<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1998
REGISTRATION NO. 333-50219
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SBA COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 6749 65-0716501
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
ONE TOWN CENTER ROAD
THIRD FLOOR
BOCA RATON, FLORIDA 33486
(561) 995-7670
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
STEVEN E. BERNSTEIN
CHAIRMAN OF THE BOARD OF DIRECTORS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SBA COMMUNICATIONS CORPORATION
ONE TOWN CENTER ROAD
THIRD FLOOR
BOCA RATON, FLORIDA 33486
(561) 995-7670
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
KIRK A. DAVENPORT, ESQ. JEFFREY A. STOOPS, ESQ.
LATHAM & WATKINS SENIOR VICE PRESIDENT--CORPORATE
885 THIRD AVENUE DEVELOPMENT AND GENERAL COUNSEL
NEW YORK, NEW YORK 10022 SBA COMMUNICATIONS CORPORATION
(212) 906-1200 ONE TOWN CENTER ROAD
THIRD FLOOR
BOCA RATON, FLORIDA 33486
(561) 995-7670
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. As soon as
practicable after this Registration Statement becomes effective.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [_]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [_] . . . . . . . . . . . .
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(D)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [_] . . . . . . . . . . . .
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTES(2) OFFERING PRICE(2) FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12% Senior Discount
Notes due 2008(1).. $269,000,000 56.641% $152,362,948 $44,947.07
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The "Amount to be Registered" with respect to the 12% Senior Discount
Notes due 2008 represents the aggregate principal amount at maturity of
such notes. The 12% Senior Discount Notes due 2008 were sold at a
substantial discount from their principal amount at maturity. The
registration fee with respect to the 12% Senior Discount Notes due 2008
was calculated based on the approximate accreted value thereof as of April
15, 1998 determined pursuant to the provisions of the indenture governing
such notes.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SBA COMMUNICATIONS CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<C> <S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus........ Outside Front Cover Page; Cross
Reference Sheet; Inside Front Cover
Page
2. Inside Front and Outside Back
Cover Pages of
Prospectus...................... Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information..................... Prospectus Summary; Risk Factors;
Selected Historical Financial Data
4. Terms of the Transaction......... The Exchange Offer; Certain United
States Federal Income Tax
Considerations; Description of Exchange
Notes
5. Pro Forma Financial Information.. Prospectus Summary; Unaudited Pro Forma
Condensed Consolidated Financial
Statements
6. Material Contacts with the
Company Being
Acquired........................ Not Applicable
7. Additional Information Required
for Reoffering by
Persons and Parties Deemed to be
Underwriters.................... Not Applicable
8. Interests of Named Experts and
Counsel......................... Not Applicable
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................. Not Applicable
10. Information with Respect to S-3
Registrants..................... Not Applicable
11. Incorporation of Certain
Information by Reference........ Not Applicable
12. Information with Respect to S-2
or S-3 Registrants.............. Not Applicable
13. Incorporation of Certain
Information by Reference........ Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or S- Prospectus Summary; Capitalization;
2 Registrants................... Selected Historical Financial Data;
Unaudited Pro Forma Condensed
Consolidated Financial Statements;
Selected Historical Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Industry Overview;
Business; Management; Ownership of
Capital Stock; Certain Transactions;
Description of Credit Facility;
Description of Exchange Notes;
Financial Statements
15. Information with Respect to S-3
Companies....................... Not Applicable
16. Information with Respect to S-2
or S-3 Companies................ Not Applicable
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies....................... Not Applicable
18. Information if Proxies, Consents
or Authorizations are to be
Solicited....................... Not Applicable
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer........................... Management; The Exchange Offer; Certain
Transactions
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 12, 1998
$269,000,000
SBA COMMUNICATIONS CORPORATION
OFFER TO EXCHANGE ITS 12% SENIOR DISCOUNT NOTES DUE 2008,
FOR ALL OUTSTANDING 12% SENIOR DISCOUNT NOTES DUE 2008
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1998 UNLESS EXTENDED.
SBA Communications Corporation, a Florida corporation ("SBACC"), is hereby
offering (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 12% Senior
Discount Notes due 2008 (the "Exchange Notes"), which exchange has been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus is a part (the
"Registration Statement"), for each $1,000 principal amount of its outstanding
12% Senior Discount Notes due 2008 (the "Private Notes"), of which $269,000,000
in aggregate principal amount at maturity was issued on March 2, 1998 (the
"Private Offering") and is outstanding as of the date hereof. The form and
terms of the Exchange Notes are the same as the form and terms of the Private
Notes except that (i) the exchange will have been registered under the
Securities Act, and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to certain rights of holders of the Private Notes under the
Registration Rights Agreement (as defined herein), which rights will terminate
upon the consummation of the Exchange Offer. The Exchange Notes will evidence
the same indebtedness as the Private Notes (which they replace) and will be
entitled to the benefits of an indenture dated as of March 2, 1998 governing
the Private Notes and the Exchange Notes (the "Indenture"). The Private Notes
and the Exchange Notes are sometimes referred to herein collectively as the
"Notes." See "The Exchange Offer" and "Description of Exchange Notes."
The Exchange Notes will mature on March 1, 2008. The Exchange Notes will bear
interest at the same rate and on the same terms as the Private Notes. The
Private Notes were issued at a substantial discount to their principal amount
at maturity. Consequently, the Exchange Notes will be issued at a substantial
discount to their principal amount at maturity. The Exchange Notes will accrete
in value from and including the date of issuance of the Private Notes (March 2,
1998) until March 1, 2003 at which time they will have an aggregate principal
amount of $269.0 million. Thereafter, cash interest will accrue on the Exchange
Notes and will be payable semiannually in arrears on March 1 and September 1,
commencing September 1, 2003, at a rate of 12% per annum. Holders whose Private
Notes are accepted for exchange will be deemed to have waived the right to
receive any interest accrued on the Private Notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
(Continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998
<PAGE>
(Continued from Previous Page)
The Notes will be redeemable at the option of SBACC, in whole or in part, at
any time on or after March 1, 2004, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, thereon to the date of redemption.
In addition, prior to March 1, 2001, SBACC may redeem up to 20% of the
aggregate principal amount at maturity of Notes at 112.0% of the Accreted
Value (as defined) thereof, to the redemption date with the net cash proceeds
of one or more Public Equity Offerings or Strategic Equity Investments (each
as defined); provided that at least 80% of the aggregate principal amount at
maturity of Notes remains outstanding immediately after the occurrence of such
redemption.
The Notes will be general unsecured obligations of SBACC, will rank senior
in right of payment to any future indebtedness of the Company which is made
expressly junior thereto, and will rank pari passu in right of payment with
all current and future unsecured senior Indebtedness (as defined) of SBACC. As
of the date of this Prospectus, SBACC (unconsolidated) had no indebtedness
outstanding that would rank pari passu to the Notes. All of the operations of
SBACC are conducted through its subsidiaries, and SBACC's subsidiaries will
not be guarantors of the Notes. Accordingly, the Notes will be effectively
subordinated to all indebtedness and all other liabilities or obligations of
such subsidiaries, including borrowings under the $55.0 million Credit
Facility (as defined). See "Description of Credit Facility." As of March 31,
1998, SBACC's subsidiaries had approximately $6.4 million of liabilities which
constitute indebtedness that would be senior to the Notes. SBACC's
subsidiaries will be entitled to borrow substantial additional indebtedness
under the Credit Facility or otherwise. See "Capitalization."
Upon the occurrence of a Change of Control (as defined), each holder of
Notes will have the right to require SBACC to purchase all or any part of such
holder's Notes at a purchase price equal to 101% of the Accreted Value
thereof, to the date of purchase prior to March 1, 2003 or 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest to the
date of purchase on or after March 1, 2003. See "Description of Exchange
Notes."
SBACC will accept for exchange any and all validly tendered Private Notes
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
the Exchange Offer is extended by SBACC in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. Private Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties (See e.g., Exxon Capital Holdings Corp., SEC No-Action Letter
(available April 13, 1989) and Morgan Stanley & Co. Inc., SEC No-Action Letter
(available June 5, 1991), collectively, the "No-Action Letters"), SBACC
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Private Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchases
such Exchange Notes directly from SBACC to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that is an
affiliate of SBACC within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act; provided that the holder is acquiring the Exchange Notes
in the ordinary course of its business and is not participating, and had no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders who tender their Private Notes in
the Exchange Offer with the intention of participating in a distribution of
the Exchange Notes will not be able to rely on the No-Action Letters or
similar no-action letters. Holders of Private Notes wishing to accept the
Exchange Offer must represent to SBACC, as required by the Registration Rights
Agreement, that such conditions have been met. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Private Notes,
where such Private Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. SBACC believes that none of the registered holders of the Private Notes
is an affiliate (as such term is defined in Rule 405 under the Securities Act)
of SBACC.
(Continued on Next Page)
ii
<PAGE>
(Continued from Previous Page)
Prior to the Exchange Offer, there has been no public market for the Notes.
SBACC does not intend to list the Exchange Notes on any securities exchange,
but the Private Notes are eligible for trading in the National Association of
Securities Dealers, Inc.'s Private Offerings, Resales and Trading through
Automatic Linkages (PORTAL) market. There can be no assurance that an active
market for the Notes will develop. To the extent that a market for the Notes
does develop, the market value of the Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions,
SBACC's financial condition and certain other factors. Such conditions might
cause the Notes, to the extent that they are traded, to trade at a significant
discount from face value. See "Risk Factors--Absence of Public Market for the
Notes; Restrictions on Transfer."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where
such Private Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. SBACC has indicated its
intention to make this Prospectus (as it may be amended or supplemented)
available to any broker-dealer for use in connection with any such resale for
a period of 180 days after the Expiration Date. See "Plan of Distribution."
SBACC will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer. See "The Exchange Offer."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL SBACC ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SBACC. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION
THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form.
SBACC expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC"
or the "Depository") and registered in its name or in the name of Cede & Co.,
as its nominee. Beneficial interests in the global note representing the
Exchange Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depository and its participants. After the
initial issuance of such global note, Exchange Notes in certificated form will
be issued in exchange for the global note only in accordance with the terms
and conditions set forth in the Indenture. See "The Exchange Offer--Book-Entry
Transfer" and "Book Entry; Delivery and Form."
(Continued on Next Page)
iii
<PAGE>
(Continued from Previous Page)
MARKET DATA
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS GENERALLY
STATE THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES
BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF SUCH
INFORMATION IS NOT GUARANTEED. ALTHOUGH SBACC BELIEVES SUCH INFORMATION TO BE
RELIABLE, SBACC HAS NOT INDEPENDENTLY VERIFIED SUCH MARKET DATA. SIMILARLY,
INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY SBACC TO BE RELIABLE, HAVE NOT
BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) included
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, (i) "SBACC" refers to
SBA Communications Corporation and (ii) "SBA" or the "Company" refers (A) to
SBACC, together with its subsidiaries SBA Telecommunications, Inc.
("Telecommunications"), SBA, Inc., SBA Leasing, Inc. ("Leasing"), SBA Towers,
Inc. ("Towers"), Communication Site Services, Inc. ("CSSI"), SBA Communications
International, Inc. ("International") and SBA Subsidiary Holdings, Inc.
("Holdings") and (B) prior to the formation of SBACC in the fourth quarter of
1996, to SBA, Inc. and Leasing.
THE COMPANY
The Company is a leading independent provider of communication site services,
offering a broad array of site development services to the wireless
communications industry. In order to capitalize on the trend toward colocation
and independent tower ownership in the wireless communications industry, the
Company is aggressively expanding its site leasing business by utilizing its
site development experience and relationships with wireless service providers
to source opportunities to build and acquire communication sites. The Company
believes that it is a leading provider of site development services in the
United States, having participated since its founding in 1989 in one or more
aspects of the development of more than 9,000 antennae sites (including over
3,500 in 1997) in 49 of the 51 major trading areas ("MTAs"). The Company
anticipates significant future growth in its site leasing business whereby the
Company leases antennae space on towers it owns, leases or manages. The Company
is both acquiring towers suited for multi-tenant use and building such towers,
generally under build-to-suit programs whereby a wireless service provider
enters into a lease as an anchor tenant with the Company for antennae space
prior to the Company's commencement of tower construction. As of June 30, 1998,
the Company owned 217 towers, had 74 towers pending acquisition under written
or verbal letters of intent or definitive agreements, and had non-binding
mandates to build up to approximately 410 additional towers (the majority of
which the Company expects will result in signed anchor tenant leases). For a
discussion of the process by which mandates lead to signed anchor tenant leases
and constructed towers, see "Business--Site Leasing Business--Build-to-Suit
Program." The Company's revenues and Annualized Adjusted EBITDA (as defined)
for the year ended December 31, 1997 were $55.0 million and $7.1 million,
respectively.
The Company offers an integrated "end-to-end" service with design,
construction and operating expertise to a range of wireless service providers,
including personal communications services ("PCS"), cellular, paging,
specialized mobile radio ("SMR"), enhanced specialized mobile radio ("ESMR")
and other providers. The Company's site development services include site
location analysis, site acquisition, zoning and land use permitting,
construction and construction management, Federal Aviation Administration
("FAA") compliance analysis and filings, contract and title administration and
building permit administration. The Company is typically paid fees for its site
development services on a project-by-project basis. In the site leasing
business, the Company's primary focus is the ownership of multi-tenant towers
and the leasing of antennae space on such towers to a variety of wireless
service providers under long-term lease contracts. The site leasing business
typically benefits from diversified recurring revenue and effective operating
leverage as a result of several factors, including: (i) the long-term contract
nature of lease revenues; (ii) low customer churn rates due to the high cost of
relocation; (iii) low variable operating costs, which cause increases in
revenues to generate disproportionately larger increases in tower cash flow;
(iv) low on-going maintenance capital expenditure requirements; (v) a customer
base diversified across geographic markets, industry segments (PCS, cellular,
paging, ESMR and SMR) and individual customers within these segments; and (vi)
the limited number of available tower sites serving a given area and consequent
barriers to entry, principally as a result of local opposition to the
proliferation of towers within such area.
1
<PAGE>
In the fourth quarter of 1996, based on its analysis of accelerating trends
in the wireless communications industry and the financial benefits of the site
leasing business, the Company determined to leverage its leadership in the site
development services business in order to expand into the ownership and leasing
of communication sites. Consequently, the Company has added build-to-suit
programs and other antennae site leasing options to its service offerings and
has sought the acquisition of attractive communication sites. Under a build-to-
suit program, the Company generally undertakes its site development services on
behalf of a wireless service provider but constructs a tower at the Company's
expense. In return, the wireless service provider enters into a long-term
anchor tenant lease and the Company retains ownership of the tower and has the
ability to colocate additional tenants. Management believes that many wireless
service providers are using build-to-suit programs as an alternative to tower
ownership and that this outsourcing trend is likely to continue. The Company's
build-to-suit programs provide an end-to-end solution to those wireless service
providers seeking to minimize their capital expenditures, overhead and time
associated with the build-out and on-going maintenance of their wireless
network infrastructure. Management believes its leadership in site development
services, its existing national field organization of more than 300 employees
and its strong relationships with wireless service providers position the
Company to be a leader in the developing build-to-suit market. While the
Company intends to continue to offer site development services to wireless
carriers, where demand and profitable opportunities exist, it will emphasize
its site leasing business through the construction of Company-owned towers
pursuant to build-to-suit programs for lease to wireless service providers, the
acquisition of existing sites and the leasing, sub-leasing and management of
other antennae sites. Management believes that as the site development industry
matures, the Company's revenues and gross profit from that business will
decline in the near term and this rate of decline will increase for the
foreseeable future as wireless service providers choose to outsource ownership
of communication sites in order to conserve capital. Management also believes
that, over the longer term, the Company's site leasing revenues will
correspondingly increase as carriers move to outsourced tower ownership and the
number of towers owned by the Company grows.
As a result of these trends and shift in business, the Company expects that
revenue and earnings before interest, taxes, depreciation and amortization
("EBITDA") will decline over the short term and capital expenditures will
increase sharply as the Company accumulates towers. In addition, the Company
anticipates that its operating expenses will remain at or above current levels
as the Company continues to construct and acquire tower assets. The Company's
results of operations in 1997 and 1998 have begun to reflect the impact of
these trends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Management believes that the number of communication sites (which include
towers, rooftops and other structures) in use will continue to increase with
the growth in demand for wireless services. This growth is the result of
several factors, including (i) the issuance of new wireless network licenses
requiring the construction of new wireless networks; (ii) the continuing build-
out of higher frequency technologies (such as PCS) which have a reduced cell
range and thus require a more dense network of towers; (iii) the need to expand
services and fill-in and upgrade existing networks; and (iv) the emergence of
new wireless technologies. In October 1995, the Personal Communications
Industry Association ("PCIA") estimated that the number of antennae sites in
the United States for both cellular and PCS providers will increase by an
additional 100,000 antennae sites (more than one of which can be located on a
single communication site) over the next ten years as cellular systems expand
coverage and PCS systems are deployed. Management believes that wireless
service providers have begun to focus their capital and operations primarily on
activities that build subscriber growth, such as marketing and distribution,
and, therefore, that wireless service providers will increasingly seek to
outsource communication site ownership, construction, management and
maintenance. The Company believes that it will benefit from this trend.
2
<PAGE>
BUSINESS STRATEGY
The Company's strategy is to build on its leadership position in site
development services to become a leading owner and operator of communication
sites. Key elements of the Company's strategy include:
BUILD, OWN AND LEASE TOWERS. The Company believes that there are various
financial considerations currently affecting wireless service providers,
including the need to optimize capital resources. Increasingly, these factors
have led wireless service providers to consider outsourcing the investment in,
and ownership of, towers. Management believes that it has positioned the
Company to meet these outsourcing needs, leveraging its expertise in the site
development business to construct towers with anchor tenants pursuant to build-
to-suit programs. The Company believes that it has one of the largest number of
non-binding build-to-suit mandates from wireless service providers in the
industry. The Company has received non-binding mandates from approximately
eight major wireless service providers to execute build-to-suit programs. As of
June 30, 1998, the Company had non-binding mandates to build up to
approximately 410 additional towers under build-to-suit programs.
ACQUIRE EXISTING TOWERS. The Company intends to continue to make strategic
acquisitions in the fragmented tower owner and operator industry. The Company's
strategy is to acquire only those towers that the Company believes will be
attractive to, and capable of use by, multiple tenants based on location,
height, local competition and available capacity. The Company will continue to
pursue larger acquisitions to provide critical mass and smaller acquisitions
that have the potential for more attractive returns. Management believes that
its existing national field organization provides it with a competitive
advantage in identifying opportunities for the acquisition of existing towers.
The Company regularly evaluates acquisition opportunities and engages in
negotiations with respect to acquisitions of individual tower sites, groups of
tower sites and entities that own or manage towers and related businesses.
However, except as otherwise contemplated herein, as of June 30, 1998, there
were no agreements with respect to any pending acquisitions.
MAINTAIN AND CAPITALIZE ON STRONG RELATIONSHIPS WITH MAJOR WIRELESS SERVICE
PROVIDERS. Management believes that it is well-positioned to be a preferred
partner in build-to-suit programs because of its strong relationships with
wireless service providers and proven operating experience. The Company
believes that it will be able to build upon its existing relationships with
wireless service providers to source further opportunities for build-to-suit
programs and lease antennae space on its owned towers. In many cases, the
personnel awarding site development projects for wireless service providers are
the same personnel who make decisions with respect to build-to-suit programs.
The Company is continually marketing its build-to-suit programs to its site
development service customers. The Company's build-to-suit customers include
AT&T Wireless, BellSouth Mobility, Nextel, PrimeCo PCS, Sprint PCS and Western
Wireless.
INCREASE USE OF COMPANY-OWNED TOWERS. The Company's strategy for its owned,
leased and managed towers is to maximize the number of tenants on each tower,
thereby increasing its leasing revenues per tower. Because most tower costs are
fixed, leasing available space on an existing tower results in minimal
additional ongoing expenses and therefore generates a disproportionately large
increase in operating cash flow. The Company believes that many of its towers
have or will have significant capacity available for antennae space leasing and
that increased use of its owned towers can be achieved at low incremental cost.
The Company generally constructs build-to-suit towers to accommodate multiple
tenants in addition to the anchor tenant. The Company actively markets space on
its owned towers through its internal sales force. Once the Company has
identified a site for acquisition or construction, the sales force immediately
commences marketing that site to potential tenants.
CONTINUE PROVISION OF SITE DEVELOPMENT SERVICES. The Company has performed an
array of site development services for over 35 wireless service providers
across the United States, including Sprint PCS, Pacific Bell Mobile Services,
AT&T Wireless, Nextel, PrimeCo PCS, PageNet and BellSouth Mobility.
3
<PAGE>
Management believes the Company is a leading provider of site development
services in the United States. The Company has a broad national field
organization that allows it to identify and participate in site development
projects across the country. Knowledge of local markets and strong customer
relationships with wireless service providers are competitive strengths that
position the Company to further capitalize on the site development needs of the
wireless communications industry. In 1997, the Company acquired CSSI, which is
a tower construction company operating primarily in the southeastern United
States. This acquisition increased the Company's expertise in managing the
construction component of its business which enabled the Company to directly
provide construction services to third parties and, on a selective basis, for
its own build-to-suit programs. The Company believes that CSSI will enable the
Company to capture more of the wireless service providers' total site
development business and build-to-suit programs and to enhance its end-to-end
approach to service.
COMPETITIVE STRENGTHS
Management believes that the Company has several important competitive
strengths that have contributed to its leadership position in the site
development business. Management believes that these strengths will enable it
to successfully expand its site leasing business. Key strengths include:
PROVEN OPERATING EXPERIENCE. The Company has been operating in the site
development business since 1989 and believes that it is a leading provider of
such services in the United States. The Company has successfully participated
in one or more aspects of the development of more than 9,000 antennae sites
(including over 3,500 in 1997). As a result, management believes that the
Company has built a strong national reputation with wireless service providers
as a leading provider of site development services. Operating its site
development business has enabled the Company and management to gain experience
executing all stages of site development, and these same skills are utilized in
the course of constructing a build-to-suit tower. Management believes that this
operating history and proven track record give the Company a competitive
advantage in the build-to-suit tower construction business. In addition, as of
June 30, 1998, the Company administered approximately 1,065 antennae sites
whereby it leases the sites from site owners and subleases such sites to
wireless service providers at a profit. The Company has developed and will
continue to improve the systems and software to manage and oversee multiple
sites and lease contracts. Management believes that these systems and software
capabilities, together with the Company's operating expertise, will be critical
to it in building a successful national site leasing business.
MARKET EXPERIENCE. The Company believes that its national field organization
and site development experience in 49 of the 51 MTAs provide the Company with a
significant competitive advantage. Because of such experience, the Company has
its own knowledge base of many areas within most MTAs and, more importantly,
has the ability to more effectively analyze local requirements with respect to
a particular site development project or a build-to-suit mandate. The Company
also believes that its substantial field experience provides it with an
advantage in selecting and constructing new towers.
INTEGRATED PROVIDER OF SITE DEVELOPMENT SERVICES. Management believes that
the Company benefits from its integrated, end-to-end service capabilities, as
wireless service providers prefer the flexibility of a vendor who can perform,
directly or through subcontractors, any or all of the functions related to site
acquisition, development, construction and on-going operation.
CAPABILITY TO MANAGE MULTIPLE PROJECTS. The Company has been able to
successfully manage multiple site development projects in various locations
across the country at the same time. Management believes that the ability to
undertake concurrent build-to-suit programs in multiple markets will be
attractive to wireless service providers.
4
<PAGE>
RECENT EVENTS
Since June 1, 1997, the Company has taken a number of important steps to
expand its site leasing business, including:
THE CSSI ACQUISITION. On September 18, 1997, the Company consummated the
acquisition of CSSI and certain related tower assets of Segars Communications
Group, Inc. ("SCGI," and together with the acquisition of CSSI, the "CSSI
Acquisition"). The CSSI Acquisition provided the Company with 21 towers in
Florida and Georgia in varying stages of construction, together with a number
of parcels of leased real estate on which towers may be constructed in the
future, and gave the Company the in-house capability to construct towers in the
southeastern United States. The Company paid $7.0 million at closing, and
expects to invest up to an additional $4.8 million by September 1998 to
complete construction of the towers acquired and as a contingent payment to the
sellers, provided that certain tenant leasing goals are realized.
OTHER TOWER ACQUISITIONS. In addition to the 21 towers acquired in the CSSI
Acquisition, the Company has acquired 81 towers through June 1998 in 21
separate transactions for an aggregate initial investment of $34.4 million plus
up to an additional $3.3 million in consideration to be paid in 1998 in the
event certain tenant leasing goals are realized. As of June 30, 1998, the
Company has also entered into verbal or written letters of intent or definitive
agreements with respect to the purchase of 74 towers in 15 separate
transactions for an aggregate purchase price of $10.8 million. Certain of these
acquisitions are subject to definitive documentation and other closing
conditions, certain of which are out of the control of the Company. There can
be no assurance that any of these tower acquisitions will close on the terms
currently anticipated or at all.
MAJOR BUILD-TO-SUIT AWARD. The Company has been awarded a mandate for, and
has entered into a non-binding letter of intent with, BellSouth Mobility with
respect to 183 communication sites (as of June 30, 1998) to be located on newly
constructed towers or colocated on existing structures in 1998. The Company
will construct and own all new towers in the search rings issued with respect
to these 183 sites. The Company will also receive a site development fee for
any colocations arranged in these search rings. BellSouth Mobility will be the
anchor tenant on all new towers in these search rings. The Company currently
expects that a majority of these 183 search rings will result in build-to-suit
towers. These sites, which represent approximately 50% of the number of sites
awarded by BellSouth Mobility to be constructed or colocated in 1998, will be
located in eastern Tennessee, South Carolina and coastal Georgia. The award is
subject to definitive documentation which is expected to be finalized during
the third quarter of 1998.
PRINCIPAL EXECUTIVE OFFICES
The Company's principal executive offices are located at One Town Center
Road, Third Floor, Boca Raton, Florida 33486, and its telephone number is (561)
995-7670.
5
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER.......... The Company is hereby offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that are
properly tendered and accepted. The Company will
issue Exchange Notes on or promptly after the
Expiration Date. As of the date hereof, there is
$269,000,000 aggregate principal amount at
maturity of Private Notes outstanding. See "The
Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no action letters issued
to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act;
provided that the holder is acquiring Exchange
Notes in the ordinary course of its business and
is not participating, and had no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. (See e.g.
Exxon Capital Holdings Corp., SEC No-Action
Letter (available April 13, 1989) and Morgan
Stanley & Co. Inc., SEC No Action Letter
(available June 5, 1991), collectively, the "No
Action Letters"). Holders who tender their
Private Notes in the Exchange Offer with the
intention of participating in a distribution of
the Exchange Notes will not be able to rely on
the No Action Letters or similar no-action
letters. Each broker dealer that receives
Exchange Notes for its own account in exchange
for Private Notes, where such Private Notes were
acquired by such broker dealer as a result of
market making activities or other trading
activities, must acknowledge that it will deliver
a prospectus in connection with any resale of
such Exchange Notes. See "The Exchange Offer--
Resale of the Exchange Notes."
REGISTRATION RIGHTS The Private Notes were sold by the Company on
AGREEMENT................... March 2, 1998 to BT Alex. Brown Incorporated and
Lehman Brothers Inc. (the "Initial Purchasers")
pursuant to a Purchase Agreement, dated February
25, 1998, by and among the Company and the
Initial Purchasers (the "Purchase Agreement").
Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into a
Registration Rights Agreement, dated as of March
2, 1998 (the "Registration Rights Agreement"),
which grants the holders of the Private Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
rights, which will terminate upon the
consummation of the Exchange Offer. The holders
of the Exchange Notes will not be entitled to any
exchange
6
<PAGE>
or registration rights with respect to the
Exchange Notes. See "The Exchange Offer--
Termination of Certain Rights."
EXPIRATION DATE............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
PRIVATE NOTES...............
The Exchange Notes will accrete in value from and
including the date of issuance of the Private
Notes (March 2, 1998) until March 1, 2003 at
which time they will have an aggregate principal
amount of $269.0 million. Thereafter, cash
interest will accrue on the Exchange Notes.
Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right
to receive any interest accrued on the Private
Notes. See "The Exchange Offer--Interest on the
Exchange Notes."
CONDITIONS TO THE EXCHANGE
OFFER.......................
The Exchange Offer is subject to certain
customary conditions that may be waived by the
Company. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of
Private Notes being tendered for exchange. See
"The Exchange Offer--Conditions."
PROCEDURES FOR TENDERING
PRIVATE NOTES...............
Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes
and any other required documentation to State
Street Bank and Trust Company, as exchange agent
(the "Exchange Agent"), at the address set forth
herein. By executing the Letter of Transmittal,
the holder will represent to and agree with the
Company that, among other things, (i) the
Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange
Offer are being acquired by such holder in the
ordinary course of its business, (ii) such holder
has no arrangement or understanding with any
person to participate in a distribution of the
Exchange Notes, (iii) that if such holder is a
broker dealer registered under the Exchange Act
or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such
holder will comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of
the staff of the Commission set forth in no
action letters (see "The Exchange Offer--Resale
of Exchange Notes"), (iv) such holder understands
that a secondary resale transaction described in
7
<PAGE>
clause (iii) above and any resales of Exchange
Notes obtained by such holder in exchange for
Private Notes acquired by such holder directly
from the Company should be covered by an
effective registration statement containing the
selling securityholder information required by
Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) such
holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company.
(See e.g., Exxon Capital Holdings Corp., SEC No
Action Letter (available April 13, 1989) and
Morgan Stanley & Co. Inc., SEC No Action Letter
(available June 5, 1991), collectively, the "No
Action Letters"). Holders who tender their
Private Notes in the Exchange Offer with the
intention of participating in a distribution of
the Exchange Notes will not be able to rely on
the No Action Letters or similar no action
letters. If the holder is a broker dealer that
will receive Exchange Notes for its own account
in exchange for Private Notes that were acquired
as a result of market making activities or other
trading activities, such holder will be required
to acknowledge in the Letter of Transmittal that
such holder will deliver a prospectus in
connection with any resale of such Exchange
Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. See
"The Exchange Offer--Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS...........
Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Private Notes in
the Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender
on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering such owner's Private
Notes, either make appropriate arrangements to
register ownership of the Private Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--
Procedures for Tendering."
GUARANTEED
DELIVERYPROCEDURES..........
Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures
set forth under "The Exchange Offer--Guaranteed
Delivery Procedures."
ACCEPTANCE OF THE PRIVATE
NOTES AND DELIVERY OF THE
EXCHANGE NOTES..............
Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all
8
<PAGE>
Private Notes that are properly tendered in the
Exchange Offer prior to the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest
practicable date following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
WITHDRAWAL RIGHTS........... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS..............
For a discussion of certain material federal
income tax considerations relating to the
exchange of the Exchange Notes for the Private
Notes, see "Certain United States Federal Income
Tax Considerations."
THE EXCHANGE NOTES
The Exchange Offer applies to $269,000,000 in aggregate principal amount at
maturity of the Private Notes. The form and terms of the Exchange Notes are the
same as the form and terms of the Private Notes except that (i) the exchange
will have been registered under the Securities Act and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders
of the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be issued under, and be entitled to the benefits of, the Indenture. For
further information and for definitions of certain capitalized terms used
below, see "Description of Exchange Notes."
SECURITIES OFFERED.......... $269,000,000 in aggregate principal amount at
maturity of 12% Senior Discount Notes due 2008.
MATURITY DATE............... March 1, 2008.
YIELD AND INTEREST.......... Interest will accrue at a rate of 12% per annum,
to an aggregate principal amount of $269.0
million by March 1, 2003. Cash interest will not
accrue on the Notes prior to March 1, 2003.
Thereafter, cash interest on the Notes will
accrue and be payable semiannually in arrears on
each March 1 and September 1, commencing
September 1, 2003, at a rate of 12% per annum.
ORIGINAL ISSUE DISCOUNT..... The Notes are being offered at an original issue
discount for U.S. federal income tax purposes.
Thus, although cash interest will not be payable
on the Notes prior to September 1, 2003, original
issue discount will accrue from the issue date of
the Notes and will be included as interest income
periodically (including for periods ending prior
to September 1, 2003) in a holder's gross income
for U.S. federal income tax purposes in advance
of receipt of the cash payments to which the
income is attributable. See "Certain United
States Federal Income Tax Considerations."
OPTIONAL REDEMPTION......... Except as described below, the Notes will not be
redeemable at the Company's option prior to March
1, 2004. Thereafter, the Notes will
9
<PAGE>
be subject to redemption at any time at the
option of the Company, in whole or in part, at
the redemption prices set forth herein plus
accrued and unpaid interest thereon, if any, to
the applicable redemption date. In addition, at
any time prior to March 1, 2001, the Company may
on any one or more occasions redeem up to 20% of
the aggregate principal amount at maturity of the
Notes issued at a redemption price of 112% of the
Accreted Value thereof, to the redemption date,
with the net cash proceeds from one or more
Public Equity Offerings or Strategic Equity
Investments; provided, however, that at least 80%
of the aggregate principal amount at maturity of
Notes issued remains outstanding immediately
after the occurrence of such redemption
(excluding Notes held by SBACC or any of its
subsidiaries). See "Description of Exchange
Notes--Optional Redemption."
RANKING..................... The Notes will be general unsecured obligations
of SBACC, will rank senior in right of payment to
any future indebtedness of the Company which is
made expressly junior thereto, and will rank pari
passu in right of payment with all current and
future unsecured senior Indebtedness of SBACC.
All of the operations of SBACC are conducted
through its subsidiaries, and SBACC's
subsidiaries will not be guarantors of the Notes.
Accordingly, the Notes will be effectively
subordinated to all indebtedness and all other
liabilities or obligations of such subsidiaries,
including borrowings under the $55.0 million
Credit Facility. As of March 31, 1998, SBACC's
subsidiaries would have approximately $6.4
million of indebtedness and other outstanding
liabilities (including trade payables). SBACC's
subsidiaries will be entitled to borrow
substantial additional indebtedness under the
Credit Facility or otherwise. See
"Capitalization."
CHANGE OF CONTROL........... Upon the occurrence of a Change of Control, the
holders of the Notes will have the right to
require the Company to repurchase such holders'
Notes, in whole or in part, at a price equal to
101% of the Accreted Value thereof to the date of
purchase prior to March 1, 2003 or 101% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase on or
after March 1, 2003. There can be no assurance
that the Company will be able to raise sufficient
funds to meet this obligation should it arise.
See "Description of Exchange Notes--Repurchase at
the Option of Holders--Change of Control."
CERTAIN COVENANTS........... The indenture pursuant to which the Exchange
Notes will be issued (the "Indenture") contains
certain covenants that, among other things, limit
the ability of the Company and its Restricted
Subsidiaries (as defined) to (i) incur additional
indebtedness and issue preferred stock; (ii) pay
dividends or make certain other restricted
payments; (iii) enter into transactions with
affiliates; (iv) make certain asset dispositions;
(v) merge or consolidate with, or transfer
substantially all its assets to, another Person
(as defined);
10
<PAGE>
(vi) create Liens securing Indebtedness (as
defined); or (vii) permit Subsidiaries to incur
restrictions on their ability to pay dividends to
the Company. Each of these covenants are subject
to important and substantial exceptions. In
addition, under certain circumstances, the
Company is required to offer to purchase the
Notes with the Net Proceeds (as defined) of
certain Asset Sales (as defined) at a price equal
to 100% of the principal amount (or Accreted
Value, as applicable) plus accrued and unpaid
interest thereon, if any, to the date of
purchase.
For additional information regarding the Notes, see "Description of Exchange
Notes."
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with an investment in the Notes, see "Risk Factors."
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following table setting forth summary historical financial data of the
Company as of and for the years ended December 31, 1994, 1995, 1996 and 1997
has been derived from, and is qualified by reference to, the audited financial
statements of the Company included elsewhere in this Prospectus. The historical
financial data as of and for the year ended December 31, 1993, as of March 31,
1998, and for the three months ended March 31, 1997 and 1998 has been derived
from unaudited financial statements of the Company. The financial statements
for periods ending on or prior to December 31, 1996 are the combined financial
statements of SBA, Inc. and Leasing (the "Predecessor Companies"), which were
acquired by SBACC during the first quarter of 1997 in connection with the
Company's exchange of shares of its Class B Common Stock for all of the issued
and outstanding shares of capital stock of the Predecessor Companies (the
"Corporate Reorganization"). The unaudited financial data have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information included therein. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
----------- ------- ------- -------- ------- -------- --------
(UNAUDITED) (DOLLARS IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Site development reve-
nue.................. $6,109 $10,604 $22,700 $ 60,276 $48,241 $ 12,457 $ 12,531
Site leasing revenue.. 125 896 2,758 4,530 6,759 1,558 2,159
------ ------- ------- -------- ------- -------- --------
Total revenues.......... 6,234 11,500 25,458 64,806 55,000 14,015 14,690
Cost of revenues
(exclusive of
depreciation shown
below):
Cost of site develop-
ment revenue......... 4,928 7,358 13,993 39,822 31,470 8,094 9,003
Cost of site leasing
revenue.............. 77 647 2,121 3,638 5,356 1,272 1,507
------ ------- ------- -------- ------- -------- --------
Total cost of revenues.. 5,005 8,005 16,114 43,460 36,826 9,366 10,510
------ ------- ------- -------- ------- -------- --------
Gross profit............ 1,229 3,495 9,344 21,346 18,174 4,649 4,180
------ ------- ------- -------- ------- -------- --------
General and administra-
tive(1)................ 1,133 1,541 5,731 17,032 9,336 2,477 3,564
Sales and marketing(2).. -- 86 237 722 2,697 778 365
Depreciation and amorti-
zation................. 5 5 73 160 514 41 507
------ ------- ------- -------- ------- -------- --------
Operating income (loss). 91 1,863 3,303 3,432 5,627 1,353 (256)
Interest (income)....... (1) (2) (6) (7) (644) (59) (764)
Interest expense........ 9 19 11 139 407 36 1,880
------ ------- ------- -------- ------- -------- --------
Income (loss) before in-
come taxes............. 83 1,846 3,298 3,300 5,863 1,376 (1,372)
Provision for income
taxes(2)............... 33 738 1,319 1,320 5,596 3,523 86
------ ------- ------- -------- ------- -------- --------
Net income (loss)....... $ 50 $ 1,108 $ 1,979 $ 1,980 $ 267 $ (2,147) $ (1,458)
====== ======= ======= ======== ======= ======== ========
OTHER DATA:
Adjusted EBITDA(3)(6)... $ 96 $ 1,868 $ 4,702 $ 15,512 $ 7,075 $ 2,328 $ 251
Annualized Adjusted
EBITDA(4).............. 96 1,979 4,829 15,612 7,125 3,057 4,770
Capital expenditures.... 14 51 660 145 16,292 92 11,070
Ratio of earnings to
fixed charges(5)....... 4.6x 41.8x 33.8x 7.7x 3.6x 6.5x 0.3x
Net cash provided by
(used in) operating ac-
tivities............... -- 873 (533) 1,215 6,506 7,632 (7,503)
Net cash used in invest-
ing activities......... -- (51) (660) (145) (16,292) (92) (11,070)
Net cash provided by
(used in) financing ac-
tivities............... -- (689) 1,298 (1,036) 15,584 6,293 136,074
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------- ------------------
1993 1994 1995 1996 1997 1998
----------- ------- ------- -------- ------- ------------------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ $ 922 $ 2,610 $ 7,429 $ 18,060 $44,797 $183,282
Total debt(6)........... -- 1 1,500 4,921 10,184 151,740
Redeemable preferred
stock.................. -- -- -- -- 30,983 31,421
Common stockholders' eq-
uity (deficit)......... 265 1,745 4,793 101,615 (4,344) (6,240)
</TABLE>
(footnotes on following page)
12
<PAGE>
- --------
(1) For the year ended December 31, 1995, general and administrative expense
includes cash compensation expense of $1.3 million representing the amount
of officer compensation in excess of what would have been paid had the
officer employment agreements entered into in 1997 been in effect during
that period. For the year ended December 31, 1996, general and
administrative expense includes non-cash compensation expense of $7.0
million incurred in the Corporate Reorganization and cash compensation
expense of $4.9 million representing the amount of officer compensation in
excess of what would have been paid had the officer employment agreements
entered into in 1997 been in effect during that period. For the year ended
December 31, 1997, general and administrative expense includes non-cash
compensation expense of $.9 million incurred in the Corporate
Reorganization. See "Certain Transactions."
(2) Provision for income taxes represents a pro forma calculation (40%) for the
years ended December 31, 1993, 1994, 1995 and 1996, when the Company was
treated as an S Corporation under Subchapter S of the Code (as defined).
Provision for income taxes for the year ended December 31, 1997 and for the
three months ended March 31, 1997 and March 31, 1998 represents an actual
provision. The effective rate is in excess of the 40% rate used in the pro
forma calculations due to the tax effect of the conversion of the Company
to a C Corporation. See "Reorganization and Prior S Corporation Status."
(3) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly
used in the telecommunications industry to analyze companies on the basis
of operating performance, leverage and liquidity. EBITDA is not intended to
represent cash flows for the periods presented, nor has it been presented
as an alternative to operating income or as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. Companies calculate EBITDA differently and,
therefore, EBITDA as presented for the Company may not be comparable to
EBITDA reported by other companies. See the Company's Consolidated
Statements of Cash Flows in the Company's Consolidated Financial Statements
contained elsewhere in this Prospectus. Adjusted EBITDA for the years ended
December 31, 1995 and 1996 excludes cash compensation expense of $1.3
million and $4.9 million, respectively, representing the amounts of officer
compensation in excess of what would have been paid had the officer
employment agreements entered into in 1997 been in effect during such
periods. Additionally, Adjusted EBITDA for the year ended December 31, 1996
and December 31, 1997 also excludes the effect of non-cash compensation
expense of $7.0 million and $.9 million, respectively, which was incurred
in the Corporate Reorganization.
(4) Annualized Adjusted EBITDA for the years ended December 31, 1993, 1994,
1995, 1996 and 1997 and for the three months ended March 31, 1997 and 1998
is defined as the sum of (i) EBITDA for the most recent calendar quarter
attributable to the Company's site leasing business multiplied by four and
(ii) Adjusted EBITDA, less all site leasing EBITDA for the most recent four
calendar quarters. For the purpose of calculating Annualized Adjusted
EBITDA, selling general and administrative expenses not specifically
allocable to the site leasing business are allocated between the Company's
site leasing EBITDA and site development EBITDA on a pro rata basis based
on the revenues generated by each of such businesses. Annualized Adjusted
EBITDA is presented as additional information because management believes
it to be a useful indicator of the Company's ability to meet debt service
and capital expenditure requirements and because it is expected that
certain debt covenants of the Company will utilize Annualized Adjusted
EBITDA to measure compliance with such covenants. It is not, however,
intended as an alternative measure of operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Annualized Adjusted EBITDA as presented herein is equivalent
to Adjusted Consolidated Cash Flow, as such term is defined in the
Indenture. Tower cash flow, as presented herein and as defined in the
Indenture, is the equivalent of site leasing EBITDA. Tower cash flow, which
requires an allocation of the Company's total operating expenses to its
site leasing business, for the fiscal quarter ended March 31, 1998 was
($256,000).
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
represent net income before income taxes and fixed charges. Fixed charges
consist of interest expense, the component of rental expense believed by
management to be representative of the interest factor thereon,
amortization of deferred financing costs and preferred stock dividends.
(6) Total debt does not include amounts owed to the stockholder of $0.1 million
and $10.7 million as of December 31, 1995 and 1996, respectively. These
amounts were paid in March 1997.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary unaudited pro forma financial data of
the Company for the year ended December 31, 1997. The pro forma summary
operating data for the year ended December 31, 1997 give effect to the CSSI
Acquisition, the Private Offering and the application of a portion of the net
proceeds from the Private Offering to repay outstanding indebtedness
(collectively, the "Transactions") as if each had occurred at the beginning of
the period presented. The pro forma summary of operating data for the three
months ended March 31, 1998 gives effect to the Private Offering as if it had
occurred at the beginning of the period presented. The information set forth
below should be read in conjunction with "Unaudited Pro Forma Condensed
Consolidated Financial Statements", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, 1997 ENDED
(DOLLARS IN THOUSANDS) MARCH 31, 1998
---------------------- --------------
<S> <C> <C>
OPERATING DATA:
Revenues:
Site development revenue.............. $ 53,246 $12,531
Site leasing revenue.................. 6,953 2,159
-------- -------
Total revenues.......................... 60,199 14,690
Cost of revenues (exclusive of deprecia-
tion shown below)
Cost of site development revenue...... 35,324 9,003
Cost of site leasing revenue.......... 5,396 1,507
-------- -------
Total cost of revenues.................. 40,720 10,510
-------- -------
Gross profit............................ 19,479 4,180
General and administrative.............. 10,120 3,564
Sales and marketing..................... 2,700 365
Depreciation and amortization........... 1,072 507
-------- -------
Operating income........................ 5,587 (256)
Interest expense, net................... 18,486 4,215
-------- -------
Loss before income taxes................ (12,900) (4,471)
Provision for income taxes(1)........... 5,579 48
-------- -------
Net loss................................ $(18,479) $(4,519)
======== =======
OTHER DATA:
Capital expenditures.................... 16,292 16,292
Ratio of earnings to fixed charges(2)... .3x .1x
Net cash used in operating activities... (11,730) (10,507)
Net cash used in investing activities... (16,292) (11,070)
Net cash provided by financing activi-
ties................................... 151,322 139,078
</TABLE>
- --------
(1) Provision for income taxes for the year ended December 31, 1997 represents
an actual provision. The effective rate is in excess of the 40% rate used
in the pro forma calculations due to the tax effect of the conversion of
the Company to a C Corporation. See "Reorganization and Prior S Corporation
Status."
(2) For purposes of computing the pro forma ratio of earnings to fixed charges,
pro forma earnings represent, pro forma net income before income taxes and
pro forma fixed charges. Pro forma fixed charges consist of pro forma
interest expense, the component of rental expense believed by management to
be representative of the interest factor thereon, amortization of deferred
financing costs and preferred stock dividends. Pro forma earnings would
have been insufficient to cover fixed charges by $13.9 million for the year
ended December 31, 1997 and by $5.4 million for the three months ended
March 31, 1998.
14
<PAGE>
RISK FACTORS
Although the Company believes that its plans, intentions and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from
the Company's forward-looking statements are set forth below and elsewhere in
this Prospectus. All forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements set forth below.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Private Notes could be adversely affected due to
the limited amount, or "float," of the Private Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
TRANSITION TO TOWER OWNERSHIP; EXPECTED DECLINE IN SITE DEVELOPMENT REVENUES
The Company's growth strategy depends on its ability to successfully
transition from its site development business to the site leasing business.
Substantially all of the Company's revenues have historically come from the
site development business, and the Company expects to leverage its experience
and relationships in the site development business to build its site leasing
business. The construction and acquisition by the Company of towers are key
elements to this growth strategy. The success of the Company's site leasing
business will depend on its ability to construct and acquire towers and
profitably manage the leasing of antennae sites on those towers. In
particular, the profitability of the Company's site leasing business will
depend on the ability to secure additional tenants following initial tower
construction or acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Tower Economics." The Company
has only limited experience in owning towers, and there can be no assurance
that it will be successful in acquiring or constructing towers or securing
additional tenants.
In addition, the Company believes that wireless service providers have begun
to move away from the traditional build-out formula whereby such providers
contract for site development services for a fee and invest the capital
necessary to build and own their own network of communication towers. The
Company believes that build-to-suit programs, whereby wireless service
providers outsource tower ownership and lease antennae sites on independently-
owned towers, is rapidly becoming the preferred method of wireless network
expansion. As a result, the Company has begun to experience a decline in its
site development revenues in fiscal 1997, and the
15
<PAGE>
Company expects a further decline in its site development revenues in fiscal
1998. The Company does not expect that revenues recognized from its site
development business will return to the level experienced in fiscal 1996. The
Company expects that its site development business will decline in the near
term and this rate of decline will increase for the foreseeable future as its
customers move toward build-to-suit programs and other outsourcing
alternatives while moving away from wireless service provider-funded site
development and ownership. In addition, the Company anticipates that its
operating expenses will increase significantly as the Company implements its
strategy of acquiring tower assets. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company's success in the site leasing business will depend to a large
extent on management's expectations and assumptions concerning future demand
for independently-owned communication sites and numerous other factors, many
of which are beyond the Company's control. Any material error in any of these
expectations or assumptions, as well as the Company's ability to bid for and
manage the substantial number of projects for which it currently has mandates,
could have a material adverse effect on the Company's prospects, financial
condition or results of operations.
VARIABILITY IN QUARTERLY AND ANNUAL PERFORMANCE
Demand for the Company's site development services fluctuates from period to
period and within periods. These fluctuations are caused by a number of
factors, including the timing of customers' capital expenditures, the number
and significance of active customer engagements during a quarter, delays
incurred in connection with a project, employee hiring, consultant utilization
and the rate and volume of wireless service providers' tower build-outs. While
such demand fluctuates, the Company incurs certain fixed costs, such as
maintaining a staff and office space in anticipation of future contracts, even
when there may be no current business. The timing of revenues is difficult to
forecast as the Company's sales cycle can be relatively long and may depend on
factors such as the size and scope of assignments, budgetary cycles and
pressures and general economic conditions. Seasonal factors, such as vacation
days and total business days in a quarter, and the business practices of
customers, such as deferring commitments on new projects until after the end
of the calendar year or the customers' fiscal year, may add to the variability
of revenues and could therefore have a material adverse effect on the
Company's prospects, financial condition or results of operations.
Consequently, the operating results of the Company's site development business
for any particular period may vary significantly, and should not be considered
as necessarily being indicative of longer-term results.
RISKS ASSOCIATED WITH CONSTRUCTION AND ACQUISITION OF TOWERS
The Company's growth strategy depends on its ability to construct, acquire
and operate towers in conjunction with the expansion by wireless service
providers of their tower network infrastructure. The Company's ability to
construct new towers can be affected by a number of factors beyond its
control, including zoning and local permitting requirements, FAA
considerations, availability of tower components and construction equipment,
skilled construction personnel and bad weather conditions. In addition, as the
concern over tower proliferation has grown in recent years, certain
communities have placed restrictions on new tower construction or have delayed
granting permits required for construction. There can be no assurance (i) of
the number of mandates that the Company will be awarded or the number of
mandates that will result in towers; (ii) that the Company will be able to
overcome regulatory or other barriers to new construction; (iii) that the
number of towers planned for construction will be completed in accordance with
the requirements of the Company's customers; or (iv) that there will be a
significant need for the construction of new towers once the wireless service
providers complete their tower network infrastructure build-out. Certain of
the Company's anchor tenant leases contain penalty or forfeiture provisions in
the event the towers are not completed within specified time periods.
With respect to the acquisition of towers, the Company competes with certain
wireless service providers, broadcasters, site developers and other
independent tower owners and operators for acquisitions of towers, and expects
such competition to increase. Increased competition for acquisitions may
result in fewer acquisition opportunities for the Company, as well as higher
acquisition prices. The Company regularly explores acquisition
16
<PAGE>
opportunities, and the Company is currently actively negotiating to acquire
additional towers, although no agreements with respect to any such
acquisitions have been reached other than with respect to 74 towers (as of
June 30, 1998) that the Company intends on acquiring in the near term. There
can be no assurance that the Company will be able to identify towers or tower
companies to acquire in the future.
The Company currently estimates that it will make at least $175.0 million of
capital expenditures through June 1999 for the construction and acquisition of
communication sites, primarily towers. Based on the Company's current
operations and anticipated revenue growth, management believes that, if its
business strategy is successful, cash flow from operations and available cash
(including the proceeds from the Private Offering), together with anticipated
borrowings under the Credit Facility, will be sufficient to fund the Company's
anticipated capital expenditures through June 30, 1999. Thereafter, however,
or in the event the Company exceeds its currently anticipated capital
expenditures by June 30, 1999, or is unable to fully draw on the Credit
Facility, the Company anticipates that it will need to seek additional equity
or debt financing to fund its business plan. The availability of additional
financing cannot be assured and depending on the terms of proposed
acquisitions and financing, could be restricted by the terms of the Credit
Facility and the Indenture. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
No assurance can be given that the Company will be able to identify, finance
and complete future acquisitions on acceptable terms or that the Company will
be able to manage profitably and market available space on its towers. The
extent to which the Company is unable to construct or acquire additional
towers, or manage profitably such tower operations, may have a material
adverse effect on the Company's prospects, financial condition or results of
operations.
In addition, the timeframe for the current wireless build-out cycle may be
limited to the next few years, and many PCS networks have already been built
out in large markets. A failure by the Company to move quickly and
aggressively to obtain growth capital and capitalize on this infrastructure
opportunity could have a material adverse effect on the Company's prospects,
financial condition or results of operations with respect to both site
development services and site leasing.
Implementation of the Company's strategy to expand its site leasing business
may impose significant strains on the Company's management, operating systems
and financial resources. In addition, the Company anticipates that its
operating expenses will increase significantly as the Company implements its
strategy of acquiring tower assets. Failure by the Company to manage its
growth or unexpected difficulties encountered during expansion could have a
material adverse effect on the Company's prospects, financial condition or
results of operations. The pursuit and integration of build-to-suit prospects,
acquisitions, investments, joint ventures and strategic alliances will require
substantial attention from the Company's senior management, which will limit
the amount of time available to devote to the Company's existing operations.
Future acquisitions by the Company could result in the incurrence of debt and
contingent liabilities and an increase in amortization expenses related to
goodwill and other intangible assets, which could have a material adverse
effect upon the Company's prospects, financial condition or results of
operations.
DEPENDENCE ON DEMAND FOR WIRELESS COMMUNICATIONS; RISK ASSOCIATED WITH NEW
TECHNOLOGIES
Substantially all of the Company's customers to date have been providers of
wireless communications services and, therefore, the success of the Company is
dependent on the success of such providers of wireless communications
services. Demand for the Company's services is dependent on demand for
communication sites from wireless service providers, which, in turn, is
dependent on the demand for wireless services. Most types of wireless services
currently require ground-based network facilities, including communication
sites for transmission and reception. The extent to which wireless service
providers lease such communication sites depends on a number of factors beyond
the Company's control, including the level of demand for such wireless
services, the financial condition and access to capital of such providers, the
strategy of providers with respect to owning or leasing communication sites,
government licensing of broadcast rights, changes in telecommunications
regulations and general economic conditions. In addition, wireless service
providers frequently enter into roaming agreements with competitors allowing
each other to utilize one another's wireless communications facilities to
accommodate customers who are out of range of their home provider's services.
Such roaming
17
<PAGE>
agreements may be viewed by wireless service providers as a superior
alternative to leasing antennae space on communications sites owned by the
Company. The proliferation of such roaming agreements could have a material
adverse effect on the Company's prospects, financial condition or results of
operations.
The wireless communications industry has undergone significant growth in
recent years. A slowdown in the growth of, or reduction in, demand in a
particular wireless segment could adversely affect the demand for
communication sites. For example, the Company anticipates that a significant
amount of its revenues over the next several years will be generated from
providers in the PCS market and, as such, the Company will be subject to
downturns in PCS demand. Moreover, wireless service providers often operate
with substantial leverage, and financial problems for the Company's customers
could result in accounts receivable going uncollected, in the loss of a
customer and the associated lease revenue, or in a reduced ability of these
customers to finance expansion activities.
The emergence of new technologies could also have a negative impact on the
Company's operations. For example, the Federal Communications Commission (the
"FCC") has granted license applications for three low-earth orbiting satellite
systems that are intended to provide mobile voice and data services. Although
such systems are highly capital-intensive and technologically untested, mobile
satellite systems could compete with land-based wireless communications
systems, thereby reducing the demand for the infrastructure services provided
by the Company. The occurrence of any of these factors could have a material
adverse effect on the Company's prospects, financial condition or results of
operations.
COMPETITION
The Company competes for site leasing tenants with (i) wireless service
providers that own and operate their own tower footprints and lease, or may in
the future decide to lease, antennae space to other providers, (ii) site
development companies which acquire antennae space on existing towers for
wireless service providers, manage new tower construction and provide site
development services, (iii) other independent tower companies and (iv)
traditional local independent tower operators. Wireless service providers that
own and operate their own tower footprints generally are substantially larger
and have greater financial resources than the Company. The Company believes
that tower location and capacity, price, quality of service and density within
a geographic market historically have been and will continue to be the most
significant competitive factors affecting the site leasing business.
While the Company believes it is a leading provider of site development
services to the wireless communications industry in the United States,
numerous companies have entered and continue to enter into the business. In
addition, many of these are local companies that market their services based
on knowledge of the community. There can be no assurance that the Company will
maintain its current position and the Company is subject to numerous risks as
a result of competition.
The Company competes for acquisition and new tower construction
opportunities primarily with site developers and other independent tower
companies. The Company believes that competition for tower acquisitions and
new tower construction opportunities will increase and that additional
competitors will enter the tower market. Some of these additional competitors
have or are expected to have greater financial resources than the Company.
NO ASSURANCE THAT MANDATES WILL YIELD BINDING AGREEMENTS
As of June 30, 1998, the Company had non-binding mandates to build up to
approximately 410 towers under build-to-suit programs. Although the Company
believes that the majority of these non-binding mandates will result in long-
term anchor leases for specific communication towers, there are a number of
steps that need to occur before any such leases are executed. These steps
include, in some cases, finalization of build-out plans by the customers who
have awarded the mandates, completion of due diligence by the Company and its
customers and finalization of other definitive
18
<PAGE>
documents between the parties. As a result, there can be no assurance as to
the percentage of current and future non-binding mandates that will ultimately
result in binding anchor tenant leases and constructed towers.
NEED TO ATTRACT, RETAIN AND MANAGE PROFESSIONAL STAFF
The Company's business involves the delivery of professional services and is
labor-intensive. The Company's success depends in large part upon its ability
to attract, develop, motivate and retain skilled employees. There is
significant competition for employees with the skills required to perform the
services offered by the Company from other wireless communications firms and
other enterprises. There can be no assurance that the Company will be able to
attract and retain a sufficient number of highly-skilled employees in the
future or that it will continue to be successful in training, retaining and
motivating employees. The loss of a significant number of employees and/or the
Company's inability to hire a sufficient number of qualified employees could
have a material adverse effect on the Company's prospects, financial condition
or results of operations.
CUSTOMER CONCENTRATION
The Company derives a significant portion of its revenues from a small
number of customers. For example, during 1996 and 1997, the Company's five
largest customers accounted for approximately 93.7% and 85.9%, respectively,
of the Company's revenues from site development services. Four of the five
largest customers in 1996 were also among the Company's five largest customers
for the year ended December 31, 1997. Sprint PCS, the Company's largest
customer for the years ended December 31, 1997 and 1996, accounted for 53.6%
and 57.4%, respectively, of the Company's revenues from site development
services during this period. Other large customers include Pacific Bell Mobile
Systems, which accounted for 14.0% and 20.2% of the Company's revenues from
site development services for the years ended December 31, 1997 and 1996,
respectively, and AT&T Wireless, which accounted for 12.5% of the Company's
revenues from site development services for the year ended December 31, 1996.
Customers engage the Company on a project-by-project basis, and a customer can
generally terminate an assignment at any time without penalty. In addition, a
customer's need for site development services can decrease, and there can be
no assurance that the Company will be successful in establishing relationships
with new clients. Moreover, there can be no assurance that the Company's
existing customers will continue to engage the Company for additional
projects, and the Company has experienced and expects to continue to
experience a decline in overall demand for its site development services. The
loss of any significant customer could have a material adverse effect on the
Company's prospects, financial condition or results of operations.
MANAGEMENT OF GROWTH
The Company's revenues for the year ended December 31, 1997 increased $29.5
million, or 116%, from revenues for the 1995 fiscal year. From January 1, 1995
to December 31, 1997, the work force of the Company increased from 82 to 365
employees. This growth has placed, and will likely continue to place a
substantial strain on the Company's administrative, operational and financial
resources. The Company's executive officers have had no experience in managing
companies as large as the Company. In addition, as part of its business
strategy, the Company may acquire complementary businesses or expand into new
businesses. There can be no assurance that the Company will be able to manage
its growth successfully, or that its management, personnel or operational and
financial control systems will be adequate to support expanded operations. Any
such inabilities or inadequacies would have a material adverse effect on the
Company's prospects, financial condition or results of operations.
DISCRETIONARY USE OF FUNDS
The Company intends to use the remaining proceeds of the Private Offering to
build and acquire additional communications sites and, if attractive
opportunities become available, to acquire other companies that own towers, as
well as for general corporate and working capital purposes. The Company cannot
predict in which, if any, of its existing or future opportunities it will
ultimately invest. While the Company currently expects to use the remaining
proceeds of the Private Offering as set forth above, if the Company's plans
change, the Company would use any remaining cash to fund other development
projects and or acquisitions and for general corporate and working capital
purposes. See "Use of Proceeds."
19
<PAGE>
PROJECT RISKS
Most of the Company's site development services and build-to-suit programs
involve projects which are critical to the operations of its customers'
businesses and which provide benefits that may be difficult to quantify. The
Company's failure to meet customer expectations in the performance of its
services could damage the Company's reputation and adversely affect its
ability to attract new business. In addition, the Company could incur
substantial costs and expend significant resources correcting errors in its
work and could become liable for damages caused by such errors. When the
Company bids on contracts where the pricing is fixed, the Company could incur
losses with regard to such projects if the expenditures associated with such
projects exceed the Company's estimate in making its bid pursuant to that
contract.
REGULATORY COMPLIANCE AND APPROVAL
The Company is subject to a variety of regulations, including those at the
federal, state and local level. Both the FCC and the FAA regulate towers and
other sites used for wireless communications transmitters and receivers. Such
regulations control siting and marking of towers and may, depending on the
characteristics of the tower, require registration of tower facilities.
Wireless communications devices operating on towers are separately regulated
and independently licensed based upon the regulation of the particular
frequency used. All proposals to construct new communication sites or to
modify existing communication sites are reviewed by both the FCC and the FAA
to ensure that a site will not present a hazard to aviation. Owners of towers
may have an obligation to paint them or install lighting to conform to FCC and
FAA standards and to maintain such painting or lighting. Tower owners may also
bear the responsibility for notifying the FAA of any tower lighting failures.
The Company generally indemnifies its customers against any failure to comply
with applicable standards. Failure to comply with applicable requirements may
lead to civil penalties.
Local regulations include city or other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain
approval from local officials or community standards organizations prior to
tower construction. Local regulations can delay or prevent new tower
construction or site upgrade projects, thereby limiting the Company's ability
to respond to customers' demands. In addition, such regulations increase the
costs associated with new tower construction. There can be no assurance that
existing regulatory policies will not adversely affect the timing or cost of
new tower construction or that additional regulations will not be adopted
which increase such delays or result in additional costs to the Company. Such
factors could have a material adverse effect on the Company's prospects,
financial condition or results of operations and on the Company's ability to
implement and/or achieve its business objectives in the future.
The Company's customers may also become subject to new regulations or
regulatory policies which adversely affect the demand for communication sites.
In addition, if the Company pursues international opportunities, it will be
subject to regulation in foreign jurisdictions.
TITLE TO REAL PROPERTY
The Company's real property interests relating to its towers consist of fee
interests, leasehold interests, private easements and licenses and easements
and rights-of-way granted by governmental entities. With respect to acquired
towers, the Company generally obtains title insurance on most fee and leased
properties and relies on title warranties from sellers with respect to other
acquired properties. The Company's ability to protect its rights against
persons claiming superior rights in towers depends on the Company's ability to
(i) recover under title policies, the policy limits of which may be less than
the purchase price of a particular tower; (ii) in the absence of title
insurance coverage, realize on title warranties given by tower sellers, which
warranties often terminate after the expiration of a specific period
(typically one to three years); and (iii) realize on title covenants from
landlords contained in lease agreements.
20
<PAGE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations regarding the use, storage, disposal,
emission, release and remediation of hazardous and nonhazardous substances,
materials or wastes ("Environmental Laws"). Under certain Environmental Laws,
the Company could be held strictly, jointly and severally liable for the
remediation of hazardous substance contamination at its facilities or at
third-party waste disposal sites, and could also be held liable for any
personal or property damage related to such contamination. Although the
Company believes that it is in substantial compliance with and has no material
liability under all applicable Environmental Laws, there can be no assurance
that the costs of compliance with existing or future Environmental Laws and
liability related thereto will not have a material adverse effect on the
Company's prospects, financial condition or results of operations. See
"Business--Regulatory and Environmental Matters."
RISKS ASSOCIATED WITH DAMAGE TO TOWERS
The Company's towers are subject to risks associated with natural disasters
such as tornadoes, hurricanes and earthquakes. The Company maintains insurance
to cover the estimated cost of replacing damaged towers (subject to certain
caps). The Company also maintains third party liability insurance to protect
the Company in the event of an accident involving a tower. A tower accident
for which the Company is uninsured or underinsured, or damage to a tower or
group of towers, could have a material adverse effect on the Company's
prospects, financial condition or results of operations.
PERCEIVED HEALTH RISKS ASSOCIATED WITH RADIO FREQUENCY EMISSIONS
The Company and the wireless service providers that utilize the Company's
towers are subject to government requirements and other guidelines relating to
radio frequency ("RF") emissions. The potential connection between RF
emissions and certain negative health effects, including some forms of cancer,
has been the subject of substantial study by the scientific community in
recent years. To date, the results of these studies have been inconclusive.
Although the Company has not been subject to any claims relating to RF
emissions, there can be no assurance that it will not be subject to such
claims.
CONTROL OF THE COMPANY BY EXECUTIVE MANAGEMENT
Steven E. Bernstein, President and Chief Executive Officer of the Company,
by virtue of his ownership of 100% of the outstanding shares of Class B Common
Stock, and Ronald G. Bizick, II, Executive Vice President-Sales, as of June
30, 1998, control 50.3% of all votes on a primary basis and 50.0% of all votes
on a fully diluted basis. As a result, executive management has the ability to
elect three out of five of the Company's directors and the ability to control
the outcome of all matters determined by a vote of the Company's common
stockholders. See "--Dependence on Key Personnel" and "Management."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the continued
services of Steven E. Bernstein, its President and Chief Executive Officer,
Ronald G. Bizick, II, its Executive Vice President-Sales and Marketing, Robert
M. Grobstein, its Chief Financial Officer, Michael N. Simkin, its Chief
Operating Officer and Jeffrey A. Stoops, its Senior Vice President-Corporate
Development and General Counsel. Messrs. Bizick, Grobstein, Simkin and Stoops
have employment agreements. The Company does not have an employment agreement
with Steven E. Bernstein, its President and Chief Executive Officer. Mr.
Bernstein's compensation and other terms of employment will be determined by
the Board of Directors. For further information, see "Management." Although
the Company maintains key person life insurance on Mr. Bernstein, such
insurance would not adequately compensate for the loss of the services of Mr.
Bernstein. The loss of the services of Messrs. Bernstein, Bizick, Grobstein,
Simkin, Stoops or other key managers or employees, could have a material
adverse effect upon the Company's prospects, financial condition or results of
operations.
21
<PAGE>
SUBSTANTIAL LEVERAGE; RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S
INDEBTEDNESS
The Company is highly leveraged. As of March 31, 1998, the Company had total
consolidated indebtedness of approximately $151.7 million, total redeemable
preferred stock of $31.4 million and total stockholders' deficit of $6.2
million. After giving pro forma effect to the Private Offering, excluding the
CSSI Acquisition, the Company's pro forma earnings would have been inadequate
to service its pro forma fixed charges by $13.9 million for the year ended
December 31, 1997. The Company expects that its earnings will continue to be
inadequate to service its pro forma fixed charges at least through fiscal
1998. The Company and its subsidiaries will be permitted to incur substantial
additional indebtedness in the future, including under the $55.0 million
Credit Facility. See "Description of Credit Facility" and "Description of
Exchange Notes."
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including, but not limited to:
(i) making it more difficult for the Company to satisfy its obligations with
respect to the Notes, (ii) increasing the Company's vulnerability to general
adverse economic and industry conditions, (iii) limiting the Company's ability
to obtain additional financing to fund its growth strategy, future working
capital, capital expenditures and other general corporate requirements, (iv)
requiring the dedication of a substantial portion of the Company's cash flow
from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund its
growth strategy, working capital, capital expenditures or other general
corporate purposes, (v) limiting the Company's flexibility in planning for, or
reacting to, changes in its business and the industry, and (vi) placing the
Company at a competitive disadvantage vis-a-vis less leveraged competitors. In
addition, the degree to which the Company is leveraged could prevent it from
repurchasing any Notes tendered to it upon the occurrence of a Change of
Control. See "Description of Credit Facility."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, its debt obligations, and its ability to refinance any such debt
obligations (including the Notes), or to fund planned capital expenditures,
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. The Company's business strategy
contemplates substantial capital expenditures in connection with its planned
tower buildout and acquisitions. Based on the Company's current operations and
anticipated revenue growth, management believes that, if its business strategy
is successful, cash flow from operations and available cash (including the
proceeds from the Private Offering), together with anticipated borrowings
under the Credit Facility, will be sufficient to fund the Company's
anticipated capital expenditures through June 30, 1999. Thereafter, however,
or in the event the Company exceeds its currently anticipated capital
expenditures by June 30, 1999, or is unable to fully draw on the Credit
Facility, the Company anticipates that it will need to seek additional equity
or debt financing to fund its business plan. Failure to obtain any such
financing could require the Company to significantly reduce its planned
capital expenditures, scale back the scope of its tower buildout or
acquisitions and/or delay its transition to tower ownership, any of which
could have a material adverse effect on the Company's prospects, financial
condition or results of operations. In addition, the Company may need to
refinance all or a portion of its indebtedness (including the Notes and/or the
New Credit Facility) on or prior to its scheduled maturity. There can be no
assurance that the Company will generate sufficient cash flow from operations
in the future, that anticipated revenue growth will be realized or that future
borrowings or equity contributions will be available in amounts sufficient to
service its indebtedness and make anticipated capital expenditures. In
addition, there can be no assurance that the Company will be able to effect
any required refinancings of its indebtedness (including the Notes) on
commercially reasonable terms or at all. See "--Holding Company Structure;
Restrictions on Access to Cash Flow of Subsidiaries" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Indenture and the Credit Facility contain numerous restrictive
covenants, including but not limited to covenants that restrict the Company's
ability to incur indebtedness, pay dividends, create liens, sell assets and
engage in certain mergers and acquisitions. In addition, the Credit Facility
requires subsidiaries of the Company to maintain certain financial ratios.
Restrictions on the ability of the Company to incur additional indebtedness
may be waived, however, with the consent of the holders of a majority in
principal amount of the Notes outstanding. The Indenture also allows the
Company to designate current or future subsidiaries as Unrestricted
22
<PAGE>
Subsidiaries. The ability of the Company to comply with the covenants and
other terms of the Credit Facility and the Indenture and to satisfy its
respective debt obligations (including, without limitation, borrowings and
other obligations under the Credit Facility) will depend on the future
operating performance of the Company. In the event the Company fails to comply
with the various covenants contained in the Credit Facility or the Indenture,
as applicable, it would be in default thereunder, and in any such case, the
maturity of substantially all of its long-term indebtedness could be
accelerated. A default under the Indenture would also constitute an event of
default under the Credit Facility. See "Description of Credit Facility" and
"Description of Exchange Notes."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION; RESTRICTIONS ON ACCESS TO
CASH FLOW OF SUBSIDIARIES
SBACC is a holding company with no business operations of its own. SBACC's
only significant asset is and will be the outstanding capital stock of its
subsidiaries. SBACC conducts, and will conduct, all of its business operations
through its subsidiaries. Accordingly, SBACC's only source of cash to pay
interest on and principal of the Notes is distributions with respect to its
ownership interest in its subsidiaries from the net earnings and cash flow
generated by such subsidiaries. Although the Notes do not require cash
interest payments until September 1, 2003, at such time the Notes will have
accreted to $269.0 million and will require annual cash interest payments of
$32.3 million. In addition, the Notes mature on March 1, 2008. SBACC currently
expects that the earnings and cash flow of its subsidiaries will be retained
and used by such subsidiaries in their operations, including to service their
respective debt obligations. Even if SBACC determined to pay a dividend on or
make a distribution in respect of the capital stock of its subsidiaries, there
can be no assurance that SBACC's subsidiaries will generate sufficient cash
flow to pay such a dividend or distribute such funds to SBACC or that
applicable state law and contractual restrictions, including negative
covenants contained in the debt instruments of such subsidiaries, will permit
such dividends or distributions. The Notes are not guaranteed by SBACC's
subsidiaries. As a result, all indebtedness, including trade payables, of such
subsidiaries, including borrowings under the Credit Facility, are structurally
senior to the Notes. As of March 31, 1998, SBACC's subsidiaries (on a pro
forma basis) had no borrowing availability under the Credit Facility, and $6.4
million of liabilities outstanding, which would have been structurally senior
in right of payment to the Notes. See "Capitalization" and "Description of
Credit Facility."
The Credit Facility, subject to certain limited exceptions, prohibits
dividends or other distributions by SBACC's subsidiaries to SBACC at any time
prior to September 1, 2003. Thereafter, the Credit Facility will permit
dividend payments by SBACC's subsidiaries to SBACC sufficient to pay the
interest on the Notes coming due in that year and thereafter but only if no
default or event of default then exists under certain covenants of the Credit
Facility or otherwise, as those covenants are then in effect. See "Description
of Credit Facility". In addition, SBACC's subsidiaries are permitted under the
terms of the Indenture to incur certain additional indebtedness that may
restrict or prohibit the making of distributions, the payment of dividends or
the making of loans by such subsidiaries to SBACC. Accordingly, SBACC does not
anticipate that it will receive any material distributions from its
subsidiaries prior to September 1, 2003 and there can be no assurance that
sufficient amounts will be available to service interest on the Notes that
becomes payable on a semiannual basis commencing in 2003. In the event of any
or all of SBACC's subsidiaries becoming subject to bankruptcy proceedings
prior to payment of the Notes neither the holders of Notes nor SBACC will be
expected to have claims in such proceedings. Only after such subsidiaries'
creditors are fully paid would any remaining value of such subsidiaries'
assets be available to SBACC or its creditors, including the holders of the
Notes. See "--Substantial Leverage; Restrictions Imposed by the Terms of the
Company's Indebtedness" and "Description of Credit Facility."
The Credit Facility permits distributions to SBACC in an amount sufficient
to pay scheduled interest payments on the Notes commencing in 2003, provided
that there is then no default or event of default outstanding under the Credit
Facility, including under the financial maintenance tests set forth in the
Credit Facility. While management believes that, assuming the Company is able
to meet its scheduled build out program as contemplated, it will be in
compliance with the covenants expected to be contained in the Credit Facility
and,
23
<PAGE>
therefore, able to make distributions to SBACC in amounts sufficient to pay
scheduled interest on the Notes, no assurances that such will be the case can
be given. If the Company is not able to make distributions to SBACC so that
SBACC can make payments on the Notes, SBACC and the Company will be required
to pursue other alternatives which may include refinancing the Credit
Facility, seeking other sources of debt or equity capital (if available), or
other alternatives.
The Company currently anticipates that, in order to pay the principal of the
Notes or to redeem or repurchase the Notes upon a Change of Control, the
Company will be required to adopt one or more alternatives, such as
refinancing its indebtedness or selling its equity securities or the equity
securities or assets of its subsidiaries. There can be no assurance that any
of the foregoing actions could be effected on satisfactory terms, that any of
the foregoing actions would enable SBACC to pay the principal amount of the
Notes or that any of such actions would be permitted by the terms of the
Indenture or any other debt instruments of SBACC or SBACC's subsidiaries then
in effect. See "--Substantial Leverage; Restrictions Imposed by the Terms of
the Company's Indebtedness."
ORIGINAL ISSUE DISCOUNT; APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Therefore, the Exchange Notes will be issued at a
substantial discount from their stated principal amount at maturity.
Consequently, although cash interest on the Exchange Notes generally will not
be payable prior to September 1, 2003, original issue discount ("OID") will be
includable in the gross income of a holder of the Exchange Notes for U.S.
federal income tax purposes in advance of the receipt of such cash payments on
the Exchange Notes. See "Certain United States Federal Income Tax
Considerations" for a more detailed discussion of the U.S. federal income tax
consequences of the purchase, ownership and disposition of the Exchange Notes.
If a bankruptcy case is commenced by or against the Company under the U.S.
Bankruptcy Code after the issuance of the Exchange Notes, the claim of a
holder of Exchange Notes with respect to the principal amount thereof would
likely be limited to an amount equal to the sum of (i) the initial offering
price and (ii) that portion of the OID that is not deemed to constitute
"unmatured interest" for purposes of the U.S. Bankruptcy Code. Any OID that
was not accrued as of any such bankruptcy filing would constitute "unmatured
interest."
If the Exchange Notes provide initial holders with a yield to maturity which
exceeds the Treasury-based interest rate in effect for the month of their
issuance plus five percentage points, then OID with respect to the Exchange
Notes will not be deductible by the Company until paid. In the event that such
yield to maturity equals or exceeds such interest rate plus six percentage
points, then a portion of such OID will not be deductible by the Company on a
permanent basis.
REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the holders of the Notes have the right to require
the Company to repurchase such holders' Notes, in whole or in part, at a price
equal to 101% of the Accreted Value thereof to the date of purchase prior to
March 1, 2003 or 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase on or after March 1, 2003. If a
Change of Control were to occur, the Company may not have the financial
resources to repurchase all of the Notes and repay any other indebtedness that
would become payable upon the occurrence of such Change of Control. The Change
of Control purchase feature of the Notes may in certain circumstances
discourage or make more difficult a sale or takeover of the Company. See
"Description of Exchange Notes--Repurchase at the Option of Holders--Change of
Control."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
As of the date hereof, the only registered holder of Private Notes is Cede &
Co., as the nominee of DTC. The Company believes that, as of the date hereof,
such holder is not an "affiliate" (as such term is defined in Rule 405 under
the Securities Act) of the Company. Prior to the Private Offering, there had
been no market for
24
<PAGE>
the Notes and there can be no assurance that such a market will develop or, of
such a market develops, as to the liquidity of such market. The Exchange Notes
will not be listed on any securities exchange, but the Private Notes are
eligible for trading in the National Association of Securities Dealers, Inc.'s
Private Offering, Resales and Trading through Automatic Linkages (PORTAL)
market. The Exchange Notes are new securities for which there is currently no
market. The Exchange Notes may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities, the performance of the Company and other factors. The Company has
been advised by the Initial Purchasers that they intend to make a market in
the Exchange Notes, as well as the Private Notes, as permitted by applicable
laws and regulations; however, the Initial Purchasers are not obligated to do
so and any such market making activities may be discontinued at any time
without notice. In addition, such market making activities may be limited
during the Exchange Offer and the pendency of the Shelf Registration Statement
(as defined in the Registration Rights Agreement). Therefore, there can be no
assurance that an active market for the Notes will develop. See "The Exchange
Offer" and "Plan of Distribution."
25
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on March 2, 1998 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently sold the Private Notes to "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A. As a condition to the sale of the
Private Notes, the Company and the Initial Purchaser entered into the
Registration Rights Agreement on March 2, 1998. Pursuant to the Registration
Rights Agreement, the Company agreed that, unless the Exchange Offer is not
permitted by applicable law or Commission policy, it would (i) file with the
Commission a Registration Statement under the Securities Act with respect to
the Exchange Notes within 60 days after the Closing Date, (ii) use its best
efforts to cause such Registration Statement to become effective under the
Securities Act within 150 days after the Closing Date and (iii) use its best
efforts to consummate the Exchange Offer within 30 days after the date on
which the Registration Statement was declared effective by the Commission. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement. The Registration Statement is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement
and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchanges Private Notes for Exchange
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement with any person to
participate, in a distribution of the Exchange Notes, will be allowed to
resell Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. See e.g. Exxon Capital Holdings Corp., SEC No-Action Letter (available
April 13, 1989) and Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991). However, if any holder acquires Exchange Notes in the Exchange
Offer for the purpose of distributing or participating in the distribution of
the Exchange Notes or is a broker-dealer, such holder cannot rely on the
position of the staff of the Commission enumerated in certain no-action
letters issued to third parties and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any
resale for a period of 180 days after the Expiration Date. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral
multiples of $1,000.
26
<PAGE>
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $269,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede
& Co., as nominee for DTC. Only a registered holder of the Private Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders
of the Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
27
<PAGE>
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will be issued at a
substantial discount to their principal amount at maturity. The Exchange Notes
will accrete in value from and including the date of issuance of the Private
Notes (March 2, 1998) until March 1, 2003 at which time they will have an
aggregate principal amount of $269.0 million. Thereafter, cash interest will
accrue on the Exchange Notes and will be payable semiannually in arrears on
March 1 and September 1, commencing September 1, 2003, at a rate of 12% per
annum. Holders whose Private Notes are accepted for exchange will be deemed to
have waived the right to receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depository
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
28
<PAGE>
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) if such Holder is a resident of the
State of California, it falls under the self-executing institutional investor
exemption set forth under Section 25102(i) of the Corporate Securities Law of
1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky
Regulations, (iv) if such Holder is a resident of the Commonwealth of
Pennsylvania, it falls under the self-executing institutional investor
exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania
Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky
Regulations and an interpretive opinion dated November 16, 1985, (v) such
holder acknowledges and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer
for the purposes of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (vi) such holder understands that a
secondary resale transaction described in clause (v) above and any resales of
Exchange Notes obtained by such holder in exchange for Private Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (vii) such holder is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. If the holder is a broker-dealer
that will receive Exchange Notes for such holder's own account in exchange for
Private Notes that were
29
<PAGE>
acquired as a result of market-making activities or other trading activities,
such holder will be required to acknowledge in the Letter of Transmittal that
such holder will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depository pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depository) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's systems may make book-
entry delivery of Private Notes by causing the Depository to transfer such
Private Notes into the Exchange Agent's account at the Depository in
accordance with the Depository's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depository, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
30
<PAGE>
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Private Notes) and (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Private Notes so withdrawn are validly retendered.
Properly withdrawn Private Notes may be retendered by following one of the
procedures described above under "The Exchange Offer-Procedures for Tendering"
at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of transfer-restricted Private Notes by broker-dealers for a period of
up to 180 days from the Expiration Date and (iv) to provide copies of the
latest version of the Prospectus to broker-dealers upon their request for a
period of up to 180 days after the Expiration Date.
ADDITIONAL INTEREST
In the event of a registration default, the Company is required to pay as
liquidated damages, Additional Interest (as defined in the Registration Rights
Agreement) to each holder of Transfer Restricted Securities (as defined
below), during the first 90-day period immediately following the occurrence of
such registration default in an amount equal to $0.05 per week per $1,000
Accreted Value of Private Notes constituting Transfer Restricted Securities
held by such holder. Such Additional Interest rate will increase by an
additional $0.05 per week at the beginning of each subsequent 90-day period
during which the registration default continues. Transfer
31
<PAGE>
Restricted Securities shall mean each Private Note until (i) the date on which
such Private Note has been exchanged for an Exchange Note in the Exchange
Offer, (ii) the date on which such Private Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement (as defined in the Registration Rights Agreement)
or (iii) the date on which such Private Note is distributed to the public
pursuant to Rule 144(k) under the Securities Act. The amount of the Additional
Interest will increase by an additional $0.05 per week per $1,000 Accreted
Value of Private Notes constituting Transfer Restricted Securities for each
subsequent 90-day period until all registration defaults have been cured, up
to a maximum Additional Interest of $0.50 per week per $1,000 Accreted Value
of Private Notes constituting Transfer Restricted Securities. Following the
cure of all Registration Defaults, the payment of Additional Interest will
cease. The filing and effectiveness of the Registration Statement of which
this Prospectus is a part and the consummation of the Exchange Offer will
eliminate all rights of the holders of Private Notes eligible to participate
in the Exchange Offer to receive damages that would have been payable if such
actions had not occurred.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Registered or Certified Mail: By Hand Delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place Two International Place
Boston, MA 02110 Boston, MA 02110
Attention: Corporate Trust Attention: Corporate Trust
Fourth Floor Fourth Floor
By Overnight Delivery: By Facsimile:
State Street Bank and Trust Company (617) 664 5371
Two International Place
Boston, MA 02110 Confirm by Telephone:
Attention: Corporate Trust
Fourth Floor (617) 664 5602
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$150,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
32
<PAGE>
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be offered, resold, pledged or otherwise transferred only
(1) to a person who the seller reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144 under the Securities Act, outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act, or in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), (2) to the Company or (3) pursuant to an
effective registration statement, and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
33
<PAGE>
USE OF PROCEEDS
The Company will not receive proceeds from the Exchange Offer. The net
proceeds to the Company from the Private Offering were approximately $144.5
million after deducting the Initial Purchasers' discounts and estimated
transaction fees and expenses payable by the Company.
The remaining net proceeds raised by the Company in the Private Offering
will be used, together with borrowings under the Credit Facility, for the
construction and acquisition of towers and for general corporate purposes,
including working capital. The Company expects that the remaining net proceeds
from the Private Offering, together with borrowings anticipated to be
available under the Credit Facility, will be sufficient to meet its capital
needs through June 30, 1999. However, if acquisition or other opportunities
present themselves more rapidly than management currently anticipates, or the
Company is unable to fully draw on the Credit Facility, the Company may be
required to seek additional sources of debt or equity capital prior to June
30, 1999 or to scale back the scope of its tower buildout or acquisitions. The
Company regularly evaluates acquisition opportunities and engages in
negotiations with respect to acquisitions of individual tower sites, groups of
tower sites and entities that own or manage communication towers and related
businesses. In addition, the Company is currently actively negotiating to
acquire additional towers, although no agreements with respect to any such
acquisitions have been reached other than with respect to the towers described
under the caption "Recent Events." There can be no assurance that the Company
will be able to identify towers or tower companies to acquire in the future.
See "Risk Factors--Discretionary Use of Funds."
REORGANIZATION AND PRIOR S CORPORATION STATUS
Prior to 1997, the business currently conducted by the Company was conducted
by the Predecessor Companies. Effective January 1, 1997 (the "Effective
Date"), in connection with the private placement of shares of its 4% Series A
Convertible Preferred Stock (the "Series A Preferred Stock") which was
consummated on March 7, 1997 (the "Preferred Stock Offering"), the Company
issued its shares of Class B Common Stock for all of the issued and
outstanding shares of capital stock of the Predecessor Companies.
Until the Effective Date, the Predecessor Companies elected to be treated as
S Corporations under Subchapter S of the Internal Revenue Code of 1986, as
amended ("the Code") and comparable state tax laws. As a result, until the
Effective Date the earnings of the Predecessor Companies were attributable,
with certain exceptions, for federal and certain state income tax purposes to
their existing stockholder rather than to the Predecessor Companies.
34
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of December 31, 1997 on an historical basis and as adjusted for the Private
Offering. This table should be read in conjunction with the Historical
Financial Statements of the Company included elsewhere in this Prospectus and
the related Notes thereto.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
--------------------
<S> <C> <C>
Cash and cash equivalents.................................. $ 6,109 $150,646
======= ========
Long-term debt (less current maturities):
Credit Facility.......................................... $ -- $ --
12% Senior Discount Notes due 2008....................... -- 150,237
------- --------
Total long-term debt................................... -- 150,237
------- --------
Preferred stock............................................ 30,983 30,983
Stockholders' equity:
Class A Common Stock..................................... -- --
Class B Common Stock..................................... 81 81
Paid-in capital.......................................... -- --
Retained earnings........................................ (4,425) (4,425)
------- --------
Total stockholders' equity (deficit)................... (4,344) (4,344)
------- --------
Total capitalization................................. $26,639 $176,876
======= ========
</TABLE>
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on the historical
financial statements of SBA and the historical financial statements of CSSI
and SCGI during the periods presented, adjusted to give effect to the CSSI
Acquisition and the Private Offering.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1997 gives effect to the CSSI and SCGI
Acquisitions and the Private Offering as if each had occurred at the beginning
of the period presented. The unaudited pro forma condensed consolidated
statement of operations for the three months ended March 31, 1998 gives effect
to the Private Offering as if it had occurred at the beginning of the period
presented. The pro forma adjustments are described in the accompanying notes
and are based upon available information and certain assumptions that
management believes are reasonable.
The Pro Forma Financial Statements do not purport to represent what SBA's
results of operations or financial condition would actually have been had the
CSSI Acquisition and the Private Offering in fact occurred on such dates or to
project SBA's results of operations or financial condition for any future date
or period. The Pro Forma Financial Statements should be read in conjunction
with the consolidated financial statements included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The CSSI Acquisition is accounted for under the purchase method of
accounting. The total purchase price for the CSSI Acquisition has been
allocated to the identifiable tangible and intangible assets and liabilities
of the applicable acquired business based upon SBA's preliminary estimate of
their fair values with the remainder allocated to goodwill and other
intangible assets. The final purchase price and the related allocation of
total purchase price to acquired assets and liabilities is subject to revision
for contingent consideration of up to approximately $2,600,000 to be paid to
the seller in the event that certain tenant leasing goals are realized. As of
March 31, 1998 approximately $2,500,000 of contingent consideration has been
paid by the Company to the previous owner of CSSI. This amount has been
included as a component of the purchase price in the Unaudited Pro Forma
Condensed Consolidated Financial Statements for the year ended December 31,
1997.
36
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
SBA CSSI(1) SCGI(1) ADJUSTMENTS TOTAL
-------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Site development reve-
nue.................. $ 48,241 $ 5,005 $ -- $ -- $ 53,246
Site leasing revenue.. 6,759 -- 194 -- 6,953
-------- ------- ---- ------- --------
Total revenues...... 55,000 5,005 194 -- 60,199
Cost of revenues (exclu-
sive of depreciation
shown below):
Cost of site develop-
ment................. 31,470 3,936 -- (82)(2) 35,324
Cost of site leasing.. 5,356 -- 72 (32)(2) 5,396
-------- ------- ---- ------- --------
Total cost of reve-
nue................ 36,826 3,936 72 (114) 40,720
-------- ------- ---- ------- --------
Gross profit........ 18,174 1,069 122 114 19,479
Operating expenses:
General and adminis-
trative.............. 9,336 766 18 -- 10,120
Sales and marketing... 2,697 2 1 -- 2,700
Depreciation and amor-
tization............. 514 11 -- 547(2)(3) 1,072
-------- ------- ---- ------- --------
Total operating ex-
penses............. 12,547 779 19 547 13,892
-------- ------- ---- ------- --------
Operating income........ 5,627 290 103 (433) 5,587
Interest
expense/(income)..... (237) 16 41 18,666(4)(5)(6) 18,486
-------- ------- ---- ------- --------
Earnings (Loss) before
provision for income
taxes.................. 5,863 274 62 (19,099) (12,900)
Provision for income
taxes.................. 5,596 -- -- (17)(7) 5,579
-------- ------- ---- ------- --------
Net income (loss)... 267 274 62 (19,082) (18,479)
Dividends on preferred
stock.................. 983 -- -- -- 983
-------- ------- ---- ------- --------
Net income (loss) to
common stockholders.... (716) 274 62 (19,082) (19,462)
======== ======= ==== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
37
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
SBA ADJUSTMENTS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Revenues:
Site development revenue................ $ 12,531 $ -- $ 12,531
Site leasing revenue.................... 2,159 -- 2,159
-------- ------- --------
Total revenues........................ 14,690 -- 14,690
Cost of revenues (exclusive of deprecia-
tion shown below):
Cost of site development................ 9,003 -- 9,003
Cost of site leasing.................... 1,507 -- 1,507
-------- ------- --------
Total cost of revenue................. 10,510 -- 10,510
-------- ------- --------
Gross profit.......................... 4,180 -- 4,180
Operating expenses:
General and administrative.............. 3,564 -- 3,564
Sales and marketing..................... 365 -- 365
Depreciation and amortization........... 507 -- 507
-------- ------- --------
Total operating expenses.............. 4,436 -- 4,436
-------- ------- --------
Operating (loss).......................... (256) -- (256)
Interest expense/(income)............... 1,116 3,099(5)(6) 4,215
-------- ------- --------
Loss before provision for income taxes.... (1,372) (3,099) (4,471)
Provision for income taxes................ 86 (38) 48
-------- ------- --------
Net loss.............................. (1,458) (3,061) (4,519)
Dividends on preferred stock.............. (438) -- (438)
-------- ------- --------
Net loss to common stockholders........... (1,896) (3,061) (4,957)
======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
38
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(1) On September 18, 1997, the Company acquired certain assets, and assumed
certain liabilities of CSSI and SCGI in a business acquisition which was
accounted for using the purchase method. The accompanying unaudited pro
forma statements of operations for CSSI and SCGI reflect the results of
operations from January 1, 1997 to September 18, 1997. The results of
operations of CSSI and SCGI subsequent to September 18, 1997 are included
in the Company's results of operations.
(2) Reflects reclassification of depreciation for CSSI and SCGI previously
classified as "Cost of revenue."
(3) Reflects incremental amortization of goodwill acquired in connection with
the CSSI Acquisition and additional depreciation resulting from a step up
in basis of assets acquired. Goodwill is being amortized over 15 years.
(4) Reflects interest expense reduction as if the Notes had been issued
January 1, 1997 and the proceeds were used to retire outstanding debt.
(5) Reflects interest expense as if the Notes had been issued at the beginning
of the periods presented.
(6) Reflects amortization of deferred financing costs incurred in connection
with the Private Offering. Deferred financing costs are being amortized
over the ten-year term of the debt.
(7) Reflects a pro forma provision for taxes (at 40%) for the year ended
December 31, 1997, for CSSI and SCGI, when each company was an S
Corporation under Subchapter S of the Code (as defined) and the income tax
effect of the incremental amortization of goodwill and depreciation of
property and equipment as a result of the CSSI Acquisition. See
"Reorganization and Prior S Corporation Status." For the three months
ended March 31, 1998, the amount represents the pro forma income tax
effect of the incremental amortization of deferred financing costs
incurred in connection with the Private Offering.
39
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table setting forth summary historical financial data of the
Company as of and for the years ended December 31, 1994, 1995, 1996 and 1997
has been derived from, and is qualified by reference to, the audited financial
statements of the Company included elsewhere in this Prospectus. The
historical financial data as of and for the year ended December 31, 1993, as
of March 31, 1998, and for the three months ended March 31, 1997 and 1998 has
been derived from unaudited financial statements of the Company. The financial
statements for periods ending on or prior to December 31, 1996 are the
combined financial statements of the Predecessor Companies, which were
acquired by SBACC during the first quarter of 1997 in connection with the
Corporate Reorganization. The unaudited financial data have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information included therein. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
----------- ------- ------- ------- ------- -------- --------
(UNAUDITED) (DOLLARS IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Site development reve-
nue.................. $6,109 $10,604 $22,700 $60,276 $48,241 $ 12,457 $ 12,531
Site leasing revenue.. 125 896 2,758 4,530 6,759 1,558 2,159
------ ------- ------- ------- ------- -------- --------
Total revenues.......... 6,234 11,500 25,458 64,806 55,000 14,015 14,690
Cost of revenues
(exclusive of
depreciation shown
below):
Cost of site develop-
ment revenue......... 4,928 7,358 13,993 39,822 31,470 8,094 9,003
Cost of site leasing
revenue.............. 77 647 2,121 3,638 5,356 1,272 1,507
------ ------- ------- ------- ------- -------- --------
Total cost of revenues.. 5,005 8,005 16,114 43,460 36,826 9,366 10,510
------ ------- ------- ------- ------- -------- --------
Gross profit............ 1,229 3,495 9,344 21,346 18,174 4,649 4,180
------ ------- ------- ------- ------- -------- --------
General and administra-
tive(1)................ 1,133 1,541 5,731 17,032 9,336 2,477 3,564
Sales and marketing(2).. -- 86 237 722 2,697 778 365
Depreciation and amorti-
zation................. 5 5 73 160 514 41 507
------ ------- ------- ------- ------- -------- --------
Operating income (loss). 91 1,863 3,303 3,432 5,627 1,353 (256)
Interest (income)....... (1) (2) (6) (7) (644) (59) (764)
Interest expense........ 9 19 11 139 407 36 1,880
------ ------- ------- ------- ------- -------- --------
Income (loss) before in-
come taxes............. 83 1,846 3,298 3,300 5,863 1,376 (1,372)
Provision for income
taxes(2)............... 33 738 1,319 1,320 5,596 3,523 86
------ ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 50 $ 1,108 $ 1,979 $ 1,980 $ 267 $ (2,147) $ (1,458)
====== ======= ======= ======= ======= ======== ========
OTHER DATA:
Adjusted EBITDA(3)(6)... $ 96 $ 1,868 $ 4,702 $15,512 $ 7,075 $ 2,328 $ 251
Annualized Adjusted
EBITDA(4).............. 96 1,979 4,829 15,612 7,125 3,057 4,770
Capital expenditures.... 14 51 660 145 16,292 92 11,070
Ratio of earnings to
fixed charges(5)....... 4.6x 41.8x 33.8x 7.7x 3.6x 6.5x 0.3x
Net cash provided by
(used in) operating ac-
tivities............... -- 873 (533) 1,215 6,506 7,632 (7,503)
Net cash used in invest-
ing activities......... -- (51) (660) (145) (16,292) (92) (11,070)
Net cash provided by
(used in) financing ac-
tivities............... -- (689) 1,298 (1,036) 15,584 6,293 136,074
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------- ------------------
1993 1994 1995 1996 1997 1998
----------- ------- ------- ------- ------- ------------------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ $ 922 $ 2,610 $ 7,429 $18,060 $44,797 $183,282
Total debt(6)........... -- 1 1,500 4,921 10,184 151,740
Redeemable preferred
stock.................. -- -- -- -- 30,983 31,421
Common stockholders' eq-
uity (deficit)......... 265 1,745 4,793 101,615 (4,344) (6,240)
</TABLE>
(footnotes on following page)
40
<PAGE>
- --------
(1) For the year ended December 31, 1995, general and administrative expense
includes cash compensation expense of $1.3 million representing the amount
of officer compensation in excess of what would have been paid had the
officer employment agreements entered into in 1997 been in effect during
that period. For the year ended December 31, 1996, general and
administrative expense includes non-cash compensation expense of $7.0
million incurred in the Corporate Reorganization and cash compensation
expense of $4.9 million representing the amount of officer compensation in
excess of what would have been paid had the officer employment agreements
entered into in 1997 been in effect during that period. For the year ended
December 31, 1997, general and administrative expense induces non-cash
compensation expense of $0.9 million incurred in the Corporate
Reorganization. See "Certain Transactions."
(2) Provision for income taxes represents a pro forma calculation (40%) for
the years ended December 31, 1993, 1994, 1995 and 1996, when the Company
was treated as an S Corporation under Subchapter S of the Code (as
defined). Provision for income taxes for the year ended December 31, 1997
and for the three months ended March 31, 1997 and March 31, 1998
represents an actual provision. The effective rate is in excess of the 40%
rate used in the pro forma calculations due to the tax effect of the
conversion of the Company to a C Corporation. See "Reorganization and
Prior S Corporation Status."
(3) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly
used in the telecommunications industry to analyze companies on the basis
of operating performance, leverage and liquidity. EBITDA is not intended
to represent cash flows for the periods presented, nor has it been
presented as an alternative to operating income or as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. Companies calculate EBITDA
differently and, therefore, EBITDA as presented for the Company may not be
comparable to EBITDA reported by other companies. See the Company's
Consolidated Statements of Cash Flows in the Company's Consolidated
Financial Statements contained elsewhere in this Prospectus. Adjusted
EBITDA for the years ended December 31, 1995 and 1996 excludes cash
compensation expense of $1.3 million and $4.9 million, respectively,
representing the amounts of officer compensation in excess of what would
have been paid had the officer employment agreements entered into in 1997
been in effect during such periods. Additionally, Adjusted EBITDA for the
year ended December 31, 1996 and December 31, 1997 also excludes the
effect of non-cash compensation expense of $7.0 million and $0.9 million,
respectively, which was incurred in the Corporate Reorganization.
(4) Annualized Adjusted EBITDA for the years ended December 31, 1993, 1994,
1995, 1996 and 1997 and for the three months ended March 31, 1997 and 1998
is defined as the sum of (i) EBITDA for the most recent calendar quarter
attributable to the Company's site leasing business multiplied by four and
(ii) Adjusted EBITDA, less all site leasing EBITDA for the most recent
four calendar quarters. For the purpose of calculating Annualized Adjusted
EBITDA, selling general and administrative expenses not specifically
allocable to the site leasing business are allocated between the Company's
site leasing Adjusted EBITDA and site development EBITDA on a pro rata
basis based on the revenues generated by each of such businesses.
Annualized Adjusted EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's ability
to meet debt service and capital expenditure requirements and because it
is expected that certain debt covenants of the Company will utilize
Annualized Adjusted EBITDA to measure compliance with such covenants. It
is not, however, intended as an alternative measure of operating results
or cash flow from operations (as determined in accordance with generally
accepted accounting principles). Annualized Adjusted EBITDA as presented
herein is equivalent to Adjusted Consolidated Cash Flow, as such term is
defined in the Indenture. Tower cash flow, as presented herein and as
defined in the Indenture, is the equivalent of site leasing EBITDA. Tower
cash flow, which requires an allocation of the Company's total operating
expenses to its site leasing business, for the fiscal quarter ended March
31, 1998 was ($256,000).
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
represent net income before income taxes and fixed charges. Fixed charges
consist of interest expense, the component of rental expense believed by
management to be representative of the interest factor thereon,
amortization of deferred financing costs and preferred stock dividends.
(6) Total debt does not include amounts owed to the stockholder of $0.1
million and $10.7 million as of December 31, 1995 and 1996, respectively.
These amounts were paid in March 1997.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading independent provider of communication site services
to the wireless communications industry. The Company is transitioning its
revenue stream from project driven revenues to recurring revenues through the
leasing of antennae space at or on communications facilities. The Company's
strategy is to utilize its historical leadership position in the site
development business, a project revenue business, to become a leading owner
and operator of communication towers, a recurring revenue business.
While the Company intends to continue to offer site development services to
wireless carriers, where demand and profitable opportunities exist, it will
emphasize it site leasing business through the construction of Company-owned
towers pursuant to build-to-suit programs for lease to wireless service
providers, the acquisition of existing sites and the leasing, sub-leasing and
management of other antennae sites. Management believes that as the site
development industry matures, revenues and gross profit from that business
will decline in the near term and this rate of decline will increase for the
foreseeable future as wireless service providers choose to outsource ownership
of communication sites in order to conserve capital. Management also believes
that, over the longer term, site leasing revenues will correspondingly
increase as carriers move to outsourced tower ownership and the number of
towers owned by the Company grows.
As a result of these trends and shift in business, the Company expects that
revenue and earnings before interest, taxes, depreciation and amortization
("EBITDA") will decline over the short term and capital expenditures will
increase sharply as the Company accumulates towers. In addition, the Company
anticipates that its operating expenses will remain at or above current levels
as the Company continues to construct and acquire tower assets. As of June 30,
1998, SBACC had no Unrestricted Subsidiaries, as defined in the Indenture.
The Company also became a taxpayer commencing January 1, 1997 as a result of
the Corporate Reorganization, and will report federal income taxes on its
financial statements and be responsible for the payment thereof. Finally, as a
result of the March 1997 preferred stock offering and certain other matters,
the Company expects that its ongoing compensation expense will not include the
amounts of cash and non-cash compensation experienced in 1996 as (i) the
Company executed employment contracts with certain senior executives which
limit incentive bonuses to those individuals and (ii) the Company implemented
a stock option plan that does not permit the grant of options at an exercise
price below fair market value.
The Company's revenues are generated through contracts for site development
services and site leasing services. The Company provides site development
services on a contract basis which is usually customer and project specific.
The Company generally charges for site development services on either a time
and materials basis, with or without a success fee, or a fixed price basis.
For the year ended December 31, 1997, approximately 61% of site development
services were performed on a time and materials basis. For the year ended
December 31, 1996, the approximate percentage was 80%. The balance of services
were performed on a fixed fee basis. SBA also provides site leasing services
on a contract basis. The Company's antennae site leases are typically long-
term agreements with renewal periods. Leases are generally paid on a monthly
basis. Because of the low variable operating costs of the site leasing
business, additional tenants on a tower generate disproportionately larger
increases in tower cash flow.
The Company is in the process of acquiring and constructing towers to be
owned by the Company and leased to wireless services providers. The Company
intends to continue to make strategic acquisitions in the fragmented tower
owner and operator industry. The Company completed its first tower acquisition
in June 1997, and spent $16.3 million in capital expenditures in fiscal 1997
on the acquisition and construction of tower assets and the acquisition of a
tower construction company. Of the 217 towers owned by the Company as of June
30, 1998, 130 towers were constructed by the Company pursuant to build-to-suit
programs.
42
<PAGE>
As of June 30, the Company had non-binding mandates to build up to
approximately 410 additional towers under build-to-suit programs (the majority
of which the Company expects will result in binding anchor tenant lease
agreements). The Company believes it has one of the largest numbers of non-
binding build-to-suit mandates from wireless service providers in the
industry. In addition, the Company is currently actively negotiating to
acquire additional towers, although no agreements with respect to any such
acquisitions have been reached other than with respect to 74 towers (as of
June 30, 1998) that the Company intends on acquiring in the near term. There
can be no assurance that the Company will be able to identify towers or tower
companies to acquire in the future.
TOWER ECONOMICS
The Company intends to increase the site leasing portion of its business by
constructing new multi-tenant towers, primarily through build-to-suit programs
for wireless service providers, and by making selective acquisitions of
existing towers. The Company evaluates potential tower construction and
acquisition opportunities for projected future operating results before making
any capital investments.
The total cost of constructing a tower can vary significantly from site to
site. The primary components of tower costs are the tower structure and
related components, tower foundations, labor, site preparation and finish and
providing vehicular and utilities access. If the Company is responsible for
the zoning of a site prior to construction (which is often the case), the cost
associated with obtaining such zoning may also be material. The Company
estimates that the average cost of constructing a multi-tenant build-to-suit
tower is approximately $225,000 exclusive of land costs, although this
estimate may vary from site to site. While the Company may purchase the
underlying property, the Company typically leases any necessary real estate
pursuant to a long-term lease. The typical property lease has a term of five
years, with the Company having the option to renew the lease for up to four
additional five-year terms, and usually provides for annual or periodic price
increases.
As part of its build-to-suit strategy, the Company generally begins
construction of a new tower only if an anchor tenant (which is typically a
PCS, cellular or ESMR provider) has signed an antennae site lease agreement
with the Company. The tower site is marketed to other wireless service
providers whose monthly rents vary based usually on the different antennae
installations and tower loading requirements of each type of service. The
typical PCS, cellular or ESMR provider pays a monthly rent substantially
greater than that of the typical paging provider. Other tenants, including
local wireless service providers, generally pay lower monthly rent. Anchor
tenants usually receive a discount over subsequent tenants of the same type of
wireless service. In certain cases, an anchor tenant may also enjoy an
introductory lease rate for a period of time. The Company's objective is to
construct towers for identified anchor tenants in locations where it believes
it can secure other wireless providers as additional tenants. Through the
addition of new tenants, the Company seeks to achieve a target multiple of
tower-level cash flow to the cost of construction by the end of a specified
period following construction. The Company believes that its targeted
multiple, which it constantly evaluates and is subject to change from time to
time, can be achieved through a variety of tenant mixes ranging from two to
three PCS, cellular or ESMR tenants to a greater number of paging or local
wireless service providers. Additional tenants provide an increase in revenue
without generating significant increases in operating expense. The expenses
associated with tower ownership are limited and generally remain fixed
regardless of the number of tenants on the tower. These expenses are primarily
ground lease payments, real estate taxes, utilities, insurance and
maintenance. Because of the operating leverage of the site leasing business,
additional tenant leases generate a disproportionately higher increase in
tower cash flow.
Build-to-suit projects typically originate from a Company proposal submitted
in response to a request from a wireless service provider. If the wireless
service provider accepts the terms of the proposal submitted by the Company,
the provider will award the Company a non-binding mandate to pursue (i)
specific sites; (ii) search rings; or (iii) general areas. Based on the status
of the site the Company has been given a mandate to pursue, the Company will
perform due diligence investigations for a designated period (typically not to
exceed 30 days) during which time the Company will analyze the site based on a
number of factors, including collocation
43
<PAGE>
opportunities, zoning and permitting issues, economic potential of the site,
difficulty of constructing a multi-tenant tower and remoteness of the site.
These mandates are non-binding agreements and either party may terminate the
mandate at any time.
If the Company concludes that it is economically feasible to construct the
tower after the Company's due diligence investigation during the mandate, the
Company will enter into an antennae site lease agreement with the provider.
The antennae site lease agreements provide, among other terms, that all
obligations are conditioned on the Company receiving all necessary zoning
approvals where zoning remains to be obtained. Certain of the antennae site
lease agreements contain penalty or forfeiture provisions in the event the
tower is not completed within specified time periods. The Company has
negotiated several master build-to-suit agreements (including antennae site
lease terms) with wireless service providers in those markets where the
Company believes that such agreements would encourage wireless service
providers to award the Company with build-to-suit programs.
The Company also regularly explores tower acquisition opportunities as part
of its growth strategy. While the Company evaluates potential acquisitions on
an individual basis, the Company's acquisition criteria are similar to its
construction criteria. In general, the Company seeks to acquire towers with
existing revenues in locations where it believes it will be able to secure
other wireless service providers as tenants so that the tower will generate a
targeted multiple of tower-level cash flow by a certain time period after its
acquisition. Factors that the Company evaluates in making this determination
include the existing number of tenants, current revenue of the tower, tower
location, available tower capacity for additional tenants and the availability
and likelihood of securing additional tenants.
While the Company utilizes projections of future tower cash flows when
evaluating potential tower constructions or acquisitions, there can be no
assurance that the Company's projections will prove to be accurate nor can
there be any assurance the Company will be able to successfully market a tower
to other tenants or implement its build-out strategy on the timetable
currently contemplated or at all. The economics of each tower are affected by
numerous factors, many of which are beyond the Company's control, and there
can be no assurance that any particular tower will generate the revenue
projected at the time it is first constructed or acquired by the Company. See
"Risk Factors."
RESULTS OF OPERATIONS
As the Company transitions its business by expanding into site leasing,
operating results in prior periods may not be meaningful predictors of future
prospects. Readers of the foregoing should be aware of the significant changes
in the nature and scope of the Company's business when reviewing the following
discussion of comparative historical results. Management expects that the
acquisitions consummated to date, any future acquisitions and the Company's
build-to-suit programs will have a material impact on future revenues,
expenses and net income. In particular, operating expenses, depreciation and
amortization and interest expense are expected to increase significantly in
future periods. Management believes that the Company's build-to-suit programs
will have a material adverse effect on future operations until such time (if
ever) as the newly constructed towers attain higher levels of utilization.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Total revenues increased 5% to $14.7 million for the three months ended
March 31, 1998 from $14.0 million for the three months ended March 31, 1997.
Site development revenues remained constant at $12.5 million for the three
months ended March 31, 1998 and the three months ended March 31, 1997. Site
leasing revenues increased 39% to $2.2 million in the three months ended March
31, 1998 from $1.6 million in the three months ended March 31, 1997, due
primarily to the ownership by the Company of revenue producing towers not
owned in the 1997 period. Lease/sublease revenues increased 8% to $1.7 million
for the three months ended March 31, 1998 from $1.6 million for the three
months ended March 31, 1997 primarily due to the continued growth of
lease/sublease business from new and existing paging clients. Tower leasing
revenues increased to $.5 million for the three months ended March 31, 1998
from $0 for the three months ended March 31, 1997, due to the fact that the
Company owned no towers in the prior period.
44
<PAGE>
Total cost of revenues increased 12% to $10.5 million for the three months
ended March 31, 1998 from $9.4 million for the three months ended March 31,
1997. Site development cost of revenues increased 11% to $9.0 million for the
1998 period from $8.1 million for the 1997 period, due primarily to the
increased costs associated with maturing or completed projects. Site leasing
cost of revenues increased 19% to $1.5 million in the 1998 period from $1.3
million in the 1997 period, due primarily to higher site leasing revenues.
Gross profit decreased 10% to $4.2 million for the 1998 period from $4.6
million for the 1997 period, due primarily to the increase in the cost of site
development revenues. Gross profit for site development services decreased 19%
to $3.5 million for the three months ended March 31, 1998 from $4.4 million
for the three months ended March 31, 1997. Gross profit for the site leasing
business increased 128% to $.7 million for the 1998 period from $.3 million
for the 1997 period. As a percentage of total revenues, gross profit decreased
to 28% for the three months ended March 31, 1998 from 33% for the three months
ended March 31, 1997.
Sales and marketing expenses decreased 53% to $.4 million for the three
months ended March 31, 1998 from $.8 million for the three months ended March
31, 1997, due principally to the Company's elimination in 1997 of its regional
office strategy. As of July 1, 1998, in response to its increasing number of
owned towers, the Company established four regions, each under the direction
of a General Manager. It is anticipated that expenses to be associated with
the regions will not materially increase the Company's overall operating
expenses.
General and administrative expenses increased 50% to $3.6 million for the
three months ended March 31, 1998 from $2.4 million for the three months ended
March 31, 1997, primarily due to the addition of personnel, the expansion of
office space and overall increases in operating expenses attributable to the
growth in the organization and building the Company's tower development
infrastructure. As a percentage of total revenues, general and administrative
expenses increased to 24% for the three months ended March 31, 1998 from 18%
for the three months ended March 31, 1997.
Operating income (loss) decreased 119% to $(.3) million for the three months
ended March 31, 1998 from $1.4 million for the three months ended March 31,
1997. Interest (income) expense was $1.1 million for the three months ended
March 31, 1998 as compared to $(.02) million for the three months ended March
31, 1997. The primary differences between the periods relate to the above
mentioned variances as well as increased depreciation associated with the
increased amount of fixed assets and increased interest expense associated
with the Notes (defined below).
Provision for income taxes was $.1 million for the three months ended March
31, 1998 as compared to $3.5 million for the three months ended March 31,
1997. The provision for income taxes in the 1998 period was higher than that
at the statutory U.S. Federal rate (34%) period as a result primarily of non-
deductible interest and the current impact of the corporate reorganization
which took place in 1997. The provision for income taxes in the 1997 period
also exceeded the amount computed at the statutory U.S. Federal rate (34%) as
a result of the income tax effect of the corporate reorganization in 1997.
Net loss decreased 32% to $(1.5) million for the three months ended March
31, 1998 from $(2.1) million for the three months ended March 31, 1997. These
decreased losses resulted from an increase in cost of site development
revenue, increased general and administrative expenses, and increased interest
expense offset by a decrease in the provision for income taxes.
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended
December 31, 1996
Total revenues decreased 15% to $55.0 million for the twelve months ended
December 31, 1997 from $64.8 million for the twelve months ended December 31,
1996. Site development revenues decreased 20% to $48.2 million for the twelve
months ended December 31, 1997 from $60.3 million for the twelve months ended
December 31, 1996, due primarily to the decreased demand for site development
services from A- and B- block broadband PCS licensees. This was partially
offset by the increased demand for services from D-, E-, and F- block
broadband PCS licensees and ESMR providers. The decreased demand from A- and
B- block licensees resulted from (i) the nearly completed build-out of their
initial markets, (ii) the delayed commencement of the anticipated build-out of
secondary or tertiary markets and (iii) the increasing acceptance by these
licensees of outsourced communication site infrastructure through build-to-
suit programs. Site leasing revenues increased
45
<PAGE>
49% to $6.8 million in the twelve months ended December 31, 1997 from $4.5
million in the twelve months ended December 31, 1996, due primarily to the
continued growth of the lease/sublease business from new and existing paging
clients and the acquisition by the Company of 30 revenue producing towers. At
December 31, 1997, the Company's lease/sublease business covered approximately
1,041 antennae sites with an average monthly revenue of approximately $521 per
site. At December 31, 1996, the Company's site leasing services covered
approximately 980 antennae sites with an average monthly revenue of
approximately $482 per site.
Total cost of revenues decreased 15% to $36.8 million for the twelve months
ended December 31, 1997 from $43.5 million for the twelve months ended
December 31, 1996. Site development cost of revenues decreased 21% to $31.5
for the 1997 period from $39.8 million for the 1996 period, due primarily to
decreased site development revenues. Site leasing cost of revenues increased
47% to $5.4 million in the 1997 period from $3.6 million in the 1996 period,
due primarily to the increased volume of lease payments to site owners. Gross
profits decreased 15% to $18.2 million for the 1997 period from $21.3 million
for the 1996 period, due primarily to the decrease in site development
revenues. Gross profit for site development services decreased 18% to $16.8
million for the twelve months ended December 31, 1997 from $20.5 million for
the twelve months ended December 31, 1996. Gross profit for the site leasing
business increased 57% to $1.4 million for the 1997 period from $0.9 million
for the 1996 period. As a percentage of total revenues, gross profits remained
constant at 33% for the 1997 period and the 1996 period.
Sales and marketing expenses increased 273% to $2.7 million for the twelve
months ended December 31, 1997 from $0.7 million for the twelve months ended
December 31, 1996, due primarily to the establishment of regional offices in
October, 1996, which offices were eliminated in July, 1997. As of July 1,
1998, in response to its increasing number of owned towers, the Company
established four regions, each under the direction of a General Manager. It is
anticipated that expenses to be associated with the regions will not
materially increase the Company's overall operating expenses.
General and administrative expenses decreased 45% to $9.3 million for the
twelve months ended December 31, 1997 from $17.0 million for the twelve months
ended December 1996 due primarily to a reduction in executive compensation
resulting from employment contracts executed in 1997, and increased 1996
expenses associated with a bonus of $4.0 million paid to Mr. Bernstein in
1996, the sole stockholder of the Company, and non-cash compensation expenses
of $7.0 million relating to the granting of options to other officers of the
Company. As a percentage of total revenues, general and administrative
expenses decreased to 17% for 1997 from 26% in 1996. Excluding the effect of
the above mentioned bonus and non-cash compensation expense, general and
administrative expenses as a percentage of revenues would have increased to
15% for the 1997 period from 9% for the 1996 period. This increase was due to
the addition of personnel and increased operating expenses required to grow
the site leasing business.
Operating income increased 63% to $5.6 million for the twelve months ended
December 31, 1997 from $3.4 million for the twelve months ended December 31,
1996. Other income (expense) was not material in either period. Net income
decreased 92% to $.3 million for the twelve months ended December 31, 1997
from $3.3 million for the twelve months ended December 31, 1996. On a pro
forma basis, net income decreased 86% to $.3 million for the twelve months
ended December 31, 1997 from $2.0 million for the twelve months ended December
31, 1996. These decreases resulted from a reduction in site development
revenues and the inclusion of a provision for income taxes in 1997. The
Company recorded a tax provision in the amount of $5.6 million in 1997. The
effective tax rate (95%) exceeded the statutory U.S. Federal tax rate (34%)
due primarily to the establishment of deferred tax liabilities resulting from
the conversion of the Company's tax status from an S corporation to a C
corporation. Additionally, a deferred tax asset was generated as a result of
the non-cash compensation expense recorded by the Company in connection with
the granting of certain options. Prior to 1997, the Company was not subject to
tax at the corporate level.
Twelve Months Ended December 31, 1996 Compared to Twelve Months Ended
December 31, 1995
Total revenues increased 155% to $64.8 million for the twelve months ended
December 31, 1996 from $25.5 million for the twelve months ended December 31,
1995. Site development revenues increased 166% to $60.3 million for the 1996
period from $22.7 million for the 1995 period, due primarily to the increased
demand for site development services from A- and B- block broadband PCS
licensees. Site leasing revenues increased 64% to $4.5 million in the 1996
period from $2.8 million in the 1995 period, due primarily to the continued
46
<PAGE>
growth of lease/sublease business from new and existing paging clients. At
December 31, 1996, the Company's site leasing services covered approximately
980 sites with an average monthly revenue of approximately $482 per site. At
December 31, 1995, the Company's site leasing services covered 640 sites with
an average monthly revenue of approximately $430 per site.
Total cost of revenues increased 170% to $43.5 million for the twelve months
ended December 31, 1996 from $16.1 million for the twelve months ended
December 31, 1995. Site development cost of revenues increased 185% to $39.8
million for the 1996 period from $14.0 million for the 1995 period, due
primarily to higher personnel costs necessary to support the expansion of the
business. Site leasing cost of revenues increased 72% to $3.6 million in the
1996 period from $2.1 million in the 1995 period, due primarily to the
increased volume of lease payments to site owners. Gross profit increased 128%
to $21.3 million for the 1996 period from $9.3 million for the 1995 period,
due primarily to the increase in site development revenues. Gross profit for
site development services increased 135% to $20.5 million for the twelve
months ended December 31, 1996 from $8.7 million for the twelve months ended
December 31, 1995. Gross profit for site leasing services increased 40% to
$0.9 million for the 1996 period from $0.6 million for 1995 period. As a
percentage of total revenues, gross profit decreased to 33% for the 1996
period from 37% for the 1995 period. This decrease was primarily due to the
processing of pass-through costs (such as surveys, title reports and option
fees) as a service to clients without markups and an increase in operations
support personnel.
Sales and marketing expenses increased 205% to $0.7 million for the twelve
months ended December 31, 1996 from $0.2 million for the twelve months ended
December 31, 1995, due principally to increased marketing activity and the
hiring of additional sales and marketing personnel.
General and administrative expenses increased 197% to $17.0 million for the
twelve months ended December 31, 1996 from $5.7 million for the twelve months
ended December 31, 1995, due primarily to an increase in the bonus paid to Mr.
Bernstein, the sole stockholder of the Company and non-cash compensation
expenses of $7.0 million relating to the granting of options to other officers
of the Company. The bonus was $4.0 million for the 1996 period and $1.8
million for the 1995 period. Excluding the bonuses and non-cash compensation
expenses, general and administrative expenses would have increased 53% to $6.0
million in the latter period from $4.0 million in the earlier period,
primarily reflecting costs of the addition of personnel and increased
operating cost. As a percentage of total revenues, general and administrative
expenses increased to 26% for the 1996 period from 23% for the 1995 period.
Excluding the effect of the above mentioned bonus and non-cash compensation
expenses, general and administrative expenses as a percentage of revenues
would have decreased to 9% for the 1996 period from 16% for the 1995 period.
This decrease is attributable to significantly increased revenues offset by
economies of scale.
Operating income increased 4% to $3.4 million for the twelve months ended
December 31, 1996 from $3.3 million for the twelve months ended December 31,
1995. Other income (expense) was not material in either period. Net income
remained constant at $3.3 million for the 1996 and 1995 periods. Excluding the
bonuses to Mr. Bernstein and the non-cash compensation expense described
above, net income would have increased 181% to $14.3 million for the twelve
months ended December 31, 1996 from $5.1 million for the twelve months ended
December 31, 1995. On a pro forma basis, net income was $2.0 million for the
year ended December 31, 1996 and December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company with no business operations of its own. The
Company's only significant asset is the outstanding capital stock of its
subsidiaries. The Company conducts all its business operations through its
subsidiaries. Accordingly, the Company's only source of cash to pay its
obligations is distributions with respect to its ownership interest in its
subsidiaries from the net earnings and cash flow generated by such
subsidiaries. Even if the Company determined to pay a dividend on or make a
distribution in respect of the capital
47
<PAGE>
stock of its subsidiaries, there can be no assurance that its subsidiaries
will generate sufficient cash flow to pay such a dividend or distribute such
funds.
As a result of a preferred stock offering in March 1997, the Company
realized net proceeds of $25.3 million after deducting the agents' commission,
offering expenses and a stock redemption. These proceeds were used primarily
for the repayment of short-term debt, for the funding of various expansion
costs, for the construction and acquisition of various towers and for general
working capital.
Net cash used in operations during the three months ended March 31, 1998 was
$7.5 million compared to net cash provided by operations of $7.6 million in
the comparable period in 1997. The decrease in net cash provided by operations
was primarily attributable to the decrease in net income together with changes
in the account balances associated with accounts receivable, accounts payable,
intangibles and various tax accounts for the respective periods. Net cash used
in investing activities for the three months ended March 31,1998 was
$11.1 million compared to $.1 million for the three months ended March
31,1997. The increase in cash used for investing activities resulted primarily
from the acquisition of 23 towers and the construction of build-to-suit
towers. Net cash provided by financing activities for the three months ended
March 31, 1998 was $136.1 million compared to net cash used in financing
activities of $6.3 million for the same period in 1997. The increase in net
cash provided by financing activities was attributable to the proceeds from
the Notes.
Net cash provided by operations during the twelve months ended December 31,
1997 was $6.5 million compared to $1.2 million in the comparable period in
1996. The increase in net cash provided by operations was primarily
attributable to the decrease in net income together with changes in the
account balances associated with accounts receivable, accounts payable,
intangibles and various tax accounts for the respective periods. Net cash used
in investing activities for the twelve months ended December 31, 1997 was
$16.3 million compared to $0.1 million for the twelve months ended December
31, 1996. The increase in cash used for investing activities resulted from the
acquisition of towers and a tower construction company. Net cash provided by
financing activities for the twelve months ended December 31, 1997 was $15.6
million compared to net cash used in financing activities of $1.0 million for
the same period in 1996. The increase in net cash provided by financing
activities was primarily attributable to the proceeds from the preferred stock
offering.
As of March 31, 1998 and December 31, 1997 the Company had positive working
capital of $132.9 million and $.02 million, respectively. The Company had
negative working capital of $0.6 million as of December 31, 1996.
EBITDA decreased 82% to $0.3 million in the three months ended March 31,
1998 from $1.4 million in the three months ended March 31, 1997, as a result
of the factors discussed under the caption "--Three Months Ended March 31,
1998 Compared to Three Months Ended March 31, 1997." Tower Cash Flow, as
defined in the Company's Indenture related to the Notes, as defined below,
(the "Indenture"), (which requires an allocation of the Company's total
operating expenses to its site leasing business) for the quarter ending March
31, 1998 was $(.3) million. Annualized Adjusted EBITDA, as defined in the
Indenture, for the twelve months ended March 31, 1998 was $4.8 million.
Neither EBITDA or Annualized Adjusted EBITDA represents cash flow from
operations as defined by generally accepted accounting principles.
EBITDA increased 71% to $6.1 million in the twelve months ended December 31,
1997 from $3.6 million in the twelve months ended December 31, 1996, as a
result of the factors discussed under the caption "--Twelve Months Ended
December 31, 1997 Compared to Twelve Months Ended December 31, 1996." Tower
Cash Flow, as defined in the Indenture, which requires an allocation of the
Company's total operating expenses to its site leasing business, for the
fourth quarter ended December 31, 1997 was ($0.1 million). Annualized Adjusted
EBITDA for the year ended December 31, 1997 was $7.1 million.
EBITDA increased 6% to $3.6 million in the twelve months ended December 31,
1996 from $3.4 million for the twelve months ended December 31, 1995, as a
result of the factors discussed under the caption "--Twelve Months Ended
December 31, 1996 Compared to Twelve Months Ended December 31, 1995."
48
<PAGE>
On March 2, 1998 the Company issued $269 million 12% Senior discount notes
due 2008 (the "Notes"). This offering provided approximately $150.2 million of
gross proceeds to the Company. From these gross proceeds, the Company repaid
approximately $20.2 million of existing indebtedness and paid approximately
$5.7 million of fees and expenses. The remaining proceeds will be used
primarily for the acquisition and construction of wireless communications
towers, and for general corporate purposes including working capital. Prior to
March 1, 2003, interest expense on the Notes will consist solely of non-cash
accretion of original issue discount and the Notes will not require cash
interest payments. After such time, the Notes will have accreted to $269.0
million and will require annual cash interest payments of approximately $32.3
million. In addition, the Notes mature on March 1, 2008.
In June 1998, the Company amended and restated its existing credit facility,
which was originally executed in August 1997. The amended credit facility (the
"Credit Facility") provides for revolving credit loans of $55.0 million and an
additional $55.0 million incremental facility to SBA Telecommunications, Inc.
which may be made available within the initial 24 months of the credit
facility, each to fund the acquisition and construction of towers, to provide
working capital and for general corporate purposes. There is no availability
under the Credit Facility, other than for the issuance of letters of credit,
until the later of (i) September 30, 1998 or (ii) Telecommunications having on
a consolidated basis minimum adjusted EBITDA (as defined in the Credit
Facility) of $2.5 million. Availability thereafter is limited to $25 million
until such time as the Company owns, leases or manages 400 towers and has
expended all but $10 million of the proceeds from the Notes. Availability is
further limited at all times by certain financial covenants and ratios, and
other conditions. The Credit Facility provides for quarterly interest payments
commencing as soon as any funds are borrowed thereunder, and the incremental
facility is expected to have a 24-month revolving period after which any
outstanding amounts will convert to a term loan and begin to amortize.
Availability under the Credit Facility is subject to a reduction schedule that
commences on March 31, 2001. The schedule provides for a quarterly 5%
amortization rate with a balloon payment on June 29, 2005.
The Company currently estimates that it will make at least $175.0 million of
capital expenditures through June 1999 for the construction and acquisition of
communication sites, primarily towers. The Company and its subsidiaries expect
to use the net proceeds, together with the availability anticipated under the
Credit Facility to fund these capital expenditures. However, the exact amount
of the Company's future capital expenditures will depend on a number of
factors. In 1998, the Company currently anticipates that it will build a
significant number of towers for which the Company has mandates pursuant to
its build-to-suit program. The Company also intends to continue to explore
opportunities to acquire additional towers. The Company's actual capital
expenditures through June 1999 will depend in part upon the attractiveness of
acquisition opportunities that become available during the period, the needs
of its primary build-to-suit customers and the availability of additional debt
or equity capital on acceptable terms. In the event that the net proceeds from
the Notes or borrowings under the Credit Facility have otherwise been utilized
when an acquisition or construction opportunity arises, the Company would be
required to seek additional debt or equity financing, there can be no
assurance that any such financing will be available on commercially reasonable
terms or at all or that any additional debt financing would be permitted by
the terms of the Company's existing indebtedness.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, its debt obligations, and its ability to refinance any such debt
obligations (including the Notes), or to fund planned capital expenditures,
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. The Company's business strategy
contemplates substantial capital expenditures in connection with its planned
tower build-out and acquisition. Based on the Company's current operations and
anticipated revenue growth, management believes that, if its business strategy
is successful, cash flow from operations and available cash (including the
proceeds from the Notes), together with borrowings anticipated to be available
under the Credit Facility, will be sufficient to fund the Company's
anticipated capital expenditures through June 1999. Thereafter, however, or in
the event the Company exceeds its currently anticipated capital expenditures
for fiscal 1998 or through June 1999, or is unable to fully draw on the Credit
Facility, the Company anticipates that it will need to seek
49
<PAGE>
additional equity or debt financing to fund its business plan. Failure to
obtain any such financing could require the Company to significantly reduce
its planned capital expenditures, scale back the scope of its tower build-out
or acquisitions and/or delay its transition to tower ownership, any of which
could have a material adverse effect on the Company's prospects financial
condition or results of operations. In addition the Company may need to
refinance all or a portion of its indebtedness (including the Notes and/or the
Credit Facility) on or prior to its scheduled maturity. There can be no
assurance that the Company will generate sufficient cash flow from operations
in the future, that anticipated revenue growth will be realized or that future
borrowings or equity contributions will be available in amounts sufficient to
service its indebtedness and make anticipated capital expenditures. In
addition, there can be no assurance that the Company will be able to effect
any required refinancing of its indebtedness (including the Notes) on
commercially reasonable terms or at all.
YEAR 2000
The Company is aware of the issues associated with the Year 2000 (the "Year
2000") as it relates to information systems. The Year 2000 is not expected to
have a material impact on the Company's current information systems because
its current software is either already Year 2000 compliant or required changes
are not expected to be material. Based on the nature of the Company's business
the Company anticipates it is not likely to experience material business
interruption due to the impact of Year 2000 compliance on its customers and
vendors. As a result, the Company does not anticipate that incremental
expenditures to address Year 2000 compliance will be material to the Company's
liquidity, financial position or results of operations over the next few
years.
INFLATION
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future will not have material adverse effect on the Company's operating
results.
MARKET RISK
The Company is exposed to market risks, including changes in interest rates
and currency exchange rates. Based on the Company's interest rate and foreign
exchange rate exposure at March 31, 1998, a 10% change in the current interest
rate or historical currency rate movements would not have a material effect on
the Company's financial position or results of operations over the next fiscal
year.
50
<PAGE>
INDUSTRY OVERVIEW
GENERAL
The Company is a leading independent provider of communication site
services, offering a broad array of site development services to the wireless
communications industry. In order to capitalize on the trend toward colocation
and independent tower ownership in the wireless communications industry, the
Company is aggressively expanding its site leasing business by utilizing its
site development services experience and relationships with wireless service
providers to source opportunities to build and acquire communication sites.
The wireless communications industry continues to grow as consumers become
more aware of the benefits of wireless services, current wireless technologies
are used in more applications, the cost of wireless services to consumers
declines and new wireless technologies are developed. Changes in U.S. federal
regulatory policy, including the implementation of the Telecommunications Act
of 1996 (the "1996 Telecom Act"), have led to a significant number of new
competitors in the industry through the auction of frequency spectrum for a
wide range of uses, most notably PCS. This competition, combined with a
growing reliance on wireless services by consumers, has led to an increased
demand for higher quality, uninterrupted service and improved coverage, which,
in turn, has led to increased demand for communication sites as new providers
build out their networks and existing providers upgrade and expand their
networks to maintain their competitiveness. The Company believes that, as the
wireless communications industry has become more competitive, wireless service
providers have sought operating and capital efficiencies by outsourcing
certain network services and build-out activities and by colocating
transmission equipment with other providers on multi-tenant towers. The need
for colocation has also been driven by the growing trend by municipalities to
slow the proliferation of towers by requiring that towers accommodate multiple
tenants.
All of these factors have provided an opportunity for the Company to provide
and own communication sites, lease antennae space on such sites and provide
related network infrastructure and support services.
NETWORKS AND TOWERS
Wireless service providers require wireless transmission "networks" in order
to provide service to their customers. Each of these networks is configured
specifically to meet the coverage requirements of the particular provider and
includes transmission equipment such as antennae placed at various locations
throughout the service area. These locations, or "communication sites," are
critical to the operation of a wireless network. A communication site may have
the capacity for multiple antennae installations, or "antennae sites,"
depending on the size and type of the communication site. The value of a tower
generally depends on its location and the number of antennae that it can
support.
51
<PAGE>
Set forth below is a diagram illustrating the basic functions of each of the
primary components of a "wireless network."
[LOGO OF WIRELESS COMMUNICATIONS NETWORK]
Communication sites consist of towers, rooftops and other structures upon
which antennae are placed. A typical tower includes a compound enclosing the
tower and an equipment shelter (which houses a variety of transmitting,
receiving and switching equipment). The tower can be either a self-supported
or guyed model. There are two types of self-supported models: the lattice and
the monopole. A lattice model is usually tapered from the bottom up and can
have three or four sides of open-framed steel supports. A monopole is a free-
standing tubular structure. Guyed towers gain their support capacity from a
series of guy cables attaching separate levels of the tower to anchor
foundations in the ground. Monopoles typically range in height from 50-200
feet, lattice towers can reach up to 1000 feet and guyed towers can reach 2000
feet or more.
Rooftop sites are more common in urban areas where tall buildings are
generally available and multiple communication sites are required because of
high wireless traffic density. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennae. In cases of such high
population density, neither height nor extended radius of coverage are as
important and the installation of a tower structure may prove to be impossible
because of zoning restrictions, land cost and land availability. Other
structures on which antennae have been installed include electric transmission
towers, silos, water tanks, windmills and smokestacks.
Operation of Two-Way Wireless Systems
Wireless transmission networks use a variety of radio frequencies to
transmit voice and data. Wireless transmission networks include two-way radio
applications, such as cellular, wide band and narrow band PCS and ESMR
networks, and one way radio applications, such as paging services. Each
application operates within a distinct radio frequency. Although cellular
represents the largest segment of the wireless communications industry, other
wireless technologies are expected to grow significantly.
Two-way wireless service areas are divided into multiple regions called
"cells," each of which contains a base station consisting of a low-power
transmitter, a receiver and signaling equipment, typically located on a
52
<PAGE>
tower. The cells are usually configured in a grid pattern, although terrain
factors (including natural and man-made obstructions) and signal coverage
patterns may result in irregularly shaped cells and overlaps or gaps in
coverage. Cellular system cells generally have a radius ranging from two miles
to 25 miles and PCS system cells generally have a radius ranging from one-
quarter mile to 12 miles, depending on the PCS technology being used,
installation, height and the terrain. Growing demand for cell sites is one of
the primary reasons for growing demand for the Company's services. The base
station in each cell is connected by microwave, fiber optic cable or telephone
wires to a switch, which uses computers and specially developed software to
control the operation of the wireless telephone system for its entire service
area. The switch controls the transfer of calls from cells within the system
and connects calls to the local landline telephone system or to a long
distance telephone carrier.
Each wireless transmission network is planned to meet a certain level of
subscriber density and traffic demand in addition to providing a certain
geographic coverage. Each transmission requires a certain amount of radio
frequency, so a system's capacity is limited by the amount of frequency that
is available. The same frequency can be reused by each separate transmitter,
subject to certain interference limitations. The design of each wireless
system involves the placement of transmission equipment in locations that will
make optimal use of available frequency based upon projected usage patterns,
subject to the availability of such locations and the ability to use them for
wireless transmission under applicable zoning requirements.
Wireless Communications
The wireless communications industry now provides a broad range of services,
including cellular, PCS, paging, SMR and ESMR. The industry has benefited in
recent years from increasing demand for its services, and industry experts
expect this demand to continue to increase. The following table sets forth
industry estimates regarding projected subscriber growth for certain types of
wireless communications services:
<TABLE>
<CAPTION>
1997-2001 2001-2006
ESTIMATED PROJECTED PROJECTED COMPOUNDED COMPOUNDED
1997 2001 2006 ANNUAL ANNUAL
SUBSCRIBERS SUBSCRIBERS SUBSCRIBERS GROWTH RATE GROWTH RATE
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular(1)........ 52.8 79.1 91.4 14.4% 3.7%
PCS(1)............. 3.5 29.7 54.7 104.0% 16.5%
Paging(2).......... 48.6 61.9 67.8 8.4% 2.3%
ESMR(1)............ 1.3 6.7 11.0 72.7% 13.2%
</TABLE>
- --------
(1) Data is from January 1998.
(2) Data is from January 1997, except year end 1997 number.
Source: Paul Kagan Associates, Inc. There can be no assurance that these
projections will prove to be accurate.
The Company believes that more communication sites will be required in the
future to accommodate the expected increase in demand for wireless
communications services. Current emerging wireless communications systems,
such as PCS and ESMR, represent an immediate and sizable market for providers
of communication site services as they build out large nationwide and regional
networks. The development of higher frequency technologies such as PCS offer
the Company opportunities as the reduced cell range of those technologies
require a more dense network of towers. While several PCS and ESMR providers
have already built limited networks in certain markets, these providers still
need to fill in "dead zones" and expand geographic coverage. The Cellular
Telecommunications Industry Association (the "CTIA") estimates that, as of
June 30, 1997, there were 38,650 antennae sites in the United States. In
October 1995, the PCIA estimated that the number of antennae sites in the
United States for both cellular and PCS providers will increase by an
additional 100,000 antennae sites (more than one of which can be located on a
single communication site) over the next ten years as cellular systems expand
coverage and PCS systems are deployed.
As a result of advances in digital technology, ESMR operators have also
begun to design and deploy digital mobile telecommunications networks in
competition with cellular providers. In response to the increased competition,
cellular operators are re-engineering their networks by increasing the number
of sites, locating sites
53
<PAGE>
within a smaller radius, filling in "dead zones" and converting from analog to
digital cellular service in order to manage subscriber growth, extend
geographic coverage and provide competitive services. The demand for
communication sites is also being stimulated by the development of new paging
applications, such as e-mail and voicemail notification and two-way paging, as
well as other wireless data applications.
Licenses are also being awarded, and technologies are being developed, for
numerous new wireless applications that will require networks of communication
sites. These future potential applications include the auction of licenses
scheduled for February 1998 for local multi-point distribution services,
including wireless local loop, wireless cable television, data and Internet
access. Radio spectrum required for these technologies has, in many cases,
already been awarded and licensees have begun to build out and offer services
through new wireless systems. Examples of these systems include local loop
networks operated by WinStar and Teligent, wireless cable networks operated by
companies such as Cellular Vision and CAI Wireless, and data networks being
constructed and operated by RAM Mobile Data, MTEL and Ardis.
CHARACTERISTICS OF THE TOWER INDUSTRY
In addition to the increased demand for wireless services and the need to
develop and expand wireless communications networks, the Company believes that
other trends influencing the wireless communications industry have important
implications for independent tower operators. In this increasingly competitive
wireless industry environment, the Company believes that many providers are
dedicating their capital and operations primarily to those activities that
directly contribute to subscriber growth, such as marketing and distribution.
Management believes these providers, therefore, will seek to reduce costs and
increase efficiency through the outsourcing of infrastructure network
functions such as communication site ownership, construction, operation and
maintenance. Further, in order to speed new network deployment or expansion
and generate efficiencies, providers are increasingly colocating transmission
equipment with that of other wireless service providers. The trend towards
colocation has been furthered by the "Not-In-My-Backyard" arguments generated
by local zoning/planning authorities in opposition to the proliferation of
towers.
Management believes that, in addition to the favorable growth and
outsourcing trends in the wireless communications industry and high barriers
to entry as a result of regulatory and local zoning restrictions associated
with new tower sites, tower operators benefit from several favorable
characteristics. The ability of tower operators to provide antennae sites to
customers on multiple tenant towers diversifies them against the specific
technology, product and market risks typically faced by any individual
provider. The emergence of new technologies, providers, products and markets
may allow independent tower operators to further diversify against such risks.
The Company believes that independent tower operators also benefit from the
contract nature of the site leasing business and the predictability and
stability of these recurring revenues. In addition, the site leasing business
has low variable operating costs and significant operating leverage. Towers
generally are fixed cost assets with minimal variable operating costs
associated with additional tenants. A tower operator can generally expect to
experience increasing operating margins when new tenants are added to existing
towers.
The site leasing business typically experiences low customer churn rates as
a result of the high costs that would be incurred by a wireless service
provider were it to relocate an antennae to another site and consequently be
forced to re-engineer its network. Moving a single antennae may alter the pre-
engineered maximum signal coverage, requiring a reconfigured network at
significant cost to maintain the same coverage. Municipal approvals are
becoming increasingly difficult to obtain and may also affect the provider's
decision to relocate. The costs associated with network reconfiguration and
municipal approval and the time required to complete these activities are not
justified by any potential savings in reduced site rental expense.
54
<PAGE>
BUSINESS
GENERAL
The Company is a leading independent provider of communication site
services, offering a broad array of site development services to the wireless
communications industry. In order to capitalize on the trend toward colocation
and independent tower ownership in the wireless communications industry, the
Company is aggressively expanding its site leasing business by utilizing its
site development experience and relationships with wireless service providers
to source opportunities to build and acquire communication sites. The Company
believes that it is a leading provider of site development services in the
United States, having participated since its founding in 1989 in one or more
aspects of the development of more than 9,000 antennae sites (including over
3,500 in 1997) in 49 of the 51 MTAs. The Company anticipates significant
future growth in its site leasing business whereby the Company leases antennae
space on towers it owns, leases or manages. The Company is both acquiring
towers suited for multi-tenant use and building such towers, generally under
build-to-suit programs whereby a wireless service provider enters into a lease
as an anchor tenant with the Company for antennae space prior to the Company's
commencement of tower construction. As of June 30, 1998, the Company owned 217
towers, had 74 towers pending acquisition under written or verbal letters of
intent or definitive agreements, and had non-binding mandates to build up to
approximately 410 additional towers (the majority of which the Company expects
will result in signed anchor tenant leases). For a discussion of the process
by which mandates lead to signed anchor tenant leases and constructed towers,
see "Business--Site Leasing Business--Build-to-Suit Program." The Company's
revenues and Annualized Adjusted EBITDA (as defined) for the year ended
December 31, 1997 were $55.0 million and $7.1 million, respectively.
The Company offers an integrated "end-to-end" service with design,
construction and operating expertise to a range of wireless service providers,
including PCS, cellular, paging, SMR, ESMR and other providers. The Company's
site development services include site location analysis, site acquisition,
zoning and land use permitting, construction and construction management, FAA
compliance analysis and filings, contract and title administration and
building permit administration. The Company is typically paid fees for its
site development services on a project-by-project basis. In the site leasing
business, the Company's primary focus is the ownership of multi-tenant towers
and the leasing of antennae space on such towers to a variety of wireless
service providers under long-term lease contracts. The site leasing business
typically benefits from diversified recurring revenue and effective operating
leverage as a result of several factors, including: (i) the long-term contract
nature of lease revenues; (ii) low customer churn rates due to the high cost
of relocation; (iii) low variable operating costs, which cause increases in
revenues to generate disproportionately larger increases in tower cash flow;
(iv) low on-going maintenance capital expenditure requirements; (v) a customer
base diversified across geographic markets, industry segments (PCS, cellular,
paging, ESMR and SMR) and individual customers within these segments; and (vi)
the limited number of available tower sites serving a given area and
consequent barriers to entry, principally as a result of local opposition to
the proliferation of towers within such area.
In the fourth quarter of 1996, based on its analysis of accelerating trends
in the wireless communications industry and the financial benefits of the site
leasing business, the Company determined to leverage its leadership in the
site development services business in order to expand into the ownership and
leasing of communication sites. Consequently, the Company has added build-to-
suit programs and other antennae site leasing options to its service offerings
and has sought the acquisition of attractive communication sites. Under a
build-to-suit program, the Company generally undertakes its site development
services on behalf of a wireless service provider but constructs a tower at
the Company's expense. In return, the wireless service provider enters into a
long-term anchor tenant lease and the Company retains ownership of the tower
and has the ability to colocate additional tenants. Management believes that
many wireless service providers are using build-to-suit programs as an
alternative to tower ownership and that this outsourcing trend is likely to
continue. The Company's build-to-suit programs provide an end-to-end solution
to those wireless service providers seeking to minimize their capital
expenditures, overhead and time associated with the build-out and on-going
maintenance of their wireless network infrastructure. Management believes its
leadership in site development services, its existing national field
organization of more than 300 employees and its strong relationships with
wireless service providers
55
<PAGE>
position the Company to be a leader in the developing build-to-suit market.
While the Company intends to continue to offer site development services to
wireless carriers, where demand and profitable opportunities exist, it will
emphasize its site leasing business through the construction of Company-owned
towers pursuant to build-to-suit programs for lease to wireless service
providers, the acquisition of existing sites and the leasing, sub-leasing and
management of other antennae sites. Management believes that as the site
development industry matures, the Company's revenues and gross profit from
that business will decline in the near term and this rate of decline will
increase for the foreseeable future as wireless service providers choose to
outsource ownership of communication sites in order to conserve capital.
Management also believes that, over the longer term, the Company's site
leasing revenues will correspondingly increase as carriers move to outsourced
tower ownership and the number of towers owned by the Company grows.
As a result of these trends and shift in business, the Company expects that
revenue and earnings before interest, taxes, depreciation and amortization
("EBITDA") will decline over the short term and capital expenditures will
increase sharply as the Company accumulates towers. In addition, the Company
anticipates that its operating expenses will remain at or above current levels
as the Company continues to construct and acquire tower assets. The Company's
results of operations in 1997 and 1998 have begun to reflect the impact of
these trends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Management believes that the number of communication sites (which include
towers, rooftops and other structures) in use will continue to increase with
the growth in demand for wireless services. This growth is the result of
several factors, including (i) the issuance of new wireless network licenses
requiring the construction of new wireless networks; (ii) the continuing
build-out of higher frequency technologies (such as PCS) which have a reduced
cell range and thus require a more dense network of towers; (iii) the need to
expand services and fill-in and upgrade existing networks; and (iv) the
emergence of new wireless technologies. In October 1995, the PCIA estimated
that the number of antennae sites in the United States for both cellular and
PCS providers will increase by an additional 100,000 antennae sites (more than
one of which can be located on a single communication site) over the next ten
years as cellular systems expand coverage and PCS systems are deployed.
Management believes that wireless service providers have begun to focus their
capital and operations primarily on activities that build subscriber growth,
such as marketing and distribution, and, therefore, that wireless service
providers will increasingly seek to outsource site ownership, construction,
management and maintenance. The Company believes that it will benefit from
this trend.
BUSINESS STRATEGY
The Company's strategy is to build on its leadership position in site
development services to become a leading owner and operator of communication
sites. Key elements of the Company's strategy include:
BUILD, OWN AND LEASE TOWERS. The Company believes that there are various
financial considerations currently affecting wireless service providers,
including the need to optimize capital resources. Increasingly, these factors
have led wireless service providers to consider outsourcing the investment in,
and ownership of, communication sites. Management believes that it has
positioned the Company to meet these outsourcing needs, leveraging its
expertise in the site development business to construct towers with anchor
tenants pursuant to build-to-suit programs. The Company believes that it has
one of the largest number of non-binding build-to-suit mandates from wireless
service providers in the industry. The Company has received non-binding
mandates from approximately eight major wireless service providers to execute
build-to-suit programs. As of June 30, 1998, the Company had non-binding
mandates to build up to approximately 410 additional towers under build-to-
suit programs.
ACQUIRE EXISTING TOWERS. The Company intends to continue to make strategic
acquisitions in the fragmented tower owner and operator industry. The
Company's strategy is to acquire only those towers that the Company believes
will be attractive to, and capable of use by, multiple tenants based on
location, height, local competition and available capacity. The Company will
continue to pursue larger acquisitions to provide critical mass and smaller
acquisitions that have the potential for more attractive returns. Management
believes that its existing national field organization provides it with a
competitive advantage in identifying opportunities for the
56
<PAGE>
acquisition of existing towers. The Company regularly evaluates acquisition
opportunities and engages in negotiations with respect to acquisitions of
individual towers, groups of towers and entities that own or manage towers and
related businesses. However, except as otherwise contemplated herein, as of
June 30, 1998, there were no agreements with respect to any pending
acquisitions.
MAINTAIN AND CAPITALIZE ON STRONG RELATIONSHIPS WITH MAJOR WIRELESS SERVICE
PROVIDERS. Management believes that it is well-positioned to be a preferred
partner in build-to-suit programs because of its strong relationships with
wireless service providers and proven operating experience. The Company
believes that it will be able to build upon its existing relationships with
wireless service providers to source further opportunities for build-to-suit
programs and lease antennae space on its owned towers. In many cases, the
personnel awarding site development projects for wireless service providers
are the same personnel who make decisions with respect to build-to-suit
programs. The Company is continually marketing its build-to-suit programs to
its site development service customers. The Company's build-to-suit customers
include AT&T Wireless, BellSouth Mobility, Nextel, PrimeCo PCS, Sprint PCS and
Western Wireless.
INCREASE USE OF COMPANY-OWNED TOWERS. The Company's strategy for its owned,
leased and managed towers is to maximize the number of tenants on each tower,
thereby increasing its leasing revenues per tower. Because most tower costs
are fixed, leasing available space on an existing tower results in minimal
additional ongoing expenses and therefore generates a disproportionately large
increase in operating cash flow. The Company believes that many of its towers
have or will have significant capacity available for antennae space leasing
and that increased use of its owned towers can be achieved at low incremental
cost. The Company generally constructs build-to-suit towers to accommodate
multiple tenants in addition to the anchor tenant. The Company actively
markets space on its owned towers through its internal sales force. Once the
Company has identified a site for acquisition or construction, the sales force
immediately commences marketing that site to potential tenants.
CONTINUE PROVISION OF SITE DEVELOPMENT SERVICES. The Company has performed
an array of site development services for over 35 wireless service providers
across the United States, including Sprint PCS, Pacific Bell Mobile Services,
AT&T Wireless, Nextel, PrimeCo PCS, PageNet and BellSouth Mobility. Management
believes the Company is a leading provider of site development services in the
United States. The Company has a broad national field organization that allows
it to identify and participate in site development projects across the
country. Knowledge of local markets and strong customer relationships with
wireless service providers are competitive strengths that position the Company
to further capitalize on the site development needs of the wireless
communications industry. In 1997, the Company acquired CSSI, which is a tower
construction company operating primarily in the southeastern United States.
This acquisition increased the Company's expertise in managing the
construction component of its business which enabled the Company to directly
provide construction services to third parties and, on a selective basis, for
its own build-to-suit programs. The Company believes that CSSI will enable the
Company to capture more of the wireless service providers' total site
development business and build-to-suit programs and to enhance its end-to-end
approach to service.
COMPETITIVE STRENGTHS
Management believes that the Company has several important competitive
strengths that have contributed to its leadership position in the site
development business. Management believes that these strengths will enable it
to successfully expand its site leasing business. Key strengths include:
PROVEN OPERATING EXPERIENCE. The Company has been operating in the site
development business since 1989 and believes that it is a leading provider of
such services in the United States. The Company has successfully participated
in one or more aspects of the development of more than 9,000 antennae sites
(including over 3,500 in 1997). As a result, management believes that the
Company has built a strong national reputation with wireless service providers
as a leading provider of site development services. Operating its site
development business has enabled the Company and management to gain experience
executing all stages of site development, and these same skills are utilized
in the course of constructing a build-to-suit tower. Management believes that
57
<PAGE>
this operating history and proven track record give the Company a competitive
advantage in the build-to-suit tower construction business. In addition, as of
June 30, 1998, the Company administered approximately 1,065 antennae sites
whereby it leases the sites from site owners and subleases such sites to
wireless service providers at a profit. The Company has developed and will
continue to improve the systems and software to manage and oversee multiple
sites and lease contracts. Management believes that these systems and software
capabilities, together with the Company's operating expertise, will be
critical to it in building a successful national site leasing business.
MARKET EXPERIENCE. The Company believes that its national field organization
and site development experience in 49 of the 51 MTAs provide the Company with
a significant competitive advantage. Because of such experience, the Company
has its own knowledge base of many areas within most MTAs and, more
importantly, has the ability to more effectively analyze local requirements
with respect to a particular site development project or a build-to-suit
mandate. The Company also believes that its substantial field experience
provides it with an advantage in selecting and constructing new towers.
INTEGRATED PROVIDER OF SITE DEVELOPMENT SERVICES. Management believes that
the Company benefits from its integrated, end-to-end service capabilities, as
wireless service providers prefer the flexibility of a vendor who can perform,
directly or through subcontractors, any or all of the functions related to
site acquisition, development, construction and on-going operation.
CAPABILITY TO MANAGE MULTIPLE PROJECTS. The Company has been able to
successfully manage multiple site development projects in various locations
across the country at the same time. Management believes that the ability to
undertake concurrent build-to-suit programs in multiple markets will be
attractive to wireless service providers.
COMPANY SERVICES
General The Company is a leading independent provider of communication site
services, offering a broad array of site development services to the wireless
communications industry. The Company is a provider with end-to-end design,
construction and operating expertise, offering its customers the flexibility
of choosing between the provision of a full ready-to-operate site or any of
the component services involved therein. The site development services
provided by the Company, directly or through subcontractors, include all
activities associated with the selection, acquisition and construction of
communication sites for wireless service providers. The site leasing services
provided by the Company directly or through subcontractors include owning,
leasing or managing communication sites and leasing antennae space on
communication sites to wireless service providers. The full range of services
of the site development business typically occur in five phases: (i) network
pre-design; (ii) communication site selection; (iii) communication site
acquisition; (iv) local zoning and permitting; and (v) site construction and
antennae installation. The Company utilizes its experience and expertise in
the site development business to provide additional services in its site
leasing business, providing for (i) the ownership or management of
communication sites by the Company pursuant to build-to-suit programs and
through acquisitions; (ii) the leasing or subleasing of antennae space on
communication sites to wireless service providers and (iii) the maintenance
and management of communication sites by the Company. Where appropriate, the
Company contracts out certain of the site development services.
Site Development Business
The Company offers each phase of its site development services to its
customers. During Phase I, network pre-design, the Company performs pre-design
analysis by investigating those areas of the MTA or basic trading area
("BTA"), as each term has been adopted by the FCC, that are designated as a
priority by the customer. The Company will then identify, to the extent
possible, all sites which meet the customer's RF requirements. Geographic
Information Systems ("GIS") specialists create maps of the sites, analyzing
for a number of factors, including which areas may have the most favorable
zoning regulations and availability of colocation opportunities. A preliminary
zoning analysis is typically conducted, and the Company will determine those
areas of the MTA or BTA where zoning approval is likely, along with a possible
time frame for approval. Phase I
58
<PAGE>
services are intended to eliminate costly redesigns once a project is
commenced which can result in significant savings of both time and money.
In Phase II, site selection, the Company determines (i) which sites most
closely meet the RF engineering requirements of the customer; (ii) are
leasable or can be purchased; (iii) have the potential to be zoned for site
construction or colocation based on the then current zoning requirements; and
(iv) are suitable for the construction of a site. GIS specialists select the
most suitable sites based on demographics, traffic patterns and signal
characteristics. Typically, the Company will identify two or three potential
sites for each location in the RF engineering plan, with the intent of
colocating on an existing site or constructing a new site on the location most
advantageous to the customer. FAA approval, when necessary, is also typically
sought at this time.
In Phase III, site acquisition, the Company secures the right from the
property owner to construct a tower or colocate on the site. Depending on the
type of interest in the property that the Company believes will best suit the
needs of the customer, the Company will negotiate and enter into on behalf of
the customer (i) a contract of sale pursuant to which the customer acquires
fee title to the property; (ii) a long-term ground or rooftop lease pursuant
to which the customer acquires a leasehold interest in the property (typically
a five-year lease with four or five renewal periods of five years each); (iii)
an easement agreement pursuant to which the customer acquires an easement over
the property; or (iv) an option to purchase or lease the property pursuant to
which the customer has a future right to acquire fee title to the property or
acquire a leasehold interest. It is during this phase of the site development
services that the Company generally obtains a title report on the site,
conducts a survey of the site, performs soil analysis of the site and obtains
an environmental survey of the site.
Phase IV, local zoning and permitting, includes preparing all appropriate
zoning applications and providing representation at any zoning hearings that
may be conducted. The Company also obtains all necessary entitlement land use
permits necessary to commence construction on the site or install equipment on
the site.
Phase V, construction and installation, involves the construction management
of the tower on a selected site, whether by the third party or directly by the
Company. Phase V includes preparing a construction budget, installing or
monitoring the installation of equipment and antennae, hiring sub-contractors
to perform the actual construction of the tower or equipment installation when
not performed by the Company, preparing a construction schedule, monitoring
all vendors' delivery and installation of equipment and monitoring the
completion of all construction and landscaping of the site.
The CSSI Acquisition provided the Company with in-house tower construction
and antennae installation capability. CSSI had extensive experience in the
development and construction of tower sites and the installation of antennae,
microwave dishes and electrical and telecommunications lines. CSSI's site
development and construction services include clearing sites, laying
foundations and electrical and telecommunications lines, and constructing
equipment shelters and towers. CSSI has designed and built tower sites for a
number of its customers and will continue to provide construction services for
third parties. In addition, CSSI has constructed and is expected to construct
a portion of the Company's towers in the future. Through CSSI, the Company can
provide cost-effective and timely completion of construction projects in part
because its site development personnel are cross-trained in all areas of site
development, construction and antennae installation. CSSI maintains a varied
inventory of heavy construction equipment and materials at its five-acre
equipment storage and handling facility in Florida, which is used as a staging
area for projects in the southeastern region of the United States.
The Company's site development business is headquartered in Boca Raton,
Florida. Once the Company is hired on a site development project, a site
development team is dispatched from headquarters to the project site. A
temporary field office is established for the duration of the project. The
site development team is typically composed of permanent Company employees and
supplemented with local hires employed only for that particular project. A
team leader is assigned to each phase of the site development project and
reports to a project manager who oversees all team leaders. Upon the
completion of a site development project, the field office is typically closed
and all permanent Company employees are either relocated to another project or
directed to return to headquarters.
59
<PAGE>
The Company generally sets prices for each site development service
separately. Customers are billed for these services on a fixed price or time
and materials basis and the Company may negotiate fees on individual sites or
for groups of sites.
Site Leasing Business
The site leasing business consists of (i) the ownership of communication
sites pursuant to build-to-suit programs and acquisitions; (ii) the leasing or
subleasing of antennae space on communication sites to wireless service
providers; and (iii) the maintenance and management of communication sites.
The Company leases and subleases antennae space on communication sites to a
variety of wireless service providers. The Company owns or leases such
communication sites from third parties, and in the future may manage
communication sites for third parties in exchange for a percentage of the
revenues or tower-level cash flow. All of the Company's owned towers are the
result of build-to-suit programs or acquisitions. In its build-to-suit
programs, the Company utilizes some or all of the five phases of its site
development business as it would when providing site development services to a
third party. After a tower has been constructed, the Company leases antennae
space on the tower. The Company generally receives monthly lease payments from
customers payable under written antennae site leases. The majority of the
Company's outstanding customer leases, and the new leases typically entered
into by the Company, have original terms of five years (with four or five
renewal periods of five years each) and usually provide for annual or periodic
price increases. Monthly lease pricing varies with the number and type of
antennae installed on a communication site. Broadband customers such as PCS,
cellular or ESMR generally pay substantially more monthly rent than paging or
other narrowband customers. The Company also provides a lease/sublease service
as part of its site leasing business whereby the Company leases space on a
communication site and subleases the space to a wireless service provider.
Management believes that the site leasing portion of the Company's business
has significant potential for growth and the Company intends to expand its
site leasing business through (i) increasing activity from its build-to-suit
programs and (ii) selective acquisitions.
As of June 30, 1998, the following table indicates the total number of
build-to-suit and acquired towers of the Company.
<TABLE>
<CAPTION>
LOCATION OF TOWERS NUMBER OF TOWERS BUILD- TO- SUIT ACQUIRED % OF TOTAL
- ------------------ ---------------- --------------- -------- ----------
<S> <C> <C> <C> <C>
Alabama.................... 1 -- 1 *
Connecticut................ 4 3 1 2
Delaware................... 3 3 -- 1
Florida.................... 17 6 11 8
Georgia.................... 38 38 -- 18
Illinois................... 2 -- 2 1
Indiana.................... 1 1 -- *
Kentucky................... 3 3 -- 1
Maryland................... 2 2 -- 1
Michigan................... 1 1 -- *
Minnesota.................. 1 -- 1 *
Missouri................... 5 5 -- 2
New Mexico................. 5 -- 5 2
New York................... 35 5 30 16
Ohio....................... 1 1 -- *
Pennsylvania............... 17 -- 17 8
South Carolina............. 24 24 -- 11
Tennessee.................. 16 5 11 7
Texas...................... 29 29 -- 13
Virginia................... 2 -- 2 1
Washington, DC............. 1 1 -- *
Wisconsin.................. 9 3 6 4
--- --- --- ---
Total.................... 217 130 87 100
=== === === ===
</TABLE>
- --------
* less than 1%
Build-to-Suit Programs
Under its build-to-suit programs, the Company generally constructs towers
only after having signed an antennae site lease agreement with an anchor
tenant and having made the determination that the initial or planned capital
investment for such tower would not exceed a targeted multiple of tower cash
flow after a certain period of time. In selling its build-to-suit programs,
the Company's sales representatives utilize their existing
60
<PAGE>
relationships in the wireless communications industry to target wireless
service providers interested in outsourcing their network buildout. Proposals
for build-to-suit towers are made by the Company's sales representatives in
response to competitive bids or specific requests and in circumstances where
the Company believes the provider would have interest in build-to-suit towers.
Although the terms vary from proposal to proposal, the Company typically
offers a five-year lease agreement with four additional five-year renewal
periods. While the proposed monthly rent also varies, broadband customers such
as PCS, cellular or ESMR generally pay more than the aggregate monthly rent
paid by paging or other narrowband customers. In addition, anchor tenants will
typically pay lower monthly rents than subsequent tenants of a similar type
service. In certain cases, an anchor tenant may also enjoy an introductory
lease rate for a period of time.
If a wireless provider accepts the terms of the proposal submitted by the
Company, the provider will award the Company a non-binding mandate to pursue
(i) specific sites; (ii) search rings; or (iii) general areas. Based on the
status of the site the Company has been given a mandate to pursue, the Company
will perform due diligence investigations for a designated period (typically
not to exceed 30 days) during which time the Company will analyze the site
based on a number of factors, including colocation opportunities, zoning and
permitting issues, economic potential of the site, difficulty of constructing
a multi-tenant tower and remoteness of the site. These mandates are non-
binding agreements and either party may terminate the mandate at any time.
If, after the Company's due diligence investigation during the mandate, the
Company concludes that it is economically feasible to construct the tower, the
Company will enter into an antennae site lease agreement with the provider.
The antennae site lease agreements provide, among other terms, that all
obligations are conditioned on the Company receiving all necessary zoning
approvals where zoning remains to be obtained. Certain of the antennae site
lease agreements contain penalty or forfeiture provisions in the event the
tower is not completed within specified time periods. The Company has
negotiated several master build-to-suit agreements, including antennae site
lease terms, with providers in specific markets that the Company believes will
facilitate its obtaining build-to-suit programs from such providers in those
markets.
Acquisitions
The Company actively pursues acquisitions of revenue-producing communication
sites. The Company's acquisition strategy, like its build-to-suit strategy, is
financially-oriented as opposed to geographically or customer-oriented. The
Company's goal is to acquire towers that have an initial or planned capital
investment not exceeding a targeted multiple of tower cash flow after a
certain period of time. Tower cash flow is determined by subtracting from
gross tenant revenues the direct expenses associated with operating the
communication site, such as ground lease payments, real estate taxes,
utilities, insurance and maintenance. As of June 30, 1998, the Company had
acquired 87 existing towers. As of December 31, 1997, total capital
expenditures associated with the acquisition and construction of 51 towers
were approximately $14.2 million. In connection with the CSSI Acquisition, the
Company expects to invest up to $4.8 million by September 1998 to complete
construction of the towers acquired and as a contingent payment to the
sellers, provided that certain tenant revenue goals are realized. As of March
31, 1998, the Company has invested approximately $2.2 million to complete
construction of the towers and has paid approximately $2.5 million of
contingent consideration to the sellers. In January 1998, the Company also
acquired 17 towers in Pennsylvania at an initial cost of $3.3 million with an
additional contingent payment of $2.0 million if certain target revenues are
met. Further, the Company anticipates that it will cost an additional $0.7
million to upgrade and rebuild such towers. As of December 31, 1997, there
were 230 tenant leases on such towers, ranging from one tenant to 13 tenants
per tower and generating gross revenues per tower ranging from $9,600 per year
to $98,105 per year.
The Company's acquisition activities are directed by dedicated mergers and
acquisitions personnel who are responsible for identification, negotiation,
documentation and consummation of acquisition opportunities, as well as the
coordination and management of independent advisors and consultants retained
by the Company from time to time in connection with acquisitions. In addition
to its mergers and acquisitions personnel, the Company relies on its national
field representatives to identify potential acquisitions. Acquisition
prospects identified by the Company's field representatives are generally
smaller, involving one to five towers, and often provide the
61
<PAGE>
Company with the exclusive opportunity to structure and consummate a
transaction with the potential seller. The Company believes that its field
representatives and knowledge of potential acquisition candidates gained
through its substantial site development business experience provide it with a
competitive advantage, and will permit the Company to identify and consummate
acquisitions on more favorable terms than would be available to the Company
through competitively-bid or brokered acquisition prospects. As is the case
with its build-to-suit programs, the Company's focus is to acquire multi-tenant
communication sites with underutilized capacity in locations that the Company
believes will be attractive to wireless service providers which have not yet
built out their service in such locations.
Lease/Sublease
Under its lease/sublease program, the Company leases antennae space on a
communication site and then subleases such space to wireless service providers.
These providers prefer the financial benefits associated with the
lease/sublease program, which include reduced capital expenditures, as compared
to paying for site development services on a fee basis. Wireless paging
providers comprise a significant majority of customers who sublease antennae
sites from the Company. The subleases generally have original terms of five
years (with four or five renewal periods of five years each) and usually
provide for annual or periodic price increases.
Maintenance and Management
Once acquired or constructed, the Company maintains and manages its
communication sites through a combination of in-house personnel and independent
contractors. In-house personnel are responsible for oversight and supervision
of all aspects of site maintenance and management, and are particularly
responsible for monitoring security access and lighting, RF emission and
interference issues, signage, structural engineering and tower capacity, tenant
relations and supervision of independent contractors. Independent contractors
are hired locally by the Company to perform routine maintenance functions such
as landscaping, pest control, snow removal, vehicular access, site access and
equipment installation oversight. Independent contractors are engaged by the
Company on a fixed fee or time and materials basis or, in a few limited
circumstances where such contractors were sellers of towers to the Company, for
a percentage of tower cash flow.
The Company is in the process of developing its network operations center in
Boca Raton, Florida where it will centralize monitoring of security access and
lighting, as well as other functions. These tasks are currently outsourced by
the Company to independent contractors or to the PCS or cellular tenants on the
Company's towers. It is anticipated that the network operations center will be
operational in the third quarter of 1998. As the number of communication sites
owned and managed by the Company increases, the Company anticipates increased
expenditures to expand its maintenance infrastructure, including expenditures
for personnel and computer hardware and software, and such expenditures may be
material.
CUSTOMERS
The Company has performed site development and site leasing services for
several of the largest wireless service providers over the past eight years.
The majority of the Company's contracts have been for PCS broadband, cellular
and paging customers. The Company also serves PCS narrowband, ESMR, SMR and MDS
wireless providers. In both its site development and site leasing businesses,
the Company works with both large national providers and smaller local,
regional or private operators. In the twelve-month period ended December 31,
1997, the Company's largest customers were Sprint PCS and Pacific Bell Mobile
Services, representing 53.6% and 14.0%, respectively, of site development
revenues and PageNet and A+ Network, representing 60.0% and 12.5%,
respectively, of site leasing revenues. No other customer represented more than
10.0% of the Company's revenues. See "Risk Factors--Customer Concentration."
62
<PAGE>
Customers for whom the Company has provided site development services in
1996 or 1997 include:
A+ Network Pacific Bell Mobile Services
Aerial Communications PageNet
AT&T Wireless Services Paging Network, Inc.
Bell Atlantic NYNEX Mobile Systems Powertel
BellSouth Mobility PrimeCo PCS
CellNet Data Systems Spectrum Resources, Inc.
Centennial Communications Sprint PCS
Commnet Cellular, Inc. 360(degrees)Communications Company
Nextel US West Communication
Omnipoint WinStar
SALES AND MARKETING
The Company's sales and marketing goals are (i) to further cultivate
existing customers to maximize sales of site development services, as well as
to obtain mandates for build-to-suit programs; (ii) to sustain its market
leadership position in the site development business; (iii) to position the
Company to become a market leader in the site leasing business; (iv) to use
existing relationships and develop new relationships with wireless service
providers to lease antennae space on Company owned or managed communication
sites; and (v) to form affiliations with select communications systems vendors
who utilize end-to-end services, including those provided by the Company,
which will enable the Company to market its services and product offerings
through additional channels of distribution. Historically, the Company has
capitalized on the strength of its experience, performance and relationships
with wireless service providers to position itself for additional site
development business. The Company has leveraged these attributes to obtain
build-to-suit mandates, and expects to continue to enhance and leverage these
attributes to sell site development services, build-to-suit programs and
antennae space on Company owned or managed communications sites.
The Company has a dedicated sales force supplemented by members of the
Company's executive management team. Maintaining and cultivating relationships
with wireless service providers is a main focus of senior management. The
Company's strategy is to delegate sales efforts to those Company employees who
have the best relationships with the wireless service providers. The
representatives are assigned specific accounts based on historical experience
with a provider and the quality of the relationship between the Company
representative and such provider. Most wireless service providers have
national corporate headquarters with regional offices. The Company believes
that most decisions for site development and site leasing services are made by
providers at the regional level with input from their corporate headquarters.
The Company's sales representatives work with provider representatives at the
local level and at the national level when appropriate. The Company's sales
staff compensation is heavily weighted to incentive-based goals and
measurements. In addition to its marketing and sales staff, the Company relies
upon its executive and operations personnel on the national and field office
levels to identify sales opportunities within existing customer accounts, as
well as acquisition opportunities.
The Company's primary marketing and sales support is centralized and
directed from its headquarters office in Boca Raton, Florida and is
supplemented by the Company's regional offices. The Company has a full-time
staff dedicated to its marketing efforts. The marketing and sales support
staff are charged with implementing the Company's marketing strategies,
prospecting and producing sales presentation materials and proposals. Its
headquarters office is equipped with the requisite computer hardware and
software (including a national database of sales and marketing information).
COMPETITION
The Company competes with (i) other independent tower owners, some of which
also provide site leasing and site development services; (ii) providers, which
own and operate their own tower networks; (iii) service
63
<PAGE>
companies that provide engineering and site development services; and (iv)
other potential competitors, such as utilities, outdoor advertisers and
broadcasters, some of which have already entered the tower industry. Wireless
service providers that own and operate their own tower networks generally are
substantially larger and have greater financial resources than the Company.
The Company believes that tower location, capacity, price, quality of service
and density within a geographic market historically have been and will
continue to be the most significant competitive factors affecting tower
leasing companies. The Company also competes for development and new tower
construction opportunities with wireless service providers, site developers
and other independent tower operating companies and believes that competition
for site development will increase and that additional competitors will enter
the tower market, some of which may have greater financial resources than the
Company.
The following is a list of certain of the tower companies that compete with
the Company: American Tower Corporation, Crown Castle International Corp.,
Lodestar Communications, Microcell, Motorola, OmniAmerica Wireless (an
affiliate of Hicks, Muse, Tate and Furst), Pinnacle Tower, SpectraSite,
TeleCom Towers (an affiliate of Cox Enterprises) and Unisite.
The following companies are primarily competitors for the Company's site
management activities: AAT, APEX, Comsite International, JJS Leasing, Inc.,
Motorola, Signal One, Subcarrier Communications and Tower Resources
Management.
The Company believes that the majority of its competitors in the site
development business operate within local market areas exclusively, while some
firms appear to offer their services nationally, including Whalen & Company,
Gearon & Company (a subsidiary of American Tower Corporation) and SpectraSite.
The market includes participants from a variety of market segments offering
individual, or combinations of, competing services. The field of competitors
includes site development consultants, zoning consultants, real estate firms,
right-of-way consulting firms, construction companies, tower owners/managers,
radio frequency engineering consultants, telecommunications equipment vendors
(which provide end-to-end site development services through multiple
subcontractors) and providers' internal staff. The Company believes that
providers base their decisions on site development services on certain
criteria, including a company's experience, track record, local reputation,
price and time for completion of a project. The Company believes that it
competes favorably in these areas.
EMPLOYEES
As of June 30, 1998, the Company had 390 employees, none of whom are
represented by a collective bargaining agreement. The Company considers its
employee relations to be good. Due to the nature of the business of the
Company, it experiences a "run-up" and "run-down" in employees as contracts
are completed in one area of the country and are commenced in a different
area.
PROPERTIES
The Company is headquartered in Boca Raton, Florida, where it currently
leases approximately 32,000 square feet of space. Due to the need for
additional space resulting from its growth, in February 1998 the Company
increased and consolidated its headquarters space in a single location in Boca
Raton. The aggregate annual lease expense for the headquarters space is
anticipated to increase by approximately $500,000 as a result of the
relocation. The Company opens and closes project offices from time to time in
connection with its site development business, which offices are generally
leased for periods not to exceed 18 months. The Company has entered or
anticipates entering into longer leases in Atlanta, Boston and Milwaukee which
are regional office locations.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of business. The Company is
not a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse
effect on the Company's financial prospects, condition or results of
operations.
64
<PAGE>
INTERNATIONAL
The Company's primary focus is on its domestic operations. From time to
time, however, the Company may evaluate international opportunities and take
advantage of those that it feels may be profitable for the Company. Currently,
the Company is not considering any significant international projects.
REGULATORY AND ENVIRONMENTAL MATTERS
Federal Regulations. Both the FCC and FAA regulate towers used for wireless
communications transmitters and receivers. Such regulations control the siting
and marking of towers and may, depending on the characteristics of particular
towers, require registration of tower facilities. Wireless communications
devices operating on towers are separately regulated and independently
licensed based upon the particular frequency used.
Pursuant to the requirements of the Communications Act of 1934, as amended,
the FCC, in conjunction with the FAA, has developed standards to consider
proposals for new or modified antennae. These standards mandate that the FCC
and the FAA consider the height of proposed antennae, the relationship of the
structure to existing natural or man-made obstructions and the proximity of
the antennae to runways and airports. Proposals to construct or to modify
existing antennae above certain heights are reviewed by the FAA to ensure the
structure will not present a hazard to aviation. The FAA may condition its
issuance of a no-hazard determination upon compliance with specified lighting
and/or marking requirements. The FCC will not license the operation of
wireless telecommunications devices on towers unless the tower has been
registered with the FCC or a determination has been made that such
registration is not necessary. The FCC will not register a tower unless it has
been cleared by the FAA. The FCC may also enforce special lighting and
painting requirements. Owners of wireless transmissions towers may have an
obligation to maintain painting and lighting to conform to FCC standards.
Tower owners may also bear the responsibility of notifying the FAA of any
tower lighting outage. The Company generally indemnifies its customers against
any failure to comply with applicable regulatory standards. Failure to comply
with the applicable requirements may lead to civil penalties.
The 1996 Telecom Act amended the Communications Act of 1934 by giving state
and local zoning authorities jurisdiction over the construction, modification
and placement of towers. The new law preserves local zoning authority by
prohibiting any action that would (i) discriminate between different providers
of personal wireless services or (ii) ban altogether the construction,
modification or placement of radio communication towers. Finally, the 1996
Telecom Act requires the federal government to help licensees for wireless
communications services gain access to preferred sites for their facilities.
This may require that federal agencies and departments work directly with
licensees to make federal property available for tower facilities.
Owners and operators of antennae may be subject to, and therefore must
comply with, Environmental Laws. The FCC's decision to license a proposed
tower may be subject to environmental review pursuant to the National
Environmental Policy Act of 1969 ("NEPA"), which requires federal agencies to
evaluate the environmental impacts of their decisions under certain
circumstances. The FCC has issued regulations implementing NEPA. Such
regulations place responsibility on each applicant to investigate any
potential environmental effects of operations and to disclose any significant
effects on the environment in an environmental assessment prior to
constructing a tower. In the event the FCC determines the proposed tower would
have a significant environmental impact based on the standards the FCC has
developed, the FCC would be required to prepare an environmental impact
statement. This process could significantly delay the registration of a
particular tower.
As an owner and operator of real property, the Company is subject to certain
Environmental Laws which may impose strict, joint and several liability for
the cleanup of on-site or off-site contamination and related personal or
property damages. The Company is also subject to certain Environmental Laws
that govern tower placement, including pre-construction environmental studies.
Operators of towers must also take into consideration certain RF emissions
regulations that impose a variety of procedural and operating requirements.
The potential connection between RF emissions and certain negative health
effects, including some forms of
65
<PAGE>
cancer, has been the subject of substantial study by the scientific community
in recent years. To date, the results of these studies have been inconclusive.
The Company believes that it is in substantial compliance with and has no
material liability under all applicable Environmental Laws. Nevertheless,
there can be no assurance that the costs of compliance with existing or future
Environmental Laws and liability related thereto will not have a material
adverse effect on the Company's prospects, financial condition or results of
operations.
State and Local Regulations. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, the Company
conducts the site acquisition portions of its site development services
business through licensed real estate brokers or agents, who may be employees
of the Company or hired as independent contractors. Local regulations include
city and other local ordinances, zoning restrictions and restrictive covenants
imposed by community developers. These regulations vary greatly, but typically
require tower owners to obtain approval from local officials or community
standards organizations prior to tower construction. Local zoning authorities
generally have been hostile to construction of new transmission towers in
their communities because of the height and visibility of the towers.
66
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven E. Bernstein..... 37 Chairman of the Board, President and Chief Executive Officer
Ronald G. Bizick, II.... 30 Executive Vice President--Sales and Marketing
Robert M. Grobstein..... 39 Chief Financial Officer
Michael N. Simkin....... 45 Chief Operating Officer
Jeffrey A. Stoops....... 40 Senior Vice President--Corporate Development and General Counsel
Donald B. Hebb, Jr...... 55 Director
C. Kevin Landry......... 53 Director
Richard W. Miller....... 57 Director
</TABLE>
Steven E. Bernstein, founder of the Company, has been President and Chief
Executive Officer of the Company since its inception in 1989. From 1986 to
1989, Mr. Bernstein was employed by McCaw Cellular Communications ("McCaw").
While at McCaw, Mr. Bernstein was responsible for the development of the
initial Pittsburgh non-wireline cellular system and the start-up of the
Pittsburgh sales network. Mr. Bernstein is a graduate of the University of
Florida, where he majored in Real Estate and earned a Bachelor of Science
degree in Business Administration. He was PCIA's 1996 Entrepreneur of the
Year.
Ronald G. Bizick, II has been an executive officer since 1993. He is
responsible for sales and marketing of the Company's site development and site
leasing services. Prior to joining the Company in 1990, Mr. Bizick was
employed by a private land planning and development firm specializing in
commercial and residential wetland and zoning approvals. Mr. Bizick is a cum
laude graduate of the University of Pittsburgh, where he earned a Bachelor of
Arts degree in Business and Communications.
Robert M. Grobstein, CPA, has been the Chief Financial Officer of the
Company since December 1993. He is responsible for risk management, financial
reporting, site administration and accounting. From January 1990 to December
1993, Mr. Grobstein served as Controller for Turnberry Isle Resort and Country
Club, where he supervised a 28-person accounting staff. Mr. Grobstein is a
graduate of Robert Morris College, where he majored in Accounting and earned a
Bachelor of Science degree in Business Administration. He is a member of both
the American Institute of C.P.A.'s and the Florida Institute of C.P.A.'s.
Michael N. Simkin, Chief Operating Officer, joined the Company on April 13,
1998. From July 1997 to February 1998, he was Chief Executive Officer of
Centennial Communications Corporation, a specialized mobile radio service
provider based in Denver. From April 1995 to April 1997, he was Vice President
and General Manager of PrimeCo Personal Communications for the South Florida
region. From April 1993 to April 1995, Mr. Simkin was Executive Director of
Corporate Strategy for Airtouch Communications. He has an A.B. in Economics
and MBA Degree from the University of California at Berkeley.
Jeffrey A. Stoops, Senior Vice President--Corporate Development and General
Counsel, joined the Company in April 1997. Mr. Stoops is responsible for all
mergers and acquisitions, capital market activities and legal matters for the
Company. Prior to joining the Company, Mr. Stoops was a partner with Gunster,
Yoakley, Valdes-Fauli & Stewart, P.A., a South Florida law firm, where he
practiced for thirteen years in the corporate, securities and mergers and
acquisitions areas. Mr. Stoops received his Bachelor of Science degree and his
JD degree from Florida State University, and is a member of The Florida Bar.
67
<PAGE>
Donald B. Hebb, Jr. was elected as a director of the Company in February
1997. Mr. Hebb also has been a Managing Member of the general partner of ABS
Capital Partners II, L.P. ("ABS"), a private equity fund, and related
entities, since December 1993. Prior to that time, he was a Managing Director
of Alex. Brown and Sons Incorporated, investing private equity funds. Prior to
that time, Mr. Hebb served as President and Chief Executive Officer of Alex.
Brown Incorporated, and in that capacity, initiated the Alex. Brown Merchant
Banking Group early in 1990. Mr. Hebb was the nominee of ABS for election as
director.
C. Kevin Landry was elected as a director of the Company in March 1997. Mr.
Landry has been a Managing Director and Chief Executive Officer of TA
Associates, Inc. ("TA Associates") since its incorporation in 1994. From 1982
to 1994, he served as a Managing Partner of its predecessor partnership. Mr.
Landry also serves on the Board of Directors of Standex International
Corporation. He has also served as a director of Alex. Brown Incorporated. Mr.
Landry was the nominee of TA Associates for election as director.
Richard W. Miller was elected as a director of the Company in May 1997. From
1993 to 1997, Mr. Miller was a Senior Executive Vice President and Chief
Financial Officer of AT&T. From 1990 to 1993, he was the Chairman and Chief
Executive Officer of Wang Laboratories, Inc. Mr. Miller also serves on the
Board of Directors of Avalon Properties, Inc. and Closure Medical Corporation.
The terms of the Company's Series A Preferred Stock contemplate a five
person Board of Directors. Such terms provide that two of these persons will
be elected by the Series A Preferred Stockholders and the other two (other
than Mr. Bernstein) will be determined by a vote of the stockholders (with one
required to be reasonably acceptable to the Directors elected by the Series A
Preferred Stockholders) of the Company. Messrs. Bernstein and Bizick through
their current ability to vote in excess of 50% of all votes represented by
outstanding capital stock of the Company, effectively control this
determination. Messrs. Hebb and Landry currently serve as the representatives
of the Series A Preferred Stockholders.
68
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by or
incurred on behalf of the Company to its Chief Executive Officer and three
other executive officers for each of the years ended December 31, 1995, 1996
and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
SECURITIES ALL
UNDERLYING OTHER
OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) SATION($)
--------------------------- ---- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Steven E. Bernstein.........
Chairman of the Board, 1997 354,822 100,000(1) -- 14,669(2)
President and Chief 1996 195,000 3,995,000 -- 22,172(2)
Executive Officer 1995 195,000 1,800,000 -- 19,201(2)
Ronald G. Bizick, II........ 1997 275,000 100,000 773,528(3) --
Executive Vice President- 1996 75,000 1,629,000 -- --
Sales and Marketing 1995 75,000 506,444 -- --
Robert M. Grobstein......... 1997 204,815 100,000 386,764 --
Chief Financial Officer 1996 104,980 560,020 -- --
1995 94,980 85,770 -- --
Jeffrey A. Stoops...........
Senior Vice President-
Corporate 1997 304,798(4) 100,000 100,000(5) --
Development and General 1996 -- -- -- --
Counsel 1995 -- -- -- --
</TABLE>
- --------
(1) Represents 26,810 shares of Class A Common Stock issued to Mr. Bernstein
in the second quarter of 1998.
(2) This represents the provision of a car allowance to Mr. Bernstein for the
years ending December 31, 1997, 1996 and 1995.
(3) These options were exercised by Mr. Bizick in June 1998.
(4) This represents Mr. Stoops' annual compensation. Mr. Stoops began his
employment with the Company on April 1, 1997.
(5) On March 14, 1997, Mr. Bernstein granted Mr. Stoops options to purchase
1,369,863 shares of his Class B Common Stock at an exercise price of $2.19
a share. For a more detailed description of this transaction, see "Certain
Transactions."
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
---------------------------------------------- -----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1997 PER SHARE DATE 5% ($) 10% ($)
---- ------------ ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Bernstein..... -- -- -- N/A -- --
Ronald G. Bizick, II.... 773,528(1) 43.0 $ 0.05 12/31/06 3,276,000 5,238,000
Robert M. Grobstein..... 386,764(2) 21.5 $ 0.05 12/31/06 1,638,000 2,619,000
Jeffrey A. Stoops....... 100,000(3) 5.5 $ 2.63 3/17/07 165,000 419,000
</TABLE>
- --------
(1) This represents options issued in partial substitution for Mr. Bizick's
ownership rights in SBA, Inc. prior to the Corporate Reorganization. See
"Certain Transactions." These options were exercised by Mr. Bizick in June
1998.
(2) This represents options issued in partial substitution for Mr. Grobstein's
ownership rights in SBA, Inc. prior to the Corporate Reorganization. See
"Certain Transactions."
(3) See footnote 5 to the Summary Compensation Table above.
69
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT DECEMBER 31, 1997 DECEMBER 31, 1997($)
-------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Bernstein..... -- -- -- -- -- --
Ronald G. Bizick, II.... -- -- 773,528(1) -- 1,995,702 --
Robert M. Grobstein..... -- -- 386,764 -- 997,851 --
Jeffrey A. Stoops....... -- -- 33,333(2) 66,667(3) -- --
</TABLE>
- --------
(1) These options were exercised by Mr. Bizick in June 1998.
(2) This does not include exercisable options to acquire 456,621 shares of
Class B Common Stock granted to Mr. Stoops by Mr. Bernstein.
(3) This does not include unexercisable options to acquire 913,242 shares of
Class B Common Stock granted to Mr. Stoops by Mr. Bernstein.
EMPLOYMENT AGREEMENTS
Steven E. Bernstein. The Company does not have an employment agreement with
Steven E. Bernstein, its President and Chief Executive Officer. Mr. Bernstein
is, therefore, not subject to non-competition or non-solicitation contractual
restrictions. Mr. Bernstein was paid a base salary of $350,000 for 1997 and an
annual cash bonus based on achievement of performance criteria established by
the Board which did not exceed his base annual salary. Mr. Bernstein's
compensation and other terms of employment are determined by the Company's
Board of Directors.
Ronald G. Bizick, II. Mr. Bizick is party to an employment agreement with
the Company dated as of January 1, 1997. Under his employment agreement, Mr.
Bizick receives an initial base salary of $275,000 per annum and an annual
cash bonus based on achievement of performance criteria established by the
Board of Directors, that is not permitted to exceed Mr. Bizick's base annual
salary. Mr. Bizick's employment agreement is for an initial three-year term,
and automatically renews for an additional one-year term unless either Mr.
Bizick or the Company provides written notice to the other party at least 90
days prior to renewal. Mr. Bizick's employment agreement provides that upon
termination of employment by the Company, other than for cause or retirement,
the Company shall pay an amount equal to the aggregate present value of the
product of the base annual compensation paid to Mr. Bizick by the Company
multiplied by 2.0. The agreement also provides for noncompetition,
nonsolicitation and nondisclosure covenants.
Robert M. Grobstein. Mr. Grobstein is party to an employment agreement with
the Company dated as of January 1, 1997. Under his employment agreement, Mr.
Grobstein received an initial base salary of $200,000 per annum and an annual
cash bonus based on achievement of performance criteria established by the
Board of Directors, which is not permitted to exceed Mr. Grobstein's base
annual salary. Mr. Grobstein's employment agreement is for an initial three-
year term, and automatically renews for an additional one-year term unless
either Mr. Grobstein or the Company provides written notice to the other party
at least 90 days prior to renewal. Mr. Grobstein's employment agreement
provides that upon termination of employment by the Company, other than for
cause or retirement, the Company shall pay an amount equal to the aggregate
present value of the base annual compensation paid to Mr. Grobstein by the
Company, multiplied by 2.0. The agreement also provides for noncompetition,
nonsolicitation and nondisclosure covenants.
Michael N. Simkin. Mr. Simkin is party to an employment agreement with the
Company dated as of June 15, 1998. Under his employment agreement, Mr. Simkin
receives an initial base salary of $250,000 per annum and an annual cash bonus
based on achievement of performance criteria established by the Board of
Directors. This bonus is not permitted to exceed Mr. Simkin's pro-rated base
salary then in effect. For calendar year 1998, Mr. Simkin's pro-rated period
is the period from April 13, 1998 to December 31, 1998. Mr. Simkin's
employment agreement is for an initial 35-month term, and automatically renews
for an additional one-year term, unless either Mr. Simkin or the Company
provides written notice to the other party at least 90 days prior to
70
<PAGE>
renewal. Mr. Simkin's employment agreement provides that upon termination of
employment by the Company, other than for cause or retirement, the Company
shall pay an amount equal to one times Mr. Simkin's aggregate annual
compensation. The agreement also provides for noncompetition, nonsolicitation
and nondisclosure covenants.
Jeffrey A. Stoops. Mr. Stoops is party to an employment agreement with the
Company dated as of March 14, 1997. Under his employment agreement, Mr. Stoops
receives an initial base salary of $300,000 per annum and an annual cash bonus
based on achievement of performance criteria established by the Board of
Directors. This bonus is not permitted to exceed $200,000 for calendar year
1997; for the remainder of the employment agreement, the bonus is not
permitted to exceed Mr. Stoops' base annual salary. Mr. Stoops' employment
agreement is for an initial 32-month term, and automatically renews for an
additional one-year term, unless either Mr. Stoops or the Company provides
written notice to the other party at least 90 days prior to renewal. Mr.
Stoops' employment agreement provides that upon termination of employment by
the Company, other than for cause or retirement, the Company shall pay an
amount equal to the aggregate present value of the product of (i) the base
annual compensation paid to Mr. Stoops by the Company, multiplied by (ii) 1.0.
The agreement also provides for noncompetition, nonsolicitation and
nondisclosure covenants.
COMPENSATION OF DIRECTORS
The three outside directors of the Company are reimbursed for expenses
incidental to attendance at meetings of the Board of Directors. In addition,
Richard W. Miller receives compensation for his services as director and a
consultant to the Company. Mr. Miller receives $1,000 per Board meeting for
attendance at such meetings, and $1,000 per day for consulting, plus expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not currently have a compensation
committee. During 1996, Mr. Bernstein served as a director, Chairman of the
Board, President and Chief Executive Officer of the Company. Mr. Bernstein
participated in deliberations of the Company's Board of Directors concerning
executive compensation.
STOCK OPTION PLAN
The Company has adopted the 1996 Stock Option Plan (the "Option Plan"),
pursuant to which stock options (both Nonqualified Stock Options and Incentive
Stock Options, as defined in the Option Plan), stock appreciation rights and
restricted stock may be granted to directors, key employees and consultants
(the "Plan Participants") at a price per share equal to the greater of fair
market value at the time of grant or $2.63. A total of 1,800,000 shares of
Class A Common Stock are reserved for issuance under the Option Plan. As of
June 30, 1998, options to acquire 1,041,833 shares were issued and
outstanding, each with an exercise price of $2.63 per share. These options
generally vest over three-year periods from the date of grant. As of June 30,
1998, options granted under the Option Plan to purchase 2,333 shares had been
exercised.
With respect to the grant of awards under the Option Plan, the Board of
Directors or a committee thereof will determine persons to be granted stock
options, stock appreciation rights and restricted stock, the amount of stock
or rights to be optioned or granted to each such person, and the terms and
conditions of any stock options, stock appreciation rights and restricted
stock. Both Incentive Stock Options and Nonqualified Stock Options may be
granted under the Option Plan.
Stock appreciation rights may be granted in conjunction with the grant of an
Incentive or Nonqualified Stock Option under the Option Plan or independently
of any such stock option. A stock appreciation right granted in conjunction
with a stock option may be an alternative right. In which event, the exercise
of the stock option terminates the stock appreciation right to the extent of
the shares purchased upon exercise of the stock option and, correspondingly,
the exercise of the stock appreciation right terminates the stock option to
the extent of the shares with respect to which such right is exercised.
Subject to the terms of the Option Plan, the Board of Directors or a committee
thereof may award shares of restricted stock to the Plan Participants.
Generally, a restricted stock award will not require the payment of any option
price by a Plan Participant but will call for the transfer of shares to the
Plan Participant subject to forfeiture, without payment of any consideration
by the Company, if the Plan Participant's employment terminates during a
"restricted" period (which must be at least six months) specified in the award
of the restricted stock.
71
<PAGE>
CERTAIN TRANSACTIONS
SBACC was formed in December, 1996 to be the holding company for all of the
Company's various subsidiaries. In March 1997, Steven E. Bernstein, at that
time the sole stockholder of SBA, Inc. and Leasing, as well as the President
and Chief Executive Officer of SBACC, contributed all of the outstanding
shares of capital stock of such companies to SBACC in exchange for 8,075,000
shares of Class B Common Stock. In addition, also at the same time in March
1997, Ronald G. Bizick, II and Robert M. Grobstein, the Company's Executive
Vice President-Sales and Marketing and Chief Financial Officer, respectively,
who held options in SBA, Inc. and Leasing, voluntarily terminated these
options (along with existing employment and incentive agreements) in exchange
for, in the case of Mr. Bizick, 176,472 shares of Class A Common Stock and
immediately exercisable options to purchase an additional 773,528 shares of
Class A Common Stock and, in the case of Mr. Grobstein, 88,236 shares of Class
A Common Stock and immediately exercisable options to purchase an additional
386,764 shares of Class A Common Stock. These options are exercisable at $0.05
per share, and in June 1998 Mr. Bizick exercised all of his options. On March
7, 1997, the Company redeemed the outstanding shares of Class A Common Stock
from Messrs. Bizick and Grobstein for $8.50 per share.
On March 8, 1997, the Company loaned Mr. Bernstein $3.5 million at the
applicable Federal rate (the "AFR") determined by the Internal Revenue Service
(the "IRS"). The loan provides that no payments of principal or interest are
required to be made by Mr. Bernstein until maturity, which is the earlier of
three years or upon consummation by the Company of an initial public offering
of its Common Stock. The loan is non-recourse and is secured by 823,530 shares
of Class B Common Stock owned by Mr. Bernstein. The loan may be paid, at Mr.
Bernstein's option, in shares of Common Stock valued at the initial public
offering price.
On March 14, 1997, Mr. Bernstein granted Jeffrey A. Stoops, the Company's
Senior Vice President-Corporate Development and General Counsel, an option to
purchase 1,369,863 shares of his Class B Common Stock at an exercise price of
$2.19 per share. The options vest in equal one-third increments over three
years, with the first 456,621 shares having become vested on December 31,
1997. Upon exercise by Mr. Stoops, the shares become Class A Common Stock.
THE PREFERRED STOCK OFFERING
The Company's Preferred Stock Offering raised $30.0 million of gross
proceeds and binding commitments to fund an additional $20.0 million in Series
A Preferred Stock, all at $8.50 per share. The Preferred Stock Offering was
closed on the basis of the information set forth in an Prospectus including
projected financial information, which projected 1997 and 1998 site
development revenues in excess of those recognized in 1996. Donald B. Hebb,
Jr. and C. Kevin Landry, directors of the Company, participated in the
Preferred Stock Offering through their positions as executive officers of
certain of the preferred stock investors.
In a Board of Directors meeting held at the end of March 1997, management of
the Company presented projected short-term and interim financial information
which cast in doubt the continued reasonableness of the projections. The
reasons provided by management of the Company for the revised projected short-
term and interim financial information centered around (i) the current and
anticipated near-term market conditions for site development services
including construction and design services and (ii) the belief that the
domestic market for these services would probably not be as favorable in 1997
and possibly in 1998 as it was for the Company in 1996. This was primarily due
to the inability of PCS and C-block licensees to obtain financing necessary to
begin their site development activities and changing industry trends,
particularly the move toward outsourcing tower ownership to independent third
parties.
Management of the Company and representatives of ABS and TA Associates
agreed that the conditions described above were materially different from
those reflected in the interim financial information and from those reflected
in the projections. As a result, management of the Company and the
representatives of ABS and TA Associates agreed to a repricing of the Series A
Preferred Stock (by issuing additional shares for no additional consideration)
and to revise certain terms of the Series A Preferred Stock. Among other terms
that were revised, the obligation of the Series A Preferred Stock purchasers
to fund an additional $20.0 million on a pro rata basis
72
<PAGE>
at $4.73 per share became contingent on the Company meeting certain revenue
and/or operating income targets in 1997 and 1998. The Company does not
currently expect these targets to be met. See "Description of Capital Stock--
Preferred Stock" for a description of the revisions to the terms of the Series
A Preferred Stock.
LIMITED LIABILITY AND INDEMNIFICATION
Under the Florida Business Corporation Act (the "FBCA"), a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision, or failure to act unless (i) the director
breached or failed to perform his duties as a director and (ii) the director's
breach of, or failure to perform, those duties constitutes: (1) a violation of
the criminal law, unless the director had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful, (2) a transaction from which the director derived an improper
personal benefit, either directly or indirectly, (3) a circumstance under
which an unlawful distribution is made, (4) in a proceeding by or in the right
of the corporation to procure a judgment in its favor or by or in the right of
a stockholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or stockholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A
corporation may purchase and maintain insurance on behalf of any director or
officer against any liability asserted against him or her and incurred by him
or her in his or her capacity or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the FBCA.
The Articles of the Company provide that the Company shall, to the fullest
extent permitted by applicable law, as amended from time to time, indemnify
all officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
73
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The table below sets forth, as of June 30, 1998, certain information with
respect to the beneficial ownership of Capital Stock by (i) each person who is
known by the Company to be beneficial owner of more than 5% of any class or
series of Capital Stock of the Company; (ii) each of the directors and
executive officers individually; and (iii) all directors and executive
officers as a group. At June 30, 1998, the Company had outstanding the
following shares of Capital Stock: Class A Common Stock--802,671 shares; Class
B Common Stock--8,075,000 shares; Series A Preferred Stock--8,050,000 shares.
At June 30, 1998 no other classes or series of Capital Stock have any shares
issued and outstanding. Each share of Series A Preferred Stock is currently
convertible into one share of Class A Common Stock and one share of Series B
Preferred Stock upon the occurrence of certain events. See "Description of
Capital Stock." This table does not give effect to shares of Class A Common
Stock that may be acquired pursuant to options outstanding as of June 30,
1998, except as described in footnote 2.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF TOTAL
SHARES VOTING POWER OF
EXECUTIVE OFFICERS BENEFICIALLY CLASS A
AND DIRECTORS(1) TITLE OF CLASS OWNED(2) COMMON STOCK(2)
- ------------------ -------------- ------------ -------------------
<S> <C> <C> <C>
Steven E. Bernstein(3).. Class B Common Stock 8,075,000 49.6%
Class A Common Stock 26,810 --
Ronald G. Bizick, II.... Class A Common Stock 773,528 *
Robert M. Grobstein(4).. Class A Common Stock 386,764 *
Michael N. Simkin(5).... Class A Common Stock -- *
Jeffrey A. Stoops(6).... Class A Common Stock 489,954 *
Donald B. Hebb, Jr.(7).. Series A Preferred Stock 3,220,000 19.9
C. Kevin Landry(8)...... Series A Preferred Stock 2,736,987 16.8
Richard W. Miller(9).... Class A Common Stock 33,333 *
All executive officers
and directors as a
group
(8 persons)............ 15,285,755 86.8
<CAPTION>
BENEFICIAL OWNERS OF 5% OR
MORE OF CAPITAL STOCK
- --------------------------
<S> <C> <C> <C>
ABS Capital Partners,
II, L.P.(10)........... Series A Preferred Stock 3,220,000 19.9%
TA Associates, Inc.(11). Series A Preferred Stock 2,736,987 16.8
The Hillman Company(12). Series A Preferred Stock 1,169,808 7.2
</TABLE>
- --------
*Less than 1%.
(1) Except as otherwise indicated, the address of each executive officer and
director named in this table is c/o SBA Communications Corporation, One
Town Center Road, Third Floor, Boca Raton, Florida 33486.
(2) In determining the number and percentage of shares beneficially owned by
each person, shares that may be acquired by such person pursuant to
options exercisable within 60 days after March 31, 1998 are deemed
outstanding for purposes of determining the total number of outstanding
shares for such person and are not deemed outstanding for such purpose for
all other stockholders. To the Company's actual knowledge, except as
otherwise indicated, beneficial ownership includes sole voting and
dispositive power with respect to all shares. The Company has reserved for
issuance options to purchase 1,800,000 shares of the Class A Common Stock
at exercise prices at or above $2.63 per share, of which options for
1,041,833 shares were issued at June 30, 1998. Of these options, 176,833
will be exercisable within 60 days after June 30, 1998.
(3 Mr. Bernstein has granted Mr. Stoops options to purchase 1,369,863 of his
shares of Class B Common Stock at an exercise price of $2.19 per share,
which options vest over an approximately 33 month period in three equal
installments. On December 31, 1997, options to purchase 456,621 of such
shares became exercisable. Until such time as Mr. Stoops exercises his
options, Mr. Bernstein retains voting control over such shares. Upon
exercise by Mr. Stoops, the shares convert to Class A Common Stock.
(4) All shares are in the form of an immediately exercisable option to
purchase Class A Common Stock at $.05 per share.
(5) Does not include unvested options to purchase 200,000 shares of the Class
A Common Stock of the Company at an exercise price of $2.63 per share.
(6) Includes currently exercisable options granted by Mr. Bernstein to Mr.
Stoops for 456,621 shares at $2.19 per share and options granted under the
Option Plan for 33,333 shares currently exercisable at $2.63 per share.
Until exercised, the shares subject to the options granted by Mr.
Bernstein remain in the voting control of Mr. Bernstein. Does not include
options to purchase an additional 913,242 shares of Common Stock for $2.19
per share granted from Mr. Bernstein to Mr. Stoops, which vest in equal
installments on December 31, 1998 and December 31, 1999. Also does not
include additional options to purchase 66,667 shares of Class A Common
Stock at $2.63 per share granted under the Option Plan, which vest in
equal installments on December 31, 1998 and December 31, 1999.
(7) Includes 3,220,000 shares of Series A Preferred Stock owned by ABS. Mr.
Hebb is Managing Member of ABS Partners II, L.L.C., the general partner of
ABS. Mr. Hebb disclaims beneficial ownership of these shares, except to
the extent of his pecuniary interest therein.
74
<PAGE>
(8) Includes 1,102,850 shares owned by Advent Atlantic and Pacific III, L.P.,
of which Mr. Landry is a Managing Director of the General Partner;
1,610,000 shares owned by Advent VII, L.P., of which Mr. Landry is
Managing Director of the General Partner; and 24,147 shares owned by TA
Venture Investors Limited Partnership, of which Mr. Landry is a General
Partner. Mr. Landry disclaims beneficial ownership of these shares, with
the exception of 2,212.93 shares held through TA Venture Investors Limited
Partnership.
(9) Includes options to purchase 33,333 shares of Class A Common Stock, of a
total number of options to purchase 100,000 shares at $2.63 per share,
which vest in three equal annual installments beginning May 22, 1998.
(10) See "Plan of Distribution." The principal business address of ABS Capital
Partners, II, L.P. is One South Street, Baltimore, MD 21202.
(11) Includes 1,102,850 shares owned by Advent Atlantic and Pacific III, L.P.,
of which TA Associates is a General Partner, 1,610,000 shares owned by
Advent VII, L.P., of which TA Associates is a General Partner, and 24,147
shares owned by TA Venture Investors Limited Partnership, of which Mr.
Landry is a General Partner. The principal business address of TA
Associates, Inc. is 125 High Street, Boston, MA 02110.
(12) Includes 233,960 shares held by C.G. Grefenstette and Thomas G. Bigley as
Trustees for Henry Lea Hillman, Jr., Juliet Lea Hillman, Audry Hilliard
Hillman, and William Talbott Hillman, 175,470 shares held by Henry L.
Hillman, Elsie Hilliard Hillman and C.G. Grefenstette as Trustees of the
Henry L. Hillman Trust, 584,908 shares owned by Juliet Challenger, Inc.,
and 175,470 shares owned by Venhill Limited Partnership. The principal
business address of The Hillman Company is Grant Building, Pittsburgh, PA
15219.
75
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms and provisions of the Company's capital
stock does not purport to be complete and is qualified in its entirety by
reference to the actual terms and provisions of, including certain defined
terms used herein, the capital stock contained in the Company's Articles of
Incorporation, as amended.
The Company's Articles of Incorporation authorize 32,000,000 shares of Class
A Common Stock, 8,100,000 shares of Class B Common Stock and 30,000,000 shares
of preferred stock, of which 8,050,000 shares have been designated as Series A
Preferred Stock and 8,050,000 shares have been designated as Series B
Preferred Stock. In addition, the Company has designated 4,472,272 shares of
preferred stock as Series C Preferred Stock and 4,472,272 shares of preferred
stock as Series D Preferred Stock. At June 30, 1998, there were 802,671 shares
of Class A Common Stock issued and outstanding, 8,075,000 shares of Class B
Common Stock issued and outstanding and 8,050,000 shares of Series A Preferred
Stock issued and outstanding. No other shares of any class or series was
issued and outstanding at June 30, 1998. In addition, (i) 1,800,000 shares of
Class A Common Stock were reserved for issuance upon the exercise of stock
options available for future grant under the Option Plan (of which 1,041,833
options have been granted and remained outstanding as of June 30, 1998), (ii)
8,050,000 shares of Series B Preferred Stock are reserved for issuance upon
conversion of the shares of Series A Preferred Stock sold in the Preferred
Stock Offering, (iii) 8,452,500 shares of Class A Common Stock are reserved
for issuance upon conversion of the shares of Series A Preferred Stock sold in
the Preferred Stock Offering, or issuable upon exercise of warrants granted to
BT Alex. Brown in connection with the Preferred Stock Offering, and (iv)
386,764 shares of Class A Common Stock are reserved for issuance upon the
exercise of stock options held by Mr. Grobstein.
COMMON STOCK
The Company has two classes of authorized Common Stock; Class A Common Stock
and Class B Common Stock. The Class A Common Stock has one vote per share. The
Class B Common Stock has ten votes per share. All outstanding shares of Class
A Common Stock and Class B Common Stock are, and will be upon conversion of
the Series A Preferred Stock, validly issued, fully paid and nonassessable.
At June 30, 1998 Messrs. Bernstein and Bizick controlled 50.3% of all votes
on a primary basis and 50.0% of all votes on a fully diluted basis. As a
result, Messrs. Bernstein and Bizick have the ability to elect three out of
five of the Company's directors. See "Risk Factors--Control of the Company by
Executive Management." Except as otherwise required by law, owners of the
Class A Common Stock, Class B Common Stock and Series A Preferred Stock vote
together on all matters, including the election of directors.
Each outstanding share of Class B Common Stock may, at the option of the
holder thereof, at any time, be converted into one share of Class A Common
Stock. Each share of outstanding Class B Common Stock shall convert into one
share of Class A Common Stock immediately upon transfer to any holder other
than the following (an "Eligible Class B Stockholder"): any one or more of
Steven E. Bernstein, other members of the immediate family of Steven E.
Bernstein, or their lineal descendants, spouses of lineal descendants or
lineal descendants of spouses, or any trusts for the benefit of any of the
foregoing, or any estate or tax planning vehicles on the part of Mr.
Bernstein. If the shares of Class B Common Stock held by Eligible Class B
Stockholders in the aggregate constitute 10% or less of the outstanding shares
of Common Stock, each share of Class B Common Stock shall immediately convert
into one share of Class A Common Stock. Each share of outstanding Class B
Common Stock which is held by any Eligible Class B Stockholder shall
immediately convert into one share of Class A Common Stock (i) at such time as
such holder is no longer an Eligible Class B Stockholder, or (ii) upon the
death or mental incapacity of Mr. Bernstein.
Other than the rights described above, the holders of Common Stock have no
cumulative rights and no preemptive, subscription, redemption, sinking fund or
conversion rights and have equal rights and preferences. Subject to
preferences that may be applicable to the Series A Preferred Stock, the Series
B Preferred Stock or any preferred stock which the Company may issue in the
future, holders of the Common Stock will be entitled to receive such dividends
as may be declared by the board of directors out of funds legally available
therefor.
76
<PAGE>
The rights and preferences of holders of Common Stock are subject to the
rights of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, and will be subject to the
rights of any series of preferred stock which the Company may issue in the
future.
PREFERRED STOCK
All shares of Series A Preferred Stock are, and Series B Preferred Stock
upon conversion of the Series A Preferred Stock will be, fully paid and
nonassessable. The Company's board of directors will be authorized by the
Articles of Incorporation to provide for the issuance of shares of preferred
stock, other than the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, in one or more series,
to establish from time to time the number of shares to be included in each
such series, to fix the designation, rights, preferences, privileges and
restrictions of the shares of each such series and to increase or decrease the
number of shares of any series of preferred stock (including the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock,) all without any further vote or action by the Company's
shareholders other than the vote of the holders of the Series A Preferred
Stock to the extent required under the terms of the Series A Preferred Stock.
See "--Restrictive Covenants."
In connection with the Private Offering, certain terms of the Series A,
Series B, Series C and Series D Preferred Stock were amended. The description
of the Series A, Series B, Series C and Series D Preferred Stock contained in
this Prospectus gives effect to such amendments.
The Company has designated the Series C Preferred Stock and Series D
Preferred Stock to be issued, at its option upon the payment of $4.47 per
share, to holders of the Series A Preferred Stock if certain target operating
results have been met prior to June 30, 1998. Management of the Company does
not believe at this time that such shares of Series C Preferred Stock or
Series D Preferred Stock will be issued.
In March 1997, the Company sold 3,529,412 shares of 2% Series A Preferred
Stock, convertible initially into one share of the Company's Class A Common
Stock and one share of the Company's 4% Series B Redeemable Preferred Stock,
to a syndicate of institutional investors including ABS and TA Associates (the
"Private Investors"). The Series A Preferred Stock had an initial conversion
price of $8.50.
In May 1997, in response to the acknowledgment by the Company that certain
of the financial projections originally provided to the Private Investors
prior to the consummation of the Preferred Stock Offering were substantially
different from revised financial information provided shortly after the
Preferred Stock Offering, casting in doubt the continued reasonableness of the
original projections, the Company issued an additional 4,520,588 shares of the
Series A Preferred Stock, increased by 200 basis points the rate per annum of
cumulative dividends and amended the initial conversion price to $3.73. Each
of the Private Investors executed a release exonerating the Company from any
liability that it may have had in connection with the offering of Series A
Preferred Stock. An affiliate of BT Alex. Brown Incorporated, one of the
Initial Purchasers, is a limited partner in ABS and certain employees of BT
Alex. Brown Incorporated are investors in another Private Investor. In
addition, certain officers of BT Alex. Brown Incorporated are holders of
Series A Preferred Stock.
The Series A Preferred Stock has the following rights and preferences:
Conversion. Each holder of Series A Preferred Stock has the right to convert
his or her shares at any time. Each share of Series A Preferred Stock is
currently convertible into one share of Class A Common Stock, subject to
certain antidilution protection provisions, and one share of Series B
Preferred Stock. The number of shares of Class A Common Stock into which a
share of Series A Preferred Stock is convertible is equal to the ratio of
$3.73 divided by the conversion price, which is currently $3.73. Under the
antidilution provisions, the conversion price of the Series A Preferred Stock
is subject to adjustment in the event of any subdivision, combination or
reclassification of the Company's outstanding Common Stock or stock dividend
to holders of Common Stock payable in Common Stock. In the event of any
distribution by the Company payable other than in Common Stock, debt or assets
(other than cash dividends), holders of Series A Preferred Stock are entitled
to their
77
<PAGE>
proportionate share (on an as-if-converted basis) of such distribution. The
conversion price of Series A Preferred Stock will also be adjusted, on a "full
ratchet" basis for the first 18 months following the Preferred Stock Offering
and on a weighted average basis thereafter, upon the Company's issuance of
additional shares of Common Stock or warrants or rights to purchase Common
Stock or securities convertible into Common Stock for a consideration per
share which is less than the then applicable per share conversion price of the
Series A Preferred Stock. The conversion price of the Series A Preferred Stock
will not be adjusted for issuances of Common Stock upon the exercise or
conversion of options, warrants or other rights to purchase Common Stock
outstanding as of the date, or issued as a result, of the Corporate
Reorganization, or upon the future issuance of Common Stock, or options,
warrants or other rights to purchase Common Stock to employees, directors,
consultants or vendors of the Company directly or pursuant to a stock option
plan or restricted stock plan approved by the Board of Directors, or in
connection with certain acquisitions determined by the Company's Board of
Directors to be in the best interests of the Company and its stockholders, so
long as such shares or options are issued at fair market value.
The Series A Preferred Stock will automatically convert into Class A Common
Stock and Series B Preferred Stock upon the earlier of (i) completion by the
Company of a public offering raising gross proceeds of at least $20.0 million
and have either an (a) offering price per share greater than or equal to 150%
of the then applicable conversion price of the Series A Preferred Stock if
such public offering occurs before June 30, 1998 or (b) an offering price per
share greater than or equal to 200% of the then applicable conversion price of
the Series A Preferred Stock if such public offering occurs after June 30,
1998 (a "Qualified Public Offering") or (ii) the written consent of the
holders of at least 66 2/3% of the Series A Preferred Stock then outstanding.
Dividends. Subject to the terms of the Indenture or any documents relating
to any refinancing of the Notes, as each may be in effect from time to time,
the holders of outstanding shares of Series A Preferred Stock are entitled, in
preference to the holders of any and all other classes of capital stock of the
Company (other than the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock which will rank equally with the Series A
Preferred Stock as to dividends), to receive, out of funds legally available
therefore, cumulative dividends on the Series A Preferred Stock in cash, at a
rate per annum of 4% of the Series A base liquidation amount (the "Series A
Base Liquidation Amount") subject to proration for partial years. The Series A
Base Liquidation Amount equals the sum of $3.73 and any accumulated but unpaid
dividends on the Series A Preferred Stock. No dividends will be paid on the
Common Stock until all accumulated but unpaid dividends have been paid on the
Series A Preferred Stock. Accrued but unpaid dividends on the Series A
Preferred Stock will be payable upon conversion of the Series A Preferred
Stock into Class A Common Stock and Series B Preferred Stock. At March 7,
2002, the dividend rate of the Series A Preferred Stock will increase to 8% of
the Series A Base Liquidation Amount per annum. On March 7, 2003, the dividend
rate on the Series A Preferred Stock shall increase to 14% of the Series A
Base Liquidation Amount per annum.
Liquidation Preference. In the event of any liquidation or winding up of the
Company, including a merger, sale of all of its outstanding shares of capital
stock, consolidation or sale of all or substantially all of the assets of the
Company, the funds available for distribution will be paid out first to the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock, which shall rank
equally in the event of a liquidation. The holders of Series A Preferred Stock
will be entitled to receive the greater of: (a) the Series A Base Liquidation
Amount and (b) the amount per share which such holders would have received if
all such shares had been converted to Class A Common Stock and Series B
Preferred Stock immediately prior to such liquidation distribution.
Thereafter, the remaining assets will be distributed to the holders of any
other stock ranking on liquidation junior to the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock.
Redemption Rights. Subject to the terms of the Indenture or any documents
relating to any refinancing of the Notes, on the fifth anniversary date of the
Preferred Stock Offering, the Company will, to the extent it may do so under
applicable law, redeem all of the outstanding shares of Series A Preferred
Stock over a two year period, one half in each year, at an aggregate price
equal to the Series A Base Liquidation Amount.
78
<PAGE>
Voting. The holders of Series A Preferred Stock have ten votes for each
share until converted to Class A Common Stock and Series B Preferred Stock and
vote with holders of shares of Class A Common Stock and Class B Common Stock
and Series C Preferred Stock as a single voting group on all matters brought
before the shareholders, except as otherwise required by law and except to the
extent described under "--Restrictive Covenants." The Series B Preferred Stock
does not have voting rights.
Preemptive Rights. The holders of the shares of Series A Preferred Stock are
entitled to participate on a pro rata basis in certain issuances of equity
securities by the Company. These preemptive rights do not apply where shares
are issued in connection with: (i) a merger, consolidation, combination, share
exchange or sale or lease of all or substantially all the assets of the
Company or another corporation; (ii) conversion of Series A Preferred Stock
into Class A Common Stock and Series B Preferred Stock; (iii) exercise of
outstanding options and the warrant to BT Alex. Brown Incorporated; and (iv)
any stock option or other any employee benefit plans of the Company. All
preemptive rights expire upon a Qualified Public Offering by the Company.
Board Representation. Holders of the Series A Preferred Stock and Series C
Preferred Stock, voting together as a single class, are entitled to elect two
board members of a five member Board of Directors of the Company.
Other than the rights described above, the holders of Series A Preferred
Stock have no subscription, sinking fund or conversion rights.
The Series B Preferred Stock has the following rights and preferences:
Dividends. Subject to the terms of the Indenture, or any documents relating
to any refinancing of the Notes, as each may be in effect from time to time,
the holders of outstanding shares of Series B Preferred Stock are entitled, in
preference to the holders of any and all other classes of capital stock of the
Company (other than the Series A Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, which will rank equally with the Series B Preferred
Stock as to dividends), to receive, out of funds legally available therefore,
cumulative dividends on the Series B Preferred Stock in cash, at a rate per
annum of 4% of the Series B base liquidation amount (the "Series B Base
Liquidation Amount") subject to proration for partial years. The Series B Base
Liquidation Amount equals the sum of $3.73 and any accumulated but unpaid
dividends on the Series B Preferred Stock. No dividends will be paid on the
Common Stock until all accrued but unpaid dividends have been paid on the
Series B Preferred Stock. At March 7, 2002, the dividend rate of the Series B
Preferred Stock will be increased to 8% of the Series B Base Liquidation
Amount. At March 7, 2003, the dividend rate on the Series B Preferred Stock
shall increase to 14% of the Series B Base Liquidation Amount per annum.
Redemption. Upon a Qualified Public Offering, the Company will redeem all of
the outstanding shares of Series B Preferred Stock at an aggregate price equal
to the Series B Base Liquidation Amount.
Subject to the terms of the Indenture or any documents relating to any
refinancing of the Notes, on the fifth anniversary date of issuance of the
Notes, the Company will, to the extent it may do so under applicable law,
redeem all of the outstanding shares of Series B Preferred Stock over a two
year period, one half in each year, at an aggregate price equal to the Series
B Base Liquidation Amount.
Liquidation. In the event of any liquidation or winding up of the Company,
including a merger, sale of all of its outstanding shares of capital stock,
consolidation or sale of all or substantially all of the assets of the
Company, each holder of outstanding shares of Series B Preferred Stock will be
entitled to receive, before any amount shall be paid or distributed to the
holders of the Common Stock, an amount in cash equal to the sum of $3.73 per
share plus any accumulated but unpaid dividends to which such holder is
entitled.
The terms of the Series C Preferred Stock are substantially similar to the
terms of the Series A Preferred Stock other than the Series C base liquidation
amount, which currently equals the sum of $4.47 and any accumulated but unpaid
dividends on the Series C Preferred Stock. The terms of the Series D Preferred
Stock are substantially similar to the terms of the Series B Preferred Stock
other than the Series D base liquidation amount, which currently equals the
sum of $4.47 and any accumulated but unpaid dividends on the Series D
Preferred Stock. Management at this time does not expect to issue any shares
of Series C Preferred Stock or Series D Preferred Stock.
79
<PAGE>
RESTRICTIVE COVENANTS
So long as 20% or more of the shares of the Series A Preferred Stock sold in
the Preferred Stock Offering are outstanding, the Company may not, without the
consent of holders of at least 66 2/3% of the outstanding Series A Preferred
Stock: (i) authorize or issue any class or series of equity securities having
equal or superior rights to the Series A Preferred Stock as to payment upon
liquidation, dissolution or a winding up of the Company; (ii) enter into any
agreement that would restrict the Company's ability to perform under the
purchase agreement for the Series A Preferred Stock; (iii) amend its Articles
of Incorporation or Bylaws in any way which adversely affects the rights and
preferences of the holders of Series A Preferred Stock as a class; (iv) sell
or lease 20% or more of its assets, except in the ordinary course of business;
(v) issue additional securities to employees, officers or directors, except
securities issuable upon the exercise of options and warrants outstanding
immediately prior to consummation of the Preferred Stock Offering, or issuable
upon the exercise of options granted in the future at fair market value; (vi)
issue any securities for a price less than fair market value, other than as
may be required by contractual commitments existing prior to consummation of
the Preferred Stock Offering; or (vii) adopt any additional stock option plans
or increase the number of shares available for issuance under existing plans.
REGISTRATION RIGHTS
If at any time after the earlier of (i) six months after the effective date
of an initial public offering of the Company's securities or (ii) June 30,
1998, the holders of not less than 25% of the Class A Common Stock issued or
issuable upon conversion of the Series A Preferred Stock request that the
Company file a registration statement covering Common Stock (with an
anticipated aggregate offering price of $15.0 million or more in the case of a
registration which is an initial public offering and $3.0 million for any
other registration), the Company will use its best efforts to cause such
shares to be registered, subject to certain cut-back provisions; provided,
however, that the Company may delay any such registration for a period of up
to three months for a valid business reason. The Company will not be required
to file more than three registration statements, other than on Form S-3. The
holders of Series A Preferred Stock will have the right to require the Company
to file up to two registration statements per year on Form S-3, provided the
anticipated aggregate offering price in each registration on Form S-3 equals
$1.0 million or more.
Messrs. Bernstein, Bizick, Grobstein and Stoops also have certain rights to
have their shares of Common Stock registered under the Securities Act.
The holders of Series A Preferred Stock are entitled to have the shares of
Class A Common Stock issued upon conversion of the Series A Preferred Stock
included in each registration statement filed on behalf of the Company or
other stockholders, subject to certain cut-back provisions. In the event of an
application of such cut-back provisions, the holders of Series A Preferred
Stock have a priority right to participate in such registration over Messrs.
Bernstein, Bizick, Grobstein or Stoops.
CO-SALE RIGHTS
Until a Qualified Public Offering, if Steven E. Bernstein proposes to sell
any of his shares of Class B Common Stock, he must first give the holders of
Series A Preferred Stock the opportunity to participate in such sale on a
basis proportionate to the amount of securities owned by Mr. Bernstein and
those owned by all holders of Series A Preferred Stock who wish to participate
in such sale (a "Co-Sale Right"). To participate, holders of Series A
Preferred Stock must convert their shares of Series A Preferred Stock into
Series B Preferred Stock and Class A Common Stock. Should Mr. Bernstein elect
to transfer any of his shares of Class B Common Stock to an Eligible Class B
Stockholder, such transfer will not trigger Co-Sale Rights. Any recipient of
shares of Class B Common Stock from Mr. Bernstein, however, will be subject to
these Co-Sale Right provisions.
80
<PAGE>
DESCRIPTION OF CREDIT FACILITY
A wholly owned subsidiary of SBACC, SBA Telecommunications, Inc.
("Telecommunications" or "the Borrower"), together with six wholly owned
subsidiaries of Telecommunications, SBA, Inc., SBA Leasing, Inc. ("Leasing"),
SBA Towers, Inc. ("Towers"), Communication Site Services, Inc. ("CSSI"), SBA
Communications International, Inc. ("International") and SBA Subsidiary
Holdings, Inc. ("Holdings," and together with SBA, Inc., Leasing, Towers, CSSI
and International, the "Subsidiaries") in June 1998 entered into the Credit
Facility with a group of banks and other financial institutions led by
BankBoston, as agent, and BancBoston Securities, as arranger (collectively,
the "Lenders"). The Credit Facility amended and restated a prior credit
facility entered into by the Company and the Lenders in September 1997. The
following is a summary of certain provisions of the Credit Facility. All
defined terms used herein have the meanings given to them in the Credit
Facility.
The Credit Facility provides for revolving credit loans of $55.0 million and
an additional $55.0 million incremental facility (the "Incremental Facility")
which may be made available within the initial 24 months of the Credit
Facility, each to fund the acquisition and construction of towers, to provide
working capital and for general corporate purposes. There is no availability
under the Credit Facility, other than for the issuance of letters of credit,
until the later of (i) September 30, 1998 or (ii) Telecommunications having on
a consolidated basis minimum adjusted EBITDA (as defined in the Credit
Facility) of $2.5 million. Availability thereafter is limited to $25 million
until such time as the Company owns, leases or manages 400 towers and has
expended all but $10 million of the proceeds from the Notes. Availability is
further limited at all times by certain financial covenants and ratios, and
other conditions. The Incremental Facility will be made on substantially
similar terms and conditions to the Credit Facility provided that Lenders
holding at least 60% of the facility approve the funding of the Incremental
Facility. The Incremental Facility will have a 24 month revolving period after
which any outstanding amounts will convert to a term loan and begin to
amortize.
The Credit Facility matures on June 29, 2005. In addition, the Credit
Facility provides for mandatory reduction of the loan commitment with the net
proceeds of all asset sales. In addition, if the Incremental Facility is
accessed and converted into a term loan, the Credit Facility provides for
mandatory prepayments with (i) 50% of Excess Cash Flow within one hundred
twenty (120) days from the fiscal year end and (ii) proceeds from certain
equity issuances (other than under employee stock option plans) that are not
used to acquire and construct towers.
Availability under the Credit Facility is subject to a reduction schedule
that commences on March 31, 2001. The schedule provides for a quarterly five
percent amortization rate with a balloon payment on June 29, 2005.
The Borrower's obligations under the Credit Facility are guaranteed by each
Subsidiary and secured by (i) substantially all the assets of the
Subsidiaries, (ii) a pledge of capital stock of all of the Subsidiaries and
(iii) perfected mortgages and landlord estoppel agreements for each material
property now and hereafter owned or leased and, in any case, towers
representing a minimum of 80% of total tower revenues. In addition, the Credit
Facility is guaranteed on a limited recourse basis by SBACC, limited in
recourse to the pledged capital stock of Telecommunications, as well as the
intercompany subordinated notes evidencing the contribution of the net
proceeds of the Private Offering from SBACC to Telecommunications as well as
any debt owing from Telecommunications and its subsidiaries. The capital stock
of SBACC is not pledged to secure the Credit Facility.
The loans under the Credit Facility will bear interest, at the Borrower's
option, at either (i) an "alternate base rate" equal to the greater of (A) the
rate of interest announced by BankBoston at the Boston office as the alternate
base rate or (B) the sum of 0.5% plus the federal funds rate or (ii) the
reserve "LIBOR rate," in each case plus an applicable margin ranging from 1.0%
to 3.25% (determined based on a leverage ratio.) Upon any default after the
expiration of any cure period and upon maturity, the applicable margin will
increase by 2.0% per annum.
81
<PAGE>
The Credit Facility contains a number of covenants that, among other things,
restrict the ability of the Borrower and the Subsidiaries to dispose of
assets, incur additional indebtedness, incur guaranty obligations, pay
dividends or make capital distributions, create liens on assets, make
investments, engage in international activities, make acquisitions, engage in
mergers or consolidations, engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. In addition, the
Credit Facility requires compliance with certain financial covenants,
including requiring the Borrower and the Subsidiaries to maintain a maximum
ratio of Total Debt to adjusted EBITDA, a minimum Fixed Charge Coverage Ratio,
a minimum ratio of Consolidated adjusted EBITDA to Pro Forma Interest, a
minimum level of Consolidated adjusted EBITDA and a minimum Pro Forma Fixed
Charge Coverage Ratio. SBACC does not expect that such covenants will
materially impact the ability of the Borrower and the Subsidiaries to operate
their respective businesses.
Pursuant to the terms of the Credit Facility, as long as no mature event of
default exists, the Borrower will be entitled to pay dividends or make
distributions to SBACC in order to permit SBACC to pay its expenses and to pay
cash interest on certain indebtedness of SBACC (including the Notes); provided
that the amount of such dividends or distributions does not exceed $2.5
million in any year ending on or prior to the fifth anniversary of the Private
Offering (such period being the period prior to the date that the Notes begin
to accrue cash interest). The Credit Facility also allows the Borrower to pay
dividends or distribute cash to SBACC to the extent required to pay taxes that
are due and owing and allocable to the Borrower and the Subsidiaries so long
as no payment default then exists.
The Credit Facility contains customary events of default, including the
failure to pay principal when due or any interest or other amount that becomes
due within three business days after the due date thereof, any representation
or warranty being made by the Borrower that is incorrect in any material
respect on or as of the date made, a default in the performance of any
negative covenants or a default in the performance of certain other covenants
or agreements for a period of thirty days, default in certain other
indebtedness, certain insolvency events and certain change of control events.
In addition, a default under the Indenture will result in a default under the
Credit Facility.
82
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the
"Indenture"), dated as of March 2, 1998 between SBACC and State Street Bank
and Trust Company, as trustee (the "Trustee"). The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be entitled to the benefits of the Indenture. The form and terms of the
Exchange Notes are the same as the form and terms of the Private Notes except
that (i) the Exchange Notes will have been registered under the Securities
Act, and, therefore, the Exchange Notes will not bear legends restricting the
transfer thereof and (ii) Holders of the Exchange Notes will not be entitled
to certain rights of Holders of Private Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The terms of the Exchange Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (the "TIA"), as in effect on the date of the Indenture. The following
is a summary of the material provisions of the Indenture. Copies of the
Indenture are available as set forth below under "--Additional Information."
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." As used below in this "Description of
Exchange Notes" section, the term "SBACC" refers only to SBA Communications
Corporation, but not any of its Subsidiaries.
The Notes will be general unsecured obligations of SBACC and will rank pari
passu in right of payment with all future unsecured senior Indebtedness of
SBACC. However, the operations of SBACC are conducted through its Subsidiaries
and, therefore, SBACC is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. SBACC's
Subsidiaries will not be guarantors of the Notes and are separate entities
with no obligation to make payments on the Notes or to make funds available
therefor. The Notes will be effectively subordinated to all Indebtedness
(including all obligations under the New Credit Facility) and other
liabilities and commitments (including trade payables and lease obligations)
of SBACC's Subsidiaries. Any right of SBACC to receive assets of any of its
Subsidiaries upon such Subsidiary's liquidation or reorganization (and the
consequent right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that Subsidiary's creditors,
except to the extent that SBACC is itself recognized as a creditor of such
Subsidiary, in which case the claims of SBACC would still be subordinate to
any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by SBACC. There can be no assurances that, if a
Default or Event of Default occurs, SBACC will have sufficient cash or other
assets available to meet SBACC's obligations, especially after repayment by
its Subsidiaries of their obligations. For other information relating to SBACC
and its Subsidiaries and the structural subordination of the Notes to
indebtedness and other obligations of such Subsidiaries, see "Risk Factors--
Holding Company Structure; Effective Subordination; Restrictions on Access to
Cash Flow of Subsidiaries."
As of the date of the Indenture, all of SBACC's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, SBACC is able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. See "--Certain
Definitions--Unrestricted Subsidiary." Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount at maturity to
$350.0 million and are scheduled to mature on March 1, 2008. The Indenture
permits additional issues of Notes in one or more series from time to time,
subject to the limitations set forth under "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." The Notes are being offered at
a substantial discount from their principal amount at maturity. Until March 1,
2003, no interest will accrue, but the Accreted Value will accrete
(representing the amortization of original issue discount) between the date of
original issuance and March 1, 2003, on a semiannual bond equivalent basis
using a 360-day year comprised of twelve 30-day months such that the Accreted
Value shall be equal to the full principal amount of the Notes on March 1,
2003 (the "Full Accretion Date"). The initial Accreted Value per $1,000 in
principal amount of Notes will be $558.50 (representing the original price at
which Notes were offered in the Private Offering).
83
<PAGE>
Beginning on March 1, 2003, interest on the Notes will accrue at the rate of
12% per annum and will be payable in U.S. dollars semiannually in arrears on
March 1 and September 1, commencing on September 1, 2003, to Holders of record
on the immediately preceding February 15 and August 15. Holders of record on
such record dates will become irrevocably entitled to receive accrued interest
in respect of the interest period during which such record date occurs as of
the close of business on such record date. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the date of original issuance. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. Principal,
premium, if any, and interest, on the Notes will be payable at the office or
agency of SBACC maintained for such purpose within the City and State of New
York or, at the option of SBACC, payment of interest may be made by check
mailed to the Holders of the Notes at their respective addresses set forth in
the register of Holders of Notes; provided that all payments of principal,
premium and interest with respect to Notes the Holders of which have given
wire transfer instructions to SBACC will be required to be made by wire
transfer of immediately available funds to the accounts in the United States
specified by the Holders thereof. Until otherwise designated by SBACC, SBACC's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at SBACC's
option prior to March 1, 2004. Thereafter, the Notes will be subject to
redemption at any time at the option of SBACC, in whole or in part, upon not
less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest thereon, if any, to the applicable redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed
during the twelve-month period beginning on March 1 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004.............................................................. 107.500%
2005.............................................................. 105.000
2006.............................................................. 102.500
2007 and thereafter............................................... 100.000
</TABLE>
At any time prior to March 1, 2001, SBACC may on any one or more occasions
redeem up to 20% of the aggregate principal amount at maturity of Notes issued
under the Indenture at a redemption price of 112% of the Accreted Value
thereof on the redemption date with the net cash proceeds of one or more
Public Equity Offerings and/or Strategic Equity Investments; provided that at
least 80% of the aggregate principal amount at maturity of Notes issued under
the Indenture remains outstanding immediately after the occurrence of such
redemption (excluding Notes held by SBACC or any of its Subsidiaries), and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such Public Equity Offering and/or Strategic Equity
Investment.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate,
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest
84
<PAGE>
ceases to accrue on Notes or portions of them called for redemption so long as
SBACC has deposited with the Paying Agent funds in satisfaction at the
applicable redemption price pursuant to the Indenture.
MANDATORY REDEMPTION
SBACC is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
PURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require SBACC to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon, if any (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date), to the date of purchase or, in the case of purchases of Notes
prior to the Full Accretion Date, at a purchase price equal to 101% of the
Accreted Value thereof on the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, SBACC will mail a
notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to purchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice.
On the Change of Control Payment Date, SBACC will, to the extent lawful, (1)
accept for payment all Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Notes or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee the Notes
so accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by SBACC. The
Paying Agent will promptly mail to each Holder of Notes so tendered the Change
of Control Payment for such Notes, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided that each such new Note will be in a principal amount of
$1,000 or an integral multiple thereof.
SBACC will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
applicable to any Change of Control Offer. To the extent that the provisions
of any such securities laws or securities regulations conflict with the
provisions of the covenant described above, SBACC will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the covenant described above by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
SBACC and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that SBACC would decide to do so in the future. Subject to the limitations
discussed below, SBACC could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would
not constitute a Change of Control under the Indenture, but that could
increase the amount of Indebtedness outstanding at such time or otherwise
affect SBACC's capital structure. Restrictions on the ability of SBACC to
incur additional Indebtedness are contained in the covenants described under
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," "--Certain Covenants--Liens" and "--Certain Covenants--Sale and
Leaseback Transactions." Such restrictions can be waived only with the consent
of the Holders of a majority in principal amount of the Notes then
outstanding. Except for the limitations contained in such covenants, however,
the Indenture does not contain any covenants or provisions that may afford
holders of the Notes protection in the event of certain highly leveraged
transactions.
85
<PAGE>
The New Credit Facility is expected to limit SBACC's access to the cash flow
of its Subsidiaries and, therefore, restrict SBACC's ability to purchase any
Notes. The New Credit Facility is also expected to provide that the occurrence
of certain change of control events with respect to SBACC will constitute a
default thereunder. In the event that a Change of Control occurs at a time
when SBACC's Subsidiaries are prohibited from making distributions to SBACC to
purchase Notes, SBACC could cause its Subsidiaries to seek the consent of the
lenders under the New Credit Facility to allow such distributions or could
attempt to refinance the borrowings that contain such prohibition. If SBACC
does not obtain such a consent or repay such borrowings, SBACC will remain
prohibited from purchasing Notes. In such case, SBACC's failure to purchase
tendered Notes would constitute an Event of Default under the Indenture which
would, in turn, constitute a default under the New Credit Facility. Future
indebtedness of SBACC and its Subsidiaries may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be purchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require SBACC to purchase the
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such purchase on
SBACC. Finally, SBACC's ability to pay cash to the Holders of Notes following
the occurrence of a Change of Control may be limited by SBACC's then existing
financial resources, including its ability to access the cash flow of its
Subsidiaries. See "Risk Factors--Repurchase of the Notes upon a Change of
Control" and "Risk Factors--Holding Company Structure; Effective
Subordination; Restrictions on Access to Cash Flow of Subsidiaries." There can
be no assurance that sufficient funds will be available when necessary to make
any required purchases.
SBACC is not required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by SBACC and purchases
all Notes validly tendered and not withdrawn under such Change of Control
Offer. The provisions under the Indenture relative to SBACC's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may
be waived or modified with the written consent of the Holders of a majority in
principal amount of the Notes then outstanding.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of SBACC and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
SBACC to purchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of SBACC and
its Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) SBACC (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by SBACC or such Restricted Subsidiary is in the form of (a) cash or
Cash Equivalents, (b) Tower Assets or (c) any combination of the foregoing;
provided that the amount of (x) any liabilities (as shown on SBACC's or such
Restricted Subsidiary's most recent balance sheet) of SBACC or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases SBACC or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by SBACC
or any such Restricted Subsidiary from such transferee that are converted by
SBACC or such Restricted Subsidiary into cash within 20 days of the applicable
Asset Sale (to the extent of the cash received) shall be deemed to be cash for
purposes of this provision.
86
<PAGE>
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
SBACC or the applicable Restricted Subsidiary may apply such Net Proceeds to:
(a) reduce (which reduction may be temporary) Indebtedness under a Credit
Facility; (b) reduce other Indebtedness of any of SBACC's Restricted
Subsidiaries; (c) acquire all or substantially all the assets of a Permitted
Business; (d) acquire Voting Stock of a Permitted Business from a Person that
is not a Subsidiary of SBACC; provided, that, after giving effect thereto,
SBACC or its Restricted Subsidiary owns a majority of such Voting Stock; or
(e) make a capital expenditure or acquire other long-term assets that are used
or useful in a Permitted Business. Pending the final application of any such
Net Proceeds, SBACC may invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, SBACC will be required to make an offer to all
Holders of Notes and all holders of other senior Indebtedness of SBACC
containing provisions similar to those set forth in the Indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets (an
"Asset Sale Offer") to purchase, on a pro rata basis, the maximum principal
amount (or accreted value, as applicable) of Notes and such other senior
Indebtedness of SBACC that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount (or
accreted value, as applicable) thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the procedures set forth in the
Indenture and such other senior Indebtedness of SBACC. To the extent that any
Excess Proceeds remain after consummation of an Asset Sale Offer, SBACC may
use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes and such other senior
Indebtedness of SBACC tendered into such Asset Sale Offer surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and such other senior Indebtedness to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of SBACC's
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving SBACC) or to the direct or indirect
holders of SBACC's Equity Interests in their capacity as such (other than
dividends or distributions payable in Qualified Equity Interests or to SBACC
or a Restricted Subsidiary of SBACC); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection with
any merger or consolidation involving SBACC) any Equity Interests of SBACC;
(iii) designate any Restricted Subsidiary as an Unrestricted Subsidiary; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default shall have occurred and be continuing or would occur as a
consequence thereof; and
(b) SBACC would have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Adjusted Consolidated Cash Flow Ratio
test set forth in the first paragraph of the covenant described below under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by SBACC and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii) and (iii) of the next succeeding paragraph), is less than the
sum, without duplication, of (i) 50% of the Consolidated Net Income of
SBACC (or, in the event such Consolidated Net Income shall be a deficit,
minus 100% of such deficit) accrued subsequent to the Issue Date to the
most recent date for which financial information is available to SBACC,
taken as one accounting period, plus (ii) 100% of the aggregate net cash
proceeds received by SBACC (from persons other than Subsidiaries) since the
Issue Date as a contribution to its common equity capital or from the issue
and sale of Qualified Equity
87
<PAGE>
Interests (except to the extent such net cash proceeds are used to incur
new Indebtedness outstanding pursuant to clause (x) of the second paragraph
of the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock") or from the issue and sale
(other than to a Subsidiary of SBACC) of Disqualified Stock or debt
securities of SBACC that have been converted into Qualified Equity
Interests (provided that any net cash proceeds that are used pursuant to
the second paragraph under "Optional Redemption" shall not be so included),
plus (iii) to the extent that any Unrestricted Subsidiary of SBACC is
redesignated as a Restricted Subsidiary after the Issue Date, the fair
market value of such Subsidiary as of the date of such redesignation, plus
(iv) to the extent not included in the Adjusted Consolidated Cash Flow
referred to in clause (i), 100% of the net cash proceeds received by SBACC
or a Restricted Subsidiary from (x) the sale or other disposition of
Restricted Investments made by SBACC or any Restricted Subsidiary after the
Issue Date or (y) the sale of the Capital Stock of any Unrestricted
Subsidiary by the Company or any Restricted Subsidiary or the sale of all
or substantially all of the assets of any Unrestricted Subsidiary to the
extent that a liquidating dividend or similar distribution is paid to the
Company or any Restricted Subsidiary from the proceeds of such asset sale.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; or (ii) the making of any Investment or the redemption or
repurchase of any Equity Interests in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of
SBACC) of, any Qualified Equity Interests; provided that such net cash
proceeds are not used to incur new Indebtedness pursuant to clause (x) of the
second paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock" or pursuant to the
second paragraph under "Optional Redemption"; and provided further that, in
each such case, the amount of any such net cash proceeds that are so utilized
shall be excluded from clause (c)(ii) of the preceding paragraph; or (iii) the
repurchase, redemption or other acquisition or retirement for value of Equity
Interests of SBACC held by any member of SBACC's management; provided that the
aggregate amount expended pursuant to this clause (iii) shall not exceed
$500,000 in any twelve-month period.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such Subsidiary, after giving effect to such
designation, would meet the requirements of the definition of "Unrestricted
Subsidiary." SBACC will not, and will not permit any of its Subsidiaries to,
enter into, or suffer to exist, any transaction or arrangement, with a
Subsidiary that is a Restricted Subsidiary that would be inconsistent with or
violate the terms set forth in the definition of "Unrestricted Subsidiary."
The amount of all Restricted Payments (other than cash), including the
amount of the Restricted Payment that will be deemed to occur upon the
designation of a Subsidiary as an Unrestricted Subsidiary, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by SBACC or the applicable
Restricted Subsidiary, or of the Company's proportionate interest in the
Subsidiary so to be designated as the case may be, pursuant to the Restricted
Payment.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, directly, or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that SBACC will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that SBACC may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
and SBACC's Restricted Subsidiaries may incur Eligible Indebtedness if, in
each case, (i) no Default shall have occurred and be continuing or would occur
as a consequence thereof and (ii) SBACC's Debt to Adjusted Consolidated Cash
Flow Ratio at the time of incurrence of such Indebtedness or the issuance of
such Disqualified Stock, after giving pro forma effect to such incurrence or
issuance as of such date and to the use of proceeds therefrom would have been
no greater than (a) 6.5 to 1.0 if
88
<PAGE>
such incurrence or issuance is prior to the first anniversary of the Issue
Date; (b) 6.0 to 1.0 if such incurrence or issuance is on or after the first
anniversary of the Issue Date but prior to the second anniversary of the Issue
Date; (c) 5.5 to 1.0 if such incurrence or issuance is on or after the second
anniversary of the Issue Date; and (d) 6.0 to 1.0 if a Public Equity Offering
has occurred and a ratio more restrictive to the Company would otherwise be in
effect.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt") if no Default shall have occurred and be continuing or would
occur as a consequence thereof:
(i) the incurrence by SBACC or any of its Restricted Subsidiaries of
Indebtedness under one or more Credit Facilities or through the issuance of
Seller Paper in an aggregate principal amount (with letters of credit being
deemed to have an aggregate principal amount equal to the maximum potential
liability of SBACC and its Restricted Subsidiaries thereunder) at any one
time outstanding not to exceed $125.0 million less the aggregate amount of
commitment reductions under Credit Facilities resulting from the
application of proceeds of Asset Sales since the Issue Date; provided,
however, that the aggregate principal amount of Seller Paper at any one
time outstanding under this clause (i) shall not exceed $50.0 million;
(ii) the incurrence by SBACC and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by SBACC of Indebtedness represented by the Notes
issued on the Issue Date, and the New Notes;
(iv) the incurrence by SBACC or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of SBACC
or such Restricted Subsidiary, in an aggregate principal amount, including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (iv), not
to exceed $5.0 million at any one time outstanding;
(v) the incurrence by SBACC or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness (other than intercompany Indebtedness) that was permitted by
the Indenture to be incurred under the first paragraph hereof or clause
(ii) or (iii) or this clause (v) of this paragraph;
(vi) the incurrence by SBACC or any of its Restricted Subsidiaries of
intercompany Indebtedness or intercompany preferred stock between or among
SBACC and any of its Restricted Subsidiaries; provided, however, that (i)
if SBACC is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness or
preferred stock being held by a Person other than SBACC or a Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness or
preferred stock to a Person that is not either SBACC or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness or preferred stock by SBACC or such Restricted
Subsidiary, as the case may be;
(vii) the incurrence by SBACC or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the Indenture to be outstanding or currency
exchange risk or otherwise entered into for bona fide purposes designed to
protect against interest rate or currency exchange risk and not for
speculative purposes;
(viii) the guarantee by SBACC or any of its Restricted Subsidiaries of
Indebtedness of SBACC or a Restricted Subsidiary of SBACC that was
permitted to be incurred by another provision of the Indenture;
(ix) the incurrence by SBACC or any of its Restricted Subsidiaries of
Acquired Debt in connection with the acquisition of assets or a new
Subsidiary and the incurrence by SBACC's Restricted Subsidiaries
89
<PAGE>
of Indebtedness as a result of the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary; provided that, in the case of any
such incurrence of Acquired Debt, such Acquired Debt was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by SBACC or one of its Restricted Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by
SBACC or one of its Restricted Subsidiaries; and provided further that, in
the case of any incurrence pursuant to this clause (ix), SBACC would have
been permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Debt) immediately after such incurrence pursuant to the Debt
to Adjusted Consolidated Cash Flow Ratio test set forth in the first
paragraph of this covenant, calculated as if such incurrence had occurred
as of the actual date of incurrence and the related acquisition or
designation (as applicable) had occurred at the beginning of the most
recently ended four full fiscal quarter period of SBACC for which internal
financial statements are available;
(x) the incurrence by SBACC of Indebtedness not to exceed, at any one
time outstanding, 2.0 times the aggregate net cash proceeds from the
issuance and sale, other than to a Subsidiary, of Equity Interests (other
than Disqualified Stock) of SBACC since the Issue Date (less the amount of
such proceeds used to make Restricted Payments as provided in clause
(c)(ii) of the first paragraph or clause (ii) of the second paragraph of
the covenant described above under the caption "--Restricted Payments");
provided that such Indebtedness does not mature prior to the Stated
Maturity of the Notes and the Weighted Average Life to Maturity of such
Indebtedness is longer than that of the Notes;
(xi) the issuance by Restricted Subsidiaries of Permitted Subsidiary
Equity Interests; and
(xii) the incurrence by SBACC or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed $5.0 million.
The Indenture provides that (i) SBACC will not incur any Indebtedness that
is contractually subordinated in right of payment to any other Indebtedness of
SBACC unless such Indebtedness is also contractually subordinated in right of
payment to the Notes on substantially identical terms; provided, however, that
no Indebtedness of SBACC shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of SBACC solely by virtue of being
unsecured; and (ii) SBACC will not permit any of its Unrestricted Subsidiaries
to incur any Indebtedness other than Non-Recourse Debt; and (iii) Restricted
Subsidiaries may not issue or sell, and the Company may not permit any
Restricted Subsidiary to have outstanding, any Equity Interests (other than
(x) Equity Interests held by the Company or its Restricted Subsidiaries or (y)
Permitted Subsidiary Equity Interests).
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness or preferred stock meets the criteria of more than one
of the categories of Permitted Debt described in clauses (i) through (xii) in
the second paragraph of this covenant or is entitled to be incurred pursuant
to the first paragraph of this covenant, SBACC shall, in its sole discretion,
classify such item of Indebtedness in any manner that complies with this
covenant. Accrual of interest, accretion or amortization of original issue
discount and the payment of interest in the form of additional Indebtedness
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
Liens
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign
or convey any right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual
90
<PAGE>
encumbrance or restriction on the ability of any Restricted Subsidiary to
(i)(a) pay dividends or make any other distributions to SBACC or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any indebtedness owed to SBACC or any of its Restricted Subsidiaries, (ii)
make loans or advances to SBACC or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to SBACC or any of its Restricted
Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) any agreement
or instrument governing Existing Indebtedness as in effect on the Issue Date
or as amended, modified, restated or renewed in any manner not materially more
restrictive, taken as a whole, (b) the Indenture, the Notes or the New Credit
Facility or any other Credit Facility (so long as such other Credit Facility
contains restrictions that are not materially more restrictive, taken as a
whole, than those described in the Commitment Letter), (c) applicable law, (d)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
SBACC or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (e) by reason of
customary non-assignment provisions in leases or licenses or other contracts
entered into in the ordinary course of business, (f) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (g) the provisions of agreements governing Indebtedness
incurred pursuant to clause (iv) of the second paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock," (h) any agreement for the sale of a Restricted Subsidiary
that restricts that Restricted Subsidiary pending its sale, (i) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are not
materially more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced, (j) Liens permitted to
be incurred pursuant to the provisions of the covenant described under the
caption "--Liens" that limit the right of the debtor to transfer the assets
subject to such Liens, (k) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements and (l) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary course of
business.
Merger, Consolidation or Sale of Assets
The Indenture provides that SBACC may not consolidate or merge with or into
(whether or not SBACC is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) SBACC is the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or
merger (if other than SBACC) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the entity or Person formed by or surviving
any such consolidation or merger (if other than SBACC) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of SBACC under
the Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; and (iii) immediately after such
transaction no Default exists.
Transactions with Affiliates
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or Guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to SBACC or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by SBACC or such
Restricted Subsidiary with an unrelated Person and (ii) SBACC delivers to the
Trustee (a) with respect to any Affiliate
91
<PAGE>
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing. Notwithstanding the
foregoing, the following items shall not be deemed to be Affiliate
Transactions: (i) any employment arrangements with any executive officer of
SBACC or a Restricted Subsidiary that is entered into by SBACC or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
compensation arrangements of similarly situated executive officers at
comparable companies engaged in Permitted Businesses, (ii) transactions
between or among SBACC and/or its Restricted Subsidiaries, (iii) payment of
directors' fees in an aggregate annual amount not to exceed $25,000 per
Person, (iv) Restricted Payments and Permitted Investments that are permitted
by the provisions of the Indenture described above under the caption "--
Restricted Payments" and (v) the issuance or sale of Equity Interests (other
than Disqualified Stock) of SBACC.
Sale and Leaseback Transactions
The Indenture provides that SBACC will not, and will not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction (as
seller); provided that SBACC or any of its Restricted Subsidiaries may enter
into a sale and leaseback transaction if (i) SBACC or such Restricted
Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Debt to Adjusted Consolidated Cash Flow Ratio test set forth
in the first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) incurred a
Lien to secure such Indebtedness pursuant to the covenant described above
under the caption "--Liens," (ii) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors) of the property that is
the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and SBACC
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "--Repurchase at the Option of Holders--
Asset Sales."
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that SBACC will not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee or pledge any assets to secure the
payment of any Indebtedness of SBACC (except Indebtedness of SBACC under a
guarantee of Indebtedness of one or more of its Restricted Subsidiaries)
unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Notes by such Restricted Subsidiary, which Guarantee shall be
senior to or pari passu with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness. Notwithstanding the foregoing, any
such Guarantee by a Restricted Subsidiary of the Notes shall provide by its
terms that it shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person other than a
Restricted Subsidiary of SBACC, of all of SBACC's stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of
the Indenture. The form of such Guarantee will be attached as an exhibit to
the Indenture. The Indenture allows the Company to designate current or future
subsidiaries as Unrestricted Subsidiaries. See "--Certain Definitions--
Unrestricted Subsidiary."
Business Activities
The Indenture provides that SBACC will not, and will not permit any
Restricted Subsidiary to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to SBACC and its
Restricted Subsidiaries taken as a whole.
92
<PAGE>
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, SBACC will furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if SBACC
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of SBACC and its consolidated
Subsidiaries (showing in reasonable detail, in the footnotes to the financial
statements and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (in each case to the extent not prohibited by the
Commission's rules and regulations), (a) the financial condition and results
of operations of SBACC and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of SBACC and (b) the Tower Cash Flow for the most recently completed fiscal
quarter and the Adjusted Consolidated Cash Flow for the most recently
completed four-quarter period) and, with respect to the annual information
only, a report thereon by SBACC's certified independent accountants, and (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if SBACC were required to file such reports, in each case within the
time periods specified in the Commission's rules and regulations; provided
that the report for the period ended December 31, 1997 need not be furnished
until April 15, 1998. In addition, following the consummation of the exchange
offer contemplated by the Registration Rights Agreement, whether or not
required by the rules and regulations of the Commission, SBACC will file a
copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, SBACC will, for so long as any Notes remain
outstanding, furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due of the principal of or premium, if
any, on the Notes; (iii) failure by SBACC or any of its Subsidiaries to comply
with the provisions described under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" or failure by SBACC to consummate a Change of
Control Offer or Asset Sale Offer in accordance with the provisions of the
Indenture applicable thereto; (iv) failure by SBACC or any of its Subsidiaries
for 30 days after notice to comply with any of its other agreements in the
Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by SBACC or any of its
Significant Subsidiaries (or the payment of which is guaranteed by SBACC or
any of its Significant Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (a)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) failure by SBACC or any of its Significant
Subsidiaries to pay final judgments aggregating in excess of $5.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days; or
(vii) certain events of bankruptcy or insolvency with respect to SBACC or any
of its Restricted Subsidiaries that is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount at maturity of the then outstanding Notes
may declare all of the Notes to be due and payable immediately. Upon any such
declaration, the principal of (or, if prior to the Full Accretion Date, the
Accreted Value of) and accrued and unpaid interest, if any, shall become due
and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, with
93
<PAGE>
respect to SBACC, all outstanding Notes will become due and payable without
further action or notice. Holders of the Notes may not enforce the Indenture
or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount at maturity of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power.
The Holders of a majority in aggregate principal amount at maturity of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its trust officers determines
that withholding notice is not opposed to the interest of the holders of the
Notes. In addition, SBACC is required to deliver to the Trustee, within 90
days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year.
SBACC is also required to deliver to the Trustee, forthwith after the
occurrence thereof, written notice of any event that would constitute a
Default, the status thereof and what action SBACC is taking or proposes to
take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of SBACC, as
such, shall have any liability for any obligations of SBACC under the Notes,
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SBACC may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below,
(ii) SBACC's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and SBACC's obligations in connection therewith and
(iv) the Legal Defeasance provisions of the Indenture. In addition, SBACC may,
at its option and at any time, elect to have the obligations of SBACC released
with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment and bankruptcy, receivership, rehabilitation and
insolvency events with respect to SBACC) described under "--Events of Default
and Remedies" will no longer constitute an Event of Default with respect to
the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
SBACC must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in United States dollars, noncallable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and SBACC must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, SBACC shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) SBACC has received from, or there
94
<PAGE>
has been published by, the Internal Revenue Service a ruling or (B) since the
date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, SBACC shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit) or insofar as Events of Default from bankruptcy or insolvency
events with respect to SBACC are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which SBACC or any of its Restricted Subsidiaries is a party or
by which SBACC or any of its Restricted Subsidiaries is bound; (vi) SBACC must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) SBACC must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by
SBACC with the intent of preferring the Holders of Notes over the other
creditors of SBACC with the intent of defeating, hindering, delaying or
defrauding creditors of SBACC or others; and (viii) SBACC must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and SBACC may require
a Holder to pay any taxes and fees required by law. SBACC is not required to
transfer or exchange any Note selected for redemption. Also, SBACC is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least 66 2/3 of the aggregate principal amount at maturity of the Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of a majority in principal
amount at maturity of the then outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (specifically excluding the provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default
95
<PAGE>
that resulted from such acceleration), (v) make any Note payable in money
other than that stated in the Notes, (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any, or interest on
the Notes, (vii) waive a redemption payment with respect to any Note
(specifically excluding the payment required by one of the covenants described
above under the caption "Repurchase at the Option of Holders"), (viii) except
as provided under the caption "Legal Defeasance and Covenant Defeasance" or in
accordance with the terms of any Subsidiary Guarantee, release a Subsidiary
Guarantor from its obligations under its Subsidiary Guarantee or make any
change in a Subsidiary Guarantee that would adversely affect the Holders of
the Notes, (ix) provide for contractual subordination of the Notes or (x) make
any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
SBACC and the Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of SBACC's obligations to Holders of Notes in the case of a merger
or consolidation, to make any change that would provide any additional rights
or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of SBACC, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the decree of care of a prudent man in
the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination the sum of (a) the
initial Accreted Value (which is $558.50 per $1,000 in principal amount at
maturity of Notes) and (b) the portion of the excess of the principal amount
at maturity of each Note over such initial Accreted Value which shall have
been amortized through such date, such amount to be so amortized on a daily
basis and compounded semiannually on each March 1 and September 1 at the rate
of 12% per annum from the date of original issuance of the Notes through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months. The Accreted Value of any Note on or after the Full Accretion Date
shall be equal to 100% of its stated principal amount.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
96
<PAGE>
"Adjusted Consolidated Cash Flow" has the meaning given to such term in the
definition of "Debt to Adjusted Consolidated Cash Flow Ratio."
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise,
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback, as seller), in any case, outside of the ordinary course of business
provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of SBACC and its Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "--Purchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "Purchase at the Option of
Holders--Merger, Consolidation or Sale of Assets" and not by the provisions of
the Asset Sale covenant and (ii) the issue or sale by SBACC or any of its
Restricted Subsidiaries of Equity Interests of any of SBACC's Subsidiaries
(other than (x) directors' qualifying shares or shares required by applicable
law to be held by a Person other than SBACC or a Restricted Subsidiary or (y)
Permitted Subsidiary Equity Interests), in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $2.0 million or (b) for net
proceeds in excess of $2.0 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of
assets by SBACC to a Restricted Subsidiary or by a Restricted Subsidiary to
SBACC or to another Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Subsidiary to SBACC or to another Restricted Subsidiary, (iii)
a Restricted Payment or Permitted Investment that is permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments,"
(iv) grants of leases or licenses in the ordinary course of business and (v)
disposals of Cash Equivalents.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Broker-Dealer" means any broker or dealer registered under the Exchange
Act.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than 12 months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of 12 months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding 12
months and overnight
97
<PAGE>
bank deposits, in each case with any lender party to the New Credit Facility
or with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group and in each
case maturing within 12 months after the date of acquisition and (vi) money
market funds at least 95% of the assets of which constitute Cash Equivalents
of the kinds described in clauses (i)-(v) of this definition.
"Change of Control" means the occurrence of any of the following; (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of SBACC and its Restricted Subsidiaries,
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Principal or a Related Party of a Principal;
(ii) the adoption of a plan relating to the liquidation or dissolution of
SBACC; (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right
to acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Voting Stock of SBACC (measured by voting power rather
than number of shares); (iv) the first day on which a majority of the members
of the Board of Directors of SBACC are not Continuing Directors; or (v) SBACC
consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, SBACC, in any such event pursuant
to a transaction in which any of the outstanding Voting Stock of SBACC is
converted into or exchanged for cash, securities or other property, other than
any such transaction where (x) the Voting, Stock of SBACC outstanding
immediately prior to such transaction is converted into or exchanged for
Voting Stock (other than Disqualified Stock) of the surviving, or transferee
Person constituting a majority of the outstanding, shares of such Voting Stock
of such surviving, or transferee Person (immediately after giving effect to
such issuance) or (y) the Principals and their Related Parties own a majority
of such outstanding, shares after such transaction.
"Commitment Letter" means that certain Commitment Letter and related Term
Sheet dated as of February 3, 1998 by and among BankBoston, N.A. as agent,
BancBoston Securities Inc. as arranger and SBA Communications Corporation.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, (i) provision
for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period to the extent that such provision for taxes was
included in computing, such Consolidated Net Income, plus (ii) consolidated
interest expense ("Consolidated Interest Expense") of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iii) depreciation, amortization (including amortization of
goodwill and other intangibles and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period)) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income, minus (iv) non-cash items increasing such
Consolidated Net Income for such period (excluding any items that were accrued
in the ordinary course of business), in each case on a consolidated basis and
determined in accordance with GAAP.
98
<PAGE>
"Consolidated Indebtedness" means, with respect to any Person as of any date
of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the
total amount of Indebtedness of any other Person, to the extent that such
Indebtedness has been Guaranteed by the referent Person or one or more of its
Restricted Subsidiaries, plus (iii) the aggregate liquidation value of all
Disqualified Stock of such Person and all preferred stock of Restricted
Subsidiaries of such Person (other than Permitted Subsidiary Equity
Interests), in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Assets" means, with respect to SBACC, the total consolidated
assets of SBACC and its Restricted Subsidiaries, as shown on the most recent
internal consolidated balance sheet of SBACC and such Restricted Subsidiaries
calculated on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" has the meaning given to such term in the
definition of Consolidated Cash Flow.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person (other than
SBACC) that is not a Restricted Subsidiary of SBACC or that is accounted for
by the equity method of accounting shall be excluded, except that for purposes
of determining compliance with the covenant described unless "Certain
Covenants--Restricted Payments" above, such Net Income shall be included but
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded, (iii) the cumulative effect
of a change in accounting principles shall be excluded, (iv) the Net Income
(but not loss) of any Unrestricted Subsidiary shall be excluded whether or not
distributed to SBACC or one of its Restricted Subsidiaries or whether or not
otherwise included pursuant to clause (i) and (v) any deferred financing costs
written off in connection with the early extinguishment of any Indebtedness
shall be added back to Consolidated Net income to the extent otherwise
deducted therefrom.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of SBACC who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) is a designee of a Principal or was nominated
by a Principal.
"Credit Facility" means one or more senior debt facilities (including,
without limitation, the New Credit Facility) or commercial paper facilities
with banks or other institutional lenders providing for revolving credit
loans, term loans or letters of credit, in each case, as amended, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to
time (including subsequent refinancings); provided, however, that the terms
and conditions in any such facility (including the New Credit Facility)
relating to the ability of Subsidiaries of SBACC to pay dividends or make
distributions to SBACC shall not, taken as a whole, be materially more
restrictive than those described in the Commitment Letter.
"Debt to Adjusted Consolidated Cash Flow Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated Indebtedness of SBACC as of
such date to (b) the sum of (1) the Consolidated Cash Flow of SBACC for the
four most recent full fiscal quarters ending immediately prior to such date
for which internal financial statements are available, less SBACC's Tower Cash
Flow for such four-quarter period, plus (2) the product of four times SBACC's
Tower Cash Flow for the most recent quarterly period (such sum being, referred
to as "Adjusted Consolidated Cash Flow"), in each case determined on a pro
forma basis after giving effect to all acquisitions or dispositions of assets
made by SBACC and its Subsidiaries from the beginning of such four-quarter
period through and including such date of determination (including any related
financing transactions) as if such acquisitions and dispositions had occurred
at the beginning of such four-quarter period. For purposes of
99
<PAGE>
making the computation referred to above, (i) acquisitions that have been made
by SBACC or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (ii) of the proviso set forth in
the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to Calculation Date,
shall be excluded.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, in each case, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require SBACC to repurchase such Capital Stock upon
the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that SBACC may
not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described
under the caption "Certain Covenants--Restricted Payments."
"Eligible Indebtedness" means any Indebtedness for money borrowed incurred
by one or more Restricted Subsidiaries of SBACC, provided that such
Indebtedness for money borrowed is contractually pari passu with and secured
equally and ratably with all other Indebtedness for money borrowed of such
Restricted Subsidiaries, including, without limitation, Indebtedness
outstanding under the New Credit Facility.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock) (it being understood
that Permitted Subsidiary Equity Interests shall not be deemed Equity
Interests of SBACC until they have been converted into Equity Interests of
SBACC in accordance with the terms thereof).
"Exchange Offer" means exchange and issuance by SBACC of a principal amount
of New Notes (which shall be registered pursuant to the Exchange Offer
Registration Statement) equal to the outstanding principal amount of Notes
that are tendered by such Holders in connection with such exchange and
issuance.
"Exchange Offer Registration Statement" means the Registration Statement
relating to the Exchange Offer, including the related Prospectus.
"Existing Indebtedness" means Indebtedness of SBACC and its Subsidiaries
(other than Indebtedness under the Credit Facility) in existence on the
original issuance of the Notes, until such amounts are repaid.
"fair market value" means the price which could be negotiated in an arm's
length, free market transaction, for cash, between a willing and able seller
and a willing and able buyer, neither of whom is under undue pressure, or
compulsion to complete the transaction. Fair market value shall be determined
by the Board of Directors of SBACC acting reasonably and in good faith,
evidenced by a resolution of the Company's Board of Directors delivered to the
Trustee; provided, however, that fair market value shall be determined by a
nationally recognized independent investment banking, accounting or appraisal
firm for any transaction which is reasonably likely to exceed $10 million in
value.
"Full Accretion Date" means March 1, 2003.
100
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements relating to or based upon fluctuations in interest rates or
currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person whether
or not such Indebtedness is assumed by such Person (the amount of such
Indebtedness as of any date being deemed to be the lesser of the value of such
property or assets as of such date or the principal amount of such
Indebtedness of such other Person so secured) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness. In calculating the amount of Indebtedness outstanding,
letters of credit supporting obligations otherwise included as Indebtedness
(and reimbursement obligations with respect to such letters of credit to the
extent supporting obligations otherwise included in Indebtedness) shall not be
included.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If SBACC or any Restricted Subsidiary of SBACC sells or otherwise disposes of
all Equity Interests of any direct or indirect Subsidiary of SBACC or a
Restricted Subsidiary of SBACC issues any of its Equity Interests such that,
in each case, after giving effect to any such sale or disposition, such Person
is no longer a Restricted Subsidiary of SBACC, SBACC shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Issue Date" means March 2, 1998, the date of original issuance of the
Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
101
<PAGE>
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or
loss, together with any related provision for taxes on such gain or loss,
realized in connection with (a) any asset sale outside the ordinary course of
business (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary gain or loss, together with any related provision for taxes on
such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by SBACC or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of (i) the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, (ii) taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), (iii) amounts required to be applied to the
repayment of Indebtedness (other than Indebtedness under a Credit Facility)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, (iv) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such Asset
Sale, (v) the deduction of appropriate amounts provided by the seller as a
reserve in accordance with GAAP against any liabilities associated with the
assets disposed of in such Asset Sale and retained by SBACC or any Restricted
Subsidiary after such Asset Sale and (vi) without duplication, any reserves
that SBACC's Board of Directors determines in good faith should be made in
respect of the sale price of such asset or assets for post closing
adjustments; provided that in the case of any reversal of any reserve referred
to in clause (v) or (vi) above, the amount so reserved shall be deemed to be
Net Proceeds from an Asset Sale as of the date of such reversal.
"New Credit Facility" means that certain loan agreement to be entered into
by SBA Telecommunications, Inc., on terms substantially equivalent to those
described in the Commitment Letter, and including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time
(including subsequent refinancings).
"New Notes" means SBACC's 12% Senior Discount Notes due 2008 to be issued
pursuant to the Indenture (i) in the Exchange Offer or (ii) as contemplated by
the Registration Rights Agreement.
"Non-Recourse Debt" means Indebtedness (i) as to which neither SBACC nor any
of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of SBACC
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its stated maturity; and (iii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or assets of
SBACC or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Payment Restriction" means, with respect to a subsidiary of any Person, any
encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such Person or any other subsidiary of such Person, (b) make loans or advances
to such
102
<PAGE>
Person or any other subsidiary of such Person, or (ii) such Person or any
other subsidiary of such Person to receive or retain any such (a) dividends,
distributions or payments, (b) loans or advances or (c) transfer of properties
or assets.
"Permitted Business" means any business conducted by SBACC and its
Restricted Subsidiaries on the date of the Indenture and any other business
related, ancillary or complementary to any such business.
"Permitted Investments" means (a) any Investment in SBACC or in a Restricted
Subsidiary of SBACC; (b) any Investment in Cash Equivalents; (c) any
Investment by SBACC or any Restricted Subsidiary of SBACC in a Person, if as a
result of such Investment (i) such Person becomes a Restricted Subsidiary of
SBACC or (ii) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, SBACC or a Restricted Subsidiary of SBACC; (d) any Restricted Investment
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "Repurchase at the Option of Holders--Asset Sales," (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of SBACC; (f) receivables created in the
ordinary course of business; (g) loans or advances to employees made in the
ordinary course of business not to exceed $5.0 million at any one time
outstanding; (h) securities and other assets received in settlement of trade
debts or other claims arising in the ordinary course of business; and (i)
other Investments in Permitted Businesses not to exceed 5% of SBACC's
Consolidated Assets at any one time outstanding (each such Investment being
measured as of the date made and without giving effect to subsequent changes
in value).
"Permitted Liens" means (i) Liens securing Eligible Indebtedness of SBACC
under one or more Credit Facilities that was permitted by the terms of the
Indenture to be incurred; (ii) Liens securing any Indebtedness of any of
SBACC's Restricted Subsidiaries that was permitted by the terms of the
Indenture to be incurred; (iii) Liens in favor of SBACC; (iv) Liens existing
on the Issue Date; (v) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (vi) Liens securing
Indebtedness permitted to be incurred under clause (iv) of the second
paragraph of the covenant described above under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(vii) Liens incurred in the ordinary course of business of SBACC or any
Restricted Subsidiary of SBACC with respect to obligations that do not exceed
$10 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by SBACC or such
Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of SBACC or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of SBACC or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
initial accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
expenses and prepayment premiums incurred in connection therewith), (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded, (iii) if
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, and (iv) such Indebtedness is incurred either
by SBACC or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
103
<PAGE>
"Permitted Subsidiary Equity Interests" means Equity Interests of Restricted
Subsidiaries of SBACC that (i) will automatically convert into common stock of
SBACC in the event of a Public Equity Offering of SBACC or the occurrence of
an Event of Default under the Indenture, (ii) does not entitle the holder to
any registration rights, (iii) is issued as consideration in a Tower Asset
Acquisition and (iv) does not provide for any dividends other than in
additional shares of such Equity Interests.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Principal" means Steven E. Bernstein.
"Prospectus" means the prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"Public Equity Offering" means an underwritten primary public offering of
common stock of SBACC pursuant to an effective registration statement under
the Securities Act.
"Qualified Equity Interests" means Equity Interests of SBACC other than
Disqualified Stock.
"Registration Statement" means any registration statement of SBACC relating
to (a) an offering of New Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, in each case, (i) that is filed pursuant to the
provisions of the Registration Rights Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary of such Principal or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, members, partners, owners or Persons beneficially holding an 80%
or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the relevant
Person that is not an Unrestricted Subsidiary.
"Seller Paper" means Indebtedness incurred by SBACC or any of its Restricted
Subsidiaries as consideration in a Tower Asset Acquisition.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person that would be a "significant subsidiary" of such
Person as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof,
except that all references to "10 percent" in Rule 1-02(w)(1), (2) and (3)
shall mean "5 percent."
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
104
<PAGE>
"Strategic Equity Investment" means a cash contribution to the common equity
capital of SBACC or a purchase from SBACC of common Equity Interests (other
than Disqualified Stock), in either case by or from a Strategic Equity
Investor and for aggregate cash consideration of at least $10.0 million.
"Strategic Equity Investor" means a Person engaged in a Permitted Business
whose Total Equity Market Capitalization exceeds $1 billion.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (i) the product of (A) the aggregate number of
outstanding primary shares of common stock of such Person on such day (which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such person) multiplied by (B)
the average closing price of such common stock listed on a national securities
exchange or the Nasdaq National Market System over the 20 consecutive business
days immediately preceding such day, plus (ii) the liquidation value of any
outstanding shares of preferred stock of such Person on such day.
"Tower Asset Acquisition" means an acquisition of Tower Assets or a business
substantially all of the assets of which are Tower Assets.
"Tower Assets" means wireless transmission towers and related assets that
are located on the site of a transmission tower.
"Tower Cash Flow" means, for any period, the Consolidated Cash Flow of SBACC
and its Restricted Subsidiaries for such period that is directly attributable
to site rental revenue, license or management fees paid to manage, lease or
sublease space on communication sites owned, leased or managed by SBACC
(collectively, "site leasing revenues"), all determined on a consolidated
basis and in accordance with GAAP. Tower Cash Flow will not include revenue
derived from the sale of assets. In allocating corporate general,
administrative and other operating expenses that are not, in the financial
statements of SBACC allocated to any particular line of business, such
expenses shall be allocated to the Company's site leasing business in
proportion to the percentage of the Company's total revenues for the
applicable period that were site leasing revenues.
"Transfer Restricted Securities" means each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without
complying with the prospectus delivery requirements of the Act, (b) the date
on which such Note has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Note is distributable to the
public pursuant to Rule 144 under the Act.
"Unrestricted Subsidiary" means any Subsidiary of SBACC that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with SBACC or any Restricted Subsidiary
of SBACC unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to SBACC or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of SBACC; (c) is a Person with respect to which neither SBACC nor
any of its Restricted Subsidiaries has any direct or indirect obligation (x)
to subscribe
105
<PAGE>
for additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of SBACC or any of its Restricted
Subsidiaries; and (e) has at least one director on its board of directors that
is not a director or executive officer of SBACC or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of SBACC or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of SBACC as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described above
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," SBACC shall be in default of such covenant). The Board of
Directors of SBACC may at any time designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness by a Restricted Subsidiary of SBACC of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant described above under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default would occur or be in existence following
such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
106
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain of the material U.S.
federal income tax aspects of the Exchange Offer to holders of the Private
Notes. This discussion is summary for general information only and does not
consider all aspects of the Private Notes in light of such holder's personal
circumstances. This discussion also does not address the U.S. federal income
tax consequences to holders subject to special treatment under the U.S.
federal income tax laws, such as dealers in securities, or foreign currency,
tax-exempt entities, banks, thrifts, insurance companies, persons that hold
the Notes as part of a "straddle", a "hedge" against currency risk or a
"conversion transaction"; persons that have a "functional currency" other than
the U.S. dollar, and investors in pass-through entities. In addition, this
discussion does not prescribe any tax consequences arising out of the tax laws
of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing and proposed regulations
thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions now in effect, all of which are subject to change (possibly
on a retroactive basis). The Company has not and will not seek any rulings or
opinions from the IRS or counsel with respect to the matters discussed below.
There can be no assurance that the IRS will not take positions concerning the
tax consequences of the Exchange Offer which are different from those
discussed herein.
HOLDERS OF THE PRIVATE NOTES SHOULD CONSULT THEIR OWN ADVISORS CONCERNING
THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THE EXCHANGE OFFER IN LIGHT OF
THEIR PARTICULAR SITUATIONS.
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer will not constitute a taxable exchange. As a result, a holder (i) will
not recognize taxable gain or loss as a result of exchanging Private Notes for
Exchange Notes pursuant to the Exchange Offer; (ii) the holding period of the
Exchange Notes will include the holding period of the Private Notes exchanged
therefor and (iii) the adjusted tax basis of the Exchange Notes will be the
same as the adjusted tax basis of the Private Notes exchanged therefor
immediately before the exchange.
107
<PAGE>
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Notes"). The Global Notes will be deposited with,
or on behalf of, DTC, New York, New York, and registered in the name of a
nominee of DTC. The Global Notes will be subject to certain restrictions on
transfer set forth therein and will bear the legend regarding such
restrictions set forth under the heading "Transfer Restrictions" herein.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of the
individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants). Such accounts initially will be designated by or on behalf
of the Initial Purchasers and ownership of beneficial interests in the Global
Notes will be limited to persons who have accounts with DTC ("participants")
or persons who hold interests through participants. QIBs may hold their
interests in the Global Note directly through DTC if they are participants in
such system, or indirectly through organizations which are participants in
such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in any of the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes. Interests in the Global Notes will also be subject to certain
restrictions on transfers as set forth under the heading "Transfer
Restrictions."
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Notes, will credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of the Global Notes as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Global Notes held through such participants will
be governed by standing instructions and customary practice, as is now the
case with securities held for the accounts of customers registered in the
names of nominees for such customers. Such payments will be the responsibility
of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Note ("Certificated Note") for any reason, including to sell
Notes to persons in states which require physical delivery of the Notes, or to
pledge such securities, such holder must transfer its interest in a Global
Note, in accordance with the normal procedures of DTC and with the procedures
set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given
108
<PAGE>
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Notes for Certificated Notes, which it will
distribute to its participants and which will be legended as set forth under
the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue as
a depositary for the Global Notes and a successor depositary is not appointed
by the Company within 90 days, Certificated Notes will be issued in exchange
for the Global Notes.
109
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Private Notes if such Private Notes were acquired as a result
of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer
that requests such documents in the Letter of Transmittal, for use in
connection with any such resale. In addition, until (90 days after the date
of this Prospectus), all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such release may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions of
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account in connection with the Exchange Offer and
any broker or dealer that participates in a distribution of such Exchange
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
An affiliate of BT Alex. Brown Incorporated, one of the Initial Purchasers,
is a limited partner in ABS and certain employees of BT Alex. Brown
Incorporated are investors in another Private Investor. In addition, certain
officers of BT Alex. Brown Incorporated are holders of Series A Preferred
Stock. Further, in connection with the Preferred Stock Offering, the Company
granted BT Alex. Brown Incorporated a five-year warrant to purchase up to
402,500 shares of Class A Common Stock, subject to certain anti-dilution
rights, with an exercise price of $3.73 per share of Class A Common Stock. See
"Ownership of Capital Stock" and "Certain Transactions."
110
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Latham & Watkins, New York, New York and Gunster, Yoakley,
Valdes-Fauli & Stewart, P.A., West Palm Beach, Florida.
INDEPENDENT ACCOUNTANTS
The audited financial statements and schedules of SBA Communications
Corporation included in this registration statement have been audited by
Arthur Anderson LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of Communication Site Services, Inc. and Segars
Communication Group, Inc. as of December 31, 1996 and 1995 and for the years
then ended, included in this Prospectus, have been audited by Robson, Scribner
& Stewart, P.A., Certified Public Accountants, as stated in their reports
appearing herein.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in
the Registration Statement. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. As a result of the
Exchange Offer, the Company will become subject to the informational
requirements of the Exchange Act. The Registration Statement (and the exhibits
and schedules thereto), as well as the periodic reports and other information
filed by the Company with the Commission, may be inspected and copied at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 6061-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois at the prescribed rates. The
Commission maintains a web site (http://www.sec.gov), that contains periodic
reports, proxy and information statements and other information regarding
registrants that file documents electronically with the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered holders of the Exchange Notes, without cost to the Trustee
or such registered holders, copies of all reports and other information that
would be required to be filed by the Company with the Commission under the
Exchange Act, whether or not the Company is then required to file reports with
the Commission. As a result of this Exchange Offer, the Company will become
subject to the periodic reporting and other informational requirements of the
Exchange Act. In the event that the Company ceases to be subject to the
informational requirements of the Exchange Act, the Company has agreed that,
so long as any Notes remain outstanding, it will file with the Commission (but
only if the Commission at such time is accepting such voluntary filings) and
distribute to holders of the Private Notes or the Exchange Notes, as
applicable, copies of the financial information that would have been contained
in such annual reports and quarterly reports, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
that would have been required to be filed with the Commission pursuant to the
Exchange Act. The Company will also furnish such other reports as it may
determine or as may be required by law.
111
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.. F-3
Consolidated Statements of Operations for the three months ended March
31, 1998 and March 31, 1997............................................ F-4
Consolidated Statements of Stockholders' Deficit for the three months
ended March 31, 1998................................................... F-5
Consolidated Statements of Cash Flows for the three months ended March
31, 1998 and March 31, 1997............................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
AUDITED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants...................... F-12
Consolidated Balance Sheets as of December 31, 1997 and December 31,
1996................................................................... F-13
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-14
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996
and 1995............................................................... F-15
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-16
Notes to Consolidated Financial Statements ............................. F-17
COMMUNICATION SITE SERVICES, INC.
UNAUDITED FINANCIAL STATEMENTS:
Statement of Income for the nine months ended September 18, 1997 and
September 30, 1996..................................................... F-29
Statements of Retained Earnings for the nine months ended September 18,
1997 and
September 30, 1996..................................................... F-30
Statements of Cash Flows for the nine months ended September 18, 1997
and September 30, 1996................................................. F-31
Notes to Financial Statements for the nine months ended September 18,
1997, September 30, 1996 and December 31, 1996......................... F-32
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-37
Balance Sheet as of December 31, 1996................................... F-38
Statement of Income for the year ended December 31, 1996................ F-39
Statement of Retained Earnings for the year ended December 31, 1996..... F-40
Statement of Cash Flows for the year ended December 31, 1996............ F-41
Notes to Financial Statements for the year ended December 31, 1996...... F-42
Independent Accountants' Report......................................... F-49
Balance Sheet as of December 31, 1995................................... F-50
Statement of Income for the year ended December 31, 1995................ F-51
Statement of Retained Earnings for the year ended December 31, 1995..... F-52
Statement of Cash Flows for the year ended December 31, 1995............ F-53
Notes to Financial Statements for the year ended December 31, 1995...... F-54
SEGARS COMMUNICATION GROUP, INC.
UNAUDITED FINANCIAL STATEMENTS:
Statements of Operations for the nine months ended September 18, 1997
and September 18, 1996................................................. F-60
Statements of Retained Earnings for the periods ended September 18, 1997
and September 30, 1996................................................. F-61
Statements of Cash Flows for the nine months ended September 18, 1997
and September 30, 1996................................................ F-62
Condensed Notes to Financial Statements for the nine months ended
September 18, 1997 and September 30, 1996.............................. F-63
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-66
Balance Sheet as of December 31, 1996.................................... F-67
Statement of Income for the year ended December 31, 1996................. F-68
Statement of Retained Earnings for the year ended December 31, 1996...... F-69
Statement of Cash Flows for the year ended December 31, 1996............. F-70
Notes to Financial Statements for the year ended December 31, 1996....... F-71
Independent Accountants' Report.......................................... F-74
Balance Sheet as of December 31, 1995.................................... F-75
Statement of Income for the year ended December 31, 1995................. F-76
Statement of Retained Earnings for the year ended December 31, 1995...... F-77
Statement of Cash Flows for the year ended December 31, 1995............. F-78
Notes to Financial Statements for the year ended December 31, 1995....... F-79
</TABLE>
F-2
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, includes interest
bearing amounts of $123,349,323 and
$1,397,047 in 1998 and 1997................ $123,609,968 $ 6,109,418
Accounts receivable, net of allowances of
$610,996 and $508,268 in 1998 and 1997..... 13,593,775 10,931,038
Prepaid and other current assets............ 1,586,572 982,722
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... 91,016 118,235
------------ -----------
Total current assets...................... 138,881,331 18,141,413
Property and equipment, net................... 27,096,631 16,445,008
Note receivable-stockholder................... 3,617,772 3,561,306
Intangible assets, net........................ 5,075,111 3,499,992
Deferred financing fees....................... 6,092,940 740,338
Deferred tax asset............................ 2,193,718 2,257,462
Other assets.................................. 324,282 151,885
------------ -----------
Total assets.............................. $183,281,785 $44,797,404
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................ $ 1,818,083 $ 2,182,447
Accrued expenses............................ 610,940 919,563
Accrued salaries and payroll taxes.......... 1,006,053 1,729,273
Notes payable............................... 1,000 10,184,054
Current deferred tax liability.............. 1,128,631 1,621,714
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 800,914 956,688
Other liabilities........................... 576,157 530,964
------------ -----------
Total current liabilities................. 5,941,778 18,124,703
Other liabilities
Bonds payable............................... 151,738,865 --
Other long-term liabilities................. 420,189 33,635
------------ -----------
Total long-term liabilities............... 152,159,054 33,635
Commitments and contingencies (see Note 10)
Series A Preferred stock (8,050,000 shares
authorized and outstanding stated at
redemption and aggregate liquidation value).. 31,420,833 30,983,333
Stockholders' deficit:
Common stock (40,100,000 shares authorized,
8,075,000 issued and outstanding).......... 80,750 80,750
Accumulated deficit......................... (6,320,630) (4,425,017)
------------ -----------
Total stockholders' deficit............... (6,239,880) (4,344,267)
------------ -----------
Total liabilities and stockholders'
deficit.................................. $183,281,785 $44,797,404
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-3
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Site development revenue...................... $ 12,531,250 $ 12,456,787
Site leasing revenue.......................... 2,158,539 1,557,768
------------- -------------
Total revenues.............................. 14,689,789 14,014,555
------------- -------------
Cost of revenues (exclusive of depreciation
shown below):
Cost of site development revenue.............. 9,002,632 8,093,736
Cost of site leasing revenue.................. 1,506,871 1,271,489
------------- -------------
Total cost of revenues...................... 10,509,503 9,365,225
------------- -------------
Gross profit................................ 4,180,286 4,649,330
Operating expenses:
Sales and marketing........................... 365,061 778,256
General and administrative.................... 3,563,740 2,477,450
Depreciation and Amortization................. 507,245 40,728
------------- -------------
Total operating expenses.................... 4,436,046 3,296,434
------------- -------------
Operating income (loss)..................... (255,760) 1,352,896
Other (income) expense:
Interest income............................... (764,158) (58,722)
Interest expense.............................. 1,879,927 35,772
------------- -------------
Total other................................. 1,115,769 (22,950)
Income (loss) before provision for income
taxes...................................... (1,371,529) 1,375,846
Provision for income taxes...................... 86,584 3,523,202
------------- -------------
Net loss.................................... (1,458,113) (2,147,356)
Dividends on prefered stock..................... (437,500) (83,333)
------------- -------------
Net loss to common stockholders............. $ (1,895,613) $ (2,230,689)
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-4
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ACCUMULATED
NUMBER AMOUNT DEFICIT TOTAL
--------- ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31,
1997..................... 8,075,000 $80,750 $(4,425,017) $(4,344,267)
Net loss................ -- -- (1,458,113) (1,458,113)
Prefered stock
dividends.............. -- -- (437,500) (437,500)
--------- ------- ----------- -----------
BALANCE, March 31, 1998... 8,075,000 $80,750 $(6,320,630) $(6,239,880)
========= ======= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ (1,458,113) $(2,147,356)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization...................... 580,298 40,728
Provision for doubtful accounts.................... 41,370 59,693
Non cash compensation adjustment................... -- 934,419
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable............................... (2,704,107) 4,888,088
Prepaid and other current assets.................. (603,850) 593,323
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 27,219 --
Intangible assets................................. (1,663,766) --
Other assets...................................... (172,397) (21,303)
Deferred tax asset................................ 63,744 (2,283,000)
Increase (decrease) in-
Accounts payable.................................. (364,364) (418,056)
Accrued expenses.................................. (308,623) 139,283
Accrued salaries and payroll taxes................ (723,220) 134,951
Other liabilities................................. 45,193 (66,177)
Deferred tax liabilities.......................... (493,083) 3,371,000
Other long-term liabilities....................... 386,554 2,406,243
Billings in excess of costs and estimated earn-
ings............................................. (155,774) --
------------ -----------
Total adjustments................................. (6,044,806) 9,779,192
------------ -----------
Net cash provided by (used in) operating activi-
ties............................................. (7,502,919) 7,631,836
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tower and other capital expenditures............... (11,070,221) (91,971)
------------ -----------
Net cash used in investing activities.............. (11,070,221) (91,971)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on bonds payable...................... 151,738,865 --
Proceeds from notes payable........................ 12,486,767 7,941,818
Repayments on notes payable........................ (22,669,821) (12,862,168)
Advances to stockholders........................... (56,466) (3,500,000)
Due to stockholder................................. -- (10,665,788)
Financing fees..................................... (5,425,655) --
Proceeds from Series A redeemable preferred stock
offering.......................................... -- 30,000,000
Stock option redemption in connection with corpo-
rate reorganization............................... -- (2,236,782)
Costs incurred for Series A redeemable preferred
stock offering.................................... -- (2,384,195)
------------ -----------
Net cash provided by (used in) financing activi-
ties............................................. 136,073,690 6,292,885
------------ -----------
Net increase in cash and cash equivalents......... 117,500,550 13,832,750
CASH AND CASH EQUIVALENTS:
Beginning of period................................ 6,109,418 310,936
------------ -----------
End of period...................................... $123,609,968 $14,143,686
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION:
Cash paid during the period for:
Interest........................................... $ 235,865 $ 35,772
Taxes.............................................. $ 469,385 $ --
NON-CASH ACTIVITIES:
Dividends on prefered stock........................ $ 437,500 $ 83,333
Interest on bonds payable.......................... $ 1,502,365 $ --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements
include the accounts of SBA Communications Corporation and its subsidiaries
(the "Company"). All significant intercompany accounts and transactions have
been eliminated. Certain information related to the Company's organization,
significant accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited condensed
consolidated financial statements reflect, in the opinion of management, all
materials adjustments (which included only normal recurring adjustments)
necessary to fairly state the financial position and the results of operations
for the periods presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for interim periods
are not necessarily indicative of the results that can be expected for a full
year. These interim financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto.
2. CURRENT ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income separately from
accumulated deficit and additional paid-in capital in the equity section of
the balance sheets. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. During the three months ended March 31, 1998 and 1997, the
Company did not have any changes in its equity resulting from such non-owner
sources and accordingly, comprehensive income as set forth by SFAS No. 130 was
equal to the net loss amounts presented for the respective periods in the
accompanying Consolidated Statements of Operations.
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which is required to be adopted in
fiscal 1998, a public business enterprise must report financial and other
descriptive information about its reportable operating segments. Required
disclosures include, among other things, a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company
will implement SFAS No. 131 effective with its December 31, 1998 financial
statements.
3. ACQUISITIONS
During the three months ended March 31, 1998 the Company acquired 23 towers
and approximately 30 lease/sublease customers in four separate transactions
for an aggregate initial investment of $5,500,000 plus up to an additional
$2,800,000 in consideration to be paid in 1998 in the event certain tenant
leasing goals are realized. These towers are located in Pennsylvania,
Connecticut, Florida and New York.
F-7
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Land.............................................. $ 414,770 $ 414,770
Buildings and improvements........................ 220,457 107,931
Vehicles.......................................... 369,628 358,569
Furniture and equipment........................... 1,478,595 1,299,341
Towers............................................ 20,092,702 12,141,428
Construction in process........................... 5,667,915 2,840,593
----------- -----------
28,244,067 17,162,632
Less: Depreciation and amortization............... (1,147,436) (717,624)
----------- -----------
Property and equipment, net....................... $27,096,631 $16,445,008
=========== ===========
</TABLE>
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Costs incurred on uncompleted contracts.... $ 802,381 $ 862,660
Estimated earnings......................... 239,594 280,438
---------- ----------
1,041,975 1,143,098
Billings to date........................... (1,751,873) (1,981,551)
---------- ----------
$ (709,898) $ (838,453)
========== ==========
</TABLE>
This amount is included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Costs and estimated earnings in excess of
billing................................... $ 91,016 $ 118,235
Billings in excess of costs and estimated
earnings.................................. (800,914) (956,688)
--------- ---------
$(709,898) $(838,453)
========= =========
</TABLE>
6. NOTES PAYABLE
On August 8, 1997, the Company entered into a credit agreement with a
syndicate of banks (the "Credit Agreement"). The Credit Agreement consisted of
a secured revolving line of credit in the amount of $10,000,000 and a term
note in the amount of $65,000,000. Available borrowings under the credit
agreement will generally be used to construct new towers and to finance a
portion of the purchase price for towers and related assets. In addition, up
to $15,000,000 of the term note may be used for letters of credit. Funds are
borrowed at either the Prime rate plus 1/4% or the EURO rate at the time of
borrowing plus 1.25%. As of March 31, 1998, there was $1,000 outstanding at a
rate of 8.75% and $2,405,000 outstanding under letters of credit.
F-8
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1998 the Company amended and restated its existing Credit Agreement.
The amended credit agreement provides for revolving credit loans of $55.0
million and an additional $55.0 million incremental agreement which may be
made available within the initial 24 months of the Credit Agreement. There is
no availability under the Credit Agreement other than for the issuance of
letters of credit until the later of (i) September 30, 1998 or (ii) until a
consolidated minimum financial ratio is met. Availability thereafter is
limited to $25 million until such time as the Company owns, leases or manages
400 towers and has expended all but $10 million of the proceeds from the
Senior Discount Notes. Availability is further limited at all times by certain
financial covenants and ratios, and other conditions. The Credit Agreement
provides for quarterly interest payments commencing as soon as any funds are
borrowed thereunder, and the incremental facility is expected to have a 24-
month revolving period after which any outstanding amounts will convert to a
term loan and begin to amortize. Availability under the Credit Agreement is
subject to a reduction schedule that commences on March 31, 2001. The schedule
provides for a quarterly 5% amortization rate with a balloon payment on June
29, 2005.
The Credit Agreement is secured by substantially all of the Company's tower
assets and assignment of tower leases, requires the Company to maintain
certain financial covenants and places restrictions on the Company's ability
to, among other things, incur debt and liens, dispose of assets, undertake
transactions with affiliates and make investments.
7. BOND OFFERING
On March 2, 1998, the Company issued on $269,000,000 of 12% Senior Discount
Notes (the "Notes") due March 1, 2008. The issuance of the Notes netted
approximately $150,200,000 in proceeds to the Company. The Notes will accrete
in value until March 1, 2003 at which time they will have an aggregate
principle amount of $269,000,000. Thereafter, interest will accrue on the
Notes and will be payable semi-annually in arrears on March 1 and September 1,
commencing September 1, 2003. The Notes are unsecured obligations of the
Company.
The Notes and Credit Agreement contain numerous restrictive covenants,
including but not limited to covenants that restrict the Company's ability to
incur indebtedness, pay dividends; create liens, sell assets and engage in
certain mergers and acquisitions. In addition, the Credit Agreement requires
subsidiaries of the Company to maintain certain financial ratios. The ability
of the Company to comply with the covenants and other terms of the Credit
Agreement and the Notes and to satisfy its respective debt obligations will
depend on the future operating performance of the Company. In the event the
Company fails to comply with the various covenants contained in the Credit
Agreement or the Notes, as applicable, it would be in default thereunder, and
in any such case, the maturity of substantially all of its long-term
indebtedness could be accelerated.
8. REDEEMABLE PREFERRED STOCK
In February 1998, the terms of the Series A Redeemable Preferred Stock of
the Company were amended to defer payment of cash dividends on or redemptions
of the Series A Preferred Stock until permitted by the terms of the Notes due
2008. In connection with the amendment, the dividend rate on the Series A
Preferred Stock was increased to 14% of the Series A Base Liquidation amount
commencing March 7, 2003.
9. INCOME TAXES
Income taxes have been provided for based upon the Company's annual
effective income tax rate.
F-9
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the statutory U.S. Federal tax rate (34%) and the
effective income tax rate for the period is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Federal income tax............................. $(480,035) $ 467,788
State income tax............................... 45,549 138,712
Corporate reorganization....................... 456,743 3,248,649
Non deductible interest........................ 525,828 --
Other.......................................... (461,501) (331,947)
--------- ----------
$ 86,584 $3,523,202
========= ==========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes the
resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
In February, 1998 the Company moved its corporate headquarters. In
connection with the move the company vacated its previously leased office
space. The Company had entered into several leases related to the vacated
space which will expire at various times through February 2002. The Company
has recorded rental expense of approximately $370,000 in this quarter related
to the vacated space.
11. STOCK OPTIONS AND WARRANTS
A summary of the status of the company's stock option plans and changes
during the three months ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at December 31, 1997..................... 1,797,292 $0.05-$2.63
Granted.............................................. 203,000 2.63
Exercised............................................ -- --
Forfeited/canceled................................... (7,000) 2.63
--------- -----------
Outstanding at March 31, 1998........................ 1,993,292 $0.05-$2.63
========= ===========
Options exercisable at March 31, 1998................ 1,311,125
=========
</TABLE>
F-10
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SEGMENT DATA
The Company operates principally in two areas of the telecommunications
industry: Site development and Site leasing. Revenue, operating income,
identifiable assets, capital expenditures and depreciation and amortization
pertaining to the segments in which the Company operates are presented below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenue:
Site development.......................... $ 12,531,250 $ 12,456,787
Site leasing.............................. 2,158,539 1,557,768
------------- -------------
$ 14,689,789 $ 14,014,555
============= =============
Operating income:
Site development.......................... $ 701,281 $ 1,270,084
Site leasing.............................. (957,041) 82,812
------------- -------------
$ (255,760) $ 1,352,896
============= =============
Capital expenditures:
Site development.......................... $ 5,857,836 $ 91,971
Site leasing.............................. 5,212,385 --
------------- -------------
$ 11,070,221 $ 91,971
============= =============
Depreciation and amortization:
Site development.......................... $ 193,180 $ 40,720
Site leasing.............................. 314,065 --
Unallocated amortization.................. 73,053 --
------------- -------------
$ 580,298 $ 40,720
============= =============
</TABLE>
<TABLE>
<CAPTION>
AS OF
-------------------------
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Identifiable assets:
Site development.............................. $ 29,829,909 $26,549,732
Site leasing.................................. 21,457,540 13,195,378
Unallocated Corporate Assets.................. 131,994,336 5,052,294
------------ -----------
$183,281,785 $44,797,404
============ ===========
</TABLE>
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of SBA Communications Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SBA
Communications Corporation (a Florida corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 SBA Communications
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
West Palm Beach, Florida,
March 10, 1998.
F-12
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(SEE NOTE 2)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, includes interest bearing
amounts of $1,397,047 and $260,949 in 1997 and 1996... $ 6,109,418 $ 310,936
Accounts receivable, net of allowances of $508,268 and
$1,024,100 in 1997 and 1996........................... 10,931,038 16,093,979
Prepaid and other current assets....................... 982,722 884,394
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 118,235 --
----------- -----------
Total current assets.................................. 18,141,413 17,289,309
Property and equipment, net............................. 16,445,008 632,110
Note receivable-stockholder............................. 3,561,306 --
Intangible assets, net.................................. 3,499,992 --
Deferred financing fees................................. 740,338 --
Deferred tax asset...................................... 2,257,462 --
Other assets............................................ 151,885 139,027
----------- -----------
Total assets.......................................... $44,797,404 $18,060,446
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,182,447 $ 1,202,973
Accrued expenses....................................... 919,563 682,483
Accrued salaries and payroll taxes..................... 1,729,273 391,101
Notes payable.......................................... 10,184,054 4,921,350
Current deferred tax liability......................... 1,621,714 --
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 956,688 --
Other liabilities...................................... 530,964 66,177
Due to stockholder..................................... -- 10,665,788
----------- -----------
Total current liabilities............................. 18,124,703 17,929,872
Long-term liabilities................................... 33,635 28,959
Commitments and contingencies (see Note 11).............
Series A Preferred stock--8,050,000 shares authorized
and outstanding at
December 31, 1997; none outstanding at
December 31, 1996 (stated at redemption
and aggregate liquidation value)........................ 30,983,333 --
Stockholders' equity (deficit):
Common stock-Class A (1,615 shares authorized and
outstanding in 1996
32,000,000 shares authorized none
outstanding in 1997)................................... -- 1,615
Class B (8,100,000 shares authorized, 8,075,000
outstanding).......................................... 80,750 --
Retained earnings (deficit)............................ (4,425,017) 100,000
----------- -----------
Total stockholders' equity (deficit).................. (4,344,267) 101,615
----------- -----------
Total liabilities and stockholders' equity............ $44,797,404 $18,060,446
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-13
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(SEE NOTE 2)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Site development revenue.............. $48,240,443 $60,276,160 $22,699,812
Site leasing revenue.................. 6,759,362 4,530,152 2,758,319
----------- ----------- -----------
Total revenues..................... 54,999,805 64,806,312 25,458,131
----------- ----------- -----------
Cost of revenues (exclusive of
depreciation shown below):
Cost of site development revenue...... 31,470,203 39,821,589 13,992,689
Cost of site leasing revenue.......... 5,356,160 3,638,133 2,121,376
----------- ----------- -----------
Total cost of revenues............. 36,826,363 43,459,722 16,114,065
----------- ----------- -----------
Gross profit....................... 18,173,442 21,346,590 9,344,066
Operating expenses:
Sales and marketing................... 2,696,229 721,927 236,756
General and administrative............ 9,336,686 17,031,848 5,731,050
Depreciation and amortization......... 513,949 160,050 73,297
----------- ----------- -----------
Total operating expenses........... 12,546,864 17,913,825 6,041,103
----------- ----------- -----------
Operating income................... 5,626,578 3,432,765 3,302,963
Interest income (expense), net......... 236,917 (132,413) (5,335)
----------- ----------- -----------
Income before provision for income
taxes.............................. 5,863,495 3,300,352 3,297,628
Provision for income taxes............. 5,595,998 -- --
----------- ----------- -----------
Net income......................... 267,497 3,300,352 3,297,628
Proforma income tax provision (See note 1,320,141 1,319,052
10).................................... ----------- -----------
Proforma net income................ 1,980,211 1,978,576
Dividends on preferred stock........... 983,333 -- --
----------- ----------- -----------
Net income available to common $ (715,836) $ 1,980,211 $ 1,978,576
stockholders....................... =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-14
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(SEE NOTE 2)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------------------- EARNINGS
CLASS A CLASS B (DEFICIT) TOTAL
-------------- ----------------- ----------- -----------
NUMBER AMOUNT NUMBER AMOUNT
------ ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 200 $ 200 -- $ -- $ 1,744,956 $ 1,745,156
Net income............. -- -- -- -- 3,297,628 3,297,628
Stockholder
distribution.......... -- -- -- -- (250,000) (250,000)
------ ------ --------- ------- ----------- -----------
BALANCE, December 31,
1995................... 200 200 -- -- 4,792,584 4,792,784
Issuance of common
stock................. 1,415 1,415 -- -- -- 1,415
Non-cash compensation
adjustment............ -- -- -- -- 7,011,000 7,011,000
Net income............. -- -- -- -- 3,300,352 3,300,352
Stockholder
distribution.......... -- -- -- -- (15,003,936) (15,003,936)
------ ------ --------- ------- ----------- -----------
BALANCE, December 31,
1996................... 1,615 1,615 -- -- 100,000 101,615
Corporate
reorganization........ (1,615) (1,615) 8,075,000 80,750 (79,135) --
Costs incurred for
Series A redeemable
preferred stock
offering.............. -- -- -- -- (2,427,683) (2,427,683)
Non cash compensation
adjustment............ -- -- -- -- 934,419 934,419
Stock option
redemption............ -- -- -- -- (2,236,782) (2,236,782)
Net income............. -- -- -- -- 267,497 267,497
Preferred stock
dividends............. -- -- -- -- (983,333) (983,333)
------ ------ --------- ------- ----------- -----------
BALANCE, December 31,
1997................... -- -- 8,075,000 $80,750 $(4,425,017) $(4,344,267)
====== ====== ========= ======= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-15
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(SEE NOTE 2)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 267,497 $ 3,300,352 $3,297,628
Adjustments to reconcile net income to
net cash provided by
(used in) operating activities--
Depreciation and amortization........... 562,653 160,050 73,297
Provision for doubtful accounts......... 163,416 451,349 572,751
Non-cash compensation adjustment........ 934,419 7,011,000 --
Changes in operating assets and liabili-
ties:
(Increase) decrease in--
Accounts receivable................... 4,999,525 (10,445,316) (4,456,615)
Prepaid and other current assets...... (98,328) (539,713) (194,467)
Costs and estimated earnings in excess
of billings on
uncompleted contracts................ (118,235) -- --
Intangible assets..................... (3,536,920) -- --
Other assets.......................... (12,858) (78,770) (49,085)
Deferred tax asset.................... (2,257,462) -- --
Increase (decrease) in--
Accounts payable...................... 979,474 892,851 (109,681)
Accrued expenses...................... 237,080 398,010 120,375
Accrued salaries and payroll taxes.... 1,338,172 90,617 258,938
Current deferred tax liability........ 1,621,714 -- --
Other liabilities..................... 464,787 (25,442) (45,806)
Other long-term liabilities........... 4,676 -- --
Billings in excess of costs and esti- 956,688 -- --
mated earnings....................... ----------- ----------- ----------
Total adjustments..................... 6,238,801 (2,085,364) (3,830,293)
----------- ----------- ----------
Net cash provided by (used in) operat- 6,506,298 1,214,988 (532,665)
ing activities....................... ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tower acquisitions and other capital (16,291,764) (144,942) (660,199)
expenditures......................... ----------- ----------- ----------
Net cash used in investing activities. (16,291,764) (144,942) (660,199)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............. 23,875,872 22,185,291 2,890,412
Repayment of notes payable.............. (18,613,168) (18,763,941) (1,391,790)
Issuance of common stock................ -- 1,415 --
Proceeds from stockholder loans......... -- 11,177,157 106,208
Repayment of stockholder loans.......... (10,665,788) (632,129) (57,181)
Advances to stockholder................. (3,561,306) -- --
Stockholder distribution................ -- (15,003,936) (250,000)
Financing fees.......................... (787,197) -- --
Proceeds from Series A redeemable pre-
ferred stock offering.................. 30,000,000 -- --
Stock option redemption................. (2,236,782) -- --
Costs incurred for Series A redeemable
preferred stock offering............... (2,427,683) -- --
----------- ----------- ----------
Net cash provided by (used in) financ-
ing activities....................... 15,583,948 (1,036,143) 1,297,649
----------- ----------- ----------
Net increase in cash and cash equiva-
lents................................ 5,798,482 33,903 104,785
CASH AND CASH EQUIVALENTS:
Beginning of year....................... 310,936 277,033 172,248
----------- ----------- ----------
End of year............................. $ 6,109,418 $ 310,936 $ 277,033
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW IN-
FORMATION:
Cash paid during the year for:
Interest................................ $ 193,269 $ 139,056 $ 10,762
Taxes................................... $ 6,070,423 $ -- $ --
NON-CASH ACTIVITIES:
Liabilities assumed in acquisition of
assets................................. $ 2,559,505 $ -- $ --
Dividends on preferred stock............ $ 983,333 $ -- $ --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-16
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
SBA Communications Corporation (the "Company") was incorporated in the State
of Florida in March, 1997. The Company was formed to hold all of the
outstanding capital stock of SBA, Inc. ("SBA" ) and SBA Leasing, Inc.
("Leasing"). In addition to SBA and Leasing, the Company also holds all of the
outstanding capital stock of SBA Towers, Inc. ("Towers"), Communication Site
Services, Inc ("CSSI") and SBA Telecomunicacoes do Brasil, LTDA ("Brazil").
SBA provides comprehensive turnkey services for the telecommunications
industry in the areas of site development services for wireless carriers. Site
development services provided by SBA includes site identification and
acquisition, contract and title administration, zoning and land use
permitting, construction management and microwave relocation.
Leasing leases antenna tower sites from owners and then subleases such sites
to wireless telecommunications providers, thereby generating recurring
revenue.
Towers owns and maintains transmission towers in various parts of the
country. Space on these towers is leased primarily to wireless communications
carriers.
CSSI is engaged in the erection and repair of transmission towers, including
hanging of antennae, cabling and associated tower components.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements is as follows:
a. Basis of Consolidation
The consolidated financial statements include the accounts of the Company,
SBA, Leasing, Towers, CSSI, and Brazil. All significant intercompany
transactions have been eliminated in consolidation.
Prior to the formation of the Company, SBA and Leasing were 100% owned by
their founder. The 1996 and 1995 financial statements reflect the combining of
these two companies rather than a consolidation.
b. Use of Accounting Estimates
The preparation of the consolidated 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.
c. Cash and Cash Equivalents
The Company classifies as cash and cash equivalents all interest-bearing
deposits or investments with original maturities of three months or less.
d. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Vehicles..................................................... 2-5 years
Furniture and equipment...................................... 2-7 years
Buildings and improvements................................... 5-26 years
Towers....................................................... 15 years
</TABLE>
F-17
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e. Deferred Financing Fees
Loan financing fees have been deferred and are being amortized using the
straight-line method over the length of the loan. This method approximates the
effective interest rate method. Financing fees are currently being amortized
over 84 months.
f. Intangible Assets
Intangible assets are comprised of costs paid in excess of the fair value of
assets acquired and amounts paid related to covenants not to compete. Goodwill
is being amortized over a 15 year period. The covenants not to compete are
being amortized over the terms of the contracts, which range from 7 to 10
years. Accumulated amortization totaled $36,928 at December 31, 1997.
g. Income Taxes
Effective January 1, 1997, the Company converted to a C Corporation under
Subchapter C of the Internal Revenue Code of 1986, as amended. The pro forma
provision for income taxes for the years ended December 31, 1996 and December
31, 1995 represent a pro forma calculation (40%) as if the Company was an C
Corporation.
Effective January 1, 1997, the Company began accounting for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No., 109 Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109 requires a
company to recognize deferred tax liabilities and assets for the expected
future income tax consequences of events that have been recognized in the
Company's consolidated financial statements. Deferred tax liabilities and
assets are determined based on the temporary differences between the
consolidated financial statements carrying amounts and the tax bases of assets
and liabilities, using enacted tax rates in the years in which the temporary
differences are expected to reverse.
h. Revenue Recognition
Site development projects in which the Company performs consulting services
include contracts on a time and materials basis or on a fixed price basis.
Time and materials based contracts are billed as the services are rendered.
For those site development contracts in which the Company performs work on a
fixed price basis, site development billing (and revenue recognition) is based
on the completion of agreed upon phases of the project on a per site basis.
Upon the completion of each phase on a per site basis, the Company recognizes
the revenue related to that phase. Revenue related to services performed on
uncompleted phases of site development projects was not recorded by the
Company at the end of the reporting period presented as it was not material to
the Company's results of operations. Any losses on a particular phase of
completion are recognized in the period in which the loss becomes evident.
Site development projects generally take from 3 to 12 months to complete.
Revenue from leasing services is recorded on a monthly basis. Subleases
generating the lease revenue are entered into for periods of time equivalent
to the original lease. Current lease terms range from one to five years.
Revenue received in advance is recorded in other liabilities.
Revenue from construction projects is recognized on the percentage-of-
completion method of accounting, determined by the percentage of cost incurred
to date compared to management's estimated total anticipated cost for each
contract. This method is used because management considers total cost to be
the best available measure of progress on the contracts. These amounts are
based on estimates, and the uncertainty inherent in the estimates initially is
reduced as work on the contracts nears completion. The asset "Costs and
estimated earnings in excess of billings on uncompleted contracts", represents
revenues recognized in excess of amounts billed. The liability,
F-18
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Billings in excess of costs and estimated earnings on complete contracts",
represents billings in excess of revenues recognized.
Costs of site development project revenue and construction revenue include
all direct material costs, salaries and labor costs, including payroll taxes,
subcontract labor, vehicle expense and other costs directly related to the
projects. All costs related to site development projects and construction
projects are recognized as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
i. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable,
inventory, prepaid expenses, accounts payable, accrued expenses and long-term
debt approximates fair value.
j. Market Risk
The Company is exposed to market risks, including changes in interest rates
and currency exchange rates. Based on the Company's interest rate and foreign
exchange rate exposure at December 31, 1997, a 10% change in the current
interest rate or historical currency rate movements would not have a material
effect on the company's financial position or results of operations over the
next fiscal year.
k. Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 ("SFAS 121") Accounting
for the Impairment of Long- Lived Assets and for Long-Lived Assets to be
Disposed of requires that long- lived assets, including certain identifiable
intangibles, and the goodwill related to those assets, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable. Management
has reviewed the Company's long- lived assets and has determined that there
are no events requiring impairment loss recognition.
l. Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
3. ACQUISITIONS
CSSI Acquisition
On September 18, 1997, the Company consummated the acquisition of CSSI and
certain related tower assets of Segars Communications Group, Inc. ("SCGI," and
together with the acquisition of CSSI, the "CSSI Acquisition"). The CSSI
Acquisition provided the Company with 21 towers in Florida and Georgia in
varying stages of construction, together with a number of parcels of leased
real estate on which towers may be constructed in the future, and gave the
Company the in-house capability to construct towers in the southeastern United
States. The Company paid $7 million at closing, and expects to invest up to an
additional $4.8 million by September 1998 to complete construction of the
towers acquired and as a contingent payment to the sellers, provided that
certain tenant leasing goals are realized. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the excess of the
purchase price over the estimated fair value of the net assets acquired, or
approximately $3.5 million, was recorded as goodwill which is being amortized
on a straight-
F-19
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
line basis over a period of 15 years. CSSI's results of operations have been
included in the Company's consolidated financial statements from the date of
acquisition. The following unaudited pro forma information combines the
consolidated results of operations of the Company and CSSI as if the
acquisition had occurred at the beginning of the periods presented.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues............................. $ 60,199,299 $ 71,224,345
================ ================
Net income........................... $ (388,702) $ 2,263,466
================ ================
</TABLE>
The unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense
as a result of goodwill and pro forma provision for income taxes for the
amortization of goodwill and for each period in which CSSI and the Company
were S Corporations under Subchapter S of the Internal Revenue Code. The pro
forma results do not purport to be indicative of results that would have
occurred had the combination been in effect for the periods presented, nor do
they purport to be indicative of the results that will be obtained in the
future.
Other Acquisitions
The Company has also acquired 30 towers since June 1997 in five separate
transactions for an aggregate initial investment of $5.9 million. These towers
are located in New York, Pennsylvania and Tennessee.
4. CONCENTRATION OF CREDIT RISK
The Company's credit risks consist of accounts receivable in the
telecommunications industry. The Company performs periodic credit evaluations
of its customers' financial condition and provides allowances for doubtful
accounts as required. Following is a list of significant customers:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31,
--------------
1997 1996 1995
---- ---- ----
(% OF REVENUE)
--------------
<S> <C> <C> <C>
Sprint Spectrum............................................ 47.0 50.4 10.0
Pacific Bell Mobile Systems................................ 12.3 18.8 28.2
AT&T Wireless.............................................. 5.3 11.6 --
Nextel..................................................... 7.8 -- --
Page Net................................................... 7.6 9.0 28.7
Bell South................................................. 6.6 .4 --
---- ---- ----
86.6 90.2 66.9
==== ==== ====
</TABLE>
F-20
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Land.............................................. $ 414,770 $ --
Buildings and improvements........................ 107,931 --
Vehicles.......................................... 358,569 --
Furniture and equipment........................... 1,299,341 864,668
Towers............................................ 12,141,428 --
Construction in process........................... 2,840,593 --
Leasehold improvements............................ -- 6,200
----------- ---------
17,162,632 870,868
Less: Depreciation and amortization............... (717,624) (238,758)
----------- ---------
Property and equipment, net....................... $16,445,008 $ 632,110
=========== =========
</TABLE>
6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the
following at December 31, 1997:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts..................... $ 862,660
Estimated earnings.......................................... 280,438
-----------
1,143,098
Billings to date............................................ (1,981,551)
-----------
$ (838,453)
===========
</TABLE>
This amount is included in the accompanying balance sheet as of December 31,
1997 under the following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billing........... $ 118,235
Billings in excess of costs and estimated earnings.......... (956,688)
-----------
$ (838,453)
===========
</TABLE>
7. NOTES PAYABLE
Bank Credit Agreement
On August 8, 1997, the Company entered into a credit agreement with a
syndicate of banks (the "Credit Agreement"). The Credit Agreement consisted of
a secured revolving line of credit in the amount of $10,000,000 and a term note
in the amount of $65,000,000. Available borrowings under the credit agreement
will generally be used to construct new towers and to finance a portion of the
purchase price for towers and related assets. In addition, up to $15,000,000 of
the term note may be used for letters of credit. Funds are generally borrowed
at the EURO rate at the time of borrowing plus 1.25%. As of December 31, 1997,
there was $8,800,000 outstanding at various rates ranging from 7.0% to 7.1563%.
Additionally, $10,000,000 of the term facility was available to the Company to
be used to secure letters of credit. As of December 31, 1997, there was
$4,750,000 outstanding under letters of credit.
F-21
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Credit Agreement is secured by substantially all of the Company's tower
assets and assignment of tower leases, requires the Company to maintain certain
financial covenants and places restrictions on the Company's ability to, among
other things, incur debt and liens, dispose of assets, undertake transactions
with affiliates and make investments.
Installment Note Payable
In connection with the acquisition of CSSI in September 1997, the Company
became contingently liable to the sellers for an amount not to exceed
$4,750,000. This amount is to be paid to the sellers provided certain leasing
revenue targets are met through August 1998 and was reduced by approximately
$2,200,000 for costs incurred in connection with the construction completion of
certain towers. This amount may also be reduced if the certain revenue targets
are not met. The Company is required to calculate the amount due on a monthly
basis. As of December 31, 1997, the Company has calculated its liability under
this agreement to be $1,384,054. This amount was reflected as an increase to
goodwill and was paid in January 1998. The Company remains contingently liable
for the remaining $1,165,946.
8. DUE TO/FROM STOCKHOLDER
The amount due from stockholder as of December 31, 1997, represents a loan
made to one of the stockholders plus accrued interest. The loan was in the
amount of $3.5 million and bears interest at a rate of 6.86%. This loan matures
at the earlier of three years or upon consummation of an initial public
offering of the Company. This loan is secured by 823,530 shares of Class B
Common Stock of the Company owned by the stockholder.
The amount due to the stockholder as of December 31, 1996, primarily
represents a distribution payable to the Company's sole stockholder, prior to
reorganization, for previously undistributed earnings of the Company in excess
of $100,000 through December 31, 1996.
9. REDEEMABLE PREFERRED STOCK
In March 1997, the Company sold 3,529,412 shares of 2% Series A Preferred
Stock, convertible initially into one share of the Company's Class A Common
Stock and one share of the Company's 4% Series B Redeemable Preferred Stock, to
a syndicate of institutional investors (the "Private Investors"). The Series A
Preferred Stock had an initial conversion price of $8.50 and net proceeds
received by the Company from the sale of the shares was approximately
$25,300,000 (net of approximately $4,700,000 of issuance costs charged to
retained earnings).
In May 1997, in response to the acknowledgment by the Company that certain of
the financial projections originally provided to the Private Investors prior to
the consummation of the Preferred Stock Offering were substantially different
from revised financial information provided shortly after the Preferred Stock
Offering casting in doubt the continued reasonableness of the original
projections, the Company issued an additional 4,520,588 shares of the Series A
Preferred Stock at no additional consideration, increased by 200 basis points
the rate per annum of cumulative dividends and amended the initial conversion
price to $3.73. Management of the Company revised its projections based on (i)
their revised expectations about the current and anticipated near-term market
conditions for site development services including construction and design
services and (ii) their belief that the domestic market for these services
would probably not be as favorable in 1997 and possibly in 1998 as it was for
the Company in 1996. Management believes this was primarily due to the
inability of certain wireless licensees to obtain financing necessary to begin
their site development activities and changing industry
F-22
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
trends, particularly the move toward outsourcing tower ownership to independent
third parties. Each of the Private Investors executed a release exonerating the
Company from any liability that it may have had in connection with the offering
of Series A Preferred Stock.
The Series A Preferred Stock has the following rights and preferences:
Each holder of Series A Preferred Stock has the right to convert his or her
shares at any time into one share of Class A Common Stock, subject to certain
antidilution protection provisions, and one share of Series B Preferred Stock.
The Series A Preferred Stock will automatically convert into Class A Common
Stock and Series B Preferred Stock upon the earlier of (i) completion by the
Company of a public offering raising gross proceeds of at least $20,000,000 at
an offering price per share greater than or equal to 150% of then applicable
conversion price of the Series A Preferred Stock if such public offering occurs
before June 30, 1998 or at a price per share greater than or equal to 200% of
the then applicable conversion price of the Series A Preferred Stock if such
public offering occurs after June 30, 1998 or (ii) the written consent of the
holders of at least 66 2/3% of the Series A Preferred Stock then outstanding.
The holders of outstanding shares of Series A Preferred Stock are entitled,
in preference to the holders of any and all other classes of capital stock of
the Company (other than the Series B Preferred Stock, which will rank equally
with the Series A Preferred Stock as to dividends), to receive, out of funds
legally available therefore, cumulative dividends on the Series A Preferred
Stock in cash, at a rate per annum of 4% of the Series A Base Liquidation
Amount subject to proration for partial years. The Series Base Liquidation
Amount equals the sum of $3.73 and any accumulated and unpaid dividends on the
Series A Preferred Stock. Accrued but unpaid dividends on the Series A
Preferred Stock will be payable upon conversion of the Series A Preferred Stock
into Class A Common Stock and Series B Preferred Stock. At December 31, 1997,
such accrued and unpaid dividends amounted to $983,333. At March 7, 2002, the
dividend rate of the Series A Preferred Stock will increase to 8% of the Series
A Base Liquidation Amount per annum. On March 7, 2003, the dividend rate on the
Series A Preferred Stock will increase to 14% per year. On March 7, 2002, the
Company will, to the extent it may do so under applicable law, redeem all of
the outstanding shares of Series A Preferred Stock over a two year period, one
half in each year, at an aggregate price equal to the Series A Base Liquidation
Amount.
In the event of any liquidation or winding up of the Company, including a
merger, sale of all of its outstanding shares of capital stock, consolidation
or sale of all or substantially all of the assets of the Company, each holder
of outstanding Shares of Series B Preferred Stock will be entitled to receive
before any amount shall be paid or distributed to the holders of the Common
Stock, an amount in cash equal to the sum of $3.73 per share plus any
accumulated but unpaid dividends to which such holder is entitled.
The holders of Series A Preferred Stock have ten votes for each share until
converted to Class A Common Stock and Series B Preferred Stock and votes with
holders of shares of Class A Common Stock and Class B Common Stock as a single
voting group on all matters brought before the shareholders, except as
otherwise required by law and other restrictive covenants. The Series B
Preferred Stock does not have voting rights.
The holders of the shares of Series A Preferred Stock are entitled to
participate on a pro rata basis in certain issuances of equity securities by
the Company.
The Series B Preferred Stock generally has the same rights and preferences as
the Series A Preferred Stock plus the following rights and preferences:
Upon a qualified public offering, the Company will redeem all of the
outstanding shares of Series B Preferred Stock at an aggregate price equal to
the Series B Base Liquidation Amount.
F-23
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's Articles of Incorporation also provide for the issuance of
Series C Preferred Stock and Series D Preferred Stock. The terms of the Series
C Preferred Stock are substantially similar to the terms of the Series A
Preferred Stock other than the Series C Base Liquidation Amount, which is
currently $4.472 per share. The terms of the Series D Preferred Stock is
substantially similar to the terms of the Series B Preferred Stock other than
the Series D Liquidation Amount, which is $4.472.
Management at this time does not expect to issue any shares of Series C
Preferred Stock or Series D Preferred Stock.
10. INCOME TAXES
The provision for income taxes in the consolidated statements of operations
for the year ended December 31, 1997 consists of the following components:
<TABLE>
<S> <C>
Federal income taxes
Current ..................................................... $5,033,333
Deferred..................................................... (556,280)
----------
4,477,053
----------
State income taxes
Current...................................................... 1,198,413
Deferred..................................................... (79,468)
----------
1,118,945
----------
Total........................................................ $5,595,998
==========
A reconciliation of the statutory U.S. Federal tax rate (34%) and the
effective income tax rate for the year ended December 31, 1997 is as follows:
Federal income tax............................................ $1,993,588
State income tax.............................................. 224,311
Corporate reorganization...................................... 3,248,649
Other......................................................... 129,450
----------
$5,595,998
==========
</TABLE>
The components of the net deferred income tax asset (liability) accounts for
the year ended December 31, 1997 are as follows:
<TABLE>
<S> <C>
Cash to accrual Section 481(a) adjustment................... $(2,087,966)
Allowance for doubtful accounts............................. 203,307
Deferred revenue............................................ 127,723
Other....................................................... 135,222
-----------
Current deferred tax liability.............................. $(1,621,714)
===========
Employee stock compensation................................. $ 2,278,161
Book vs. tax depreciation................................... (154,143)
Other....................................................... 133,444
-----------
Non-current deferred tax asset.............................. $ 2,257,462
===========
</TABLE>
F-24
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
a. Leases
The Company is obligated under several noncancelable operating leases for
office space, vehicles and equipment and antennae tower sites that expire over
the next five years. The annual minimum lease payments under noncancelable
operating leases as of December 31, 1997 are as follow:
<TABLE>
<S> <C>
1998........................................................ $ 5,085,563
1999........................................................ 3,588,659
2000........................................................ 2,355,509
2001........................................................ 1,427,713
2002........................................................ 322,935
Thereafter.................................................. 219,506
-----------
Total....................................................... $12,999,885
===========
</TABLE>
The annual minimum sublease income under noncancellable operating leases as
of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................. $5,287,669
1999............................................................. 4,176,114
2000............................................................. 2,689,327
2001............................................................. 1,547,536
2002............................................................. 332,885
Thereafter....................................................... 300,990
-----------
$14,334,521
===========
</TABLE>
Rent expense for operating leases was $6,134,045, $5,417,233 and $2,569,119
for the years ended December 31, 1997, 1996, and 1995, respectively. Sublease
income from antennae tower sites was $6,433,644, $4,530,152 and $2,758,319 for
the years ended December 31, 1997, 1996 and 1995, respectively.
b. Employment Agreements
The Company currently has employment contracts with the Chief Operating
Officer, the Chief Financial Officer, the Senior Vice President and General
Counsel and the Senior Vice President of Operations. These employment contracts
are for a three year period and provide for minimum annual compensation of
$900,000. Additionally, these contracts provide for incentive bonuses of annual
amounts up to $900,000.
c. Litigation
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes the
resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
F-25
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. HEALTH AND RETIREMENTS PLANS
The Company has a defined contribution profit sharing plan under Section 401
(k) of the Internal Revenue Code that provides for voluntary employee
contributions of 1% to 14% of compensation for substantially all employees.
The company makes a matching contribution of 50% of an employee's first $2,000
of contributions. Company contributions and other expenses associated with the
plan were $126,101, $98,052 and $92,038 for the years ended December 31, 1997,
1996 and 1995, respectively.
13. STOCK OPTIONS AND WARRANTS
As of December 31, 1996, certain of the Company's senior executives
terminated existing employment, incentive and option agreements in exchange
for new employment agreements, immediately exercisable options to purchase
1,425,000 shares of Class A Common Stock. All of the options are exercisable
at $.05 per share. The Company accounted for the grant of options in
accordance with APB No. 25 and, accordingly, recognized a nonrecurring
compensation expense of $7,011,000 in 1996 as a result of the grant of the
options. The expense represents the difference between the exercise price of
the options and the estimated fair value. During March 1997, immediately
following the consummation of the Series A Preferred Stock offering, options
to purchase 264,708 shares of Class A Common Stock were redeemed by the
Company for $8.50 per share. Accordingly, the Company recognized compensation
expense totaling $934,419 which represented the difference between the
redemption value and the fair value of the options at the date of grant.
The Company also has a stock option plan whereby options (both Non-qualified
and Incentive Stock Options), stock appreciation rights and restricted stock
may be granted to directors, key employees and consultants at a price per
share equal to the greater of fair market value or $2.63. A total of 1,800,000
shares of Class A Common Stock are reserved for issuance under this plan.
These options generally vest over three-year periods from the date of grant.
The Company accounts for this plan under APB Opinion No. 25, under which
compensation cost has not been recognized as the exercise price exceeds the
market price of the underlying stock on the grant date. As required by FASB
Statement No. 123 ("FASB 123"), the Company has determined the pro forma
effect of the options granted had the Company accounted for stock options
granted under the fair value method of FASB 123. The Black-Scholes option
pricing model was used with the following assumptions for 1997; risk free
interest rate of 12%, dividend yield of 0%; expected volatility of .001% and
expected lives of 3 years. Had compensation cost for the stock option plan
been determined based on fair value at the date of grant in accordance with
FASB 123, the Company's pro forma net income available to common shareholders
would have totaled $162,111 for the year ended December 31, 1997. The effects
of applying FASB 123 in this pro forma disclosure are not necessarily
indicative of future results.
A summary of the activity of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1995..................... -- $ --
Granted.............................................. 1,425,000 0.05
Outstanding at December 31, 1996..................... 1,425,000 0.05
Granted.............................................. 810,500 2.63
Exercised............................................ (264,708) 0.05
Forfeited/ canceled.................................. (173,500) 2.63
--------- -----
Outstanding at December 31, 1997..................... 1,797,292 $0.96
========= =====
Options exercisable at December 31, 1997............. 1,193,625
=========
Weighted average fair value of options granted during $0.96
the year............................................ =====
</TABLE>
F-26
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, stock options to purchase 763,000 of the total 810,500 granted
during 1997 were granted at an exercise price of $6.00 per share. Based on
revised financial projections of the Company, as discussed at Note 9, the
Company adjusted the exercise price of the 763,000 shares to $2.63 per share.
In connection with the issuance of the redeemable preferred stock the
Company issued a five year warrant enabling the holder to purchase up to
402,500 shares of Class A Common stock with an exercise price of $3.73 per
share. Accordingly, 402,500 shares of Class A Common stock are reserved.
14. SEGMENT DATA
The Company operates principally in two areas of the telecommunications
industry: Site development and Site leasing. Revenue, operating income,
identifiable assets, capital expenditures and depreciation and amortization
pertaining to the segments in which the Company operates are presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Site development......................... $48,240,443 $60,276,160 $22,699,812
Site leasing............................. 6,759,362 4,530,152 2,758,319
----------- ----------- -----------
$54,999,805 $64,806,312 $25,458,131
=========== =========== ===========
Operating income:
Site development......................... $ 5,939,183 $ 3,179,672 $ 2,875,671
Site leasing............................. (312,605) 253,093 427,292
----------- ----------- -----------
$ 5,626,578 $ 3,432,765 $ 3,302,963
=========== =========== ===========
Identifiable assets:
Site development......................... $29,075,879 $17,423,131 $ 7,035,862
Site leasing............................. 15,721,525 637,315 393,339
----------- ----------- -----------
$44,797,404 $18,060,446 $ 7,429,201
=========== =========== ===========
Capital expenditures:
Site development......................... $ 959,453 $ 144,942 $ 660,199
Site leasing............................. 15,332,311 -- --
----------- ----------- -----------
$16,291,764 $ 144,942 $ 660,199
=========== =========== ===========
Depreciation and amortization:
Site development......................... $ 298,900 $ 160,050 $ 73,297
Site leasing............................. 263,753 -- --
----------- ----------- -----------
$ 562,653 $ 160,050 $ 73,297
=========== =========== ===========
</TABLE>
15. SUBSEQUENT EVENTS
a. Preferred Stock Modifications
In February 1998, the terms of the Series A Redeemable Preferred Stock of
the Company were amended to defer payment of cash dividends on or redemptions
of the Series A Preferred Stock until permitted by the terms of the Senior
Discount Notes due 2008. In connection with the amendment, the dividend rate
on the Series A Preferred Stock was increased to 14% of the Series A Base
Liquidation amount commencing March 7, 2003.
F-27
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
b. Rent Expense
In February 1998, the Company moved its corporate headquarters. In
connection with this move the Company vacated its previously leased office
space. The Company had entered into several leases relating to the vacated
space which will expire at various times thru February, 2002. The Company has
recorded rental expense of approximately $500,000 in February, 1998, related
to the vacated space.
c. Bond Offering
On March 2, 1998, the Company closed on $269,000,000 12% Senior Discount
Notes (the "Notes") due March 1, 2008. The issuance of the Notes netted
approximately $150,200,000 in proceeds to the Company. The Notes will accrete
in value until March 1, 2003 at which time they will have an aggregate
principle amount of $269,000,000. Thereafter, interest will accrue on the
Notes and will be payable semi-annually in arrears on March 1 and September 1,
commencing September 1, 2003. The Notes are unsecured obligations of the
Company.
Proceeds from the bond offering will be used to acquire and construct
telecommunications towers as well as for general working capital purposes.
After the issuance of the Notes, the Company will be highly leveraged. The
degree to which the Company will be leveraged following the issuance could
have important consequences to holders of the Notes, including, but not
limited to: (i) making it more difficult for the Company to satisfy its
obligations with respect to the Notes, (ii) increasing the Company's
vulnerability to general adverse economic and industry conditions, (iii)
limiting the Company's ability to obtain additional financing to fund its
growth strategy, future working capital, capital expenditures and other
general corporate requirements, (iv) requiring the dedication of a substantial
portion of the Company's cash flow from operations to the payment of principal
of, and interest on, its indebtedness, thereby reducing the availability of
such cash flow to fund its growth strategy, working capital, capital
expenditures or other general corporate purposes, (v) limiting the Company's
flexibility in planning for, or reacting to, changes in its business and the
industry, and (vi) placing the Company at a competitive disadvantage vis-a-vis
less leveraged competitors. In addition, the degree to which the Company is
leveraged could prevent it from repurchasing any Notes tendered to it upon the
occurrence of a change of control.
There can be no assurance that the Company will generate sufficient cash
flow from operations in the future, that anticipated revenue growth will be
realized or that future borrowings or equity contributions will be available
in amounts sufficient to service its indebtedness and make anticipated capital
expenditures. In addition, there can be no assurance that the Company will be
able to effect any required refinancing of its indebtedness (including the
Notes) on commercially reasonable terms or at all.
The Notes and Credit Agreement contain numerous restrictive covenants,
including but not limited to covenants that restrict the Company's ability to
incur indebtedness, pay dividends; create liens, sell assets and engage in
certain mergers and acquisitions. In addition, the Credit Agreement requires
subsidiaries of the Company to maintain certain financial ratios. The ability
of the Company to comply with the covenants and other terms of the Credit
Agreement and the Notes and to satisfy its respective debt obligations will
depend on the future operating performance of the Company. In the event the
Company fails to comply with the various covenants contained in the Credit
Agreement or the Notes, as applicable, it would be in default thereunder, and
in any such case, the maturity of substantially all of its long-term
indebtedness could be accelerated.
F-28
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD ENDED ENDED YEAR ENDED
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
UNAUDITED UNAUDITED AUDITED
<S> <C> <C> <C>
Net sales............................. $5,005,290 $4,325,619 $6,055,073
Cost of sales:
Labor and related costs............. 568,206 472,136 677,938
Subcontractors and consultants...... 2,426,717 1,809,010 2,690,003
Equipment and vehicle costs and
rentals............................ 453,738 328,963 434,368
Materials and supplies.............. 329,870 339,623 467,822
Travel and per diem cost............ 77,337 82,706 101,878
Engineering, permits and security... 80,037 283,813 311,151
---------- ---------- ----------
Total cost of sales................. 3,935,905 3,316,251 4,683,160
---------- ---------- ----------
Gross profit...................... 1,069,385 1,009,368 1,371,913
---------- ---------- ----------
Operating expenses:
Advertising......................... 1,732 250 1,127
Conferences......................... 2,270 1,110 --
Consultants......................... 5,258 5,590 6,594
Depreciation........................ 10,556 11,553 15,405
Dues and subscriptions.............. 1,713 550 550
Entertainment....................... 6,646 3,741 5,245
Interest............................ 26,735 28,334 36,827
Insurance, employee health.......... 9,701 4,931 6,441
Insurance, general.................. 77,024 47,165 62,887
Insurance, workers compensation..... 52,253 10,389 13,582
Miscellaneous expenses.............. 2,193 2,467 3,272
Office supplies and expenses........ 23,338 12,868 24,729
Payroll taxes....................... 31,878 15,683 22,244
Postage and shipping................ 4,857 3,775 5,783
Professional fees................... 77,038 7,631 8,456
Repairs and maintenance............. 12,983 9,847 20,396
Salaries............................ 376,291 155,680 294,739
Security............................ 362 767 1,036
SEP retirement contribution......... 14,171 7,929 11,536
Taxes and license................... 4,235 13,132 16,978
Telephone........................... 43,477 49,619 66,673
Travel.............................. 13,550 1,317 2,515
Utilities........................... 4,365 5,162 6,797
---------- ---------- ----------
Total operating expenses.......... 802,626 399,490 633,812
---------- ---------- ----------
Income from operations.......... 266,759 609,878 738,101
Other income (expenses):
Interest and dividend income........ 9,879 357 1,128
Bad debt............................ (6,134) -- --
Contributions....................... (7,050) (1,800) (11,900)
Gain on sale of equipment........... 8,796 (1,869) (2,290)
Miscellaneous income (expense)...... 2,200 195 234
---------- ---------- ----------
Net other income (expenses)....... 7,691 (3,117) (12,828)
---------- ---------- ----------
Net income...................... $ 274,450 $ 606,761 $ 725,273
========== ========== ==========
</TABLE>
See accountants' report.
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ----------------- ------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Retained earnings, beginning of
period........................... $ 747,251 $ 517,146 $ 517,146
Net income...................... 274,450 606,661 725,273
Distributions to stockholders:
Cash distributions............ (411,976) (444,235) (495,168)
--------- --------- ---------
Retained earnings, end of period.. $ 609,725 $ 679,572 $ 747,251
========= ========= =========
</TABLE>
See accountants' report.
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 18, 1997 SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ ------------------ -----------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income........... $ 274,450 $ 606,761 $ 725,273
Adjustments to
reconcile net income
to net cash provided
by operating
activities
Depreciation....... 92,307 84,097 112,131
(Gain) loss on sale
of equipment...... (8,796) 1,869 2,290
(Increase) decrease
in:
Accounts
receivable,
trade............. (351,287) (351,602) (201,987)
Accounts
receivable, Segars
Communication
Group, Inc. ...... 6,441 (58,852) (94,203)
Prepaid expenses... (31,663) (16,971) --
Inventories........ (24,690) (9,159) (49,328)
Costs in excess of
billings on
uncompleted
contracts......... 969 (24,074) 64,976
Increases (decreases)
in:
Accounts payable... 697,309 190,364 208,016
Accrued expenses... (19,703) 3,002 8,472
Prepaid leases..... 72,000 -- --
Billings in excess
of costs on
uncompleted
contracts......... 163,692 126,546 (21,343)
----------- --------- ---------
Net cash provided
by operating
activities...... 871,029 551,981 754,297
----------- --------- ---------
Cash flows from invest-
ing activities:
Proceeds from sale of
equipment........... 34,500 5,000 7,400
Purchase of equipment
and tower
construction........ (1,580,873) (102,160) (284,311)
(Increase) decrease
in deposits......... (2,413) 1,000 500
(Increase) decrease
in miscellaneous
receivables......... 6,177 (1,200) (6,654)
----------- --------- ---------
Net cash used by
investing
activities...... (1,542,609) (97,360) (283,065)
----------- --------- ---------
Cash flows from financ-
ing activities:
Payments on notes and
leases payable...... (54,500) (491,154) (503,298)
Loan proceeds........ -- 621,110 785,110
Loan proceeds, SBA... 1,000,000 -- --
Stockholder
distributions....... (411,976) (444,235) (495,168)
----------- --------- ---------
Net cash used by
financing
activities...... 533,524 (314,279) (213,356)
----------- --------- ---------
Net increase
(decrease) in
cash............ (138,056) 140,342 257,876
Cash and cash
equivalents, beginning
of period............. 289,255 31,349 31,349
----------- --------- ---------
Cash and cash
equivalents, end of
period................ $ 151,199 $ 171,691 $ 289,225
=========== ========= =========
</TABLE>
See accountants' report.
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
Business Activity
The Company's primary business activity is the erection and repair of
transmission towers, including hanging of antennae, cabling, and associated
tower components. During 1997, the Company has expanded its business
activities to include building and maintaining towers for internal use. See
Note 5.
Revenue and Cost Recognition
For financial reporting, the Company recognized revenues from fixed-price
and modified fixed-price construction contracts on the percentage-of-
completion method of accounting, determined by the percentage of cost incurred
to date to management's estimated total anticipated cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. These amounts are based on
estimates, and the uncertainty inherent in the estimates initially is reduced
progressively as work on the contracts nears completion.
Contract costs include all direct material, labor, subcontractor costs and
indirect costs related to direct labor. Selling, general and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions and estimated
profitability may result in revisions to costs and income, which are
recognized in the period in which the revisions are determined.
The asset, "Costs & estimated earnings in excess of billings", represents
revenues recognized in excess of amounts billed. The liability, "Billings in
excess of costs & estimated earnings", represents billings in excess of
revenues recognized.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash equivalents includes
all highly liquid investments with an original maturity of three months or
less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Accounts Receivable
Management believes that all accounts receivable are collectible; therefore,
no allowance for uncollectible accounts has been established. Accounts which
are deemed to be uncollectible are charged to expense when that determination
is made.
F-32
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for on
the accelerated method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C> <C> <C>
Office equipment................................ 7 Years Buildings 31 Years
Vehicles........................................ 5 Years Towers 10 Years
Machinery & equipment........................... 5-7 Years
</TABLE>
Certain assets are pledged as security for loan allegations. See Note 4
below. Assets which have not been put into operational use as of the balance
sheet date, are carried at cost as equipment.
Loan Fees
Loan fees are amortized using the straight-line method over the length of
the loan. Loan fees are currently amortized over 120 months.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in the financial statements. The
Company reports income on the cash basis for income tax purposes, which
results in timing differences between income reported for financial statements
and income tax purposes.
Use of Estimates
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 period. Actual results could differ from these estimates.
As of September 18, 1997, the Company had demand deposits on hand in
financial institutions, which exceeded depositor's insurance provided by the
applicable guaranty agency by $47,464.
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Office equipment.................... $ 50,322 $ 37,928 $ 34,714
Vehicles............................ 615,943 344,250 513,090
Machinery and equipment............. 187,954 169,581 173,807
Buildings and improvements.......... 143,446 141,596 141,596
Land................................ 32,000 32,000 32,000
---------- --------- ---------
1,029,665 725,355 895,207
Tower construction in progress...... 1,393,919 -- --
Less: accumulated depreciation.... (394,764) (303,119) (327,674)
---------- --------- ---------
$2,028,820 $ 422,236 $ 567,533
========== ========= =========
</TABLE>
F-33
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
Total depreciation expense is $92,307, $84,097, and $112,131, of which
$81,751, $72,544, and $96,726, are included in the cost of goods sold for the
periods ended September 18, 1997, September 30, 1996, and December 31, 1996.
NOTE 3--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:
<TABLE>
<CAPTION>
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Costs incurred on uncompleted con-
tracts............................ $ 712,296 $ 928,288 $ 1,295,918
Estimated earnings................. 113,602 394,895 223,825
----------- ----------- -----------
825,898 1,323,183 1,519,743
Billings to date................... (1,013,218) (1,406,619) (1,544,340)
----------- ----------- -----------
$ (187,320) $ (83,436) $ (24,597)
=========== =========== ===========
Included in the accompanying balance sheet under the following captions:
<CAPTION>
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Costs & estimated earnings in
excess of billings................ $ 38,585 $ 126,666 $ 37,616
Billings in excess of costs & esti-
mated earnings.................... (225,905) (210,102) (62,213)
----------- ----------- -----------
$ (187,320) $ (83,436) $ (24,597)
=========== =========== ===========
</TABLE>
F-34
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
NOTE 4--NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Note payable to bank, payable in
monthly installments of $2,687,
including interest at 8.25
percent through March 2006.
Secured by real estate........... $256,315 $269,596 $263,312
Note payable to bank, payable in
monthly installments of $859,
including interest at 8.04
percent through January 1999.
Secured by a vehicle. ........... 13,765 21,843 19,684
Note payable to bank, payable in
monthly installments of $3,099,
including interest at 8.25
percent through December 1998.
Secured by a vehicle ............ 145,900 -- 162,066
Capital lease payable, payable in
monthly installments of $140
including interest at 12.21
percent through December 1998.
Secured by equipment............. 2,056 3,289 3,010
Note payable to bank, payable in
monthly installments of $2,821,
including interest at 9 percent
through September 1997. Secured
by equipment..................... -- 32,257 24,464
Note payable to bank, credit line
with $250,000 available. Interest
is payable monthly at 1 percent
over the bank prime. Interest is
at 8 percent at year end. Secured
by accounts receivable and
inventory........................ 1 1 1
-------- -------- --------
Total notes payable............. 418,037 326,986 472,537
Less: current portion......... (49,007) (47,147) (70,952)
-------- -------- --------
Long-term debt portion.......... $369,030 $279,839 $401,585
======== ======== ========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 49,007
1999............................................................. 47,863
2000............................................................. 44,787
2001............................................................. 48,625
2002............................................................. 49,207
Thereafter....................................................... 178,548
--------
$418,037
========
</TABLE>
NOTE 5--BUSINESS SEGMENT AND MAJOR CUSTOMER INFORMATION:
The Company operates in one business segment. The Company is engaged
primarily in the erection and repairs of transmission towers for various
communication companies in the southeast. Accordingly, the risk exists that
the ability to collect amounts due from customers could be affected by
economic fluctuations in the markets for communication towers in the
southeast.
During 1997, the Company has changed some business strategies to include
building and maintaining towers for internal use. This change in strategies,
during the interim process, may cause a decrease in profitability and may
increase demands on cash flows.
F-35
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
NOTE 6--RELATED PARTY TRANSACTIONS:
The Company has common ownership with Segars Communication Group, Inc.
During the periods, certain expenses were paid and revenues were received in
behalf of Segars Communication Group, Inc. The net of these transactions are
reflected in Communication Site Services, Inc.'s books as a net receivable of
$136,934, $108,024, and $143,375 from Segars Communication Group, Inc. at
September 18, 1997, September 30, 1996, and December 31, 1996. Additionally,
the Company has several contracts in progress for a tower construction
projects for Segars Communication Group.
NOTE 7--SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the periods ending September 18, 1997, September 30, 1996,
and December 31, 1996 for interest expense amounts to $26,440, $27,986, and
$36,827.
Significant Non-Cash Transactions:
The Company entered into a capital lease, during 1996, for equipment with an
estimated purchase value of $4,200.
The Company refinanced the mortgage on the warehouse and office building.
The total loan amount was $277,000, with $117,626 going directly to pay off
prior mortgage, $30,323 to pay off short-term borrowings, and $8,258 used to
pay off loan costs. The net cash to the Company amounted to $120,793.
NOTE 8--PENSION PLANS
The Company has a SAR-SEP pension plan covering substantially all employees.
The Company may contribute amounts as determined by the Board of Directors.
The Company has accrued and paid contributions totalling $28,342, $19,829, and
$30,357 for the periods ended September 18, 1997, September 30, 1996, and
December 31, 1996.
NOTE 9--SUBSEQUENT EVENTS:
On July 22, 1997, the Company entered into a purchase and sale agreement.
The agreement, if executed, provides for the purchase of all the assets of
Communication Site Services, Inc. and its related organization. Upon execution
of this agreement, the Company (Communication Site Services, Inc.) would
discontinue operations and all activities of the Company would convert to the
purchaser.
NOTE 10--PRIOR PERIOD ADJUSTMENT:
Certain errors, resulting in both the overstatement and understatement of
previously reported assets, liabilities, and expenses of the 1995 year, were
corrected in 1996, resulting in the following changes to retained earnings as
of January 1, 1996.
<TABLE>
<CAPTION>
RETAINED
EARNINGS
--------
<S> <C>
As previously reported......................................... $488,882
Understatement of costs and estimated earnings in excess of
billings on uncompleted contracts............................. 29,992
Understatement of accounts payable............................. (1,728)
--------
As adjusted.................................................. $517,146
========
</TABLE>
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
March 5, 1997
To the Stockholders of Communication
Site Services, Inc. Ocala, Florida
We have audited the accompanying balance sheet of Communication Site
Services, Inc. (an S corporation) as of December 31, 1996, and the related
statements of income, retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted out audit 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 audit provides 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 Communication Site
Services, Inc. as of December 31, 1996, and the results of operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information contained in
the Schedule of Major Contracts Completed and the Schedule of Contracts in
Progress is presented for purposes of additional analysis and is not required
part of the basic financial statements. Such information has been subject to
the auditing procedures applied in the audit 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.
/s/ Robson, Scribner & Stewart, P.A.
Robson, Scribner & Stewart, P.A.
Certified Public Accountants
F-37
<PAGE>
COMMUNICATION SITE SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents......................................... $ 289,225
Accounts receivable, trade........................................ 666,693
Accounts receivable, miscellaneous................................ 6,654
Accounts receivable, SCGI......................................... 143,375
Inventories....................................................... 78,663
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ 37,616
----------
Total current assets.......................................... 1,222,226
Land, property and equipment:
Land, property and equipment.................................... 895,207
Less: accumulated depreciation.................................. 327,674
----------
Property and equipment, net................................... 567,533
Other assets:
Deposit......................................................... 1,000
Loan fees, net.................................................. 7,799
----------
Total other assets............................................ 8,799
----------
Total assets................................................ $1,798,558
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 496,555
Accrued expenses................................................ 19,902
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... 62,213
Current portion of notes payable................................ 70,952
----------
Total current liabilities..................................... 649,622
Long-term debt, net of current portion............................ 401,585
----------
Total liabilities............................................. 1,051,207
Stockholders' equity:
Common stock, $1 par value, 100 shares issued and outstanding... 100
Retained earnings............................................... 747,251
----------
Total stockholders' equity.................................... 747,351
----------
Total liabilities and stockholders' equity.................. $1,798,558
==========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net sales...................................................... $6,055,073
Cost of sales:
Labor and related costs...................................... 677,938
Subcontractors and consultants............................... 2,690,003
Equipment and vehicle costs and rentals...................... 434,368
Materials and supplies....................................... 467,822
Travel and per diem cost..................................... 101,878
Engineering, permits and security............................ 311,151
----------
Total cost of sales.......................................... 4,683,160
----------
Gross profit............................................... 1,371,913
----------
Operating expenses:
Advertising.................................................. 1,127
Consultants.................................................. 6,594
Depreciation................................................. 15,405
Dues and subscriptions....................................... 550
Entertainment................................................ 5,245
Interest..................................................... 36,827
Insurance, employee health................................... 6,441
Insurance, general........................................... 62,887
Insurance, workers compensation.............................. 13,582
Miscellaneous expenses....................................... 3,272
Office supplies and expenses................................. 24,729
Payroll taxes................................................ 22,244
Postage and shipping......................................... 5,783
Professional fees............................................ 8,456
Radio........................................................ --
Repairs and maintenance...................................... 20,396
Salaries..................................................... 294,739
Security..................................................... 1,036
SEP retirement contribution.................................. 11,536
Taxes and license............................................ 16,978
Telephone.................................................... 66,673
Travel....................................................... 2,515
Utilities.................................................... 6,797
----------
Total operating expenses................................... 633,812
----------
Income from operations................................... 738,101
Other income (expenses):
Interest and dividend income................................. 1,128
Contributions................................................ (11,900)
(Loss) on sale of equipment.................................. (2,290)
Miscellaneous income (expense)............................... 234
----------
Net income................................................. (12,828)
----------
$ 725,273
==========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-----------
<S> <C>
Retained earnings, beginning of year............................ $488,882
Prior period adjustment......................................... 28,264
--------
Retained earnings, beginning of year as restated................ 517,146
Net income...................................................... 725,273
Distributions to stockholders:
Cash distributions............................................ (495,168)
--------
Retained earnings, end of year.................................. $747,251
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net income.................................................. $ 725,273
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 112,131
(Loss) on sale of equipment............................... 2,290
(Increase) decrease in:
Accounts receivable, trade................................ (201,987)
Accounts receivable, Segars Communication Group, Inc. .... (94,203)
Inventories............................................... (49,328)
Costs in excess of billings on uncompleted contracts...... 64,976
Increases (decreases) in:
Accounts payable.......................................... 208,016
Accrued expenses.......................................... 8,472
Billings in excess of costs on uncompleted contracts...... (21,343)
---------
Net cash provided by operating activities..................... 754,297
---------
Cash flows from investing activities:
Proceeds from sale of equipment............................. 7,400
Purchase of equipment....................................... (284,311)
Decrease in deposits........................................ 500
Increase in miscellaneous receivables....................... (6,654)
---------
Net cash used by investing activities......................... (283,065)
---------
Cash flows from financing activities:
Payments on notes and leases payable........................ (503,298)
Loan proceeds............................................... 785,110
Stockholder distributions................................... (495,168)
---------
Net cash used by financing activities......................... (213,356)
---------
Net increase in cash.......................................... 257,876
Cash and cash equivalents, beginning of year.................. 31,349
---------
Cash and cash equivalents, end of year........................ $ 289,225
=========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
Business Activity
The Company's primary business activity is the erection and repair of
transmission towers, including hanging of antennae, cabling and associated
tower components.
Revenue and Cost Recognition
For financial reporting, the Company recognized revenues from fixed-price
and modified fixed-price construction contracts on the percentage-of-
completion method of accounting, determined by the percentage of cost incurred
to date to management's estimated total anticipated cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. These amounts are based on
estimates, and the uncertainty inherent in the estimates initially is reduced
progressively as work on the contracts nears completion.
Contract costs include all direct material, labor, subcontractor costs and
indirect costs related to direct labor. Selling, general and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions and estimated
profitability may result in revisions to costs and income, which are
recognized in the period in which the revisions are determined.
The asset, "Costs & Estimated Earnings in Excess of Billings", represents
revenues recognized in excess of amounts billed. The liability, "Billings in
Excess of Costs & Estimated Earnings", represents billings in excess of
revenues recognized.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash equivalents includes
all highly liquid investments with an original maturity of three months or
less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Accounts Receivable
Management believes that all accounts receivable are collectible, therefore,
no allowance for uncollectible accounts has been established. Accounts which
are deemed to be uncollectible are charged to expense when that determination
is made.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for on
the accelerated method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Office equipment................... 7 years
Vehicles........................... 5 years
Machinery & equipment.............. 5-7 years
Buildings.......................... 31 years
Towers............................. 10 years
</TABLE>
F-42
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Certain assets are pledged as security for loan allegations. See Note 4
below. Assets which have not been put into operational use as of December 31,
1996, are carried at cost as equipment.
Loan Fees
Loan fees are amortized using the straight-line method over the length of
the loan. Loan fees are currently amortized over 120 months.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in the financial statements. The
Company reports income on the cash basis for income tax purposes, which
results in timing differences between income reported for financial statements
and income tax purposes.
Use of Estimates
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 period. Actual results could differ from these estimates.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Office equipment................................................ $ 34,714
Vehicles........................................................ 513,090
Machinery and equipment......................................... 173,807
Buildings and improvements...................................... 141,596
Land............................................................ 32,000
---------
895,207
Less: accumulated depreciation................................ (327,674)
---------
$ 567,533
=========
</TABLE>
Total depreciation expense is $112,131, of which $96,726, is included in the
cost of goods sold for the year ended December 31, 1996.
NOTE 3--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Costs incurred on uncompleted contracts...................... $ 1,295,918
Estimated earnings........................................... 223,825
-----------
1,519,743
Billings to date............................................. (1,544,340)
-----------
$ (24,597)
===========
</TABLE>
F-43
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Included in the accompanying balance sheet under the following captions:
<TABLE>
<S> <C>
Costs & estimated earnings in excess of billings................ $ 37,616
Billings in excess of costs & estimated earnings................ (62,213)
--------
$(24,597)
========
</TABLE>
NOTE 4--NOTES PAYABLE
Notes payable consist of the following at December 31, 1996:
<TABLE>
<S> <C>
1996
--------
Notes payable to bank, payable in monthly installments of
$2,687, including interest at 8.25 percent through March, 2006.
Secured by real estate with a net book value of $151,185 at
year end....................................................... $263,312
Notes payable to bank, payable in monthly installments of $859,
including interest at 8.04 percent through January, 1999.
Secured by a vehicle with a net book value of $21,621 at year
end............................................................ 19,684
Notes payable to bank, payable in monthly installments of
$3,099, including interest at 8.25 percent through December,
1998. Secured by a vehicle with a net book value of $173,840 at
year end....................................................... 162,066
Capital lease payable, payable in monthly installments of $140
including interest at 12.21 percent through December, 1998.
Secured by equipment with a net book value of $3,600........... 3,010
Note payable to bank, payable in monthly installments of $2,821,
including interest at 9 percent through September, 1997.
Secured by equipment with a net book value of $34,735 at year
end............................................................ 24,464
Note payable to bank, credit line with $250,000 available.
Interest is payable monthly at 1 percent over the bank prime.
Interest is at 8 percent at year end. Secured by real estate
owned by the stockholder....................................... 1
--------
Total notes payable........................................... 472,537
Less: current portion....................................... (70,952)
--------
Long-term debt portion........................................ $401,585
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
<S> <C>
1997.............................................................. $ 70,952
1998.............................................................. 49,854
1999.............................................................. 42,587
2000.............................................................. 32,845
2001.............................................................. 49,233
Thereafter........................................................ 227,066
--------
$472,537
========
</TABLE>
F-44
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
NOTE 5--SCHEDULE OF CONTRACT BACKLOG
The following schedule summarizes changes in backlog contracts during the
year ended December 31, 1996. Backlog represents the amount of revenue the
company expects to realize from work to be performed or uncompleted contracts
in progress at year end and from contracted agreements on which work has not
yet begun.
<TABLE>
<S> <C>
Balance, January 1, 1996....................................... $ 249,899
New contracts during 1996...................................... 7,675,843
----------
7,925,742
Less: contract revenue earned, 1996............................ 6,055,073
----------
Balance, December 31, 1996..................................... $1,870,669
==========
</TABLE>
NOTE 6--BUSINESS SEGMENT AND MAJOR CUSTOMER INFORMATION
The Company operates in one business segment. The Company is engaged
primarily in the erection and repairs of transmission towers for various
communication companies in the southeast. Accordingly, the risk exists that
the ability to collect amounts due from customers could be affected by
economic fluctuations in the markets for communication towers in the
southeast. At December 31, 1996, 83 percent of the accounts receivable balance
is owed by two customers.
Approximately 10 percent of the Company's sales for 1996 are comprised of
one job site. The Additional Information on pages F-41 and F-42 contain
schedules of major contracts completed during 1996, and contracts in progress
at year end.
NOTE 7--RELATED PARTY TRANSACTIONS
The Company has common ownership with Segars Communication Group, Inc.
During the year, certain expenses were paid and revenues received in behalf of
Segars Communication Group, Inc. The net of these transactions are reflected
in Communication Site Services, Inc.'s books as a receivable of $143,376 from
Segars Communication Group, Inc., at December 31, 1996. Additionally, at
December 31, 1996, the Company has a contract in progress for a tower
construction project for Segars Communication Group. See contract number 96-78
on the Schedule of Contracts in Progress.
NOTE 8--SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year ended December 31,1996, for interest expense is
$36,872.
Significant Non-Cash Transactions:
. The Company entered into a capital lease during 1996 for equipment with
an estimated purchase value of $4,200.
F-45
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
. The Company refinanced the mortgage on the warehouse and office
building. The total loan amount was $277,000, with $117,626 going
directly to pay off prior mortgage, $30,323 to pay off short-term
borrowings and $8,258 used to pay loan costs. The net cash to the
Company amounted to $120,793.
NOTE 9--PENSION PLANS
The Company has a SAR-SEP pension plan covering substantially all employees.
The Company may contribute amounts as determined by the Board of Directors.
The Company has accrued and paid contributions totalling $30,357 for the year
ended December 31, 1996.
NOTE 10--PRIOR PERIOD ADJUSTMENT
Certain errors, resulting in both the overstatement and understatement of
previously reported assets, liabilities and expenses of the prior year were
corrected this year, resulting in the following changes to retained earnings
as of December 31, 1995:
<TABLE>
<CAPTION>
RETAINED
EARNINGS
--------
<S> <C>
As previously reported............................................ $488,882
Understatement of costs and estimated earnings
in excess of billings on uncompleted contracts................... 29,992
Understatement of accounts payable................................ (1,728)
--------
As adjusted..................................................... $517,146
========
</TABLE>
F-46
<PAGE>
COMMUNICATION SITE SERVICES, INC.
SCHEDULE OF MAJOR CONTRACTS COMPLETED
SCHEDULE 1
<TABLE>
<CAPTION>
1996
----------
CONTRACT
CONTRACT OVER $100,000 REVENUES
- ---------------------- ----------
<S> <C>
95-49............................................................. $ 249,427
96-14............................................................. 110,546
96-34............................................................. 120,060
96-35............................................................. 106,390
96-41............................................................. 106,115
96-46............................................................. 110,050
96-47............................................................. 123,445
96-50............................................................. 172,755
96-52............................................................. 114,866
96-53............................................................. 111,220
96-54............................................................. 154,762
96-56............................................................. 113,865
96-66............................................................. 111,500
96-67............................................................. 106,295
----------
Total contracts over $100,000....................................... 1,811,296
Contracts over $50,000 less $100,000................................ 1,590,630
Contracts less $50,000.............................................. 1,133,404
----------
Contract revenues from completed contracts in 1996.................. $4,535,330
==========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
COMMUNICATION SITE SERVICES, INC.
SCHEDULE OF CONTRACTS IN PROGRESS
FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE 2
<TABLE>
<CAPTION>
ESTIMATED CONTRACT COST IN BILLINGS
CONTRACT GROSS REVENUES COST TO GROSS BILLINGS COSTS TO EXCESS OF IN EXCESS PERCENT
CONTRACT PRICE PROFIT EARNED DATE PROFIT TO DATE COMPLETE BILLINGS OF COSTS COMPLETE
- -------- ---------- --------- ---------- ---------- -------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96-13........... $ 164,920 $ 35,005 $ 150,321 $ 118,415 $ 31,906 $ 164,920 $ 11,500 $ 0 $14,599 91.2%
96-30........... 177,910 39,260 176,293 137,390 38,903 177,910 1,260 0 1,617 99.0%
96-31........... 206,023 27,336 203,963 176,715 27,248 206,023 1,972 2,060 99.0%
96-43........... 108,240 16,732 58,654 49,587 9,067 76,890 41,921 0 18,236 54.2%
96-61........... 146,857 32,273 110,290 86,053 24,237 130,017 28,531 0 19,727 75.1%
96-69........... 1,115,910 112,387 615,424 553,427 61,997 620,910 450,096 0 5,486 55.2%
96-78........... 178,427 0 77,015 77,015 0 62,582 101,412 14,433 0 43.0%
96-79........... 67,090 13,780 66,956 53,193 13,763 60,605 117 6,351 0 99.8%
96-81........... 162,500 32,500 0 0 0 0 130,000 0 0 0.0%
96-82........... 121,018 24,204 0 0 0 0 96,814 0 0 0.0%
96-80........... 171,500 34,300 0 0 0 0 137,200 0 0 0.0%
96-83........... 105,450 21,090 0 0 0 0 84,360 0 0 0.0%
96-84........... 164,177 27,810 6,567 5,025 1,542 0 131,342 6,567 0 4.0%
96-85........... 217,430 43,485 0 144 (144) 0 173,801 0 0 0.0%
96-86........... 38,850 6,603 38,850 32,247 6,603 30,885 0 7,965 0 100.0%
96-87........... 101,775 30,532 0 0 0 0 71,243 0 0 0.0%
96-88........... 12,098 7,869 12,098 4,229 7,869 11,298 0 800 0 100.0%
96-89........... 33,925 10,177 1,812 1,269 543 2,300 22,479 0 488 5.3%
96-91........... 46,312 13,894 0 0 0 0 32,418 0 0 0.0%
96-93........... 25,000 (1,996) 500 319 181 0 26,677 500 0 2.0%
96-94........... 25,000 3,869 1,000 890 110 0 20,241 1,000 0 4.0%
---------- -------- ---------- ---------- -------- ---------- ---------- ------- -------
$3,390,412 $531,110 $1,519,743 $1,295,918 $223,825 $1,544,340 $1,563,384 $37,616 $62,213
========== ======== ========== ========== ======== ========== ========== ======= =======
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
December 23, 1997
To the Stockholders of
Communication Site Services, Inc.
Ocala, Florida
We have audited the accompanying balance sheet of Communication Site
Services, Inc. (an S corporation) as of December 31, 1995, and the related
statements of income, retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Communication Site
Services, Inc. as of December 31, 1995, and the results of operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information contained in
the Schedule of Major Contracts Completed and the Schedule of Contracts in
Progress is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit 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.
/s/ Robson, Scribner & Stewart, P.A.
_____________________________________
ROBSON, SCRIBNER & STEWART, P.A.
Certified Public Accountants
F-49
<PAGE>
COMMUNICATION SITE SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents......................................... $ 31,349
Accounts receivable, trade........................................ 464,706
Accounts receivable, miscellaneous................................ --
Accounts receivable, SCGI......................................... 49,172
Inventories....................................................... 29,335
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ 102,592
----------
Total current assets.......................................... 677,154
Land, property and equipment:
Land, property and equipment.................................... 629,220
Less: accumulated depreciation.................................. 228,377
----------
Net property and equipment, net............................... 400,843
Other assets:
Deposit......................................................... 1,500
Loan fees, net.................................................. --
----------
Total other assets............................................ 1,500
----------
Total assets................................................ $1,079,497
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 288,539
Accrued expenses................................................ 11,430
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... 83,556
Current portion of notes payable................................ 37,201
----------
Total current liabilities..................................... 420,726
Long-term debt, net of current portion............................ 141,525
----------
Total liabilities............................................. 562,251
Stockholders' equity:
Common stock, $1 par value, 100 shares issued and outstanding... 100
Retained earnings............................................... 517,146
----------
Total stockholders' equity.................................... 517,246
----------
Total liabilities and stockholders' equity.................. $1,079,497
==========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales.......................................................... $3,479,153
Cost of sales...................................................... 2,734,460
----------
Gross profit................................................... 744,693
----------
Operating expenses:
Advertising...................................................... 1,090
Consultants...................................................... --
Depreciation..................................................... 10,023
Dues and subscriptions........................................... 2,977
Entertainment.................................................... 2,291
Interest......................................................... 23,755
Insurance, employee health....................................... 17,365
Insurance, general............................................... 23,629
Insurance, workers compensation.................................. 87,347
Miscellaneous expenses........................................... 412
Office supplies and expenses..................................... 8,625
Payroll taxes.................................................... 42,355
Postage and shipping............................................. 2,351
Professional fees................................................ 5,269
Radio............................................................ 109
Repairs and maintenance.......................................... 7,818
Salaries......................................................... 155,103
Security......................................................... 945
SEP retirement contribution...................................... 2,224
Taxes and license................................................ 9,995
Telephone........................................................ 40,166
Travel........................................................... --
Utilities........................................................ 4,764
----------
Total operating expenses....................................... 448,613
----------
Income from operations....................................... 296,080
Other income (expenses):
Interest and dividend income..................................... 472
Contributions.................................................... (3,775)
(Loss) on sale of equipment...................................... 1,855
Miscellaneous income (expense)................................... 180
----------
Net income..................................................... (1,268)
----------
$ 294,812
==========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Retained earnings, beginning of year............................... $303,219
Net income......................................................... 294,812
Distributions to stockholders:
Cash distributions............................................... (80,885)
--------
Retained earnings, end of year..................................... $517,146
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
COMMUNICATION SITE SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Cash flows from operating activities:
Net income...................................................... $ 294,812
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................. 84,581
(Loss) on sale of equipment................................... (1,855)
(Increase) decrease in:
Accounts receivable, trade.................................... (151,299)
Accounts receivable, Segars Communication Group, Inc. ........ (31,609)
Inventories................................................... (942)
Costs in excess of billings on uncompleted contracts.......... (94,194)
Increases (decreases) in:
Accounts payable.............................................. 206,296
Accrued expenses.............................................. 11,313
Billings in excess of costs on uncompleted contracts.......... 33,313
---------
Net cash provided by operating activities......................... 350,416
---------
Cash flows from investing activities:
Proceeds from sale of equipment................................. 8,000
Purchase of equipment........................................... (159,500)
Decrease in deposits............................................
Increase in miscellaneous receivables...........................
---------
Net cash used by investing activities............................. (151,500)
---------
Cash flows from financing activities:
Payments on notes and leases payable............................ (112,564)
Loan proceeds................................................... 0
Stockholder distributions....................................... (80,885)
---------
Net cash used by financing activities............................. (193,449)
---------
Net increase in cash.............................................. 5,467
Cash and cash equivalents, beginning of year...................... 25,882
---------
Cash and cash equivalents, end of year............................ $ 31,349
=========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
Business Activity
The Company's primary business activity is the erection and repair of
transmission towers, including hanging of antennae, cabling, and associated
tower components.
Revenue and Cost Recognition
For financial reporting, the Company recognized revenues from fixed-price
and modified fixed-price construction contracts on the percentage-of-
completion method of accounting, determined by the percentage of cost incurred
to date to management's estimated total anticipated cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. These amounts are based on
estimates, and the uncertainty inherent in the estimates initially is reduced
progressively as work on the contracts nears completion.
Contract costs include all direct material, labor, subcontractor costs and
indirect costs related to direct labor. Selling, general and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions and estimated
profitability may result in revisions to costs and income, which are
recognized in the period in which the revisions are determined.
The asset, "Costs & Estimated Earnings in Excess of Billings", represents
revenues recognized in excess of amounts billed. The liability, "Billings in
Excess of Costs & Estimated Earnings", represents billings in excess of
revenues recognized.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash equivalents includes
all highly liquid investments with an original maturity of three months or
less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Accounts Receivable
Management believes that all accounts receivable are collectible, therefore,
no allowance for uncollectible accounts has been established. Accounts which
are deemed to be uncollectible are charged to expense when that determination
is made.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for on
the accelerated method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Office equipment................... 7 years
Vehicles........................... 5 years
Machinery & equipment.............. 5-7 years
Buildings.......................... 31 years
Towers............................. 10 years
</TABLE>
F-54
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
Certain assets are pledged as security for loan obligations. See Note 4
below. Assets which have not been put into operational use as of December
31,1996, are carried at cost as equipment.
Loan Fees
Loan fees are amortized using the straight-line method over the length of
the loan. Loan fees are currently amortized over 60 months.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in the financial statements. The
Company reports income on the cash basis for income tax purposes, which
results in timing differences between income reported for financial statements
and income tax purposes.
Use of Estimates
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 period. Actual results could differ from these estimates.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Office equipment................................................ $ 14,092
Vehicles........................................................ 286,524
Machinery and equipment......................................... 156,794
Buildings and improvements...................................... 139,810
Land............................................................ 32,000
---------
629,220
Less: Accumulated depreciation................................ (228,377)
---------
$ 400,843
=========
</TABLE>
Total depreciation expense is $84,581, of which $74,558, is included in the
cost of goods sold for the year ended December 31, 1995.
NOTE 3--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Costs incurred on uncompleted contracts.......................... $739,112
Estimated earnings............................................... 209,341
--------
948,261
Billings to date................................................. (929,225)
--------
$ 19,036
========
</TABLE>
F-55
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
Included in the accompanying balance sheet under the following captions:
<TABLE>
<S> <C>
Costs & estimated earnings in excess of billings................. $102,592
Billings in excess of costs & estimated earnings................. (83,556)
--------
$ 19,036
========
</TABLE>
NOTE 4--NOTES PAYABLE
Notes payable consist of the following at December 31, 1995:
<TABLE>
<S> <C>
1995
--------
Note payable to bank, payable in monthly installments of $1,290,
including interest at 8 percent through July, 2007. Secured by
real estate with a net book value of $156,061 at year end...... $117,630
Note payable to bank, payable in monthly installments of $387,
including interest at 9.746 percent through June 1997. Secured
by a vehicle with a net book value of $8,294 at year end....... 6,464
Note payable to bank, payable in monthly installments of $2,821,
including interest at 9 percent through September 1997. Secured
by a vehicle with a net book value of $53,462 at year end...... 54,631
Note payable to bank, credit line with $150,000 available.
Interest is payable monthly at 2 percent over the bank prime.
Interest is at 8 percent at year end. Secured by real estate
owned by the stockholder....................................... 1
--------
Total notes payable........................................... 178,726
Less: current portion....................................... (37,201)
--------
Long-term debt portion........................................ $141,525
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
<S> <C>
1997.............................................................. $ 37,201
1998.............................................................. 33,544
1999.............................................................. 7,380
2000.............................................................. 7,993
2001.............................................................. 7,233
Thereafter........................................................ 48,174
--------
$141,525
========
</TABLE>
F-56
<PAGE>
COMMUNICATION SITE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
NOTE 5--SCHEDULE OF CONTRACT BACKLOG
The following schedule summarizes changes in backlog contracts during the
year ended December 31, 1995. Backlog represents the amount of revenue the
company expects to realize from work to be performed or uncompleted contracts
in progress at year end and from contracted agreements on which work has not
yet begun.
<TABLE>
<S> <C>
Balance, January 1, 1995....................................... $ 112,068
New contracts during 1995...................................... 3,616,984
----------
3,729,052
Less: contract revenue earned, 1995............................ 3,479,153
----------
Balance, December 31, 1995..................................... $ 249,899
==========
</TABLE>
NOTE 6--BUSINESS SEGMENT AND MAJOR CUSTOMER INFORMATION
The Company operates in one business segment. The Company is engaged
primarily in the erection and repairs of transmission towers for various
communication companies in the southeast. Accordingly, the risk exists that
the ability to collect amounts due from customers could be affected by
economic fluctuations in the markets for communication towers in the
southeast. At December 31, 1995, 92 percent of the accounts receivable balance
is owed by five customers.
Approximately 37 percent of the Company's sales for 1996 are comprised of
eight job sites. The Additional Information on pages F-53 and F-54 contain
schedules of major contracts completed during 1995, and contracts in progress
at year end.
NOTE 7--RELATED PARTY TRANSACTIONS
The Company has common ownership with Segars Communication Group, Inc.
During the year, certain expenses were paid and revenues received in behalf of
Segars Communication Group, Inc. The net of these transactions are reflected
in Communication Site Services, Inc.'s books as a receivable of $49,172 from
Segars Communication Group, Inc., at December 31, 1995. Additionally, at
December 31, 1995, the Company has a contract in progress for a tower
construction project for Segars Communication Group. See contract labeled
Owens Road on the Schedule of Contracts in Progress. The amount due on this
contract of $82,901, is included in Accounts Receivable Trade as part of the
tower construction project for Segars Communications Group, Inc.
NOTE 8--SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year ended December 31,1995 for interest expense is
$23,755.
NOTE 9--PENSION PLANS
The Company has a SAR-SEP pension plan covering substantially all employees.
The Company may contribute amounts as determined by the Board of Directors.
The Company has accrued and paid contributions totalling $2,224 for the year
ended December 31, 1995.
F-57
<PAGE>
COMMUNICATION SITE SERVICES, INC.
SCHEDULE OF MAJOR CONTRACTS COMPLETED
SCHEDULE 1
<TABLE>
<CAPTION>
1995
----------
CONTRACT
CONTRACT OVER $100,000 REVENUES
- ---------------------- ----------
<S> <C>
Cellular One-DA II................................................ $ 237,095
Havana............................................................ 174,471
Nutall Rise....................................................... 167,185
Ponce de Leon..................................................... 147,100
Clarksville....................................................... 144,987
Capital Circle.................................................... 142,397
North Bay......................................................... 142,378
Holopaw........................................................... 126,929
----------
Total contracts over $100,000....................................... $1,282,542
==========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
COMMUNICATIONS SITE SERVICES, INC.
SCHEDULE OF CONTRACTS IN PROGRESS
FOR THE YEAR ENDED DECEMBER 31, 1995
SCHEDULE 2
<TABLE>
<CAPTION>
ESTIMATED COST IN BILLINGS
CONTRACT GROSS REVENUES COST TO GROSS BILLINGS COSTS TO EXCESS OF IN EXCESS PERCENT
CONTRACT PRICE PROFIT EARNED DATE PROFIT TO DATE COMPLETE BILLINGS OF COSTS COMPLETE
-------- ---------- --------- -------- -------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plant City.............. $ 691,212 $172,764 $681,535 $511,348 $170,345 $612,712 $ 7,100 $ 68,823 $ -- 98.6%
Greenland............... 61,883 15,471 53,838 40,412 13,460 55,694 6,000 -- 1,856 87.0%
Winter Park Roof........ 61,765 15,265 -- -- -- 55,589 46,500 -- 55,589 0.0%
Orange Park............. 38,718 9,773 33,375 24,945 8,424 34,718 4,000 -- 1,343 86.2%
Anders.................. 79,465 19,873 56,659 42,492 14,169 71,519 17,100 -- 14,860 71.3%
Jax Bch Water Twr....... 50,683 12,624 345 259 88 -- 37,800 345 -- 0.7%
Worthington Wireless ... 7,150 1,759 3,432 2,591 844 -- 2,800 3,432 -- 48.0%
Sprint Generators....... 11,985 4,727 2,077 1,258 818 11,985 6,000 -- 9,908 17.3%
Callahan................ 43,370 3,338 15,396 14,203 1,193 2,171 25,829 13,225 --
Owens Road.............. 151,929 -- 101,604 101,604 -- 84,837 50,325 16,767 --
---------- -------- -------- -------- -------- -------- -------- -------- -------
$1,198,160 $255,594 $948,261 $739,112 $209,341 $929,225 $203,454 $102,592 $83,556
========== ======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED NINE MONTHS ENDED YEAR ENDED
------------------ ------------------ -----------------
SEPTEMBER 18, 1997 SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ ------------------ -----------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Net sales............... $194,204 $275,871 $362,960
Cost of sales........... 72,378 197,004 248,828
-------- -------- --------
Gross profit........ 121,826 78,867 114,132
-------- -------- --------
Operating expenses:
Advertising........... 500 2,073 3,136
Amortization.......... 2,770 2,173 2,897
Bank service charges.. -- 33 33
Depreciation.......... 358 1,675 2,233
Dues and
subscriptions........ -- 30 30
Entertainment......... -- 286 286
Insurance............. -- 4,249 5,779
Interest.............. 41,174 22,244 29,911
Office expense........ -- 1,390 1,412
Penalties............. -- -- 54
Professional fees..... 1,570 1,116 3,291
Rent.................. -- 1,597 2,290
Repairs and
maintenance.......... -- 150 150
Taxes and license..... 398 3,330 4,352
Telephone............. 524 5,038 6,302
Travel................ -- 264 264
Utilities............. -- 16 16
Vehicle expense....... -- 1,605 1,605
-------- -------- --------
Total operating
expenses........... 47,294 47,269 64,041
-------- -------- --------
Income from
operations....... 74,532 31,598 50,091
Other income (expenses):
Miscellaneous income.. 713 538 660
Contributions......... (13,988) (7,416) (15,676)
Gain on sale of
equipment............ -- 3,006 3,006
-------- -------- --------
Net other income
(expenses)......... (13,275) (3,872) (12,010)
-------- -------- --------
Net income........ $ 61,257 $ 27,726 $ 38,081
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE PERIODS ENDED SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, ANDFOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED UNAUDITED
SEPTEMBER SEPTEMBER DECEMBER
18, 1997 30, 1996 31, 1996
--------- --------- ---------
<S> <C> <C> <C>
Retained Earnings, Beginning of Period.......... $ 17,834 $(20,247) $(20,247)
Net Income..................................... 61,257 27,726 38,081
Distributions to Stockholders:
Cash and Property Distributions............... (123,755) -- --
--------- -------- --------
Retained Earnings (Deficit), End of Period...... $ (44,664) $ 7,479 $ 17,834
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 18, 1997 SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ ------------------ -----------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income........... $ 61,257 $ 27,726 $ 38,081
Adjustments to
reconcile net income
to net cash provided
by operating
activities
Depreciation....... 32,951 39,408 52,541
Amortization....... 2,770 2,173 2,897
(Gain) on sale of
equipment......... 0 (3,006) (3,006)
(Increase) decrease
in:
Accounts
receivable,
trade............. 2,567 (1,933) (4,947)
Deposits........... 9,840 (4,310) (9,310)
Inventories........ 0 (1,200) (1,200)
Increases (decreases)
in:
Accounts payable... 11,946 (54) (54)
Accounts payable--
CSSI.............. (6,443) 58,852 94,205
Accrued expenses... 2,005 4,509 1,605
Customer deposits.. 18,160 10,456 7,914
-------- -------- --------
Net cash provided
by operating
activities...... 135,053 132,621 178,726
-------- -------- --------
Cash flows from
investing activities:
Purchase of
equipment........... (284,417) (160,784) (226,174)
Proceeds from sale of
equipment........... 0 4,000 4,000
-------- -------- --------
Net cash used by
investing
activities...... (284,417) (156,784) (222,174)
-------- -------- --------
Cash flows from
financing activities:
Payments on notes
payable............. (77,813) (25,384) (35,590)
Stockholder
distributions....... (123,755) 0 (64,077)
Stockholder loans.... 0 (7,377) 0
Loan proceeds........ 390,000 95,000 133,500
-------- -------- --------
Net cash provided
by financing
activities...... 188,432 (62,239) 33,833
-------- -------- --------
Net increase
(decrease) in
cash............ 39,068 38,070 (9,615)
Cash and cash
equivalents, beginning
of period............. 6,315 15,927 15,927
-------- -------- --------
Cash and cash
equivalents, end of
period................ $ 45,383 $ 51,003 $ 6,312
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
Business Activity
The Company's primary business activity is leasing air space on transmission
towers.
Revenue and Cost Recognition
The Company recognizes revenues on a monthly basis under the terms of the
signed lease contracts.
Cost of sales include all tower repairs, commission expense, land leases,
engineering costs and directly related depreciation costs. Selling, general
and administrative costs are charged to expense as incurred.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash equivalents includes
all highly liquid investments with an original maturity of three months or
less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Accounts Receivable
Management believes that all accounts receivable are collectible; therefore,
no allowance for uncollectible accounts has been established. Accounts which
are deemed to be uncollectible are charged as an expense when that
determination is made.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for on
the accelerated method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Office Equipment.............................................. 5 Years
Buildings and Improvements.................................... 10-15 Years
Towers and Improvements....................................... 10 Years
Machinery and Equipment....................................... 5 Years
</TABLE>
Certain assets are pledged as security for loan obligations. See Note 3
below.
Loan Fees and Organizational Costs
Loan fees are amortized using the straight-line method over the length of
the loan. Organizational costs are amortized using the straight-line method
over 60 months.
F-63
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in the financial statements.
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Office Equipment.................... $ 1,912 $ 1,912 $ 1,912
Towers & Improvements............. 455,248 223,609 288,998
Machinery & Equipment............. 321 321 321
Buildings and Improvements........ 298,477 180,309 180,309
Land.............................. 145,974 145,974 145,974
--------- --------- ---------
901,932 552,125 617,514
Less: Accumulated Depreciation.... (147,001) (100,440) (114,050)
--------- --------- ---------
$ 754,931 $ 451,685 $ 503,464
========= ========= =========
</TABLE>
Total depreciation expense for the period ended September 18, 1997 and
September 30, 1996 is $32,951 and $32,593 of which $32,593 and $37,733 is
included in the cost of goods sold. Total depreciation expense for the year
ended December 31, 1996 is $52,544 of which $50,311 is included in the cost of
goods sold.
NOTE 3--NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 18, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Note payable to bank, payable in
monthly installments of $4,005,
including interest at 9.25 percent
through December, 2000............ $166,547 $197,384 $189,917
Note payable to bank, payable in
monthly installments of $2,432,
including interest at 9.25 percent
through May, 2003................. 128,265 143,618 140,987
Note payable to bank, payable in
monthly installments of $3,205,
including interest at 8.50 percent
through August, 2004.............. 202,288 -- --
Note payable to bank, payable in
monthly installments of $3,028,
including interest at 8.5 percent
through Sept., 2004............... 191,132 -- --
Note payable to bank, payable in
monthly installments of $359,
including interest at 9.5 percent
through June, 2016................ -- -- 38,391
-------- -------- --------
Total Notes Payable.............. 688,232 341,002 369,295
Less: Current Portion............ (96,035) (42,117) (49,436)
-------- -------- --------
Long-Term Debt Portion........... $592,197 $298,885 $319,859
======== ======== ========
</TABLE>
F-64
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 18, 1997, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
Maturities of long-term debt are as follows as of September 18, 1997:
<TABLE>
<S> <C>
1998............................................................. $ 97,381
1999............................................................. 106,424
2000............................................................. 116,308
2001............................................................. 123,106
Thereafter....................................................... 148,978
--------
$592,197
========
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS:
The Company has common ownership with Communication Site Services, Inc.
During the year, certain expenses were paid and revenues received in behalf of
Communication Site Services, Inc. The net of these transactions are reflected
in Segars Communication Group, Inc.'s books as a payable to Communication Site
Services, Inc., of $136,934, $108,024, and $143,377, at September 18, 1997,
September 30, 1996, and December 31, 1996.
NOTE 5--SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the periods ended September 18, 1997 and September 30,
1996, for interest expense is $41,174 and $21,471, and for the year ended
December 31, 1996, is $29,911.
Significant Non-Cash Transactions:
During the period ending September 18, 1997, the Company obtained financing
for two new notes totalling $396,750. Loan costs were deducted from the note
balances providing for net cash loan proceeds of $390,000.
During 1996, the Company obtained financing for two new notes totalling
$138,500. Loan costs were deducted from the note balances providing for net
cash loan proceeds of $133,500.
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
January 9, 1998
To the Stockholders of
Segars Communication Group, Inc.
Ocala, Florida
We have audited the accompanying balance sheet of Segars Communication
Group, Inc. (an S corporation) as of December 31, 1996, and the related
statements of income, retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Segars Communication
Group, Inc. as of December 31, 1996, and the results of operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Robson, Scribner & Stewart, P.A.
_____________________________________
ROBSON, SCRIBNER & STEWART, P.A.
Certified Public Accountants
F-66
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 6,315
Accounts receivable, trade....................................... 5,780
Inventories...................................................... 9,923
--------
Total current assets........................................... 22,018
Land, property and equipment:
Land, property and equipment..................................... 617,514
Less: accumulated depreciation................................... 114,050
--------
Net property and equipment..................................... 503,464
Other assets:
Deposit.......................................................... 11,095
Intangible assets, net........................................... 9,314
--------
Total other assets............................................. 20,409
--------
Total assets................................................. $545,891
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ --
Accounts payable--Communication Site Services, Inc. ............. 143,377
Customer deposits................................................ 9,825
Accrued expenses................................................. 3,987
Current portion of notes payable................................. 49,436
--------
Total current liabilities...................................... 206,625
Long-term debt, net of current portion............................. 319,859
Loan payable, stockholder.......................................... 1,373
--------
Total liabilities.............................................. 527,857
Stockholders' equity:
Common stock, $1 par value, 200 shares issued and outstanding.... 200
Retained earnings (deficit)...................................... 17,834
--------
Total stockholders' equity (deficit)........................... 18,034
--------
Total liabilities and stockholders' equity................... $545,891
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net sales.......................................................... $362,960
Cost of sales...................................................... 248,828
--------
Gross profit..................................................... 114,132
--------
Operating expenses:
Advertising...................................................... 3,136
Amortization..................................................... 2,897
Bank charges..................................................... 33
Depreciation..................................................... 2,233
Dues and subscriptions........................................... 30
Entertainment.................................................... 286
Interest......................................................... 29,911
Insurance........................................................ 5,779
Office supplies and expenses..................................... 1,412
Penalties........................................................ 54
Professional fees................................................ 3,291
Repairs and maintenance.......................................... 150
Rent............................................................. 2,290
Taxes and license................................................ 4,352
Telephone........................................................ 6,302
Travel........................................................... 264
Utilities........................................................ 16
Vehicle expense.................................................. 1,605
--------
Total operating expenses....................................... 64,041
--------
Income (loss) from operations...................................... 50,091
Other income (expenses):
Contributions.................................................... (15,676)
Donations........................................................ --
Gain on sale of equipment........................................ 3,006
Miscellaneous income............................................. 660
--------
Net other income (expenses).................................... (12,010)
--------
Net income (loss)................................................ $ 38,081
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Retained earnings, beginning of year............................... $(20,247)
Net income......................................................... 38,081
--------
Retained earnings, end of year..................................... $ 17,834
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net income $ 38,081
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................. 52,544
Amortization.................................................. 2,897
(Gain) on sale of equipment................................... (3,006)
(Increase) decrease in:
Accounts receivable, trade.................................... (4,947)
Deposits...................................................... (9,310)
Inventories................................................... (1,200)
Increases (decreases) in:
Accounts payable--Communication Site Services, Inc. .......... 94,205
Accounts payable.............................................. (54)
Accrued expenses.............................................. 1,605
Customer deposits............................................. 7,914
---------
Net cash provided by operating activities......................... 178,729
---------
Cash flows from investing activities:
Proceeds from sale of equipment................................. 4,000
Purchase of equipment and property.............................. (226,174)
---------
Net cash used by investing activities............................. (222,174)
---------
Cash flows from financing activities:
Payments on notes payable....................................... (35,590)
Loan proceeds................................................... 133,500
Stockholder distributions....................................... (64,077)
---------
Net cash provided by (used in) financing activities............... 33,833
---------
Net decrease in cash.............................................. (9,612)
Cash and cash equivalents, beginning of year...................... 15,927
---------
Cash and cash equivalents, end of year............................ $ 6,315
=========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
Business Activity
The Company's primary business activity is leasing air space on transmission
towers.
Revenue and Cost Recognition
The Company recognizes revenues on a monthly basis under the terms of signed
lease contracts.
Cost of sales include all tower repairs, commission expense, land leases,
engineering costs and directly related depreciation costs. Selling, general
and administrative costs are charged to expense as incurred.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash equivalents includes
all highly liquid investments with an original maturity of three months or
less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Accounts Receivable
Management believes that all accounts receivable are collectible; therefore,
no allowance for uncollectible accounts has been established. Accounts which
are deemed to be uncollectible are charged as an expense when that
determination is made.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for on
the accelerated method over the estimated useful lives of the assets as
follows:
<TABLE>
<CAPTION>
<S> <C>
Office equipment................. 5-7 years
Buildings and improvements....... 10-15 years
Towers and improvements.......... 10 years
Machinery and equipment.......... 5 years
</TABLE>
Certain assets are pledged as security for loan obligations. See Note 3
below.
Loan Fees and Organizational Costs
Loan fees are amortized using the straight-line method over the length of
the loan. Organizational costs are amortized using the straight-line method
over 60 months.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in the financial statements.
F-71
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Office equipment................................................ $ 1,912
Towers & improvements........................................... 288,998
Machinery and equipment......................................... 321
Buildings and improvements...................................... 180,309
Land............................................................ 145,974
---------
617,514
Less: accumulated depreciation................................ (114,050)
---------
$ 503,464
=========
</TABLE>
Total depreciation expense is $52,544 of which $50,311 is included in the
cost of goods sold for the year ended December 31, 1996.
NOTE 3--NOTES PAYABLE:
Notes payable consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments of
$4,005, including interest at 9.25 percent through December,
2000. Secured by real estate with a net book value of $127,926
at year end................................................... $189,917
Note payable to bank, payable in monthly installments of
$2,432, including interest at 9.25 percent through May, 2003.
Secured by a real estate with a net book value of $134,151 at
year end...................................................... 140,987
Note payable to bank, payable in monthly installments of $359,
including interest at 9.5 percent through June, 2016. Secured
by real estate with a net book value of $163,280 at year end.. 38,391
--------
Total notes payable.......................................... 369,295
Less: current portion........................................ (49,436)
--------
Long-term debt portion....................................... $319,859
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
<S> <C>
1998................................ $ 54,212
1999................................ 59,543
2000................................ 65,184
2001................................ 67,393
Thereafter.......................... 73,527
--------
$319,859
========
</TABLE>
F-72
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
NOTE 4--RELATED PARTY TRANSACTIONS:
The Company has common ownership with Communication Site Services, Inc.
During the year, certain expenses were paid and revenues received in behalf of
Communication Site Service, Inc. The net of these transactions are reflected
in Segars Communication Group, Inc.'s books as a payable of $143,377 to
Communication Site Service Inc., at December 31, 1996.
NOTE 5--SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year ended December 31, 1996, for interest expense is
$29,911.
Significant Non-Cash Transactions: none.
During 1996, the Company obtained financing for two new notes totalling
$138,500. Loan costs were deducted from the note balances providing for net
cash loan proceeds of $133,500.
F-73
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
January 9, 1998
To the Stockholders of
Segars Communication Group, Inc.
Ocala, Florida
We have audited the accompanying balance sheet of Segars Communication
Group, Inc. (an S corporation) as of December 31, 1995, and the related
statements of income, retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted audited
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
support 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 audit provides 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 Segars Communication
Group, Inc. as of December 31, 1995, and the results of operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Robson, Scribner & Stewart, P.A.
_____________________________________
ROBSON, SCRIBNER & STEWART, P.A.
Certified Public Accountants
F-74
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 15,927
Accounts receivable, trade....................................... 833
Inventories...................................................... 8,723
--------
Total current assets........................................... 25,483
Land, property and equipment:
Land, property and equipment..................................... 393,941
Less: accumulated depreciation................................... 63,112
--------
Net property and equipment..................................... 330,829
Other assets:
Deposit.......................................................... 1,785
Intangible assets, net........................................... 7,211
--------
Total other assets............................................. 8,996
--------
Total assets................................................. $365,308
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 54
Accounts payable--Communication Site Services, Inc. ............. 49,172
Customer deposits................................................ 1,911
Accrued expenses................................................. 2,382
Current portion of notes payable................................. 38,220
--------
Total current liabilities...................................... 91,739
Long-term debt, net of current portion............................. 228,166
Loan payable, stockholder.......................................... 65,450
--------
Total liabilities.............................................. 385,355
Stockholders' equity:
Common stock, $1 par value, 200 shares issued and outstanding.... 200
Retained earnings (deficit)...................................... (20,247)
--------
Total stockholders' equity (deficit)........................... (20,047)
--------
Total liabilities and stockholders' equity................... $365,308
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales.......................................................... $ 85,871
Cost of sales...................................................... 52,634
--------
Gross profit..................................................... 33,237
--------
Operating expenses:
Advertising...................................................... 600
Amortization..................................................... 1,897
Bank charges..................................................... 30
Depreciation..................................................... --
Dues and subscriptions........................................... --
Entertainment.................................................... --
Interest......................................................... 25,913
Insurance........................................................ 5,565
Office supplies and expenses..................................... 51
Penalties........................................................ 42
Professional fees................................................ 5,608
Repairs and maintenance.......................................... 8,053
Rent............................................................. --
Taxes and license................................................ 2,914
Telephone........................................................ 786
Travel........................................................... --
Utilities........................................................ 1,910
Vehicle expense.................................................. --
--------
Total operating expenses....................................... 53,369
--------
Income (loss) from operations...................................... (20,132)
Other income (expenses):
Contributions.................................................... --
Donations........................................................ (6,970)
Gain on sale of equipment........................................ --
Miscellaneous income............................................. 112
--------
Net other income (expenses).................................... (6,858)
--------
Net income (loss)................................................ $(26,990)
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Retained earnings, beginning of year............................... $ 6,743
Net loss........................................................... (26,990)
--------
Retained earnings, end of year..................................... $(20,247)
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-----------
<S> <C>
Cash flows from operating activities:
Net loss $(26,990)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................... 44,100
Amortization............................................... 1,897
(Gain) on sale of equipment................................ --
(Increase) decrease in:
Accounts receivable, trade................................. (833)
Deposits................................................... 305
Inventories................................................ (1,225)
Increases (decreases) in:
Accounts payable--Communication Site Services, Inc. ....... 31,609
Accounts payable........................................... (426)
Accrued expenses........................................... --
Customer deposits.......................................... 1,911
--------
Net cash provided by operating activities...................... 50,348
--------
Cash flows from investing activities:
Proceeds from sale of equipment.............................. --
Purchase of equipment and property........................... (40,799)
--------
Net cash used by investing activities.......................... (40,799)
--------
Cash flows from financing activities:
Payments on notes payable.................................... (28,513)
Loan proceeds................................................ 50,000
Stockholder distributions.................................... (25,900)
--------
Net cash provided by (used in) financing activities............ (4,413)
--------
Net decrease in cash........................................... 5,136
Cash and cash equivalents, beginning of year................... 10,791
--------
Cash and cash equivalents, end of year......................... $ 15,927
========
</TABLE>
See independent auditors' report.
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
Business Activity
The Company's primary business activity is leasing air space on transmission
towers.
Revenue and Cost Recognition
The Company recognizes revenues on a monthly basis under the terms of signed
lease contracts.
Cost of sales include all tower repairs, commission expense, land leases,
engineering costs and directly related depreciation costs. Selling, general
and administrative costs are charged to expense as incurred.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash equivalents includes
all highly liquid investments with an original maturity of three months or
less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Accounts Receivable
Management believes that all accounts receivable are collectible; therefore,
no allowance for uncollectible accounts has been established. Accounts which
are deemed to be uncollectible are charged as an expense when that
determination is made.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for on
the accelerated method over the estimated useful lives of the assets as
follows:
<TABLE>
<CAPTION>
<S> <C>
Office equipment................. 5-7 years
Buildings and improvements....... 10-15 years
Towers and improvements.......... 10 years
Machinery and equipment.......... 5 years
</TABLE>
Certain assets are pledged as security for loan obligations. See Note 3
below. Assets which have not been put into operational use as of December 31,
1995 are carried at cost as equipment.
Loan Fees and Organizational Costs
Loan fees are amortized using the straight-line method over the length of
the loan. Organizational costs are amortized using the straight-line method
over 60 months.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in the financial statements.
F-79
<PAGE>
SEGARS COMMUNICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Towers & improvements........................................... $ 228,303
Machinery and equipment......................................... 2,600
Buildings and improvements...................................... 18,064
Land............................................................ 144,974
---------
393,941
Less: accumulated depreciation................................ (63,112)
---------
$ 330,829
=========
</TABLE>
Total depreciation expense is $44,100, which is included in the cost of
goods sold for the year ended December 31, 1995.
NOTE 3--NOTES PAYABLE:
Notes payable consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments of $4,005,
including interest at 9.25 percent through December 2000.
Secured by real estate with a net book value of $159,484 at
year end....................................................... $216,386
Note payable to bank, payable in monthly installments of $2,432,
including interest at 9.25 percent through May 2003. Secured by
a real estate with a net book value of $57,874 at year end.
This amount represents the first construction draw first draw
taken.......................................................... 50,000
--------
Total notes payable........................................... 266,386
Less: current portion......................................... (38,220)
--------
Long-term debt portion........................................ $228,166
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
<S> <C>
1997................................ $ 48,747
1998................................ 53,452
1999................................ 43,839
2000................................ 42,036
2001................................ 40,092
--------
$228,166
========
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS:
The Company has common ownership with Communication Site Services, Inc.
During the year, certain expenses were paid and revenues received in behalf of
Communication Site Service, Inc. The net of these transactions are reflected
in Segars Communication Group, Inc.'s books as a payable of $49,172 to
Communication Site Service Inc., at December 31, 1995.
NOTE 5--SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year ended December 31, 1995, for interest expense is
$25,913.
Significant Non-Cash Transactions: none
F-80
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THOSE
TO WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 15
The Exchange Offer........................................................ 26
Use of Proceeds........................................................... 34
Reorganization and Prior S Corporation Status............................. 34
Capitalization............................................................ 35
Unaudited Pro Forma Condensed Consolidated Financial Statements........... 36
Selected Historical Financial Data........................................ 40
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 42
Industry Overview......................................................... 51
Business.................................................................. 55
Management................................................................ 67
Certain Transactions...................................................... 72
Ownership of Capital Stock................................................ 74
Description of Capital Stock.............................................. 76
Description of Credit Facility............................................ 81
Description of Exchange Notes............................................. 83
Certain United States Federal Income Tax Considerations................... 107
Book Entry; Delivery and Form............................................. 108
Plan of Distribution...................................................... 110
Legal Matters............................................................. 111
Independent Accountants................................................... 111
Available Information..................................................... 111
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
--------------
PROSPECTUS
--------------
SBA Communications
Corporation
OFFER TO EXCHANGE ITS
12% SENIOR DISCOUNT
NOTES DUE 2008 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, FOR
ANY AND ALL OF ITS OUTSTANDING 12%
SENIOR DISCOUNT NOTES DUE 2008
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Florida Business Corporation Act (the "FBCA"), a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision, or failure to act unless (i) the director
breached or failed to perform his duties as a director and (ii) the director's
breach of, or failure to perform, those duties constitutes: (1) a violation of
the criminal law, unless the director had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful, (2) a transaction from which the director derived an improper
personal benefit, either directly or indirectly, (3) a circumstance under
which an unlawful distribution is made, (4) in a proceeding by or in the right
of the corporation to procure a judgment in its favor or by or in the right of
a stockholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or stockholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A
corporation may purchase and maintain insurance on behalf of any director or
officer against any liability asserted against him or her and incurred by him
or her in his or her capacity or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the FBCA.
The Articles of the Company provide that the Company shall, to the fullest
extent permitted by applicable law, as amended from time to time, indemnify
all officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
+3.1 --Articles of Incorporation, as amended, of SBA Communications Corporation.
+3.2 --Amended and Restated Statement of Designation of SBA Communications
Corporation.
+3.3 --By-Laws of SBA Communications Corporation.
+4.1 --Indenture, dated as of March 2, 1998, between SBA Communications Corporation
and State Street Bank and Trust Company, as trustee, relating to $269,000,000 in
aggregate principal amount at maturity of 12% Senior Discount Notes due 2008.
+4.2 --Specimen Certificate of 12% Senior Discount Notes due 2008 (the "Private
Notes") (included in Exhibit 4.1 hereto).
+4.3 --Specimen Certificate of 12% Senior Discount Notes due 2008 (the "Exchange
Notes") (included in Exhibit 4.1 hereto).
+4.4 --Registration Rights Agreement, dated as of March 2, 1998, between SBA
Communications Corporation and BT Alex. Brown Incorporated and Lehman Brothers
Inc.
+5.1 --Opinion of Latham & Watkins regarding the validity of the Exchange Notes.
+5.2 --Opinion of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., regarding the
validity of the Exchange Notes.
+10.1 --SBA Communications Corporation Registration Rights Agreement dated as of March
5, 1997, among the Company, Steven E. Bernstein, Ronald G. Bizick, II and Robert
M. Grobstein.
+10.2 --SBA Communications Corporation Registration Rights Agreement dated as of March
6, 1997, among the Company and the Preferred Shareholders, as defined therein.
+10.3 --SBA Communications Corporation Shareholders Agreement dated as of March 6,
1997, among the Company, Steven E. Bernstein and the Preferred Shareholders, as
defined therein.
+10.4 --$3,500,000 Promissory Note dated as of March 8, 1997 of Steven E. Bernstein in
favor of the Company.
+10.5 --Pledge and Security Agreement dated as of March 8, 1997, between the Company
and Steven E. Bernstein.
+10.6 --Warrant to Purchase 402,500 Shares of Class A Common Stock of SBA
Communications Corporation dated March 6, 1997.
+10.7 --Credit Agreement dated as of August 8, 1997, among the Company, BankBoston,
N.A., First Union National Bank and Fleet National Bank.
+10.71 --Credit Agreement Amendment No. 2 among the Company, BankBoston, N.A., Banque
Paribas, First Union National Bank, Fleet National Bank, Lehman Commercial Paper
Inc. and Suntrust Bank, Central Florida, N.A.
+10.75 --Amended and Restated Credit Agreement dated as of June 29, 1998, among SBA
Telecommunications, Inc., BankBoston, N.A., First Union National Bank and Fleet
National Bank.
+10.8 --Employment Agreement dated as of January 1, 1997, between the Company and
Ronald G. Bizick, II.
+10.9 --Employment Agreement dated as of January 1, 1997, between the Company and
Robert M. Grobstein.
+10.10 --Employment Agreement dated as of March 14, 1997, between the Company and
Jeffrey A. Stoops.
+10.105 --Employment Agreement dated as of June 15, 1998, between the Company and Michael
N. Simkin.
+10.11 --Stock Option Agreement dated as of March 5, 1997, between the Company and
Ronald G. Bizick, II.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
+10.12 --Stock Option Agreement dated as of March 5, 1997, between the Company and
Robert M. Grobstein.
+10.125 --Incentive Stock Option Agreement dated as of June 15, 1998 between the Company
and Michael N. Simkin.
+10.13 --Nonqualified Stock Option Agreement-Revised dated March 14, 1997, between the
Company and Jeffrey A. Stoops.
+10.14 --SBA Communications Corporation Subordination Agreement dated as of August 8,
1997, among the Company, the holders of in excess of the 73% of the Company's
Series A Convertible Preferred Stock, and BankBoston, N.A.
+10.15 --Purchase and Sale Agreement, dated July 22, 1997, by and among SBA Towers
Florida, Inc., SBA Construction Acquisition, Inc., Communication Site Services,
Inc., Segars Communication Group, Inc., Robert Segars and Denise Segars.
+12.1 --Statement of Computation of Ratio of Earnings to Fixed Charges.
+21.1 --Subsidiaries of SBA Communications Corporation.
+23.1 --Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1).
23.2 --Consent of Arthur Andersen LLP
23.3 --Consent of Robson, Scribner & Stewart, P.A.
+24.1 --Power of Attorney of SBA Communications Corporation (included on signature page
to this Registration Statement on Form S-4).
+25.1 --Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture
Act of 1939 of State Street Bank and Trust Company.
+27.1 --Financial Data Schedule.
+99.1 --Form of Letter of Transmittal and related documents to be used in conjunction
with the Exchange Offer.
</TABLE>
- --------
+ Previously filed.
(b) Financial Statement Schedules:
Schedule II. Valuation of Qualifying Accounts.
II-3
<PAGE>
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions described under Item 20 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim of indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes (i) to respond to requests for
information that is incorporated by reference into this Prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This undertaking also includes documents filed
subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
The undersigned Registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement (notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement); and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the undersigned undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the application form.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that every prospectus: (i) that
is filed pursuant to the immediately preceding paragraph or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes to remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the Exchange Offer.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOCA
RATON, STATE OF FLORIDA ON AUGUST 12, 1998.
SBA Communications Corporation
/s/ Steven E. Bernstein
By: _________________________________
STEVEN E. BERNSTEIN
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of SBA Communications Corporation, a Florida corporation (the
"Company"), for himself and not for one another, does hereby constitute and
appoint Jeffrey A. Stoops and Robert M. Grobstein and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement with
respect to the proposed issuance, sale and delivery by the Company of 12%
Senior Discount Notes due 2008, or any registration statement for this
offering that is to be effective upon the filing pursuant to rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND AS OF THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board of
_________________________________ Directors, President and Chief August 12, 1998
STEVEN E. BERNSTEIN Executive Officer (Principal
Executive Officer)
/s/ Robert M. Grobstein Chief Financial Officer
_________________________________ (Principal Financial and August 12, 1998
ROBERT M. GROBSTEIN Accounting Officer)
* Director
_________________________________ August 12, 1998
DONALD B. HEBB, JR.
* Director
_________________________________ August 12, 1998
C. KEVIN LANDRY
* Director
_________________________________ August 12, 1998
RICHARD W. MILLER
/s/ Robert M. Grobstein
*By: ____________________________
ROBERT M. GROBSTEIN
ATTORNEY-IN-FACT
August 12, 1998
</TABLE>
II-6
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND FROM END OF
PERIOD EXPENSES RESERVES PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1995............. $ -- $572,751 $ -- $ 572,751
December 31, 1996............. $ 572,751 $451,349 $ -- $1,024,100
December 31, 1997............. $1,024,100 $163,416 $679,248 $ 508,268
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+3.1 --Articles of Incorporation, as amended, of SBA Communications
Corporation.
+3.2 --Amended and Restated Statement of Designation of SBA
Communications Corporation.
+3.3 --By-Laws of SBA Communications Corporation.
+4.1 --Indenture, dated as of March 2, 1998, between SBA
Communications Corporation and State Street Bank and Trust
Company, as trustee, relating to $269,000,000 in aggregate
principal amount at maturity of 12% Senior Discount Notes due
2008.
+4.2 --Specimen Certificate of 12% Senior Discount Notes due 2008
(the "Private Notes") (included in Exhibit 4.1 hereto).
+4.3 --Specimen Certificate of 12% Senior Discount Notes due 2008
(the "Exchange Notes") (included in Exhibit 4.1 hereto).
+4.4 --Registration Rights Agreement, dated as of March 2, 1998,
between SBA Communications Corporation and BT Alex. Brown
Incorporated and Lehman Brothers Inc.
+5.1 --Opinion of Latham & Watkins regarding the validity of the
Exchange Notes.
+5.2 --Opinion of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.,
regarding the validity of the Exchange Notes.
+10.1 --SBA Communications Corporation Registration Rights Agreement
dated as of March 5, 1997, among the Company, Steven E.
Bernstein, Ronald G. Bizick, II and Robert M. Grobstein.
+10.2 --SBA Communications Corporation Registration Rights Agreement
dated as of March 6, 1997, among the Company and the Preferred
Shareholders, as defined therein.
+10.3 --SBA Communications Corporation Shareholders Agreement dated
as of March 6, 1997, among the Company, Steven E. Bernstein
and the Preferred Shareholders, as defined therein.
+10.4 --$3,500,000 Promissory Note dated as of March 8, 1997 of
Steven E. Bernstein in favor of the Company.
+10.5 --Pledge and Security Agreement dated as of March 8, 1997,
between the Company and Steven E. Bernstein.
+10.6 --Warrant to Purchase 402,500 Shares of Class A Common Stock of
SBA Communications Corporation dated March 6, 1997.
+10.7 --Credit Agreement dated as of August 8, 1997, between the
Company, BankBoston, N.A., First Union National Bank and Fleet
National Bank.
+10.71 --Credit Agreement Amendment No. 2 among the Company,
BankBoston, N.A., Banque Paribas, First Union National Bank,
Fleet National Bank, Lehman Commercial Paper Inc. and Suntrust
Bank, Central Florida, N.A.
+10.75 --Amended and Restated Credit Agreement dated as of June 29,
1998, among SBA Telecommunications, Inc., BankBoston, N.A.,
First Union National Bank and Fleet National Bank.
+10.8 --Employment Agreement dated as of January 1, 1997, among the
Company and Ronald G. Bizick, II.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
-------- ----------- ----
<C> <S> <C>
+10.9 --Employment Agreement dated as of January 1, 1997, between
the Company and Robert M. Grobstein.
+10.10 --Employment Agreement dated as of March 14, 1997, between the
Company and Jeffrey A. Stoops.
+10.105 --Employment Agreement dated as of June 15, 1998, between the
Company and Michael N. Simkin.
+10.11 --Stock Option Agreement dated as of March 5, 1997, between
the Company and Ronald G. Bizick, II.
+10.12 --Stock Option Agreement dated as of March 5, 1997, between
the Company and Robert M. Grobstein.
+10.125 --Incentive Stock Option Agreement dated as of June 15, 1998
between the Company and Michael N. Simkin.
+10.13 --Nonqualified Stock Option Agreement-Revised dated March 14,
1997, between the Company and Jeffrey A. Stoops.
+10.14 --SBA Communications Corporation Subordination Agreement dated
as of August 8, 1997, among the Company, the holders of in
excess of the 73% of the Company's Series A Convertible
Preferred Stock, and BankBoston, N.A.
+10.15 --Purchase and Sale Agreement, dated July 22, 1997, by and
among SBA Towers Florida, Inc., SBA Construction Acquisition,
Inc., Communication Site Services, Inc., Segars Communication
Group, Inc., Robert Segars and Denise Segars.
+12.1 --Statement of Computation of Ratio of Earnings to Fixed
Charges.
+21.1 --Subsidiaries of SBA Communications Corporation.
+23.1 --Consent of Latham & Watkins (included in their opinion filed
as Exhibit 5.1).
23.2 --Consent of Arthur Andersen LLP
23.3 --Consent of Robson, Scribner & Stewart, P.A.
+24.1 --Power of Attorney of SBA Communications Corporation
(included on signature page to this Registration Statement on
Form S-4).
+25.1 --Statement of Eligibility and Qualification (Form T-1) under
the Trust Indenture Act of 1939 of State Street Bank and
Trust Company.
+27.1 --Financial Data Schedule.
+99.1 --Form of Letter of Transmittal and related documents to be
used in conjunction with the Exchange Offer.
</TABLE>
- --------
+ Previously filed.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our reports (and to all references to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
August 12, 1998.
<PAGE>
EXHIBIT 23.3
----------------------------
ROBSON
----------------------------
SCRIBNER &
----------------------------
STEWART, P.A.
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Dennis J. Robson, CPA
Mary C. Scribner, CPA
Suzanne Stewart, CPA
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our Firm) included in or made a part of
this registration statement.
ROBSON, SCRIBNER & STEWART, P.A.
Ocala, Florida
August 12, 1998
307 N.E. 36th Avenue - Suite 1 . Ocala, FL 34470-1307 . Telephone (352) 694-4184
Telefax (352) 694-1170
MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS
