April 17, 1997
AirTouch Communications, Inc.
Xxx Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
This letter agreement sets forth the principal terms and conditions upon
which U S WEST, Inc. ("U S WEST") and AirTouch Communications, Inc. ("AirTouch")
intend to consummate a business combination transaction (the "Transaction"), the
effect of which will be to transfer to AirTouch all of the businesses of
U S WEST Media Group, Inc. ("USWMG") engaged in the provision of wireless
services in the United States, other than the Excluded Wireless Business (the
"Domestic Wireless Business"). Capitalized terms used but not defined in this
letter agreement shall have the meanings set forth in Schedule A hereto.
1. THE TRANSACTION
(a) The Transaction shall be implemented through the following
transactions which shall occur in the order indicated:
(i) U S WEST shall restructure certain of the assets and
businesses of U S WEST and its Subsidiaries by making a tax-free
distribution of stock such that all or substantially all of the assets
of the Domestic Wireless Business will be owned and operated by a
first tier Subsidiary of U S WEST and entities directly or indirectly
owned by such first-tier Subsidiary (the "Restructuring").
(ii) U S WEST shall contribute to a newly formed wholly owned
Subsidiary of U S WEST ("New U S WEST") all of the assets of U S WEST
other than assets related to the Domestic Wireless Business, and New
U S WEST shall assume all of the liabilities of U S WEST other than
liabilities related to the Domestic Wireless Business and an aggregate
principal amount of
AirTouch Communications, Inc.
April 17, 1997
Page 2
indebtedness equal to the Assumed Indebtedness Amount (the "Contribution").
(iii) AirTouch will acquire U S WEST in a merger intended to
qualify as a tax-free transaction under Section 368(a) of the Code
(the "Merger"). In connection with the Merger:
(A) Each share of U S WEST Communications Group Common
Stock, par value $.01 per share, of U S WEST ("Communications
Stock") issued and outstanding shall be converted into the right
to receive one share of U S WEST Communications Group Common
Stock, par value $.01 per share, of New U S WEST ("New
Communications Stock").
(B) Each share of U S WEST Media Group Common Stock, par
value $.01 per share, of U S WEST ("Media Stock") issued and
outstanding shall be converted into the right to receive (x) one
share of U S WEST Media Group Common Stock, par value $.01 per
share, of New U S WEST ("New Media Stock") and (y) a number of
shares of Common Stock, par value $.01 per share, of AirTouch
("AirTouch Common Stock") equal to the Conversion Number (as
determined pursuant to subparagraph (b) below).
(C) Each share of Series C Cumulative Redeemable Preferred
Stock, par value $1.00 per share, of U S WEST ("U S WEST Series C
Preferred Stock") issued and outstanding (other than shares as to
which dissenters rights have been properly exercised) shall be
converted into the right to receive one share of Series C
Cumulative Redeemable Preferred Stock, par value $1.00 per share,
of New U S WEST ("New U S WEST Series C Preferred Stock").
(D) Each share of Series D Convertible Preferred Stock, par
value $1.00 per share, of
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U S WEST ("U S WEST Series D Preferred Stock") issued and outstanding
shall be converted into the right to receive one share of Series D
Convertible Preferred Stock, par value $1.00 per share, of New
U S WEST ("New U S WEST Series D Preferred Stock").
(E) Each share of Series E Convertible Preferred Stock, par
value $1.00 per share, of U S WEST ("U S WEST Series E Preferred
Stock") issued and outstanding (other than shares as to which
dissenters rights have been properly exercised) shall be
converted into the right to receive one share of Series E
Convertible Preferred Stock, par value $1.00 per share, of New
U S WEST ("New U S WEST Series E Preferred Stock").
(b) The Conversion Number shall be calculated in the following manner:
(i) If the Determination Price (as defined below) is greater than
or equal to $30.00 (the "Floor Price") and less than or equal to
$33.00 (the "Cap Price"), the Conversion Number shall equal the
quotient of (A) the Transaction Value minus the Assumed Indebtedness
Amount, divided by (B) the product of the number of outstanding shares
of Media Stock multiplied by the Determination Price, rounded to the
nearest one-hundred thousandth (or if there shall not be a nearest
one-hundred thousandth, to the next highest one-hundred thousandth).
(ii) If the Determination Price is less than the Floor Price, the
Conversion Number shall equal the quotient of (A) the Transaction
Value minus the Assumed Indebtedness Amount, divided by (B) the
product of the number of outstanding shares of Media Stock multiplied
by the Floor Price, rounded to the nearest one-hundred thousandth (or
if there shall not be a nearest one-
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hundred thousandth, to the next highest one-hundred thousandth).
(iii) If the Determination Price is greater than the Cap Price,
the Conversion Number shall equal the quotient of (A) Transaction
Value minus the Assumed Indebtedness Amount, divided by (B) the
product of the number of outstanding shares of Media Stock multiplied
by the Cap Price, rounded to the nearest one-hundred thousandth (or if
there shall not be a nearest one-hundred thousandth, to the next
highest one-hundred thousandth).
(c) To the extent the terms of the Restructuring require modifications to
the consideration to be issued by U S WEST to U S WEST's stockholders in the
Merger, U S WEST and AirTouch agree to cooperate reasonably to make appropriate
adjustments in order to reflect such modifications.
(d) It is intended for United States federal income tax purposes that the
Restructuring, the Contribution and the Merger shall qualify as tax-free
transactions under Sections 332, 355, 368(a)(1)(D) and 368(a) of the Internal
Revenue Code of 1986, as amended, together with the rules and regulations
promulgated thereunder (the "Code").
2. DEFINITIVE AGREEMENTS.
(a) The principal documentation for the Transaction will consist of:
(i) An Agreement and Plan of Merger (the "Merger Agreement") to be
entered into by U S WEST, New U S WEST and AirTouch or a Subsidiary
thereof, which will set forth the specific terms of the Merger.
(ii) A Restructuring and Contribution Agreement (the "Restructuring
and Contribution Agreement") to be entered into by U S WEST, New U S WEST
and certain subsidiaries of U S WEST, which will set forth the specific
terms of the Restructuring and the Contribution.
Page 5
(iii) A Tax Sharing Agreement (the "Tax Sharing Agreement") to be
entered into by U S WEST, New U S WEST and AirTouch, which will, among
other things, provide for the allocation of liability with respect to pre-
and post-closing taxes and matters related thereto and set forth certain
representations, warranties, covenants and indemnities relating to the
preservation of the tax-free status of the Restructuring, the Contribution,
and the Merger.
(iv) A Post-Closing Covenants Agreement (the "Post-Closing Covenants
Agreement") to be entered into by U S WEST, New U S WEST and AirTouch,
which will set forth agreements governing certain matters that may arise
following the Restructuring, the Contribution and the Merger (including the
post-Merger indemnification obligations of the parties).
(b) Promptly following the execution of this letter agreement, the parties
agree to use good faith, reasonable best efforts to complete negotiation of a
definitive Merger Agreement, Restructuring and Contribution Agreement, Tax
Sharing Agreement, Post-Closing Covenants Agreement and such other contracts,
agreements and other instruments as are reasonably necessary to carry out the
intent of the parties expressed herein (collectively, the "Definitive
Agreements").
3. CONDITIONS TO THE TRANSACTION. The consummation of the Merger shall
be subject to the fulfillment of each of the following conditions:
(a) The preparation, execution and delivery of the Definitive
Agreements, in form and substance reasonably satisfactory to each of
U S WEST and AirTouch.
(b) AirTouch and U S WEST shall agree on the principal terms and
conditions of the indebtedness to be used to refinance existing
indebtedness of U S WEST and retained by U S WEST in connection with the
Contribution.
Page 6
(c) Prior to execution of Definitive Agreements, the completion to
each party's satisfaction of its review of the properties, records,
financial statements and operations (including legal, regulatory, tax and
accounting due diligence) of U S WEST and the Domestic Wireless Business
(in the case of AirTouch) and AirTouch (in the case of U S WEST).
(d) The receipt of all necessary regulatory, judicial and other
governmental approvals and all required material consents of third
parties required for the consummation of the Transaction, including
the receipt of an advance letter ruling from the Internal Revenue
Service that (1) the Restructuring and the Contribution and
distribution of shares of capital stock of New U S WEST to
stockholders of U S WEST pursuant to the Merger will qualify as
tax-free transactions within the meaning of Sections 332, 355 and
368(a)(1)(D) of the Code and (2) the Merger will qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
(e) The approval of the Transaction and the Definitive
Agreements by the Boards of Directors of U S WEST and AirTouch.
(f) The receipt of the approval of the Transaction by the
stockholders of U S WEST.
4. REASONABLE BEST EFFORTS. Each party hereto agrees to proceed with the
transactions contemplated hereby on a prompt basis and to use its reasonable
best efforts to prepare all necessary documentation, obtain all necessary
consents, authorizations, approvals and waivers required to be obtained by it in
connection with the consummation of the Transaction and take all other actions
necessary to consummate the Transaction as promptly as practicable. To the
extent any transaction contemplated hereby requires action by a Subsidiary of
U S WEST or AirTouch, U S WEST or AirTouch, as the case may be, agrees to cause
such Subsidiary to act as required by, and in a manner consistent with, this
letter agreement.
Page 7
5. BINDING EFFECT.
(a) This letter agreement constitutes an expression of mutual intention,
is not a binding obligation on the part of any party hereto and shall not
otherwise create any rights in favor of any of the parties hereto. A binding
agreement with respect to the Transaction will result only from the execution
and delivery of a definitive Merger Agreement. Notwithstanding the two
preceding sentences, the provisions of paragraph 9 shall constitute binding
agreements and commitments of AirTouch and U S WEST.
(b) Each party hereto acknowledges that, except as set forth in
paragraph 9, this letter agreement shall not affect any party's obligations
under (i) the Amended and Restated Joint Venture Organization Agreement, dated
as of September 30, 1995, between AirTouch and U S WEST, Inc., a Colorado
corporation and predecessor to U S WEST ("U S WEST Colorado"), as amended (the
"Joint Venture Organization Agreement"), and the Related Agreements referred to
therein , and all letter and other agreements entered into by U S WEST, U S WEST
Colorado and AirTouch and their respective Subsidiaries pursuant thereto or in
connection therewith, or (ii) the confidentiality agreement, dated April 11,
1997, between U S WEST and AirTouch, each of which shall remain in full force
and effect in accordance with the terms thereof.
6. TERMINATION. This letter agreement (except for the provisions of
paragraph 9) may be terminated by either party hereto in the event Definitive
Agreements have not been executed by the parties on or before May 15, 1997.
7. PUBLICITY. Each of the parties hereto agrees with the other party
hereto that no press release or similar public announcement, statement or
communication shall be made or caused to be made with respect to the Transaction
unless specifically approved in advance by both parties hereto.
8. GOVERNING LAW. This letter agreement shall be governed by, and
construed in accordance with, the law of the State of
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Delaware, without reference to choice of law principles, including all matters
of construction, validity and performance.
9. CERTAIN AGREEMENTS OF AIRTOUCH AND U S WEST.
(a) Each of AirTouch and U S WEST agree that the parties shall not proceed
with the Phase II Closing (as defined in the Joint Venture Organization
Agreement) at any time from the date hereof until (i) the date that is nine
months following the termination of this letter agreement pursuant to paragraph
6 or (ii) if a definitive Merger Agreement is executed, the date that is nine
months following any termination thereof.
(b) If the Merger is consummated, U S WEST agrees that New U S WEST will
unconditionally and irrevocably release and discharge AirTouch and its
Subsidiaries (and each of its past, present or future directors, officers,
employees, agents and other representatives), and each of their respective
predecessors, successors and assigns, from any and all claims, actions,
obligations, demands, injuries, damages, losses, costs or liabilities of any
kind, if any, arising out of, relating to or resulting from, directly or
indirectly, the Joint Venture Organization Agreement (or the Related Agreements
referred to therein or transactions contemplated thereby) or as a result of the
Transaction, in each case, with respect to any Excluded Assets, including,
without limitation, any claim for indemnification from AirTouch or WMC Partners,
L.P. pursuant to Article 8 of the Joint Venture Organization Agreement.
10. COUNTERPARTS. This letter agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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If the terms of our understanding have been correctly set forth herein,
please confirm this by signing and returning to the undersigned a copy of this
letter agreement.
Very truly yours,
U S WEST, INC.
By:
------------------------------
Name:
Title
Agreed to and accepted:
AIRTOUCH COMMUNICATIONS, INC.
By:
------------------------------
Name:
Title:
SCHEDULE A
CERTAIN DEFINED TERMS
For purposes of this letter agreement, the following terms shall have the
meanings set forth below:
"ASSUMED INDEBTEDNESS AMOUNT" shall mean $2,200,000,000, subject to
adjustment to be agreed upon to reflect any reduction in the Transaction Value.
"CONSENT" shall mean any approval, consent or waiver required to be
obtained from any third party for the consummation of a specified transaction,
including (without limitation) any option, right of first refusal, right of
first offer or other similar right of a third party triggered by a specified
transaction.
"DETERMINATION PRICE" shall mean the average of the Volume-Weighted Average
Trading Prices of AirTouch Common Stock for the 30 consecutive Trading Days (the
"Averaging Period") ending on the fifth Trading Day immediately prior to the
closing date for the Merger, rounded to the nearest one-hundred thousandth (or
if there shall not be a nearest one-hundred thousandth, to the next higher one-
hundred thousandth).
"EXCLUDED ASSET" shall mean each of the Subsidiaries or Investments of
NewVector set forth in the letter agreement between the parties of even date
herewith unless U S WEST shall have obtained as to such Subsidiary or Investment
of NewVector either (i) all required Consents to the consummation of the
Transaction and the transactions contemplated by the Definitive Agreements or
(ii) a final, non-appealable order of a court of competent jurisdiction to the
effect that the consummation of the Transaction and the transactions
contemplated by the Definitive Agreements does not give rise to any requirement
to obtain any such Consents.
"EXCLUDED ASSET VALUE" shall equal, for all Excluded Assets, (x) the
aggregate number of proportionate POPs represented by the Excluded Assets as
determined by reference to Kagan's 1997 Cellular Telephone Atlas multiplied by
(y) the price set forth opposite such aggregate number of POPs below:
Number of POPs Price
-------------- -----
Less than= 2,000,000 $220
2,000,001 - 4,999,999 increasing on a linear basis from $220
to $230
Greater than= 5,000,000 $230
"EXCLUDED WIRELESS BUSINESS" shall mean all of the Excluded Assets and any
and all liabilities arising out of, relating to or resulting from, directly or
indirectly, the Excluded Assets.
"INVESTMENT" shall mean, with respect to any Person, any equity interest
held by such Person or its Subsidiaries in another Person (other than a
Subsidiary of such Person).
"PERSON" shall mean and includes any individual, partnership, limited
liability company, joint venture, corporation, association, joint stock company,
trust, unincorporated organization or similar entity.
"SUBSIDIARY" shall mean, with respect to any Person, (i) each corporation,
partnership, joint venture or other legal entity of which such Person owns,
either directly or indirectly, 50% or more of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or similar governing body of such corporation,
partnership, joint venture or other legal entity and (ii) each partnership in
which such Person or another Subsidiary of such Person is the general partner or
otherwise controls such partnership.
"TRADING DAY" shall mean a day on which the NYSE is open for the
transaction of business.
"TRANSACTION VALUE" shall equal (i) $5,000,000,000, minus (ii) the Excluded
Asset Value.
"VOLUME-WEIGHTED AVERAGE TRADING PRICE" means, for any Trading Day, an
amount equal to (i) the cumulative sum, for each trade of AirTouch Common Stock
during such Trading Day on the NYSE (or, if such security is not listed on the
NYSE, such other principal exchange or over-the-counter market on which such
security is
listed), of the product of: (x) the sale price times (y) the number of shares
of AirTouch Common Stock sold at such price, divided by (ii) the total number of
shares of AirTouch Common Stock so traded during the Trading Day.
