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SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. 1)
Check the appropriate box:
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<S> <C>
/X/ Preliminary Information Statement / / Confidential, for Use of the Commission
/ / Definitive Information Statement Only (as permitted by Rule 14c-5(d)(2))
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Western Wireless Corporation
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(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, no par value
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Class B Common Stock, no par value
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(2) Aggregate number of securities to which transaction applies:
76,499,775
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$4.05 -- this amount is based on the book par value per share of
VoiceStream Common Stock at December 31, 1998 and on an estimated
95,505,337 shares of VoiceStream Common Stock issuable in the
Spin-off described herein
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(4) Proposed maximum aggregate value of transaction:
$386,630,000
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(5) Total fee paid:
$77,326
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/X/ Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
INFORMATION
[LOGO] STATEMENT
(80.1% SUBSIDIARY OF WESTERN
WIRELESS CORPORATION)
SPIN-OFF
OF
VOICESTREAM WIRELESS CORPORATION
We are sending this Information Statement to you and all other holders of
Western Wireless common stock in connection with the "spin-off" of our 80.1%
subsidiary, VoiceStream Wireless Corporation. As part of the spin-off, we will
distribute to you one share of VoiceStream common stock for each share of
Western Wireless common stock (Class A or Class B) that you own at the time of
the spin-off. We expect the spin-off to occur at 12:01 a.m. on May 1, 1999.
After the spin-off, VoiceStream will be a separate company, no longer owned in
any way by Western Wireless. Should you have any questions regarding this
Information Statement or the spin-off, please contact the Investor Relations
Department, Western Wireless Corporation, 3650 131st Avenue S.E., Bellevue,
Washington, 98006, at telephone number (425) 586-8700.
In reviewing this Information Statement, you should note the following:
- We are not asking you for a proxy, and we request that you do not send us
a proxy.
- In assessing the impact of the spin-off on you, as a Western Wireless
shareholder, you should review the matters set forth under the caption
"Risk Factors" beginning on page 4.
- Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved our spin-off of VoiceStream. The
Securities and Exchange Commission has not passed upon the fairness or
merits of the spin-off of VoiceStream or upon the accuracy or adequacy of
the information contained in this Information Statement.
Please note that the Board of Directors of Western Wireless has unanimously
approved the spin-off, as it believes that the spin-off is in the best interests
of Western Wireless and its shareholders.
You will not need to pay any consideration or surrender or exchange your
Western Wireless common stock in order to receive your VoiceStream common stock.
After the spin-off distribution, the VoiceStream common stock will be traded on
the Nasdaq Stock Market under the symbol VSTR.
The date of this Information Statement is April , 1999. We mailed this
Information Statement to Western Wireless shareholders on or about April ,
1999.
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TABLE OF CONTENTS
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SUMMARY..................................................... 1
RISK FACTORS................................................ 4
THE SPIN-OFF OF VOICESTREAM WIRELESS CORPORATION............ 10
BUSINESSES OF WESTERN WIRELESS AND VOICESTREAM AFTER THE
SPIN-OFF.................................................. 22
SELECTED VOICESTREAM CONSOLIDATED FINANCIAL DATA............ 40
HISTORICAL PER SHARE DATA................................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF VOICESTREAM.................. 42
DESCRIPTION OF WESTERN WIRELESS AND VOICESTREAM CAPITAL
STOCK..................................................... 49
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............. 52
DOCUMENTS INCORPORATED BY REFERENCE......................... 57
ADDITIONAL INFORMATION...................................... 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
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SUMMARY
The following summary answers certain questions you may have with respect
to Western Wireless' spin-off of VoiceStream and highlights selected information
from this Information Statement that is important to you. We encourage you to
read this entire Information Statement.
Q: WHAT WILL HAPPEN IN THE SPIN-OFF?
A: In the spin-off, Western Wireless will distribute to its shareholders its
80.1% interest in VoiceStream by distributing one share of VoiceStream common
stock for each share of Western Wireless common stock (both Class A and Class
B) owned by a shareholder. After the spin-off, VoiceStream will be a separate
company, no longer owned in any way by Western Wireless.
Q: WHAT IS VOICESTREAM WIRELESS CORPORATION?
A: VoiceStream was formed by Western Wireless in 1994 to participate in Federal
Communications Commission ("FCC") auctions of personal communications
services ("PCS") licenses, and to construct PCS systems in the areas covered
by the licenses acquired in the auctions. VoiceStream was a wholly owned
subsidiary of Western Wireless until February 1998 when a subsidiary of
Hutchison Whampoa Limited, a Hong Kong-based company, invested $248.4 million
to purchase a 19.9% interest in VoiceStream.
Presently, Western Wireless operates VoiceStream as a separate business.
VoiceStream provides PCS services in urban markets in its licensed areas in
the United States using its VoiceStream(R) brand name. VoiceStream maintains
its own centralized management, back office functions and sales force and
operates its own call center.
Q: WHY ARE WE UNDERTAKING THE SPIN-OFF?
A: Western Wireless and VoiceStream operate under different brand names in
distinct segments of the wireless industry, having differences in their
markets and capital requirements and requiring different business plans. Your
Board of Directors believes that separating VoiceStream's urban-focused
digital PCS business from Western Wireless' rural-focused cellular business
will allow each company to more readily expand its business, as well as
pursue strategies and focus on objectives appropriate to its business. For a
more detailed discussion of our reasons for the spin-off, see p. 10. Please
note that neither Western Wireless' business nor VoiceStream's business will
substantially change as a result of the spin-off.
Q: WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN WESTERN WIRELESS' CELLULAR
BUSINESS AND VOICESTREAM'S PCS BUSINESS?
A: Western Wireless' cellular business, which generally deploys analog
technology, is operated in rural areas under the Cellular One(R) brand name
pursuant to cellular licenses issued by the FCC to operate on a portion of
the radio spectrum from 824 to 899 MHz. In contrast, VoiceStream's PCS
business, which exclusively deploys digital technology, is operated in urban
areas under the VoiceStream brand name pursuant to PCS licenses issued by the
FCC to operate on a portion of the radio spectrum from 1850 to 1990 MHz.
Although the basic service offerings of Western Wireless and VoiceStream are
similar, VoiceStream's PCS services include features that are not generally
available through Western Wireless' analog cellular services, such as data
transmission to and from computers, advanced paging services and facsimile
services.
Q: WHAT WILL I RECEIVE IN THE SPIN-OFF?
A: We are making a pro rata distribution to all holders of Class A and Class B
Western Wireless common stock. Accordingly, for every one share of Western
Wireless common stock (Class A or Class B) you own on the effective date of
the spin-off, you will receive one share of VoiceStream common stock. Shortly
after we complete the spin-off, holders of record will receive VoiceStream
stock certificates which represent ownership in VoiceStream.
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Q: DO I HAVE TO PAY FEDERAL INCOME TAXES ON THE RECEIPT OF VOICESTREAM COMMON
STOCK?
A: You will not pay any federal income taxes on receipt of your VoiceStream
common stock. We have received from the Internal Revenue Service (the "IRS")
a ruling that the spin-off will be tax-free to Western Wireless shareholders
for U.S. federal income tax purposes.
Q: WHERE WILL VOICESTREAM COMMON STOCK BE TRADED?
A: VoiceStream common stock will be traded on the Nasdaq Stock Market. The
symbol for VoiceStream common stock will be "VSTR". Western Wireless common
stock will continue to be traded on the Nasdaq Stock Market under the symbol
"WWCA."
Q: WHEN WILL THE SPIN-OFF OCCUR?
A: We intend to complete the spin-off on May 1, 1999, but it could be delayed.
Q: WHAT WILL WESTERN WIRELESS' BUSINESS BE AFTER THE SPIN-OFF?
A: Western Wireless will continue to own and operate rural cellular phone
systems in 17 western states. As of December 31, 1998, Western Wireless had
over 660,000 cellular subscribers under the Cellular One(R) brand name.
Western Wireless will also continue to provide paging services in selected
United States markets and to participate in numerous international
telecommunications operations through joint ventures.
Western Wireless is a Washington corporation. Its principal executive offices
are located at 3650 131st Avenue S.E., Bellevue, Washington 98006, and its
telephone number is (425) 586-8700.
Q: WHAT WILL VOICESTREAM'S BUSINESS BE AFTER THE SPIN-OFF?
A: VoiceStream will be a separate public company continuing to hold PCS licenses
in the United States covering approximately 62.6 million persons. As of
December 31, 1998, VoiceStream had 322,400 PCS subscribers. VoiceStream will
continue to provide PCS services in urban markets within its licensed areas.
VoiceStream's Operations
VoiceStream currently 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. In addition, VoiceStream holds interests in joint
ventures that provide service in Spokane, Tulsa, Wichita and certain markets
in Iowa and will provide service in southern Texas. All of these markets,
including those operated by joint ventures, utilize the
internationally-proven Global System for Mobile Communications ("GSM")
technology. GSM is the world's most widely used digital wireless standard,
with systems operating in approximately 130 countries, serving over 120
million subscribers.
VoiceStream is a Washington corporation. Its principal executive offices
are located at 3650 131st Avenue S.E., Bellevue, Washington 98006, and its
telephone number is (425) 653-4600.
VoiceStream's Operating Strategy
VoiceStream operates 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
maintain and face potential capacity constraints.
VoiceStream's operating strategy is to:
- construct and operate high quality systems with extensive coverage in
urban areas;
- expand operations through increased subscriber growth and usage;
- utilize centralized management and back office functions to improve
operating efficiencies and generate greater economies of scale; and
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- acquire additional PCS licenses in urban markets.
VoiceStream is implementing its strategy by:
- expanding its present systems and building new systems;
- offering a targeted range of products to complement today's business and
personal lifestyles at competitive prices;
- continually upgrading the quality of its network;
- establishing brand recognition through a strong sales and marketing
program; and
- providing a superior level of customer service.
Q: WILL VOICESTREAM COMPETE WITH WESTERN WIRELESS AFTER THE SPIN-OFF?
A: For a period of three years following the spin-off, Western Wireless and
VoiceStream will be prohibited, except in certain designated areas where the
companies presently compete, from competing with each other under a Spectrum
Allocation and Non-Competition Agreement. After three years, the two
companies will be free to compete with each other.
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RISK FACTORS
In assessing the impact of the spin-off on you, as a Western Wireless
shareholder, you should be aware of the following risks relating to the spin-off
and VoiceStream's operations:
VOICESTREAM WILL NO LONGER BE ABLE TO RELY ON WESTERN WIRELESS FOR, OR WHEN
SECURING, ADDITIONAL CAPITAL AND COULD BE FORCED TO CURTAIL SERVICES
Although Western Wireless and VoiceStream have historically operated as
separate entities, as a subsidiary of Western Wireless, VoiceStream had secured
favorable intercompany loans from Western Wireless and had also relied upon the
assets and cash flows of Western Wireless in securing loans from third-parties.
After the spin-off, VoiceStream will not be able to secure inter-company loans
from Western Wireless, nor will it be able to rely on its affiliation with
Western Wireless or Western Wireless' assets and cash flow in securing loans
from others. As discussed below, VoiceStream will need additional capital to
finance continued growth, fund operations, provide for working capital and
service debt. 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 on terms less favorable than those contained in its
current arrangements.
WITHOUT SIGNIFICANT ADDITIONAL CAPITAL, VOICESTREAM WILL NOT BE ABLE TO GROW
During 1999, VoiceStream anticipates spending more than $300 million for
the continued development of its existing PCS systems. VoiceStream will utilize
cash on hand and available credit facilities; however, substantial additional
funds will be required in 1999 and beyond to finance the continued build-out of
its markets, fund operations and provide for working capital and service debt.
VoiceStream continues to consider and expects to pursue additional sources of
funding. Raising such additional funds will require VoiceStream or its
subsidiaries to issue additional debt or equity, and VoiceStream cannot
guarantee that such funds will be available on satisfactory terms or in adequate
amounts to accomplish its objectives. VoiceStream presently carries a
significant level of debt and anticipates that it will incur additional debt and
continue to carry a significant level of debt for an indefinite period of time.
VoiceStream anticipates that this additional debt, like its existing debt, will
have certain restrictions that significantly limit or prohibit, among other
things, the ability of VoiceStream to incur debt, make prepayments of debt, pay
dividends, make investments and sell assets.
SIGNIFICANT COMPETITION IN THE MARKETPLACE MAY HINDER VOICESTREAM'S GROWTH
Competition for wireless subscribers is based principally on the services
and features offered, system quality, customer service, system coverage, system
capacity, and price. VoiceStream competes with providers of PCS, cellular and
other wireless services. Under current FCC rules, up to seven PCS licensees and
two cellular licensees may operate in each geographic area. Competition in
VoiceStream's markets is intense. VoiceStream's principal wireless services
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"). Many of these competitors have
substantially greater financial, technical, marketing, sales and distribution
resources than VoiceStream has, and several operate in multiple segments of the
industry. Several of VoiceStream's competitors, through joint ventures and
affiliation arrangements, operate or plan to operate nationwide wireless systems
throughout the continental United States.
VoiceStream also competes with paging, dispatch and conventional mobile
telephone companies, resellers, and landline telephone service providers. In
addition, Specialized Mobile Radio ("SMR") licensees, including Nextel
Communications, Inc. ("NEXTEL"), operate digital mobile communications systems
using existing SMR frequencies in many cities throughout the United States,
including some of VoiceStream's markets. These systems, referred to as Enhanced
Specialized Mobile Radio ("ESMR"), compete with VoiceStream's systems. Given
rapid advances in the wireless communications industry, there
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is no assurance that new technologies will not evolve that will compete with
VoiceStream's products and services.
LACK OF A CURRENT PUBLIC MARKET FOR VOICESTREAM COMMON STOCK MAKES THE FUTURE
PERFORMANCE OF VOICESTREAM COMMON STOCK DIFFICULT TO PREDICT
There is no current public market for VoiceStream common stock, and we
cannot make any assurance as to the prices at which VoiceStream common stock
will trade after the spin-off. Until VoiceStream common stock is distributed and
an orderly market develops, the price at which VoiceStream common stock trades
may fluctuate significantly. VoiceStream common stock will be traded on the
Nasdaq Stock Market under the symbol VSTR.
THE COMBINED TRADING PRICE OF WESTERN WIRELESS AND VOICESTREAM COMMON STOCK
AFTER THE SPIN-OFF IS UNCERTAIN
As a result of the spin-off, you will own shares of Western Wireless and
VoiceStream common stock, both of which will be listed and traded on the Nasdaq
Stock Market. The combined trading price of the Western Wireless and VoiceStream
common stock may be greater than, less than or equal to the trading price of
Western Wireless common stock immediately prior to the spin-off.
VOICESTREAM HAS A LIMITED OPERATING HISTORY WITH OPERATING LOSSES AND NEGATIVE
CASH FLOW AND MAY NOT BECOME PROFITABLE
VoiceStream sustained operating losses of approximately $204.6 million in
1998, $196.9 million in 1997 and $81.8 million in 1996. At December 31, 1998,
VoiceStream had an accumulated deficit of $608.2 million and equity (net of the
accumulated deficit) of $386.6 million. VoiceStream expects to incur significant
operating losses and to generate negative cash flow from operating activities
during the next several years while it develops and constructs its systems and
builds a subscriber base. VoiceStream cannot assure you that it will achieve or
sustain profitability or positive cash flow from operating activities in the
future or that it will generate sufficient cash flow to service its current or
future debt requirements.
LACK OF NATIONAL GSM COVERAGE MAY HINDER VOICESTREAM'S GROWTH
FCC technical standards for analog cellular systems assure nationwide
compatibility between all cellular carriers and handsets. There is, however, no
required nationwide technology standard for PCS operations. Accordingly, each
PCS licensee is free to select among several competing, currently incompatible
technologies. VoiceStream uses the GSM technical standard in its markets.
In order for VoiceStream's subscribers to roam in other markets, either at
least one PCS licensee in the other market must use the GSM standard, or
subscribers must use dual-mode handsets compatible with a cellular system in the
other market. Dual-mode handsets are more expensive than single-mode handsets.
The comparatively higher cost, or the potential lack of consumer acceptance of
such handsets, may prevent VoiceStream from retaining current subscribers or
attracting new subscribers. VoiceStream and other PCS licensees who use GSM
systems own licenses covering markets which represent over 90% of the U.S.
population, as contrasted with PCS licensees who use other technology standards
and own licenses that cover substantially all of the U.S. population.
VoiceStream cannot assure you that PCS licensees who use GSM systems will
successfully build out their markets, that those who currently utilize GSM will
continue to use GSM, or that available licenses will be awarded to licensees who
will build GSM systems. Accordingly, GSM systems may cover less of the U.S.
population than competing standards.
VoiceStream's principal PCS competitors use standards other than GSM. As a
result, VoiceStream's subscribers may not be able to conveniently use PCS
services while roaming in areas outside its markets. US West and Sprint PCS use
PCS systems based on the Code Division Multiple Access ("CDMA") standard. AT&T
Wireless and Southwestern Bell Wireless ("Southwestern Bell") use PCS systems
based on the Time Division Multiple Access ("TDMA") standard. CDMA providers,
including competitors in
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several of VoiceStream's markets, own licenses covering approximately 100% of
the U.S. population. TDMA providers own licenses covering over 96% of the U.S.
population. Certain major metropolitan areas (including Chicago and Dallas) may
not be served by GSM providers unless licenses covering those areas are awarded
to a GSM provider in certain upcoming FCC reauctions. There may also be delays
in deploying GSM systems in other markets due to the financial constraints of
certain GSM service providers. Accordingly, VoiceStream may have difficulty
establishing a subscriber base and competing successfully with providers
offering a larger coverage foot print or more extensive roaming capabilities.
VOICESTREAM IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, ANY CHANGE IN WHICH
COULD AFFECT ITS BUILD-OUT PLAN OR FINANCIAL PERFORMANCE
The licensing, construction, operation, acquisition and sale of wireless
systems is regulated by the FCC. Changes in the regulation of such activities,
including the issuance of new licenses, could adversely effect VoiceStream's
operations.
All PCS licenses are granted for a 10-year period. At the end of such
period the licensee must apply for renewal. Licenses may be revoked by the FCC
at any time for cause. All 30 MHz PCS licenses must be substantially built out
within ten years after grant of the license. VoiceStream cannot assure you that
its licenses will be renewed.
VoiceStream must obtain a number of authorizations and permits from, and
are subject to regulation by, certain federal, state and local governments.
Certain operating costs are also affected by governmental actions that are
beyond VoiceStream's control. VoiceStream cannot assure you that it will be able
to obtain and retain all necessary governmental authorizations and permits.
VoiceStream's failure to do so could negatively affect its existing operations
and delay or prohibit proposed operations.
The wireless communications industry is also subject to continually
evolving regulation regarding issues such as the effect of wireless
communications equipment on medical equipment and devices, cancer, and the
interference between types of wireless systems. VoiceStream may be required to
modify its business plans or operations as new regulations arise. VoiceStream
cannot assure you that it will be able to do so in a cost effective manner, if
at all.
VOICESTREAM'S LOSS OF ANY MEMBER OF ITS MANAGEMENT TEAM COULD AFFECT ITS
FINANCIAL PERFORMANCE
VoiceStream is dependent on the services of current management, including
Mr. John W. Stanton as Chairman of the Board and Chief Executive Officer. Mr.
Stanton will also continue to serve in such roles for Western Wireless. Losing
the services of Mr. Stanton or other members of management could have a
significant negative effect on its business. Qualified replacements may be
difficult or impossible to find or retain. An event of default under
VoiceStream's credit facility will occur if Mr. Stanton (or a suitable
replacement) is not the Chairman of VoiceStream's Board of Directors.
THE IRS RULING COULD BE INVALID IF CERTAIN REPRESENTATIONS ARE INCORRECT
On January 28, 1999, Western Wireless received from the IRS a ruling to the
effect that the spin-off would qualify as a tax-free distribution to Western
Wireless and its shareholders under the Internal Revenue Code of 1986 (the
"Code"). The ruling is subject to certain factual representations made by
Western Wireless to the IRS. If such factual representations are incorrect in a
material respect, the ruling could become invalid. Western Wireless is not aware
of any facts that would cause the representations to be incorrect.
If the spin-off were not to qualify as a tax-free distribution, the fair
market value of the shares of VoiceStream received by a Western Wireless
shareholder would be taxable to such shareholder for federal income tax purposes
as follows:
- as a dividend, to the extent paid out of Western Wireless' current and
accumulated earnings and profits allocable to such shareholder;
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- thereafter, as a non-taxable return of capital, to the extent of such
shareholder's tax basis in its Western Wireless shares; and
- thereafter, as capital gain (assuming such shareholder's Western Wireless
Common Stock is held as a capital asset).
In addition, Western Wireless would recognize a capital gain equal to the
difference (if any) between the fair market value of the shares of VoiceStream
distributed and Western Wireless' basis in such shares.
Furthermore, under certain circumstances, Western Wireless may be required
to recognize gain in connection with the spin-off as a result of future actions
of Western Wireless or VoiceStream, or as a result of certain changes in
ownership of Western Wireless' or VoiceStream's stock. Pursuant to a Tax Sharing
Agreement entered into between Western Wireless and VoiceStream, Western
Wireless and VoiceStream will each be solely responsible for the tax on any such
gain arising from its own actions or a change in the ownership of its stock, and
will equally share responsibility for the tax on any such gain where each of
them has taken an action, or there has been a change in the ownership of each,
giving rise to the tax. Such tax responsibility may discourage certain
transactions involving an actual or potential change of control of VoiceStream,
including transactions in which VoiceStream shareholders might receive a premium
for their shares over the then-prevailing market price.
VOICESTREAM MUST RECEIVE DISTRIBUTIONS FROM ITS SUBSIDIARIES IN ORDER TO SERVICE
ITS DEBT
VoiceStream is a holding company as all of its assets and operations are
held by or conducted through subsidiaries. Accordingly, VoiceStream relies on
dividends from its subsidiaries to service any debt which it may incur. The
payment of dividends by VoiceStream's subsidiaries and their repayment of loans
and advances are subject to statutory, contractual and other restrictions. Such
payments and repayments are also dependent upon the earnings of such
subsidiaries and are subject to various business considerations. VoiceStream's
inability to service its debt may have an adverse effect on the value of its
common stock.
RADIO FREQUENCY EMISSIONS, GSM TECHNOLOGY AND USE OF MOBILE TELEPHONES MAY POSE
HEALTH OR SAFETY CONCERNS
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emissions may discourage the
use of wireless handsets, which would adversely affect VoiceStream's business.
The first phase of a university study funded by the wireless industry found
that digital technologies cause interference with hearing aids in certain
instances. In addition, an industry group has announced that it is gathering
information on possible interference by PCS standards with medical devices. The
findings of studies like these could have an adverse effect on the wireless
industry, VoiceStream's business, or the use of GSM technology. Such findings
could lead to governmental regulations that may have an adverse effect on
VoiceStream's business.
Several states have proposed or enacted legislation which would prohibit
the use and/or possession of a mobile telephone while driving an automobile. If
such legislation is adopted in a substantial number of states and strictly
enforced, it may have an adverse effect on VoiceStream's business.
CERTAIN LITIGATION COULD IMPOSE ADVERSE CONDITIONS UPON VOICESTREAM'S PCS
LICENSES
All of the PCS licenses originally auctioned by the FCC, except certain
licenses returned to the FCC, have been awarded by the FCC. Licensees are
permitted to construct their PCS systems and begin operations. FCC Orders
granting PCS licenses are final and non-appealable; however, a legal challenge
to the validity of portions of the FCC auction is before the FCC. In the event
such challenge is successful, PCS licensees could lose their licenses or have
conditions imposed on them which could negatively affect VoiceStream's business.
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A TAKE-OVER OF VOICESTREAM MAY BE DIFFICULT, IRRESPECTIVE OF WHETHER IT IS
BENEFICIAL TO VOICESTREAM SHAREHOLDERS
VoiceStream anticipates that certain principal shareholders of VoiceStream,
including certain officers and directors of VoiceStream, will beneficially own
56,441,616 shares of outstanding VoiceStream common stock, which will represent
approximately 60% of the outstanding shares of the VoiceStream common stock.
Such shareholders will also be parties to a Voting Agreement. VoiceStream
anticipates that the Voting Agreement will provide that these shareholders will
agree to vote their shares for each other's designees, subject to certain
ownership requirements, and that they will be able to control the election of
the entire Board of Directors. This anticipated voting control and certain
provisions of Washington law affecting acquisitions and business combinations
applicable to VoiceStream may discourage certain transactions involving an
actual or potential change of control of VoiceStream, including transactions in
which VoiceStream shareholders might receive a premium for their shares over the
then-prevailing market price. Such voting control and provisions of Washington
law may also have a depressive effect on the market price for VoiceStream common
stock.
VOICESTREAM'S OPERATIONS MAY BE HARMED IF VOICESTREAM'S OR ITS VENDORS' COMPUTER
PROGRAMS DO NOT FUNCTION PROPERLY IN THE YEAR 2000
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 you 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 letters from all third parties to
determine whether they have accurately assessed the problem and taken corrective
action. VoiceStream cannot assure you that these third parties will have taken
the necessary corrective action prior to the year 2000.
TO EXPAND, VOICESTREAM MUST RELY ON JOINT VENTURES THAT IT DOES NOT CONTROL
Because of the scarcity of available PCS licenses covering U.S. urban
markets, VoiceStream is in large part required to rely on joint ventures that it
does not control in order to expand. There can be no assurance that VoiceStream
will be able to find acceptable joint venture partners, and, due to the lack of
control, there can be no assurance that any such joint venture will operate in a
manner that increases the value of VoiceStream's business.
THIS INFORMATION STATEMENT INCLUDES FORWARD-LOOKING STATEMENTS AND WE CAUTION
YOU NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS
This Information Statement contains statements that are not based on
historical fact, including the words "believes," "anticipates," "intends,"
"expects" and similar words. These statements constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that
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may cause the actual results, events or developments to be significantly
different from any future results, events or developments expressed or implied
by such forward-looking statements. Such factors include:
- general economic and business conditions, both nationally and in the
regions in which VoiceStream operates;
- technology changes;
- competition;
- changes in business strategy or development plans;
- VoiceStream's potentially high level of debt;
- the ability to attract and retain qualified personnel;
- existing governmental regulations and changes in, or the failure to
comply with, governmental regulations;
- liability and other claims asserted against VoiceStream;
- VoiceStream's ability and the ability of its third-party suppliers to
take corrective action in a timely manner with respect to the Year 2000
issue; and
- other factors referenced in this Information Statement, including without
limitation under the captions "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations
of VoiceStream" and "Business of Western Wireless and VoiceStream after
the Spin-off."
GIVEN THESE UNCERTAINTIES, WE CAUTION PROSPECTIVE INVESTORS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. VoiceStream disclaims any
obligation to update any such factors or to publicly announce any revisions to
any of the forward-looking statements contained herein to reflect future
results, events or developments.
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<PAGE> 13
THE SPIN-OFF OF VOICESTREAM WIRELESS CORPORATION
GENERAL
Western Wireless Corporation ("Western Wireless") intends to "spin-off" its
80.1% interest in its subsidiary, VoiceStream Wireless Corporation
(collectively, with its subsidiaries, "VoiceStream"). 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 (the
"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 "-- Management
of VoiceStream Following the Spin-off."
CONDITIONS TO THE SPIN-OFF
The Spin-off is conditioned upon the satisfaction of certain conditions
necessary to consummate the Spin-off. In particular, the VoiceStream Common
Stock to be issued in the Spin-off must be listed on the Nasdaq Stock Market
prior to the Spin-off. Additionally, Western Wireless and VoiceStream must
furnish to the other all documents and certificates, including assignments and
conveyances, necessary to consummate the Spin-off. Western Wireless does not
believe that any material regulatory approvals will be required in connection
with the Spin-off.
Consent of holders of a majority in principal amount of each of Western
Wireless' 10 1/2% Senior Subordinated Notes Due 2006 (the "2006 Notes") and
10 1/2% Senior Subordinated Notes Due 2007 (the "2007 Notes") is required to
consummate the Spin-off. Western Wireless has obtained preliminary indications
from beneficial owners of a majority in principal amount of both the 2006 Notes
and the 2007 Notes that such Owners will so consent.
The Western Wireless Board of Directors has the right to cancel or defer
the Spin-off, in its sole discretion, even if the conditions to the Spin-off are
met.
MANNER OF EFFECTING THE SPIN-OFF
Following the Spin-off, each shareholder of record on the date of the
Spin-off (the "Effective Date") will receive a VoiceStream stock certificate
which represents the VoiceStream Common Stock owned by such shareholder. It is
expected that May 1, 1999 will be the Effective Date. Shareholders that hold
through brokerage and "street name" accounts should expect to receive an account
statement from their brokerage firm reflecting the number of shares of
VoiceStream Common Stock received by such shareholder in the Spin-off. Following
the Spin-off, shareholders who hold through brokerage accounts may request
physical certificates for their shares of VoiceStream Common Stock. Western
Wireless will be required to notify the FCC of full details of the Spin-off
within 30 days after the Effective Date.
No holder of Western Wireless Common Stock will be required to pay any cash
or other consideration for shares of VoiceStream Common Stock received in the
Spin-off or to surrender or exchange shares of Western Wireless Common Stock in
order to receive shares of VoiceStream Common Stock.
REASONS FOR THE SPIN-OFF
Western Wireless and VoiceStream operate under different brand names in
distinct segments of the wireless industry, having differences in their markets
and capital requirements and requiring different business plans. Both companies
believe that separating VoiceStream's urban-focused digital PCS business from
Western Wireless' rural-focused cellular business will allow both companies to
more readily expand
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<PAGE> 14
their respective businesses, as well as pursue strategies and focus on
objectives appropriate to their business.
In connection with its determination to effect the Spin-off, Western
Wireless considered certain factors that weighed against the Spin-off. These
included, among others (i) as one entity the combined geographic area covered by
VoiceStream's PCS systems and Western Wireless' cellular systems would be
substantially greater than the geographic area covered by either of VoiceStream
or Western Wireless as separate entities, and (ii) there would be certain
administrative and other cost savings. Western Wireless determined that these
factors were outweighed by the fact that the Spin-off was necessary in order to
permit VoiceStream to expand its operations.
While it is imperative for VoiceStream to expand its operations in order to
remain competitive, because of the nature and character of the holders of PCS
licenses, there are few licenses available for purchase in urban areas. However,
one significant opportunity for VoiceStream to expand its PCS operations is to
acquire interests in PCS licenses that are reserved for use by a small business
or a specified minority group (a "Designated Entity"). In order to do this,
Western Wireless and VoiceStream must enter into joint ventures with Designated
Entities to make such acquisitions (since neither Western Wireless nor
VoiceStream is itself a Designated Entity). In the past, some joint ventures
have offered the respective Designated Entity the opportunity to make an equity
investment in Western Wireless or VoiceStream. However, recently, Western
Wireless and VoiceStream have encountered situations where the Designated
Entity, desiring an investment in PCS rather than cellular services, requested
publicly traded equity in VoiceStream provided that VoiceStream is not
controlled by Western Wireless. Because VoiceStream needs these Designated
Entities to expand its PCS business, it wishes to accommodate them. The Spin-off
will provide an avenue for such accommodation.
In addition, as a result of a series of auctions of wireless licenses by
the FCC since 1994, the number of wireless service providers has grown from two
wireless providers employing cellular technologies to as many as ten wireless
providers, employing cellular, PCS and other technologies. The result has been
the introduction of substantial new competition into the marketplace, including
several companies that are attempting to develop national wireless telephone
networks based on consistent national technology standards. In the face of
strong downward pressure on calling rates resulting from this new competition,
Western Wireless and VoiceStream must each expand using consistent technology in
order to maintain and improve their cost structures and compete on a
cost-effective basis with the national service providers.
For Western Wireless, the Spin-off eliminates the operating losses
associated with VoiceStream's significant investment in building out new
systems, and positions Western Wireless as a wireless company in a mature
segment of the industry with meaningful net operating income. Additionally,
rather than using its positive net operating income to develop and expand
VoiceStream's business, Western Wireless will be in a position to take advantage
of cellular acquisition opportunities and to fund the international expansion
plans of its subsidiary Western Wireless International Corporation.
RELATIONSHIP BETWEEN VOICESTREAM AND WESTERN WIRELESS PRIOR TO THE SPIN-OFF
Although Western Wireless and VoiceStream have historically operated as
separate companies, prior to the acquisition in February 1998 by Hutchison
Telecommunications PCS (USA) Limited ("Hutchison USA") of a 19.9% interest in
VoiceStream (the "Hutchison Investment"), VoiceStream was a wholly-owned
subsidiary of Western Wireless. As a wholly-owned subsidiary, VoiceStream had
secured favorable intercompany loans from Western Wireless, which loans bore
interest on the long-term advances ranging between 8% and 11.1%. VoiceStream
also relied upon the assets and cash flow of Western Wireless in securing loans
from third parties, and VoiceStream and Western Wireless shared services of
officers, employees and others. The salaries and benefits of such persons and
other centralized general and
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<PAGE> 15
administrative costs and assets were allocated between Western Wireless and
VoiceStream in a manner which reflected the relative time devoted to each of the
operational units.
In connection with the Hutchison Investment Western Wireless converted to
equity a portion of the loans Western Wireless had made to VoiceStream, which
together with its other capital investments in VoiceStream equalled $750 million
at the closing of the Hutchison Investment. VoiceStream also repaid to Western
Wireless $105.4 million of indebtedness owed by VoiceStream to Western Wireless.
In addition, VoiceStream and Western Wireless agreed that neither of them would
have any liability regarding indebtedness of the other and VoiceStream and
Western Wireless entered into their own credit arrangements with a separate
syndicate of banks. Finally, 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. All of these agreements, except the tax sharing agreement, terminate on
the Effective Date.
At the time of the Hutchison 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 issuances by VoiceStream of equity
securities;
(v) Hutchison USA's consent would be required with respect to an
initial public offering of VoiceStream stock during the 18 month period
immediately following the purchase by Hutchison USA of the VoiceStream
shares;
(vi) Hutchison USA will have certain approval rights with respect to
VoiceStream 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 piggyback registration
rights for its shares of VoiceStream Common 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 the closing of the Hutchison
Investment or as 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 USA of the VoiceStream Common Stock, dilution of
Hutchison USA's
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<PAGE> 16
ownership interest in VoiceStream below certain specified levels and certain
mergers and other transactions.
The only rights of Hutchison USA under such shareholder's agreement which
survive the Spin-off are its preemptive rights, its demand and piggyback
registration rights, and Hutchison USA's rights to transfer its right to
designate directors and demand and piggy back registration rights to persons who
acquire from Hutchison USA 50% or more of the shares of VoiceStream Common Stock
purchased by Hutchison USA in the Hutchison Investment.
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).
Effective upon the Spin-off, Hutchison USA and certain other principal
shareholders of VoiceStream will enter into an agreement whereby such
shareholders agree to vote for each other's designees to the Board of Directors
of VoiceStream. See "Voting Securities and Principal Holders
Thereof -- VoiceStream Voting Agreement."
AGREEMENT AND PLAN OF DISTRIBUTION; RELATIONSHIP BETWEEN WESTERN WIRELESS AND
VOICESTREAM AFTER THE SPIN-OFF
VoiceStream and Western Wireless have entered into an Agreement and Plan of
Distribution (the "Distribution Agreement") which, in general, outlines the
anticipated relationship between the two companies after the Spin-off. The
following sets forth a summary of the material terms and provisions of the
Distribution Agreement.
ESTABLISHMENT OF VOICESTREAM BENEFIT AND COMPENSATION PLANS
VoiceStream 401(k) Plan
The Distribution Agreement contemplates that VoiceStream will establish a
defined contribution 401(k) plan (the "VoiceStream 401(k) Plan") substantially
similar to Western Wireless' 401(k) plan presently in effect. The VoiceStream
401(k) Plan will give participants credit for service as Western Wireless
employees. After the Spin-off and the establishment of the VoiceStream 401(k)
Plan, the account balances of participants in the VoiceStream 401(k) Plan will
be transferred from Western Wireless' 401(k) plan to the VoiceStream 401(k)
Plan.
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
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<PAGE> 17
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) and 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 VoiceStream 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). In addition, the vesting
period and expiration date of the New Unvested Western Wireless Options will be
the same as the Unvested Western Wireless Options.
VoiceStream Employees. Each individual who becomes a VoiceStream employee
at the time of the Spin-off who holds 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 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). In addition, the vesting period and
expiration date of the Unvested VoiceStream Options will be the same as the
Unvested Western Wireless Options.
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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.
VoiceStream Restricted Stock Plan
VoiceStream will establish a restricted stock plan (the "VoiceStream
Restricted Stock Plan") substantially similar to Western Wireless' restricted
stock option plan presently in effect. All individuals who hold restricted
Western Wireless Common Stock on the Effective Date, will receive an equal
number of restricted shares of VoiceStream Common Stock in the Spin-off, which
shall be governed by the VoiceStream Restricted Stock Plan.
VoiceStream Stock Purchase Plan
VoiceStream will establish an employee stock purchase plan substantially
similar to Western Wireless's employee stock purchase plan presently in effect.
VoiceStream will fund this plan with VoiceStream Common Stock.
ADMINISTRATIVE SERVICES
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
costs and expenses incurred in providing such services.
PAYMENT OF INSURANCE CLAIMS
Western Wireless currently maintains insurance policies that provide
coverage for each of Western Wireless' business and VoiceStream's business.
Certain of these policies are "claims made" policies and these must be in place
both at the time of occurrence of the insured loss and at the time a resulting
claim is made. In order to ensure continuity of coverage of these "claims made"
policies, Western Wireless will purchase so-called "run-off" coverage for a
minimum time of 3 years following the Spin-off. The responsibility for the
premiums associated with the "run-off" policies shall be shared equally by
Western Wireless and VoiceStream.
Western Wireless and VoiceStream are aware there are and may be a number of
occurrences before the Effective Date involving the activities of VoiceStream's
business for which claims have been or may be made ("Incurred Claims"), and are
aware that additional Incurred Claims involving the activities of VoiceStream's
business may come to light which will result in insurance claims under either
"claims made" or "claims accrued" policies covering the combined businesses.
Western Wireless will promptly notify VoiceStream of any such Incurred Claims
asserted against Western Wireless relating in whole or in part to VoiceStream's
business. VoiceStream will promptly notify Western Wireless of any Incurred
Claims asserted against VoiceStream or the VoiceStream Subsidiaries which
VoiceStream reasonably believes are covered by such policies covering the
combined businesses. VoiceStream will have the responsibility of administering,
defending and settling all such Incurred Claims which relate solely to
VoiceStream's business. VoiceStream and Western Wireless will jointly and
cooperatively administer, defend and settle all such Incurred Claims that relate
to both of VoiceStream's and Western Wireless' businesses. Any self-insured
portion of Incurred Claims and the costs of defending such Incurred Claims shall
be borne by VoiceStream in proportion to the extent to which the Incurred Claim
relates to VoiceStream's business. In connection with Incurred Claims covered by
insurance, Western Wireless will
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<PAGE> 19
promptly transfer to VoiceStream any funds proportionally due to VoiceStream
that are received by Western Wireless in connection with the settlement of
Incurred Claims.
Except for the "run-off" policies described above, Western Wireless and
VoiceStream will each obtain insurance policies relating to its respective
business.
INDEMNIFICATION
Pursuant to the Distribution Agreement, VoiceStream will continue to remain
liable for all liabilities and obligations of VoiceStream and will also assume
any Western Wireless' liabilities, obligations, lawsuits and administrative
investigations relating to or arising from VoiceStream's domestic PCS business
and urban LMDS business (collectively, the "VoiceStream Liabilities"). Western
Wireless will continue to be liable for all the liabilities, obligations,
lawsuits and administrative investigations relating to or arising from all
business of Western Wireless other than VoiceStream's domestic PCS business and
urban LMDS business (collectively, the "Western Wireless Liabilities").
VoiceStream and Western Wireless will each be responsible for its own
"Distribution Liabilities" (defined as expenses, costs, liabilities or
investment tax credit recapture, directly related to the Spin-off) which are
incurred or accrued prior to the Spin-off. Western Wireless and VoiceStream will
share in the same percentage as their respective market capitalizations
determined during the Averaging Period (i) any Distribution Liabilities incurred
or accrued after the Spin-off, and (ii) any liabilities which are not
specifically assumed by either party and are neither VoiceStream Liabilities nor
Western Wireless Liabilities.
VoiceStream will indemnify Western Wireless and its officers, directors,
employees, agents and affiliates from and against any and all losses,
liabilities, claims, damages, costs and expenses arising out of or related in
any manner to the VoiceStream Liabilities and any and all liabilities of Western
Wireless pursuant to any obligations of Western Wireless to the extent the same
have been specifically assumed by VoiceStream in writing. Western Wireless will
indemnify VoiceStream similarly.
USE OF THE "VOICESTREAM" AND "WESTERN WIRELESS" NAMES
Western Wireless will discontinue and cause each of its remaining
subsidiaries to discontinue all use of the name "VoiceStream." VoiceStream will
discontinue and will cause each of its subsidiaries to discontinue all use of
the names "Western Wireless" and "Cellular One." Additionally, each company will
remove the other's name from its name and business as well as from the name and
business of each such subsidiary as promptly as is reasonably practicable.
SPECTRUM ALLOCATION, NON-COMPETITION AND ROAMING
Prior to the Effective Date, Western Wireless and VoiceStream will enter
into a Spectrum Allocation and Non-Competition Agreement whereby for a period of
three years after the 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 telephone
opportunity that is neither cellular nor PCS, they will share such opportunity
on an equal basis, unless they agree to another arrangement; (vi) Western
Wireless agrees that it will not provide or resell wireless telephony services
in any portion of the geographic area in which VoiceStream provides wireless
telephony services, except in any geographic area in which Western Wireless
provides those services on the Effective Date or as otherwise mutually agreed
to; (vii) VoiceStream agrees that it will not provide or resell wireless
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<PAGE> 20
telephony services in any portion of the geographic area in which Western
Wireless provides wireless telephony services, except in any geographic area in
which VoiceStream provides those services on the Effective Date or as otherwise
mutually agreed to; and (viii) Western Wireless and VoiceStream agree not to
solicit each other's employees. Pursuant to a roaming agreement, each of
VoiceStream and Western Wireless will continue to permit the other's customers
to roam on its systems.
OTHER PROVISIONS
The Distribution Agreement also includes provisions relating to: (i)
sharing of occupancy expenses; (ii) allocating liability with respect to pending
litigation and other potentially significant obligations; and (iii)
responsibilities with respect to tax audits and computation of tax adjustments.
TAX SHARING AGREEMENT
Western Wireless and VoiceStream are parties to a Tax Sharing Agreement
which, among other things, provides for payments between Western Wireless and
VoiceStream in respect of the net tax operating losses generated by one company
and its affiliates which are used to offset taxable income generated by the
other company and its affiliates. Pursuant to this agreement, it is anticipated
that VoiceStream will make a payment not to exceed $20,000,000 to Western
Wireless in respect of VoiceStream's net operating losses generated prior to
1997. The actual amount of such payment will be determined in part by Western
Wireless' operating results through the Effective Date.
In addition, pursuant to the Tax Sharing Agreement, Western Wireless has
agreed to be solely responsible for any taxes imposed on it under Section 355(e)
of the Code as a result of (i) any violation of the representations made by it
to the IRS related to the Spin-off, (ii) certain actions taken by it following
the Spin-off, or (iii) changes in its stock ownership. Similarly, VoiceStream
has agreed to be solely responsible for any taxes imposed on Western Wireless
under Section 355(e) of the Code as a result of (i) any violation following the
Spin-off of the representations made concerning it to the IRS related to the
Spin-off, (ii) certain actions taken by it following the Spin-off, or (iii)
changes in its stock ownership. Western Wireless and VoiceStream have agreed to
be equally responsible for any taxes imposed on Western Wireless under Section
355(e) of the Code where each of them has taken an action, or there has been a
change in the stock ownership of each, giving rise to such tax. In addition,
Western Wireless and VoiceStream each has agreed that if it claims a deduction
under the Code with respect to the issuance of stock by the other party pursuant
to the exercise of an employee stock option, it will compensate the other party
for such deduction. Section 355(e) of the Code is discussed under the heading
"Material Federal Income Tax Consequences of the Spin-off."
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<PAGE> 21
MANAGEMENT OF VOICESTREAM FOLLOWING THE SPIN-OFF
After the Spin-off, the following officers and directors shall serve
VoiceStream:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
John W. Stanton.............................. Chairman, Director and Chief Executive
Officer
Robert R. Stapleton.......................... President and Director
Donald Guthrie............................... Vice Chairman and Director
Cregg B. Baumbaugh........................... Executive Vice President -- Finance, Strategy
and Development
Alan R. Bender............................... Executive Vice President, General Counsel and
Secretary
Robert P. Dotson............................. Senior Vice President -- Marketing
Timothy R. Wong.............................. Senior Vice President -- Engineering
Patricia L. Miller........................... Vice President, Controller and Principal
Accounting Officer
John L. Bunce, Jr. .......................... Director
Mitchell R. Cohen............................ Director
Daniel J. Evans.............................. Director
Canning Fok.................................. Director
Jonathan M. Nelson........................... Director
Terence M. O'Toole........................... Director
Hans R. Snook................................ Director
</TABLE>
After the Spin-off, Messrs. Bunce, Cohen, Evans, Nelson, O'Toole and
Stanton will also be directors of Western Wireless. In addition, Mr. Stanton,
and for a transition period following the Spin-off, Messrs. Guthrie and Bender
will also be executive officers of Western Wireless.
BOARD AND SHAREHOLDER APPROVAL; APPRAISAL RIGHTS
The Western Wireless Board of Directors has unanimously approved the
Spin-off after careful consideration. Western Wireless will not hold a meeting
or solicit proxies for the Spin-off, as no approval of the Western Wireless
shareholders is required under Washington law.
Additionally, under Washington law, Western Wireless shareholders have no
right to an appraisal of the value of their shares in connection with the
Spin-off.
OUTSIDE CONSULTANTS
Neither Western Wireless nor VoiceStream has engaged a consultant or other
outside party to prepare a report, opinion or appraisal with respect to the
Spin-off.
ACCOUNTING TREATMENT
As part of the Spin-off, Western Wireless will restate its consolidated
financial statements to reflect VoiceStream as a discontinued operation.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following discussion summarizes the material U.S. federal income tax
consequences of the Spin-off that affect Western Wireless and its shareholders.
This discussion is based on current provisions of the Code, existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. The following discussion
summarizes the material U.S. federal income tax issues raised by the Spin-off
and does not reflect either the special circumstances that may be relevant to a
particular shareholder or the effect of the Spin-off under the tax laws of any
state, local or foreign jurisdiction.
18
<PAGE> 22
On January 28, 1999, Western Wireless received a ruling from the IRS to the
following effect:
- Western Wireless shareholders will not recognize any income, gain or loss
as a result of the Spin-off under Section 355 of the Code.
- The tax basis of the Western Wireless Common Stock and the VoiceStream
Common Stock held by a shareholder after the Spin-off will be the same as
the aggregate tax basis of the Western Wireless Common Stock held by such
shareholder before the Spin-off, allocated between the Western Wireless
Common Stock and the VoiceStream Common Stock in accordance with the fair
market value of such shares.
- The holding period for each share of VoiceStream Common Stock received in
the Spin-off by a Western Wireless shareholder will include the period
during which such holder held the share of Western Wireless Common Stock
with respect to which the VoiceStream Common Stock was distributed,
provided that such share of Western Wireless Common Stock is held as a
capital asset by such shareholder on the Effective Date.
- No gain or loss will be recognized by Western Wireless upon the Spin-off.
The ruling is subject to certain factual representations made by Western
Wireless to the IRS. If such factual representations are incorrect in a material
respect, the ruling could become invalid. Western Wireless is not aware of any
facts which would cause the representations to be incorrect.
In addition, notwithstanding the IRS ruling, in the event that Western
Wireless distributes shares of VoiceStream Common Stock in the Spin-off to
foreign persons, Western Wireless may be required to recognize gain (but not
loss) in respect of the stock distributed to such shareholder. At this time,
Western Wireless anticipates that the gain, if any, required to be recognized as
a result of such a distribution would be substantially offset by the net
operating loss carryovers of Western Wireless.
If the Spin-off were not to qualify as a tax-free distribution, the fair
market value of the shares of VoiceStream Common Stock received by a Western
Wireless shareholder would be taxable to the shareholder as follows: (i) as a
dividend, to the extent paid out of Western Wireless' current and accumulated
earnings and profits allocable to such shareholder, (ii) thereafter, as a
non-taxable return of capital to the extent of such shareholder's tax basis in
its Western Wireless shares, and (iii) thereafter, as capital gain (assuming
such shareholder's Western Wireless Common Stock is held as a capital asset).
The tax basis of the shares of Western Wireless held by Western Wireless
shareholders after the Spin-off would be reduced by the portion of the
distribution, if any, which was treated as a non-taxable return of capital and
the tax basis of the shares of VoiceStream would be equal to their fair market
value on the Effective Date. In addition, Western Wireless would recognize a
capital gain equal to the difference (if any) between the fair market value of
the shares of VoiceStream distributed and Western Wireless' basis in such
shares.
Current Treasury Regulations require each holder of Western Wireless Common
Stock who receives shares of VoiceStream Common Stock pursuant to the Spin-off
to attach to his or her U.S. federal income tax return for the year in which the
Spin-off occurs a statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 to the Spin-off. Shareholders may
detach the statement below under "IRS Code Section 355 Statement" for such
purpose.
Section 355(e) of the Code generally provides that a distribution by a
corporation of the stock of a subsidiary corporation which is otherwise tax-free
will be taxable to the distributing corporation (but not to its shareholders)
under certain circumstances. This provision applies to any distribution that is
part of a plan (or series of related transactions) pursuant to which one or more
persons acquire, directly or indirectly, stock representing a 50 percent or
greater interest (by vote or value) in either such corporation (a "50% Ownership
Shift"). Any 50% Ownership Shift that occurs within the four-year period
beginning two years before the distribution will be presumed to be pursuant to
such a plan or series of related transactions. However, the presumption may be
rebutted by a showing that the distribution and the 50% Ownership Shift are not
part of a plan or series of related transactions.
19
<PAGE> 23
Among the factual representations made by Western Wireless to the IRS in
connection with the ruling received from the IRS is that the Spin-off is not
part of such a plan or series of related transactions. If Western Wireless or
VoiceStream were to undergo a 50% Ownership Shift, particularly as the result of
events occurring within two years after the Effective Date, there can be no
assurance that the IRS would not assert that the Spin-off and such 50% ownership
shift occurred pursuant to a plan or series of related transactions and
therefore that the Spin-off is taxable under Section 355(e) of the Code.
If the Spin-off were taxable under Section 355(e) of the Code, Western
Wireless would recognize capital gain equal to the difference between the fair
market value of the stock of VoiceStream and Western Wireless' adjusted tax
basis in such stock (to the extent not otherwise recognized). The amount of such
gain and the resulting tax liability would depend on the fair market value of
the VoiceStream Common Stock at the time of the Spin-off and could be material.
VoiceStream and Western Wireless have entered into an agreement which allocates
responsibility for any Western Wireless tax liability in the event the Spin-off
does not qualify under Section 355 of the Code (including by reason of the
application of Section 355(e) of the Code).
THE SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH
ABOVE MAY NOT BE APPLICABLE TO SHAREHOLDERS WHO RECEIVED THEIR SHARES OF WESTERN
WIRELESS THROUGH THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES OR WHO ARE
OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. ALL SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
SPIN-OFF TO THEM, INCLUDING THE APPLICABILITY OF STATE, LOCAL AND FOREIGN TAX
LAWS.
20
<PAGE> 24
IRS CODE SECTION 355 STATEMENT (DETACH OR COPY AND ATTACH TO 1999 U.S. TAX
RETURN)
The undersigned, a shareholder owning shares of Western Wireless
Corporation during the 1999 calendar year, received a distribution of stock in a
controlled corporation pursuant to Section 355. The names and addresses of the
corporations involved are Western Wireless Corporation, 3650 131st Avenue S.E.,
Bellevue, Washington, 98006 ("Parent"), and VoiceStream Wireless Corporation,
3650 131st Avenue S.E., Bellevue, Washington, 98006 ("VoiceStream"). No stock or
securities in Parent was surrendered by the undersigned. By letter agreement
dated January 28, 1999, the IRS ruled that the distribution of shares of
VoiceStream by Parent was a non-taxable Section 355 corporate transaction.
--------------------------------------
Shareholder (name and signature)
21
<PAGE> 25
BUSINESSES OF WESTERN WIRELESS AND VOICESTREAM AFTER THE SPIN-OFF
After the Spin-off, Western Wireless and VoiceStream will operate as
separate businesses. Western Wireless will continue to operate domestic cellular
services, paging and competitive local exchange services in select U.S. markets
and international telecommunications operations through joint ventures.
VoiceStream will continue to operate its PCS business in urban areas in the
United States.
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 824 to 899 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."
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 returned to the FCC. 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 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
22
<PAGE> 26
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: GSM, TDMA or 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. See "Risk Factors -- Lack of National GSM Coverage May
Hinder VoiceStream's Growth."
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 WESTERN WIRELESS
Western Wireless operates high quality cellular systems in 17 western
states, serving over 660,000 cellular subscribers under the Cellular One(R)
brand name. To support its rapidly growing subscriber base, Western Wireless
operates and maintains extensive centralized management, back office functions
and a call center in the state of Washington. Western Wireless also operates
paging systems in eight western states serving 35,900 paging customers at
December 31, 1998.
Through international joint ventures, Western Wireless has interests in
(and in certain cases manages) wireless licenses in certain foreign countries,
including Ghana, Iceland, Haiti, Croatia and the Republics of Latvia and
Georgia. In addition, Western Wireless has interests in entities which have made
wireless
23
<PAGE> 27
license applications in certain other foreign countries. A joint venture which
Western Wireless controls has been notified by the Irish Government that it is
the preferred applicant for a DCS-1800/GSM 900 mobile communication license in
Ireland. The license has not yet been issued, as the determination by the Irish
Government is subject to a pending proceeding.
For additional information with respect to Western Wireless' business and
operations, please see the documents incorporated herein by reference. See
"Documents Incorporated by Reference" and "Additional Information."
THE BUSINESS OF VOICESTREAM
GENERAL
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
107 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.
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
24
<PAGE> 28
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.
FORMATION
VoiceStream was formed in 1994 as "Western PCS Corporation" to participate
on behalf of Western Wireless and its shareholders in FCC auctions of various
PCS licenses. It was a wholly owned subsidiary of Western Wireless until the
Hutchison Investment.
VOICESTREAM EMPLOYEES AND LABOR RELATIONS
VoiceStream considers its labor relations to be good and, to VoiceStream's
knowledge, none of its employees is covered by a collective bargaining
agreement. As of December 31, 1998, VoiceStream employed a total of
approximately 1,834 people in the following areas:
<TABLE>
<CAPTION>
NUMBER OF
CATEGORY EMPLOYEES
-------- ---------
<S> <C>
Sales and marketing......................................... 771
Engineering................................................. 269
General and administration, including customer service...... 794
</TABLE>
MARKETS AND SYSTEMS
VoiceStream owns 107 broadband PCS licenses, seven of which are for Major
Trading Area ("MTA") license areas and 100 of which are for Basic Trading Area
("BTA") license areas, covering a total of approximately 62.6 million persons.
See "-- Governmental Regulation, Licensing of PCS Systems." MTA and BTA are
terms used by the FCC to define licensed market areas and are based on the Rand
McNally 1992 Commercial Atlas & Marketing Guide, 123rd Edition, at pages 38 - 39
("BTA/MTA Map"). Rand McNally organizes the 50 states and the District of
Columbia into 47 MTAs and 487 BTAs. The BTA/MTA Map is available for public
inspection at the Office of Engineering and Technology's Technical Information
Center, 2000 M Street, NW, Washington, DC 20554.
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) 92 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 PCS, 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.
25
<PAGE> 29
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.
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ---------
<S> <C> <C> <C>
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
----------
4,566,000
SEATTLE
Olympia-Centralia......................................... 327,000 E 10 MHz
Seattle-Tacoma............................................ 3,090,000 E 10 MHz
----------
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
----------
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
----------
3,621,000
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ---------
<S> <C> <C> <C>
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
----------
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
----------
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
----------
1,966,000
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
----------
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
----------
1,188,000
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ---------
<S> <C> <C> <C>
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
----------
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
----------
4,273,000
TULSA
Coffeyville............................................... 61,000 D 10 MHz
WICHITA
Hutchinson................................................ 124,000 D 10 MHz
Salina.................................................... 143,000 D 10 MHz
Wichita................................................... 652,000 D 10 MHz
----------
919,000
CHICAGO
Jacksonville.............................................. 71,000 E 10 MHz
CINCINNATI-DAYTON
Dayton-Springfield........................................ 1,209,000 E 10 MHz
</TABLE>
28
<PAGE> 32
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ---------
<S> <C> <C> <C>
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
----------
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
----------
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
----------
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
----------
783,000
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ---------
<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
----------
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
----------
1,399,000
----------
VOICESTREAM TOTAL........................................... 62,593,000
==========
</TABLE>
- ---------------
(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.
30
<PAGE> 34
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
-------------------- ---------- ----- ------
<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
----------
3,998,000
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
----------
4,147,000
SPOKANE-BILLINGS
Spokane................................................... 733,000 C 15 MHz
Walla Walla-Pendleton(1).................................. 169,000 C 15 MHz
----------
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
----------
1,177,000
----------
COOK INLET PCS TOTAL........................................ 12,807,000
==========
</TABLE>
- ---------------
(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.
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<PAGE> 35
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
-------------------- ---------- ------ ------
<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>
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>
32
<PAGE> 36
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 is participating in 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 "Description of Western Wireless and
VoiceStream Capital Stock."
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.
- 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
33
<PAGE> 37
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 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 is a relatively new entrant in a highly competitive market.
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 toll calls. Many
of VoiceStream's competitors have significantly greater financial and technical
resources than those
34
<PAGE> 38
available to VoiceStream and provide comparable services in competition with
VoiceStream's PCS systems. These competitors include AirTouch, AT&T Wireless,
Bell Atlantic, GTE Mobilnet, Sprint PCS and 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.
VoiceStream's principal PCS competitors use standards other than GSM. As a
result, VoiceStream's subscribers may not be able to conveniently use PCS
services while roaming in areas outside its markets. US West and Sprint PCS use
the CDMA standard. AT&T Wireless and Southwestern Bell use the TDMA standard.
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.
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.
35
<PAGE> 39
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 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 due to the
relatively minor geographic overlap.
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
36
<PAGE> 40
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 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.
Cellular and PCS systems are subject to certain Federal Aviation
Administration regulations respecting the location, lighting and construction of
transmitter towers and antennae and may be subject to regulation under the
National Environmental Policy Act and the environmental regulations of the FCC.
State or local zoning and land use regulations also apply to VoiceStream's
activities. VoiceStream uses, among other facilities, common carrier point to
point microwave facilities to connect cell sites and to link them to the main
switching office. These facilities are separately licensed by the FCC and are
subject to regulation as to technical parameters and service.
VoiceStream has purchased its PCS licenses from private parties and the
federal government. VoiceStream has used a combination of debt and equity
financing to acquire such licenses. Some joint ventures in which VoiceStream
holds an interest have utilized financing from the federal government to the
extent available.
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.
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<PAGE> 41
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.
VoiceStream has applied for and received FCC approval for foreign ownership of
up to 39.9%. As of the Effective Date, foreign ownership of VoiceStream is less
than 30%.
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.
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
38
<PAGE> 42
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 Telecommunications Act's local-competition
provisions; (ii) the FCC's rules governing unbundled access are consistent with
the Telecommunications 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 Telecommunications Act. The FCC will now have
to reexamine the list of unbundled network elements that incumbent local
exchange carriers must offer to competitors. Furthermore, as a result of the
Supreme Court's vacating and remanding the Eighth Circuit's ruling that the FCC
lacked authority to set local pricing standards, the Eighth Circuit will have to
decide whether the FCC's total-element long-run incremental cost methodology for
setting interconnection and unbundled network element rates violates the
Telecommunications 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 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.
39
<PAGE> 43
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 five years in the
period ended December 31, 1998. Financial data as of and for each of the three
years in the period ended December 31, 1998, were derived from VoiceStream's
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 1995 1994
----------- ----------- ----------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <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 $ 3,069
Sales and marketing.......................... 85,447 59,466 31,505 339
Depreciation and amortization................ 83,767 66,875 14,395 269
----------- ----------- -----------
Total operating expenses.............. 372,606 274,671 99,368 3,677
----------- ----------- -----------
Operating loss................................. (204,644) (196,941) (81,829) (3,677)
Other income (expense):
Interest and financing expense............... (34,118) (57,558) (3,607) (40)
Equity in net loss of unconsolidated
affiliate.................................. (24,120) (9,327) (954) (11)
Interest income and other.................... 8,616 11 40 --
----------- ----------- ----------- -----------
Net loss.............................. $ (254,266) $ (263,815) $ (86,350) $ (3,728)
=========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Current assets................................. $ 59,398 $ 49,945 $ 59,515 $ 1,684 $ 10,000
Property and equipment, net.................... 619,280 420,638 318,473 34,914 220
Licensing cost and other intangible assets,
net.......................................... 312,040 315,653 227,997 145,728
Other assets................................... 60,938 36,055 8,142 8,484
----------- ----------- ----------- ----------- --------
Total assets.......................... $ 1,051,656 $ 822,291 $ 614,127 $ 193,810 $ 10,220
=========== =========== =========== =========== ========
Current liabilities............................ $ 125,026 $ 126,184 $ 155,769 $ 25,444 $ 10,158
Long-term debt................................. 540,000 300,000 143,000 13,000
Other long-term liabilities.................... 92,746 173,705 7,613
Shareholders' equity........................... 386,630 396,107 141,653 147,753 62
----------- ----------- ----------- ----------- --------
Total liabilities and shareholders'
equity.............................. $ 1,051,656 $ 822,291 $ 614,127 $ 193,810 $ 10,220
=========== =========== =========== =========== ========
OTHER DATA:
Licensed population............................ 62,498,000 62,808,000 19,488,000 14,853,000
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) $ (3,408)
CASH FLOWS PROVIDED BY (USED IN):
Operating activities........................... $ (112,931) $ (198,129) $ (81,272) $ (4,115) $(10,200)
Investing activities........................... $ (253,633) $ (370,202) $ (342,587) $ (145,632) $ (220)
Financing activities........................... $ 374,284 $ 563,254 $ 429,250 $ 149,770 $ 10,000
</TABLE>
- ---------------
(1) Represents population that is covered by our consolidated systems.
(2) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA should not be construed as an alternative to operating
income (loss) as determined in accordance with United States generally
accepted accounting principles ("GAAP"), as an alternate to cash flows from
operating activities (as determined in accordance with GAAP), or as a
measure of liquidity. EBITDA is presented because it is a commonly used
financial indicator in the wireless industry and indicates a company's
ability to service and/or incur debt. Because EBITDA is not calculated in
the same manner by all companies, VoiceStream's presentation may not be
comparable to other similarly titled measures of other companies.
40
<PAGE> 44
HISTORICAL PER SHARE DATA
WESTERN WIRELESS CORPORATION (INCLUSIVE OF VOICESTREAM)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Book value per common share(1).............................. $ 1.23 $ 2.57 $ 5.08
Cash dividends declared per share........................... $ 0.00 $ 0.00 $ 0.00
Basic and diluted loss per common share(2).................. $(2.95) $(3.76) $(2.00)
</TABLE>
VOICESTREAM WIRELESS CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Book value per common share(3).............................. $ 4.05 $ 5.24 $ 2.03
Cash dividends declared per share........................... $ 0.00 $ 0.00 $ 0.00
Pro forma basic and diluted loss per common share(4)........ $(2.75) $(3.49) $(1.32)
</TABLE>
- ---------------
(1) Book value per common share was calculated using the number of Western
Wireless common shares outstanding at the respective period end.
(2) Basic loss per common share was calculated using the weighted average number
of Western Wireless common shares outstanding for the respective period. Due
to the net loss incurred during the periods presented, all options
outstanding are antidilutive, thus basic and diluted loss per common share
are equal.
(3) For 1998, book value per common share was calculated using the number of
Western Wireless common shares outstanding at period end plus the
split-adjusted number of VoiceStream common shares owned by Hutchison USA at
period end. For 1997 and 1996, book value per common share was calculated
using the number of Western Wireless common shares outstanding at the
respective period end.
(4) For 1998, pro forma basic loss per common share was calculated using the
weighted average number of Western Wireless common shares outstanding for
the period plus the split-adjusted weighted average number of VoiceStream
common shares outstanding owned by Hutchison USA for the period. For 1997
and 1996, basic loss per common share was calculated using the weighted
average number of Western Wireless common shares outstanding for the
respective period. Due to the net loss incurred during the periods
presented, all options outstanding are antidilutive, thus pro forma basic
and diluted loss per common share are equal.
41
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VOICESTREAM
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 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 third-party
approvals. There is no assurance that such conditions will be met to complete
the Spin-off.
In connection with the Spin-off, VoiceStream will issue a substantial
number of stock options. See "Agreement and Plan of Distribution; Relationship
Between Western Wireless and VoiceStream after the Spin-off." Issuance of such
options may result in a non-cash charge to earnings during the second quarter of
1999, depending on the public trading price of the shares of VoiceStream and
Western Wireless following the Spin-off.
It is imperative for VoiceStream to expand its operations in order to
remain competitive. Because of the nature and character of holders of PCS
licenses, there are few licenses available for purchase in urban areas. However,
one significant opportunity for VoiceStream to expand its PCS operations is to
acquire interests in PCS licenses that are reserved for use by a Designated
Entity. In order to do this, VoiceStream must enter into joint ventures with
Designated Entities to make such acquisitions (since VoiceStream is not itself a
Designated Entity).
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.
Sales and marketing costs do not include the revenue or costs of handset sales.
However, when sales and marketing costs per net subscriber addition are
discussed, the revenue and costs
42
<PAGE> 46
from handset sales are included because such measure is commonly used in the
wireless industry. 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.
As used herein, "EBITDA" represents operating loss before depreciation and
amortization. EBITDA 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. EBITDA is presented because it is a commonly used financial indicator
in the wireless industry and indicates a company's ability to service and/or
incur debt. Because EBITDA is not calculated in the same manner by all
companies, VoiceStream's presentation may not be comparable to other similarly
titled measures of other companies.
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.
43
<PAGE> 47
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
Other income (expense).......................... (49,622) (25.8)% (66,874) 1379.2% (4,521)
--------- --------- --------
Net loss........................................ $(254,266) (3.6)% $(263,815) 205.5% $(86,350)
========= ========= ========
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 1998.
Roamer revenues are a result of VoiceStream's continuing effort to procure
domestic and international roaming agreements with other carriers. VoiceStream
expects roamer revenues to increase in 1999 due to increased wireless
subscribers and VoiceStream's expanded coverage.
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.
44
<PAGE> 48
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.
VoiceStream expects this trend to continue in 1999. 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.
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. Interest income and other increased in
1998 from 1997 due to interest earned on the funds received in the Hutchison
Investment.
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
From 1997 to 1998, the decrease in negative EBITDA is attributable to the
increase in revenues and operating efficiencies gained from the growing
subscriber base. VoiceStream expects a similar trend in EBITDA from 1998 to 1999
for its operational markets, however the commencement of operations in new
markets will slow and could reverse this trend. Negative EBITDA increased in
1997 from 1996 due to the commencement of operations in three new markets.
NET LOSS
From 1997 to 1998, the decrease in net loss is attributable to the increase
in revenues, operating efficiencies gained from growing the subscriber base and
a decrease in other expense. VoiceStream expects a similar trend in net loss
from 1998 to 1999 for its operational markets, however the commencement of
operations in new markets will slow or could reverse this trend. Net loss
increased in 1997 from 1996 due to the commencement of operations in new
markets.
45
<PAGE> 49
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. The amount which VoiceStream
can borrow under the Credit Facility is reduced beginning in 2001, the same year
in which repayment of the Credit Facility begins. 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 Hutchison 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 (both amounts include VoiceStream's
anticipated spending by Cook Inlet PCS (described below)). 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. In addition to the aforementioned capital expenditures
VoiceStream expects to make in 1999, VoiceStream has noncancellable lease
agreements for various facilities, including cell-site locations, of
approximately $25 million in 1999. The sources of funding for such expenditures
will come from the same sources as discussed above. VoiceStream has reached an
agreement in principle with one of its infrastructure equipment vendors whereby
such vendor would purchase $400,000,000 of VoiceStream's newly designated and
issued 12% cumulative senior exchangeable preferred stock. During the first five
years following issuance, dividends would be paid in cash or, at VoiceStream's
option, in additional shares of exchangeable preferred stock having an aggregate
liquidation preference equal to the amount of such dividends. After the fifth
anniversary, all dividends would be payable only in cash. In addition,
VoiceStream would modify its existing PCS supply agreement with such vendor. The
agreement in principle contemplates that the net proceeds of the sale of the
exchangeable preferred stock would be used to finance capital expenditures, for
working capital purposes and to finance permitted investments and acquisitions.
Although VoiceStream is working diligently with the vendor to prepare formal
contracts, there can be no assurance that formal contracts will be executed and
that such funds will be available to VoiceStream.
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. No principal payments on these licenses are due in 1999. 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. VoiceStream does not have any
further commitments to fund Cook Inlet PCS. During the second quarter
46
<PAGE> 50
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, Cook Inlet/VoiceStream PCS LLC ("CIVS") (of which
49.9% is owned by VoiceStream and 50.1% is owned by Cook Inlet Region, Inc.) to
participate in the FCC's reauction of C and F Block licenses in 1999.
VoiceStream contributed $25 million in March 1999 to the deposit required by the
FCC to participate in the reauction. CIVS has reached an agreement in principle
with one of its infrastructure equipment vendors whereby such vendor would
provide to CIVS a $725,000,000 senior credit facility and a $100,000,000
subordinated facility, and CIVS would agree to acquire certain equipment,
software and services from such vendor. The agreement in principle contemplates
that the net proceeds of the senior secured facility and the subordinated
facility would be used to finance capital expenditures, for working capital and
to finance permitted investments and acquisitions. The effectiveness of the
senior secured facility and the subordinated facility will be conditioned upon
CIVS acquiring licenses for BTA's covering at least 2 million persons. The
amount available for borrowing pursuant to the senior credit facility and the
subordinated facility will be based upon the aggregate number of persons covered
by licenses for BTA's acquired by CIVS, with $825 million in the aggregate being
available if CIVS acquires licenses for BTA's covering at least 15 million
persons and such availability being ratably reduced if CIVS acquired licenses
for BTA's covering fewer than 15 million persons. Although CIVS is working
diligently with the vendor to prepare formal contracts, there can be no
assurance that formal contracts will be executed or that such funds will be
available to CIVS.
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.
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
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.
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<PAGE> 51
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.
Although VoiceStream has developed contingency plans with respect to its
critical systems which VoiceStream believes will successfully avoid service
disruption, there as yet can be no assurance that all such disruption can be
eliminated. VoiceStream will continuously test and update these plans and
systems as long as necessary.
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<PAGE> 52
DESCRIPTION OF WESTERN WIRELESS AND VOICESTREAM CAPITAL STOCK
DESCRIPTION OF WESTERN WIRELESS CAPITAL STOCK
The authorized capital stock of Western Wireless consists of 300,000,000
shares of Class A Common Stock and Class B Common Stock, no par value, and
50,000,000 shares of preferred stock, no par value (the "Western Wireless
Preferred Stock"). As of March 26, 1999, there were 43,040,980 shares of Class A
Common Stock outstanding, with 260 holders of record, and 33,458,795 shares of
Class B Common Stock issued and outstanding, with 96 holders of record. The
foregoing numbers do not include the number of stockholders whose shares are
held of record by a broker or clearing agency, but do include each such broker
or clearing agency as one record holder.
As of March 26, 1999, Western Wireless had outstanding options to acquire
4,280,864 shares of its Class A Common Stock, which options had been granted
under Western Wireless' management incentive stock option plan. In addition, as
of the same date, a participant in a joint venture with a subsidiary of Western
Wireless has the right to convert its joint venture interest into 321,334 shares
of Western Wireless Class A Common Stock, and an officer of Western Wireless had
the right to convert an interest in a Western Wireless affiliate into an
indeterminate number of shares of Western Wireless Class A Common Stock. There
are no other rights outstanding to acquire Western Wireless stock.
Western Wireless has never declared a cash dividend with respect to its
capital stock and does not anticipate paying any dividends on its capital stock
in the foreseeable future. Western Wireless' debt facilities and indentures
contain certain restrictions on Western Wireless' ability to declare and pay
dividends on its capital stock. The declaration and payment of dividends by
Western Wireless are subject to the discretion of Western Wireless' Board of
Directors. Any determination as to the payment of dividends in the future will
depend upon results of operations, capital requirements, restrictions in loan
agreements, if any, and such other factors as Western Wireless' Board of
Directors may deem relevant.
WESTERN WIRELESS COMMON STOCK
Other than with respect to voting rights, the Class A and Class B have
identical rights. The Class A Common Stock has one vote per share and the Class
B Common Stock has ten votes per share. Shares of Class B Common Stock generally
convert automatically into shares of Class A Common Stock on a share-for-share
basis immediately upon any transfer of the Class B Common Stock other than a
transfer from an original holder of Class B Common Stock to certain affiliates
of such holder.
Holders of Western Wireless Common Stock have no cumulative voting rights
and no preemptive, subscription or sinking fund rights. Subject to preferences
that may be applicable to any then-outstanding Western Wireless Preferred Stock,
holders of Western Wireless Common Stock will be entitled to receive ratably
such dividends as may be declared by the Western Wireless Board of Directors out
of funds legally available therefor. In the event of a liquidation, dissolution
or winding up of Western Wireless, holders of Western Wireless Common Stock will
be entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then-outstanding Western
Wireless Preferred Stock.
Western Wireless' Articles of Incorporation permit the redemption of
Western Wireless Common Stock from shareholders where necessary to protect
Western Wireless' regulatory licenses.
WESTERN WIRELESS PREFERRED STOCK
Pursuant to its Articles of Incorporation, Western Wireless is authorized
to issue 50,000,000 shares of Western Wireless Preferred Stock, which may be
issued from time to time in one or more classes or series or both upon
authorization by the Western Wireless Board of Directors. The Western Wireless
Board of Directors, without further approval of the shareholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences and any other rights,
preferences, privileges and restrictions applicable to each class or series of
Western Wireless Preferred Stock. The issuance of Western Wireless Preferred
Stock, while providing flexibility in connection with
49
<PAGE> 53
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Western Wireless Common
Stock and, under certain circumstances, make it more difficult for a third party
to gain control of Western Wireless, discourage bids for Western Wireless Common
Stock at a premium or otherwise adversely affect the market price of the Western
Wireless Common Stock.
Western Wireless has no current plans to issue any Western Wireless
Preferred Stock.
DESCRIPTION OF VOICESTREAM CAPITAL STOCK
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 7650.21924063-for-1 stock split to be effected
prior to the Effective Date in the form of a stock dividend, there will be
approximately 95,505,337 shares of VoiceStream Common Stock outstanding, with 2
holders of record, Western Wireless (80.1%) and Hutchison USA (19.9%). On the
Effective Date, the 76,499,775 shares held by Western Wireless will be
distributed to its shareholders.
As of the Effective Date, VoiceStream will have issued options to acquire a
number of shares of its Common Stock. The number of shares subject to options
and the exercise price of 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 "The Spin-off of VoiceStream Wireless
Corporation -- Agreement and Plan of Distribution; Relationship Between Western
Wireless and VoiceStream after the Spin-off, Establishment of VoiceStream
Benefit and Compensation Plans." In addition, as of the Effective Date,
participants in Cook Inlet PCS are parties to certain Exchange Rights Agreements
and have the right to convert or exchange their joint venture interests into
535,515 shares of VoiceStream Common Stock, and participants in CIVS have rights
to exchange membership interests into an indeterminant number of 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 a preemptive right that will
survive the Spin-off entitling it to acquire a portion of any newly issued
equity securities of VoiceStream on the same terms and conditions as such equity
securities are being issued to other holders such that Hutchison USA shall be
able to retain the same percentage ownership of VoiceStream as existed
immediately prior to such issuance. The preemptive right does not apply to any
issuances of equity securities in connection with a public sale of equity
securities by VoiceStream; a conversion or exchange of outstanding securities;
stock dividends; mergers, acquisitions or other reorganizations in which the
then current shareholders of VoiceStream would continue to be the only
shareholders of VoiceStream or which is effected to carry out an acquisition
transaction; or issuances of equity to employees. 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
VoiceStream 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.
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<PAGE> 54
VOICESTREAM PREFERRED STOCK
Pursuant to its Articles of Incorporation, VoiceStream will be authorized
to issue 50,000,000 shares of VoiceStream Preferred Stock, which may be issued
from time to time in one or more classes or series or both upon authorization by
VoiceStream's Board of Directors. VoiceStream's Board of Directors, without
further approval of the shareholders, is authorized to fix the dividend rights
and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences and any other rights, preferences, privileges and
restrictions applicable to each class or series of VoiceStream Preferred Stock.
The issuance of VoiceStream Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of VoiceStream
Common Stock and, under certain circumstances, make it more difficult for a
third party to gain control of VoiceStream, discourage bids for VoiceStream
Common Stock at a premium or otherwise adversely affect the market price of the
VoiceStream Common Stock.
ARTICLES OF INCORPORATION AND CERTAIN STATUTORY PROVISIONS AFFECTING
ACQUISITIONS
AND BUSINESS COMBINATIONS
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.
MARKET PRICE OF WESTERN WIRELESS COMMON STOCK
The High/Low prices of Western Wireless' Class A Common Stock on February
5, 1999, the last trading date preceding announcement of the Spin-off, were
25 1/4 and 24 7/8, respectively.
LISTING AND TRADING OF COMPANY COMMON STOCK AND VOICESTREAM COMMON STOCK
After the Spin-off, both the Western Wireless Common Stock and the
VoiceStream Common Stock will be listed and traded on the Nasdaq Stock Market.
The combined trading prices of Western Wireless Common Stock and VoiceStream
Common Stock may be greater than, less than or equal to the trading price of
Western Wireless Common Stock immediately prior to the Spin-off.
VoiceStream initially will have approximately 360 shareholders of record
based upon the number of shareholders of record of Western Wireless as of March
26, 1999. The prices at which the VoiceStream Common Stock will trade will be
determined by the marketplace and may be influenced by many factors, including,
among others, the depth and liquidity of the market for the VoiceStream Common
Stock, investor perception of VoiceStream and the PCS industry, VoiceStream's
dividend policy and general economic and market conditions.
Shares of VoiceStream Common Stock distributed to Western Wireless'
shareholders in the Spin-off will be freely transferable, except for securities
received by persons who may be deemed to be "affiliates" of VoiceStream pursuant
to the Securities Act. Persons who may be deemed to be "affiliates" of
VoiceStream after the Spin-off generally include individuals or entities that
control, are controlled by, or are under common control with, VoiceStream and
may include certain officers and directors of VoiceStream as well as principal
shareholders of VoiceStream. Persons who are affiliates of VoiceStream will be
permitted to sell their shares of VoiceStream Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act.
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<PAGE> 55
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding beneficial
ownership of Western Wireless Common Stock and VoiceStream Common Stock as of
March 26, 1999, by (i) each person who is known by Western Wireless or
VoiceStream to own beneficially 5% or more of (a) either class of the Western
Wireless Common Stock, or (b) the VoiceStream Common Stock; (ii) each director
of Western Wireless and VoiceStream; (iii) each Named Executive Officer of
Western Wireless and VoiceStream; and (iv) all directors and officers of each
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. The beneficial ownership of
Western Wireless Common Stock will not change 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>
PERCENT OF
SHARES OF SHARES OF VOTING POWER SHARES OF
WWC CLASS A WWC CLASS B OF WWC VOICESTREAM
COMMON STOCK PERCENT COMMON STOCK PERCENT COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED(1) OWNED OWNED(1) OWNED OWNED(1) OWNED(1)
---------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Western Wireless Corporation
3650 131st Ave. SE
Bellevue, WA 98006(2).................. 0 * 0 * 0 76,499,775
Hutchison Whampoa Limited
22nd Floor, Hutchison House
10 Harcourt Road
Hong Kong(2)(6)(20).................... 3,888,888 9.04% 0 * 1.03% 19,005,562
Hellman & Friedman(3)(6)(12)
One Maritime Plaza, 12th Floor
San Francisco, CA 94111................ 500 * 12,298,997 36.76% 32.57% 0
The Goldman Sachs Group, L.P. and
related investors(4)(6)(12)
85 Broad Street, 19th Floor
New York, NY 10004..................... 250 * 9,799,029 29.29% 25.95% 0
Providence Media Partners L.P.(6)(12)
c/o Providence Ventures, Inc.
900 Fleet Center
50 Kennedy Plaza
Providence, RI 02903................... 250 * 3,338,768 9.98% 8.84% 0
Franklin Resources, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777............... 2,207,910 5.13% 0 * * 0
John W. Stanton(5)(6)(7)(14)(16)
3650 131st Ave. SE
Bellevue, WA 98006..................... 347,612 * 6,207,799 18.55% 16.53% 0
Theresa E. Gillespie(5)(6)(7)(17)
3650 131st Ave SE
Bellevue, WA 98006..................... 347,612 * 6,207,799 18.55% 16.53% 0
Robert R. Stapleton(7)(15)(18).......... 568,575 1.31% 10,187 * * 0
Donald Guthrie(7)(15)(16)............... 258,275 * 90,117 * * 0
Mikal J. Thomsen(7)(8)(17).............. 278,500 * 295,442 * * 0
Alan R. Bender(7)(16)................... 229,725 * 23,517 * * 0
Cregg B. Baumbaugh(7)(18)............... 226,625 * 18,290 * * 0
John L. Bunce, Jr.(9)(12)(14)........... 500 * 12,298,997 36.76% 32.57% 0
Mitchell R. Cohen(9)(12)(14)............ 500 * 12,298,997 36.76% 32.57% 0
Daniel J. Evans(7)(14).................. 2,750 * 0 * * 0
Jonathan M. Nelson(10)(12)(14).......... 6,250 * 3,338,768 9.98% 8.84% 0
Terence M. O'Toole(11)(12)(14).......... 250....... * 9,799,029 29.29% 25.95% 0
Canning Fok(13)(15)..................... 3,888,888 9.04% 0 * 1.03% 19,005,562
Hans R. Snook(13)(15)................... 3,888,888 9.04% 0 * 1.03% 19,005,562
All Western Wireless directors and
executive officers as a group (11
persons)(7)(12)(19).................... 1,144,772 2.60% 31,881,185 95.03% 84.73% 0
All VoiceStream directors and executive
officers as a group (15
persons)(7)(12)(19).................... 5,649,350 12.73% 31,786,704 95.00% 85.67% 19,005,562
<CAPTION>
SHARES OF
VOICESTREAM PERCENT
COMMON STOCK BENEFICIALLY
PERCENT BENEFICIALLY OWNED
BENEFICIALLY OWNED AFTER AFTER THE
NAME AND ADDRESS OWNED SPIN-OFF(1) SPIN-OFF
---------------- ------------ ------------ ------------
<S> <C> <C> <C>
Western Wireless Corporation
3650 131st Ave. SE
Bellevue, WA 98006(2).................. 80.10% 0.0 *
Hutchison Whampoa Limited
22nd Floor, Hutchison House
10 Harcourt Road
Hong Kong(2)(6)(20).................... 19.90% 22,894,450 23.97%
Hellman & Friedman(3)(6)(12)
One Maritime Plaza, 12th Floor
San Francisco, CA 94111................ * 12,299,497 12.88%
The Goldman Sachs Group, L.P. and
related investors(4)(6)(12)
85 Broad Street, 19th Floor
New York, NY 10004..................... * 9,799,279 10.26%
Providence Media Partners L.P.(6)(12)
c/o Providence Ventures, Inc.
900 Fleet Center
50 Kennedy Plaza
Providence, RI 02903................... * 3,339,018 3.50%
Franklin Resources, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777............... * 2,207,910 2.31%
John W. Stanton(5)(6)(7)(14)(16)
3650 131st Ave. SE
Bellevue, WA 98006..................... * 6,555,411 6.85%
Theresa E. Gillespie(5)(6)(7)(17)
3650 131st Ave SE
Bellevue, WA 98006..................... * 6,555,411 6.85%
Robert R. Stapleton(7)(15)(18).......... * 578,762 *
Donald Guthrie(7)(15)(16)............... * 348,392 *
Mikal J. Thomsen(7)(8)(17).............. * 573,942 *
Alan R. Bender(7)(16)................... * 253,242 *
Cregg B. Baumbaugh(7)(18)............... * 224,915 *
John L. Bunce, Jr.(9)(12)(14)........... * 12,299,497 12.88%
Mitchell R. Cohen(9)(12)(14)............ * 12,299,497 12.88%
Daniel J. Evans(7)(14).................. * 2,750 *
Jonathan M. Nelson(10)(12)(14).......... * 3,345,018 3.50%
Terence M. O'Toole(11)(12)(14).......... * 9,799,279 10.26%
Canning Fok(13)(15)..................... 19.90% 22,894,450 23.97%
Hans R. Snook(13)(15)................... 19.90% 22,894,450 23.97%
All Western Wireless directors and
executive officers as a group (11
persons)(7)(12)(19).................... * 33,025,957 34.22%
All VoiceStream directors and executive
officers as a group (15
persons)(7)(12)(19).................... 19.90% 56,441,616 58.27%
</TABLE>
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<PAGE> 56
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. In order
to allow a distribution of one share of VoiceStream Common Stock for each
share of Western Wireless Common Stock outstanding at the time of the
Spin-off, VoiceStream will effectuate a stock split of its shares
immediately prior to the Spin-off. All VoiceStream Common Stock set forth
in the table reflects the results of such stock split.
(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 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 a voting agreement with respect to the
VoiceStream Common Stock. With the exception of preemptive rights and
registration rights in favor of Hutchison, this will be terminated
effective with the Spin-off. See "-- VoiceStream Voting Agreement" below.
(3) Consists of shares held by 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 (the
"Hellman Trust," and, with HFCP, HFOP and HFIP, the "Hellman Entities").
HFCP owns of record 11,108,169 shares of Western Wireless Class B Common
Stock, HFOP owns of record 993,648 shares of Western Wireless Class B
Common Stock and HFIP owns of record 197,180 shares of Western Wireless
Class B Common Stock. HFCP, HFOP and HFIP are California limited
partnerships, the sole general partners of which are entities indirectly
controlled by the Hellman Trust. The principal business of each of such
partnerships is to make strategic investments in a variety of special
situations, including restructurings, recapitalizations and buyouts. Warren
Hellman is a trustee of the Hellman Trust and is a citizen of the United
States. Warren Hellman, individually and as a trustee of the trust, shares
voting and investment power with respect to the shares of Western Wireless
Class B Common Stock held by the Hellman Entities. The total number of
shares of VoiceStream Common Stock held by the Hellman Entities after the
spin-off will be identical to their current holdings of shares of Western
Wireless Class A and Class B Common Stock.
(4) Consists of (i) 8,986,738 shares of Western Wireless Class B Common Stock
held of record by GS Capital Partners, L.P. ("GS Capital"), (ii) 470,401
shares of Western Wireless Class B Common Stock held of record by Stone
Street Fund 1992, L.P. ("Stone Street"), (iii) 273,069 shares of Western
Wireless Class B Common Stock held of record by Bridge Street Fund 1992,
L.P. ("Bridge Street") and (iv) 68,821 shares of Western Wireless Class B
Common Stock held of record by The Goldman Sachs Group, L.P. ("GS Group,"
and, with GS Capital, Stone Street and Bridge Street, the "Goldman Sachs
Entities"). Each of GS Capital, Stone Street and Bridge Street is an
investment limited partnership, the general partner, the managing general
partner or the managing partner of which is an affiliate of GS Group. GS
Group disclaims beneficial ownership of shares held by such investment
partnerships to the extent partnership interests in such partnerships are
held by persons other than GS Group and its affiliates. The total number of
shares of VoiceStream Common Stock held by the Goldman Sachs Entities after
the spin-off will be identical to their current holdings of shares of
Western Wireless Class A and Class B Common Stock.
(5) Mr. Stanton is a director and Named Executive Officer of both Western
Wireless and VoiceStream. Ms. Gillespie is an executive officer of Western
Wireless. Mr. Stanton and Ms. Gillespie are married. 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
53
<PAGE> 57
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 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." The total
number of shares of VoiceStream Common Stock held by the Stanton Entities
after the Spin-off will be identical to their current holdings of shares of
Western Wireless Class A and Class B Common Stock.
(6) 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 Media Partners L.P. ("Providence"), one person designated by
Goldman, Sachs & Co. ("Goldman Sachs"), two persons designated by the
Hellman 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. See
"-- VoiceStream Voting Agreement" below.
(7) Includes aggregate exercisable options, within 60 days of March 26, 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.
(8) Mr. Thomsen jointly holds voting and investment power with respect to all
of such shares with Lynn C. Thomsen, his wife, except for shares issued or
issuable upon the exercise of stock options. Includes 172,484 shares of
Western Wireless Class B Common Stock beneficially owned by Mr. Thomsen
through his ownership of approximately 10.2% of PN Cellular. Mr. Thomsen
does not have voting control over such shares. The total number of shares
of VoiceStream Common Stock held by Mr. Thomsen after the Spin-off will be
identical to his current holdings of shares of Western Wireless Class A and
Class B Common Stock.
(9) Mr. Bunce and Mr. Cohen may each be deemed to be the owner of the
12,299,497 shares of Western Wireless and 12,299,497 shares of VoiceStream
Common Stock owned by the Hellman Entities as they are officers of the
corporate general partners of the Hellman Entities. Each of Mr. Bunce and
Mr. Cohen disclaim beneficial ownership of shares held by the Hellman
Entities to the extent interests in such entities are held by persons other
than such individual.
(10) Mr. Nelson may be deemed to be the owner of the 3,338,768 shares of Western
Wireless and 3,338,768 shares of VoiceStream Common Stock owned by
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.
(11) Mr. O'Toole, who is a managing director of Goldman Sachs, disclaims
beneficial ownership of shares which may be deemed to be beneficially owned
by GS Group, except to the extent of his pecuniary interest therein.
(12) Includes aggregate exercisable options, within 60 days of March 26, 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.
(13) Messrs. Fok and Snook may each be deemed to be the owner of the 3,888,888
shares of Western Wireless Class A Common Stock and 19,005,562 shares of
VoiceStream Common Stock owned by
54
<PAGE> 58
the Hutchison Entities (as defined below), 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 Western
Wireless and VoiceStream shares held by Hutchison to the extent interests
in Hutchison are held by persons other than such individual. The total
number of shares of VoiceStream Common Stock Messrs. Fok and Snook may each
be deemed to be the owner of after the Spin-off will be identical to the
current holdings of shares of Western Wireless Class A Common Stock owned
by Hutchison and the holdings of shares of VoiceStream Common Stock owned
by Hutchison.
(14) Director of both Western Wireless and VoiceStream.
(15) Director of VoiceStream only.
(16) Named Executive Officer of both Western Wireless and VoiceStream.
(17) Named Executive Officer of Western Wireless only.
(18) Named Executive Officer of VoiceStream only.
(19) In determining the aggregate number of shares owned by Western Wireless and
VoiceStream directors and executive officers, only the maximum number of
shares which such individuals may collectively control at any given time
have been included.
(20) Consists of shares held by Hutchison Telecommunications (USA) Limited
("Hutchison Telecom") and Hutchison USA, subsidiaries of Hutchison
(collectively, the "Hutchison Entities"). Hutchison Telecom currently owns
of record 3,888,888 shares of Western Wireless Class A Common Stock and
Hutchison USA currently owns of record 19,005,562 shares of VoiceStream
Common Stock. The Hutchison Entities' 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 19,005,562 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.
VOICESTREAM VOTING AGREEMENT
In connection with the Spin-off, the Hellman Entities, the Goldman Sachs
Entities, the Stanton Entities, Providence and the Hutchison Entities, will
enter into a voting agreement (the "VoiceStream Voting Agreement"), similar to
the voting agreement with respect to Western Wireless.
The VoiceStream Voting Agreement provides that the parties thereto shall
vote their shares of VoiceStream Common Stock for the election of ten members
designated as follows:
(i) Mr. Stanton, so long as he is the Chief Executive Officer of
VoiceStream or he beneficially owns 4,500,000 shares of Common Stock;
(ii) so long as the Hellman Entities beneficially own at least (A)
9,800,000 shares of VoiceStream Common Stock, two persons designated by the
Hellman Entities or (B) 4,500,000 shares of VoiceStream Common Stock, one
person designated by the Hellman Entities;
(iii) so long as the Hutchison Entities beneficially own at least (A)
9,800,000 shares of VoiceStream Common Stock, two persons designated by the
Hutchison Entities or (B) 4,500,000 shares of VoiceStream Common Stock, one
person designated by the Hutchison Entities;
(iv) so long as the Goldman Sachs Entities beneficially own at least
4,500,000 shares of VoiceStream Common Stock, one person designated by
Goldman Sachs;
(v) so long as the Stanton Entities and Providence collectively
beneficially own at least 4,500,000 shares of VoiceStream Common Stock, one
person designated by majority vote of the Stanton Entities and Providence
(such designee being in addition to Mr. Stanton if he is then serving
55
<PAGE> 59
on the VoiceStream Board of Directors by reason of being the Chief
Executive Officer of VoiceStream); the Stanton Entities will agree that (x)
so long as Mr. Stanton is serving as Chief Executive Officer or he
beneficially owns at least 4,500,000 shares of VoiceStream Common Stock,
(y) the Stanton Entities and Providence collectively beneficially own at
least 4,500,000 shares of VoiceStream Common Stock, and (z) Providence
beneficially owns at least 2,500,000 shares of VoiceStream Common Stock,
the Stanton Entities shall vote their shares of VoiceStream Common Stock
for one member of the VoiceStream Board of Directors designated by
Providence; and (vi) three members of the VoiceStream Board of Directors
selected by a majority of the persons selected as described above.
In addition, the Hutchison Entities shall have the right to designate an
additional director (and the Board shall in each case be expanded by one member
to accommodate such new designee) when the Hutchison Entities' aggregate
ownership of the VoiceStream Common Stock exceeds each of the following
thresholds: 27.25%, 33.33%, 38.5%, 42.9%, 44.67% and 50%. The Goldman Sachs
Entities are limited in their voting power pursuant to provisions of
VoiceStream's Articles of Incorporation.
56
<PAGE> 60
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "SEC") by Western Wireless (SEC File No. 0-28160) are incorporated by
reference in this Information Statement:
1. Western Wireless' Annual Report on Form 10-K for the year ended December
31, 1998.
2. Western Wireless' Proxy Statement dated May 21, 1998 and 1998 Annual
Report.
3. Western Wireless' Current Reports on Form 8-K, filed February 8, 1999
and February 18, 1999.
All documents filed by Western Wireless pursuant to Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act subsequent to the date of this Information
Statement and prior to the completion of the Spin-off shall be deemed to be
incorporated by reference into this Information Statement and to be a part
hereof from the date of filing of such document. Any statement contained herein
or in a document all or a portion of which is incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Information Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Information
Statement.
Western Wireless hereby undertakes to provide without charge to each person
to whom this Information Statement has been delivered, upon the written or oral
request of any such person, a copy of any and all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents which
are not specifically incorporated by reference in such documents). Western
Wireless shall deliver the requested information by first class mail or other
equally prompt means within one business day of receipt of such request. Written
or telephone requests should be directed to Investor Relations Department,
Western Wireless Corporation, 3650 131st Avenue S.E., Bellevue, Washington,
98006, at telephone number (425) 586-8700.
ADDITIONAL INFORMATION
Western Wireless is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, Western Wireless files reports, proxy statements and
other information with the SEC. The reports, proxy statements and other
information can be inspected and copied at the public reference facilities that
the SEC maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the SEC's regional offices located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of these materials can be obtained at
prescribed rates from the Public Reference Section of the SEC at the principal
offices of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Such
material may also be accessed electronically by means of the SEC's home page on
the Internet at http://www.sec.gov.
Any statement contained herein shall be deemed to be modified or superseded
for the purpose of this Information Statement to the extent that a subsequent
statement contained herein modifies or supersedes that statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Information Statement.
57
<PAGE> 61
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 I -- Valuation and Qualifying Accounts............. F-18
</TABLE>
F-1
<PAGE> 62
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> 63
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; 10,000 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> 64
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)
=========== ========= ========
Pro forma basic and diluted loss per common share....... $ (2.75)
===========
Weighted average common shares used in computing pro
forma basic and diluted loss per common share......... 92,387,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 65
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
PAR VALUE TOTAL
AND PAID-IN SHAREHOLDERS'
CLASS A SHARES 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> 66
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> 67
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> 68
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 is calculated using the weighted
average number of common shares outstanding during the period. The number of
shares outstanding is calculated based on the requirements of SFAS No. 128,
"Earnings Per Share." Proforma net loss per share for 1998 is calculated using
the weighted average number of Western Wireless common shares outstanding for
the period plus the split-adjusted weighted average number of VoiceStream common
shares outstanding owned by Hutchison for the period. 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
F-8
<PAGE> 69
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
addition, VoiceStream has historically held derivative financial instruments to
maturity and has never 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
F-9
<PAGE> 70
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
organizational costs to be expensed as incurred. SOP 98-5 is not expected to
materially affect the financial 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
F-10
<PAGE> 71
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
evidenced by promissory notes which are due 180 days after the date of issuance.
The weighted average 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> 72
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> 73
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.
F-13
<PAGE> 74
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 unvested options will have materially the same vesting schedule
and expiration dates 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> 75
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
QUARTER ENDED REVENUES OPERATING 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") through 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 general and administrative costs and assets that were incurred by
Western Wireless and benefit all of its operations, including those of
VoiceStream. Such centralized items include the costs of customer service and
accounting as well as the assets to support these functions. These items are
allocated to the respective operational units in a manner that reflects the
relative time devoted to each of the operational units. VoiceStream was
allocated costs of $33.3 million in 1998 and $29.1 million in 1997 and assets of
F-15
<PAGE> 76
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$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.
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,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONDENSED BALANCE SHEETS:
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> 77
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> 78
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 END
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES (1) 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> 79
[BACK COVER PAGE OF INFORMATION STATEMENT]
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
Western Wireless Corporation
3650 131st Avenue S.E.
Bellevue, Washington 98006
LEGAL ADVISORS
<TABLE>
<S> <C>
Preston Gates & Ellis LLP Friedman Kaplan & Seiler LLP
5000 Columbia Center 875 Third Avenue
70l Fifth Avenue New York, New York 10022
Seattle, Washington 98104
Jones Day Reavis & Pogue Gurman, Blask & Freedman
Metropolitan Square 1400 Sixteenth Street NW
1450 G Street NW Suite 500
Washington, D.C. 20005 Washington, D.C. 10036
</TABLE>
INDEPENDENT AUDITORS FOR THE COMPANY
Arthur Andersen LLP
801 Second Avenue, Suite 800
Seattle, Washington 98104
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, WA 98101
<PAGE> 80
EXHIBIT 2.1
===============================================================================
AGREEMENT
AND
PLAN OF DISTRIBUTION
BETWEEN
WESTERN WIRELESS CORPORATION
AND
VOICESTREAM WIRELESS CORPORATION
===============================================================================
<PAGE> 81
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
1 THE PLAN OF DISTRIBUTION.................................................................................2
<S> <C>
1.1 Transactions Prior to Distribution..............................................................2
1.1.1 Assets of VoiceStream and the VoiceStream Subsidiaries; Other
Transactions...........................................................................2
1.1.2 The Information Statement..............................................................2
1.1.3 Record Date............................................................................2
1.1.4 Stock Split............................................................................3
1.1.5 No Issuance of Additional Shares.......................................................3
1.1.6 Effective Date.........................................................................3
1.2 The Distribution................................................................................3
1.2.1 Distribution of VoiceStream Common Stock...............................................3
1.2.2 Conditions.............................................................................3
1.3 Termination and Amendment.......................................................................4
1.4. 401(k) Plan.....................................................................................4
1.4.1 VoiceStream Plans......................................................................4
1.4.2 Transfer of 401(k) Plan Assets.........................................................4
1.5 Stock Options and Restricted Stock..............................................................4
1.5.1 VoiceStream Stock Option Plan..........................................................4
1.5.2 Vested Options.........................................................................4
1.5.3 Stock Option Agreements with Respect toVested Options..................................4
1.5.4 Unvested Options.......................................................................6
1.5.5 Stock Option Agreements with Respect to Unvested Options...............................6
1.5.6 VoiceStream Restricted Stock Plan......................................................8
2 PROVISION OF MANAGEMENT SERVICES AND SPECIFICATION OF ON-GOING RELATIONSHIPS.............................8
2.1 Services........................................................................................8
2.1.1 Existing Services Agreement............................................................8
2.1.2 General Assistance.....................................................................8
2.1.3 Exceptions to Requirement to Provide Services..........................................9
2.1.4 Payment for Services...................................................................9
2.1.5 Office of the Chairman.................................................................9
2.1.6 Termination of Obligation to Provide Services..........................................9
2.2 Estimation and Payment of Insurance Claims......................................................9
2.2.1 Background.............................................................................9
2.2.2 Term..................................................................................10
2.2.3 Notice and Administration of Claims...................................................10
2.2.4 Personnel Costs.......................................................................10
</TABLE>
-i-
<PAGE> 82
<TABLE>
<CAPTION>
<S> <C>
2.3 Access to Information and Witnesses............................................................10
2.4 Mail and Other Items...........................................................................11
2.5 Indemnification................................................................................11
2.6 Pending Litigation and Significant Obligations.................................................13
2.7 Use of the Company Name........................................................................14
2.8 Premises and Occupancy Expenses................................................................14
3 SPECIFIC AGREEMENTS BETWEEN THE PARTIES.................................................................15
3.1 Tax Sharing Agreement..........................................................................15
3.2 Roaming Agreement..............................................................................15
3.3 Spectrum Allocation and Conflicts of Interest..................................................15
4 MISCELLANEOUS PROVISIONS OF GENERAL APPLICABILITY.......................................................15
4.1 Entire Agreement...............................................................................15
4.2 Benefit of Agreement...........................................................................15
4.3 Further Documents; Compliance; Governmental Approvals..........................................16
4.4 Notices........................................................................................16
4.5 Arbitration....................................................................................16
4.6 Attorneys'Fees.................................................................................16
4.7 Governing Law..................................................................................16
4.8 Meaning of Terms...............................................................................16
4.9 Headings.......................................................................................17
</TABLE>
LIST OF EXHIBITS
Exhibit (ii) VoiceStream Subsidiaries
Exhibit (v) IRS Ruling
Exhibit 1.1.2 Information Statement
Exhibit 3.1 Tax Sharing Agreement, as amended
Exhibit 3.2 Roaming Agreement
Exhibit 3.3 Spectrum Allocation and Non-Competition Agreement
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
TERM PAGE DEFINED
- ---- ------------
<S> <C>
1934 ACT.......................................2
AGREEMENT......................................1
AVERAGING PERIOD...............................5
CELLULAR ONE..................................13
CLASS A COMMON STOCK...........................1
CLASS B COMMON STOCK...........................1
COMMITTEE......................................2
COMPANY........................................1
COMPANY LIABILITIES...........................11
DISTRIBUTION...................................1
DISTRIBUTION LIABILITIES......................11
DOMESTIC PCS BUSINESS..........................1
EFFECTIVE DATE.................................2
FCC............................................1
INCURRED CLAIMS................................9
INDEMNIFIED PARTY.............................11
INDEMNIFYING PARTY............................11
INFORMATION...................................10
INFORMATION STATEMENT..........................2
IRS............................................1
IRS RULING.....................................1
NEW UNVESTED WWC OPTIONS.......................5
NEW WWC OPTION EXERCISE PRICE..................5
OLD EXERCISE PRICE.............................5
PREMISES......................................13
PROCEEDINGS...................................13
RECORD DATE....................................2
SERVICES.......................................8
SERVICES AGREEMENT.............................8
SHARED SENIOR MANAGEMENT.......................8
SUBSTITUTE WWC OPTION AGREEMENT................4
UNVESTED VOICESTREAM OPTIONS...................6
UNVESTED WWC OPTIONS...........................5
VESTED VOICESTREAM OPTIONS.....................4
VESTED WWC OPTIONS.............................4
VOICESTREAM....................................1
VOICESTREAM 401(k) PLAN........................4
VOICESTREAM BOARD..............................2
VOICESTREAM COMMON STOCK.......................1
TERM PAGE DEFINED
- ---- ------------
VOICESTREAM EMPLOYEE...........................4
VOICESTREAM LIABILITIES.......................11
VOICESTREAM OPTION AGREEMENT...................4
VOICESTREAM OPTION EXERCISE PRICE..............5
VOICESTREAM PRICE PERCENTAGE...................5
VOICESTREAM RESTRICTED STOCK PLAN..............7
VOICESTREAM STOCK OPTION PLAN..................4
VOICESTREAM SUBSIDIARIES.......................1
WWC BOARD......................................2
WWC COMMON STOCK...............................1
WWC EMPLOYEE...................................4
WWC OPTION PLAN................................4
WWC PRICE PERCENTAGE...........................5
WWC RESTRICTED STOCK PLAN......................7
</TABLE>
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AGREEMENT AND PLAN OF DISTRIBUTION
THIS AGREEMENT AND PLAN OF DISTRIBUTION ("Agreement") is made by and
between WESTERN WIRELESS CORPORATION, a Washington corporation (the "Company"),
and VoiceStream Wireless CORPORATION, a Washington corporation ("VoiceStream").
RECITALS
(i) The Company, directly and through its direct and indirect
subsidiaries, including VoiceStream, operates various wireless communications
services, including cellular service, personal communications service ("PCS"
service), and paging service in the United States and in selected international
markets;
(ii) VoiceStream, as an 80.1% owned subsidiary of the Company, and
VoiceStream's numerous direct and indirect subsidiaries identified on Exhibit
(ii) hereto (the "VoiceStream Subsidiaries"), collectively are responsible for
performing and providing for the Company's PCS service in the United States
under the VoiceStream(R) brand name (the "Domestic PCS Business");
(iii) The Company has determined that it is in its own and its
shareholders' long-term best interests that the Company be restructured into two
publicly held companies:
(1) the Company, which will continue to provide cellular
telephone services in rural areas in the western United States using
the Cellular One(R) brand name, to provide paging and competitive local
exchange carrier service in selected United States markets, and to hold
all Company interests in subsidiaries (including investments in joint
ventures) operating outside the United States; and
(2) VoiceStream, which will own and operate the Domestic PCS
Business and which, collectively with the VoiceStream Subsidiaries,
will hold all assets and liabilities related to, and all of the
Company's Federal Communications Commission ("FCC") licenses
authorizing, the Domestic PCS Business.
(iv) To accomplish the restructuring, the Company desires to distribute
(the "Distribution") to each shareholder of the Company one share of the common
stock, no par value, of VoiceStream (the "VoiceStream Common Stock") for each
one share of the Class A Common Stock, no par value, of the Company (the "Class
A Common Stock") or the Class B Common Stock, no par value, of the Company (the
"Class B Common Stock") owned by such shareholder (Class A Common Stock and
Class B Common Stock is referred to collectively herein as the "WWC Common
Stock").
(v) Pursuant to a ruling received by the Company from the United States
Internal Revenue Service ("IRS"), on January 28, 1999, a copy of which is
attached as Exhibit (v) hereto (the "IRS Ruling"), the Distribution may be
accomplished without the recognition of gain or loss to the Company or to the
Company's shareholders, as further described therein.
<PAGE> 85
(vi) The Company and VoiceStream desire to provide in this Agreement
for the Distribution of VoiceStream Common Stock in accordance with the IRS
Ruling.
(vii) The Company and VoiceStream also desire to allow for certain
other transactions, and to make provision for certain on-going relationships
between them concerning delivery of services, handling of insured and uninsured
claims, and other matters.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1 THE PLAN OF DISTRIBUTION.
1.1 Transactions Prior to Distribution.
1.1.1 Assets of VoiceStream and the VoiceStream Subsidiaries; Other
Transactions. Prior to date hereof, the Company has transferred to VoiceStream
or to the VoiceStream Subsidiaries, as the case may be, all assets and
liabilities of the Company related to the Domestic PCS Business. Prior to the
Effective Date of the Distribution (the "Effective Date," as determined pursuant
to Section 1.1.6), Western Wireless and VoiceStream shall undertake the
transactions contemplated in paragraphs (1) through (6) on pages 5 through 6 of
the IRS Ruling.
1.1.2 The Information Statement. The Company has prepared for
distribution to its shareholders, in accordance with Section 14C of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), an Information
Statement in the form attached as Exhibit 1.1.2 hereto (the "Information
Statement"), identifying and describing the Distribution and the reasons
therefor. The Information Statement will be sent to all Company shareholders on
the date established by the Company's Board of Directors (the "WWC Board"),
pursuant to Section 1.1.3 (the "Record Date"), and will provide that the
Distribution will be effective as of the Effective Date.
1.1.3 Record Date. The WWC Board, or, if so directed by resolution
of the WWC Board, a Committee appointed for such purposes (the "Committee")
shall set the Record Date on which a record of the Company shareholders shall be
taken so as to determine which shareholders shall be provided the Information
Statement.
1.1.4 Stock Split. The Board of Directors of VoiceStream (the
"VoiceStream Board") shall take all actions necessary to cause a stock split, in
the form of a stock dividend, the effect of which will be that as of the Record
Date the number of shares of VoiceStream Common Stock held by the Company will
equal exactly the number of shares of WWC Common Stock held by all shareholders
of the Company.
1.1.5 No Issuance of Additional Shares. The WWC Board shall take
all actions necessary to prevent the issuance of shares of WWC Common Stock,
pursuant to exercise of stock options or otherwise, from the Record Date to the
Effective Date, so as to fix the number of
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issued and outstanding shares of WWC Common Stock as of the Record Date until
the Effective Date.
1.1.6 Effective Date. The WWC Board shall establish the Effective
Date upon which the Distribution shall take place and the spin off shall be
effective, provided that such date shall be identified in the Information
Statement and shall be no fewer than 20 days following the Record Date. In the
event for any reason that the WWC Board determines to postpone the spin-off, the
Effective Date shall be the date rescheduled by the Board to be the date upon
which the Distribution shall take place.
1.2 The Distribution.
1.2.1 .Distribution of VoiceStream Common Stock. The Company shall
as soon as practical after the Effective Date distribute to the Company
shareholders who held WWC Common Stock on the Effective Date certificates
representing the shares of VoiceStream Common Stock held by the Company in
accordance with Section 1.1.4 above on the basis of one share of VoiceStream
Common Stock for each one share of the WWC Common Stock held by such
shareholder.
1.2.2 Conditions. The consummation of this Agreement is subject to
the following conditions:
(a) The IRS Ruling shall not have been withdrawn.
(b) The Company and VoiceStream shall have obtained all
orders, rulings, consents or approvals, governmental or otherwise, necessary to
permit them to perform this Agreement in accordance with its terms.
(c) On the Effective Date, each party shall furnish to the
other all such documents and certificates, including assignments and
conveyances, as shall, in the opinion of counsel, be required to consummate this
Agreement.
(d) The VoiceStream Common Stock shall have been listed for
trading on the Nasdaq Stock Market.
1.3 Termination and Amendment. Notwithstanding the approval of this
Agreement by the WWC Board and the VoiceStream Board, at any time prior to the
Effective Date, this Agreement may be terminated, or the Effective Date may be
delayed, by the WWC Board acting in its sole discretion, and the terms hereof
may be amended by the mutual consent of the WWC Board and the VoiceStream Board.
1.4 401(k) Plan.
1.4.1 VoiceStream Plans. VoiceStream shall establish a defined
contribution 401(k) plan ("VoiceStream 401(k) Plan") substantially similar to
the Company's 401(k) plan
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presently in effect. The VoiceStream 401(k) Plan shall give participants credit
for service as Company employees.
1.4.2 Transfer of 401(k) Plan Assets. After the Distribution,
the account balances of participants in the VoiceStream 401(k) Plan shall be
transferred from the Company 401(k) plan to the VoiceStream 401(k) Plan.
1.5 Stock Options and Restricted Stock.
1.5.1 VoiceStream Stock Option Plan. VoiceStream has
established a stock option plan ("VoiceStream Stock Option Plan") substantially
similar to the Company's stock option plan presently in effect ("WWC Option
Plan").
1.5.2 Vested Options. It is the intent of the Company and
VoiceStream that each individual that as of the Effective Date is the holder of
fully vested options to purchase an identified number of shares of WWC Common
Stock ("Vested WWC Options"), as listed on the Vested Options Schedule adopted
by the Company and VoiceStream, will, at and after the Effective Date retain the
right to purchase such identified number of shares of WWC Common Stock and will,
in addition, receive a vested option to purchase an equal number of shares of
VoiceStream Common Stock ("Vested VoiceStream Options"), all in accordance with
this Section 1.5. The terms of this Section 1.5 will apply to each individual
who on and after the Effective Date remains an employee of the Company ("WWC
Employee") and to each individual who on and after the Effective Date becomes an
employee of VoiceStream ("VoiceStream Employee"). The Vested Options Schedule
adopted by the Company and VoiceStream shall identify each individual who holds
Vested WWC Options, and for each set forth, among other information, the
original date of grant, the number of shares purchasable as of the Effective
Date, the exercise price per share of shares purchasable as of the Effective
Date, and the outside termination date of the original grant.
1.5.3 Stock Option Agreements with Respect to Vested Options.
The individual's right to retain the Vested WWC Options and to receive the
Vested VoiceStream Options will be contingent on, and fully subject to, (a) the
recipients' execution of a substitute stock option agreement replacing the
agreement covering the Vested WWC Options (" Substitute WWC Option Agreement"),
(b) surrender of the recipient's original agreement with respect to the Vested
WWC Options, and (c) the recipient's execution of a new VoiceStream Stock Option
Agreement ("VoiceStream Option Agreement"). The terms of the Substitute WWC
Option Agreement and the VoiceStream Option Agreement will provide, as the case
may be, as follows.
1.5.3.1 WWC Employees--For a WWC Employee, the number of
Vested WWC Options and the terms of the option as originally granted will remain
unchanged, except the Substitute WWC Option Agreement will provide that the
exercise price to purchase WWC Common Stock will be reduced pursuant to 1.5.3.3
below. The terms of the VoiceStream Option Agreement to be issued to WWC
Employees will be materially identical to the terms of the Substitute WWC Option
Agreement, with appropriate revisions to reflect VoiceStream as the grantor, and
will be governed by the VoiceStream Stock Option Plan.
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1.5.3.2 VoiceStream Employees--For a VoiceStream Employee, the
number of Vested WWC Options and the terms of the options as originally granted
to the VoiceStream Employee when such employee was employed by the Company will
remain unchanged, except the Substitute WWC Option Agreement will provide that
(i) the exercise price to purchase WWC Common Stock will be reduced pursuant to
1.5.3.3 below, and, (ii) the terms with respect to termination of the option and
all rights thereunder on termination of employment by the Company will be
amended to relate to termination of employment by VoiceStream, rather than the
Company. The Substitute WWC Option Agreement will remain subject to the WWC
Option Plan. The terms of the VoiceStream Option Agreement to be issued to
VoiceStream Employees will be materially identical to the terms of the
Substitute WWC Option Agreement, with appropriate revisions to reflect
VoiceStream as the grantor, and will be governed by the VoiceStream Stock Option
Plan.
1.5.3.3 Exercise Price--The exercise price of the Vested WWC
Options as set forth in the Substitute WWC Option Agreement ("New WWC Option
Exercise Price") and the exercise price of the Vested VoiceStream Options
("VoiceStream Option Exercise Price") will each be established as a percentage
of the exercise price of the Vested WWC Options (the "Old Exercise Price") prior
to replacement by the Substitute WWC Option Agreement, and will collectively
total 100% of the Old Exercise Price. The relative percentage of the Old
Exercise Price to be applied to determine the WWC Option Exercise Price (the
"WWC Price Percentage") and to be applied to determine the New VoiceStream
Option Exercise Price (the "VoiceStream Price Percentage") will be determined
based upon the relative averages of the daily last trade prices of each of the
WWC Common Stock and the VoiceStream Common Stock during a period of 10 trading
days ("Averaging Period") beginning the 5th trading day after the Effective
Date. For example, assume the Old Exercise Price was $20.00. If the average of
the daily last trade prices of WWC Common Stock during the Averaging Period was
$15.00 and the average of the daily last trade prices of VoiceStream Common
Stock during the Averaging Period was $10.00 (a total for both of $25.00), then
for WWC Common Stock the relative average, and the WWC Price Percentage, would
be 60% (15/25) and for VoiceStream Common Stock the relative average, and the
VoiceStream Price Percentage, would be 40% (10/25). As a result, the New WWC
Option Exercise Price would be $12.00 ($20.00 x 60%), while the VoiceStream
Option Exercise Price would be $8.00 ($20.00 x 40%).
1.5.4 Unvested Options. It is the intent of the Company and
VoiceStream that each individual that as of the Effective Date is the holder of
unvested options to purchase an identified number of shares of WWC Common Stock
("Unvested WWC Options"), as listed on the Unvested Options Schedule adopted by
the Company and VoiceStream, will, at and after the Effective Date, (a) if they
are a WWC Employee, surrender the original option to purchase such identified
number of shares of WWC Common Stock and will, in replacement thereof, receive
an unvested option ("New Unvested WWC Options") to purchase a new, increased
number at a new exercise price, determined pursuant to Section 1.5.5.3 below, of
shares of WWC Common Stock, on terms, except as to number of shares and exercise
price, materially identical to the terms of the agreement by which they were
granted their existing Unvested WWC Options, and (b) if they are a VoiceStream
Employee, will lose the right to purchase WWC Common Stock and will be granted
by VoiceStream unvested options ("Unvested VoiceStream Options") to purchase a
number of shares of VoiceStream Common Stock at a new exercise price, determined
pursuant
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to Section 1.5.5.4 below, on terms, except as to number of shares and exercise
price, materially identical to the terms of the agreement by which they were
granted their existing Unvested WWC Options, with appropriate revisions as to
grantor, all in accordance with this Section 1.5. The Unvested Options Schedule
adopted by the Company and VoiceStream shall identify each individual who holds
Unvested WWC Options, and for each shall set forth, among other information, the
original date of grant, the number of shares purchasable as of the Effective
Date, the exercise price per share of shares purchasable as of the Effective
Date, and the outside termination date of the original grant.
1.5.5 Stock Option Agreements with Respect to Unvested Options.
The terms of the agreements with respect to the New Unvested WWC Options and
the Unvested VoiceStream Options will provide, as the case may be, as follows.
1.5.5.1 WWC Employees--For a WWC Employee, the individual's
right to receive the New Unvested WWC Options will be contingent on, and fully
subject to, (a) surrender of the recipient's original agreement with respect to
the Unvested WWC Options and (b) the recipients' execution of a Substitute WWC
Option Agreement replacing the agreement covering the Unvested WWC Options.
Except with respect to exercise price and the number of shares, the Substitute
WWC Option Agreement will contain terms materially identical to the terms of the
agreement by which the recipient was granted their existing Unvested WWC
Options. The number of shares to be purchased and the exercise price to purchase
WWC Common Stock will be established with respect to the New Unvested WWC
Options pursuant to Section 1.5.5.3 below.
1.5.5.2 VoiceStream Employees--For a VoiceStream Employee, the
individual's right to receive the Unvested VoiceStream Options will be
contingent on, and fully subject to, (a) surrender of the recipient's original
agreement with respect to the Unvested WWC Options, and (b) the recipient's
execution of a new VoiceStream Stock Option Agreement. Except with respect to
exercise price and the number of shares, the terms of the VoiceStream Option
Agreement to be issued to VoiceStream Employees will be materially identical to
the terms of the surrendered original agreement granting the Unvested WWC
Options, with appropriate revisions to reflect VoiceStream as the grantor, and
will be governed by the VoiceStream Stock Option Plan, provided that the number
of shares and the exercise price will be established pursuant to Section 1.5.5.4
below.
1.5.5.3 Number of Shares and Exercise Price for WWC
Employees--The number of shares subject to the New Unvested WWC Options shall be
determined by multiplying the number of shares represented by the Unvested WWC
Options by a fraction, the numerator of which is the sum of the average daily
last trade prices of both WWC 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 WWC Common Stock during the Averaging Period. The new
exercise price shall be determined by multiplying the exercise price for the
Unvested WWC Options by a fraction, the numerator of which is the average of the
daily last trade prices of WWC Common Stock during the Averaging Period, and the
denominator of which is the sum of the average daily last trade prices of both
WWC Common Stock and VoiceStream Common Stock during the Averaging Period. For
example, if the number of shares
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subject to the Unvested WWC Options was 100 at an exercise price of $20.00, and
during the Averaging Period the average daily last trade price of the WWC 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 WWC
Options would be 175 (100 shares x $28.00/$16.00), and the exercise price for
the New Unvested WWC Options would be $11.43 ($20.00 x $16.00/$28.00).
1.5.5.4 Number of Shares and Exercise Price for VoiceStream
Employees--The number of shares subject to the Unvested VoiceStream Options
shall be determined by multiplying the number of shares represented by the
Unvested WWC Options by a fraction, the numerator of which is the sum of the
average daily last trade prices of both WWC 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 WWC 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 WWC Common Stock and VoiceStream Common Stock during
the Averaging Period. For example, if the number of shares subject to the
Unvested WWC Options was 100 at an exercise price of $20, and during the
Averaging Period the average daily last trade price of the WWC 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).
1.5.6 VoiceStream Restricted Stock Plan. VoiceStream shall establish a
restricted stock plan ("VoiceStream Restricted Stock Plan") substantially
similar to the Company's restricted stock option plan presently in effect ("WWC
Restricted Stock Plan"). All individuals who prior to the Effective Date were
employees of the Company and who have previously been awarded restricted stock
by the Company, as identified on the Restricted Stock Schedule adopted by the
Company and VoiceStream, will receive shares of VoiceStream Common Stock
pursuant to Section 1.2, and such shares shall be subject to the terms and
restrictions of the WWC Restricted Stock Plan and the grant thereunder covering
the shares with respect to which the VoiceStream Common Stock is issued. All
individuals who prior to the Effective Date were employees of the Company and
who on and after the Effective Date will be employees of VoiceStream, and who
have previously been awarded restricted stock by the Company, as identified on
the Restricted Stock Schedule adopted by the Company and VoiceStream, will be
issued an amendment to their restricted stock grant as necessary to avoid
forfeiture thereunder as a result of the new employment arrangements, and
containing such other terms, including adjustments as to existing restrictions
and delegation of authority to VoiceStream as to additional adjustments, as the
WWC Board shall determine.
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2. PROVISION OF SERVICES AND SPECIFICATION OF ON-GOING RELATIONSHIPS.
2.1 Services. The following terms hereof shall apply with respect to
the services to be provided between and among the parties (collectively,
"Services").
2.1.1 Existing Services Agreement. The Services Agreement
between the Company and VoiceStream executed as of February 17, 1998 in
connection with the investment in VoiceStream by a subsidiary of Hutchison
Whampoa Ltd. (the "Services Agreement") shall be terminated as of the Effective
Date.
2.1.2 General Assistance. From and after the Effective Date
for a period, subject to Section 2.1.6, not to exceed one (1) year, the Company
and VoiceStream shall generally make their respective employees available to
each other as necessary to support the respective activities of each party in
areas including, without limitation, (a) advice and services relating to legal
matters, (b) accounting, (c) taxation and financial services, and (d) human
resources.
2.1.3 Exceptions to Requirement to Provide Services. Neither
the Company nor VoiceStream shall be obliged to provide Services to the other
if:
2.1.3.1 doing so would unreasonably interfere with
the performance by any employee of services for his employer or otherwise cause
unreasonable burden on the party otherwise obliged to provide Services;
2.1.3.2 it is not in a position to provide such
Services by reason of an absence of past participation, involvement or
familiarity with such matters or the absence of personnel competent to perform
such services; or
2.1.3.3 the performance of such Service presents an
unavoidable conflict of interest between the Company and VoiceStream.
2.1.4 Payment for Services. Each party shall be entitled to
receive payment from the other party for the reasonable costs and expenses of
providing such services.
2.1.5 Shared Senior Management. The Company and VoiceStream
will jointly provide for and fund the salaries and expenses of John W. Stanton,
Donald Guthrie, and Alan R. Bender (the "Shared Senior Management"), who will
support the Company and VoiceStream on an on-going basis on terms established
from time to time by the mutual agreement of the WWC Board and the VoiceStream
Board. The services of Mr. Guthrie and Mr. Bender for both the Company and
VoiceStream shall continue for up to three (3) years.
2.1.6 Termination of Obligation to Provide Services. At any
time, either party may undertake to perform any or all of the Services being
provided hereunder by the other by providing the other with ninety (90) days'
prior written notice of its intent to commence to perform such Services and to
terminate this Agreement with respect to such Services. At any time after a date
thirty (30) days following the Effective Date, a party rendering Services may
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terminate its obligations under this Section 2 by providing the other with
ninety (90) days' prior written notice of its intent to so terminate its
delivery of Services; provided that the other party shall have the right to
extend such ninety (90) day period for a reasonable period of time to permit an
orderly transition so long as such period does not extend beyond one (1) year
from the Effective Date.
2.2 Estimation and Payment of Insurance Claims.
2.2.1 Background. The Company currently maintains insurance
policies which provide coverage for each of the Company's business and
VoiceStream's business. Certain of these policies are "claims made" policies and
these must be in place both at the time of occurrence of the insured loss and at
the time a resulting claim is made. In order to ensure continuity of coverage of
these "claims made" policies, the Company will purchase so-called "run-off"
coverage for a minimum time of 3 years following the Spin-off. The
responsibility for the premiums associated with the "run-off" policies shall be
shared equally by the Company and VoiceStream. The Company and VoiceStream are
aware there are and may be a number of occurrences before the Distribution Date
involving the activities of VoiceStream's business for which claims have been or
may be made ("Incurred Claims"), and are aware that additional Incurred Claims
involving the activities of VoiceStream's business may come to light which will
result in insurance claims under either "claims made" or "claims accrued"
policies covering the combined business.
2.2.2 Term. The parties' obligations under this Section 2
shall continue for as long as there are any Incurred Claims which have not been
finally settled.
2.2.3 Notice and Administration of Claims. The Company will
promptly notify VoiceStream of any Incurred Claims asserted against the Company
relating in whole or in part to VoiceStream's business. VoiceStream will
promptly notify the Company of any Incurred Claims asserted against VoiceStream
or the VoiceStream Subsidiaries which VoiceStream reasonably believes are
covered by insurance policies covering the combined businesses. VoiceStream will
have the responsibility of administering, defending and settling all such
Incurred Claims which relate solely to VoiceStream's business. VoiceStream and
Western Wireless will jointly and cooperatively administer, defend and settle
all such Incurred Claims that relate to both VoiceStream's and Western Wireless'
businesses. Any self-insured portion of Incurred Claims and the costs of
defending such Incurred Claims shall be borne by VoiceStream in proportion to
the extent to which the Incurred Claim relates to VoiceStream's business. In
connection with Incurred Claims covered by insurance, the Company will promptly
transfer to VoiceStream any funds proportionally due to VoiceStream that are
received by the Company in connection with the settlement of Incurred Claims.
2.2.4 Personnel Costs. Time expended by Company personnel in
dealing with Incurred Claims under this Section 2.2 shall be paid for by
VoiceStream in accordance with and in the same manner as Services are paid for
under Section 2.1
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2.3 Access to Information and Witnesses.
Subsequent to the Distribution, each of the Company and VoiceStream may
have in its possession or under its control (or the control of persons or firms
which have rendered services to or otherwise done business with it) books,
records, contracts, instruments, data and other information (collectively,
"Information") which may prove necessary to the other in connection with the
other's business. Accordingly, at all times subsequent to the Record Date, (i)
the Company agrees to provide to VoiceStream, and VoiceStream agrees to provide
to the Company, upon the other's request, at all reasonable times, full and
complete access to (including access to persons or firms possessing
Information), and duplication rights with respect to, any and all such
Information as the other may reasonably request and require in the conduct of
its business; and (ii) the Company agrees to use its best efforts to make
available to VoiceStream, and VoiceStream agrees to use its best efforts to make
available to the Company, upon the other's request, their respective officers,
directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any legal, administrative or other
proceedings in which VoiceStream or the Company, as the case may be, may from
time to time be involved. "Information" shall include without limitation
information sought for audit, accounting, FCC filing, claims, litigation and tax
purposes as well as for purposes of fulfilling disclosure and reporting
obligations under federal and state securities laws. The party providing
Information or making witnesses available shall be entitled to receive from the
other party, upon the presentation of invoices therefor, payment as calculated
in Section 2.1.4 above. This provision is intended for the convenience of the
parties in administrative matters, and all information that is by its nature
privileged or confidential will be subject to release only in the event a
confidentiality agreement reasonably acceptable to the releasing party is
executed at the time of the release.
2.4 Mail and Other Items.
Subsequent to the Distribution, each of the Company and VoiceStream may
receive mail, deliveries, faxes, email, packages and other communications
properly belonging to the other. Accordingly, at all times subsequent to the
Record Date, each of the Company and VoiceStream authorizes the other to receive
and open mail, deliveries, faxes, email, packages and other communications
received by it and not unambiguously intended for the other party or any of the
other party's officers and/or directors specifically in their capacities as
such, and to retain the same to the extent that they relate to the business of
the receiving party. To the extent that they do not relate to the business of
the receiving party and do relate to the business of the other party, or to the
extent that they relate to both businesses, the receiving party shall promptly
contact the other party for delivery instructions and such mail, telegrams,
packages or other communications (or, in case the same relate to both
businesses, copies thereof) shall promptly be forwarded to the other party in
accordance with its delivery instructions. The provisions of this Section 2.4
are not intended to and shall not be deemed to constitute an authorization by
either the Company or VoiceStream to permit the other to accept service of
process on its behalf and neither party is nor shall be deemed to be the agent
of the other for service of process purposes.
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2.5 Indemnification.
2.5.1 Pursuant to this Agreement, VoiceStream shall continue
to remain primarily liable for all liabilities and obligations of VoiceStream
and shall also assume the Company's liabilities, obligations, lawsuits and
administrative investigations relating to or arising from the Domestic PCS
Business (collectively, the "VoiceStream Liabilities"); provided that
liabilities and obligations in respect of taxes shall be governed by the terms
of the Tax Sharing Agreement. The Company shall continue to be liable for all
liabilities, obligations, lawsuits and administrative investigations relating to
or arising from all business of the Company other than the Domestic PCS Business
(the "Company Liabilities"); provided that liabilities and obligations in
respect of taxes shall be governed by the terms of the Tax Sharing Agreement.
VoiceStream and the Company shall each be responsible for its own "Distribution
Liabilities" (defined as expenses, costs, or liabilities directly related to the
Distribution) which are incurred or accrued prior to the Effective Date;
provided that liabilities and obligations in respect of taxes shall be governed
by the Tax Sharing Agreement. The Company and VoiceStream shall share (i) any
Distribution Liabilities incurred or accrued after the Effective Date; and (ii)
any liabilities which are not specifically assumed by either party and are
neither VoiceStream liabilities nor Company Liabilities, and the relative shares
of the Company and VoiceStream will be allocated in the same percentage as their
respective market capitalizations determined based upon the relative averages of
the daily last trade prices of the WWC Common Stock and the VoiceStream Common
Stock during Averaging Period.
2.5.2 VoiceStream agrees to indemnify, defend and hold
harmless the Company and its officers, directors, employees, agents and
affiliates from and against any and all losses, liabilities, claims, damages,
costs and expenses (including without limitation reasonable attorneys' fees)
arising out of or related in any manner to the VoiceStream Liabilities and any
and all liabilities of the Company pursuant to any obligations of the Company to
the extent the same have been specifically assumed by VoiceStream in writing.
2.5.3 The Company agrees to indemnify, defend and hold
harmless VoiceStream and its officers, directors, employees, agents and
affiliates from and against any and all losses, liabilities, claims, damages,
costs and expenses (including without limitation reasonable attorneys' fees)
arising out of or related in any manner to the Company Liabilities.
2.5.4 If any action is brought or any claim is made against a
party or controlling person with respect to which indemnity may be sought (the
"Indemnified Party"), the Indemnified Party shall, with reasonable promptness
after the receipt of information indicating that an action has been or is likely
to be instituted or a claim has been or is likely to be made, notify the party
from whom indemnification is to be sought (the "Indemnifying Party") in writing
of such action or claim and the Indemnifying Party shall have the obligation to
assume the defense of such action or claim, including the employment of counsel;
provided, however, that the Indemnifying Party shall not-be entitled to settle
such action or claim on behalf of the Indemnified Party without the prior
written consent of the Indemnified Party, (which consent shall not unreasonably
be withheld, if, but only if, such settlement would not, in addition to the
payment of money, impose an unreasonable and material burden on the Indemnified
Party, such as a consent judgment or injunction). Such Indemnified Party shall
have the right to employ its
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<PAGE> 95
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party unless the employment of such counsel
shall have been authorized in writing by the Indemnifying Party in connection
with the defense of such action or claim or the Indemnifying Party shall not
have employed counsel to take charge of the defense of such action or claim or
such Indemnified Party shall have reasonably concluded that there may be
defenses available to it which are different from or in addition to those
available to the Indemnifying Party (in which case the Indemnifying Party shall
not have the right to direct any different or additional defense of such action
or claim on behalf of the Indemnified Party), in any of which events such fees
and expenses shall be borne by the Indemnifying Party. Except as expressly
provided above, the Indemnifying Party shall not be liable to any Indemnified
Party for legal or other expenses incurred by such Indemnified Party in
investigating, preparing or defending against such action or claim subsequent to
such time as the Indemnifying Party assumes the defense of such action or claim.
Anything in this Section 2.5 to the contrary notwithstanding, no Indemnifying
Party shall be liable for any settlement of any such claim or action effected
without its written consent. In the event that any actions or claims could
result in both parties being liable to the other under these indemnification
provisions, the parties shall endeavor, acting reasonably and in good faith, to
agree upon a manner of conducting the defense and/or settlement of such action
or claim with a view to minimizing the legal expenses and associated costs that
might otherwise be incurred by the parties under the provisions of this Section
2.5.4.
2.5.5 For purposes of this Section 2.5, losses, liabilities,
claims, damages, costs and expenses of past, present or future officers,
directors, employees, agents or subsidiaries of the Company or VoiceStream shall
be deemed to have been suffered by the Company or VoiceStream, as the case may
be.
2.5.6 The indemnification provided for in this Section 2.5
shall be subject to the following provisions:
2.5.6.1 Any amounts payable from the Company to
VoiceStream and from VoiceStream to the Company shall first be offset against
each other with any net balance then payable upon demand;
2.5.6.2 The indemnification provisions hereof shall
survive the Effective Date and any investigation made at any time by either of
the parties. In addition, actual prior knowledge by the Indemnified Party with
respect to any matter as to which indemnification may be sought shall not
constitute a defense to the Indemnifying Party or otherwise affect the
Indemnified Party's rights to indemnification pursuant to the provisions hereof;
and
2.5.6.3 Subject to the provisions of Section 2.5.6.1
and 2.5.6.2 above, the indemnification provisions of this Section 2.5 are made
for the sole benefit of the Company and VoiceStream and shall not, except to the
extent expressly stated otherwise herein, inure to the benefit of any third
party.
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<PAGE> 96
2.6 Pending Litigation and Significant Obligations.
2.6.1 With respect to all pending litigation and proceedings
(the "Proceedings") relating to the Domestic PCS Business to which the Company
has heretofore been a party and the liability for which will be assumed by
VoiceStream pursuant to this Agreement, the parties will endeavor to have
VoiceStream substituted in the place of and for the Company (and to have the
Company removed) as a party as promptly as is reasonably practicable. Pending
such substitution, and in cases where such substitution cannot be effected,
VoiceStream shall, subsequent to the Effective Date, in the name of the Company
but on behalf of VoiceStream, assume and have the sole and exclusive right to
direct the defense, prosecution and/or settlement of the claims involved,
including the employment of counsel (which counsel may be the counsel heretofore
used by the Company for such purpose), and VoiceStream shall pay all expenses
related thereto. To the extent that any such expenses are paid by the Company,
VoiceStream shall promptly reimburse the Company therefor.
2.6.2 With respect to all significant outstanding contracts,
licenses, guarantees and other obligations relating to the Domestic PCS Business
to which the Company has heretofore been a party and the liability for which
will be assumed by VoiceStream pursuant to this Agreement, the parties will
endeavor, to the extent not already provided for, to have VoiceStream
substituted in the place of and for the Company (and to have the Company
removed) as a party as promptly as is reasonably practicable.
2.7 Use of the Company Name.
VoiceStream agrees that it will discontinue and will cause each of its
subsidiaries to discontinue all use of the name "Western Wireless," "Western"
and "Cellular One," and to remove each of said names from its name and business
as well as from the name and business of each such subsidiary as promptly as is
reasonably practicable.
2.8 Premises and Occupancy Expenses.
2.8.1 The Company and VoiceStream (subject to requisite
approvals), shall enter into mutually agreeable arrangements with respect to
VoiceStream's use of office space and equipment at 3650 131st Avenue SE,
Bellevue, Washington, 98006, and such other locations as are mutually determined
by the Company and VoiceStream (the "Premises"), subject and subordinate to the
terms, provisions, covenants and conditions of the leases under which the
Company has leased the Premises and of this Section 2.8.
2.8.2 The term of this Section 2.8 shall commence on the
Effective Date and terminate upon ninety (90) days notice by the Company;
provided that VoiceStream shall have the right to extend such ninety (90) day
period for a reasonable period of time to permit an orderly transition.
2.8.3 VoiceStream acknowledges that it has inspected the
Premises and accepts the same in an "as is" condition and that the Company shall
have no obligation whatsoever to make any alterations, improvements or repairs.
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<PAGE> 97
2.8.4 Notwithstanding the provisions of Section 2.1, (i) lease
payments and all other shared costs of occupancy of the Premises, (ii) all
expenses, including depreciation and maintenance expenses, related to shared
furnishings and equipment at the Premises, and (iii) all out-of-pocket expenses
related to shared fax, telephone, duplicating and miscellaneous office equipment
at the Premises shall be shared in proportion to use by the Company and
VoiceStream. The foregoing expenses shall be reimbursed monthly. The Company and
VoiceStream may from time to time review the allocation of expenses between the
Company and VoiceStream and either shall have the right to propose a change in
the allocation (for either the most recent fiscal year or on a prospective basis
from the beginning of the current fiscal year) of such expenses between the
Company and VoiceStream. If the two parties do not concur as to a proposed
change then either party may request that the question of a fair allocation be
submitted to a mutually acceptable independent nationally recognized certified
public accounting firm (which may include an auditing firm previously retained
by either the Company or VoiceStream) and the determination of such firm shall
be final and binding on each party. Any reimbursement required by either an
agreed change or a determination by the accounting firm shall be paid within
five business days. The monthly rate of future reimbursements shall also be
adjusted accordingly.
3 SPECIFIC AGREEMENTS BETWEEN THE PARTIES.
3.1 Tax Sharing Agreement. Exhibit 3.1, the Tax Sharing Agreement,
dated February 17, 1997, and the Amendment to Tax Sharing Agreement
(collectively the "Tax Sharing Agreement") contain terms that establish the
parties respective rights and obligations concerning tax aspects of the
Distribution.
3.2 Roaming Agreement. Exhibit 3.2, the "Roaming Agreement," contains
terms that establish the parties, respective rights and obligations concerning
roaming on their respective wireless systems.
3.3 Spectrum Allocation and Non-Competition. Exhibit 3.3, the
"Spectrum Allocation and Non-Competition Agreement," contains terms that
shall govern the parties respective obligations in the event of business
opportunities and in the event of conflicts of interest.
4 MISCELLANEOUS PROVISIONS OF GENERAL APPLICABILITY.
4.1 Entire Agreement.
All prior or contemporaneous oral agreements, contracts, promises,
representations and statements, if any, among the parties hereto, or their
representatives, are merged into this Agreement and this Agreement shall
constitute the entire agreement and understanding among them with respect to the
subject matter hereof. No modification or waiver of the terms hereof shall be
valid unless in writing signed by the party to be charged and only to the extent
therein set forth.
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4.2 Benefit of Agreement.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors; provided, however, that this
Agreement is not assignable, in whole or in part, directly or indirectly, by
either party hereto without the written consent of the other which consent shall
not be unreasonably withheld.
4.3 Further Documents; Compliance; Governmental Approvals.
Both the Company and VoiceStream shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby. Both the
Company and VoiceStream shall, in connection with entering into this Agreement,
performing its obligations hereunder and taking any and all actions relating
hereto, (i) comply with all applicable laws, regulations, orders and decrees,
(ii) obtain all required consents and approvals and make all required filings
with any governmental agency, other regulatory or administrative agency,
commission or similar authority, and (iii) promptly provide the other with all
such information as the other may reasonably request in order to be able to
comply with the provisions of this section.
4.4 Notices.
All communications hereunder shall be in writing and shall be either
personally delivered or sent by first class mail.
4.5 Arbitration.
If any controversy or claim arising out of this Agreement cannot be
settled by the parties, the controversy or claim shall be settled by arbitration
in accordance with the commercial arbitration rules of the American Arbitration
Association then in effect, and judgment on the award may be entered in any
court having jurisdiction. The arbitration shall be conducted at Seattle,
Washington.
4.6 Attorneys' Fees.
In the event that any party maintains or defends any cause of action
against another party to this Agreement, the prevailing party shall be entitled
to recover all reasonable attorneys' fees and costs of litigation and
arbitration.
4.7 Governing Law.
The provisions of this Agreement shall be governed by and construed in
accordance with the laws of the state of Washington.
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4.8 Meaning of Terms.
As used in this Agreement, the terms "the Company" and "VoiceStream"
shall, unless the context otherwise requires, include the respective
subsidiaries of the Company and VoiceStream.
4.9 Headings.
The captions appearing in this Agreement are inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope and intent of this Agreement or any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year set forth below.
WESTERN WIRELESS CORPORATION
By
-------------------------------
Its
------------------------------
Dated:
----------------------------
VOICESTREAM WIRELESS CORPORATION
By
-------------------------------
Its
------------------------------
Dated:
----------------------------
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<PAGE> 100
EXHIBIT (ii)
VOICESTREAM SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE % OWNED
---- ----- -------
<S> <C> <C>
VoiceStream PCS Holding LLC Delaware 100%
VoiceStream PCS I LLC Delaware 100%
VoiceStream PCS I License LLC Delaware 100%
VoiceStream PCS II Corporation Delaware 100%
VoiceStream PCS II License Corporation Delaware 100%
VoiceStream PCS III Corporation Delaware 100%
VoiceStream PCS III License Corporation Delaware 100%
PCS Wireless Systems Purchasing Corporation Delaware 100%
VoiceStream PCS BTA Corporation Delaware 100%
VoiceStream PCS I Iowa Corporation Delaware 100%
VoiceStream PCS BTA License Corporation Delaware 100%
VoiceStream PCS BTA I Corporation Delaware 100%
VoiceStream PCS BTA Development Corporation Delaware 100%
VoiceStream PCS SMR Corporation Delaware 100%
VoiceStream PCS LMDS Corporation Delaware 100%
Cook Inlet Western Wireless PV/SS PCS, L.P. Delaware 49.9%
Cook Inlet/VoiceStream PCS LLC Delaware 49.9%
STPCS Joint Venture, L.L.C. Delaware 17.81%
Iowa Wireless Services, L.P. Delaware 38%
</TABLE>
<PAGE> 101
EXHIBIT 1.1.2
INFORMATION STATEMENT
<PAGE> 102
Exhibit 3.1(a)
TAX SHARING AGREEMENT
Agreement dated this 14th day of October, 1997, by and among
Western Wireless Corporation, a Washington corporation ("WWC"), Western PCS
Corporation, a Delaware corporation ("Western PCS") and Hutchison
Telecommunications PCS (USA) Limited, a British Virgin Islands corporation (the
"Investor") (the "Agreement").
WHEREAS, WWC is the common parent of an affiliated group of
corporations that files a consolidated federal income tax return (the "WWC
Affiliated Group");
WHEREAS, prior to the date hereof, WWC owned all of the
outstanding stock of Western PCS;
WHEREAS, as of the date hereof, Investor will acquire from
Western PCS 19.9 percent of the outstanding common stock of Western PCS (the
"Purchase"); and
WHEREAS, WWC, Western PCS and Investor desire to establish an
arrangement whereby the income tax liabilities of Western PCS and its direct and
indirect subsidiaries (the "Western PCS Group") will be determined and paid by
WWC and rebilled to Western PCS for settlement, and the Western PCS Group will
be compensated by WWC for the use of certain Western PCS Group net operating
losses and other tax attributes;
NOW, THEREFORE, WWC, Western PCS and Investor agree as follows:
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ARTICLE I
1.01 Preparation and Filing of Tax Returns by WWC. WWC shall
prepare and timely file, or shall cause the preparation and timely filing of,
all federal, state, and other income tax returns ("Tax Returns") of the Western
PCS Group. With respect to the tax treatment of items affecting the Western PCS
Group, such Tax Returns shall be prepared (in the absence of a material change
in law or circumstance) in a manner that is consistent with past practices,
elections, accounting methods, conventions, and principles of taxation used for
the most recent taxable periods for which Tax Returns involving similar items
have been filed prior to the Purchase.
1.02 Payment of Taxes by WWC. Subject to Sections 1.05 and 1.08
and any rights of offset that WWC may have under this Agreement, WWC shall pay,
or cause to be paid, all income taxes, interest, and penalties due with respect
to income earned or recognized by the Western PCS Group.
1.03 Determination of Income Taxes of the Western PCS Group. WWC
shall determine and allocate to each member of the Western PCS Group its income
taxes and related penalties and interest as if it were a separate and
independent taxpayer. For purposes of this determination, WWC shall not give
effect to any federal net operating loss carryover or carryback that would be
available to any member of the Western PCS Group. The computations shall be
prepared from year to year (in the absence of a material change in law or
circumstance) in a manner consistent with past practices, elections, accounting
methods, conventions, and principles of taxation used for the most recent
taxable periods for which Tax Returns involving similar items have been filed
prior to the Purchase. In the event that the WWC Affiliated Group files its
consolidated
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<PAGE> 104
federal income Tax Return on the basis of the alternative minimum tax, each
member of the Western PCS Group will be allocated tax by WWC based on its tax
calculated on a stand-alone basis. Items relating to intercompany transactions
shall be treated as provided under Treasury Reg. Section 1.1502-13.
WWC shall consult with Western PCS and Investor in the
determination of the Western PCS Group members' allocated income tax liabilities
and shall afford Western PCS and Investor reasonable opportunity to review such
determinations by making such determinations available to Western PCS and
Investor. Not later than the later of (i) 15 days after receipt of such
determinations by Western PCS and Investor and (ii) 15 days before the filing
due date of the relevant Tax Return, Investor or Western PCS shall notify WWC of
any determinations or allocations with which Investor or Western PCS disagrees,
including a reasonably detailed explanation of such disagreement. The parties
shall act in good faith to resolve such disagreement and if they cannot reach a
resolution, the matter shall be referred to an independent accounting firm
acceptable to all parties, whose resolution of the matter shall be binding on
the parties.
In addition to the other principles and policies set forth in
this Agreement, the parties have agreed that the determination and allocation of
taxes under this Section shall be computed on the basis that (i) the merger of
Western PCS III Corporation into Western PCS II Corporation during 1997 was a
qualifying tax-free reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) any tax liability arising as a
result of any future spin-off by Western PCS of any direct or indirect
subsidiary of Western PCS shall not be allocated to any member of the Western
PCS Group.
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<PAGE> 105
WWC and Western PCS shall cooperate to effectively monitor any
"excess loss accounts" (as defined in Treasury Reg. Section 1.1502-19) anywhere
within the Western PCS Group. Prior to any event (including, but not limited to,
debt cancellations and deconsolidation events) which may trigger recapture of
income due to any excess loss account, WWC and Western PCS shall cooperate and
use all commercially reasonably efforts to eliminate such excess loss account
recapture or otherwise avoid or minimize the impact thereof.
1.04 Determinations by WWC in Accordance with Allocation Policy
Objectives. In the event that it may be unclear as to the result of the
application of Section 1.03 to specific situations which may arise and which are
not expressly addressed in Section 1.03, the allocation of taxes by WWC to the
members of the Western PCS Group shall be made using the following tax
allocation policy objective as a guide: the tax allocation policy is meant to
fairly allocate federal, state, and local tax liabilities (without regard to
federal net operating loss carryovers or carrybacks, except as provided in
Sections 1.06 and 1.07) to the members of the Western PCS Group as if each such
corporation filed its Tax Return and paid its tax on a separate company basis.
1.05 Payment of Allocated Taxes. Subject to Sections 1.06 and
1.08, Western PCS shall pay to WWC on behalf of each of the members of the
Western PCS Group, within 30 days after the later of (i) the receipt of the
determinations referred to in Section 1.03 and (ii) the filing of the relevant
Tax Return, the tax liability allocated to such member pursuant to Section 1.03,
except for payments relating to disputed items under Section 1.03, which
payments shall be made within 30 days after the resolution thereof. The tax
liability of the WWC Affiliated Group, less the amount of tax liability
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<PAGE> 106
allocated to the members of the Western PCS Group, shall be the sole
responsibility of WWC and the other members of the WWC Affiliated Group,
excluding the members of the Western PCS Group. The foregoing sentence shall not
affect any right to indemnification that WWC or other members of its Affiliated
Group may have from any person who is not a member of the WWC Affiliated Group
for any taxes (including penalties and interest thereon and expenses related
thereto) that are the responsibility of WWC. Western PCS may offset its
obligation to make payments to WWC under this Section against WWC's obligations
to make payments to Western PCS under the provisions of this Agreement.
1.06 Treatment of Post-1997 Net Operating Losses and Other Tax
Attributes. (a) If for any taxable year beginning on or after January 1, 1998,
any member of the Western PCS Group has a net operating loss (computed without
regard to any net operating loss carryover or carryback from any period) or
generates any other tax attribute (e.g., a credit) that reduces the federal
consolidated tax liability of the WWC Affiliated Group (excluding the Western
PCS Group) for the year in which such loss is incurred or such attribute is
generated, the amount of the net operating loss or tax attribute producing such
reduction in tax liability shall be treated as follows: (i) first, to the extent
of losses or attributes referred to in Section 1.12 (generally, Western PCS
Group Pre-1997 Losses), as reducing the amount of such losses or attributes;
(ii) then, to the extent of losses referred to in Section 1.07 (Western PCS
Group 1997 Losses), as reducing the amount of such losses; and (iii) thereafter,
as a utilization of a current year loss or attribute; all as further described
below in this Section.
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<PAGE> 107
(b) With respect to the losses referred to in Section
1.06(a)(ii), WWC shall make such payment as provided in Section 1.07 by treating
such amount as a "1997 Reimbursable Loss."
(c) With respect to the losses and attributes referred to in
Section 1.06(a)(iii) above, the aggregate total of such losses and attributes
shall be maintained in a deferred account (the "Western PCS Deferred Account")
until the date upon which the Western PCS Group members (i) cease to file a
consolidated federal income Tax Return with WWC, or (ii) cease to have any net
operating loss carryovers computed on a stand-alone basis (taking into account
the provisions of this Section 1.06 and computed as of the end of a taxable
year). If the Western PCS Group members cease to file a consolidated federal
income Tax Return with WWC, WWC shall pay to Western PCS within 30 days
following the date of such deconsolidation an amount equal to the present value
of the aggregate balance of such Western PCS Deferred Account determined by
mutual agreement among WWC, Western PCS and Investor based on (i) the maximum
federal income tax rate for corporations applicable for the year during which
the deconsolidation becomes effective, (ii) reasonable projections for the
Western PCS Group with regard to the anticipated timing of the utilization by it
of such losses and attributes and (iii) commercially reasonable discount rate.
If there is a dispute between WWC, Western PCS and Investor with regard to the
preceding calculation, the matter shall be referred to an independent accounting
firm acceptable to all parties, whose resolution of the matter shall be binding
on the parties. In no event shall payment of any disputed amount be required to
be made prior to 30 days following resolution of such dispute. If, prior to any
time that the Western PCS Group members cease to file
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<PAGE> 108
a consolidated federal income tax return with WWC, the Western PCS Group members
cease to have any net operating loss carryovers computed on a stand-alone basis
(taking into account the provisions of this Section 1.06 and computed as of the
end of a taxable year), WWC shall pay to Western PCS an amount equal to the
difference between (A) the sum of the Western PCS Group members' federal income
tax liabilities determined as if each such member were a separate and
independent taxpayer, and (B) the sum of the Western PCS Group members' federal
income tax liabilities determined as if each such member were a separate and
independent taxpayer and had available to it a part of the net operating losses
and other attributes in the Western PCS Deferred Account proportionate to its
taxable income. Thereafter, such calculation shall be performed annually (or
until the Western PCS Group members cease to file a consolidated federal income
tax return with WWC), and the amount in the Western PCS Deferred Account shall
be reduced by the amount of the net operating losses and other attributes
utilized in determining the federal income tax liabilities of the Western PCS
Group members in (B).
(d) The principles of Section 1.06(c) shall apply equally to
years in which the WWC Affiliated Group (excluding the members of the Western
PCS Group) has a net operating loss (computed without regard to any net
operating loss carryover or carryback from any period) or other tax attribute
which reduces the tax liability of the Western PCS Group. The deferred account
of the WWC Affiliated Group (excluding members of the Western PCS Group) (the
"WWC Deferred Account") shall be increased for all such current year losses and
other attributes referred to in this Section 1.06(d). No member of the Western
PCS Group shall be required to make any payment pursuant to Section 1.05 for any
taxable year to the extent that such payment which otherwise would
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<PAGE> 109
be required under Section 1.05 is attributable to any amount added for that
taxable year to such WWC Deferred Account.
(e) WWC and Western PCS may each offset their obligations to make
payments pursuant to Section 1.06(c) and (d) against the other party's
obligations to make such payments.
(f) If for any taxable year beginning on or after January 1,
1998, any member of the Western PCS Group has a net operating loss (computed
without regard to any net operating loss carryover or carryback from any period)
or generates any other tax attribute (e.g., a credit) that reduces the federal
consolidated tax liability of the WWC Affiliated Group, for any year other than
the year in which such loss is incurred or such attribute is generated, below
the amount that would have been payable if such Western PCS Group member had not
incurred such loss or generated such attribute, WWC shall pay the amount of the
tax reduction so computed to Western PCS within 30 days after the filing of the
consolidated federal income Tax Return that reflects such tax reduction or, if
such tax reduction is due to the carryback of an item and refund of earlier
payment, within 30 days after the receipt by WWC of such refund payment. WWC may
offset its obligation to make payments to Western PCS under this Section 1.06(f)
against Western PCS's obligations to make payments to WWC under the provisions
of this Agreement.
(g) The principles of Section 1.06 shall be applied on the basis
that, if any member of the WWC Affiliated Group has a net operating loss
(computed without regard to any net operating loss carryover or carryback) or
generates any other tax attribute for any taxable year beginning on or after
January 1, 1998, such net operating loss or tax attribute shall be used first to
reduce the federal tax liability for such year of
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<PAGE> 110
the other members of the Western PCS Group or WWC Affiliated Group (excluding
the Western PCS Group members) of which such member having such net operating
loss or tax attribute is a member.
1.07 Reimbursement for the Use of Western PCS Group 1997 Net
Operating Losses. If for the 1997 taxable year any member of the Western PCS
Group has a net operating loss (computed without regard to any net operating
loss carryover or carryback from any period) that reduces the federal
consolidated tax liability of the WWC Affiliated Group for any year below the
amount that would have been payable if such Western PCS Group member had not
incurred such loss (such net operating loss a "1997 Reimbursable Loss"), WWC
shall pay to Western PCS the amount of such tax reduction, computed as specified
in the next sentence. The amount of the tax reduction shall be an amount equal
to $20 million times a fraction, the numerator of which shall be the amount of
the Western PCS Group members' 1997 Reimbursable Losses utilized for the year of
tax reduction, and the denominator of which shall be the total amount of the
Western PCS Group members' 1997 net operating losses (computed without regard to
any net operating loss carryover or carryback from any period). In no event
shall (i) the total payments made by WWC to Western PCS under this Section
exceed $20 million or (ii) the payment for any particular year exceed the amount
of the tax reduction referred to in the first sentence of this Section 1.07. Any
payment by WWC required under this Section 1.07 shall be paid to Western PCS
within 30 days of WWC's filing of the consolidated federal income Tax Return
that reflects such tax reduction as determined under this Section. WWC may
offset its obligation to make payments to Western PCS under this Section
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against Western PCS's obligations to make payments to WWC under the provisions
of this Agreement.
The amount of losses and payments referred to in this Section
1.07 shall be reduced by the losses and payments determined in Section 1.06(b).
In any case where WWC would be required to make a payment under
Section 1.06(f) but for the existence of a Western PCS Group member 1997 net
operating loss (computed without regard to any net operating loss carryover or
carryback from any period), the WWC Affiliated Group's federal consolidated tax
liability shall be deemed to be reduced first by the 1997 loss and WWC shall
make a payment to Western PCS under this Section 1.07 accordingly.
1.08 Interim Estimated Payments. Within 30 days after each
request by WWC, Western PCS shall advance to WWC amounts computed consistently
with Sections 1.03, 1.04 and 1.06 necessary to reimburse WWC for the portion of
any estimated federal income tax payments attributable to the inclusion of the
members of the Western PCS Group in the WWC consolidated federal income Tax
Return. Any amounts so paid in any year shall operate to reduce the amount
payable to WWC following the end of such year pursuant to Section 1.05 above,
and any excess of payments made by Western PCS pursuant to this Section 1.08
shall promptly be refunded by WWC to Western PCS. Conversely, within 30 days
after the due date of any estimated federal income tax payments, WWC shall
advance to Western PCS amounts computed consistently with Sections 1.06 and 1.07
(and only if a current payment would be required pursuant to Sections 1.06 and
1.07) necessary to reimburse Western PCS for the reduction in estimated federal
income tax payments attributable to the inclusion of the
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Western PCS Group in the WWC consolidated federal income Tax Return. Any amounts
so paid in any year shall operate to reduce the amount payable to Western PCS
following the end of such year pursuant to Sections 1.06 and 1.07, and any
excess of payments made by WWC pursuant to this Section 1.08 shall promptly be
refunded to WWC by Western PCS.
1.09 State and Local Combined Reporting. In the event that any
Western PCS Group member, on the one hand, and WWC or any other member of the
WWC Affiliated Group (other than a member of the Western PCS Group), on the
other hand, compute their state or local income, franchise, net worth or similar
tax liabilities in any jurisdiction on a combined, consolidated or unitary
basis, this Agreement shall apply to such corporations with respect to such
taxes to the fullest extent possible, taking into account any differences
between the federal consolidated return system and the state or local combined,
consolidated or unitary return system.
1.10 Conduct of Tax Audits and Disputes; Tax Adjustments. Except
as otherwise provided in this Section 1.10, WWC and its duly appointed
representatives shall have the right on behalf of all members of the Western PCS
Group to supervise or otherwise coordinate any tax examination process and to
negotiate, resolve, settle, and contest any asserted tax deficiencies or assert
and prosecute any claim for tax refund. WWC shall consult with Western PCS and
Investor in connection with such matters as relate to the Western PCS Group,
shall give Investor a reasonable opportunity to participate therein (provided
that WWC shall retain ultimate control of such matters), and shall promptly
provide to Western PCS and Investor all information relating to such matters
received by WWC or its representatives, including providing copies of all
notices,
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assessments, or similar documents within 15 days of receipt. WWC shall not agree
to any audit adjustment or deficiency, settle any issue or amount, resolve any
issue, contest any claim, or take any other action in any legal proceeding that
pertains to the Western PCS Group except in good faith and based on the merits
thereof and without regard to any other audit adjustment, deficiency, issue,
amount, claim or proceeding relating to the WWC Affiliated Group (excluding the
Western PCS Group).
In the event of any adjustment to the Tax Returns of any member
of the Western PCS Group as filed (by reason of an amended return, claim for
refund, or an audit by the Internal Revenue Service or other tax authority), the
liability of each member of the Western PCS Group hereunder shall be
redetermined to give effect to any such adjustment as if it had been made as
part of the original determination and allocation of tax liability. Appropriate
payments between WWC and Western PCS shall be made in respect of any such
adjustment in accordance with the foregoing provisions of this Agreement within
30 days after any payments are made or refunds are received as a result of the
adjustment or, in the case of contested proceedings, within 30 days after a
final determination of the contest. Similar principles shall apply to the other
members of the WWC Affiliated Group.
1.11 Payment for Western PCS Group Post-1996 Losses and Other Tax
Attributes Retained by WWC. In the event the Western PCS Group members cease to
file a consolidated federal income Tax Return with WWC, WWC shall make a lump
sum payment to Western PCS, according to the provisions of the following
paragraph, within 30 days of the date that the Western PCS Group members leave
the WWC Affiliated Group, in compensation for any unused net operating losses
and other tax attributes
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arising after 1996 that are attributable to the Western PCS Group and that are
retained by WWC.
To the extent that Western PCS Group 1997 net operating losses
are retained by WWC at such time, WWC shall pay to Western PCS the remaining
unpaid balance of the $20 million due to Western PCS from WWC as provided in
Section 1.07, determined as if the amount of such retained losses were treated
as o1997 Reimbursable Losses." In no event shall any payment to Western PCS
under this Section in respect of net operating losses attributable to the
Western PCS Group arising in 1997 exceed $20 million. To the extent that Western
PCS Group post-1997 net operating losses or other attributes are retained by WWC
at such time, WWC shall pay to Western PCS an amount equal to the present value
of such retained net operating losses and other attributes determined by mutual
agreement among WWC, Western PCS and Investor based on (i) the maximum federal
income tax rate for corporations applicable for the year during which the
deconsolidation becomes effective, (ii) reasonable projections for the Western
PCS Group with regard to the anticipated timing of the utilization by it of such
losses and other attributes and (iii) a commercially reasonable discount rate.
If there is a dispute among WWC, Western PCS and Investor with regard to the
preceding calculation, the matter shall be referred to an independent accounting
firm acceptable to all parties, whose resolution of the matter shall be binding
on the parties. In no event shall payment of any disputed amount be required to
be made prior to 30 days following resolution of such dispute.
1.12 Payment for Western PCS Group Pre-1997 Losses and WWC Group
(Excluding Western PCS Group) Post-1997 Losses and Other Attributes Retained
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by Western PCS. In the event the Western PCS Group members cease to file a
consolidated federal income Tax Return with WWC, Western PCS shall make a lump
sum payment to WWC, at the time the Western PCS Group members leave the WWC
Affiliated Group, in consideration for (i) any unused net operating losses
arising before 1997 that are attributable to the Western PCS Group and that are
retained by the Western PCS Group members and (ii) any unused net operating
losses or other tax attributes arising after 1996 that are attributable to
members of the WWC Affiliated Group, other than members of the Western PCS
Group, and that are retained by Western PCS Group members. The amount of the
payment in respect of losses referred to in clause (i) of the preceding sentence
shall be equal to $20 million times a fraction, the numerator of which shall be
the retained losses in clause (i), and the denominator of which shall be the
total amount of the net operating losses arising before 1997 that are
attributable to the Western PCS Group as of the date of this Agreement. To the
extent that such losses and attributes referred to in clause (ii) above are
retained by Western PCS at such time, Western PCS shall pay to WWC an amount
equal to the present value of such retained net operating losses and attributes
determined by mutual agreement among WWC, Western PCS and Investor based on (i)
the maximum federal income tax rate for corporations applicable for the year
during which the deconsolidation becomes effective, (ii) reasonable projections
for the WWC Affiliated Group (excluding the Western PCS Group) with regard to
the anticipated timing of the utilization by it of such losses and attributes
and (iii) a commercially reasonable discount rate. If there is a dispute among
WWC, Western PCS and Investor with regard to the preceding calculation, the
matter shall be referred to an independent accounting firm acceptable to all
parties, whose resolution of the matter shall
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<PAGE> 116
be binding on the parties. In no event shall payment of any disputed amount be
required to be made prior to 30 days following resolution of such dispute.
For purposes of determining the amount of any payment to be made
pursuant to this Section 1.12, the amount of pre-1997 losses and WWC Affiliated
Group (excluding Western PCS Group) post-1997 losses and other attributes
retained by the Western PCS Group members shall be reduced by losses and
attributes as provided in clause (i) of Section 1.06(a).
1.13 Ownership Change Loss Limitations. If a change of ownership
(as determined under Section 382 of the Code) occurs with respect to WWC which
causes the limitations of Section 382 to be applicable to any net operating loss
(including carryforward losses) of any member of the Western PCS Group, WWC
shall, at any time that the Western PCS Group (or any member thereof) ceases to
file a consolidated federal income Tax Return with WWC, allocate to the Western
PCS Group (or relevant member thereof) an equitable portion of any allowance for
limited use of NOLs that remains available. Such allocation shall be determined
based upon the proportion that the net operating losses (including carryforward
net operating losses) of each member of the WWC Affiliated Group represents of
the total of such losses (inclusive of such carryforward losses) of the entire
WWC Affiliated Group as of the date of the deconsolidation.
1.14 Indemnification of the Western PCS Group. WWC shall
indemnify and hold the Western PCS Group members harmless from and against all
federal, state, local, foreign and other taxes and penalties and interest
related thereto due or payable by WWC or any member of the WWC Affiliated Group
(other than taxes,
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penalties and interest allocable to members of the Western PCS Group pursuant to
Sections 1.01 through 1.10 of this Agreement and taxes, penalties and interest
of the members of the Western PCS Group where such items are not otherwise
subject to the provisions of the Agreement). If, upon receipt by WWC of a notice
of indemnification claim by Western PCS from Western PCS or Investor hereunder,
WWC disputes such claim, WWC shall notify Western PCS and Investor of its
disagreement and the basis therefor within 30 days of receipt of the notice of
claim. The parties shall act in good faith to resolve such disagreement and if
they cannot reach a resolution, the matter shall be referred to an independent
accounting firm acceptable to all parties, whose resolution of the matter shall
be binding on the parties. Any indemnification payment required hereunder shall
be paid within 30 days after the indemnifying party receives notice of such
required payment from the indemnified party or, if disputed, within 30 days
after the resolution of such dispute as provided in the preceding sentence. The
indemnifying party shall also pay the reasonable attorney's fees and other costs
incurred by the indemnified party with respect to the payment of such taxes and
other amounts and the pursuit of the indemnification claim.
1.15 Indemnification of WWC. Western PCS shall indemnify and hold
WWC and all members of its Affiliated Group (other than the members of the
Western PCS Group) harmless from and against all federal, state, local, foreign
and other taxes and penalties and interest related thereto allocable to any
member of the Western PCS Group pursuant to Sections 1.01 through 1.10 of this
Agreement and taxes, penalties and interest of the members of the Western PCS
Group where such items are not otherwise subject to the provisions of the
Agreement. Any indemnification claim by WWC shall be
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delivered to both Western PCS and Investor. If, upon receipt by Western PCS and
Investor of a notice of indemnification claim by WWC hereunder, Western PCS or
Investor disputes such claim, Western PCS or Investor shall notify WWC of its
disagreement and the basis therefor within 30 days of receipt of the notice of
claim. The parties shall act in good faith to resolve such disagreement and if
they cannot reach a resolution, the matter shall be referred to an independent
accounting firm acceptable to all parties, whose resolution of the matter shall
be binding on the parties. Any indemnification payment required hereunder shall
be paid within 30 days after the indemnifying party receives notice of such
required payment from the indemnified party or, if disputed, within 30 days of
the resolution of such dispute as provided in the preceding sentence. The
indemnifying party shall also pay the reasonable attorney's fees and other costs
incurred by the indemnified party with respect to the payment of such taxes and
other amounts and the pursuit of the indemnification claim.
1.16 Portion of Taxable Year. Whenever it is necessary under this
Agreement to determine liability for taxes for a portion of a taxable year or
period that begins before and ends after the Western PCS Group members cease to
file a consolidated federal income Tax Return with WWC, the determination shall
be made by assuming that each of the relevant corporations had a taxable year
which ended at the close of the date on which such corporations cease to file a
consolidated federal income Tax Return with WWC, except that exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a time basis.
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1.17 Payment Gross-up. Any payment required to be made under this
Agreement after the Western PCS Group members cease to file a consolidated
federal income Tax Return with WWC shall be increased so that the net amount
retained by the corporation to which payment is due, after deduction of any tax
due thereon, shall be equal to the amount otherwise due. All parties agree to
report payments to each other hereunder as non-includable and non-deductible to
the extent permitted under applicable law.
ARTICLE II
2.01 Limitation to Consolidated Return Years. The obligations of
the parties hereunder shall relate solely to taxes, net operating losses and tax
attributes arising during taxable years for which the Western PCS Group members
file a consolidated federal income Tax Return with WWC, except that if, in a
taxable year in which the Western PCS Group no longer files a consolidated
federal income Tax Return with WWC, the Western PCS Group generates a net
operating loss or other tax attribute which it carries back to a year in which
the Western PCS Group did file a consolidated federal income Tax Return with
WWC, WWC shall promptly apply for a refund upon notice of such carryback to WWC
and, upon receipt of such refund, shall promptly pay to Western PCS the amount
of the refund. Western PCS shall pay and indemnify WWC for all out-of-pocket
expenses including outside accountant's fees, attorney's fees and reasonable
overhead allocation incurred by WWC in making such refund claim and WWC shall be
entitled to offset any such expenses against the amount of any refund received.
2.02 Expenses. Except as otherwise stated herein, all costs and
expenses incurred in connection with this Agreement and transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
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2.03 Entire Agreement. This Agreement contains the entire
agreement among the parties and supersedes all prior agreements, arrangements,
and understandings relating to the subject matter hereof. There are no written
or oral agreements, understandings, representations or warranties between or
among the parties other than those set forth or referred to in this Agreement.
2.04 Section Headings. The Section and paragraph headings
contained in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
2.05 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be validly given when made, or served if in writing when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by returned telecopy, addressed as follows, or, in each
case, to such other address as may be specified by a party in writing to another
party:
(a) if to WWC, to it at:
Western Wireless Corporation
2001 NW Sammamish Road
Issaquah, Washington 98027
Attention: Donald Guthrie
Facsimile No.: 425-313-7731
with copies (which shall not constitute notice) to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Barry A. Adelman, Esq.
Facsimile No.: 212-698-7825
and
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Jones, Day, Reavis & Pogue
1450 G Street, N.W.
Washington, D.C. 20005
Attention: Lester W. Droller, Esq.
Facsimile No.: 202-737-2832
(b) if to Western PCS, to it at:
Western PCS Corporation
2001 NW Sammamish Road
Issaquah, Washington 98027
Attention: Donald Guthrie
Facsimile No.: 425-313-7731
with copies (which shall not constitute notice) to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Barry A. Adelman, Esq.
Facsimile No.: 212-698-7825
and
Jones, Day, Reavis & Pogue
1450 G Street, N.W.
Washington, D.C. 20005
Attention: Lester W. Droller, Esq.
Facsimile No.: 202-737-2832
(c) if to Investor, to it at:
Hutchison Telecommunications PCS (USA) Limited
22nd Floor, Hutchison House
10 Harcourt Road
Hong Kong
Attention: Ms. Edith Shih
Facsimile No.: 852-2128-1778
with a copy (which shall not constitute notice) to:
Dewey Ballantine LLP
Suite 3907
Asia Pacific Finance Tower
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Citibank Plaza, 3 Garden Road
Central Hong Kong
Attention: John A. Otoshi
Facsimile No.: 852-2509-7088
2.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without reference
to the choice of law principles thereof.
2.07 Illegality. In case any provision in this Agreement shall be
invalid, illegal or unenforceable the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
unless such remaining provisions are inconsistent with the policy objectives set
forth in Section 1.04.
2.08 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns (and, in the case of the second sentence of Section 2.09 below, to
the benefit of the Investor as an express third party beneficiary thereof);
provided, however, that no member of the Western PCS Group may assign any of its
rights or obligations under this Agreement without the prior written consent of
WWC.
2.09 Arbitration. In the event of any dispute between WWC and
Western PCS arising out of this Agreement, such dispute shall be submitted to
arbitration in accordance (mutatis mutandis) with the terms and procedures set
forth in Section 13(k) of the Shareholders Agreement of Western PCS, of even
date herewith (the "Shareholders Agreement"), between WWC, Investor and Western
PCS. The Investor shall have the right to participate in any pending
arbitration and to consolidate any such arbitration with any arbitration which
may be pending under the Shareholders Agreement and which relates to a dispute
which involves in a material way substantially similar issues.
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IN WITNESS WHEREOF, this Agreement has been signed on behalf of
each of the parties on the day set forth above.
WESTERN WIRELESS CORPORATION
By: ________________________________
Title:
WESTERN PCS CORPORATION
By: ________________________________
Title:
HUTCHISON TELECOMMUNICATIONS PCS
(USA) LIMITED
By: ________________________________
Title:
<PAGE> 124
EXHIBIT 3.1(b)
FIRST AMENDMENT TO TAX SHARING AGREEMENT
First Amendment dated __________, 1999, to the Tax Sharing Agreement
(the "Tax Sharing Agreement"), dated February 17, 1998, by and among Western
Wireless Corporation, a Washington Corporation, Western PCS Corporation
(presently named VoiceStream Wireless Corporation), a Washington Corporation,
and Hutchison Telecommunications PCS (USA) Limited, a British Virgin Islands
corporation.
WHEREAS, the parties to the Tax Sharing Agreement desire to make
certain amendments thereto in light of the proposed spin-off by Western Wireless
Corporation of all of its stock in VoiceStream Wireless Corporation; and
WHEREAS, VoiceStream Wireless Corporation was reincorporated in
Washington prior to the date hereof.
NOW, THEREFORE, the parties agree that the Tax Sharing Agreement is
amended as follows:
1. All references in the Tax Sharing Agreement to Western PCS
Corporation or Western PCS shall be deemed to be references to VoiceStream
Wireless Corporation ("VoiceStream"), a Washington Corporation, and all
references in the Tax Sharing Agreement to the Western PCS Group shall be deemed
to be references to the VoiceStream Group, which shall consist of VoiceStream
and its direct and indirect subsidiaries.
2. Section 1.02 of the Tax Sharing Agreement shall be amended so that
the obligations of WWC thereunder shall be subject to Sections 1.05, 1.08, 1.14,
1.19, and 1.20. Accordingly, Section 1.02 of the Tax Sharing Agreement shall be
amended to read as follows:
1.02 Payment of taxes by WWC. Subject to Sections 1.05, 1.08,
1.14, 1.19, and 1.20 and any rights of offset that WWC may
have under this Agreement, WWC shall pay, or cause to be paid,
all income taxes, interest, and penalties due
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with respect to income earned or recognized by the VoiceStream
Group.
3. Section 1.14 of the Tax Sharing Agreement is deleted in its entirety
and the following is inserted in lieu thereof:
1.14 Indemnification of the VoiceStream Group. Except as
otherwise provided in Section 1.20, WWC and each member of the
WWC Affiliated Group (other than members of the VoiceStream
Group) shall indemnify and hold each of the VoiceStream Group
members harmless from and against all federal, state, local,
foreign and other taxes and penalties and interest related
thereto due from or payable by WWC or any member of the WWC
Affiliated Group, other than taxes, penalties and interest (a)
allocable to members of the VoiceStream Group pursuant to
Sections 1.01 through 1.10 of the Agreement, (b) of members of
the VoiceStream Group that are not otherwise subject to the
provisions of this Agreement, (c) arising as a result of the
failure of any member of the VoiceStream Group to comply in
all material respects with each written representation and
written statement made concerning it in the ruling request
filed with the Internal Revenue Service by Western Wireless
Corporation on September 28, 1998, including all accompanying
exhibits and materials and the letters filed with the Internal
Revenue Service by Western Wireless Corporation in connection
therewith on November 24, 1998, January 14, 1999, and March 3,
1999 (collectively, the "Ruling Request"), (d) arising as a
result of VoiceStream voluntarily ceasing within two years
after the Spin-off, as defined in the Ruling Request, to
actively conduct the VoiceStream Active Business, as defined
in the Ruling Request, or (e) that are provided for in Section
1.19(b). For purposes of clause (c) of the prior sentence, the
inaccuracy as of the time of the Spin-off of any written
representation or written statement in the Ruling Request
shall not constitute a failure of any member of the
VoiceStream Group to comply with such representation or
statement.
<PAGE> 126
If, upon receipt by WWC of a notice of
indemnification claim by VoiceStream from VoiceStream or
Investor hereunder (other than a claim related to the
taxability of the Spin-off under Section 355 of the Code or
Section 311(b) of the Code or otherwise), WWC disputes such
claim, WWC shall notify VoiceStream and Investor of its
disagreement and the basis therefor within 30 days of receipt
of the notice of claim. The parties shall act in good faith to
resolve such disagreement and if they cannot reach a
resolution, the matter shall be referred to an independent
accounting firm acceptable to all parties, whose resolution of
the matter shall be binding on the parties. Any
indemnification payment required under this Section 1.14
(other than a payment related to the taxability of the
Spin-off under Section 355 of the Code or Section 311(b) of
the Code or otherwise) shall be paid within 30 days after the
indemnifying party receives notice of such required payment
from the indemnified party or, if disputed, within 30 days
after the resolution of such dispute as provided in the
preceding sentence. The indemnifying party shall also pay the
reasonable attorney's fees and other costs incurred by the
indemnified party with respect to the payment of such taxes
and other amounts and the pursuit of the indemnification
claim.
4. Section 1.15 of the Tax Sharing Agreement is deleted in its entirety
and the following is inserted in lieu thereof:
1.15 Indemnification of WWC Affiliated Group. Except as
otherwise provided in Section 1.20, VoiceStream and each
member of the VoiceStream Group shall indemnify and hold each
of the WWC Affiliated Group members (other than the members of
the VoiceStream Group) harmless from and against all federal,
state, local, foreign and other taxes and penalties and
interest related thereto due from or
<PAGE> 127
payable by any member of the VoiceStream Group and, in the
case of taxes specified in Section 1.14(c), (d), or (e) of
this Agreement, due from or payable by any member of the WWC
Affiliated Group (other than members of the VoiceStream
Group), other than taxes, penalties and interest (a) allocable
to members of the WWC Affiliated Group (other than the members
of the VoiceStream Group) pursuant to Sections 1.01 through
1.10 of the Agreement, (b) of members of the WWC Affiliated
Group (other than members of the VoiceStream Group) that are
not otherwise subject to the provisions of this Agreement, (c)
arising as a result of the failure of any member of the WWC
Affiliated Group (other than the members of the VoiceStream
Group) to comply in all material respects with each written
representation and written statement made concerning it in the
Ruling Request, (d) arising as a result of WWC voluntarily
ceasing within two years after the Spin-off to actively
conduct the WWC Active Business, as defined in the Ruling
Request, or (e) that are provided for in Section 1.19(a).
If, upon receipt by VoiceStream and Investor of a
notice of indemnification claim by WWC hereunder (other than a
claim relating to the taxability of the Spin-off under Section
355 of the Code or Section 311(b) of the Code or otherwise),
VoiceStream or Investor disputes such claim, VoiceStream or
Investor shall notify WWC of its disagreement and the basis
therefor within 30 days of receipt of the notice of claim. The
parties shall act in good faith to resolve such disagreement
and if they cannot reach a resolution, the matter shall be
referred to an independent accounting firm acceptable to all
parties, whose resolution of the matter shall be binding on
the parties. Any indemnification payment required under this
Section 1.15 (other than a payment related to the taxability
of the Spin- off under Section 355 of the Code or Section
311(b) of the Code or otherwise) shall be paid within 30 days
after the indemnifying party
<PAGE> 128
receives notice of such required payment from the indemnified
party or, if disputed, within 30 days of the resolution of
such dispute as provided in the preceding sentence. The
indemnifying party shall also pay reasonable attorney's fees
and other costs incurred by the indemnified party with respect
to the payment of such taxes and other amounts and the pursuit
of the indemnification claim.
5. A new Section 1.19 is added to the Tax Sharing Agreement as
follows:
1.19 Code Section 355(e) Taxes. (a) Except as otherwise
provided in Section 1.20, WWC and each member of the WWC
Affiliated Group (other than members of the VoiceStream Group)
shall indemnify and hold harmless each of the VoiceStream
Group members from and against all taxes, and penalties and
interest related thereto, arising in connection with the
Spin-off pursuant to the application of Section 355(e) of the
Code (and any similar provision of state or local law) as a
result of any acquisition of a 50-percent or greater interest,
within the meaning of Section 355(e) of the Code, of WWC or
any of its successors.
(b) Except as otherwise provided in Section 1.20, VoiceStream
and each member of the VoiceStream Group shall indemnify and
hold harmless each of the WWC Affiliated Group members (other
than the members of the VoiceStream Group) from and against
all taxes, and penalties and interest related thereto, arising
in connection with the Spin-off pursuant to the application of
Section 355(e) of the Code (and any similar provision of state
or local law) as a result of any acquisition of a 50-percent
or greater interest, within the meaning of Section 355(e) of
the Code, of VoiceStream or any of its successors.
(c) For purposes of Section 1.19 (b), the amount of any tax
arising in connection with the Spin-off pursuant to the
application of Section 355(e) of the Code (and
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any similar provision of state or local law) shall be deemed
to include the present value of any net operating losses of
WWC utilized by WWC to offset gain arising in connection with
the Spin-off pursuant to the application of Section 355(e) of
the Code (and any similar provision of state or local law).
The present value of such WWC net operating losses shall be
determined by mutual agreement among WWC and VoiceStream based
on (i) the maximum federal income tax rate for corporations
applicable for the year during which the Spin-off becomes
effective, (ii) reasonable projections for the WWC Affiliated
Group with regard to the anticipated timing of the utilization
by it of such losses, and (iii) a commercially reasonable
discount rate. If there is a dispute among WWC and VoiceStream
with regard to the preceding calculation, the matter shall be
referred to an independent accounting firm acceptable to all
parties, whose resolution of the matter shall be binding on
the parties.
6. A new Section 1.20 is added to the Agreement as follows:
1.20 Shared Responsibility for Certain Taxes Arising in
Connection with the Spin-off. (a) VoiceStream and each member
of the VoiceStream Group shall indemnify and hold harmless
each of the WWC Affiliated Group members (other than members
of the VoiceStream Group) from and against 50 percent of all
taxes, and 50 percent of all penalties and interest related
thereto, arising in connection with the Spin-off if (1) there
have been acquisitions of a 50-percent or greater interest,
within the meaning of Section 355(e) of the Code, of both WWC
or any of its successors and VoiceStream or any of its
successors, and each such acquisition, standing alone, would
give rise to a tax in connection with the Spin-off pursuant to
the application of Section 355(e) of the Code, or (2) both (x)
a member of the WWC Affiliated Group (other than the members
of the VoiceStream Group) has failed to comply in all material
respects with each written representation made concerning it
in the Ruling Request or WWC has
<PAGE> 130
voluntarily ceased within two years after the Spin-off to
actively conduct the WWC Active Business, as defined in the
Ruling Request, and as a result a tax would arise in
connection with the Spin-off pursuant to the application of
Section 355 of the Code, and (y) a member of the VoiceStream
Group has failed to comply in all material respects with each
written representation made concerning it in the Ruling
Request or VoiceStream has voluntarily ceased within two years
after the Spin-off to actively conduct the VoiceStream Active
Business, as defined in the Ruling Request, and as a result a
tax would arise in connection with the Spin-off pursuant to
the application of Section 355 of the Code. WWC and each
member of the WWC Affiliated Group shall indemnify and hold
harmless each member of the VoiceStream Group from the
remaining taxes, and penalties and interest related thereto,
arising in connection with the Spin- off in the circumstances
set forth in clauses (1) and (2) of the prior sentence.
(b) For purposes of Section 1.20(a), the amount of any tax
arising in connection with the Spin-off pursuant to the
application of Section 355 (including Section 355(e)) of the
Code (and any similar provision of state or local law) shall
be deemed to include the present value of any net operating
losses of WWC utilized by WWC to offset gain arising in
connection with Spin-off pursuant to the application of
Section 355(e) of the Code (and any similar provision of state
or local law). The present value of such WWC net operating
losses shall be determined by mutual agreement among WWC and
VoiceStream based on (i) the maximum federal income tax rate
for corporations applicable for the year during which the
Spin-off becomes effective, (ii) reasonable projections for
the WWC Affiliated Group with regard to the anticipated timing
of the utilization by it of such losses, and (iii) a
commercially reasonable discount rate. If there is a dispute
<PAGE> 131
among WWC and VoiceStream with regard to the preceding
calculation, the matter shall be referred to an independent
accounting firm acceptable to all parties, whose resolution of
the matter shall be binding on the parties.
7. A new Section 1.21 is added to the Agreement as follows: 1.21
Proceedings and Payment Related to Code Section 355 Taxes. (a)
Notwithstanding Section 1.10 of this Agreement, WWC and its
duly appointed representatives shall have the right on behalf
of all members of the VoiceStream Group to supervise or
otherwise coordinate any tax examination process and to
negotiate, resolve, settle, and contest any asserted tax
deficiencies or assert and prosecute any claim for tax refund
related to any tax arising as a result of the Spin-off and for
which WWC has sole indemnification responsibility under this
Agreement. WWC shall consult with VoiceStream in connection
with such matters as relate to the VoiceStream Group, shall
give VoiceStream a reasonable opportunity to participate
therein (provided that WWC shall retain ultimate control of
such matters), and shall promptly provide to VoiceStream all
information relating to such matters received by WWC or its
representatives, including providing copies of all notices,
assessments, or similar documents within 10 business days of
receipt.
(b) Notwithstanding Section 1.10 of this Agreement,
VoiceStream and its duly appointed representatives shall have
the right on behalf of all members of the WWC Affiliated Group
to supervise or otherwise coordinate that portion of any tax
examination process and to negotiate, resolve, settle, and
contest that portion of any asserted tax deficiencies or
assert and prosecute that portion of any claim for tax refund
related to any tax arising as a result of the Spin-off and for
which
<PAGE> 132
VoiceStream has sole indemnification responsibility under this
Agreement. VoiceStream shall consult with WWC in connection
with such matters, shall give WWC a reasonable opportunity to
participate therein (provided that VoiceStream shall retain
ultimate control of such matters), and shall promptly provide
to WWC all information relating to such matters received by
VoiceStream or its representatives, including providing copies
of all notices, assessments, or similar documents within 5
business days of receipt. WWC shall promptly notify
VoiceStream in writing upon receipt by WWC of notice of any
pending or threatened federal, state, or local tax audits or
assessments for which VoiceStream has sole indemnification
responsibility under this Agreement, provided that failure to
comply with this provision shall not affect WWC's right to
indemnification hereunder.
(c) Notwithstanding Section 1.10 of this Agreement, WWC and
VoiceStream shall mutually agree how to supervise or otherwise
coordinate that portion of any tax examination process, and
how to negotiate, resolve, settle, and contest that portion of
any asserted tax deficiency, or how to prosecute that portion
of any claim for tax refund, related to any tax for which
there is shared responsibility under Section 1.20.
(d) Any indemnification payment under this Agreement related
to the taxability of the Spin-off under Section 355 of the
Code or Section 311(b) of the Code shall be made at least 3
business days before the relevant tax becomes due (taking into
account any extensions of the due date for payment). Notice of
any payment to be made pursuant to the preceding sentence
shall be given by the indemnified party to the indemnifying
party at least 10 business days before the relevant tax
becomes due.
8. A new section 1.22 is added to the Tax Sharing Agreement as
follows:
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1.22 Employee Stock Options. WWC and VoiceStream agree that
following the Spin-off, (a) WWC shall claim a deduction under
section 162 of the Code with respect to the exercise of all
employee stock options to acquire the stock of WWC, and (b)
VoiceStream shall claim a deduction under section 162 of the
Code with respect to the exercise of all employee stock
options to acquire the stock of VoiceStream. The party
claiming the deduction as set forth in the prior sentence is
referred to as the "Employer" and the other party is referred
to as the "non-Employer." In the event that the non-Employer
claims a deduction under the Code (for whatever reason) with
respect to the exercise of an employee stock option to acquire
stock of the Employer, such non-Employer shall compensate the
Employer in an amount equal to the present value of the
Employer's deduction claimed pursuant to this section 1.22.
The present value of the Employer's deduction shall be
determined by mutual agreement among WWC and VoiceStream based
on (i) the maximum federal income tax rate for corporations
applicable for the year during which the deduction was claimed
by the Employer, (ii) reasonable projections for the
Employer's affiliated group with regard to the anticipated
timing of the utilization by it of such deduction, and (iii) a
commercially reasonable discount rate. If there is a dispute
among WWC and VoiceStream with regard to the preceding
calculation, the matter shall be referred to an independent
accounting firm acceptable to all parties, whose resolution of
the matter shall be binding on the parties.
9. Section 2.01 of the Tax Sharing Agreement is amended to read
as follows:
2.01 Limitation to Consolidated Return Years. Except as
provided in Section 1.22, the obligations of the parties
hereunder shall relate solely to taxes, net operating losses
and tax attributes arising during taxable years for which the
<PAGE> 134
VoiceStream Group members file a consolidated federal income
Tax Return with WWC, except that if, in a taxable year in
which the VoiceStream Group no longer files a consolidated
federal income Tax Return with WWC, the VoiceStream Group
generates a net operating loss or other tax attribute which it
carries back to a year in which the VoiceStream Group did file
a consolidated federal income Tax Return with WWC, WWC shall
promptly apply for a refund upon notice of such carryback to
WWC and, upon receipt of such refund, shall promptly pay to
VoiceStream the amount of the refund. VoiceStream shall pay
and indemnify WWC for all out-of-pocket expenses including
outside accountant's fees, attorney's fees and reasonable
overhead allocation incurred by WWC in making such refund
claim and WWC shall be entitled to offset any such expenses
against the amount of any refund received.
10. Except as expressly stated herein, the Tax Sharing Agreement
is ratified and confirmed in all respects.
IN WITNESS WHEREOF, this First Amendment has been signed on behalf of
each of the parties on the day set forth.
WESTERN WIRELESS CORPORATION
By: ________________________________
Title:
VOICESTREAM WIRELESS CORPORATION
By: ________________________________
Title:
<PAGE> 135
HUTCHISON TELECOMMUNICATIONS
PCS (USA) LIMITED
By: ________________________________
Title:
<PAGE> 136
EXHIBIT 3.2
ROAMING AGREEMENT
This Agreement is entered into as of __________, 1999 by and between
Western Wireless Corporation, a Washington corporation ("WWC"), and VoiceStream
Wireless Corporation, a Washington corporation ("VoiceStream").
WHEREAS, WWC and VoiceStream are parties to that certain Roaming
Agreement, dated as of February 17, 1998 (the "February Roaming Agreement"),
setting forth, among other things, certain agreements regarding the rates upon
which each of WWC and VoiceStream provide roaming services to the other;
WHEREAS, in connection with the February Roaming Agreement, WWC and
VoiceStream have entered into that certain Intercarrier Roamer Service Agreement
dated as of _______, 1998 (the "February Roamer Service Agreement"), setting
forth, among other things, the terms upon which each of WWC and VoiceStream
provide roaming services to the other;
WHEREAS, WWC and VoiceStream are parties to that certain Agreement and
Plan of Distribution, dated as of ________, 1999, pursuant to which, among other
things, WWC has agreed, upon the terms and conditions set forth therein, to
distribute the shares of VoiceStream's Common Stock, no par value (the "Common
Stock"), owned by it, which shares represent 80.1% of the Common Stock, to WWC's
shareholders, on the basis of one share of Common Stock for each one share of
WWC's outstanding common stock (the "Spin-Off");
WHEREAS, as of the effective date of the Spin-Off (the "Spin-Off
Effective Date"), VoiceStream and WWC desire to (i) terminate the February
Roaming Agreement and the February Roamer Service Agreement; and (ii) enter into
a new arrangement to provide roaming services to one another at the rates and
upon the terms hereinafter provided; and
WHEREAS, WWC and VoiceStream anticipate entering into a new
Intercarrier Roamer Service Agreement (the "Standard Agreement"), in connection
with this Agreement, a copy of which is attached hereto as Schedule A.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. This Agreement shall become effective on the Spin-Off Effective
Date. If the Spin- Off Effective Date does not occur on or before December 31,
1999, (a) this Agreement shall terminate and be of no further force and effect
whatsoever, and (b) each of the February Roaming Agreement and the February
Roamer Service Agreement shall remain in full force and effect.
<PAGE> 137
2. WWC and VoiceStream hereby agree that each of the February Roaming
Agreement and the February Roamer Service Agreement shall be terminated as of
the Spin-Off Effective Date and thereafter shall be of no further force and
effect.
3. Each of WWC and VoiceStream agrees, on behalf of itself and its
Subsidiaries, that each will provide roaming on its system to the other at a
rate per minute for local service and an additional rate per minute for
long-distance service as the Board of Directors of each of WWC and VoiceStream
have mutually agreed prior to the date hereof.
4. WWC further agrees, on behalf of itself and its Subsidiaries, if
within the control of WWC, to use its reasonable best efforts to provide roaming
technology for the benefit of VoiceStream customers where necessary.
5. Each of WWC and VoiceStream agrees, on behalf of itself and its
Subsidiaries, that all roaming agreements between them shall be modified by
mutual consent to reflect industry technological changes applicable to PCS to
AMPS roaming and vice versa.
6. Any and all disputes, controversies or claims (each a "Dispute")
between the parties relating to the interpretation or enforcement or performance
of this Agreement shall be resolved by binding arbitration by American
Arbitration Association ("AAA") in accordance with its rules, subject to the
following provisions:
(a) There shall be three arbitrators (the "Arbitrators"). Each party
shall appoint one arbitrator within 30 days after giving or receiving notice of
the submission of a Dispute to arbitration. The two arbitrators appointed by the
parties shall appoint the third arbitrator. If a party does not appoint an
arbitrator within such designated period, or if the two appointed arbitrators
fail to appoint a third arbitrator within 30 days after their appointment, the
relevant appointment shall be made by the president of the AAA.
(b) The expenses of the arbitration shall be borne equally by WWC and
VoiceStream, and each party shall bear its own legal fees and expenses;
provided, however, that the Arbitrators shall have discretion to require that
one party pay all or a portion of the expenses of arbitration or the other
party's legal fees and expenses in connection with any particular arbitration.
(c) The Arbitrators shall determine whether and to what extent any
party shall be entitled to damages or equitable relief. No party shall be
entitled to punitive damages or consequential damages or shall be required to
post a bond in connection with equitable relief.
(d) The Arbitrators shall not have the power to add to nor modify any
of the terms or conditions of this Agreement. The Arbitrators' decision shall
not go beyond what is necessary for the interpretation and application of the
provisions of this Agreement in respect of the issue before the Arbitrators. The
Arbitrators' decision and award or permitted remedy, if any, shall be based upon
the
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<PAGE> 138
issue as drafted and submitted by the respective parties and the relevant
and competent evidence adduced at the hearing(s).
(e) The Arbitrators shall have the authority to award any remedy or
relief provided for in this Agreement, in addition to any other remedy or relief
(including provisional remedies and relief) that a court of competent
jurisdiction could order or grant (but subject to the remedial limitations
elsewhere set forth in this Agreement, including, but without limitation, the
aforesaid prohibition against punitive and consequential damages). The
Arbitrators written decision shall be rendered within sixty (60) days of the
hearing. The decision reached by the Arbitrators shall be final and binding upon
the parties as to the matter in dispute. To the extent that the relief or remedy
granted by the Arbitrators is relief or remedy on which a court could enter
judgement, a judgement upon the award rendered by the Arbitrators may be entered
in any court having jurisdiction thereof (unless in the case of an award of
damages, the full amount of the award is paid within ten (10) days of its
determination by the Arbitrators). Otherwise, the award shall be binding on the
parties in connection with their continuing performance of this Agreement and in
any subsequent arbitral or judicial proceeding between the parties.
(f) The arbitration shall take place in New York, New York unless
otherwise agreed by the parties.
(g) The arbitration proceeding and all filing, testimony, documents and
information relating to or presented during the arbitration proceeding shall be
disclosed exclusively for the purpose of facilitating the arbitration process
and for no other purpose.
(h) The parties shall continue performing their respective obligations
under this Agreement notwithstanding the existence of a Dispute while the
Dispute is being resolved unless and until such obligations are terminated,
expire or are suspended in accordance with the provisions hereof.
(i) The Arbitrators may, in their sole discretion, order a pre-hearing
exchange of information including production of documents, exchange of summaries
of testimony or exchange of statements of position, and shall schedule promptly
all discovery and other procedural steps and otherwise assume case management
initiative and control to effect an efficient and expeditious resolution of the
Dispute. At any oral hearing of evidence in connection with an arbitration
proceeding, each party and its counsel shall have the right to examine its
witnesses and to cross- examine the witnesses of the other party. No testimony
of any witness shall be presented in written form unless the opposing party or
parties shall have the opportunity to cross-examine such witness, except as the
parties otherwise agree in writing.
(j) Notwithstanding the dispute resolution procedures contained in this
Section 6 either party may apply to any court having jurisdiction (a) to enforce
this Agreement to arbitrate, (b) to seek provisional injunctive relief so as to
maintain the status quo until the arbitration award is rendered
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<PAGE> 139
or the Dispute is otherwise resolved, or (c) to challenge or vacate any final
judgment, award or decision of the Arbitrators that does not comport with the
express provisions of this Section 6.
7. Notices. All notices, claims or other communications hereunder shall
be in writing and shall be given by delivery in person, by facsimile
transmission, by registered or certified mail (return receipt requested),
postage prepaid or overnight carrier guaranteeing next day delivery:
(a) to VoiceStream:
3650 131 Avenue SE
Bellevue, Washington 98006
U.S.A.
Attention: General Counsel
Tel: (425) 586-8014
Fax: (425) 586-8080
with a copy to:
Alan R. Bender, Esq.
3650 131 Avenue SE
Bellevue, Washington 98006
U.S.A.
Tel: (425) 586-8014
Fax: (425) 586-8080
and:
Friedman Kaplan & Seiler LLP
875 Third Avenue
New York, New York 10022-6225
Attention: Barry A. Adelman, Esq.
Telephone: (212) 833-1107
Facsimile: (212)-355-6401
(b) to WWC:
3650 131 Avenue SE
Bellevue, Washington 98006
U.S.A.
Attention: General Counsel
Tel: (425) 586-8014
Fax: (425) 586-8080
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<PAGE> 140
with a copy to:
Alan R. Bender, Esq.
3650 131 Avenue SE
Bellevue, Washington 98006
U.S.A.
Tel: (425) 586-8014
Fax: (425) 586-8080
and:
Friedman Kaplan & Seiler LLP
875 Third Avenue
New York, New York 10022-6225
Attention: Barry A. Adelman, Esq.
Telephone: (212) 833-1107
Facsimile: (212)-355-6401
or to such other address as any party may from time to time furnish to the other
by a notice given in accordance with the provisions of this Section 7. All such
notices and communications shall be deemed to have been duly given at the time
delivered by hand, if personally delivered; when receipt confirmed, if sent by
facsimile; and the next business day after timely delivery to the courier, if
sent by an overnight air courier service guaranteeing next day delivery.
8. Termination. WWC and VoiceStream agree that notwithstanding any
terms to the contrary in the Standard Agreement or any other related agreement,
this Agreement shall terminate upon the earliest to occur of any of the
following events:
(a) the mutual written agreement of the parties;
(b) upon notice by WWC to VoiceStream, in the event that
VoiceStream or any of its Subsidiaries provides or resells, or acts as the agent
for any other entity offering or reselling, wireless telephony services in any
portion of the geographic area in which WWC or any of its Subsidiaries provides
wireless telephony services other than (i) any such geographic area in which
VoiceStream or any of its Subsidiaries provides such services on the Spin-Off
Effective Date, or (ii) any such geographic area which is mutually agreed to by
the parties after the Spin-Off Effective Date;
(c) upon notice by VoiceStream to WWC, in the event that WWC
or any of its Subsidiaries provides or resells, or acts as the agent for any
other entity offering or reselling, wireless telephony services in any portion
of the geographic area in which VoiceStream or any of its Subsidiaries provides
wireless telephony services other than (i) any such geographic area in which WWC
or any of its Subsidiaries provides such services on the Spin-Off Effective
Date, or (ii) any
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<PAGE> 141
such geographic area which is mutually agreed to by the parties after the
Spin-Off Effective Date; or
(d) upon six (6) months notice by either of WWC or VoiceStream
to the other, in the event of a Change of Control (as defined below).
For purposes of this Section 8, (a) a "Change of Control" means (i)
directly or indirectly a sale, transfer, or other conveyance of all or
substantially all of the assets of VoiceStream or WWC, as the case may be, on a
consolidated basis, to any "person" (as such term is used for purposes of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not applicable), excluding transfers or conveyances
to or among VoiceStream's Subsidiaries or WWC's Subsidiaries, respectively, as
an entirety or substantially as an entirety in one transaction or series of
related transactions, in each case with the effect that a Person owns more than
50% of the aggregate number of votes of all classes of capital stock of
VoiceStream or WWC, respectively, which ordinarily have voting power for the
election of directors VoiceStream or WWC, respectively, immediately after such
transaction; (ii) any "person" (as such term is used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable), is or becomes
the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that a Person shall be deemed to
have "beneficial ownership" of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the aggregate number of
votes of all classes of capital stock of VoiceStream or WWC, as the case may be,
which ordinarily have voting power for the election of directors of VoiceStream
or WWC, respectively; (iii) any "person" (as such term is used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) shall
have the right or ability (whether by agreement, proxies, ownership of shares or
otherwise) to elect a majority of the Board of Directors of VoiceStream or WWC,
as the case may be; or (iv) there ceasing to be any Person who serves on the
Board of Directors of both WWC and VoiceStream; and (b) a "Person" means an
individual, partnership, joint-stock company, corporation, trust or
unincorporated organization, limited liability, company, or a government or
agency or political subdivision thereof or any other entity.
9. For purposes of this Agreement, a "Subsidiary" of any party hereto
shall mean any other entity as to which such party, directly or indirectly, owns
more than 50% of the outstanding voting power.
10. Applicable Law. The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be determined under, governed by and construed in accordance with the internal
laws of the State of Washington.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on their behalf by their officers thereunto duly authorized as of the
day and year first above written.
WESTERN WIRELESS CORPORATION VOICESTREAM WIRELESS CORPORATION
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<PAGE> 142
By:______________________________ By:______________________________________
Name:____________________________ Name:____________________________________
Its:_____________________________ Its:_____________________________________
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<PAGE> 143
EXHIBIT 3.3
SPECTRUM ALLOCATION AND NON-COMPETITION AGREEMENT
This SPECTRUM ALLOCATION AND NON-COMPETITION AGREEMENT (the
"Agreement"), dated as of __________, 1999, by and between Western Wireless
Corporation, a Washington corporation ("WWC"), and VoiceStream Wireless
Corporation, a Delaware corporation ("VoiceStream").
W I T N E S S E T H:
WHEREAS, VoiceStream holds, directly or through its Subsidiaries (as
hereinafter defined), personal communications services licenses operating in the
1850-1910 MHz and 1930- 1990 MHz bands issued by the Federal Communications
Commission ("FCC") and is engaged in the business of acquiring, owning,
constructing and operating wireless telecommunications systems utilizing such
licenses and businesses ancillary thereto (the "PCS Business");
WHEREAS, WWC holds, directly or through its Subsidiaries, cellular
telephone licenses operating in the 824-849 MHz and 869-894 MHz bands issued by
the FCC and is engaged in the business of acquiring, owning, constructing and
operating wireless telecommunications systems utilizing such licenses and
businesses ancillary thereto (the "Cellular Business");
WHEREAS, WWC and VoiceStream operate in distinct segments of the
wireless telecommunications industry under different brand names, with WWC
operating a rural-focused cellular business and VoiceStream operating an
urban-focused digital PCS business;
WHEREAS, VoiceStream and WWC are parties to that certain Agreement and
Plan of Distribution, dated of as of ________________, 1999 (the "Distribution
Agreement"), pursuant to which, among other things, WWC has agreed upon the
terms and conditions set forth therein, to distribute the shares of
VoiceStream's Common Stock, no par value per share ("Common Stock"), owned by
it, which shares represent 80.1% of the issued and outstanding shares of Common
Stock, to its shareholders on the basis of one share of Common Stock for each
one share of WWC's outstanding common stock (the "Spin-Off");
WHEREAS, the Board of Directors of WWC has determined that it is in the
best interests of WWC's stockholders to continue to expand and conduct its
Cellular Business;
WHEREAS, the Board of Directors of VoiceStream has determined it is in
the best interests of VoiceStream's stockholders to continue to expand and
conduct its PCS Business;
WHEREAS, the Board of Directors of WWC and the Board of Directors of
VoiceStream believe that during a transition period of three (3) years, or until
there has been a VoiceStream Change of Control (as hereinafter defined) or a WWC
Change of Control (as hereinafter defined), that it is in the best interests of
each of the companies to expand its respective business and services, thereby
becoming more competitive with other providers of its services;
<PAGE> 144
WHEREAS, the Spin-Off will allow each of WWC and VoiceStream to more
readily expand their respective businesses, as well as pursue strategies and
focus on objectives appropriate to its business; and
WHEREAS, simultaneously with the consummation of the Spin-Off (the date
of such consummation being hereinafter referred to as the "Spin-Off Effective
Date"), WWC and VoiceStream desire to enter into certain agreements (i)
concerning the allocation between them of certain assets and business
opportunities hereafter acquired by either of them relating to the wireless
telecommunications business, and (ii) not to solicit the other's employees, all
on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, VoiceStream and WWC hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms have the
respective meanings set forth below:
"AAA" has the meaning set forth in Section 10.
"Agreement" has the meaning set forth in the preamble.
"Arbitrators" has the meaning set forth in Section 10.
"Cellular Business" has the meaning set forth in the recitals.
"Change of Control" shall mean with respect to any Person (i) directly
or indirectly a sale, transfer, or other conveyance of all or substantially all
of the assets of such Person, on a consolidated basis, to any "person" (as such
term is used for purposes of Sections 13(d) and 14(d) of the Exchange Act,
whether or not applicable), excluding transfers or conveyances to or among such
Person's Subsidiaries, as an entirety or substantially as an entirety in one
transaction or series of related transactions, in each case with the effect that
a Person owns more than 50% of the aggregate number of votes of all classes of
capital stock of such Person which ordinarily have voting power for the election
of directors, managers or trustees of the transferee entity immediately after
such transaction; (ii) any "person" (as such term is used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), is or
becomes the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the aggregate
number of votes of all classes of capital stock of such Person which ordinarily
have voting power for the election of directors of such Person; or (iii) any
"person" (as such term is
<PAGE> 145
used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable) shall have the right or ability (whether by agreement, proxies,
ownership of shares or otherwise) to elect a majority of the Board of Directors
of such Person.
"CIRI" means Cook Inlet Western Wireless PV/SS PCS L.P. or Cook
Inlet/VoiceStream PCS LLC.
"Common Stock" has the meaning set forth in the recitals.
"Dispute" has the meaning set forth in Section 10.
"Distribution Agreement" has the meaning set forth in the recitals.
"Exchange Act" means the Securities Exchange Act, as amended, and any
successor act thereto.
"FCC" has the meaning set forth in the recitals.
"PCS Business" has the meaning set forth in the recitals.
"Person" means an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, limited liability company, or
a government or agency or political subdivision thereof or any other entity.
"Subsidiary" means, as to any Person, another Person of which more than
50% of the voting power is owned, directly or indirectly, by such Person.
"Term" has the meaning set forth in Section 6.
"VoiceStream" has the meaning set forth in the preamble.
"VoiceStream Change of Control" means (a) a Change of Control of
VoiceStream, or (b) (i) John W. Stanton ceasing to be Chairman of the Board of
Directors of VoiceStream, and (ii) there ceasing to be any Person who serves on
the Board of Directors of both WWC and VoiceStream.
"VoiceStream Group" means VoiceStream, its Subsidiaries and CIRI.
"VoiceStream Voting Agreement" means that certain Voting Agreement,
dated as of __________, 1999, among VoiceStream and the shareholders of
VoiceStream party thereto.
"WWC" has the meaning set forth in the preamble.
<PAGE> 146
"WWC Change of Control" means (a) a Change of Control of WWC, or (b)
(i) John W. Stanton ceasing to be Chairman of the Board of Directors of WWC, and
(ii) there ceasing to be any Person who serves on the Board of Directors of both
WWC and VoiceStream.
"WWC Group" means WWC and its Subsidiaries.
"WWC Voting Agreement" means that certain Voting Agreement, dated as of
May 13, 1996, among WWC and the shareholders of WWC party thereto.
When a reference is made in this Agreement to a Section, such reference
shall be to a Section of this Agreement unless otherwise indicated. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The use of a
gender herein shall be deemed to include the neuter, masculine and feminine
genders whenever necessary or appropriate. Whenever the word "herein,"
"hereunder" or "hereof" is used in this Agreement, it shall be deemed to refer
to this Agreement and not to a particular Section of this Agreement unless
expressly stated otherwise.
2. Allocation of Certain Opportunities.
(a) Agreements Regarding Opportunities in the PCS Business. During the
Term, WWC agrees that:
(i) it will not, and it will not permit any member of the WWC
Group to, pursue any opportunity which constitutes primarily a PCS Business
(which shall include for this purpose the opportunity to acquire any expansion
spectrum allocated by the FCC to broadband personal communications services) in
the United States, unless, (a) prior to pursuing such opportunity, WWC notifies
VoiceStream, in writing, of said opportunity and (b) within seven (7) business
days of delivery of such notice, VoiceStream has either (x) not notified WWC, in
writing, that a member of the VoiceStream Group is pursuing, or has determined
to pursue, such opportunity or, (y) has notified WWC, in writing, that no member
of the VoiceStream Group is pursuing, and each member of the VoiceStream Group
has determined not to pursue, such opportunity. In the event that within such
seven (7) business day period, VoiceStream has not notified WWC, in writing,
that a member of the VoiceStream Group is pursuing, or has determined to pursue,
such opportunity, or has notified WWC, in writing, that no member of the
VoiceStream Group is pursuing, and each member of the VoiceStream Group has
determined not to pursue, such opportunity, any member of the WWC Group may, in
its discretion, pursue such opportunity free of any rights of any member of the
VoiceStream Group under this Agreement. In the event that within such seven (7)
business day period, VoiceStream has notified WWC, in writing, that a member of
the VoiceStream Group is pursuing, or has determined to pursue, such
opportunity, and thereafter determines to discontinue pursuing such opportunity,
VoiceStream shall immediately notify WWC, in writing, of such determination and
upon receipt of said notification, any member of the WWC Group may, in its
discretion, pursue such opportunity for
<PAGE> 147
its own purpose free of any rights of any member of the VoiceStream Group under
this Agreement; and
(ii) in the event any member of the WWC Group acquires any
businesses or assets which include businesses or assets which constitute a PCS
Business, such member will offer VoiceStream the opportunity to acquire any such
businesses or assets constituting the PCS Business at a purchase price equal to
that portion of the purchase price paid by the WWC Group which is allocable to
the PCS Business. The boards of directors of WWC and VoiceStream shall endeavor
to determine in good faith the portion of the purchase price allocable to the
PCS Business. If WWC and VoiceStream are unable to agree upon the portion of the
purchase price allocable to the PCS Business, the determination of the portion
thereof allocable to the PCS Business shall be determined by arbitration
pursuant to Section 10 hereof.
(b) Agreements Regarding Opportunities in the Cellular Business. During
the Term, VoiceStream agrees that:
(i) it will not, and it will not permit any member of the
VoiceStream Group to, pursue any opportunity which constitutes primarily a
Cellular Business (which shall include for this purpose the opportunity to
acquire any expansion spectrum allocated by the FCC to cellular services) in the
United States, unless, (a) prior to pursuing such opportunity, VoiceStream
notifies WWC, in writing, of said opportunity and (b) within seven (7) business
days of delivery of such notice, WWC has either (x) not notified VoiceStream, in
writing, that a member of the WWC Group is pursuing, or has determined to
pursue, such opportunity, or (y) has notified VoiceStream, in writing, that no
member of the WWC Group is pursuing, and each member of the WWC Group has
determined not to pursue, such opportunity. In the event that within such seven
(7) business day period, WWC has not notified VoiceStream, in writing, that a
member of the WWC Group is pursuing, or has determined to pursue, such
opportunity, or has notified VoiceStream, in writing, that no member of the WWC
Group is pursuing, and each member of the WWC Group has determined not to
pursue, such opportunity, any member of the VoiceStream Group may, in its
discretion, pursue such opportunity free of any rights of any member of the WWC
Group under this Agreement. In the event that within such seven (7) business day
period, WWC has notified VoiceStream, in writing, that a member of the WWC Group
is pursuing, or has determined to pursue, such opportunity, and thereafter
determines to discontinue pursuing such opportunity, WWC shall immediately
notify VoiceStream, in writing, of such determination and upon receipt of said
notification, any member of the VoiceStream Group may, in its discretion, pursue
such opportunity for its own purpose free of any rights of any member of the WWC
Group under this Agreement; and
(ii) in the event any member of the VoiceStream Group acquires
any business or assets which include businesses or assets which constitute a
Cellular Business, such member will offer WWC the opportunity to acquire any
such businesses or assets constituting the Cellular Business at a purchase price
equal to that portion of the purchase price paid by the VoiceStream Group which
is allocable to the Cellular Business. The boards of directors of WWC and
VoiceStream shall endeavor to determine in good faith the portion of the
purchase price allocable
<PAGE> 148
to the Cellular Business. If WWC and VoiceStream are unable to agree upon the
portion of the purchase price allocable to the Cellular Business, the
determination of the portion thereof allocable to the Cellular Business shall be
determined by arbitration pursuant to Section 10 hereof.
(c) Overlapping Area. During the Term:
(i) VoiceStream agrees it will not, and it will not permit any
member of the VoiceStream Group to, provide or resell, or act as the agent for
any other entity offering or reselling, wireless telephony services in any
portion of the geographic area in which any member of the WWC Group provides
wireless telephony services other than (x) any such geographic area in which any
member of the VoiceStream Group provides such services on the Spin-Off Effective
Date, or (y) any such geographic area which is mutually agreed to by the parties
after the Spin-Off Effective Date; and
(ii) WWC agrees it will not, and it will not permit any member
of the WWC Group to, provide or resell, or act as the agent for any other entity
offering or reselling, wireless telephony services in any portion of the
geographic area in which any member of the VoiceStream Group provides wireless
telephony services other than (x) any such geographic area in which any member
of the WWC Group provides such services on the Spin-Off Effective Date, or (y)
any such geographic area which is mutually agreed to by the parties after the
Spin- Off Effective Date.
(d) Agreement Regarding Other Opportunities. During the Term, WWC and
VoiceStream agree that, with respect to any opportunity in the wireless
telecommunications business in the United States which is related to neither a
PCS Business nor a Cellular Business, WWC and VoiceStream shall divide such
opportunity equally between them, unless WWC and VoiceStream agree to another
arrangement with respect to such opportunity.
3. Employees.
(a) WWC Employees. During the Term, WWC shall not, and shall not permit
any member of the WWC Group to, without VoiceStream's prior written consent,
directly or indirectly, (i) solicit or encourage any employee of any member of
the VoiceStream Group to leave the employ of such member, or (ii) hire or offer
to hire any employee who has left the employ of a member of the VoiceStream
Group, within three hundred and sixty-five (365) days after the termination of
such employee's employment with such member of the VoiceStream Group.
(b) VoiceStream Employees. During the Term, VoiceStream shall not, and
shall not permit any member of the VoiceStream Group to, without WWC's prior
written consent, directly or indirectly, (i) solicit or encourage any employee
of any member of the WWC Group to leave the employ of such member, or (ii) hire
or offer to hire any employee who has left the employ of
<PAGE> 149
a member of the WWC Group, within three hundred and sixty-five (365) days after
the termination of such employee's employment with such member of the WWC Group.
(c) Transition Employees. Notwithstanding anything contained in this
Section 3 to the contrary, with respect to any employee of any member of (i) the
WWC Group who is made available to any member of the VoiceStream Group, or (ii)
the VoiceStream Group who is made available to any member of the WWC Group, in
each case, in accordance with Section 2.1.2 of the Distribution Agreement, WWC
and VoiceStream hereby agree to enter into mutually satisfactory agreements as
to whether a member of the WWC Group or a member of the VoiceStream Group will
employ each such employee after the termination of the provisions of Section
2.1.2 of the Distribution Agreement in accordance with its terms.
4. Agreements Regarding CIRI.
WWC and VoiceStream hereby agree that any of the covenants and
agreements of VoiceStream contained herein which require VoiceStream to cause or
permit CIRI to act or refrain from acting, shall be satisfied by VoiceStream if
VoiceStream votes its respective interests in CIRI, and requests the other
equity holders of CIRI to vote their respective interests in CIRI, in favor of
or against, as the case may be, the action proposed to be taken by CIRI. It is
understood that VoiceStream does not control CIRI and, accordingly, the other
equity holders of CIRI might be able to cause CIRI to take an action or refrain
from taking an action contrary to VoiceStream's expressed request.
5. Representations and Warranties.
Each of WWC and VoiceStream hereby represents and warrants to the other
as follows:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation with full power and
authority to execute, deliver and perform its obligations under this Agreement;
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on its part and this Agreement constitutes its
legal, valid and binding obligation enforceable against it in accordance with
its terms; and
(c) Neither the execution, delivery or performance of this Agreement by
it, nor the consummation of the transactions contemplated hereby will, with or
without the giving of notice of passage of time, or both conflict with, result
in a default or loss of rights (or give rise to any right of termination,
cancellation or acceleration) under, (i) any provision of its (or any of its
Subsidiaries') certificate of incorporation or by-laws, (ii) any material note,
bond, indenture, mortgage, deed of trust, contract, agreement, lease or other
instrument or obligation to which it, or any of its Subsidiaries, is a party or
by which it, or any of its Subsidiaries, or its, or any of its
<PAGE> 150
Subsidiaries', properties may be bound or affected, or (iii) any law, order,
judgment, ordinance, rule, regulation or decree to which it, or any of its
Subsidiaries, is a party or by which it, or any of its Subsidiaries, or any of
its, or any of its Subsidiaries', properties are bound or affected.
6. Effectiveness; Term.
This Agreement shall be effective for a period after the Spin-Off
Effective Date through and including the earliest to occur of any of the
following events (the "Term"):
(a) the third anniversary of the Spin-Off Effective Date;
(b) mutual written agreement of WWC and VoiceStream;
(c) a WWC Change of Control; or
(d) a VoiceStream Change of Control;
provided, however, that if the Spin-Off Effective Date does not occur on or
before December 31, 1999, this Agreement shall terminate and be of no further
force and effect whatsoever.
7. Waiver; Amendments.
This Agreement may be amended, modified or supplemental only by written
agreement of the parties. No provision in this Agreement shall be deemed waived
except by an instrument in writing signed by the party waiving such provision.
Any waiver by any party of any of its rights under this Agreement or of any
breach of this Agreement shall not constitute a waiver of any other rights or of
any other or future breach.
8. Specific Performance.
Each of the WWC and VoiceStream hereby acknowledges and agrees that, in
the event of any breach of this Agreement, the non-breaching party would be
irreparably harmed and could not be made whole by monetary damages. Accordingly,
each of the WWC and VoiceStream agrees that the other party, in addition to any
other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of this Agreement.
9. Notices.
All notices, claims or other communications hereunder shall be in
writing and shall be given by delivery in person, by facsimile transmission, by
registered or certified mail (return receipt requested), postage prepaid or
overnight carrier guaranteeing next day delivery:
(a) to VoiceStream:
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3650 131 Avenue SE
Bellevue, Washington 98006
Attention: General Counsel
Tel: (425) 586-8014
Fax: (425) 586-8080
with a copy to:
Alan R. Bender, Esq.
3650 131 Avenue SE
Bellevue, Washington 98006
Tel: (425) 586-8014
Fax: (425) 586-8080
and:
Friedman Kaplan & Seiler LLP
875 Third Avenue
New York, New York 10022-6225
Attention: Barry A. Adelman, Esq.
Telephone: (212) 833-1107
Facsimile: (212)-355-6401
(b) to WWC:
3650 131 Avenue SE
Bellevue, Washington 98006
Attention: General Counsel
Tel: (425) 586-8014
Fax: (425) 586-8080
with a copy to:
Alan R. Bender, Esq.
3650 131 Avenue SE
Bellevue, Washington 98006
Tel: (425) 586-8014
Fax: (425) 586-8080
and:
Friedman Kaplan & Seiler LLP
<PAGE> 152
875 Third Avenue
New York, New York 10022-6225
Attention: Barry A. Adelman, Esq.
Telephone: (212) 833-1107
Facsimile: (212)-355-6401
or to such other address as any party may from time to time furnish to the other
by a notice given in accordance with the provisions of this Section 9. All such
notices and communications shall be deemed to have been duly given at the time
delivered by hand, if personally delivered; when receipt confirmed, if sent by
facsimile; and the next business day after timely delivery to the courier, if
sent by an overnight air courier service guaranteeing next day delivery.
10. Arbitration.
Any and all disputes, controversies or claims (each a "Dispute")
between the parties relating to the interpretation or enforcement or performance
of this Agreement shall be resolved by binding arbitration by American
Arbitration Association ("AAA") in accordance with its rules, subject to the
following provisions:
(a) There shall be three arbitrators (the "Arbitrators"). Each party
shall appoint one arbitrator within 30 days after giving or receiving notice of
the submission of a Dispute to arbitration. The two arbitrators appointed by the
parties shall appoint the third arbitrator. If a party does not appoint an
arbitrator within such designated period, or if the two appointed arbitrators
fail to appoint a third arbitrator within 30 days after their appointment, the
relevant appointment shall be made by the President of the AAA.
(b) The expenses of the arbitration shall be borne equally by WWC and
VoiceStream, and each party shall bear its own legal fees and expenses;
provided, however, that the Arbitrators shall have discretion to require that
one party pay all or a portion of the expenses of arbitration or the other
party's legal fees and expenses in connection with any particular arbitration.
(c) The Arbitrators shall determine whether and to what extent any
party shall be entitled to damages or equitable relief. No party shall be
entitled to punitive damages or consequential damages or shall be required to
post a bond in connection with equitable relief.
(d) The Arbitrators shall not have the power to add to nor modify any
of the terms or conditions of this Agreement. The Arbitrators' decision shall
not go beyond what is necessary for the interpretation and application of the
provisions of this Agreement in respect of the issue before the Arbitrators. The
Arbitrators' decision and award or permitted remedy, if any, shall be based upon
the issue as drafted and submitted by the respective parties and the relevant
and competent evidence adduced at the hearing(s).
<PAGE> 153
(e) The Arbitrators shall have the authority to award any remedy or
relief provided for in this Agreement, in addition to any other remedy or relief
(including provisional remedies and relief) that a court of competent
jurisdiction could order or grant (but subject to the remedial limitations
elsewhere set forth in this Agreement, including, but without limitation, the
aforesaid prohibition against punitive and consequential damages). The
Arbitrators written decision shall be rendered within sixty (60) days of the
hearing. The decision reached by the Arbitrators shall be final and binding upon
the parties as to the matter in dispute. To the extent that the relief or remedy
granted by the Arbitrators is relief or remedy on which a court could enter
judgement, a judgement upon the award rendered by the Arbitrators may be entered
in any court having jurisdiction thereof (unless in the case of an award of
damages, the full amount of the award is paid within ten (10) days of its
determination by the Arbitrators). Otherwise, the award shall be binding on the
parties in connection with their continuing performance of this Agreement and in
any subsequent arbitral or judicial proceeding between the parties.
(f) The arbitration shall take place in New York, New York unless
otherwise agreed by the parties.
(g) The arbitration proceeding and all filing, testimony, documents and
information relating to or presented during the arbitration proceeding shall be
disclosed exclusively for the purpose of facilitating the arbitration process
and for no other purpose.
(h) The parties shall continue performing their respective obligations
under this Agreement notwithstanding the existence of a Dispute while the
Dispute is being resolved unless and until such obligations are terminated,
expire or are suspended in accordance with the provisions hereof.
(i) The Arbitrators may, in their sole discretion, order a pre-hearing
exchange of information including production of documents, exchange of summaries
of testimony or exchange of statements of position, and shall schedule promptly
all discovery and other procedural steps and otherwise assume case management
initiative and control to effect an efficient and expeditious resolution of the
Dispute. At any oral hearing of evidence in connection with an arbitration
proceeding, each party and its counsel shall have the right to examine its
witnesses and to cross-examine the witnesses of the other party. No testimony of
any witness shall be presented in written form unless the opposing party or
parties shall have the opportunity to cross-examine such witness, except as the
parties otherwise agree in writing.
(j) Notwithstanding the dispute resolution procedures contained in this
Section 10 either party may apply to any court having jurisdiction (a) to
enforce this Agreement to arbitrate, (b) to seek provisional injunctive relief
so as to maintain the status quo until the arbitration award is rendered or the
Dispute is otherwise resolved, or (c) to challenge or vacate any final judgment,
award or decision of the Arbitrators that does not comport with the express
provisions of this Section 10.
<PAGE> 154
11. Entire Agreement.
This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof and supersedes all prior
understandings among the parties hereto with respect to such subject matter.
12. Section Headings.
The headings of the sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
thereof.
13. Applicable Law.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder, shall be determined under,
governed by and construed in accordance with the internal laws of the State of
New York.
14. Failure to Pursue Remedies.
The failure of any party hereto to seek redress for violation of, or to
insist upon the strict performance of, any provision of this Agreement shall not
prevent a subsequent act, which would have originally constituted a violation,
from having the effect of an original violation.
15. Cumulative Remedies.
The rights and remedies provided by this Agreement are cumulative and
the use of any one right or remedy by any party shall not preclude or waive its
right to use any or all other remedies except as otherwise expressly provided in
this Agreement. Such rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance or otherwise.
16. Severability.
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
17. Successors and Assigns.
This Agreement shall inure to the benefit of, and be binding upon, the
successors and assigns of each party hereto.
18. Further Assurances.
<PAGE> 155
Each party hereto at the request of the other party shall, from time to
time, execute and deliver such other assignments, transfers, conveyances and
other instruments and documents and do and perform such other acts and things as
may be reasonably necessary or desirable for effecting complete consummation of
this Agreement and the transactions herein contemplated.
19. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which together shall be
considered the same agreement.
<PAGE> 156
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
VOICESTREAM WIRELESS CORPORATION
By:______________________________________
Name:
Title:
WESTERN WIRELESS CORPORATION
By:______________________________________
Name:
Title:
