VoiceStream as a stand-alone entity with
objectives separate from those of Western Wireless. The Spin-off is subject to
numerous conditions including, among others, the receipt of certain government
and third party approvals. There is no assurance that such conditions will be
met to complete the Spin-off.
VoiceStream's revenues consist primarily of subscriber revenues (including
access charges and usage charges), and equipment sales. The majority of
VoiceStream's revenues are derived from subscriber revenues. VoiceStream had no
revenues prior to February 1996. VoiceStream expects to continue to sell
handsets below cost and regards these losses as a cost of building its
subscriber base. As used herein, "service revenues" include subscriber and
roamer revenues.
Cost of service consists of the cost of providing wireless service to
subscribers, primarily costs to access local exchange and long distance carrier
facilities and to maintain the wireless network. General and administrative
expenses include the costs associated with billing a subscriber and the
administrative costs associated with maintaining subscribers, including customer
service, accounting and other centralized functions. General and administrative
expenses also include provisions for unbillable fraudulent roaming charges and
subscriber bad debt. Sales and marketing costs include costs associated with
acquiring a subscriber, including direct and indirect sales commissions,
salaries, all costs of retail locations, advertising and promotional expenses.
Depreciation and amortization primarily includes depreciation expense associated
with the property and equipment in service and amortization associated with its
wireless licenses for operational markets.
VoiceStream's financial statements include an allocation of certain
centralized costs and assets that were incurred by Western Wireless and benefit
all of its operations, including those of VoiceStream. These costs are allocated
to the respective operational units in a manner which reflects management's
judgement as to the nature of the activity causing those items to be incurred.
VoiceStream was allocated costs of $33.3 million in 1998 and $29.1 million in
1997 and assets of $14.5 million in 1998 and $19.1 million in 1997. Management
believes that the financial information presented fairly reflects the results of
operations had VoiceStream been a stand alone entity. Therefore, no proforma
presentation is provided. Management believes that allocations reflected in the
financial statements are reasonable, however, the financial information included
herein is not necessarily indicative of the financial position, results of
operations or cash flows of VoiceStream in the future.
21
<PAGE> 22
As used herein, "EBITDA" represents operating loss before depreciation and
amortization. EBITDA is a measure commonly used in the industry and should not
be construed as an alternative to operating loss (as determined in accordance
with GAAP), as an alternative to cash flows from operating activities (as
determined in accordance with GAAP), or as a measure of liquidity.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
VoiceStream did not commence operations in any of its markets until
February 1996. From that date through the end of 1996 VoiceStream launched
service in six markets: Honolulu, Portland, Salt Lake City, Albuquerque,
Oklahoma City and Des Moines. In 1997, VoiceStream launched service in El Paso,
Boise and Denver. In 1998, VoiceStream launched service in Phoenix/Tucson. Due
to the varying dates at which each of the markets became operational, the
expenses and revenues incurred during any period may not be comparable to
another period and may not be representative of future operations. Additionally,
during each period being discussed a portion of the operating expenses was
related to start-up costs incurred before the commencement of operations in each
of the markets. Exclusive of depreciation and amortization expense, which was
not material, approximately $7.7 million, $5.4 million and $17.0 million of
start-up costs were incurred in 1998, 1997 and 1996 respectively.
VoiceStream had 322,400 subscribers at December 31, 1998, a 150.7% increase
during 1998. VoiceStream had 128,600 subscribers at December 31, 1997, a 262.3%
increase during 1997. At December 31, 1996, VoiceStream had 35,500 subscribers.
The following table sets forth certain financial data as it relates to
VoiceStream's operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
% %
1998 CHANGE 1997 CHANGE 1996
--------- ------- --------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber revenues............................ $ 123,966 136.8% $ 52,360 571.8% $ 7,794
Roamer revenues................................ 3,506 1,444.4% 227 N.M.
Equipment revenues............................. 40,490 61.0% 25,143 158.0% 9,745
--------- --------- --------
Total revenues.......................... $ 167,962 $ 77,730 $ 17,539
========= ========= ========
Operating expenses:
Cost of service................................ $ 50,978 18.0% $ 43,183 246.3% $ 12,470
Cost of equipment sales........................ 77,071 44.1% 53,469 157.2% 20,789
General and administrative..................... 75,343 45.8% 51,678 155.7% 20,209
Sales and marketing............................ 85,447 43.7% 59,466 88.8% 31,505
Depreciation and amortization.................. 83,767 25.3% 66,875 364.6% 14,395
--------- --------- --------
Total operating expenses................ $ 372,606 $ 274,671 $ 99,368
========= ========= ========
EBITDA........................................... $(120,877) (7.1)% $(130,066) 92.9% $(67,434)
========= ========= ========
</TABLE>
Revenues
The increase in subscriber revenues is due to the increase in the number of
subscribers. The increase in subscribers is due to the higher number of
operational markets during each period and the relative maturity of
VoiceStream's operations in these markets. Offsetting this increase is a
decrease in the average monthly subscriber revenue per average subscriber
("ARPU"). ARPU was $45.81 for 1998 compared to $57.48 for 1997 and $62.85 for
1996. The decrease in ARPU is primarily due to the change in strategy in 1998,
signified by the "Get More" advertising campaign. In this campaign, subscribers
get more value from their wireless service through lower priced rated plans that
include high minutes of use. Revenues from prepaid customers of $2.1 million are
included in subscriber revenues for 1998. VoiceStream does not expect that ARPU
will decline at the same rate in 1999 as it did in 998.
Roamer revenues are a result of VoiceStream's continuing effort to procure
domestic and international roaming agreements with other carriers.
22
<PAGE> 23
Equipment sales increased as a result of more handsets sold. The increase
in handsets sold is due to the number of operational markets during each period
and the relative maturity of VoiceStream's operations in these markets.
Offsetting this increase is a decrease in the average handset selling price,
which is the result of lower handset costs and the competitive environment.
VoiceStream anticipates continued growth in equipment sales as a result of
increases in subscriber additions and the commencement of commercial operations
in other markets.
Operating Expenses
Cost of service expenses represent expenses incurred only by operational
markets. The increase in cost of service is primarily attributable to the
increased costs of maintaining the expanding wireless network as a result of new
markets becoming operational. Cost of service as a percentage of service
revenues declined to 40.0% in 1998 from 82.7% in 1997 and 160.0% in 1996 due to
efficiencies gained from the growing subscriber base. While cost of service
expenses are expected to grow in 1999 due to the growth in subscribers and
operating markets, VoiceStream expects the cost of service as a percentage of
service revenue to decline as greater economies of scale are realized.
Cost of equipment sales increased each year primarily due to the increase
in handsets sold, offset by a decrease in the average cost of handsets.
The increase in general and administrative expenses is primarily
attributable to the increased costs associated with supporting a larger
subscriber base. General and administrative costs per average subscriber were
$27.84 for 1998 compared to $56.74 for 1997 and $135.81 for 1996. This decrease
is largely the result of efficiencies gained from a larger subscriber base.
While general and administrative expenses are expected to grow in 1999 due to
the growth in subscribers and operating markets, VoiceStream expects the costs
per average subscriber to decline as greater economies of scale are realized.
The increase in sales and marketing costs each year is primarily due to the
increase in subscribers added. Sales and marketing costs per net subscriber
added, including the loss on equipment sales, was $630 for 1998 compared to $943
for 1997 and $1,200 for 1996. This decrease is largely the result of
efficiencies gained from larger subscriber additions. Sales and marketing costs
are expected to increase in 1999 due to the anticipated growth in subscriber
additions.
The increase in depreciation and amortization expenses is attributable to
the continued expansion of the wireless systems. FCC licenses are not amortized
until the related market is operational. These expenses will increase as new
markets become operational.
Other Income (Expense); Net Operating Loss Carryforwards
Interest and financing expense, net of capitalized interest, decreased in
1998 from 1997 due to the equity contributions from Western Wireless in December
1997 and Hutchison USA in February 1998 (see "Liquidity and Capital Resources").
The equity contribution from Western Wireless was a conversion of debt that had
previously incurred interest. The Hutchison Investment allowed VoiceStream to
repay the remaining debt to Western Wireless and to forego additional borrowings
until July 1998. The increase in interest and financing expense in 1997 from
1996 was due to the increase in long-term debt. Long-term debt was incurred
primarily to fund the capital expenditures associated with the build-out of the
wireless systems. Interest expense will increase in 1999 as a result of
increased borrowings to fund the expansion of the wireless network. The weighted
average interest rate, before the effect of capitalized interest, was 8.76% in
1998, 8.23% in 1997 and 8.12% in 1996.
VoiceStream had $707 million of net operating loss ("NOL") carryforwards at
December 31, 1998, which will expire between 2010 and 2018. After the Spin-off,
these NOLs will remain with VoiceStream.
EBITDA
The decrease in negative EBITDA from 1998 to 1997 is attributable to the
increase in revenues and operating efficiencies gained from the growing
subscriber base.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
VoiceStream, through a wholly-owned subsidiary, has a credit facility with
a consortium of lenders (the "Credit Facility") consisting of $500 million in
revolving credit and $500 million in term loans. As of December 31, 1998, $540
million was outstanding under the Credit Facility. Debt under the Credit
Facility matures on December 31, 2006, for the revolver and the delayed draw
term loan, and June 30, 2007, for the other $250 million term loan. The
borrowings under the Credit Facility bear interest at variable rates.
Substantially all the assets of VoiceStream, other than certain PCS licenses
acquired in the FCC's D and E Block auctions and certain other assets, are
pledged as security for such debt. The terms of the Credit Facility restrict,
among other things, the sale of assets, distribution of dividends or other
distributions and loans. As of January 1, 1999, the amount available to borrow
under the Credit Facility, which is restricted by certain financial covenants,
was $277 million.
The Hutchinson Investment closed in February 1998. Approximately $135
million of the proceeds of the Hutchison Investment was used by VoiceStream for
the build-out of its systems during 1998. The remainder of the proceeds was paid
to Western Wireless as a repayment of loans made to VoiceStream.
In 1999, VoiceStream anticipates spending approximately $150 million for
the continued expansion of its operating markets and $150 million for the
development and expansion of new markets. VoiceStream will use cash on hand and
amounts available for borrowing under the Credit Facility for such purposes. In
addition, further funds (which may be significant) will be required to finance
the continued growth of its operations, including the build-out of its markets,
provide for working capital and service debt. The build-out of additional
systems by VoiceStream will require substantial additional funds. The capital
cost of completing a project in any particular market, and overall, could vary
materially from current estimates. If adequate funds are not available from its
existing capital resources, VoiceStream may be required to curtail its service
operations or to obtain additional funds. The terms of any additional funds may
be less favorable than those contained in current arrangements.
A wholly owned subsidiary of VoiceStream holds a 49.9% interest in Cook
Inlet PCS. Cook Inlet PCS is subject to the FCC's build-out requirements and
will require significant additional amounts to complete the build-out of its PCS
systems and to meet the government debt service requirements on the C and F
Block licenses. The potential sources of such additional funding include vendor
loans, loans or capital contributions by the partners of Cook Inlet PCS or other
third party financing. To date, VoiceStream has funded the operations of Cook
Inlet PCS through loans evidenced by promissory notes. At December 31, 1998, the
wholly owned subsidiary of VoiceStream had advanced funds totaling $65.3 million
to Cook Inlet PCS under such promissory notes. During the second quarter of
1998, Cook Inlet PCS participated in the C Block restructuring options provided
by the FCC. The options chosen by Cook Inlet PCS had the effect of reducing its
debt by $29.1 million. In January 1999, certain partners of Cook Inlet PCS,
including VoiceStream, formed another joint venture to participate in the FCC's
reauction of C and F Block licenses in 1999. The funding for such venture has
not been determined.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses will remain with VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison Investment, VoiceStream will
pay Western Wireless in 1999 an amount representative of the tax benefit of NOLs
generated while VoiceStream was a wholly-owned subsidiary of Western Wireless.
This payment will not exceed $20 million, net of taxes.
Net cash used in operating activities was $112.9 million in 1998.
Adjustments to the $254.3 million net loss to reconcile to net cash used in
operating activities included $83.8 million of depreciation and amortization,
and $24.1 million of equity in the net loss of unconsolidated subsidiaries.
Other adjustments included changes in operating assets and liabilities,
including: (i) an increase of $20.9 million in accrued liabilities, the largest
component of which is attributable to an increase in property taxes; and (ii) an
increase of $13.7 million in accounts payable, due to the growth of the
business. Net cash used in operating activities was $198.1 million in 1997 and
$81.3 million in 1996.
24
<PAGE> 25
Net cash used in investing activities was $253.6 million in 1998. Investing
activities consisted primarily of: (i) purchases of property and equipment of
$206.5 million, largely related to the build-out of the wireless network; (ii)
investments in and advances to unconsolidated affiliates of $34.3 million,
primarily attributable to advances to Cook Inlet PCS for working capital and
purchases of property and equipment; and (iii) $12.9 million of additions to
licensing costs and other intangible assets, primarily attributable to 16 Local
Multipoint Distribution Service (LMDS) licenses acquired in an FCC auction. Net
cash used in investing activities was $370.2 million in 1997 and $342.6 million
in 1996.
Net cash provided by financing activities was $374.3 million in 1998.
Financing activities consisted of: (i) net proceeds from the Hutchison
Investment of $244.8, offset by the repayment of advances from Western Wireless
of $105.4 million; and (ii) net borrowings on long-term debt of $240.0 million,
offset by $5.1 million of financing fees. Net cash provided by financing
activities was $563.3 million in 1997 and $429.3 million in 1996.
In the ordinary course of business, VoiceStream continues to evaluate
acquisitions, joint ventures and other potential business transactions. Any such
transactions would be financed with the borrowings under the Credit Facility or
through the issuance of additional debt or the sale of additional equity. There
can be no assurance that such funds will be available to VoiceStream on
acceptable or favorable terms.
YEAR 2000 ISSUES
VoiceStream, like most owners of computer software, will be required to
modify significant portions of its software so that it will function properly in
the year 2000. Any of VoiceStream's, or its vendors, computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. VoiceStream is currently remediating its critical systems to
address the year 2000 issue. Critical systems are those whose failure poses a
risk of disruption to VoiceStream's ability to provide wireless services, to
collect revenues, to meet safety standards, or to comply with legal
requirements. VoiceStream expects to incur internal staff costs as well as
consulting and other expenses related to infrastructure and facilities
enhancements necessary to prepare the systems for the year 2000. VoiceStream
cannot assure that the remediation of its critical systems will be complete by
the year 2000.
Much of VoiceStream's technology, including technology associated with its
critical systems, is purchased from third parties. VoiceStream is dependent on
those third parties to assess the impact of the year 2000 issue on the
technology and services they supply and to take any necessary corrective action.
VoiceStream's plan includes obtaining information from all third parties to
determine whether they have accurately assessed the problem and taken corrective
action. VoiceStream cannot assure that these third parties will have taken the
necessary corrective action prior to the year 2000.
While costs incurred to date to address the year 2000 issue have not been
significant, VoiceStream expects to incur incremental consolidated expenses of
not more than $5 million through the end of 1999 to implement its plan for its
consolidated critical systems. In addition, VoiceStream has redeployed internal
resources to address the problem. The majority of these expenses will be
incurred in the first half of 1999. Additionally, VoiceStream will incur
capitalized costs that represent ongoing investment in new systems and system
upgrades, the timing of which is being accelerated to facilitate year 2000
compliance and which is not expected to have a material impact on VoiceStream's
financial position or results of operations. This estimate assumes that third
party suppliers have accurately assessed the compliance of their products and
that they will successfully correct the issue in non-compliant products. Because
of the complexity of correcting the year 2000 issue, actual costs may vary from
this estimate.
Based on its current assessments and its remediation plan, which are based
in part upon certain representations of third parties, VoiceStream expects that
it will not experience a disruption of its operations as a result of the change
to the year 2000. However, there can be no assurance that either VoiceStream or
the third parties who have supplied technology used in VoiceStream's critical
systems will be successful in taking corrective action in a timely manner.
VoiceStream is developing contingency plans with respect to certain key
technology used in its critical systems, but there can be no assurance that
these contingency plans will successfully avoid service disruption.
25
<PAGE> 26
ITEM 3. PROPERTIES
In addition to the direct and attributable interests in PCS licenses and
other similar assets discussed in this Information Statement, VoiceStream leases
its principal executive offices located in Bellevue, Washington, and leases its
customer service center located in Albuquerque, New Mexico. VoiceStream and its
subsidiaries and affiliates lease and own locations for inventory storage,
microwave, cell site and switching equipment, sales and administrative offices,
and retail stores.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of VoiceStream Common Stock as of January 31, 1999, by (i) each person
who is known by VoiceStream to own beneficially 5% or more of the VoiceStream
Common Stock; (ii) each director of VoiceStream; (iii) each Named Executive
Officer VoiceStream; and (iv) all directors and officers of the company as a
group. The table further sets forth certain information regarding the
anticipated beneficial ownership of VoiceStream Common Stock by each of the
foregoing persons as a result of the Spin-off. Unless otherwise indicated, all
persons listed have sole voting power and investment power with respect to such
shares, subject to community property laws, where applicable, and the
information contained in the notes to the table.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF VOICESTREAM PERCENT
VOICESTREAM COMMON STOCK BENEFICIALLY
COMMON STOCK PERCENT BENEFICIALLY OWNED
BENEFICIALLY BENEFICIALLY OWNED AFTER AFTER THE
NAME AND ADDRESS OWNED(1) OWNED SPIN-OFF(1) SPIN-OFF
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Western Wireless Corporation
3650 131st Ave. SE
Bellevue, WA 98006(2)........................ 10,000 80.10% 0.0 *
Hutchison Whampoa Limited
22nd Floor, Hutchison House
10 Harcourt Road
Hong Kong(2)(11)(12)......................... 2,484 19.90% 22,809,515 23.99%
John W. Stanton and Theresa E.
Gillespie(3)(4)(11)
3650 131st Ave. SE
Bellevue, WA 98006........................... 0 * 6,595,411 6.92%
Robert A. Stapleton(4)......................... 0 * 593,762 *
Donald Guthrie(4).............................. 0 * 318,392 *
Alan R. Bender(4).............................. 0 * 307,842 *
Cregg B. Baumbaugh(4).......................... 0 * 254,915 *
John L. Bunce, Jr.(5)(8)(11)................... 0 * 14,549,497 15.30%
Mitchell R. Cohen(5)(8)(11).................... 0 * 14,549,497 15.30%
Daniel J. Evans(4)............................. 0 * 2,750 *
Jonathan M. Nelson(6)(8)(11)................... 0 * 3,345,018 3.52%
Terence M. O'Toole(7)(8)(11)................... 0 * 9,799,279 10.31%
Canning Fok(9)(11)............................. 2,484 19.90% 22,809,515 23.99%
Hans R, Snook(9)(11)........................... 2,484 19.90% 22,809,515 23.99%
All Western Wireless directors and executive
officers as a group (11 persons)(4)(8)....... 0 * 35,729,365 37.22%
All VoiceStream directors and executive
officers as a group (15 persons)(4)(8)(10)... 2,480 19.90% 58,576,131 60.67%
</TABLE>
NOTES TO BENEFICIAL OWNERSHIP TABLE
* Less than 1% of the outstanding shares of Common Stock.
(1) Computed in accordance with Rule 13d-3(d)(1) of the Exchange Act.
(2) Parties or affiliates of parties to a shareholders agreement, which
provides that the parties thereto will vote their shares of VoiceStream
Common Stock in favor of the election of certain directors designated by
each of Western Wireless and Hutchison, will have certain rights of first
offer or first
26
<PAGE> 27
refusal, preemptive rights and registration rights and Hutchison will have
certain approval rights with respect to Western Wireless employment
contracts. The parties to this agreement anticipate that its provisions
relevant to Hutchison's right to designate certain directors shall be
incorporated into the voting agreement referenced in the last sentence of
footnote (11). With the exception of preemptive rights and registration
rights in favor of Hutchison, this agreement will be terminated effective
with the Spin-off.
(3) Mr. Stanton is a director and Named Executive Officer of both Western
Wireless and VoiceStream. Ms. Gillespie is an executive officer of Western
Wireless. Includes (i) 1,686,069 shares of Western Wireless Class B Common
Stock held of record by PN Cellular, Inc. ("PN Cellular"), which is
substantially owned and controlled by Mr. Stanton and Ms. Gillespie, (ii)
1,274,520 shares of Western Wireless Class B Common Stock held of record by
Stanton Communications Corporation ("SCC"), which is substantially owned
and controlled by Mr. Stanton and Ms. Gillespie, (iii) 105,000 shares of
Western Wireless Class A Common Stock and 3,087,774 shares of Western
Wireless Class B Common Stock held by Mr. Stanton and Ms. Gillespie, as
tenants in common, (iv) 5,000 shares of Western Wireless Class A Common
stock and 159,437 shares of Western Wireless Class B Common Stock held of
record by The Stanton Family Trust; and (v) 90,000 shares and 15,000 shares
of Western Wireless Class A Common Stock held of record by each of Mr.
Stanton and Ms. Gillespie, respectively, pursuant to Western Wireless' 1997
Executive Restricted Stock Plan. Mr. Stanton and Ms. Gillespie are married
and share voting and investment power with respect to the shares jointly
owned by them, as well as the shares held of record of PN Cellular, SCC and
The Stanton Family Trust. Mr. Stanton, Ms. Gillespie, PN Cellular, SCC and
The Stanton Family Trust are referred to collectively as the "Stanton
Entities."
(4) Includes aggregate exercisable options, within 60 days of January 1, 1999,
to purchase Western Wireless Class A Common Stock; does not include
unexercisable options. May include stock jointly or separately owned with
or by spouse.
(5) Mr. Bunce and Mr. Cohen may each be deemed to be the owner of the
14,548,997 shares of Western Wireless Class B Common Stock owned by the
Hellman & Friedman Entities (defined below) as they are officers of the
corporate general partners of the Hellman & Friedman Entities. Each of Mr.
Bunce and Mr. Cohen disclaim beneficial ownership of shares held by the
Hellman & Friedman Entities to the extent interests in such entities are
held by persons other than such individual. The Hellman & Friedman Entities
include Hellman & Friedman Capital Partners II, L.P. ("HFCP"), H&F Orchard
Partners, L.P. ("HFOP") and H&F International Partners, L.P. ("HFIP"),
which are in turn beneficially owned by their respective general partners
and Warren Hellman, individually and as a trustee of The Hellman Family
Revocable Trust dated December 17, 1984.
(6) Mr. Nelson may be deemed to be the owner of the 3,338,768 shares of Western
Wireless Class B Common Stock owned by Providence Media Partners L.P.
("Providence"), as he is a managing general partner of Providence Ventures,
L.P., the general partner of the general partner of Providence. Mr. Nelson
disclaims beneficial ownership of shares held by Providence to the extent
interests in Providence are held by persons other than Mr. Nelson.
(7) Mr. O'Toole may be deemed to be the owner of the 9,799,029 shares Western
Wireless Class B Common Stock owned by GS Capital Partners, L.P., Stone
Street Fund 1992, L.P., Bridge Street Fund 1992, L.P., and The Goldman
Sachs Group, L.P., as Mr. O'Toole is a managing director of Goldman Sachs &
Co. ("Goldman Sachs"). Mr. O'Toole disclaims beneficial ownership of shares
held by such entities to the extent interests in such entities are held by
persons other than Mr. O'Toole, except to the extent of his pecuniary
interest therein.
(8) Includes aggregate exercisable options, within 60 days of January 1, 1999,
to purchase Western Wireless Class A Common Stock; does not include
unexercisable options. Options granted to Messrs. Bunce and Cohen are held
for the benefit of HFCP; options granted to Mr. Nelson are held for the
benefit of Providence; and options granted to Mr. O'Toole are held for the
benefit of GS Group.
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<PAGE> 28
(9) Messrs. Fok and Snook may each be deemed to be the owner of the 3,888,888
shares of Western Wireless Common Stock and 2,484 shares of VoiceStream
Common Stock owned by Hutchison, as Mr. Fok is the Group Managing Director
of Hutchison and Mr. Snook is the Group Managing Director of an affiliate
of Hutchison and a Director of a separate affiliate of Hutchison. Each of
Mr. Fok and Mr. Snook disclaim beneficial ownership of shares held by
Hutchison to the extent interests in Hutchison are held by persons other
than such individual.
(10) In determining the aggregate number of shares owned by VoiceStream
directors and executive officers, only 2,484 shares have been included, as
that is the total number of shares both Messrs. Fok and Snook could control
at any given time.
(11) Parties or affiliates of parties to a voting agreement, which provides that
the parties thereto will vote their shares of Western Wireless Common Stock
in favor of the election as directors of Western Wireless the Chief
Executive Officer of Western Wireless, one person designated by Stanton and
Providence, one person designated by Goldman, Sachs, two persons designated
by the Hellman & Friedman Entities and one person selected by a majority of
such designated persons, subject to the ownership requirements set forth
therein. The parties, together with Hutchison, expect to enter into a
similar agreement with respect to their shares of VoiceStream Common Stock.
(12) Consists of shares held by Hutchison Telecommunications (USA) Limited
("Hutchison Telecom") and Hutchison USA, subsidiaries of Hutchison.
Hutchison Telecom currently owns of record 3,888,888 shares of Western
Wireless Class A Common Stock, and Hutchison USA currently owns of record
2,484 shares of VoiceStream Common Stock. Hutchison's principal business is
property development and holdings; ports and related services; retail;
manufacturing and other services; telecommunications; and energy,
infrastructure, finance and investment. Following the VoiceStream Stock
Split, Hutchison USA will own 18,920,627 shares of VoiceStream Common
Stock. The total number of shares of VoiceStream Common Stock held by
Hutchison Telecom after the spin-off will be identical to its current
holdings of shares of Western Wireless Class A Common Stock.
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<PAGE> 29
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the executive officers and directors of
VoiceStream on the effective date of the Spin-off are listed below along with
their business experience during the past five years. The business address of
all officers of VoiceStream is 3650 131st Avenue SE, Suite 400, Bellevue,
Washington 98006. The VoiceStream Board of Directors will consist of ten
directors. Directors will be elected to serve until they resign or are removed,
or are otherwise disqualified to serve, or until their successors are elected
and qualified. Executive officers of VoiceStream are appointed by the Board of
Directors. No family relationships exist among any of the directors or executive
officers of VoiceStream.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Stanton............................ 43 Chairman, Director and Chief Executive
Officer
Robert R. Stapleton........................ 41 President and Director
Donald Guthrie............................. 43 Vice Chairman and Director
Cregg B. Baumbaugh......................... 42 Executive Vice President -- Finance,
Strategy and Development
Alan R. Bender............................. 44 Executive Vice President, General Counsel
and Secretary
Robert P. Dotson........................... 38 Senior Vice President -- Marketing
Timothy R. Wong............................ 43 Senior Vice President -- Engineering
Patricia L. Miller......................... 36 Vice President, Controller and Principal
Accounting Officer
John L. Bunce, Jr. ........................ 40 Director
Mitchell R. Cohen.......................... 35 Director
Daniel J. Evans............................ 73 Director
Canning Fok................................ 47 Director
Jonathan M. Nelson......................... 42 Director
Terence M. O'Toole......................... 40 Director
Hans R. Snook.............................. 50 Director
</TABLE>
John W. Stanton has been a director of VoiceStream since February 1998, and
has been Chief Executive Officer and Chairman since it was formed in 1994. Mr.
Stanton has also been a director Chief Executive Officer and Chairman of Western
Wireless Corporation and its predecessors since 1992. Mr. Stanton served as a
director of McCaw Cellular Communications, Inc. ("McCaw") from 1986 to 1994, and
as a director of LIN Broadcasting Corporation ("LIN Broadcasting") from 1990 to
1994, during which time it was a publicly traded company. From 1983 to 1991, Mr.
Stanton served in various capacities with McCaw, serving as Vice-Chairman of the
Board of McCaw from 1988 to September 1991 and as Chief Operating Officer of
McCaw from 1985 to 1988. Mr. Stanton is also a member of the Board of Directors
of Advanced Digital Information Corporation, Columbia Sportswear, Inc. and
SmarTone (Hong Kong). In addition, Mr. Stanton is a trustee of Whitman College,
a private college. Mr. Stanton is currently Chairman of the Cellular
Telecommunications Industry Association.
Robert R. Stapleton has been a director of VoiceStream since April 1999 and
President of VoiceStream since it was founded in 1994. Effective April 1998, Mr.
Stapleton became responsible for all operations of VoiceStream. Mr. Stapleton
was President of Western Wireless Corporation and one of its predecessors from
1992 to 1999. From 1989 to 1992, he served in various positions with General
Cellular Corporation ("GCC"), including Chief Operating Officer and Vice
President of Operations. From 1984 to 1989, Mr. Stapleton was employed by mobile
communications subsidiaries of Pacific Telesis, Inc., which now are affiliated
with AirTouch.
Donald Guthrie has been a director of VoiceStream since April 1999 and has
been Vice Chairman since February 1998. He served as the Chief Financial Officer
of Western Wireless from February 1997 to April 1999. Mr. Guthrie has been Vice
Chairman of Western Wireless since November 1995. From 1986 to October 1995, he
served as Senior Vice President and Treasurer of McCaw and, from 1990 to October
1995, he served as Senior Vice President -- Finance of LIN Broadcasting.
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<PAGE> 30
Cregg B. Baumbaugh will serve as Executive Vice President -- Finance
Strategy and Development of VoiceStream as of the effective date of the
Spin-off. He served as Senior Vice President -- Corporate Development of
VoiceStream and Western Wireless from 1994 to 1999. Mr. Baumbaugh was a director
of VoiceStream from its inception in 1994 until February 1998. From November
1989 through the present, he has served in various positions with Western
Wireless and its predecessor, including Vice President -- Business Development.
From 1986 to 1989, Mr. Baumbaugh was employed by The First Boston Corporation.
Alan R. Bender will serve as Executive Vice President, General Counsel and
Secretary of VoiceStream as of the effective date of the Spin-off. He also will
hold such positions with Western Wireless. From 1990 to 1999, he held various
positions with Western Wireless, VoiceStream and their respective predecessors,
including Senior Vice President and General Counsel from 1994 to 1999. From 1988
to 1990, Mr. Bender was Vice President and Senior Counsel of Equitec Financial
Group, Inc., a subsidiary of PacifiCorp Inc.
Robert P. Dotson will serve as Senior Vice President -- Marketing of
VoiceStream as of the effective date of the Spin-off. From 1996 to 1999, he
served as Vice President -- Marketing of VoiceStream and Western Wireless
Previously, Mr. Dotson held various marketing positions with PepsiCo's KFC
restaurant group, serving as Senior Director of Concept Development from 1994 to
1996, Director of International Marketing from 1993 to 1994, Divisional
Marketing Director from 1991 to 1993 and Manager of New Product Development and
Base Business Marketing from 1989 through 1991.
Timothy R. Wong will serve as Senior Vice President -- Engineering of
VoiceStream as of the effective date of the Spin-off. From 1996 to 1999, he
served as Vice President -- Engineering of VoiceStream and Western Wireless.
From 1990 to 1995, Mr. Wong held various positions at U S WEST Cellular, serving
as Executive Director -- Engineering and Operations from 1994 to 1995, Director
of Wireless Systems Engineering in 1993, Manager of International Wireless
Engineering in 1992, and Manager -- Systems Design from 1990 to 1991.
Patricia L. Miller will serve as Vice President, Controller and Principal
Accounting Officer of VoiceStream as of the effective date of the Spin-off. From
1998 to 1999, she served as Controller and Principal Accounting Officer of
VoiceStream and Western Wireless. From 1993 to 1997, Ms. Miller held various
accounting positions with Western Wireless. Prior to 1993, Ms. Miller held
various accounting positions with a subsidiary of Weyerhaeuser Company.
John L. Bunce, Jr. has been a director of VoiceStream since February 1998
and of Western Wireless since it was formed in 1994. Mr. Bunce was a director of
GCC from March 1992 to December 1995. Mr. Bunce is a general partner of Hellman
& Friedman, a private investment firm, having joined Hellman & Friedman as an
associate in 1988. Mr. Bunce currently is a director of MobileMedia.
Mitchell R. Cohen has been a director of VoiceStream since February 1998
and of Western Wireless since it was formed in 1994. Mr. Cohen was a director of
GCC from March 1992 to December 1995. Mr. Cohen is a general partner of Hellman
& Friedman, having joined Hellman & Friedman as an associate in July 1989. From
1986 to 1989, Mr. Cohen was employed by Shearson Lehman Hutton, Inc. Mr. Cohen
currently is a director of MobileMedia and Matrix Telecommunications Limited.
Daniel J. Evans has been a director of VoiceStream since February 1998 and
of Western Wireless since 1997. Mr. Evans is the Chairman of Daniel J. Evans
Associates, a consulting firm. From 1965 through 1977, Mr. Evans was Governor of
the State of Washington. In 1983 he was appointed and then elected to the United
States Senate to fill the seat of the late Senator Henry M. Jackson. He serves
as a director of Flow International Corporation, Puget Sound Energy, Tera
Computer Company, and is President of the Board of Regents of the University of
Washington.
Canning Fok has been a director of VoiceStream since February 1998. For
more than five years, Mr. Fok has been Group Managing Director of Hutchison
Whampoa Limited, a diversified Hong Kong-based corporation that includes
interests in telecommunications business, and Chairman of Orange plc. Other
appointments include, Chairman of Port of Felixstowe Ltd., Co-Chairman of Husky
Oil Ltd.,
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<PAGE> 31
Deputy Chairman of Hongkong Electric Holdings Ltd. and Cheung Kong
Infrastructure Holdings Ltd., and Director of Cheung Kong (Holdings) Ltd. Mr.
Fok is a chartered accountant.
Jonathan M. Nelson has been a director of VoiceStream since February 1998
and of Western Wireless since it was formed in 1994. Mr. Nelson is a managing
general partner of Providence Ventures, L.P., the general partner of the general
partner of Providence Media Partners L.P. ("Providence"), a private equity fund.
Since 1986, Mr. Nelson has been a managing director of Narragansett Capital,
Inc., a private management company for three separate equity investment funds.
Mr. Nelson is currently a director of MetroNet Communications.
Terence M. O'Toole has been a director of VoiceStream since February 1998
and of Western Wireless since it was formed in 1994. Mr. O'Toole joined Goldman,
Sachs & Co. ("Goldman Sachs") in 1983 and became a Vice President in April 1988
and a general partner in November 1992. He is currently a director of Insilco
Corporation, a diversified industrial holding company.
Hans R. Snook has been a director of VoiceStream since February 1998. For
more than five years, Mr. Snook has been Group Managing Director of Orange plc,
a telecommunications service provider in the United Kingdom, and a director of
Hutchison Telecommunications Limited.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation for services rendered
during 1998 for VoiceStream's Chief Executive Officer and its next four most
highly compensated executive officers (collectively referred to herein as the
"Named Executive Officers"). All such compensation was paid by Western Wireless
for services performed for Western Wireless and VoiceStream during 1998, prior
to the Spin-off.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
---------------------------------- -------------------------------------
RESTRICTED ALL OTHER
NAME AND STOCK COMPEN-
PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) OPTIONS AWARDS($)(1) SATION($)(2)
------------------ ----------- --------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John W. Stanton(3)................ 1998 193,542 400,000 1,000 521,250 367,974
Chairman and Chief
Executive Officer
Robert R. Stapleton............... 1998 165,667 200,000 75,000 260,625 186,487
President and Director
Donald Guthrie(3)................. 1998 165,667 150,000 60,000 260,625 186,487
Vice Chairman and Director
Cregg B. Baumbaugh................ 1998 145,321 110,000 40,000 173,750 125,992
Executive Vice
President -- Finance, Strategy and
Development
Alan R. Bender(3)................. 1998 145,321 110,000 40,000 173,750 125,992
Executive Vice President, General
Counsel, and Secretary
</TABLE>
- ---------------
(1) Western Wireless granted 30,000 shares to Mr. Stanton, 15,000 shares to each
of Messrs. Stapleton and Guthrie, and 10,000 shares to each of Messrs.
Baumbaugh and Bender of Class A Common Stock on January 1, 1998, pursuant to
the Executive Restricted Stock Plan.
(2) Western Wireless and VoiceStream made payments to cover the taxes related to
the grant of restricted shares and paid matching contributions to
VoiceStream's 401(k) Profit Sharing Plan and Trust.
(3) As of the effective date of the Spin-off, these Executive Officers shall
split their time and responsibilities between VoiceStream and Western
Wireless, and their compensation will be shared appropriately.
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<PAGE> 32
GRANTS OF STOCK OPTIONS
VoiceStream Stock Option Plan
VoiceStream will establish a stock option plan (the "VoiceStream Stock
Option Plan") substantially similar to Western Wireless' stock option plan
presently in effect. As part of the Spin-off and pursuant to the Distribution
Agreement, VoiceStream will issue new options and Western Wireless will amend
its existing options in order to maintain for Western Wireless option holders
the value of their existing stock options.
Vested Western Wireless Options
Individuals who hold vested options to purchase Western Wireless Common
Stock ("Vested Western Wireless Options") will receive an equal number of vested
options to purchase VoiceStream Common Stock ("Vested VoiceStream Options")
which will be governed by the VoiceStream Stock Option Plan. The original
exercise price of the Vested Western Wireless Options will then be allocated
between the Vested Western Wireless Options and the Vested VoiceStream Options.
This allocation will be pro rata, based upon the respective average daily last
trade price of each of the Western Wireless Common Stock and the VoiceStream
Common Stock during a period of ten trading days beginning the fifth trading day
(the "Averaging Period") after the Effective Date. For example, if the original
exercise price of an individual's Vested Western Wireless Options was $20.00,
and during the Averaging Period the average daily last trade price of the
Western Wireless Common Stock was $15.00 and the average daily last trade price
of the VoiceStream Common Stock was $10.00 (a total for both of $25.00) then for
Western Wireless the respective percentage of the total price for both would be
60% (15/25) and for VoiceStream the respective percentage of the total price for
both would be 40% (10/25), the exercise price for the Vested Western Wireless
Options would be $20.00 x 60%, or $12.00, and the exercise price for the Vested
Western Wireless Options would be $20.00 x 40%, or $8.00.
Unvested Western Wireless Options
Western Wireless Employees. Each individual who continues as a Western
Wireless employee after the Spin-off and who holds options to purchase Western
Wireless Common Stock that are not vested ("Unvested Western Wireless Options"),
will surrender their Unvested Western Wireless Options and in replacement
thereof will be granted by Western Wireless new unvested options to purchase a
number of shares of Western Wireless Common Stock ("New Unvested Western
Wireless Options"). The number of shares subject to the New Unvested Western
Wireless Options shall be determined by multiplying the number of shares
represented by the Unvested Western Wireless Options by a fraction, the
numerator of which is the sum of the average daily last trade prices of both
Western Wireless Common Stock and VoiceStream Common Stock during the Averaging
Period, and the denominator of which is the average of the daily last trade
prices of Western Wireless Common Stock during the Averaging Period. The new
exercise price shall be determined by multiplying the exercise price for the
Unvested Western Wireless Options by a fraction, the numerator of which is the
average of the daily last trade prices of Western Wireless Common Stock during
the Averaging Period, and the denominator of which is the sum of the average
daily last trade prices of both Western Wireless Common Stock and VoiceStream
Common Stock during the Averaging Period. For example, if the number of shares
subject to the Unvested Western Wireless Options was 100 at an exercise price of
$20.00, and during the Averaging Period the average daily last trade price of
the Western Wireless Common Stock was $16.00 and the average daily last trade
price of the VoiceStream Common Stock was $12.00, the number of shares subject
to the New Unvested Western Wireless Options would be 175 (100 shares x
$28.00/$16.00), and the exercise price for the New Unvested Western Wireless
Options would be $11.43 ($20.00 x $16.00/$28.00).
VoiceStream Employees. Each individual who becomes a VoiceStream employee
at the time of the Spin-off who holds options to purchase Western Wireless
Common Stock that are not vested ("Unvested Western Wireless Options"), will
surrender their Unvested Western Wireless Options and in replacement thereof
will be granted by VoiceStream unvested options to purchase a number of shares
of VoiceStream
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<PAGE> 33
Common Stock ("Unvested VoiceStream Options"). The number of shares subject to
the Unvested VoiceStream Options shall be determined by multiplying the number
of shares represented by the Unvested Western Wireless Options by a fraction,
the numerator of which is the sum of the average daily last trade prices of both
Western Wireless Common Stock and VoiceStream Common Stock during the Averaging
Period, and the denominator of which is the average of the daily last trade
prices of VoiceStream Common Stock during the Averaging Period. The new exercise
price shall be determined by multiplying the exercise price for the Unvested
Western Wireless Options by a fraction, the numerator of which is the average of
the daily last trade prices of VoiceStream Common Stock during the Averaging
Period, and the denominator of which is the sum of the average daily last trade
prices of both Western Wireless Common Stock and VoiceStream Common Stock during
the Averaging Period. For example, if the number of shares subject to the
Unvested Western Wireless Options was 100 at an exercise price of $20, and
during the Averaging Period the average daily last trade price of the Western
Wireless Common Stock was $16.00 and the average daily last trade price of the
VoiceStream Common Stock was $12.00, the number of shares subject to the
Unvested VoiceStream Options would be 233 (100 shares x $28.00/$12.00), and the
exercise price for the Unvested VoiceStream Options would be $8.57 ($20.00 x
$12.00/$28.00).
Three executive officers (Messrs. Stanton, Guthrie and Bender) will be
executive officers of Western Wireless and VoiceStream after the Spin-off. Their
Unvested Western Wireless Options will be divided ratably between New Unvested
Western Wireless Options and Unvested VoiceStream Options consistent with the
above.
The following table summarizes the options to purchase Western Wireless
Class A Common Stock ("Options") granted during 1998 to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
---- ------------- ------------ ----------- ------------ ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Stanton........... 1,000(1) 0.10% $17.3750 Jan. 1, 2008 $0 $ 10,927 $ 27,691
Robert R. Stapleton....... 75,000(1) 7.56% $17.3750 Jan. 1, 2008 0 819,528 2,076,846
Donald Guthrie............ 60,000(1) 6.05% $17.3750 Jan. 1, 2008 0 655,623 1,661,477
Cregg B. Baumbaugh........ 40,000(1) 4.03% $17.3750 Jan. 1, 2008 0 437,082 1,107,651
Alan R. Bender............ 40,000(1) 4.03% $17.3750 Jan. 1, 2008 0 437,082 1,107,651
</TABLE>
- ---------------
(1) These options have terms of ten years from the date of grant, January 1,
1998, and become exercisable as to 25% of the shares on the first
anniversary and an additional 25% every year thereafter until such options
are fully exercisable, provided that such officer remains continuously
employed by Western Wireless. With respect to the treatment of such options
as a result of the Spin-off, see above.
(2) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. These numbers are
calculated based on the requirements of the Securities and Exchange
Commission and do not reflect VoiceStream's estimate of future stock price
performance.
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<PAGE> 34
EXERCISES OF STOCK OPTIONS
The following table provides information on Option exercises in 1998 by the
Named Executive Officers and the value of such officers' unexercised options on
December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)
ACQUIRED ON REALIZED --------------------------- ----------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Stanton................. 0 0 0 0 0 0
Robert R. Stapleton............. 79,800 1,409,997 504,825 147,375 7,360,340.25 1,030,698.75
Donald Guthrie.................. 0 0 185,775 113,250 2,790,637.50 774,757.50
Cregg B. Baumbaugh.............. 34,500 533,590 186,625 79,375 2,387,463.75 558,006.25
Alan R. Bender.................. 1,900 30,343 234,325 79,375 3,227,117.75 558,006.25
</TABLE>
COMPENSATION OF DIRECTORS
Historically, directors of VoiceStream have not received any compensation
for serving on the VoiceStream Board of Directors, nor have they been reimbursed
for their out-of-pocket expenses incurred in connection with attendance at
meetings of, and other activities relating to serving on, the VoiceStream Board
of Directors and any committees thereof. Subsequent to the Spin-off, the Board
of Directors will consider alternative compensation arrangements for the
directors.
EMPLOYMENT AGREEMENTS
In conjunction with the Spin-off, VoiceStream will assume the existing
employment agreements between Western Wireless and Messrs. Stapleton and
Baumbaugh. Mr. Stanton and, for a transition period, Messrs. Guthrie and Bender,
will serve both VoiceStream and Western Wireless pursuant to their existing
employment agreements with Western Wireless. The existing employment agreements
with Messrs. Stanton, Guthrie, Stapleton, Bender and Baumbaugh ("Employment
Agreements") provide for annual base salaries (as adjusted by the Western
Wireless Board of Directors) of $195,000, $168,000, $168,000, $147,500 and
$147,500, respectively, and provide each executive officer an opportunity to
earn an annual bonus, as determined by the Board of Directors of VoiceStream,
targeted at 100%, 70%, 70%, 60% and 60%, respectively, of annual base
compensation. The compensation arrangements for Messrs. Stanton, Guthrie and
Bender will be funded by both Western Wireless and VoiceStream on mutually
agreeable terms. The Employment Agreements also provide that the contracting
employee may be terminated by VoiceStream at any time, with or without cause (as
such term is defined in the Employment Agreements); however, in the event of an
involuntary termination (as defined therein) for other than cause (1) such
executive officer will be entitled to receive a severance payment in an amount
equal to any accrued but unpaid existing annual targeted incentive bonus through
the date of termination, 12 months of such executive's then base compensation,
and an amount equal to 12 months of such executive's existing annual targeted
incentive bonus, (2) the employer will, at its expense, make all specified
insurance payment benefits on behalf of such executive officer and his or her
dependents for 12 months following such involuntary termination and (3) with
respect to any stock options previously granted to each executive officer which
remain unvested at the time of involuntary termination, there shall be immediate
vesting of that portion of each such grant of any unvested stock options equal
to the product of the total number of such unvested options under such grant
multiplied by a fraction, the numerator of which is the sum of the number of
days from the date on which the last vesting of options under such grant
occurred to and including the date of termination plus 365, and the denominator
of which is the number of days remaining from the date on which the last vesting
of options under such grant occurred to and including the date on which the
final vesting under such grant would have occurred absent the termination. Mr.
Stapleton's agreement provides for an immediate vesting of all options upon his
involuntary termination. Among other things, an executive officer's death or
permanent disability will be deemed an involuntary termination for other than
cause. In addition, each Employment Agreement
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<PAGE> 35
provides for full vesting of all stock options granted upon a change of control
(as such term is in the stock option agreements with the executive officer).
Pursuant to the terms of each Employment Agreement, each executive officer
agrees that during such executive officer's employment and for one year
following the termination of such executive officer's employment for any reason,
such executive officer will not engage in a business which is substantially the
same as or similar to the business of his employer and which competes within the
applicable commercial mobile radio services markets serviced by his employer.
Mr. Stanton's agreement provides that such prohibition shall not preclude Mr.
Stanton's investment in other companies engaged in the wireless communications
business or his ability to serve as a director of other companies engaged in the
wireless communications business, in each case subject to his fiduciary duties
as a director.
INDEMNIFICATION AGREEMENTS
VoiceStream will enter into an indemnification agreement with each of its
executive officers and directors, which shall be separate from such executive
officers employment agreement with VoiceStream or Western Wireless, as the case
may be. Pursuant to this indemnification agreement, VoiceStream will agree to
indemnify the executive officer or director against certain liabilities arising
by reason of the executive officer's or the director's affiliation with
VoiceStream.
SHAREHOLDERS AGREEMENT
VoiceStream anticipates that, prior to the effective date of the Spin-off,
it will enter into a shareholders agreement with its larger shareholders
relating to, among other things, the election of directors.
COMPENSATION COMMITTEE
VoiceStream intends to establish a compensation committee shortly after the
Spin-off. To date, all compensation matters for VoiceStream have been addressed
by Western Wireless' Compensation Committee.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Hutchison Investment, which reduced Western Wireless' 100%
ownership in VoiceStream to 80.1%, shared services were allocated between
Western Wireless and VoiceStream in a manner which reflected management's
judgment as to the nature of the activity causing those items to be incurred.
Concurrent with the Hutchison Investment, VoiceStream entered into agreements
with Western Wireless which, among other things, formalized the allocation of
overhead costs and expenses, cash management and the tax sharing arrangements
between Western Wireless and VoiceStream, as well as roaming arrangements on
each other's systems.
In February 1998, Hutchison USA paid $248.4 million to VoiceStream for the
purchase of 2,484 newly issued shares of VoiceStream Common Stock, representing
a 19.9% interest in VoiceStream. Pursuant to the terms of that investment,
Western Wireless and Hutchison USA entered into a shareholders agreement, which
provides, among other things, for the following:, (i) Hutchison USA has the
right to designate two directors to a ten person VoiceStream Board of Directors
with such number of directors being subject to increase or decrease depending
upon increases or decreases in Hutchison USA's percentage ownership of
VoiceStream; (ii) each of Western Wireless and Hutchison USA have certain rights
of first offer or first refusal in the event the other proposes to sell its
stock in VoiceStream under specified circumstances; (iii) Hutchison USA has
certain tag along rights to sell its shares, and is subject to certain drag
along obligations to sell its shares, if Western Wireless proposes to sell its
stock in VoiceStream; (iv) each of Western Wireless and Hutchison USA have
certain preemptive rights in connection with issuance by VoiceStream of equity
securities; (v) Hutchison USA's consent will be required with respect to an
initial public offering of VoiceStream stock during the eighteen (18) month
period immediately following the purchase by Hutchison USA of the VoiceStream
shares; (vi) Hutchison
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<PAGE> 36
USA will have certain approval rights with respect to entering into employment
contracts with certain members of senior management of Western Wireless and
certain other transactions with affiliates; and (vii) Hutchison USA has certain
demand and piggy-back registration rights for its shares of VoiceStream stock,.
In addition, Hutchison USA has the right to require a public sale of Hutchison
USA's equity interest in VoiceStream or, in certain cases, to sell Hutchison
USA's equity interest in VoiceStream to Western Wireless, if VoiceStream takes
any of the following actions without Hutchison USA's consent: (a) any incurrence
of indebtedness in excess of $10 million in a single instance or $25 million in
the aggregate in a fiscal year, other than pursuant to financing arrangements in
effect at the date of closing or previously approved by Hutchison USA; (b)
adoption of any annual capital expenditures budget, annual operating plan and
budget or any material amendment to either thereof; (c) any acquisition of a PCS
system or wireless telecommunications business (or interest therein) in a
transaction or auction involving an aggregate acquisition cost in excess of $100
million; and (d) any disposition of a PCS system or wireless telecommunications
business (or interest therein) in a transaction involving an aggregate sales
price in excess of $50 million. The shareholders agreement also sets forth the
events which will trigger a termination of some or all of the foregoing rights
and obligations, which events include a public sale of VoiceStream Common Stock
or a spin-off resulting in a public float of at least 15% of the outstanding
VoiceStream Common Stock, certain transfers by Hutchison of the VoiceStream
Common Stock, dilution of Hutchison's ownership interest in VoiceStream below
certain specified levels and certain mergers and other transactions. In November
1997, an affiliate of Hutchison USA acquired 3,888,888 shares of Western
Wireless Class A Common Stock for a purchase price of approximately $19 per
share (approximately $74 million).
ITEM 8. LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which VoiceStream or
any of its subsidiaries or affiliates is a party or of which any of their
property is subject which, if adversely decided, would have a material adverse
effect on VoiceStream. For discussion of certain legal proceedings relating to
FCC license grants. See "Business -- Government Regulation."
ITEM 9.MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no public market for the VoiceStream Common Stock; however, as
part of the Spin-off, VoiceStream will file an application to list the
VoiceStream Common Stock on the Nasdaq Stock Market.
VoiceStream has never declared a cash dividend with respect to its capital
stock, and does not anticipate doing so. Whether VoiceStream pays dividends in
the future will be subject to the discretion of the VoiceStream Board of
Directors and will depend on VoiceStream's and its subsidiaries' operating
results, financial requirements, restrictive covenants in lending agreements and
other factors as they develop over time.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
VoiceStream was a wholly owned subsidiary of Western Wireless until the
Hutchinson Investment. VoiceStream did not use an underwriter in connection with
the Hutchison Investment. VoiceStream effectuated this transaction in accordance
with Section 4(2) of the Securities Act of 1933.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
As of the Effective Date, the authorized capital stock of VoiceStream will
consist of 300,000,000 shares of Common Stock, no par value (the "VoiceStream
Common Stock") and 50,000,000 shares of preferred stock, no par value (the
"VoiceStream Preferred Stock"). There is no VoiceStream Preferred Stock
outstanding. As a result of a 7616.9996-for-1 stock split to be effected prior
to the Effective Date in the form of a stock dividend, there will be 95,090,623
shares of VoiceStream Common Stock outstanding,
36
<PAGE> 37
with 2 holders of record, Western Wireless (80.1%) and Hutchison (19.9%). On the
Effective Date, the 76,169,996 shares held by Western Wireless will be
distributed to its shareholders.
As of the Effective Date, VoiceStream will have outstanding options to
acquire a number of shares of its Common Stock, which options will have been
granted under VoiceStream's management incentive stock option plan. The number
of shares subject to options will not be known until after the Effective Date of
the spin-off, and will be determined pursuant to the terms of the Distribution
Agreement. See "Item 6. Executive Compensation -- Grants of Stock Options." In
addition, as of the Effective Date, participants in joint ventures with a
subsidiary of VoiceStream and who are parties to certain Exchange Rights
Agreements will have the right to convert or exchange their joint venture
interests into 533,190 shares of VoiceStream Common Stock. There are no other
rights outstanding to acquire VoiceStream stock.
VoiceStream has never declared a cash dividend with respect to its capital
stock.
VOICESTREAM COMMON STOCK
The VoiceStream Common Stock has one vote per share. Holders of VoiceStream
Common Stock have no cumulative voting rights and no preemptive, subscription or
sinking fund rights, except that Hutchison USA has certain preemptive rights
that will survive the Spin-off. Subject to preferences that may be applicable to
any then outstanding Preferred Stock, holders of Common Stock will be entitled
to receive ratably such dividends as may be declared by the VoiceStream Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of VoiceStream, holders of Common Stock
will be entitled to share ratably in all remaining assets after payment of
liabilities and the liquidation preference of any then-outstanding VoiceStream
Preferred Stock.
VoiceStream's Articles of Incorporation permit the redemption of
VoiceStream Common Stock from shareholders where necessary to protect
VoiceStream's regulatory licenses.
The Washington Business Act, Section 23B.19 of the Revised Code of
Washington, prohibits a "target corporation," with certain exceptions, from
engaging in certain "significant business transactions" (such as a merger or
sale of assets) with an "acquiring person" who acquires more than 10% of the
voting securities of the target corporation for a period of five years after
such acquisition, unless the transaction is approved by a majority of the
members of the target corporation's board of directors prior to the date of the
transaction or unless the aggregate amount of the cash and the market value of
non-cash consideration received by holders of outstanding shares of any class or
series of stock of the target corporation is equal to certain minimum amounts.
VoiceStream's Articles of Incorporation provide that it will be subject to such
prohibitions and shall remain subject to such prohibitions even if they are
repealed. Such prohibitions do not apply to any shareholders who beneficially
own ten percent or more of VoiceStream's outstanding voting securities prior to
the Spin-off.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 23B.08.510 of the Revised Code of Washington authorizes Washington
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. VoiceStream's Articles of Incorporation and Bylaws require
indemnification of VoiceStream's officers and directors to the fullest extent
permitted by Washington law. VoiceStream also maintains directors' and officers'
liability insurance.
VoiceStream's By-laws and Articles of Incorporation provide that
VoiceStream shall, to the full extent permitted by the Washington Business
Corporation Act of the State of Washington, as amended from time to time,
indemnify all directors and officers of VoiceStream. In addition, VoiceStream's
Articles of Incorporation contains a provision eliminating the personal
liability of directors to VoiceStream or its shareholders for monetary damages
arising out of a breach of fiduciary duty. Under Washington law, this provision
eliminates the liability of a director for breach of fiduciary duty but does not
eliminate the personal liability of any director for (i) acts or omissions of a
director that involve intentional misconduct
37
<PAGE> 38
or a knowing violation of law, (ii) conduct in violation of Section 23B.08.310
of the Revised Code of Washington (which section relates to unlawful
distributions) or (iii) any transaction from which a director personally
received a benefit in money, property or services to which the director was not
legally entitled.
VoiceStream has entered into separate indemnification agreements with each
of its directors and executive officers. See "Item 6. Executive
Compensation -- Employment Agreements."
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required as part of this Registration Statement
are included beginning on the index page F-1 of this Registration Statement.
ITEM 14.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During VoiceStream's last two fiscal years there were no changes in or
disagreements with accountants on accounting and financial disclosure of the
type required to be disclosed in this Item.
38
<PAGE> 39
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The financial statements required as part of this Registration Statement
are included beginning on the index page F-1 of this Registration Statement.
EXHIBITS
The following exhibits required by Item 601 of Regulation S-K are attached
hereto or incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1(1) Agreement and Plan of Distribution between Western Wireless
Corporation and VoiceStream Wireless Corporation
dated
3.1(1) Articles of Incorporation of VoiceStream Wireless
Corporation
3.2(1) Bylaws of VoiceStream Wireless Corporation
4.1(8) Loan Agreement by and among Western PCS Holding Corporation
TD Securities (USA) Inc., NationsBanc Montgomery Securities
LLC, Barclays Capital, J.P. Morgan Securities Inc., Chase
Securities Inc., J.P. Morgan Securities Inc., NationsBanc
Montgomery Securities LLC, Chase Securities Inc. and Toronto
Dominion (Texas), Inc. dated June 30, 1995
4.2 First Amendment To Loan Agreement by and among Western PCS
Holding Corporation TD Securities (USA) Inc., NationsBanc
Montgomery Securities LLC, Barclays Capital, J.P. Morgan
Securities Inc., Chase Securities Inc., J. P. Morgan
Securities Inc., NationsBanc Montgomery Securities LLC,
Chase Securities Inc. and Toronto Dominion (Texas), Inc.
dated November 25, 1998
10.1(2) Loan Agreement between Western PCS II Corporation and
Northern Telecom, Inc., dated June 30, 1995
10.2(2) PCS 1900 Project and Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated June 30, 1995
10.3(2) First Amendment to Stockholders Agreement by and among
Western Wireless Corporation and certain of its
shareholders, Adding as a Party Western PCS Corporation,
dated November 30, 1994
10.4(2) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994
10.5(2) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996
10.6(2) Asset Purchase Agreement between Western PCS III License
Corporation as Buyer and GTE Mobilnet Incorporated as
Seller, dated January 16, 1996
10.7(2) Western PCS Corporation Series A Preferred Stock Purchase
Agreement among Western Wireless Corporation, Western PCS
Corporation and the Purchasers listed therein, dated April
10, 1995
10.8(2) PCS Block "C" Organization and Financing Agreement by and
among Western PCS BTA I Corporation, Western Wireless
Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook Inlet
Telecommunications, Inc., SSPCS Corporation and Providence
Media Partners L.P. dated as of November 5, 1995
10.9(2) Limited Partnership Agreement by and between Cook Inlet
PV/SS PCS Partners, L.P. and Western PCS BTA I Corporation
dated as of November 5, 1995
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.10(2) First Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS, L.P.
Limited Partnership Agreement by and among Western PCS BTA I
Corporation, Western Wireless Corporation, Cook Inlet PV/SS
PCS Partners, L.P., Cook Inlet Telecommunications, Inc.,
SSPCS Corporation and Providence Media Partners L.P. dated
as of April 8, 1996
10.11(3) Second Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS, L.P.
Limited Partnership Agreement by and among Western PCS BTA I
Corporation, Western Wireless Corporation, Cook Inlet PV/SS
PCS Partners, L.P., Cook Inlet Telecommunications, Inc.,
SSPCS Corporation and Providence Media Partners L.P. dated
as of June 27, 1996
10.12(3) Third Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS, L.P.
Limited Partnership Agreement and First Amendment to
Technical Services Agreement by and among Western PCS BTA I
Corporation, Western Wireless Corporation, Cook Inlet PV/SS
PCS Partners, L.P., Cook Inlet Telecommunications, Inc.,
SSPCS Corporation, Providence Media Partners L.P. and Cook
Inlet Western Wireless PV/SS PCS, L.P., dated July 30, 1996
10.13(3) Amendment No. 1 to PCS 1900 Supply Agreement between Western
PCS Corporation and Northern Telecom Inc., dated July 25,
1996
10.14(3) Amendment No. 2 to PCS 1900 Supply Agreement between Western
PCS Corporation and Northern Telecom Inc., dated July 25,
1996
10.15(4) Amendment No. 3 to PCS Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated October 14,
1996
10.16(5) First Amendment to Loan Agreement, dated as of March 6,
1997, among Western PCS II Corporation, Northern Telecom
Inc., NTFC Capital Corporation and Export Development
Corporation
10.17(5) Second Amendment to Loan Agreement, dated as of April 15,
1997, among Western PCS II Corporation, Northern Telecom
Inc., NTFC Capital Corporation and Export Development
Corporation
10.18(6) Purchase Agreement by and among Western PCS Corporation,
Western Wireless Corporation, Hutchison Telecommunications
Limited and Hutchison Telecommunications PCS (USA) Limited
dated October 14, 1997
10.19(6) Form of Cash Management Agreement by and between Western
Wireless Corporation and Western PCS Corporation. Form of
Roaming Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.20(6) Form of Services Agreement by and between Western Wireless
Corporation and Western PCS Corporation. Form of
Shareholders Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications PCS (USA) Limited
and Western PCS Corporation
10.21(6) Form of Tax Sharing Agreement by and between Western
Wireless Corporation and Western PCS Corporation.
10.22(6) Agreement to Form Limited Partnership dated September 30,
1997, by and among Western PCS I Iowa Corporation, a
Delaware corporation, INS Wireless, Inc., an Iowa
corporation, Western PCS I Corporation, a Delaware
corporation, and Iowa Network Services, Inc., an Iowa
corporation
10.23(6) Iowa Wireless Services, L.P. Limited Partnership Agreement
dated as of September 30, 1997, by and between INS Wireless,
Inc., as General Partner, and Western PCS I Iowa
Corporation, as Limited Partner
10.24(7) Software License Maintenance and Subscriber Billing Services
Agreement dated June 1997
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.25(7) First Amendment to Software License, Maintenance and
Subscriber Billing Services Agreement dated December 1997,
between CSC Intelicom, Inc., and Western Wireless
Corporation
10.26(7) Letter agreement dated December 16, 1997 between Western
Wireless Corporation and Intelicom Services Inc. to provide
products and services pursuant to the Software License
Maintenance and Subscriber Billing Services Agreements and
First Amendment thereto
10.27(8) Amendment Number 4 to PCS 1900 Project and Supply Agreement
by and between Western PCS Corporation and Northern Telecom
Inc. dated March 26, 1998
10.28(8) Supply Contract by and between Western PCS Corporation and
Nokia Telecommunications Inc. dated March 9, 1998
10.29(8) Purchase and Sale Agreement by and between Nokia Mobile
Phones, Inc. and Western PCS Corporation dated March 9, 1998
10.30 Amendment Number 5 to PCS 1900 Project and Supply Agreement
between VoiceStream Wireless Corporation and Northern
Telecom Inc. dated September 17, 1998
10.31 Exchange Rights and Grant Agreement by and among Western PCS
BTA I Corporation, Western Wireless Corporation, Cook Inlet
Telecommunications, Inc. and VoiceStream Wireless
Corporation dated December 17, 1998
10.32 Exchange Rights and Grant Agreement by and among Western PCS
BTA I Corporation, Western Wireless Corporation, SSPC
Corporation and VoiceStream Wireless Corporation dated
January 19, 1999
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) To be filed by amendment.
(2) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Registration Statement on Form S-1 (Commission File No.
333-2432).
(3) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Registration Statement on Form S-4 (Commission File No.
333-14859).
(4) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Form 10-K for the year ended 12/31/96.
(5) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Form 10-Q for the quarter ended 3/31/97.
(6) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Form 10-Q for the quarter ended 9/30/97.
(7) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Form 10-K for the year ended 12/31/97.
(8) Incorporated by reference to the exhibit filed with the Western Wireless
Corporation Form 10-Q for the quarter ended 6/30/98.
41
<PAGE> 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VOICESTREAM WIRELESS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule II -- Valuation and Qualifying Accounts............ F-18
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
VoiceStream Wireless Corporation:
We have audited the accompanying consolidated balance sheets of VoiceStream
Wireless Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements and schedule referred to below are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VoiceStream Wireless
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is presented for purpose of complying with the
Securities and Exchange Commission rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Seattle, Washington
February 18, 1999
F-2
<PAGE> 44
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1998 1997
---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 8,057 $ 337
Accounts receivable, net of allowance for doubtful
accounts of $5,715 and $2,040, respectively............ 24,766 18,375
Inventory................................................. 20,182 22,716
Prepaid expenses and other current assets................. 6,393 8,517
---------- --------
Total current assets.............................. 59,398 49,945
Property and equipment, net of accumulated depreciation of
$151,408 and $73,878, respectively........................ 619,280 420,638
Licensing costs and other intangible assets, net of
accumulated amortization of $13,799 and $7,454,
respectively.............................................. 312,040 315,653
Investments in and advances to unconsolidated affiliates.... 60,938 36,055
---------- --------
$1,051,656 $822,291
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 16,172 $ 2,503
Accrued liabilities....................................... 45,566 24,625
Construction accounts payable............................. 58,217 6,310
Payable to Western Wireless............................... 5,071 92,746
---------- --------
Total current liabilities......................... 125,026 126,184
---------- --------
Long-term debt.............................................. 540,000 300,000
Commitments (Note 8)
Shareholders' equity:
Preferred stock, par value of $0.001; 10,00 shares
authorized; no shares issued and outstanding
Common stock, par value of $0.001, and paid-in capital;
50,000 shares authorized; 12,484 and 10,000 Class A
shares issued and outstanding, respectively............ 994,789 750,000
Deficit................................................... (608,159) (353,893)
---------- --------
Total shareholders' equity........................ 386,630 396,107
---------- --------
$1,051,656 $822,291
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Subscriber revenues.................................... $ 123,966 $ 52,360 $ 7,794
Roamer revenues........................................ 3,506 227
Equipment sales........................................ 40,490 25,143 9,745
--------- --------- --------
Total revenues................................. 167,962 77,730 17,539
--------- --------- --------
Operating expenses:
Cost of service........................................ 50,978 43,183 12,470
Cost of equipment sales................................ 77,071 53,469 20,789
General and administrative............................. 75,343 51,678 20,209
Sales and marketing.................................... 85,447 59,466 31,505
Depreciation and amortization.......................... 83,767 66,875 14,395
--------- --------- --------
Total operating expenses....................... 372,606 274,671 99,368
--------- --------- --------
Operating loss........................................... (204,644) (196,941) (81,829)
--------- --------- --------
Other income (expense):
Interest and financing expense, net.................... (34,118) (57,558) (3,607)
Equity in net loss of unconsolidated affiliates........ (24,120) (9,327) (954)
Interest income and other.............................. 8,616 11 40
--------- --------- --------
Total other income (expense)................... (49,622) (66,874) (4,521)
--------- --------- --------
Net loss....................................... $(254,266) $(263,815) $(86,350)
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------- TOTAL
PAR VALUE SHAREHOLDERS'
CLASS A SHARES AND PAID-IN CAPITAL DEFICIT EQUITY
-------------- ------------------- --------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996............. 10,000 $151,481 $ (3,728) $ 147,753
Additional capital contributions... 80,250 80,250
Net loss........................... (86,350) (86,350)
------ -------- --------- ---------
Balance, December 31, 1996........... 10,000 231,731 (90,078) 141,653
Additional capital contributions... 518,269 518,269
Net loss........................... (263,815) (263,815)
------ -------- --------- ---------
Balance, December 31, 1997........... 10,000 750,000 (353,893) 396,107
Issuance of common stock, net...... 2,484 244,789 244,789
Net loss........................... (254,266) (254,266)
------ -------- --------- ---------
Balance, December 31, 1998........... 12,484 $994,789 $(608,159) $ 386,630
====== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 47
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net loss.............................................. $(254,266) $(263,815) $ (86,350)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 83,767 66,875 14,395
Equity in net loss of unconsolidated affiliates.... 24,120 9,327 954
Other, net......................................... 571 1,122 62
Changes in operating assets and liabilities, net of
effects from consolidating acquired interests:
Accounts receivable, net......................... (6,391) (12,969) (5,406)
Inventory........................................ 2,534 (2,581) (20,135)
Prepaid expenses and other current assets........ 2,124 (4,957) (1,899)
Accounts payable................................. 13,669 (8,068) 9,419
Accrued liabilities.............................. 20,941 16,937 7,688
--------- --------- ---------
Net cash used in operating activities.............. (112,931) (198,129) (81,272)
--------- --------- ---------
Investing activities:
Purchase of property and equipment.................... (206,503) (264,432) (234,362)
Additions to licensing costs and other intangible
assets............................................. (12,871) (71,634) (84,113)
Acquisition of wireless properties, net of cash
acquired........................................... (4,645)
Investments in and advances to unconsolidated
affiliates, net.................................... (34,259) (37,240) (1,492)
Deposit held by FCC................................... (23,500)
Refund of deposit held by FCC......................... 7,749
Other.............................................. 880
--------- --------- ---------
Net cash used in investing activities............ (253,633) (370,202) (342,587)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net........... 244,789
Additions to long-term debt........................... 540,000 157,000 130,000
Repayment of long term-debt........................... (300,000)
Advances from (repayment to) Western Wireless, net.... (105,446) 406,254 219,000
Deferred financing fees............................... (5,059)
Equity contributions from Western Wireless............ 80,250
--------- --------- ---------
Net cash provided by financing activities.......... 374,284 563,254 429,250
--------- --------- ---------
Change in cash and cash equivalents..................... 7,720 (5,077) 5,391
Cash and cash equivalents, beginning of year............ 337 5,414 23
--------- --------- ---------
Cash and cash equivalents, end of year.................. $ 8,057 $ 337 $ 5,414
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 48
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
VoiceStream Wireless Corporation ("VoiceStream") was formed in 1994 as
"Western PCS Corporation". VoiceStream is an 80.1% owned subsidiary of Western
Wireless Corporation ("Western Wireless"). The remaining 19.9% is indirectly
owned by Hutchison Whampoa Limited, a Hong Kong company. VoiceStream provides
wireless communications services in urban markets in the United States through
the ownership and operation of personal communications services ("PCS")
licenses. VoiceStream has commenced commercial operations in ten markets under
the VoiceStream(R) brand name using the GSM technology. Additionally,
VoiceStream PCS services are offered in three additional markets in conjunction
with joint ventures.
VoiceStream expects to incur significant operating losses and to generate
negative cash flows from operating activities during the next several years
while it expands its PCS systems and customer base. These losses are expected to
be financed through borrowings or the issuance of new debt or additional equity.
There can be no assurance that such funds will be available to VoiceStream on
acceptable or favorable terms.
On February 8, 1999, Western Wireless announced its intention to separate
VoiceStream from Western Wireless' other operations (the "Spin-off"). Western
Wireless has received a favorable ruling by the Internal Revenue Service for a
tax free spin-off, and the approval by its board of directors to take the
necessary steps to complete the Spin-off. Western Wireless will distribute all
of its interest in VoiceStream to its shareholders upon the Spin-off. Although
VoiceStream has been operated separately from Western Wireless' other operations
and has been a separate legal entity since its inception, the Spin-off will
establish VoiceStream as a stand-alone entity with objectives separate from
those of Western Wireless. The Spin-off is subject to numerous conditions
including, among others, the receipt of certain government and third party
approvals. There is no assurance that such conditions will be met to complete
the Spin-off. See further information on the relationship between VoiceStream
and Western Wireless in footnote 15.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of VoiceStream,
its wholly owned subsidiaries and its affiliate investments in which VoiceStream
has a greater than 50% interest. All affiliate investments in which VoiceStream
has between a 20% and 50% interest are accounted for using the equity method.
All significant intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents generally consist of cash and marketable
securities that have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair value.
Revenue recognition
Service revenues based on customer usage are recognized at the time the
service is provided. Access and special feature service revenues are recognized
when earned. Sales of equipment, primarily handsets, are recognized when the
goods are delivered to the customer.
Inventory
Inventory consists primarily of handsets and accessories. Inventory is
stated at the lower of cost or market, determined on a first-in, first-out
basis.
F-7
<PAGE> 49
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and equipment and depreciation
Property and equipment are stated at cost. Depreciation commences once the
assets have been placed in service and is computed using the straight-line
method over the estimated useful lives of the assets which primarily range from
three to twenty years.
Licensing costs and other intangible assets and amortization
Licensing costs primarily represent costs incurred to acquire PCS licenses
issued by the FCC. Amortization begins with the commencement of service to
customers and is computed using the straight-line method over 40 years. Other
intangible assets consist primarily of deferred financing costs. Deferred
financing costs are amortized using the effective interest method over the term
of the loan.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of," VoiceStream periodically evaluates whether there has
been any indication of impairment of its long-lived assets, including its
licensing costs and other intangibles. As of December 31, 1998, there has been
no indication of such impairment.
Capitalized interest
VoiceStream's PCS licenses and wireless communications systems represent
qualified assets pursuant to SFAS No. 34, "Capitalization of Interest Cost."
VoiceStream capitalized interest of $1.8 million in 1998 and $4.0 million in
1997.
Income taxes
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and the tax bases of assets and
liabilities using enacted tax rates expected to be in effect when they are
realized. A valuation allowance against deferred tax assets is recorded, if,
based upon weighted available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized. For income tax purposes,
VoiceStream's results have been included in the consolidated federal income tax
return of Western Wireless. The provision/benefit for income taxes has been
computed as if VoiceStream filed a separate federal income tax return using the
tax rate applicable to Western Wireless on a consolidated basis. After the
Spin-off, VoiceStream's results of operations will no longer be included in
Western Wireless' consolidated tax return.
Loss per common share
Basic and diluted loss per common share will be calculated using the
weighted average number of common shares outstanding during the period. The
number of shares outstanding will be calculated based on the requirements of
SFAS No. 128, "Earnings Per Share". Proforma net loss per share for 1998 has not
been presented as shares outstanding subsequent to the Spin-off are not yet
ascertainable. Given the historical capital structure of VoiceStream as a
subsidiary of Western Wireless and the changes therein to be effected by the
Spin-off, historical loss per share amounts are not presented in the financial
statements of VoiceStream as they are not considered to be meaningful.
Fair value of financial instruments
As required under the Credit Facility (as defined in Note 7), VoiceStream
enters into interest rate swap and cap agreements to manage interest rate
exposure pertaining to long-term debt. VoiceStream has only limited involvement
with these financial instruments, and does not use them for trading purposes. In
addition, VoiceStream has historically held derivative financial instruments to
maturity and has never
F-8
<PAGE> 50
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recognized a material gain or loss on disposal. It is VoiceStream's intent to
hold existing financial instruments to maturity. Interest rate swaps are
accounted for on an accrual basis, the income or expense of which is included in
interest expense. Premiums paid to purchase interest rate cap agreements are
classified as an asset and amortized to interest expense over the terms of the
agreements. These transactions do not subject VoiceStream to risk of loss
because gains and losses on these contracts are offset against losses and gains
on the underlying liabilities. No collateral is held in relation to
VoiceStream's financial instruments.
The carrying value of VoiceStream's short-term financial instruments
approximates fair value due to the short maturity of these instruments. The fair
value of long-term debt is based on incremental borrowing rates currently
available on loans with similar terms and maturities.
Supplemental cash flow disclosure
Cash paid for interest (net of amounts capitalized) was $26.8 million in
1998 and $17.8 million in 1997. Cash paid for interest in 1996 was offset
entirely by amounts capitalized.
Non-cash investing and financing activities were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996(1)
------- -------- --------
<S> <C> <C> <C>
Contribution of wireless licenses to joint ventures......... $14,744
Conversion of FCC deposit to wireless license............... $ 17,251
Conversion of payable to Western Wireless to equity (See
Note 14).................................................. $518,269
</TABLE>
- ---------------
(1) There were no non-cash investing or financing activities in 1996.
Estimates used in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Reclassifications
Certain amounts in prior year's financial statements have been reclassified
to conform with the 1998 presentation.
Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." It requires the
recognition of all derivatives as either assets or liabilities and the
measurement of those instruments at fair value. The required adoption period is
effective for the issuance of VoiceStream's March 31, 2000, quarterly financial
statements. The implementation of SFAS No. 133 is not expected to have a
material impact on VoiceStream's financial position or results of operations.
The American Institute of Certified Public Accountants recently issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organizational activities. It requires costs of start-up activities
and organizational costs to be expensed as incurred. SOP 98-5 is not expected to
materially affect the financial
F-9
<PAGE> 51
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
position or results of operations of the Company. The required adoption period
is effective for the issuance of VoiceStream's December 31, 1999, financial
statements.
Stock-based compensation plans:
VoiceStream has not historically had stock-based compensation plans
separate from Western Wireless. However, VoiceStream intends to adopt its own
stock plans upon the Spin-off. VoiceStream will apply Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in measuring compensation costs for its stock options after the
Spin-off. VoiceStream will disclose pro forma net income (loss) and net income
(loss) per share as if compensation costs had been determined consistent with
the SFAS No. 123, "Accounting for Stock-based Compensation". VoiceStream has no
stock options outstanding as of December 31, 1998.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land, buildings, and improvements........................... $ 15,549 $ 11,168
Wireless communications systems............................. 459,710 391,269
Furniture and equipment..................................... 57,840 39,419
--------- --------
533,099 441,856
Less accumulated depreciation............................... (151,408) (73,878)
--------- --------
381,691 367,978
Construction in progress.................................... 237,589 52,660
--------- --------
$ 619,280 $420,638
========= ========
</TABLE>
Depreciation expense was $77.6 million in 1998, $61.2 million in 1997 and
$12.6 million in 1996.
4. LICENSING COSTS AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Licensing costs............................................. $320,834 $322,606
Other intangible assets..................................... 5,005 501
-------- --------
325,839 323,107
Accumulated amortization.................................... (13,799) (7,454)
-------- --------
$312,040 $315,653
======== ========
</TABLE>
Amortization expense was $6.2 million in 1998, $5.7 million in 1997 and
$1.8 million in 1996.
5. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
A subsidiary of VoiceStream holds a 49.9% interest in Cook Inlet Western
Wireless PV/SS PCS, LP ("Cook Inlet PCS"). Cook Inlet PCS is subject to the
FCC's build-out requirements and will require significant additional amounts to
complete the build-out of its PCS systems and to meet the government debt
service requirements on the C and F Block licenses. The potential sources of
such additional funding include vendor loans, loans or capital contributions by
the partners of Cook Inlet PCS or other third party financing. VoiceStream
funded the operations of Cook Inlet PCS during 1998 and 1997 through loans
evidenced by promissory notes which are due 180 days after the date of issuance.
The weighted average
F-10
<PAGE> 52
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest rate was 15% for 1998 and 1997. All promissory notes that have come due
were replaced with new promissory notes. The total investment in Cook Inlet PCS,
including advances under such promissory notes, was $47.9 million at December
31, 1998, and $36.1 million at December 31, 1997.
During the second quarter of 1998, Cook Inlet PCS, participated in the C
Block restructuring options provided by the FCC. The FCC provided for various
options, including: (1) to return to the FCC entire licenses purchased in the C
Block auction and be relieved of 100% of the related debt ("Amnesty"); and (2)
to return 15 MHz, from a total of 30 MHz, of the licenses purchased in the
auction and be relieved of one half of the related debt ("Disaggregation"). Of
the licenses purchased in the C Block auction, Cook Inlet PCS chose Amnesty for
two BTA licenses and Disaggregation for 11 BTA licenses. This resulted in a
reduction of Cook Inlet PCS's debt of $29.1 million and a gain of $3.9 million,
due to the retroactive adjustment of interest due on the related debt, the
effect of which reduced the equity losses picked up by VoiceStream for the
second quarter.
In September 1997, a wholly owned subsidiary of VoiceStream and a
subsidiary of Iowa Network Services, Inc., formed a limited partnership to build
and operate a PCS network under the VoiceStream brand name covering certain
metropolitan areas in Iowa and the major interstate and state highways linking
such areas. In 1998 VoiceStream contributed certain licenses that it purchased
in the FCC's A and D Block auctions for approximately $12.3 million to the
venture for an approximate 38% ownership interest.
In July 1998, VoiceStream entered into an agreement to form a joint venture
with STPCS Investment, LLC and Americall International, LLC that will operate
certain PCS markets in south Texas under the VoiceStream brand name. VoiceStream
contributed certain licenses that it purchased in the FCC's D Block auction for
approximately $2.5 million to the venture for an approximate 18% ownership
interest.
6. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued payroll and benefits................................ $ 6,558 $ 1,504
Accrued advertising and marketing........................... 2,252 2,654
Accrued interest expense.................................... 2,823 797
Accrued property taxes...................................... 21,482 10,066
Accrued interconnect charges................................ 3,986 1,865
Other....................................................... 8,465 7,739
------- -------
$45,566 $24,625
======= =======
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit Facility:
Revolver.................................................... $290,000
Term Loan................................................... 250,000
Vendor Facility............................................. $300,000
-------- --------
$540,000 $300,000
======== ========
</TABLE>
F-11
<PAGE> 53
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1998, a wholly owned subsidiary of VoiceStream (the "Borrower")
entered into a $1 billion credit facility with a consortium of lenders (the
"Credit Facility"). The Credit Facility consists of $500 million in revolving
credit and $250 million in a delayed draw term loan (collectively the
"Revolver"), and a term loan (the "Term Loan") for $250 million. Beginning
September 2001, the amount available to borrow under the Revolver and the
principal balance of the Term Loan are to be reduced by various percentages each
year. The Revolver and the Term Loan are due in their entirety on December 31,
2006, and June 30, 2007, respectively. The Credit Facility also contains certain
financial covenants, which, among other things, impose limitations on the amount
of indebtedness, limit the amount of capital spending and impose limitations on
acquisitions and investments. The repayment of the Credit Facility is secured
by, among other things, the grant of a security interest in substantially all of
the assets of the Borrower and its subsidiaries.
Under the Credit Facility, interest is payable at an applicable margin in
excess of a prevailing rate. The prevailing rate is based on the prime rate or
LIBOR at the Borrower's option. The applicable margin on the Credit Facility is
determined quarterly based on certain events and the leverage ratio of the
Borrower. The weighted average interest rate on all of VoiceStream's debt,
including the appropriate margin, was 8.76% in 1998 and 8.20% in 1997. As of
December 31, 1998, all loans under the Credit Facility had been borrowed using
the LIBOR option. The Credit Facility also provides for an annual fee ranging
from 0.375% to 0.5% on the unused commitment, payable quarterly.
The Credit Facility requires VoiceStream to enter into interest rate swap
and cap agreements to manage the interest rate exposure pertaining to borrowings
under the Credit Facility. VoiceStream had entered into interest rate caps and
swaps with a total notional amount of $295 million at December 31, 1998.
Generally these instruments have initial terms ranging from 1 to 4 years and
effectively convert variable rate debt to fixed rate. The weighted average
interest rate under these agreements was approximately 6.11% in 1998. The amount
of unrealized gain or loss attributable to changing interest rates at December
31, 1998, was not material.
Interest only payments are required through June 30, 2001. Commencing
September 30, 2001, and at the end of each calendar quarter thereafter,
VoiceStream is required to make payments on the principal amount outstanding
under the Credit Facility in increasing quarterly installments.
Immediately after entering into the Credit Facility, the Borrower paid off,
in its entirety, the balance owed under the $300 million Vendor Facility.
The aggregate amounts of principal maturities of VoiceStream's long-term
debt at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Year ending December 31,
1999............................................ $ 0
2000............................................ 0
2001............................................ 17,000
2002............................................ 31,500
2003............................................ 46,000
Thereafter...................................... 445,500
--------
$540,000
========
</TABLE>
8. COMMITMENTS
VoiceStream leases various facilities, cell site locations, rights-of-way
and equipment under operating lease agreements. The leases expire at various
dates through the year 2027. Some leases have options to
F-12
<PAGE> 54
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
renew for additional periods up to 25 years. Certain leases require VoiceStream
to pay property taxes, insurance and normal maintenance costs. Significantly all
of VoiceStream's leases have fixed minimum lease payments. VoiceStream has no
significant capital lease liabilities.
Future minimum payments required under operating leases and agreements that
have initial or remaining noncancellable terms in excess of one year at December
31, 1998, are summarized below:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Year ending December 31,
1999............................................ $ 24,495
2000............................................ 23,489
2001............................................ 19,271
2002............................................ 11,878
2003............................................ 7,935
Thereafter...................................... 14,466
--------
$101,534
========
</TABLE>
Aggregate rental expense for all operating leases was approximately $21.3
million in 1998, $18.0 million in 1997 and $7.7 million in 1996.
In order to ensure adequate supply and availability of certain inventory
requirements and service needs, VoiceStream has committed to purchase PCS
equipment from various suppliers. The aggregate amount of these commitments
total approximately $450 million. At December 31, 1998, VoiceStream has ordered
approximately $338 million under all of these agreements, of which approximately
$12 million is outstanding.
VoiceStream and its affiliates have various other purchase commitments for
materials, supplies and other items incident to the ordinary course of business
which are neither significant individually nor in the aggregate. Such
commitments are not at prices in excess of current market value.
9. INCOME TAXES
Significant components of deferred income tax assets and liabilities, net
of tax, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 282,002 $ 165,850
Other temporary differences................................. 13,459 6,142
--------- ---------
Total deferred tax assets................................... 295,461 171,992
Valuation allowance......................................... (243,049) (142,775)
--------- ---------
Deferred tax liabilities:
Property and wireless licenses basis differences............ (52,412) (29,217)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
VoiceStream had approximately $707 million of net operating loss ("NOL")
carryforwards at December 31, 1998. The NOLs will expire between 2010 and 2018.
The valuation allowance increased approximately $100 million in 1998, $105
million in 1997 and $37 million in 1996.
Management believes that available objective evidence creates sufficient
uncertainty regarding the realization of the net deferred tax assets. Such
factors include recurring operating losses resulting primarily
F-13
<PAGE> 55
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from the development of VoiceStream's PCS business. Accordingly, a valuation
allowance has been provided for the net deferred tax assets of VoiceStream.
The difference between the statutory tax rate of approximately 40% (35%
federal and 5% state, net of federal benefits) and the tax benefit of zero
recorded by VoiceStream is primarily due to VoiceStream's full valuation
allowance against its net deferred tax assets. VoiceStream's ability to utilize
the NOLs in any given year may be limited by certain events, including a
significant change in ownership interest.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses will remain with VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison Transaction (as defined in
Note 14), VoiceStream will pay Western Wireless an amount representative of the
tax benefit of NOLs generated while VoiceStream was a wholly-owned subsidiary of
Western Wireless. This payment will not exceed $20 million, net of taxes.
10. STOCK-BASED COMPENSATION PLANS
VoiceStream has no stock options outstanding, nor does it have an option
plan in place as of December 31, 1998. After the Spin-off, VoiceStream intends
to have its own stock option plans that are substantially similar to the plans
that are currently administered by Western Wireless. In connection with the
Spin-off, (1) Western Wireless option holders will receive one vested
VoiceStream option and one vested Western Wireless option for each existing
vested Western Wireless option at the Spin-off; and (2) Western Wireless option
holders who become VoiceStream employees will receive for each unvested Western
Wireless option at the Spin-off a number of unvested VoiceStream options. It is
anticipated the new options will have the same intrinsic value as the original
options issued by Western Wireless and the unvested options will have materially
the same vesting schedule as the original options issued by Western Wireless.
Proforma disclosures required under SFAS 123 are not presented as the number of
VoiceStream options as of the Spin-off is not yet ascertainable.
11. EMPLOYEE BENEFIT PLANS
VoiceStream does not have any employee benefit plans of its own as of
December 31, 1998, because all of the individuals performing services for
VoiceStream are employees of Western Wireless. Accordingly these employees were
covered under Western Wireless' benefit plans, including defined contribution
(401K) plan. Upon the Spin-off, all individuals that perform services for
VoiceStream will become employees of VoiceStream. VoiceStream will establish its
own employee benefit plans, including a 401K plan. The 401K plan will be
substantially similar to Western Wireless' plan presently in effect and will
give participants credit for service as Western Wireless employees.
12. ACQUISITIONS AND CERTAIN TRANSACTIONS
In March 1998, VoiceStream was granted 16 Local Multipoint Distribution
Service (LMDS) licenses that it was the high bidder on in an FCC auction.
VoiceStream paid approximately $8.7 million for these licenses.
In October 1997, VoiceStream acquired from Triad Corporation, Triad
Cellular L.P. and certain of their affiliates various D and E Block PCS licenses
for an aggregate purchase price of approximately $4.6 million. This transaction
was accounted for using the purchase method.
F-14
<PAGE> 56
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SELECTED QUARTERLY INFORMATION
Selected quarterly consolidated financial information for the years ended
December 31, 1998 and 1997 is as follows (unaudited):
<TABLE>
<CAPTION>
TOTAL OPERATING
QUARTER ENDED REVENUES LOSS NET LOSS
------------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
March 31, 1998...................................... $29,883 $(48,233) $(64,301)
June 30, 1998....................................... $36,508 $(50,412) $(56,794)
September 30, 1998.................................. $46,186 $(48,845) $(61,463)
December 31, 1998................................... $55,385 $(57,154) $(71,708)
March 31, 1997...................................... $11,302 $(39,074) $(46,907)
June 30, 1997....................................... $18,870 $(53,621) $(67,884)
September 30, 1997.................................. $23,292 $(52,172) $(73,761)
December 31, 1997................................... $24,266 $(52,074) $(75,263)
</TABLE>
14. HUTCHISON TRANSACTION
In February 1998 Hutchison Telecommunications Limited ("HTL") and a
subsidiary of HTL (the "HTL Sub") purchased 19.9% of VoiceStream for an
aggregate purchase price of $248.4 million ("the Hutchison Transaction").
Western Wireless amended certain outstanding financing agreements to which it is
subject, and unless otherwise agreed to by HTL Sub and Western Wireless, neither
Western Wireless nor VoiceStream shall have any liability regarding any
indebtedness of the other. The HTL Sub designated two directors to a ten person
Board of Directors who have approval rights over certain transactions of
VoiceStream.
In connection with this transaction, Western Wireless was required to
invest $750 million of equity in VoiceStream. In the fourth quarter of 1997,
approximately $518.3 million of the advances made by Western Wireless to
VoiceStream were converted to equity to comply with this requirement. In
addition, this agreement required that any additional investment made by Western
Wireless over $750 million was to be reimbursed from the proceeds of HTL's
investment in VoiceStream. This reimbursement occurred in February 1998 when the
$248.4 million investment by HTL was received by VoiceStream.
15. RELATED PARTY TRANSACTIONS
Prior to the first quarter of 1998, VoiceStream relied on advances from
Western Wireless and borrowings under the Vendor Facility to fund its operations
and capital expansion. VoiceStream received $406.3 million in advances from
Western Wireless in 1997. As a result of the Hutchison Transaction and the
Credit Facility, VoiceStream was able to repay $105.4 million to Western
Wireless in 1998. Interest charges were incurred on the long-term portion of
advances made to VoiceStream by Western Wireless prior to the Hutchinson
Transaction. The interest rates charged on these advances ranged between 8.0%
and 11.1%, and were based on the average interest rates incurred by Western
Wireless on all of its outstanding debt during the period.
VoiceStream's financial statements include an allocation of certain
centralized costs and assets that were incurred by Western Wireless and benefit
all of its operations, including those of VoiceStream. These costs are allocated
to the respective operational units in a manner which reflects management's
judgement as to the nature of the activity causing those items to be incurred.
VoiceStream was allocated costs of $33.3 million in 1998 and $29.1 million in
1997 and assets of $14.5 million in 1998 and $19.1 million in 1997. Management
believes that the financial information presented fairly reflects the results of
operations had VoiceStream been a stand alone entity. Therefore, no proforma
presentation is provided. Management
F-15
<PAGE> 57
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
believes that allocations reflected in the financial statements are reasonable,
however, the financial information included herein is not necessarily indicative
of the financial position, results of operations or cash flows of VoiceStream in
the future.
Subsequent to the Hutchison Transaction, as a subsidiary of Western
Wireless, VoiceStream continued to utilized certain centralized functions of
Western Wireless. This activity was reimbursed on a regular basis (less than 30
days). The payable to Western Wireless at December 31, 1998, represents those
activities that had not yet been reimbursed as of that date.
16. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
The condensed financial information presented below represents the balance
sheet, statement of operations and cash flows of VoiceStream as if the
subsidiary that is restricted under the Credit Facility (footnote 7) was an
unconsolidated entity. VoiceStream less this subsidiary is referred to as
"Parent Company Only". VoiceStream's ownership in such subsidiary has been
reflected in this condensed financial information as if the investment was
accounted for using the equity method.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
CONDENSED BALANCE SHEETS: 1998 1997
------------------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 16 $ 290
Property and equipment, net of accumulated depreciation of
$57....................................................... 2,398
Licensing costs and other intangible assets................. 74,200 66,033
Investments in and advances to affiliates................... 311,226 329,901
--------- ---------
Total assets...................................... $ 387,840 $ 396,224
========= =========
Current liabilities......................................... 1,210 117
Common stock, par value of $0.001, and paid-in capital;
50,000 shares authorized; 12,484 and 10,000 Class A shares
issued and outstanding, respectively...................... 994,789 750,000
Deficit..................................................... (608,159) (353,893)
========= =========
Total debt and shareholders' equity............... $ 387,840 $ 396,224
========= =========
</TABLE>
F-16
<PAGE> 58
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS:
Operating expenses...................................... $ 354
---------
Operating loss.......................................... (354)
Other income (expense)
Interest and financing expense, net..................... (540) $ (2,443)
Equity in net loss of affiliates........................ (259,755) (261,372) $ (86,350)
Other, net.............................................. 6,383
--------- --------- ---------
Other income (expense................................... (253,912) (263,815) (86,350)
--------- --------- ---------
Net loss................................................ $(254,266) $(263,815) $ (86,350)
========= ========= =========
CONDENSED STATEMENTS OF CASH FLOWS:
Operating activities:
Net loss.............................................. $(254,266) $(263,815) $ (86,350)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Equity in net loss of affiliates...................... 259,755 261,372 86,350
Other................................................. 294 (173)
--------- --------- ---------
Net cash provided by (used in) operating activities... 5,783 (2,616) 0
--------- --------- ---------
Investing activities:
Purchase of property and equipment.................... (1,422)
Additions to licensing costs and other intangible
assets............................................. (8,744) (43,851) (585)
Investments in and advances to affiliates............. (134,960) (362,891) (275,165)
Acquisition of wireless properties.................... (4,645)
(Payment) refund of FCC deposit....................... 7,749 (23,500)
--------- --------- ---------
Net cash used in investing activities................. (145,126) (403,638) (299,250)
--------- --------- ---------
Financing activities:
Equity contributions.................................. 244,789 80,250
Advances from (repayment to) affiliate, net........... (105,446) 406,254 219,000
--------- --------- ---------
Net cash provided by financing activities............. 139,343 406,254 299,250
--------- --------- ---------
Change in cash and cash equivalents..................... 0 0 0
Cash and cash equivalents, beginning of year............ 0 0 0
--------- --------- ---------
Cash and cash equivalents, end of year.................. $ 0 $ 0 $ 0
========= ========= =========
</TABLE>
F-17
<PAGE> 59
VOICESTREAM WIRELESS CORPORATION
SCHEDULE I VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO COSTS DEDUCTIONS BALANCE AT
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES (1) END OF PERIOD
----------- ------------------- ---------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998.............. $2,040 $12,780 $(9,105) $5,715
====== ======= ======= ======
Year ended December 31, 1997.............. $ 747 $ 6,628 $(5,335) $2,040
====== ======= ======= ======
Year ended December 31, 1996.............. $ 0 $ 747 $ 0 $ 747
====== ======= ======= ======
</TABLE>
- ---------------
(1) Write-offs, net of bad debt recovery.
F-18
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
VOICESTREAM WIRELESS CORPORATION
By: /s/ JOHN W. STANTON
------------------------------------
John W. Stanton
Chairman and Chief Executive
Officer
Date February 24, 1999
<PAGE> 1
EXHIBIT 4.2
FIRST AMENDMENT
TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT, made as of this 25th day
of November, 1998 (this "Amendment") by and among WESTERN PCS HOLDING
CORPORATION, a Delaware corporation (the "Borrower"), the financial institutions
whose names appear as Lenders on the signature pages thereto (collectively,
together with other financial institutions which have become party thereto, the
"Lenders"), TD Securities (USA) Inc., NationsBanc Montgomery Securities LLC,
Barclays Capital, J.P. Morgan Securities Inc., and Chase Securities Inc., as
arranging agents (collectively, the "Arranging Agents"), J. P. Morgan Securities
Inc., as documentation agent (the "Documentation Agent"), NationsBanc Montgomery
Securities LLC and Chase Securities Inc., as co-syndication agents (the
"Co-Syndication Agents"), and Toronto Dominion (Texas), Inc., as administrative
agent (the "Administrative Agent"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Arranging Agents, the
Co-Syndication Agents, the Documentation Agent and the Administrative Agent are
parties to that certain Loan Agreement dated as of June 26, 1998 (the "Loan
Agreement"); and
WHEREAS, the Borrower has requested the Administrative Agent,
the Arranging Agents, the Co-Syndication Agents, the Documentation Agent and the
Lenders to agree to amend the Loan Agreement as more fully set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, the parties agree that all
capitalized terms used herein shall have the meanings ascribed thereto in the
Loan Agreement except as otherwise defined or limited herein, and further agree
as follows:
1. Amendments to Article 1.
(a) Article 1 to the Loan Agreement, Definitions, shall
be amended by adding the following definitions thereto in appropriate
alphabetical order:
"C Block Licenses" shall mean 30 MHz Channel Block C
authorizations in the Broadband Personal Communications Service granted
by the FCC.
"Escrowed Interest Amount" shall mean that portion of the
proceeds received by VoiceStream in connection with its incurrence of
any Subordinated Debt which is escrowed in accordance with the terms of
such incurrence and is sufficient to fund scheduled interest payments
due with respect to such Subordinated Debt for a period of not less than
three (3) years from the date of incurrence.
<PAGE> 2
"F Block Licenses" shall mean 10 MHz Channel Block F
authorizations in the Broadband Personal Communications Service granted
by the FCC.
(b) Article 1 to the Loan Agreement, Definitions, shall
be further amended by the deletion of the existing definition of "Net Proceeds,"
and by substituting the following therefor:
"Net Proceeds" shall mean, with respect to any sale, lease,
transfer or other disposition of assets or securities by any Person, the
aggregate amount of cash received for such assets or securities
(including, without limitation, any payments received for
non-competition covenants, consulting or management fees, and any
portion of the amount received evidenced by a buyer promissory note or
other evidence of Indebtedness), net of (i) amounts reserved, if any,
for taxes payable with respect to any such sale (after application of
any available losses, credits or other offsets), (ii) reasonable and
customary transaction costs properly attributable to such transaction
and payable by such Person (or, in the case of the Borrower, by any of
its Restricted Subsidiaries) (other than to an Affiliate if not on an
arms' length basis) in connection with such sale, lease, transfer or
other disposition of assets or securities, and (iii) until actually
received by such Person (or, in the case of the Borrower, by any of its
Restricted Subsidiaries), any portion of the amount received held in
escrow or evidenced by a buyer promissory note, or a non-compete
agreement or covenant, management agreement or consulting agreement, for
which compensation is paid over time. Upon receipt by such Person (or,
in the case of the Borrower, by any of its Restricted Subsidiaries) of
amounts referred to in item (iii) of the preceding sentence, such
amounts shall then be deemed to be 'Net Proceeds' with respect to such
Person."
(c) Article 1 to the Loan Agreement, Definitions, shall
be further amended by the deletion of the existing definition of "Subordinated
Debt," and by substituting the following therefor:
"Subordinated Debt" shall mean up to $500,000,000 in net
proceeds of structurally subordinated Indebtedness for Money Borrowed
issued by VoiceStream, which shall be unsecured with respect to
VoiceStream, the Borrower and the Restricted Subsidiaries of the
Borrower, and shall be further subject to the following: (i) the
Borrower shall, in a certificate provided on the date of its receipt of
the net proceeds of such structurally subordinated Indebtedness for
Money Borrowed, demonstrate its projected pro forma compliance (giving
effect to the incurrence of such structurally subordinated Indebtedness
for Money Borrowed) with the applicable Financial Covenants; (ii) the
final maturity of such structurally subordinated Indebtedness for Money
Borrowed must be at least one year and one day after the Final Maturity
Date; (iii) such structurally subordinated Indebtedness for Money
Borrowed shall contain no covenants or provisions more restrictive on
the Borrower and its Restricted Subsidiaries than those contained
herein; and (iv) either (a) interest shall accrue and not be payable for
a period not less than three (3) years from the date of incurrence of
such Indebtedness for Money Borrowed, or (b) in connection with such
incurrence of Indebtedness for Money Borrowed, the Escrowed Interest
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<PAGE> 3
Amount shall be placed in escrow and set aside solely for the purpose of
funding interest payments on such Indebtedness for Money Borrowed."
(d) Article 1 to the Loan Agreement, Definitions, shall
be further amended by the deletion of the existing definition of "Total Debt,"
and by substituting the following therefor:
"Total Debt" shall mean for VoiceStream, the Borrower and the
Borrower's Restricted Subsidiaries, on a consolidated basis, the sum
(without duplication) of their Indebtedness for Money Borrowed, less the
Escrowed Interest Amount, if any."
2. Amendments to Section 2.3.
(a) Section 2.3 of the Loan Agreement, Interest, shall
be amended by deleting the percentages, "1.500%" and "2.500%" where they appear
in the table of Applicable Margins in subsection (f)(i)(a) of Section 2.3, and
by substituting therefor "2.000%" and "3.000%," respectively.
(b) Subsection (ii) of Section 2.3(f) shall be amended
and restated as follows:
"(ii) with respect to the Tranche B Term Loan, the Applicable
Margin for Eurodollar Advances shall be 3.500% for Eurodollar Advances
and 2.500% for Base Rate Advances, from and after the date of the First
Amendment to this Agreement, reducing to (x) 2.75% for Eurodollar
Advances and 1.75% for Base Rate Advances, subsequent to the
contribution of Minimum Additional Contributed Capital, or (y) reducing
to 2.50% for Eurodollar Advances and 1.50% for Base Rate Advances in the
event that the Leverage Ratio (Total Debt) as of the end of any fiscal
quarter is less than or equal to 10.00:1. Any adjustment in the
Applicable Margin for Advances under the Tranche B Term Loan shall be
effective as of the same date as adjustments under subsection (i) of
this Section 2.3(f)."
3. Amendment of Section 3.3 . Section 3.3 of the Loan Agreement,
Conditions Precedent to Initial Advance of the Revolving Loan, shall be amended
by the deletion of subsection (i) thereof.
4. Amendment to Section 7.6. Section 7.6(d), Dollar Limitations
on Acquisitions and Investments, shall be amended by the deletion of the first
sentence thereof and by substituting the following therefor:
"The aggregate amount of Investments and Acquisitions permitted pursuant
to Section 7.6(b) and Section 7.6(c) during the term of this Agreement
shall be $225,000,000, plus Available Equity; provided, however, that
prior to the Investment in the Borrower and its Restricted Subsidiaries
of Minimum Additional Contributed Capital, the aggregate of amount of
Investments pursuant to Section 7.6(c) hereof shall be limited to
$125,000,000, and Investments shall be limited to Investments in
Unrestricted Subsidiaries for the purpose of making Investments in Cook
Inlet Western Wireless PV/SS PCS, L.P., in a venture
-3-
<PAGE> 4
relating to the Wichita BTA, and for Investments related to additional C
Block Licenses and F Block Licenses and PCS Systems therefor; and
provided further, however, that subsequent to the infusion of Minimum
Additional Contributed Capital into the Borrower and its Restricted
Subsidiaries, up to $175,000,000 plus Available Equity of the aggregate
limitation on Investments and Acquisitions may be used for Investments
pursuant to Section 7.6(c) hereof, with $75,000,000 plus Available
Equity being thereafter available for Investments in the business of
wireless communications other than Investments specified in the
preceding proviso."
5. Amendment to Section 7.7. Section 7.7, Restricted Payments
and Purchases, shall be amended by the deletion of clause (a) thereof and by
substituting the following therefor:
"(a) following the third anniversary of the date of incurrence thereof,
the Borrower may make Restricted Payments to VoiceStream, to permit
VoiceStream to make scheduled payments of interest on (i) Subordinated
Debt, to the extent the Net Proceeds of such Subordinated Debt were
Invested in the Borrower and its Restricted Subsidiaries, (ii) the
Escrowed Interest Amount, to the extent such amount was used to pay
interest on the Subordinated Debt, or (iii) any portion of Subordinated
Debt, in excess of the amount of Subordinated Debt Invested in the
Borrower and its Restricted Subsidiaries, which is allocable to interest
that accrued on and was added to the principal amount of such
Subordinated Debt,"
6. Amendment to Section 7.8. Section 7.8, Stage One - Ratio of
Senior Debt to Contributed Capital, shall be amended (i) by deleting, in the
first line of the table, "December 31, 1999" and by substituting therefor
"December 31, 1998," and (ii) by deleting, in the second line of table, "January
1, 2000" and by substituting "January 1, 1999" therefor.
7. No Other Amendment or Waiver. Except for the amendments set
forth above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
8. Representations and Warranties. The Borrower hereby
represents and warrants in favor of the Administrative Agent on behalf of the
Arranging Agents, the Co-Syndication Agents, the Documentation Agent and the
Lenders as follows:
(i) Each representation and warranty set forth in Article 4 of
the Loan Agreement is hereby restated and affirmed as true and correct as of the
date hereof;
(ii) The Borrower has the corporate power and authority (A) to
enter into this Amendment and (B) to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(iii) This Amendment has been duly authorized, validly executed
and delivered by one or more Authorized Signatories, and the Loan Agreement, as
amended by this Amendment, constitutes the legal, valid and binding obligation
of the Borrower, enforceable against the Borrower in accordance with its terms;
and
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<PAGE> 5
(iv) The execution and delivery of this Amendment and
performance by the Borrower of its Obligations under the Loan Agreement, as
amended hereby, do not and will not require the consent or approval of any
regulatory authority or governmental authority or agency having jurisdiction
over the Borrower which has not already been obtained and are not and will not
be in contravention of or in conflict with the Certificate of Incorporation or
By-Laws of the Borrower or the provision of any Applicable Law or any material
indenture, agreement or other instrument, to which the Borrower or any
Subsidiary is party or by which their respective assets or properties are bound
or affected.
9. Conditions Precedent to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the prior fulfillment of each of
the following conditions:
(i) the truth and accuracy of the representations and warranties
contained in Section 7 hereof;
(ii) the receipt by the Administrative Agent of duly executed
counterparts of this Amendment signed by each of the Borrower, the Arranging
Agents, the Co-Syndication Agents, the Documentation Agent, the Administrative
Agent, and the Required Lenders; and
(iii) the receipt by the Administrative Agent, the Arranging
Agents, the Co-Syndication Agents, the Documentation Agent and the Lenders of
any other documents which any of them may reasonably request, certified by an
appropriate governmental official or officer of the Borrower if so requested;
and
(iv) the receipt by the Administrative Agent for the benefit of
the Lenders of $1,000,000, in payment of the fees previously agreed to among the
parties hereto.
10. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
11. Law of Contract. THIS AMENDMENT SHALL BE DEEMED TO BE MADE
PURSUANT TO THE INTERNAL LAWS OF THE STATE OF NEW YORK WITH RESPECT TO
AGREEMENTS MADE AND TO BE PERFORMED WHOLLY IN THE STATE OF NEW YORK, AND SHALL
BE CONSTRUED, INTERPRETED, PERFORMED AND ENFORCED IN ACCORDANCE THEREWITH.
12. Effective Date. Upon satisfaction of the conditions
precedent referred to in Section 8 above, this Amendment shall be effective as
of the date first set forth above.
13. Loan Document. This Amendment shall be deemed to be a Loan
Document for all purposes.
[SIGNATURES ON FOLLOWING PAGES]
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized officers or representatives to execute, deliver and seal this
Amendment as of the day and year first above written.
BORROWER: WESTERN PCS HOLDING CORPORATION,
A DELAWARE CORPORATION
By: /s/ Donald Guthrie
--------------------------------------
Name:
------------------------------------
Title: CFO
-----------------------------------
Attest: /s/ Alan R. Bender
----------------------------------
Title: General Counsel
-----------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By: /s/ Diane Bailey
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 1
<PAGE> 7
ARRANGING AGENTS: TD SECURITIES (USA) INC.
By: /s/ Diane Bailey
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
NATIONBANC MONTGOMERY
SECURITIES LLC
By: /s/ W.H. McClendon IV
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
BARCLAYS CAPITAL
By: /s/ James K. Downey
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
J.P. MORGAN SECURITIES INC.
By: /s/ Jessica Laxman
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
CHASE SECURITIES INC.
By: /s/ James L. Stone
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 2
<PAGE> 8
DOCUMENTATION
AGENT: J.P. MORGAN SECURITIES INC.
By: /s/ Jessica Laxman
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
CO-SYNDICATION
AGENTS: CHASE SECURITIES INC.
By: /s/ James L. Stone
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ W. H. McClendon IV
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 3
<PAGE> 9
MANAGING AGENTS: CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Mark D. Thorsheim
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Mark F. Mylon
--------------------------------------
Name:
------------------------------------
Title: Manager - Operations
-----------------------------------
GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/ Stephen B. King
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
SOCIETE GENERALE
By: /s/ John Sadik Khan
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
CO-AGENTS: THE BANK OF NEW YORK
By: /s/ Gerry Granovsky
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ Vincent I. Fitzgerald Jr.
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
First Amendment to Loan Agreement
Signature Page 4
<PAGE> 10
PNC BANK NATIONAL ASSOCIATION
By: /s/ Thomas A. Coates
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ Alan E. McLintock
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
By: /s/ Ian Reece
--------------------------------------
Name:
------------------------------------
Title: Senior Credit Officer
-----------------------------------
PARIBAS, LOS ANGELES BRANCH
By: /s/ Thomas G. Brandt
--------------------------------------
Name:
------------------------------------
Title: Director
-----------------------------------
By: /s/ Darlynn Kitcher
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
First Amendment to Loan Agreement
Signaute Page 5
<PAGE> 11
LENDERS: TORONTO DOMINION (TEXAS), INC.
By: /s/ Diane Bailey
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 6
<PAGE> 12
NATIONSBANK, N.A.
By: /s/ Doug Meckelnburg
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 7
<PAGE> 13
BARCLAYS BANK, PLC
By: /s/ James K. Downey
--------------------------------------
Name:
------------------------------------
Title: Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 8
<PAGE> 14
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ A. M. Fallon
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 9
<PAGE> 15
THE CHASE MANHATTAN BANK
By: /s/ John J. Huber III
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 10
<PAGE> 16
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Mark D. Thorsheim
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 11
<PAGE> 17
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Mark F. Mylon
--------------------------------------
Name:
------------------------------------
Title: Manager - Operations
-----------------------------------
First Amendment to Loan Agreement
Signature Page 12
<PAGE> 18
GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/ Stephen B. King
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
First Amendment to Loan Agreement
Signature Page 13
<PAGE> 19
SOCIETE GENERALE
By: /s/ John Sadik - Khan
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 14
<PAGE> 20
THE BANK OF NEW YORK
By: /s/ Vincent J. Fitzgerald Jr.
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
First Amendment to Loan Agreement
Signature Page 15
<PAGE> 21
THE BANK OF NOVA SCOTIA
By: /s/ Vincent J. Fitzgerald Jr.
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
First Amendment to Loan Agreement
Signature Page 16
<PAGE> 22
PNC BANK NATIONAL ASSOCIATION
By: /s/ Thomas A. Coates
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 17
<PAGE> 23
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ Alan E. McLintock
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
By: /s/ Ian Reece
--------------------------------------
Name:
------------------------------------
Title: Senior Credit Officer
-----------------------------------
First Amendment to Loan Agreement
Signature Page 18
<PAGE> 24
PARIBAS, LOS ANGELES BRANCH
By: /s/ Thomas G. Brandt
--------------------------------------
Name:
------------------------------------
Title: Director
-----------------------------------
By: /s/ Darlynn Kitcher
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 19
<PAGE> 25
FIRST UNION NATIONAL BANK
By: /s/ Jon W. Peterson
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 20
<PAGE> 26
CIBC INC.
By: /s/ William J. Damm
--------------------------------------
Name:
------------------------------------
Title: Executive Director
-----------------------------------
CIBC Oppenheimer Corp., as Agent
First Amendment to Loan Agreement
Signature Page 21
<PAGE> 27
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ J.E. Palmer
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 22
<PAGE> 28
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Jane A. Majeski
--------------------------------------
Name:
------------------------------------
Title: First Vice President
-----------------------------------
By: /s/ Constance Loosemore
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 23
<PAGE> 29
EXPORT DEVELOPMENT CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
First Amendment to Loan Agreement
Signature Page 24
<PAGE> 30
FLEET NATIONAL BANK
By: /s/ Garret Komjathy
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 25
<PAGE> 31
FREMONT FINANCIAL CORPORATION
By: /s/ Kannika Viravan
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 26
<PAGE> 32
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ Karen L. Stefancic
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 27
<PAGE> 33
SKANDINAVISKA ENSKILDA BANKEN
NEW YORK BRANCH
By: /s/ Lars Nybom
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
By: /s/ Philip Montemurro
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 28
<PAGE> 34
THE SUMITOMO TRUST AND BANKING CO., LTD.,
NEW YORK BRANCH
By: /s/ Stephen Stratico
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 29
<PAGE> 35
SUMITOMO BANK, LTD.
By: /s/ Suresh S. Tata
--------------------------------------
Name:
------------------------------------
Title: Senior Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 30
<PAGE> 36
BANK OF MONTREAL
By: /s/ Peter Konigsmann
--------------------------------------
Name:
------------------------------------
Title: Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 31
<PAGE> 37
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Gary Egbert
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 32
<PAGE> 38
KZH CNC LLC
By: /s/ Virginia Conway
--------------------------------------
Name:
------------------------------------
Title: Authorized Agent
-----------------------------------
First Amendment to Loan Agreement
Signature Page 33
<PAGE> 39
KZH CYPRESSTREE-1 LLC
By: /s/ Michael M. Wong
--------------------------------------
Name:
------------------------------------
Title: Authorized Agent
-----------------------------------
First Amendment to Loan Agreement
Signature Page 34
<PAGE> 40
SENIOR HIGH INCOME PORTFOLIO, INC.
By: /s/ Andrew C. Liggio
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By: /s/ Andrew C. Liggio
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
First Amendment to Loan Agreement
Signature Page 35
<PAGE> 41
KZH ING-2 LLC
By: /s/ Virginia Conway
--------------------------------------
Name:
------------------------------------
Title: Authorized Agent
-----------------------------------
First Amendment to Loan Agreement
Signature Page 36
<PAGE> 42
OCTAGON LOAN TRUST
BY: OCTAGON CREDIT INVESTORS AS MANAGER
By: /s/ Andrew D. Gordon
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 37
<PAGE> 43
KZH SOLEIL-2 LLC
By: /s/ Virginia Conway
--------------------------------------
Name:
------------------------------------
Title: Authorized Agent
-----------------------------------
First Amendment to Loan Agreement
Signature Page 38
<PAGE> 44
VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
By: /s/ Jeffrey W. Maillet
---------------------------------------
Name: Jeffrey W. Maillet
------------------------------------
Title: Senior Vice President and Director
------------------------------------
First Amendment to Loan Agreement
Signature Page 39
<PAGE> 45
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc. its Managing Member
By: /s/ Timothy M. Barns
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 41
<PAGE> 46
CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.
AS: ATTORNEY-IN-FACT AND ON BEHALF OF
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY AS PORTFOLIO MANAGER
By: /s/ Timothy M. Barns
--------------------------------------
Name:
------------------------------------
Title: Managing Director
-----------------------------------
First Amendment to Loan Agreement
Signature Page 42
<PAGE> 47
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Andrew C. Liggio
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
DEBT STRATEGIES FUND, INC.
By: /s/ Andrew C. Liggio
--------------------------------------
Name:
------------------------------------
Title: Authorized Signatory
-----------------------------------
First Amendment to Loan Agreement
Signature Page 43
<PAGE> 48
MOUNTAIN CLO TRUST
By: /s/ Teiji Teramoto
--------------------------------------
Name:
------------------------------------
Title: Vice President and Manager
-----------------------------------
First Amendment to Loan Agreement
Signature Page 44
<PAGE> 49
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By: /s/ Payson F. Swaffield
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 45
<PAGE> 50
STEIN ROE & FARNHAM INCORPORATED,
as agent for Keyport
Life Insurance Company
By: /s/ Brian W. Good
--------------------------------------
Name:
------------------------------------
Title: Vice President and Manager
-----------------------------------
First Amendment to Loan Agreement
Signature Page 46
<PAGE> 51
PILGRIM AMERICA PRIME RATE TRUST
By: Pilgrim America Investments, Inc.,
as Investment Manager
By: /s/ Robert L. Wilson
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 47
<PAGE> 52
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By: /s/ Doug Meckelnburg
--------------------------------------
Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 48
<PAGE> 53
PACIFICA PARTNERS I, L.P.
By: /s/ Michael J. Bacevich
--------------------------------------
Name:
------------------------------------
Title: Senior Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 49
<PAGE> 54
BALANCED HIGH YIELD FUND I LTD.
By: /s/ Michael T. Pellerito
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By: /s/ Thomas Scifo
--------------------------------------
Name:
------------------------------------
Title: Assistant Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 50
<PAGE> 55
PAM CAPITAL FUNDING, LP
By: Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ James Dondero
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Name:
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Title: President
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First Amendment to Loan Agreement
Signature Page 51
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EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management,
as Investment Advisor
By: /s/ Payson F. Swaffield
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Name:
------------------------------------
Title: Vice President
-----------------------------------
First Amendment to Loan Agreement
Signature Page 52
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BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Michael T. Pellerito
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Name:
------------------------------------
Title:
-----------------------------------
By: /s/ Thomas J. Scifo
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Name:
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Title: Assistant Vice President
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First Amendment to Loan Agreement
Signature Page 53
<PAGE> 1
EXHIBIT 10.30
AMENDMENT NO. 5
TO
PCS 1900 PROJECT AND SUPPLY AGREEMENT
BETWEEN
WESTERN PCS CORPORATION
AND
NORTHERN TELECOM INC.
Made effective as of this ____ day of September, 1998, by and between Northern
Telecom Inc. ("Seller") and Western PCS Corporation ("Buyer").
WHEREAS, Buyer and Seller entered into a PCS 1900 Project and Supply Agreement
dated June 30, 1995 (as heretofore amended, the "Agreement"); and
WHEREAS, Buyer and Seller now wish to amend the Agreement to modify the Year
2000 warranty therein.
NOW THEREFORE, for good and valuable consideration hereby given, Buyer and
Seller agree to amend the Agreement as follows:
1. Amend Subsection 7.3.1 as follows:
7.3.1 Year 2000 Ready - Warranty. Seller represents and warrants that
Seller's Hardware and/or Software supplied to Buyer under this Agreement, shall
function, during the applicable Warranty Period of the applicable Hardware
and/or Software under this Agreement (but in any event, at least through March
30, 2000), with respect to any date dependent operations, without any material,
service-affecting or operational non-conformance to its applicable
specifications, provided that both any Hardware and/or any specific Software
load or release designated as necessary by Seller has been installed with
respect to such Seller Hardware and/or Software. If Seller's Hardware and/or
Software fails to so function, Buyer's sole remedy and Seller's sole obligation
under this warranty is for Seller, at the earliest practicable time, to correct
such failure through, at Seller's option, the replacement or the repair or
modification of the applicable Hardware and/or Software or such other actions as
Seller reasonably determines to be appropriate.
The foregoing does not constitute a commitment by Seller (a) to otherwise
support the Hardware and/or Software beyond its contractually committed Warranty
Period, or (b) that the date format used by the Hardware and/or Software
complies with any particular standard. Some Seller
<PAGE> 2
Hardware and/or Software may continue to use year representations which do not
use four digits where such representations can be interpreted without ambiguity
as to century.
2. Ratification of Agreement
Except as specifically modified by this Amendment No. 5, the Agreement
shall in all other respects continue in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 5 to be executed
by their duly authorized representatives.
WESTERN PCS CORPORATION NORTHERN TELECOM INC.
By: /s/ Tim R. Wong By: /s/ Nancy White
------------------------------- --------------------------------
Name: Tim R. Wong Name: Nancy White
----------------------------- ------------------------------
(Type/Print) (Type/Print)
Title: Vice President, Engineering Title: Vice President and General
---------------------------- Manager, U.S. Region
-----------------------------
Date: 9/17/98 Date: 10/30/98
----------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.31
EXCHANGE RIGHTS ACQUISITION AND GRANT AGREEMENT
THIS EXCHANGE RIGHTS ACQUISITION AND GRANT AGREEMENT (this "Agreement")
is entered into and effective as of this 17th day of December, 1998, by and
among WESTERN PCS BTA I CORPORATION, a Delaware corporation ("Western BTA"),
WESTERN WIRELESS CORPORATION, a Washington corporation ("WWC"), COOK INLET
TELECOMMUNICATIONS, INC., a Delaware corporation ("Cook Inlet"), and VoiceStream
Wireless Corporation, a Delaware corporation ("VoiceStream").
RECITALS
(i) Western BTA, WWC, and Cook Inlet are parties to that certain PCS
Block "C" Organization and Financing Agreement dated November 5, 1995, as
amended by amendments dated April 8, 1996 (the "First Amendment"), June 27, 1996
(the "Second Amendment"), and July 30, 1996 (the "Third Amendment") (together,
the "Organization and Financing Agreement"), whereby the parties thereto
specified certain terms with respect to the organization and financing of Cook
Inlet Western Wireless PV/SS PCS, L.P. (the "Limited Partnership") and operation
of various wireless telecommunications systems, and the terms of various
contracts for use among the parties thereto and others in connection with such
organization, financing, and operations. The other parties to the Organization
and Financing Agreement are: COOK INLET PV/SS PCS PARTNERS, L.P., a Delaware
limited partnership ("Control Group"); SSPCS CORPORATION, a Delaware corporation
("SSPCS"); and PROVIDENCE MEDIA PARTNERS L.P., a Delaware limited partnership
("Providence").
(ii) Control Group and Western BTA are parties to that certain Cook
Inlet Western Wireless PV/SS PCS, L.P. Limited Partnership Agreement dated
November 5, 1996, as amended by the First Amendment, the Second Amendment, and
the Third Amendment (together, the "Limited Partnership Agreement"), whereby the
parties thereto formed the Limited Partnership to apply to the FCC for the right
to participate in the Auction and to bid and acquire Licenses, as such terms are
defined therein.
(iii) Pursuant to the Organization and Financing Agreement, each of Cook
Inlet, SSPCS and Providence is (a) defined to be a Control Group Partner with
Partnership Interests (as defined therein) in Control Group, and (b) is
therefore granted certain rights ("WWC Exchange Rights") to exchange its
ownership rights in its Partnership Interest in Control Group for shares of WWC
common stock in certain circumstances.
(iv) Cook Inlet desires to sell and WWC desires, in conjunction with
VoiceStream, to acquire for cancellation, the WWC Exchange Rights of Cook Inlet
for consideration consisting of cash from WWC and a grant of new exchange rights
by VoiceStream.
(v) The parties desire to set forth the full terms of their agreement
respecting the same in this written contract.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
ALL WORDS CAPITALIZED HEREIN AND NOT DEFINED SHALL HAVE THE MEANINGS
GIVEN THEM IN THE ORGANIZATION AND FINANCING AGREEMENT.
Otherwise, for purposes of this Agreement, the following terms have the
meanings set forth below.
"VoiceStream" means VoiceStream Wireless Corporation, a Delaware
corporation and its successors and assigns.
"VoiceStream Common Stock" means the common stock, $0.001 par value, of
VoiceStream.
"VoiceStream Organic Change" means any recapitalization, reorganization,
reclassification, spin-off, split-off, extraordinary dividend or distribution,
consolidation or merger with another Person of VoiceStream, or any successor(s)
thereto, or sale of all or substantially all, in any or a series of
transactions, of the assets or stock of VoiceStream, or any successor(s)
thereto, to another Person, or other transaction involving VoiceStream, or any
successor(s) thereto, which is effected in such a manner that holders of
VoiceStream Common Stock, or of stock or other interests in any of the
respective successors to VoiceStream as the case may be, are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets or
other consideration with respect to or in exchange for such stock or interests.
ARTICLE II
PURCHASE OF WWC EXCHANGE RIGHTS
WWC and VoiceStream hereby purchase from Cook Inlet, and Cook Inlet
hereby sells to WWC and VoiceStream, all of Cook Inlet's right, title and
interest in and to the WWC Exchange Rights for the following consideration:
(a) the sum of Five Million Dollars ($5,000,000), payable in cash
simultaneously with the execution of this Agreement; and
(b) the grant to Cook Inlet of the rights ("VoiceStream Exchange
Rights") to exchange ownership rights in its Partnership Interest in Control
Group for Voice Stream Common Stock, which VoiceStream Exchange Rights are
hereby granted. The terms and conditions of the VoiceStream Exchange Rights are
set forth in Article III hereof.
ARTICLE III
VOICESTREAM EXCHANGE RIGHTS
3.1 Exchange Rights. The VoiceStream Exchange Rights shall be
exercisable (a "VoiceStream Exchange") by Cook Inlet only on the following terms
and only during the thirty (30) day exchange period beginning on April 27, 2002,
and ending at 5:00 p.m. pacific time on May 26, 2002, (the "Cook Inlet Exchange
Period") in accordance with the following:
(a) Cook Inlet may elect to exchange all, but not less than all,
of the ownership rights in its Partnership Interest in Control Group for fifty
(50) shares of VoiceStream Common Stock.
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(b) To cause a VoiceStream Exchange, Cook Inlet shall deliver an
irrevocable written notice of the same (an "Exchange Notice") to VoiceStream
during the Cook Inlet Exchange Period; provided that, if as of the end of the
Cook Inlet Exchange Period Cook Inlet has failed to so deliver said notice, the
VoiceStream Exchange Rights of Cook Inlet (pursuant to this Agreement) shall
then immediately terminate.
(c) The WWC Exchange Rights of Cook Inlet set forth in the
Organization and Financing Agreement are upon execution hereof deemed cancelled
and are null and void, and Cook Inlet shall have no further right or obligation
in respect of the Exchange Rights or any other part or provision of Article III
of the Organization and Financing Agreement as set forth therein, and the
parties agree that this Agreement shall supersede such Article III.
(d) Western BTA, WWC, VoiceStream and Cook Inlet agree to
structure, to the extent reasonably possible, the VoiceStream Exchange for Cook
Inlet in a way that is tax free to each of Cook Inlet and to Western BTA, WWC,
and VoiceStream and such structure may include a stock exchange that includes
the stock of a special purpose corporation holding the Partnership Interest of
Cook Inlet in the Control Group; provided, however, that in doing so there are
no negative tax or accounting attributes of such a VoiceStream Exchange that
adversely impact Western BTA, WWC, or VoiceStream to a greater extent than would
be experienced in a direct exchange for a Partnership Interest (other than the
receipt of a carry over basis due to the tax free nature of the transaction), as
determined in utmost good faith by Western BTA in its reasonable discretion. If
Cook Inlet desires such a tax free structure, it shall be a special purpose
corporation. A "special purpose corporation" shall mean a corporation formed for
the purpose of holding an interest in the Control Group.
(e) If Western BTA, WWC, or VoiceStream in connection with the
VoiceStream Exchange, directly acquires a Partnership Interest, Western BTA,
WWC, or VoiceStream, as the case may be, shall take all actions necessary to
satisfy the applicable requirements of Section 12.6 of the limited partnership
agreement of Control Group.
(f) Upon receipt of an Exchange Notice during the Exchange
Period, and if VoiceStream Common Stock is listed or admitted for trading on the
NASDAQ National Market System or the New York Stock Exchange, then Western BTA
and VoiceStream agree that VoiceStream shall issue to Cook Inlet, as soon as
reasonably practicable but in any event no later than sixty (60) days following
delivery of the Exchange Notice (the "Outside Delivery Date"), fifty (50) shares
of VoiceStream Common Stock provided that at the time of such issuance (i) such
shares will be duly authorized, validly issued, fully paid and non-assessable
and free and clear of all liens, claims and encumbrances or preemptive or
similar rights, (ii) such shares are delivered in compliance with Federal and
state securities laws, (iii) such shares are subject to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of such shares by Cook Inlet (the
"Registration Statement") from time to time in negotiated transactions, in
market transactions or otherwise and (iv) such shares are registered or
qualified for offer of sale by Cook Inlet under the securities or blue sky laws
of such States as Cook Inlet shall reasonably request. VoiceStream covenants and
agrees that it shall (x) prepare and file with the Securities and Exchange
Commission such amendments as may be necessary to keep the Registration
Statement effective until the earlier of the date all of such shares have been
sold by Cook Inlet, the date all of such shares are freely tradable without
registration or restriction (under Rule 144(k) promulgated under the Securities
Act or otherwise), , but not before the expiration of the 90-day period referred
to in Section 4(3) of the Securities Act and Rule 174 promulgated thereunder,
(y) cause each such state securities or blue sky registration or qualification
to remain effective during the period the Registration Statement is required to
be kept effective hereunder, and (z) cause the shares covered by such
Registration Statement, by the date of the first sale by Cook Inlet thereunder,
to be listed or admitted for trading on each securities exchange (or, if
applicable, the
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NASDAQ national market system) on which VoiceStream Common Stock is then listed
or admitted for trading.
(g) In the event that VoiceStream Common Stock is not listed or
admitted for trading on the NASDAQ National Market System or the New York Stock
Exchange, then Article IV shall apply.
3.2 Increase or Combination of Common Stock.
At any time prior to the date VoiceStream Common Stock is issued to Cook
Inlet in accordance with this Agreement, if at any time VoiceStream (a) pays a
dividend or makes a distribution in shares of its capital stock or securities
convertible or exchangeable for shares of its capital stock, (b) issues by
reclassification, or (c) subdivides (by any stock split, recapitalization or
otherwise) one or more classes of its outstanding shares of VoiceStream Common
Stock into a greater number of shares, the number of shares of VoiceStream
Common Stock to be issued pursuant to Section 3.1 immediately prior to such
increase shall be adjusted proportionately, and if VoiceStream at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of VoiceStream Common Stock into a smaller number of shares,
the number of shares of VoiceStream Common Stock issuable to Cook Inlet on a
VoiceStream Exchange immediately prior to such combination shall be adjusted
proportionately to allow Cook Inlet the full benefit and effect of the increase
or combination as if the VoiceStream Exchange had occurred immediately prior to
the increase or combination, as the case may be.
3.3 Reorganization, Reclassification, Consolidation, Merger or Sale.
At any time prior to the date VoiceStream Common Stock is issued to Cook
Inlet in accordance with this Agreement, prior to the consummation of each
VoiceStream Organic Change, VoiceStream shall make appropriate provisions (in
form and substance reasonably satisfactory to Cook Inlet) to insure that Cook
Inlet thereafter shall have the right to exchange for and receive, in lieu of or
in addition to (as the case may be) the shares of VoiceStream Common Stock
immediately theretofore acquirable and receivable upon a VoiceStream Exchange,
such shares of stock, securities or assets or other consideration as Cook Inlet
would have received in connection with such VoiceStream Organic Change if Cook
Inlet had effected the VoiceStream Exchange immediately prior to such
VoiceStream Organic Change. In the event of each VoiceStream Organic Change,
VoiceStream shall also make appropriate provisions (in form and substance
reasonably satisfactory to Cook Inlet) to insure that Cook Inlet continues to
have the benefit of this Section 3.3 thereafter. VoiceStream shall not effect
any VoiceStream Organic Change unless prior to the consummation thereof, the
successor corporation (if other than VoiceStream) resulting from consolidation
or merger or the Person purchasing such stock or assets assumes by written
instrument (in form reasonably satisfactory to Cook Inlet) the obligation to
deliver to Cook Inlet such shares of stock, securities or assets or other
consideration as, in accordance with the foregoing provisions, Cook Inlet may be
entitled to acquire.
3.4 Recapture of Bidding Credits and Acceleration of FCC Loans. In the
event that a VoiceStream Exchange results in either (a) the recapture by the FCC
of any bidding credits or other discounts received by Applicant with respect to
the award of Licenses in connection with the Auction, or (b) the acceleration of
any obligation or debt owed to the FCC in connection with the Auction, the
Applicant solely shall be liable to the FCC for such amounts.
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ARTICLE IV
VOICESTREAM EXCHANGE RIGHTS IF
VOICESTREAM COMMON STOCK IS NOT LISTED
4.1 If VoiceStream Common Stock is Not Delivered in Accordance with
Section 3.1(f). If Western BTA and VoiceStream are unable pursuant to Section
3.1 above, upon a VoiceStream Exchange, to deliver, in accordance with Section
3.1(f), shares of VoiceStream Common Stock prior to the Outside Delivery Date,
WWC, Western BTA and VoiceStream jointly and severally agree that WWC shall
issue, prior to the Outside Delivery Date, in lieu of the VoiceStream Common
Stock, and Cook Inlet agrees to accept, in full satisfaction of the obligation
to deliver VoiceStream Common Stock: (i) 193,315 shares of WWC Class A Common
Stock, and (ii) a cash payment in the amount of One Million, Five Hundred
Thousand Dollars ($1,500,000). The shares of WWC Class A Common Stock to be
issued pursuant to this Section 4.1 shall be subject to the same requirements,
and WWC shall be bound by the same covenants, as those set forth in Section
3.1(f) hereof, substituting WWC for VoiceStream thereunder. It shall be a breach
of this Agreement by WWC, Western BTA and Voice Stream if WWC Class A Common
Stock is not listed or admitted for trading on the NASDAQ National Market System
or the New York Stock Exchange at the time of issuance hereunder to Cook Inlet,
or if such shares are not delivered to Cook Inlet in accordance with the
requirements of Section 3.1(f) (substituting WWC for VoiceStream thereunder)
prior to the Outside Delivery Date.
4.2 Increase or Combination of Common Stock. At any time prior to the
date VoiceStream Common Stock or WWC Class A Common Stock, as the case may be,
is issued to Cook Inlet in accordance with this Agreement, if at any time WWC
(a) pays a dividend or makes a distribution in shares of its capital stock or
securities convertible or exchangeable for shares of its capital stock, (b)
issues by reclassification, or (c) subdivides (by any stock split,
recapitalization or otherwise) one or more classes of its outstanding shares of
WWC Common Stock into a greater number of shares, the number of shares of WWC
Common Stock to be issued pursuant to Section 4.1 above immediately prior to
such increase shall be adjusted proportionately, and if WWC at any time combines
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of WWC Common Stock into a smaller number of shares, the number of shares
of WWC Common Stock to be issued pursuant to Section 4.1 above immediately prior
to such combination shall be adjusted proportionately, in each case to allow to
Cook Inlet the full benefit and effect of the increase or combination as if the
Partnership Interest of Cook Inlet had been exchanged for WWC Common Stock
immediately prior to the increase or combination, as the case may be.
4.3 Reorganization, Reclassification, Consolidation, Merger or
Sale. At any time prior to the date VoiceStream Common Stock or WWC Class A
Common Stock, as the case may be, is issued to Cook Inlet in accordance with
this Agreement, prior to the consummation of each Organic Change, WWC shall make
appropriate provisions (in form and substance reasonably satisfactory to Cook
Inlet) to insure that Cook Inlet thereafter shall have the right to exchange for
and receive, in lieu of or in addition to (as the case may be) the shares of WWC
Common Stock immediately theretofore acquirable and receivable pursuant to
Section 4.1 above, such shares of stock, securities or assets or other
consideration as Cook Inlet would have received in connection with such Organic
Change if Cook Inlet had effected the VoiceStream Exchange immediately prior to
such Organic Change. In the event of each Organic Change, WWC shall also make
appropriate provisions (in form and substance reasonably satisfactory to Cook
Inlet) to insure that Cook Inlet will continue to have the benefit of this
Section 4.3 thereafter. WWC shall not effect any Organic Change unless prior to
the consummation thereof, the successor corporation (if other than WWC)
resulting from consolidation or merger or the Person purchasing such stock or
assets assumes by written instrument (in form reasonably satisfactory to Cook
Inlet) the obligation to deliver to Cook Inlet such shares of stock, securities
or assets or other consideration as, in accordance with the foregoing
provisions, Cook Inlet may be entitled to acquire.
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ARTICLE V
SHARING OF PROCEEDS OF SALE TRANSACTIONS
The parties acknowledge that Cook Inlet was under no obligation to
exercise the WWC Exchange Rights and agree that Cook Inlet is not hereunder
obligated to exercise the VoiceStream Exchange Rights. The parties further
acknowledge and agree that, as of this date, Cook Inlet has received a portion
of the value of the WWC Exchange Rights in cash pursuant to the transactions
described in Article II hereof, although it has not and will not exercise the
WWC Exchange Rights and may never exercise the VoiceStream Exchange Rights. In
light of the foregoing, the parties agree that if Cook Inlet fails to timely
exercise the VoiceStream Exchange Rights pursuant to Article III, then upon and
from the receipt by Cook Inlet of cash proceeds from a Sale Transaction (as
defined below), Cook Inlet shall immediately pay in cash to WWC the lesser of:
(a) Five Million Dollars ($5,000,000); or
(b) the amount of proceeds equal to the total amount of cash
distributions from the Limited Partnership and Control Group to
which Cook Inlet or any subsidiary, parent or Affiliate thereof
is entitled as a result of the Sale Transaction, provided that
in calculating such amount, no distributions of income or other
distributions relating to the ownership and operation of the
Limited Partnership's business, assets and/or FCC licenses shall
be included.
A "Sale Transaction" shall mean any sale, transfer, disposition or
conveyance (or series of related or unrelated sales, etc.), directly or
indirectly, by the Limited Partnership or any subsidiary, parent or Affiliate
thereof, of all or substantially all of its assets and the FCC licenses that
allow and comprise the wireless telecommunications systems directly or
indirectly owned by the Limited Partnership.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 WWC, VoiceStream and Western BTA jointly and severally represent and
warrant to and covenant with Cook Inlet as follows:
(a) VoiceStream is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. VoiceStream and has all requisite
corporate power and authority and any necessary governmental approval to own,
lease and operate its properties and to carry on its business as now being
conducted or as proposed to be conducted following the Spin-Off (as defined in
subparagraph (e) below). VoiceStream is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the character of the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary. VoiceStream has provided
to Cook Inlet accurate and complete copies of its Certificate of Incorporation
and Bylaws as currently in effect.
(b) As of the date hereof, the authorized capital stock of VoiceStream consists
of 50,000 shares of VoiceStream Common Stock, $0.001 par value, of which 12,484
shares are currently issued and outstanding, and 10,000 shares of VoiceStream
Preferred Stock, $0.001 par value, of which none is currently issued and
outstanding. WWC owns 10,000 shares of VoiceStream Common Stock and Hutchinson
Telecommunications PCS (USA) Limited owns 2,484 shares of VoiceStream Common
Stock. No other capital stock of VoiceStream is authorized or issued. All issued
and outstanding shares of VoiceStream Common Stock are duly authorized, validly
issued, fully paid and non-assessable and free of preemptive or similar rights.
As of the date hereof, there are no outstanding rights, subscriptions,
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warrants, puts, calls, unsatisfied preemptive rights, options or other
agreements of any kind relating to any of the VoiceStream Common Stock, and
there is no authorized or outstanding security of any kind convertible into or
exchangeable for any such VoiceStream Common Stock.
(c) VoiceStream has made available to Cook Inlet true and complete
copies of its most recent audited financial statements and unaudited interim
financial statements (the "VoiceStream Historical Financial Statements"), copies
of which are attached hereto as Exhibit A. The VoiceStream Historical Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and present fairly, in all material respects, the
consolidated financial position of VoiceStream as at the dates thereof and the
results of its operations and cash flows for the periods then ended subject, in
the case of the unaudited interim financial statements, to normal year-end audit
adjustments. Except as disclosed in writing to Cook Inlet, since December 31,
1997, VoiceStream has conducted and will conduct its business only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (i) any material adverse effect on the business,
assets, financial condition, liabilities or results of operations of
VoiceStream, (ii) any material damage or loss to any material asset or property
not covered by insurance, (iii) any change in accounting principles or
practices, (v) any revaluation of any material assets or liabilities other than
in the ordinary course of business or (vi) any entry by VoiceStream into any
commitment or transactions material to VoiceStream (other than commitments or
transactions entered into in the ordinary course of business).
(d) WWC currently is contemplating making a distribution of all of the
shares of VoiceStream stock owned by it to the holders of its Class A Common
Stock and Class B Common Stock (the "Spin-Off"), subject to approval of the
Board of Directors of WWC and other applicable approvals, and provided it
receives an acceptable ruling from the Internal Revenue Service of its request
dated September 28, 1998, as supplemented, relating to the Spin-Off. VoiceStream
currently owns, and at the time of the Spin-Off will own, materially all of the
assets, contracts, licenses and rights relating to the PCS business owned by WWC
and its subsidiaries and affiliates.
6.2 Cook Inlet, WWC, VoiceStream and Western BTA represent and warrant
to, and covenant with and among, each other as follows:
Each party has all requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by such party's Board
of Directors and no other corporate proceedings on the part of such party or its
stockholders are necessary to authorize the execution and delivery of this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by such party and constitutes
the legal, valid and binding agreement of such party, enforceable against it in
accordance with the terms of this Agreement. No consent, approval, waiver or
authorization of, notice to or declaration or filing with any governmental
entity or authority is required in connection with the execution, delivery or
performance by such party of this Agreement or the consummation by it of the
transactions contemplated hereby.
ARTICLE VII
MISCELLANEOUS
7.1 Entire Agreement; Amendment. This Agreement and the Organization and
Financing Agreement referenced herein embody the complete agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the
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subject matter hereof in any way. This Agreement may be amended only by an
instrument executed by each of the parties hereto.
7.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned or delegated by any of the parties hereto without
the prior written consent of the other parties hereto.
7.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement; provided that the parties shall, in good faith, negotiate
fair market-based compensation to any party which loses rights hereunder
pursuant to such interpretation.
7.4 Savings Clause. Notwithstanding anything in this Agreement to the
contrary, if the possession or exercise of any right of the parties set forth in
this Agreement would cause the Partnership to violate any applicable laws,
including, without limitation, any FCC Rules, as in effect from time to time, or
result in an adverse regulatory action or ruling by the FCC, such right shall be
deemed not to exist; provided that the parties shall, in good faith, negotiate
fair market-based compensation to any party which loses any right hereunder
pursuant to such right being deemed not to exist.
7.5 Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement and the exhibits and schedules hereto shall
be governed by the internal law, and not the law of conflicts, of Delaware.
7.6 Notices. All notices, demands or other communications to be
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (a) when delivered personally to
the recipient; (b) two business days after being sent to the recipient by
reputable express courier service (charges prepaid); (c) five business days
after being mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid; and (d) when acknowledged by the
recipient if given by facsimile transmission. Such notices, demands and other
communications shall be sent to each party at the respective addresses indicated
below:
If to Western BTA, WWC
or VoiceStream: 3650 131st Avenue SE
Bellevue, WA 98006
Attention: General Counsel
Facsimile: (425) 586-8090
With a copies in each case to: G. Scott Greenburg
Preston Gates & Ellis
701 Fifth Avenue, Suite 5000
Seattle, WA 98104-7078
Facsimile: (206) 623-7022
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If to Cook Inlet : Cook Inlet Telecommunications, Inc.
2525 "C" Street
Anchorage, Alaska 99503
Attn: Craig Floerchinger
Facsimile: (907) 263-5181
With a copy in each case to: Mark W. Kroloff, General Counsel
Cook Inlet Region, Inc.
2525 "C" Street
Anchorage, Alaska 99503
Facsimile: (907) 263-5182
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7.7 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a Section of this Agreement.
7.8 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
7.9 Effectiveness of Organization and Financing Agreement, Limited
Partnership Agreement and Technical Services Agreement. Except as modified by
this Agreement, all respective provisions of the Organization and Financing
Agreement, the Limited Partnership Agreement and the Technical Services
Agreement are unchanged and remain in full force and effect and are ratified and
confirmed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
WESTERN PCS BTA I CORPORATION COOK INLET TELECOMMUNICATIONS, INC.
By /s/ CREGG BAUMBAUGH By /s/ CRAIG FLOERCHINGER
-------------------------------- ---------------------------------------
Its Senior Vice President Its Authorized Officer
------------------------------- --------------------------------------
WESTERN WIRELESS CORPORATION VOICESTREAM WIRELESS CORPORATION
By /s/ CREGG BAUMBAUGH By /s/ CREGG BAUMBAUGH
-------------------------------- ---------------------------------------
Its Senior Vice President Its Senior Vice President
------------------------------- --------------------------------------
-9-
<PAGE> 1
EXHIBIT 10.32
EXCHANGE RIGHTS ACQUISITION AND GRANT AGREEMENT
THIS EXCHANGE RIGHTS ACQUISITION AND GRANT AGREEMENT (this "Agreement")
is entered into and effective as of this 19th day of January, 1999, by and among
WESTERN PCS BTA I CORPORATION, a Delaware corporation ("Western BTA"), WESTERN
WIRELESS CORPORATION, a Washington corporation ("WWC"), SSPCS CORPORATION, a
Delaware corporation ("SSPCS"), and VoiceStream Wireless Corporation, a Delaware
corporation ("VoiceStream").
RECITALS
(i) Western BTA, WWC, and SSPCS are parties to that certain PCS Block
"C" Organization and Financing Agreement dated November 5, 1995, as amended by
amendments dated April 8, 1996 (the "First Amendment"), June 27, 1996 (the
"Second Amendment"), and July 30, 1996 (the "Third Amendment") (together, the
"Organization and Financing Agreement"), whereby the parties thereto specified
certain terms with respect to the organization and financing of Cook Inlet
Western Wireless PV/SS PCS, L.P. (the "Limited Partnership") and operation of
various wireless telecommunications systems, and the terms of various contracts
for use among the parties thereto and others in connection with such
organization, financing, and operations. The other parties to the Organization
and Financing Agreement are: COOK INLET PV/SS PCS PARTNERS, L.P., a Delaware
limited partnership ("Control Group"); COOK INLET TELECOMMUNICATIONS, INC., a
Delaware corporation ("Cook Inlet"); and PROVIDENCE MEDIA PARTNERS L.P., a
Delaware limited partnership ("Providence").
(ii) Control Group and Western BTA are parties to that certain Cook
Inlet Western Wireless PV/SS PCS, L.P. Limited Partnership Agreement dated
November 5, 1996, as amended by the First Amendment, the Second Amendment, and
the Third Amendment (together, the "Limited Partnership Agreement"), whereby the
parties thereto formed the Limited Partnership to apply to the FCC for the right
to participate in the Auction and to bid and acquire Licenses, as such terms are
defined therein.
(iii) Pursuant to the Organization and Financing Agreement, each of Cook
Inlet, SSPCS and Providence is (a) defined to be a Control Group Partner with
Partnership Interests (as defined therein) in Control Group, and (b) is
therefore granted certain rights ("WWC Exchange Rights") to exchange its
ownership rights in its Partnership Interest in Control Group for shares of WWC
common stock in certain circumstances.
(iv) SSPCS desires to sell and WWC desires, in conjunction with
VoiceStream, to acquire for cancellation, the WWC Exchange Rights of SSPCS for
consideration consisting of cash from WWC and a grant of new exchange rights by
VoiceStream.
(v) The parties desire to set forth the full terms of their agreement
respecting the same in this written contract.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
ALL WORDS CAPITALIZED HEREIN AND NOT DEFINED SHALL HAVE THE MEANINGS
GIVEN THEM IN THE ORGANIZATION AND FINANCING AGREEMENT.
Otherwise, for purposes of this Agreement, the following terms have the
meanings set forth below.
"VoiceStream" means VoiceStream Wireless Corporation, a Delaware
corporation and its successors and assigns.
"VoiceStream Common Stock" means the common stock, $0.001 par value, of
VoiceStream.
"VoiceStream Organic Change" means any recapitalization, reorganization,
reclassification, spin-off, split-off, extraordinary dividend or distribution,
consolidation or merger with another Person of VoiceStream, or any successor(s)
thereto, or sale of all or substantially all, in any or a series of
transactions, of the assets or stock of VoiceStream, or any successor(s)
thereto, to another Person, or other transaction involving VoiceStream, or any
successor(s) thereto, which is effected in such a manner that holders of
VoiceStream Common Stock, or of stock or other interests in any of the
respective successors to VoiceStream as the case may be, are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets or
other consideration with respect to or in exchange for such stock or interests.
ARTICLE II
PURCHASE OF WWC EXCHANGE RIGHTS
WWC and VoiceStream hereby purchase from SSPCS, and SSPCS hereby sells
to WWC and VoiceStream, all of SSPCS's right, title and interest in and to the
WWC Exchange Rights for the following consideration:
(a) the sum of Two Million Dollars ($2,000,000), payable in cash
simultaneously with the execution of this Agreement; and
(b) the grant to SSPCS of the rights ("VoiceStream Exchange Rights") to
exchange ownership rights in its Partnership Interest in Control Group for Voice
Stream Common Stock, which VoiceStream Exchange Rights are hereby granted. The
terms and conditions of the VoiceStream Exchange Rights are set forth in Article
III hereof.
ARTICLE III
VOICESTREAM EXCHANGE RIGHTS
3.1 Exchange Rights. The VoiceStream Exchange Rights shall be
exercisable (a "VoiceStream Exchange") by SSPCS only on the following terms and
only during the thirty (30) day exchange period beginning on April 27, 2002, and
ending at 5:00 p.m. pacific time on May 26, 2002, (the "SSPCS Exchange Period")
in accordance with the following:
(a) SSPCS may elect to exchange all, but not less than all, of
the ownership rights in its Partnership Interest in Control Group for twenty
(20) shares of VoiceStream Common Stock.
-2-
<PAGE> 3
(b) To cause a VoiceStream Exchange, SSPCS shall deliver an
irrevocable written notice of the same (an "Exchange Notice") to VoiceStream
during the SSPCS Exchange Period; provided that, if as of the end of the SSPCS
Exchange Period SSPCS has failed to so deliver said notice, the VoiceStream
Exchange Rights of SSPCS (pursuant to this Agreement) shall then immediately
terminate.
(c) The WWC Exchange Rights of SSPCS set forth in the
Organization and Financing Agreement are upon execution hereof deemed cancelled
and are null and void, and SSPCS shall have no further right or obligation in
respect of the Exchange Rights or any other part or provision of Article III of
the Organization and Financing Agreement as set forth therein, and the parties
agree that this Agreement shall supersede such Article III.
(d) Western BTA, WWC, VoiceStream and SSPCS agree to structure,
to the extent reasonably possible, the VoiceStream Exchange for SSPCS in a way
that is tax free to each of SSPCS and to Western BTA, WWC, and VoiceStream and
such structure may include a stock exchange that includes the stock of a special
purpose corporation holding the Partnership Interest of SSPCS in the Control
Group; provided, however, that in doing so there are no negative tax or
accounting attributes of such a VoiceStream Exchange that adversely impact
Western BTA, WWC, or VoiceStream to a greater extent than would be experienced
in a direct exchange for a Partnership Interest (other than the receipt of a
carry over basis due to the tax free nature of the transaction), as determined
in utmost good faith by Western BTA in its reasonable discretion. If SSPCS
desires such a tax free structure, it shall be a special purpose corporation. A
"special purpose corporation" shall mean a corporation formed for the purpose of
holding an interest in the Control Group.
(e) If Western BTA, WWC, or VoiceStream in connection with the
VoiceStream Exchange, directly acquires a Partnership Interest, Western BTA,
WWC, or VoiceStream, as the case may be, shall take all actions necessary to
satisfy the applicable requirements of Section 12.6 of the limited partnership
agreement of Control Group.
(f) Upon receipt of an Exchange Notice during the Exchange
Period, and if VoiceStream Common Stock is listed or admitted for trading on the
NASDAQ National Market System or the New York Stock Exchange, then Western BTA
and VoiceStream agree that VoiceStream shall issue to SSPCS, as soon as
reasonably practicable but in any event no later than sixty (60) days following
delivery of the Exchange Notice (the "Outside Delivery Date"), twenty (20)
shares of VoiceStream Common Stock provided that at the time of such issuance
(i) such shares will be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all liens, claims and encumbrances or
preemptive or similar rights, (ii) such shares are delivered in compliance with
Federal and state securities laws, (iii) such shares are subject to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of such shares by SSPCS (the
"Registration Statement") from time to time in negotiated transactions, in
market transactions or otherwise and (iv) such shares are registered or
qualified for offer of sale by SSPCS under the securities or blue sky laws of
such States as SSPCS shall reasonably request. VoiceStream covenants and agrees
that it shall (x) prepare and file with the Securities and Exchange Commission
such amendments as may be necessary to keep the Registration Statement effective
until the earlier of the date all of such shares have been sold by SSPCS, the
date all of such shares are freely tradable without registration or restriction
(under Rule 144(k) promulgated under the Securities Act or otherwise), but not
before the expiration of the 90-day period referred to in Section 4(3) of the
Securities Act and Rule 174 promulgated thereunder, (y) cause each such state
securities or blue sky registration or qualification to remain effective during
the period the Registration Statement is required to be kept effective
hereunder, and (z) cause the shares covered by such Registration Statement, by
the date of the first sale by SSPCS thereunder, to be listed or admitted for
trading on each securities exchange (or, if applicable, the NASDAQ national
market system) on which VoiceStream Common Stock is then listed or admitted for
trading.
-3-
<PAGE> 4
(g) In the event that VoiceStream Common Stock is not listed or
admitted for trading on the NASDAQ National Market System or the New York Stock
Exchange, then Article IV shall apply.
3.2 Increase or Combination of Common Stock.
At any time prior to the date VoiceStream Common Stock is issued to
SSPCS in accordance with this Agreement, if at any time VoiceStream (a) pays a
dividend or makes a distribution in shares of its capital stock or securities
convertible or exchangeable for shares of its capital stock, (b) issues by
reclassification, or (c) subdivides (by any stock split, recapitalization or
otherwise) one or more classes of its outstanding shares of VoiceStream Common
Stock into a greater number of shares, the number of shares of VoiceStream
Common Stock to be issued pursuant to Section 3.1 immediately prior to such
increase shall be adjusted proportionately, and if VoiceStream at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of VoiceStream Common Stock into a smaller number of shares,
the number of shares of VoiceStream Common Stock issuable to SSPCS on a
VoiceStream Exchange immediately prior to such combination shall be adjusted
proportionately to allow SSPCS the full benefit and effect of the increase or
combination as if the VoiceStream Exchange had occurred immediately prior to the
increase or combination, as the case may be.
3.3 Reorganization, Reclassification, Consolidation, Merger or Sale.
At any time prior to the date VoiceStream Common Stock is issued to
SSPCS in accordance with this Agreement, prior to the consummation of each
VoiceStream Organic Change, VoiceStream shall make appropriate provisions (in
form and substance reasonably satisfactory to SSPCS) to insure that SSPCS
thereafter shall have the right to exchange for and receive, in lieu of or in
addition to (as the case may be) the shares of VoiceStream Common Stock
immediately theretofore acquirable and receivable upon a VoiceStream Exchange,
such shares of stock, securities or assets or other consideration as SSPCS would
have received in connection with such VoiceStream Organic Change if SSPCS had
effected the VoiceStream Exchange immediately prior to such VoiceStream Organic
Change. In the event of each VoiceStream Organic Change, VoiceStream shall also
make appropriate provisions (in form and substance reasonably satisfactory to
SSPCS) to insure that SSPCS continues to have the benefit of this Section 3.3
thereafter. VoiceStream shall not effect any VoiceStream Organic Change unless
prior to the consummation thereof, the successor corporation (if other than
VoiceStream) resulting from consolidation or merger or the Person purchasing
such stock or assets assumes by written instrument (in form reasonably
satisfactory to SSPCS) the obligation to deliver to SSPCS such shares of stock,
securities or assets or other consideration as, in accordance with the foregoing
provisions, SSPCS may be entitled to acquire.
3.4 Recapture of Bidding Credits and Acceleration of FCC Loans. In the
event that a VoiceStream Exchange results in either (a) the recapture by the FCC
of any bidding credits or other discounts received by Applicant with respect to
the award of Licenses in connection with the Auction, or (b) the acceleration of
any obligation or debt owed to the FCC in connection with the Auction, the
Applicant solely shall be liable to the FCC for such amounts.
-4-
<PAGE> 5
ARTICLE IV
VOICESTREAM EXCHANGE RIGHTS IF
VOICESTREAM COMMON STOCK IS NOT LISTED
4.1 If VoiceStream Common Stock is Not Delivered in Accordance with
Section 3.1(f). If Western BTA and VoiceStream are unable pursuant to Section
3.1 above, upon a VoiceStream Exchange, to deliver, in accordance with Section
3.1(f), shares of VoiceStream Common Stock prior to the Outside Delivery Date,
WWC, Western BTA and VoiceStream jointly and severally agree that WWC shall
issue, prior to the Outside Delivery Date, in lieu of the VoiceStream Common
Stock, and SSPCS agrees to accept, in full satisfaction of the obligation to
deliver VoiceStream Common Stock: (i) 77,326 shares of WWC Class A Common Stock,
and (ii) a cash payment in the amount of Six Hundred Thousand Dollars
($600,000). The shares of WWC Class A Common Stock to be issued pursuant to this
Section 4.1 shall be subject to the same requirements, and WWC shall be bound by
the same covenants, as those set forth in Section 3.1(f) hereof, substituting
WWC for VoiceStream thereunder. It shall be a breach of this Agreement by WWC,
Western BTA and Voice Stream if WWC Class A Common Stock is not listed or
admitted for trading on the NASDAQ National Market System or the New York Stock
Exchange at the time of issuance hereunder to SSPCS, or if such shares are not
delivered to SSPCS in accordance with the requirements of Section 3.1(f)
(substituting WWC for VoiceStream thereunder) prior to the Outside Delivery
Date.
4.2 Increase or Combination of Common Stock. At any time prior to the
date VoiceStream Common Stock or WWC Class A Common Stock, as the case may be,
is issued to SSPCS in accordance with this Agreement, if at any time WWC (a)
pays a dividend or makes a distribution in shares of its capital stock or
securities convertible or exchangeable for shares of its capital stock, (b)
issues by reclassification, or (c) subdivides (by any stock split,
recapitalization or otherwise) one or more classes of its outstanding shares of
WWC Common Stock into a greater number of shares, the number of shares of WWC
Common Stock to be issued pursuant to Section 4.1 above immediately prior to
such increase shall be adjusted proportionately, and if WWC at any time combines
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of WWC Common Stock into a smaller number of shares, the number of shares
of WWC Common Stock to be issued pursuant to Section 4.1 above immediately prior
to such combination shall be adjusted proportionately, in each case to allow to
SSPCS the full benefit and effect of the increase or combination as if the
Partnership Interest of SSPCS had been exchanged for WWC Common Stock
immediately prior to the increase or combination, as the case may be.
4.3 Reorganization, Reclassification, Consolidation, Merger or
Sale. At any time prior to the date VoiceStream Common Stock or WWC Class A
Common Stock, as the case may be, is issued to SSPCS in accordance with this
Agreement, prior to the consummation of each Organic Change, WWC shall make
appropriate provisions (in form and substance reasonably satisfactory to SSPCS)
to insure that SSPCS thereafter shall have the right to exchange for and
receive, in lieu of or in addition to (as the case may be) the shares of WWC
Common Stock immediately theretofore acquirable and receivable pursuant to
Section 4.1 above, such shares of stock, securities or assets or other
consideration as SSPCS would have received in connection with such Organic
Change if SSPCS had effected the VoiceStream Exchange immediately prior to such
Organic Change. In the event of each Organic Change, WWC shall also make
appropriate provisions (in form and substance reasonably satisfactory to SSPCS)
to insure that SSPCS will continue to have the benefit of this Section 4.3
thereafter. WWC shall not effect any Organic Change unless prior to the
consummation thereof, the successor corporation (if other than WWC) resulting
from consolidation or merger or the Person purchasing such stock or assets
assumes by written instrument (in form reasonably satisfactory to SSPCS) the
obligation to deliver to SSPCS such shares of stock, securities or assets or
other consideration as, in accordance with the foregoing provisions, SSPCS may
be entitled to acquire.
-5-
<PAGE> 6
ARTICLE V
SHARING OF PROCEEDS OF SALE TRANSACTIONS
The parties acknowledge that SSPCS was under no obligation to exercise
the WWC Exchange Rights and agree that SSPCS is not hereunder obligated to
exercise the VoiceStream Exchange Rights. The parties further acknowledge and
agree that, as of this date, SSPCS has received a portion of the value of the
WWC Exchange Rights in cash pursuant to the transactions described in Article II
hereof, although it has not and will not exercise the WWC Exchange Rights and
may never exercise the VoiceStream Exchange Rights. In light of the foregoing,
the parties agree that if SSPCS fails to timely exercise the VoiceStream
Exchange Rights pursuant to Article III, then upon and from the receipt by SSPCS
of cash proceeds from a Sale Transaction (as defined below), SSPCS shall
immediately pay in cash to WWC the lesser of:
(a) Two Million Dollars ($2,000,000); or
(b) the amount of proceeds equal to the total amount of cash
distributions from the Limited Partnership and Control Group to
which SSPCS or any subsidiary, parent or Affiliate thereof is
entitled as a result of the Sale Transaction, provided that in
calculating such amount, no distributions of income or other
distributions relating to the ownership and operation of the
Limited Partnership's business, assets and/or FCC licenses shall
be included.
A "Sale Transaction" shall mean any sale, transfer, disposition or
conveyance (or series of related or unrelated sales, etc.), directly or
indirectly, by the Limited Partnership or any subsidiary, parent or Affiliate
thereof, of all or substantially all of its assets and the FCC licenses that
allow and comprise the wireless telecommunications systems directly or
indirectly owned by the Limited Partnership.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 WWC, VoiceStream and Western BTA jointly and severally represent and
warrant to and covenant with SSPCS as follows:
(a) VoiceStream is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. VoiceStream and has all requisite
corporate power and authority and any necessary governmental approval to own,
lease and operate its properties and to carry on its business as now being
conducted or as proposed to be conducted following the Spin-Off (as defined in
subparagraph (e) below). VoiceStream is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the character of the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary. VoiceStream has provided
to SSPCS accurate and complete copies of its Certificate of Incorporation and
Bylaws as currently in effect.
(b) As of the date hereof, the authorized capital stock of VoiceStream consists
of 50,000 shares of VoiceStream Common Stock, $0.001 par value, of which 12,484
shares are currently issued and outstanding, and 10,000 shares of VoiceStream
Preferred Stock, $0.001 par value, of which none is currently issued and
outstanding. WWC owns 10,000 shares of VoiceStream Common Stock and Hutchinson
Telecommunications PCS (USA) Limited owns 2,484 shares of VoiceStream Common
Stock. No other capital stock of VoiceStream is authorized or issued. All issued
and outstanding shares of VoiceStream Common Stock are duly authorized, validly
issued, fully paid and non-assessable and free of preemptive or similar rights.
As of the date hereof, there are no outstanding rights, subscriptions, warrants,
puts, calls, unsatisfied preemptive rights, options or other agreements of any
kind relating to any
-6-
<PAGE> 7
of the VoiceStream Common Stock, and there is no authorized or outstanding
security of any kind convertible into or exchangeable for any such VoiceStream
Common Stock.
(c) VoiceStream has made available to SSPCS true and complete copies of
its most recent audited financial statements and unaudited interim financial
statements (the "VoiceStream Historical Financial Statements"), copies of which
are attached hereto as Exhibit A. The VoiceStream Historical Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and present fairly, in all material respects, the
consolidated financial position of VoiceStream as at the dates thereof and the
results of its operations and cash flows for the periods then ended subject, in
the case of the unaudited interim financial statements, to normal year-end audit
adjustments. Except as disclosed in writing to SSPCS, since December 31, 1997,
VoiceStream has conducted and will conduct its business only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been (i) any material adverse effect on the business, assets, financial
condition, liabilities or results of operations of VoiceStream, (ii) any
material damage or loss to any material asset or property not covered by
insurance, (iii) any change in accounting principles or practices, (v) any
revaluation of any material assets or liabilities other than in the ordinary
course of business or (vi) any entry by VoiceStream into any commitment or
transactions material to VoiceStream (other than commitments or transactions
entered into in the ordinary course of business).
(d) WWC currently is contemplating making a distribution of all of the
shares of VoiceStream stock owned by it to the holders of its Class A Common
Stock and Class B Common Stock (the "Spin-Off"), subject to approval of the
Board of Directors of WWC and other applicable approvals, and provided it
receives an acceptable ruling from the Internal Revenue Service of its request
dated September 28, 1998, as supplemented, relating to the Spin-Off. VoiceStream
currently owns, and at the time of the Spin-Off will own, materially all of the
assets, contracts, licenses and rights relating to the PCS business owned by WWC
and its subsidiaries and affiliates.
6.2 SSPCS, WWC, VoiceStream and Western BTA represent and warrant to,
and covenant with and among, each other as follows:
Each party has all requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by such party's Board
of Directors and no other corporate proceedings on the part of such party or its
stockholders are necessary to authorize the execution and delivery of this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by such party and constitutes
the legal, valid and binding agreement of such party, enforceable against it in
accordance with the terms of this Agreement. No consent, approval, waiver or
authorization of, notice to or declaration or filing with any governmental
entity or authority is required in connection with the execution, delivery or
performance by such party of this Agreement or the consummation by it of the
transactions contemplated hereby.
ARTICLE VII
MISCELLANEOUS
7.1 Entire Agreement; Amendment. This Agreement and the Organization and
Financing Agreement referenced herein embody the complete agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way. This Agreement may be amended only by
an instrument executed by
-7-
<PAGE> 8
each of the parties hereto.
7.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned or delegated by any of the parties hereto without
the prior written consent of the other parties hereto.
7.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement; provided that the parties shall, in good faith, negotiate
fair market-based compensation to any party which loses rights hereunder
pursuant to such interpretation.
7.4 Savings Clause. Notwithstanding anything in this Agreement to the
contrary, if the possession or exercise of any right of the parties set forth in
this Agreement would cause the Partnership to violate any applicable laws,
including, without limitation, any FCC Rules, as in effect from time to time, or
result in an adverse regulatory action or ruling by the FCC, such right shall be
deemed not to exist; provided that the parties shall, in good faith, negotiate
fair market-based compensation to any party which loses any right hereunder
pursuant to such right being deemed not to exist.
7.5 Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement and the exhibits and schedules hereto shall
be governed by the internal law, and not the law of conflicts, of Delaware.
7.6 Notices. All notices, demands or other communications to be
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (a) when delivered personally to
the recipient; (b) two (2) business days after being sent to the recipient by
reputable express courier service (charges prepaid); (c) five (5) business days
after being mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid; and (d) when acknowledged by the
recipient if given by facsimile transmission. Such notices, demands and other
communications shall be sent to each party at the respective addresses indicated
below:
If to Western BTA, WWC
or VoiceStream: 3650 131st Avenue SE
Bellevue, WA 98006
Attention: General Counsel
Facsimile: (425) 586-8080
With a copy in each case to: G. Scott Greenburg
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, WA 98104-7078
Facsimile: (206) 623-7022
-8-
<PAGE> 9
If to SSPCS : SSPCS Corporation
3205 Fort Charles Drive
Naples, FL 34102
Attention: Peter Sulick
Facsimile:
With a copy to: Bruce E. Rosenblum
Latham & Watkins
1001 Pennsylvania Avenue N.W.
Suite 1300
Washington, D.C. 20004
Facsimile:
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7.7 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a Section of this Agreement.
7.8 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
7.9 Effectiveness of Organization and Financing Agreement, Limited
Partnership Agreement and Technical Services Agreement. Except as modified by
this Agreement, all respective provisions of the Organization and Financing
Agreement, the Limited Partnership Agreement and the Technical Services
Agreement are unchanged and remain in full force and effect and are ratified and
confirmed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
WESTERN PCS BTA I CORPORATION SSPCS TELECOMMUNICATIONS, INC.
By /s/ GREGG BAUMBAUGH By /s/ PETER SULICK
-------------------------------- ---------------------------------------
Its Senior Vice President Its Treasurer
----------------------------- ------------------------------------
WESTERN WIRELESS CORPORATION VOICESTREAM WIRELESS CORPORATION
By /s/ GREGG BAUMBAUGH By /s/ GREGG BAUMBAUGH
-------------------------------- ---------------------------------------
Its Senior Vice President Its Senior Vice President
----------------------------- ------------------------------------
-9-
<PAGE> 1
EXHIBIT 21.1
WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<S> <C>
VoiceStream PCS Holding LLC Delaware
VoiceStream PCS I LLC Delaware
VoiceStream PCS I License LLC Delaware
VoiceStream PCS II Corporation Delaware
VoiceStream PCS II License Corporation Delaware
VoiceStream PCS III Corporation Delaware
VoiceStream PCS III License Corporation Delaware
PCS Wireless Systems Purchasing Corporation Delaware
VoiceStream PCS BTA Corporation Delaware
VoiceStream PCS I Iowa Corporation Delaware
VoiceStream PCS BTA License Corporation Delaware
VoiceStream PCS BTA I Corporation Delaware
VoiceStream PCS BTA Development Corporation Delaware
VoiceStream SMR Corporation Delaware
VoiceStream PCS LMDS Corporation Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOICESTREAM
WIRELESS CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,057
<SECURITIES> 0
<RECEIVABLES> 30,481
<ALLOWANCES> 5,715
<INVENTORY> 20,182
<CURRENT-ASSETS> 59,398
<PP&E> 770,688
<DEPRECIATION> 151,408
<TOTAL-ASSETS> 1,051,656
<CURRENT-LIABILITIES> 125,026
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0
0
<COMMON> 994,789
<OTHER-SE> (608,159)
<TOTAL-LIABILITY-AND-EQUITY> 1,051,656
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<TOTAL-REVENUES> 167,962
<CGS> 77,071
<TOTAL-COSTS> 372,606
<OTHER-EXPENSES> 49,622
<LOSS-PROVISION> 12,780
<INTEREST-EXPENSE> 34,118
<INCOME-PRETAX> (254,266)
<INCOME-TAX> 0
<INCOME-CONTINUING> (254,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (254,266)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
